Do you have a complicated net worth like me? If so, it may be a good idea to look at a simple net worth.
A blogging buddy of mine named J from Budgets Are Sexy publishes his net worth figures every month. Although I generally advise against sharing all of one’s financial details, if the figures are reasonable, then that’s probably fine. Otherwise, the pitchforks will be focused on those who brazenly display obnoxious amounts of wealth with no regard for others. May Stealth Wealth live on in us all.
Remember, it’s more about what you have to show for your income, not so much about how much you make. Your net worth figure should be carefully protected as it grows.
Managing A Complicated Net Worth
J is in his early-to-mid 30s and has a family of four with a very respectable net worth of ~$470,000. Given he has around $37,000 in cash, the next time I see him at a conference boondoggle, of course I’m going to let him buy me a steak dinner! Instead of letting his cash earn nothing in a money market account, he might as well take care of his friends right?
What I noticed about his net worth picture is how pleasantly streamlined it is. He has no more than 10 financial accounts to track. Have a look.
After seeing J’s net worth chart, I got to thinking about how complicated my own net worth picture is. I used to track my net worth with an Excel spreadsheet every single month since 2000. It was pretty fun for a personal finance enthusiast like me, but it started getting a little cumbersome after my account total grew.
By the time I aggregated my accounts online in 2012 with Personal Capital, my favorite free financial tool online, I had 25 accounts to track. I felt relieved when I no longer had to write everything down and update figures every month. Now everything just gets updated automatically thanks to technology.
But something funny happens when you just leverage technology to track your net worth. You stop being as analytical with your finances as you used to because you just rely on technology to do everything for you. In other words, you start getting a little lazy. Laziness is a net worth killer because it prevents you from taking action when opportunities arise, e.g. refinancing a mortgage.
My net worth has grown since 2012, like I’m sure most of your net worths have. What I’m curious to know is how many financial accounts I have now, because I haven’t checked in over a year! Perhaps you’ll share your count as well.
FINANCIAL SAMURAI NET WORTH COMPOSITION
I spent about half an hour adding up all my accounts in my net worth and came up with a whopping 33 accounts to track. Then I realized several days later that I forgot to add in my deferred partner equity asset from my old employer. I had to go back into my chart, add the account, and re-publish the picture below to make it 34 accounts total.
The crazy thing is, I used to have four more accounts with First Republic Bank last year before I rolled my two CDs into a downpayment on a property and shutdown my unused money market and checking accounts. I wasn’t using First Republic Bank for anything except two 4%+, 5-year CDs until they expired.
Net Worth Composition
Upon fully digesting my net worth composition, I feel good knowing I’ve been able to build a diversified portfolio of assets that should hopefully grow and provide a consistent stream of passive income over time. But I’m also reminded that desire is the cause of suffering. There was a time when everything was so simple. I’d have a checking account, a savings account, a credit card and that’s it. I didn’t have to worry about a thing!
Nowadays, I’ve got to worry about my various tenants damaging my property, whether I’m overexposed to equities, if I have enough personal property insurance, if management of my private investments are doing all they can to grow, when is the right time to refinance my mortgages, and how to deploy the recurring cash flow from my business. Holy shitake mushroom! That’s a lot to think about.
How much is actually enough? I feel a little like the predator from the movie, Predator, who goes around the universe collecting trophies for fun until he gets slaughtered by Arnold. Seriously, what’s the point of amassing wealth beyond a comfortable figure? More accounts, more problems.
Since I’ve put together my net worth chart, I might as well do a net worth composition analysis like any good financial blogger would.
NET WORTH COMPOSITION ANALYSIS
After the Fed started raising interest rates in 2015, CDs and money market rates in 2020 are much more attractive. For example, CIT Bank is offering at least 1% in their money market account now versus <0.2% several years ago.
Cash flow is very strong from my online business because the cost structure is so low. My goal for the next twelve months is to build a constant personal $100,000 cash pile for peace of mind, investment opportunities, and more debt pay down.
After tracking my passive income streams earlier in the year, I came to the conclusion that I was severely neglecting my Lake Tahoe rental property, so I wrote a post about it to help boost its business.
So far so good with my latest rental property in SF that used to be my primary residence of 10 years. The tenants have paid on time with auto pay, although I noticed their crazy hyperactive dog is scratching up the wood floors and eating up my French doors when I came to pick up my mail one day. I told them to buy more carpeting and to stop smoking in the house per the lease. Thank goodness for a hefty rental deposit because fixing those doors might cost $4,000+.
My other SF rental property is fine too. I spent $225 like a donkey on 15 minutes worth of handyman work last quarter, but at least everything is fixed. The rent will go up by $100 this year per my contract. We signed a two year contract with a fixed price that is ending.
I’ve been happy investing in real estate crowdfunding since the investment returns are estimated at 15% a year with zero hassle or maintenance. I’m really excited about investing in the heartland of America where I think there will be a multi-decade trend due to lower cost living, lower valuations, and higher returns.
Investments As Part Of Net Worth
It’s been a bull market, thank goodness. The stock markets are close to record highs and everybody feels like an investment genius. But one day, things will not so be good and I’m prepared. My after tax investment portfolio underperformed the S&P 500 last year. The reason is I have a defensive portfolio of structured notes, muni bonds, and index funds.
My rollover IRA was quite volatile as I kept on punting in and out of stocks. Don’t do that. Just buy some index funds based on your desired equity weighting, and leave good enough alone.
I’ve allocated a good chunk of change to a venture debt fund. It provides an 9% preferred minimum and a target return profile of 15%-30%. I’ll take 9% after fees all day long.
Alternative Investments As Part Of Net Worth
The most exciting assets that could potentially produce the biggest returns are my alternative investments. Bulldog Gin teamed up with Campari for nationwide distribution. While my options in Personal Capital could be a four bagger in the next five years. They raised a $50 million Series D round, led by USAA, one of my favorite financial institutions today.
Furthermore, Personal Capital just crossed $1 billion in managed assets. This is a serious inflection point that will probably put them on the radar of larger financial institutions. It will provide even more legitimacy for new investors who wish to have their money professionally managed. In 2020, PC was purchased by Empower for up to $1 billions including incentives. My options went from $10,000 to $50,000!
I bought investments in Japanese real estate during the downturn. It was part of my year end bonus back in 2009. Those have turned out to be solid given everything has rebounded since 2009. But the Japanese private real estate portfolio has deleveraged and is winding down over the next three years. The IRR is roughly 23% over a seven year time frame. I’m so sad the money will finally be returned to me. It’s hard to find such a solid return anywhere.
Finally, I’m very excited about adding more money to my P2P lending account. I’ve beeen earning a completely passive 7.4% return a year over the past two years. Anything above 3X the risk free rate of return (~2% X 3 = 6%) with low risk is a home run for me. They currently advertise a 8.89% lending return for a diversified portfolio, but it’s better to be more conservative in your expected returns.
In 2021, I rank P2P lending as in last place for best passive income investments.
I almost forgot about my watch, sports memorabilia, and antiques collection. I’ve been a watch fan ever since I was a kid when I first got my Seiko Kinetic watch. About 10 years ago, I began collecting more expensive time pieces such as the Rolex GV Milgauss, Stainless Steel Daytona, Pam-142, Big Pilot, and Patek Philippe Complicated Perpetual Calendar to name a few. These watches just keep on going up in value as manufacturers raise their prices. For example, the Rolex GV Milgauss was $6,200 back in 2008, but the asking price is now $8,200.
I’ve got my dad’s Topps and Bowman baseball card collection since 1952 with some sweet Roberto Clementes, Mickey Mantles, Yogi Berra, and Hank Aarons included. I found half of his collection while rummaging through the garage about 20 years ago. They were exposed to the elements with silver fish bugs crawling all over them. So I meticulously cleaned the cards and put them in individual plastic bags and cases.
Finally, I’ve been collecting Chinese coins and art since 1997 when I studied abroad for six months (first image of this post). I’ve got some sweet pieces from the Qing, Song, Ming, Han, Qin, Zhou, and Shang Dynasties. I even have coins from the Warring States period (ca. 475-221 BCE), and I saw some of my pieces at the British Museum! Hmmm, maybe this collection is worth more than I thought.
YOUR NET WORTH NEEDS TO BE MANAGED
If you don’t properly stay on top of your net worth, there’s no way to properly optimize your wealth. I guarantee you that as your wealth grows, your net worth will get more complicated. You might even forget about some accounts where you have money or debt obligations.
Diversification is important, as evidenced by the pain many Americans experienced in 2008-2010 due to having most of their net worth in property. Manage your net worth today or end up with much less tomorrow.
Wealth Building Recommendation
One of the best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize your money.
Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts to manage my finances on an Excel spreadsheet. Now, I can just log into Personal Capital to see how all my accounts are doing, including my net worth. I can also see how much I’m spending and saving every month through their cash flow tool.
A great feature is their Portfolio Fee Analyzer, which runs your investment portfolio(s) through its software in a click of a button to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was hemorrhaging! There is no better financial tool online that has helped me more to achieve financial freedom. It only takes a minute to sign up.
Finally, they recently launched their amazing Retirement Planning Calculator that pulls in your real data and runs a Monte Carlo simulation to give you deep insights into your financial future. Personal Capital is free, and less than one minute to sign up. It’s one of the most valuable tools I’ve found to help achieve financial freedom.
About the Author:
Sam began investing his own money ever since he first opened a Charles Schwab brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college on Wall Street. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 35 largely due to his investments that now generate over six figures a year in passive income. Sam now spends his time playing tennis, spending time with family, and writing online to help others achieve financial freedom.