Do you keep track of your net worth? Your net worth is simply your assets minus your liabilities. It is a great way to measure your financial progress from year to year. Ideally, your net worth should increase every year, but real life rarely works out that way. There will be setbacks and your net worth will decrease once in a while; however, the general trend should be positive as you get older. If you’re not making positive progress over time, then there is a problem or two.
Tracking your net worth is especially important if your goal is financial independence and/or early retirement. That’s one way to find out if you’ve achieved your goal. Once your net worth exceeds 25x your annual expense, you are financially independent! Well, you should add some margin if you want to retire very early, but 25x is a great accomplishment for anybody.
Net Worth History
I’ve been tracking our net worth since 2006 and it’s great to see how much progress we made financially. This post was actually written back in 2016. Today, I’ll update it and see if there are any big changes since then. I will do this with percentages because I’m not ready to share the dollar value at this time. Let’s just say it’s over a million and under 5.
Okay, let’s breakdown of the RB40 household net worth. First, I’ll break it down by asset type. Then, I’ll do it again by tax categories.
RB40 household asset types
The biggest change from 2016 is our real estate and US stocks allocation. We sold our old home (condo) and moved into our rental duplex. The money was redeployed into real estate crowdfunding and stocks.
- Stocks (38% + 17%) – Most of our net worth is invested in stocks. Most of this is in US stocks, but a good portion is invested in international markets.
- Bonds (9%) – I’m not a big fan of bonds. The interest is so low and will stay that way for a long time. At this point, I think it’s better to invest in stocks because we don’t plan to withdraw for at least 10 years. I’ll move most of this allocation to dividend stocks over the next few years.
- Real estate – This includes our primary residence, rentals, and 2 condos in Thailand. My parent lives in the condos. They are not investment, just a place to live. You can see a further breakdown in the next section.
- Cash/Money Market (4%) – Our cash allocation is a bit too high right now. We don’t need this much, but I hoarded cash a bit when the pandemic hit. I’ll invest this portion in real estate crowdfunding and stocks.
- Alternatives (6%) – This is really real estate. A big portion is invested in real estate crowdfunding. The rest is invested in REITs.
- Intellectual property (3%) – This is a place holder. It’s 3x the annual income from my online business.
- Pension (1%) – I have a very small pension from my engineering job. Once Mrs. RB40 retires, I’ll probably cash it out. The value won’t increase much even if I wait until 65.
- Others (0%) – Other assets such as art work and our vehicle. This is almost a negligible amount now. Our car is all banged up and it’s probably worth around $1,000.
The allocation looks okay, but I’ll continue to tinker with it. Over the next few years, I’ll decrease our bond and real estate allocation. I plan to sell our rental condo and move the money to real estate crowdfunding. Being a landlord is too much work for me at this point. We plan to take a year off to travel around the world after Mrs. RB40 retires in 2022. At that point, I need our investment to be very passive.
Taxable account: 17%
This is the investment account that we could access easily. Our dividend portfolio is here.
The taxable account is very important if you plan to retire early. You need to fund your retirement somehow and this account is more accessible than the tax-advantaged accounts. This portion of our net worth will help generate passive income to fund our early retirement.
These are our traditional IRAs and 401k accounts. I’ve been maxing out my 401k contribution for over 20 years and it is doing quite well. Most of the money here is invested in low-cost Vanguard stock and bond funds. After Mrs. RB40 retires, we will slowly roll the money over to our Roth IRAs. Building a Roth IRA ladder is a great way to minimize tax when you retire early.
Over the last few years, our tax-advantaged accounts grew significantly. Most of our savings were invested here to help minimize taxes.
Our Roth IRAs aren’t a big part of our net worth right now. We contribute the max every year, but the low contribution limits mean we can’t accumulate much in our Roth IRAs. This portion of our net worth should grow once we start building our Roth IRA ladder.
Rental Properties: 11%
Currently, we have 2 rental units. One is a condo and the other is a unit in our duplex. I’m planning to sell the rental condo soon. Also, we plan to take over both units at our duplex if our tenant leaves. We’ll need more space when our son is a teenager. So this category will go down to 0% at some point. I don’t want to be a landlord anymore because we plan to travel a lot more soon.
Primary residence: 6%
The biggest piece of most family’s net worth is their home. However, I don’t think that’s the right way to go. All that money is stuck in your home and you’ll have to pay property tax, insurance, repair, and maintenance every year. I think it’s better to live in a modest home and make your money work harder. That’s why our primary residence is just 6% of our net worth. Building equity is nice, but I like investing better. I’m not in a hurry to pay off the mortgage either.
Real estate crowdfunding: 3%
Several projects completed this year and I need to reinvest soon. I’ve been investing in real estate crowdfunding since 2017 and it’s going well so far. If they can come through this recession without too much problem, then I’ll trust them a lot more. If all goes well, then I plan to increase our investment at CrowdStreet to 10% of our net worth.
UTMA & 529 plan: 3%
RB40Jr’s college fund. I found out my father in law has another 529 account for him (not included here). These should be plenty to fund a 4-year degree at a state college when he’s 18. We don’t plan to contribute much additional money over the next 10 years.
Bank accounts: 0.5%
Our bank account looks a bit low percentage-wise. There is enough here to fund about 4 months of living expenses for us. We can withdraw from our taxable account if we need to.
Other assets: 4.5%
This one includes 2 condos in Thailand, our car, and artwork. My parent lives in the condo and rents it out occasionally. This condo would be a great home base for us when we relocate to Asia for a few years. I plan to live here and travel all around the region once RB40Jr goes to college. That’s about 10 years off, but we’ll have a preview in 2022. We’ll visit Asia for a year after Mrs. RB40 retires.
That’s about it. The only thing missing from here is Social Security benefits. That’s a long way off, though. I might not even be around to collect. Also, I didn’t count our other personal properties. They aren’t worth much and they are depreciating every day. There is no point including things like a computer, sofa, and TV.
How I track our net worth?
I track our net worth with an Excel spreadsheet. It is a good exercise to go through your finance at least once a month and see how all your investments are doing. I also use Personal Capital to get a quick snapshot, but I think it’s best to make your own spreadsheet. That way, you have all the history you remember to save.
That’s what our net worth looks like in 2020. US stocks have done very well over the past few years and our net worth benefited from the growth. Over the next 2 years, I plan to reduce our allocation in bonds and rental properties. The money will be redeployed in stocks and real estate crowdfunding.
The next big inflection point will be in 2022 when Mrs. RB40 retires. We’ll travel more and I will evaluate our asset allocation again. Life should be pretty stable for a while after that. In 2030, RB40Jr will be old enough to go to college. That will be another big change, but it is 10 years off. We’ll figure it out when it’s closer.
Alright, I hope you enjoyed a peek into our asset allocation. Have you gone through this exercise lately? The stock market has done quite well. You may need to rebalance if you haven’t done it in a long time.
How does your net worth look? What do you think about diversification?
Source: Retire By 40
Republished by Blog Post Promoter