Happy New Year! The year 2017 is now behind us, and it’s time once again for my annual net worth post!
Why don’t I report our net worth more frequently?
I honestly don’t think it ads a lot of value to readers — markets are extremely volatile by their very nature. There’s always going to be big swings up and down due to market sentiment, not real business value.
A significant portion of our net worth is invested in either stocks or stock index funds, which means the value can fluctuate significantly throughout the year. Those large swings in value usually have very little to do with my own investing actions during the year.
It hardly seems fair to take credit for those changes, so I rarely report our net worth.
As the old saying goes, “A rising tide will lift all boats”, and 2017 was certainly a year for large tidal movements.
Year End Net Worth
In 2017, our net worth increased by $570,180. This is a fair result for the year — a 22.58% increase from our 2016 year end net worth.
That’s far more than I ever earned in a single year while I was working, and proof that assets can earn you far more than a job ever will.
Yes, our net worth has now surpassed $3 million dollars! When I first started this financial independence adventure back in 2015, we had a $2 million dollar net worth. That means we’ve seen (almost) a $1 million dollar net worth increase in just two years.
I’ve got to say it … that feels phenomenal!
Meanwhile, the S&P 500 returned 18.74% for the year. Before you poo-poo our annual return, please be reminded of the following facts:
- Our net worth includes the payment of taxes. We hold a lot of money in taxable accounts and pay real world taxes on our earnings. The S&P 500 does not.
- We hold 25% of our taxable accounts in cash right now. The S&P 500 return is a 100% invested figure.
- Fees are also included in our net worth number. Unlike the S&P 500 index, real people have to pay fees.
- We routinely take money from our taxable accounts to pay for living expenses. The S&P 500 number doesn’t include the cost of food, shelter, travel, and entertainment. Financially independent people need to eat, unlike an index.
Those four factors mask our real asset returns for the year. If we removed these factors from the equation, our return was significantly better than the S&P in 2017.
Considering the factors listed above, I’m very happy with our returns for the year. On average, we’ve beaten or matched the performance of the S&P 500 for the last 10 years (inclusive of fees, taxes, and uninvested cash).
I feel pretty comfortable with how we’re managing our money. Most personal finance blogs will tell you to only invest in index funds, and that’s generally good advice — most people should do exactly that.
I do things a little differently of course, holding a mix of stocks, index funds, preferred shares, and REITs.
Let’s dig into the details!
Taxable accounts 1 and 2 are our primary investment portfolios. This is where all our dividend income is generated. These taxable accounts are worth a combined $2,042,461.50.
We hold mainly individual stocks in these accounts, but also hold REITs, Preferred Shares, and cash in these accounts.
Actually A LOT of cash. 25% of our taxable accounts are in cash right now.
While we definitely could have earned more in 2017 by remaining fully invested, I prefer the safety of a large cash buffer right now.
Dividends from our taxable accounts amounted to $53,504.19 for the year. I’ll go into more detail on this figure in my December Dividend Income & Expenses post, but our annual dividend figure exceeded my goal of 10% dividend growth for 2017.
Hot damn! For awhile I didn’t think we’d actually make it, but a combination of new investments and dividend raises helped us meet the goal.
Tax Deferred Accounts
Tax Deferred Accounts 1, 2, and 3 are our various 401k’s and IRA’s. These tax deferred accounts contain mainly Vanguard Index funds, with a little bit of employer stock left over from when we worked at public companies.
Annual performance of these accounts was reasonable and mostly matched the relevant indices (minus some very small fees) for the given funds or ETF’s.
Tax Deferred Account 4 is a small IRA that I invest in individuals stocks. Performance in this account has been good. I started 2016 with $7,068.64, and that account has now ballooned to $14,513.06. That’s an average annual return of 52.65%
We continued to leave our tax deferred accounts alone in 2017. We don’t use them to fund our lifestyle.
At some point, when Mrs. Tako quits her job, our plan is to begin rolling over most of these funds into a Roth conversion ladder…when we finally fall into lower tax brackets.
For now, we just let these accounts grow.
Our cash account is a bank account mainly used for paying regular monthly bills.
The account was down to $8,370 by the end of the year, but this number is hardly significant. It does not include the massive amounts of cash we have in our taxable brokerage accounts… this is just a small cash account used for bill paying convenience.
The value of this account varies significantly as we pay bills like our mortgage, daycare, food, utilities, etc.
We regularly refill this account with cash from our taxable brokerage accounts (as necessary), mainly using passive dividend income.
Real Estate (90% of Zillow estimate)
The real estate category is the value of our home, as represented by a “best estimate” of our home equity.
As I’ve mentioned on the blog over the years, we live in a very high cost of living area. It’s a hot real estate market here and houses are expensive!
Zillow estimates the value of our home value at $839,335. That’s a 13.25% increase over 2016!
Like most people, I feel that Zillow’s zestimate values are a little inflated. So, like last year I used 90% of Zillow’s estimate for the value of our home. 90% of Zillow’s estimate is $755,401.50.
Using (recent) comparables from homes sold in my neighborhood, the 90% number seems like a fairly accurate representation of what we could sell our house for today.
We also continue to maintain a mortgage balance. The balance of that mortgage is now down to $287,110.42.
Subtracting one value from the other gives us $468,291.08 in home equity. A nice improvement over last year!
The year 2017 was definitely a year of rising tides, and like everyone else our net worth rose with the tide. Thanks Mr. Market!
We also had some incredible luck in 2017, as taxation changes strongly affected the value of a few investments. Southwest is a good example — We purchased shares of Southwest Airlines in September, and saw gains of 20% by the end of the year!
While net worth increases like these feel great, they are anything but usual. Eventually we’re going to have a down year, and our net worth will sink as a result. That’s just part of the investing game.
While stock prices marched higher in 2017, the underlying value of our businesses also grew… albeit at a pace far slower than market prices. The difference between these two values is concerning, as the S&P PE is now at historically very high levels.
Over time, I expect these two numbers will roughly converge — either because of market declines, or long periods of flat markets (allowing underlying business value to eventually catch up with market values).
As part of our FIRE plan I’m prepared to weather either eventuality.
Whatever the future brings, I wish everyone good luck in 2018!
[Image Credit: Flickr]