Net Worth Optimization Exercise: Don’t Neglect Valuable Assets

Net Worth Optimization Exercise Everybody Should ConductMy tenants don't know this but I enjoy coming over to hang. I'm cooped up in my house working from 6am – 10am every morning, so it's a pleasure when real human beings reach out to see if I can take a look at a problem. While I'm there, I enjoy asking to see how they're doing.

One 26-year-old tenant told me he just hated his job, couldn't stand his micromanager, and wanted to be free. Well what do you know! Same here when I was your age buddy. Months later, he actually quit his job to become a deep sea fisherman up in Alaska. Anybody want to go with? I got the hookup.

The closer the relationship I can develop with my tenants, the less likely they'll screw me over. Don't all tenants want to just spend time with their landlords on a Saturday morning? Of course not! I'm a little crazy that way because I'm always looking for a story to uncover to share with all of you. It's sort of like being an investigative reporter, or Chip, from The Cable Guy.

Besides knowing how to fix things myself, there's a big reason why I'm always down to visit my rentals. I feel bad spending so little time thinking about my rental properties proportionate to their value. Yes, I killed myself when I was younger for the privilege to take some risk. But once you get on the right side of inflation, building wealth gets easier over the long run.

Rental property makes up around 30% of my net worth (40% if you include my primary residence), yet I often forget I even have rental properties because no attention is needed most of the time. Only when I get a rent check or a text to fix a leaky dishwasher valve do I realize, “Oh yeah! I got me some rentals. Sweet!”

Net Worth Optimization Exercise

I'd like everybody to list out their assets from most valuable as a percentage of net worth to least valuable. Now assign a percentage of time you spend thinking, maintaining, or getting smart about the asset class per week, month, or year. Finally, take the time you spend on each asset class and subtract its percent of total net worth. Wherever you are short, consider spending more time on that asset class.

Here's an example of my net worth optimization exercise, with corresponding thoughts.

Net Worth Optimization Exercise

Real estate (30% short): Real estate is a large portion of my net worth since real estate is the asset class I was most focused on accumulating in my 20s and 30s. Given the appreciation since the downturn and the decision to purchase a fixer in 2014, the overall weighting is at an upper limit of comfortability. Coming up 30% short is a big spread that needs narrowing, especially since we're so far into the recovery.

I plan to spend more time thinking about how I can better manage my risk during a downturn, while also diversifying my real estate holdings into cheaper, higher yielding areas in the heartland through real estate crowdfunding. So far I've been regularly paying down the highest interest rate mortgage while also building up a cash hoard. Prices are weakening in SF, and I want to be prepared to maybe buy another property before another major IPO.

Online business (30% Over): I'm spending most of my time on the online business because it's the most fun and has the most upside. If I didn't believe in the upside potential, I'd lower the time spent closer to 30%. However, blogging is the best business in the world with a high correlation with effort and reward. What other business is there that costs so little to run, can be done anywhere in the world, and doesn't require you to have to sell anything?  I strongly believe my effort will produce a greater return each year than every other asset class.

Public equities (6% Over): I'm spending more time thinking about public equities because I'm not bullish on stocks. The S&P 500 is expensive and I'm doubtful that Trump will be able to deliver on all his promises regarding healthcare and tax reform. Therefore, I've been busy trying to prudently reduce exposure, even though stocks are a small percentage of my net worth (~12%). Right now I've got a ~48% weighting in stocks in my public investing portfolio.

Public fixed income (Equal): I went from spending 0% of my time on fixed income with 0% exposure to spending 10% of my time and having 10% of my net worth in fixed income since the 2016 presidential election. I just love being able to return a highly probable 4% – 6% gross yield until maturity since my net worth growth target is only 4% a year. To earn a higher yield compared to my mortgages is a fantastic arbitrage I'm willing to play for as long as possible. Every week I'm looking for new California municipal bonds to buy. Related: The Case For Buying Bonds

Proper Asset Allocation Of Stocks And Bonds - NEW LIFE MODEL
One of several stock/bond allocation models. Click to see more.

Private investments (4% Short): After spending lots of time researching each private equity or private fund investment before investing, I tend to forget all about them until there is a quarterly performance update. Since I can't do anything about the funds due to a 5-10 year lock up, I spend my time on things which I can control, which is mainly my online business. I should probably spend a little more time thinking about new private investments since they fit my desire to protect myself from myself.

CDs (2% short): I used to love CDs given they were paying 4%+, 7+ years ago. Now, the best CDs are only paying ~2.5%. They should go higher as interest rates rise, but they aren't as tax efficient as municipal bonds, which are already yielding higher rates. I'm spending more time thinking about how to redeploy capital when my CDs expire. Related: CD Investment Alternatives

Recommended net worth allocation - Self Belief Model
One of several net worth allocation models. Click to see more.

Never Neglect Your Most Valuable Assets

You don't have to find parity with the value of your assets and the time spent on each asset. You just need to make sure your asset allocation is risk appropriate. If you've got one asset class that is dominating your net worth, then it's a good idea to spend more time getting smart about what's going on, especially since times are so good. When times turn bad it may be too late.

I'm a big proponent of tracking your net worth due to neglect. When we have a child to raise, elderly parents to take care of, a job to suffer through, a business to run, or a world to see, it's easy to lose track of our wealth. Once a quarter, go through the exercise of analyzing your net worth and time spent with each asset class. You might not end up taking action, but at least you'll become more aware of what you have.

Related: The Average Net Worth For The Above Average Person

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35 thoughts on “Net Worth Optimization Exercise: Don’t Neglect Valuable Assets”

  1. Hi Sam, I have only counted mutual funds and real estate. I will now look at other assets. Net worth just went up.
    Btw, you inspired me to create my blog.

  2. Jay @ Artfulmoney

    I have struggled with my investment strategy of late. My thought has been to focus on real estate and ignore my stock portfolio entirely for the last 5 years. The returns I have had in real estate have been incredible, and I cannot justify allocating funds to a less profitable investment. But, for the sake of diversification and a wider early retirement strategy, I will need to start looking at it seriously in the next 3 years.
    I have limited capital, and I am sure others have the same issue. It has forced me to be creative in the ways that I buy real estate to that I can avoid the 20% – 25% down, but it also makes me extremely cautious in tying up any cash.
    I am short on after tax stocks / bonds, over on real estate and pre-tax investing.

  3. Hey Sam – I like the bit about focusing on areas you can control – definitely keeps things in perspective and helps us not to get overly stressed out about investments which are locked up for awhile. On a related note I’ve bookmarked your articles on above average net worth and go back to them regularly to see how I’m doing (luckily holding above average). The DQYDJ guys have some good data as well on net worth which would be cool to reference in future articles.

  4. I spend roughly 60% of my time focused on building my business and 20% on building other marketable skills. The remainder goes to learning more about PF as an investment in me. This feels like an acceptable allocation for now.

  5. My greatest asset is my education and ability to practice medicine. Unfortunately early retirement wipes away most of the value from this asset. Hmmm…what is an MD supposed to do.

    I guess I will have to build up my other physical assets! Then the MD won’t matter as much.

      1. The medical school debt sets us back tremendously. For me in the 1990s, I owed 100K with public school loans that grew to 125K at 8.9-12% interest rates. I was dedicated to paying them off and therefore I didn’t have any savings till my mid 30s. The debt today for an average med student is much higher…..250K. So no money for down payment for a home etc. No emergency fund till much later in life. No savings for kid’s college fund till later. We spend more time on documenting our work in clunky electronic medical records than we do seeing patients. We spend at least 1/4 of our day trying to get prior authorizations for medications, procedures, imaging. We have to hire experts in billing as reimbursement is extremely complicated. We are required to spend increasing amounts of money on medical malpractice and continuing medical education. Many primary care physicians no longer see their patients in the hospital due to hospitalists which leaves a gap in care which is unsatisfactory for the physician and the patient. We are being told how to manage patients instead of being allowed to take each patient’s needs/wants into consideration. We are working longer and harder in the clinic while not being able to spend time with our patients and receiving less reimbursement. We work in an extremely regulated environment. The patients are not happy with this system either which compounds the unhappiness. We lose an average of 400 physicians a year to suicide in the US. With that said, in a less stressful environment, I think we physicians would enjoy working into our later years, including volunteering as many do, depending on our own personal health situation.

  6. Outside of our primary residence, which accounts for about 30% of our net worth, most of our net worth is in equities as well. The portfolios are diversified and spread across both taxable and IRA accounts, but we still run the risk of losing some of the net worth in a major market crash. We structured our IRA’s to focus on growing companies with healthy dividends to hedge against some of the downside risk if a correction were to occur. We were also considering a rental down the road, but with the real estate crowdfunding options available now we may explore that option to diversify our portfolio further.

  7. Ms. Conviviality

    Hypothetically, if there was an investment that would provide 120-150% returns every 12 months without risk there isn’t a need to diversify investments, right? Worst case scenario is that the original amount invested is returned.

      1. Ms. Conviviality

        Just kidding, returns don’t exceed 100%…that would be some really funny money! Returns would be between 20-50% plus original investment is returned upon maturity (typically 12 months). Don’t want to say too much about the investments because returns wouldn’t be as lucrative if everyone got wind of these types of investments. What I can say is that the investments are cast offs from hedge funds. Not all cast offs provide the 20-50% returns because there are specific criteria to look for in selecting the investment. Actual returns are 80-100% but I’m splitting half the profits with a mentor for teaching me everything about these investments. There is a risk in losing money if the wrong investment is selected but once the right investment is identified and purchased, there’s no way to lose money.

  8. I tend to track my net worth once a month and only perform any re-balancing once per year. I’m under the belief that the less I fiddle around with my asset allocation, the better it will perform in the long run. I’m currently only invested in stocks and bonds at the moment, but I’d like to look into real estate more moving forward. Great article.

  9. Wall Street Playboys

    One thing we will add (we know you’re in good shape) but including time spent on your health should be included in that chart.

    If your health goes away all of the active money goes away as well. Health > wealth at all times (without it you can’t get rich!)

    Would be interested to see how much time is spent on health related items: exercise/research on correct foods etc.

    1. I spend more time on health exercise/foods on the weekdays, but almost zero on the weekends.

      In terms of financial assets, I’m fairly leveled between my home equity, retirement accounts and brokerage. The only one I do not spend my time on is my 401k account because I’m in a target retirement fund that rebalances as you age. Creative optimization chart btw!

      1. Do you own a house? I find solace and exercise in yard work during the weekends. During the week, I bike commute. It’s also a very frugal old school gym membership, and much more convenient.

  10. I have yet to make a dime on my blog so I view at is more of a hobby than an asset. I’ll have more time to give it proper attention once I pull the plug on my career.

    Most of our net worth is tied up in index funds. I spend little time thinking about these other than what order am I going to cash these out during early retirement. We also have substantial net worth in our home, but given the illiquid nature of it, I don’t even count it as an asset (it’s there, just not something I can cash out on easily without selling or taking out a loan).

  11. Our NW is nearly equally distributed between our primary home and our investments in various index funds. I spend next to no time thinking about either (other than when something in the house craps out, or the few minutes I need to spend doing mega backdoor conversions), and almost all my time working on my blog. My blog has a NW of zero. If I drew a chart like yours it would look rather weird.

  12. Steve Rosenthal

    Sam, I believe this is a difficult read for most of us in the general workplace making a living and spending most of our time working, and the rest of time trying to squeeze quality time with the family. For most of us, huge aspects of our wealth is tied up in a 401K or other retirement vehicles which are clearly public equity dominated due to a growth strategy for retirement.

    It is interesting that you are skewing towards a larger bond portfolio in a rising interest rate environment which is not what most advisors would recommend. In fact, most advisors would tell you to stay put in index funds and resist the urge to move away while rebalancing periodically to keep on track.

    After building up some cash, I am now looking to start to put it to use in passive investments, but again with such little time to commit, it would need to be in the real estate crowdfunding type of investment, or the dividend strategy. I am wondering what you would recommend.

    1. Hi Steve,

      A lot of passive income building comes down to how badly you want to be free from work. I wanted it badly, since month one out of college in 1999 because the work hours (5:30am – 7:30pm++) were brutal. I was unhappy, but also realized I bet not blow my job opportunity.

      After the 2008-2009 financial crisis, I knew I had to make some contingency plans. That was too scary of a time. So I decided to write for 1-2 hours before work and another 1-2 hours after work every day on FS to discover new things.

      The X Factor is real, if you keep at it for a long enough period of time. I promised myself I will always publish at least 3X a week for 10 YEARS. Only two more years to go!

      On the bright side, if you are having trouble finding the time to commit, it rationally means work/life balance is pretty good, or at least you don’t find work miserable. That is a great thing b/c many people aren’t as fortunate.

      I’ve aggressively built up a bond portfolio ($300,000+ from $0) and a real estate crowdfunding portfolio ($260,000 from $0) over the past six months. I don’t want to spend more time at my age managing property. Instead, I’d rather passively earn income.

      How bad do you want to be free?


      Ranking The Best Passive Income Streams (using multiple variables)

      How To Build Passive Income For Financial Independence

      PS: A Note on bonds from Raoul Pal that makes sense:

      “The big driver of CPI, or headline inflation, is, in fact, oil prices,” Pal said. “Oil prices is the key thing that moves the CPI up and down, which is why we often look at core CPI, or CPI ex-energy. But the headline CPI that the markets are looking at and focused on right now is, in fact, CPI that’s taken into account the price of oil.”

      He continued: “So if we look at the year-on-year rate of change of oil — again, remember we are comparing low oil prices from last year when it hit down to $30 a barrel. And where it is now, which is around $50 a barrel, the rate of change is huge… If you remember this point last year March, April, May, June, the oil price started picking up, so that would mean the year-on-year rate of change of oil is going to start dropping dramatically.”

      He’s calling for CPI to peak out “right about now.” He sees CPI “rapidly” falling from current levels to 1%.

      It’s not just inflation data, though. Pal thinks economic data, such as the Institute of Supply Management’s (ISM) manufacturing index, is going to start weakening.


  13. I haven’t spend much time on the rentals this month, but I did a bunch of minor repairs in February. Our current tenants are awesome. They pay the rent on time and they are very low maintenance. I know them a bit, but not that deep. It’s tough for me to talk to them much. They don’t want to hang out with me. They are busy with their lives.
    I like the spreadsheet. Personally, I probably spend too much time on my blog. It isn’t a huge part of our net worth, but it does bring in a significant portion of our income. Should spend more time on public equities too..

  14. Very interesting way to think about allocating your own personal resources (i.e. time and effort) towards the goal of building and preserving financial resources. I’m going to do that myself, in the interests of “scoring” and prioritizing my own efforts going forward.

    I’m probably overthinking (?) but I’m wondering if it would help to add columns for:

    “Estimated ROI” – what’s your efficiency? where do you get the most bang for the buck for thinking about this more, either in upside potential or protection against downside? Come up with some simple math to do the calculation, say your time is worth $1000 an hour. Assume 40 hours a week spent total on this “work”. Not sure if this is practical or not…

    “Deviation from Goal” – to track what % of your portfolio this asset class currently is, vs. where you want it to be – i.e. is there work that needs to be done here or not? No sense focusing on things that are already in good shape?

    “Minimum Effective Dose” – what’s the bare minimum amount of time needed to keep this effort going at desired ROI levels?

    Something to consider for that last one especially – since you’re gearing up to have kids / grow your family. Your available time / schedule / ability to think straight? That’s all about to change. Dramatically. Having a rough idea of where you’d cut back hours might come in handy, since you’re about to get a lot more time-crunched, and for a while at least, a lot more groggy and time-inefficient. If you suddenly had fewer productive + mentally sharp hours in your day, what gets cut from your list?

  15. I’m currently evaluating my net worth allocation. With a paid off house, about 30% of my net worth is tied to my primary residence. Although it’s not an asset I can currently generate income from, it can be turned into one when I choose to do so.

    I need to build a position in what I believe you call X-Factor. My focus will be the P2P lending space, specifically in real estate such as Peerstreet, and possibly Yieldstreet. I want all my investments to be location agnostic which is why I’m reluctant to invest in real estate directly.

    It’s difficult to justify time spent on the blog, especially in the early days. The time invested relative to any benefits is incredibly skewed.

  16. This is a zero sum game though. So where do you take time away from to spend more time on real estate?

    1. Is it? It is if you spend literally all of your time thinking about your assets and investments. But most people only spend a fraction of their time focusing on them. Spend more time overall thinking about one class and the same amount of time thinking about the others, and you’ve adjusted your “thought allocations” without letting any class suffer.

      1. So again, where does the time come from? I assumed the author didn’t want to spend anymore time per week working but just wanted to shift his focus. Yes, he could work more to get the percentage up but that means he is now taking time away from something else. Sleeping, tennis, Hawaii, etc. Any choice you make with how you spend your time is also a choice of how not to spend it.

        1. The time comes from other asset classes labeled “Over” in the difference column, which will always total 100%. In my case, I’ll take some time from Public Equities and Online Business and dedicate it to real estate.

          Not sure how sleeping, tennis, Hawaii etc entered the 100% time allocated focusing on your assets.

          1. Hey Sam, it will be interesting to see what your return will be by taking time away from those two areas to focus on real estate.

            The sleep, tennis thing was me responding to Jonathon who I believe was suggesting you just spend more time focusing on assets per week so you didn’t have to take time away from any specific asset. I was saying spending more total time per week thinking about your assets means you are now stealing time from your personal life.

  17. Brad -

    Great thoughts here. I find this exact same challenge – people focusing too much energy in lower production areas – with entrepreneurs also. It seems to be a common trap to neglect the highest profit areas without even notice you are doing so. Going through an exercise to track and align effort to the production (or profit) areas is a great idea!

  18. The Green Swan

    That’s an interesting exercise, I hadn’t really thought about it in that way before. Historically, it would be pretty simple for me since most all my assets were held in stock index funds. Although in the last year I took a good chunk out to invest in a small business. While it may represent ~20% of my net worth now, it is taking maybe 80% of my time. Although that probably isn’t unreasonable at this point since it is new and I am learning a lot as it gets up and running, while index funds are relatively hands-off investment vehicles by design.

  19. Go Finance Yourself!

    Very interesting take, Sam. My net worth is primarily held in stocks, which I spend a good deal of time on. I’ve also spent a lot of time on my blog the past 6 months, but given that it’s still in its infancy, it’s not yet counting towards my net worth. That will certainly change over time as it continues to grow.

    I’ve recently spent more time on stocks to evaluate if my strategy (primarily indexing with some good mutual funds mixed in) is the right one. It’s always interesting what you find out when you actually run the numbers. It’s been a fun exercise to go through and share on my blog recently.

  20. I do a review for allocation quarterly. I don’t spend much time on my investments either way sing I favor passive index funds, medium term bonds, and other primarily passive investments. Honestly if I spent more time I’d prolly end up being my own worst enemy.

  21. I am probably spending way more time on my blog than the value that it’s currently yielding. Hopefully it will pay off in the future and if not I would have gained new skill sets in the process that hopefully can help me in the future.

  22. Hey Sam, the bulk of my NW is allocated to real estate – 17% is our primary home, and another 38% in rental properties. Equities make up another 31%, and the rest is scattered amongst cash and notes (realtyshares and lending club).

    I haven’t spent much focus on the real estate lately as it’s pretty automated at this point. I use property managers, so I don’t do any of the fixes myself (which is fine by me…heh).

    But, after reading this, it’s made me reconsider looking at the going rental rates for some of my properties. The PMs don’t care to raise rents much because it’s an easier renewal for them, but I’m sure there has been some inflation in rental prices in both of my markets of San Diego and Las Vegas.

    Thanks for the reminder not to neglect this important cash flow!

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