2019 Year-End Net Worth Update
“Houston — We have liftoff!”
While 2018 was a rather ho-hum year when it came to stock market returns, 2019 was an entirely different story. 2019 was like being tied by the ankles to a rocket ship, and then getting launched into the atmosphere at 18,000 mph. It was a wild ride.
While ‘one more rotation around the sun’ is a rather absurd delineator of investing performance, returns in 2019 definitely moved the needle…
Year End Net Worth
In 2019, the Tako family’s net worth grew by 25%. At the end of 2019 we had a total net worth of $3,733,597. It was quite a “rocket ship” of a year!
A $4m net worth now seems like a realistic possibility!
After 2018’s decline, it’s really good to see solid performance from our investments again in 2019.
Taken into context against against the S&P 500 however, these returns might not seem particularly impressive…. but there are a few important facts to remember here:
- We live off of our portfolio. We routinely use money from our taxable accounts to pay for living expenses. The S&P 500 does not have to include the cost of food, shelter, travel, and entertainment. Financially independent people need to eat, unlike an index. Our annual expenses in 2019 were $74,001.
- We purchased a new car in 2019 with cash. The cost was $10,400.
- We pay taxes. A lot of taxes! A significant portion of our assets are held in taxable accounts, so we pay real-world taxes on our earnings. The S&P 500 doesn’t have to pay taxes.
- The S&P 500 is a 100% invested figure and thus has the potential for larger returns. At this time, we hold around 20% of our taxable accounts in cash. Cash earns very little, but it does provide incredible stability for a family with bills.
- Fees are also included in our net worth number. Unlike the S&P 500, real people have to pay fees.
Frankly, I’m extremely pleased with this number. This year’s ‘rotation around the sun’ provided incredible investing returns! This is our largest annual jump in net worth since I started keeping track!
Unfortunately such large increases are very far from the norm. I try to tell myself every day that Mr. Market could easily take this wonderful gift away at any time.
To put it simply, Mr. Market is just as likely to return -29% as he is a positive 29%. This past year we were just lucky to be gifted with a very positive result.
The Taxable Accounts
Taxable accounts 1 and 2 are our primary investment portfolios. These brokerage accounts hold nearly 2/3rds of our net worth. This is where the majority of our dividend income is generated. We mainly hold individual stocks in these accounts, but also plenty of cash, a couple REITs, and one remaining batch of Preferred Shares.
These two taxable accounts are now worth a combined $2,439,210.
Unfortunately, if you look at the year-over-year net worth change in our accounts, Taxable account 2 appears to languish with a mere 22% return. This unfortunate side effect happened because I withdrew cash heavily from this account in 2019. I paid for a lot of our living expenses, and the new car from this account.
Despite heavy cash usage in 2019, around 20% of our taxable accounts remain in cash .
Dividends from the taxable accounts amounted to $58,576 for the year. I went into more detail on this figure in my December 2019 Dividend Income & Expenses post.
The Tax Deferred Accounts
Tax Deferred Accounts 1, 2, and 3 are our various 401k’s and IRA’s. These tax deferred accounts are invested mainly in Vanguard Index funds, along with a little employer stock left over from when we both worked at public companies.
Annual performance of these accounts was reasonable considering the increases in relevant indexes (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. Unfortunately, performance in this account lagged in 2019 primarily due to the effects of the Trade War with China. I view this as a ‘non-event’ and expect returns will improve once all that nonsense is sorted out.
Although I report these accounts as part of our net worth, we mainly just leave these tax deferred accounts alone to grow. We don’t use these accounts to fund our lifestyle right now.
We’ll probably wait until our “official” retirement age before tapping into these accounts.
The Cash Account
The cash account included in our net worth number is a bank account we mainly used for paying regular monthly bills.
This account was at $14,226 at the end of 2019. This is not a significant change because the amount in this account fluctuates all the time as we pay bills — like our mortgage, daycare, food, utilities, and so forth.
Every few months we regularly refill this cash account with cash from the taxable brokerage accounts (as necessary), mainly using passive dividend income to fund our lifestyle expenses.
Real Estate Equity
The real estate equity category of our net worth is the value of our home (as represented by a “best estimate” of our home equity). While the local market really slowed down in 2019, owning a home is still very expensive in this area (a Seattle suburb). Zillow estimates the value of our home at $865,388. This is a 1.94% decline from 2018.
My feeling is that Zillow’s zestimate values tend to be a little inflated, so I continue to use 90% of Zillow’s number to estimate the value of our home. 90% of Zillow’s estimate for our home is $778,849.
We also continue to pay down our mortgage every month, which grows our equity. The balance of this mortgage is now down to $270,890. Subtracting one value from the other gives us $507,958 in home equity.
Last year we saw big home equity gains. This year the value our home equity declined. Oh well!
While it certainly was disappointing to see the value of our home decline in 2019, it’s important to remember this is just an estimate of what our local RE market is doing.
If I look at homes recently sold in my neighborhood, this 90% number actually seems a conservative estimate for what we could actually sell our home for today. Most of my neighbors have been able to sell for over $800k.
Wrap Up
There’s no doubt that the year 2019 saw an incredible $749k increase in our net worth. It’s been said that “hubris doesn’t generate superior investment returns”, so I’m doing my best to remain humble about this fantastic increase.
It’s certainly fun to daydream and think we could hit $4 million in 2020, but I should point out that significant political and economic challenges lie ahead that could greatly affect the value of our net worth. Elections, trade wars, geo-political instability, wars, or even a recession could happen. All of these events would greatly effect how the markets value our assets.
My goal isn’t to worry about the wild swings in net worth that might happen in 2020. Instead, my goal is to continue living (primarily) off our investment returns and let the market do what it does best.
Mr. Market might value our assets up or down on any given day, but the cash we actually spend is still largely generated from dividends. I hope to grow this even further in 2020. Look for an upcoming blog post on my 2020 dividend growth goals very soon.
(And no, this blog isn’t a significant money maker either. I remain a relatively small and obscure personal finance blogger that doesn’t earn significant money from blogging.)
Still, 2019 was an incredible year for the Tako family’s net worth. I can’t help but be pleased with this positive return.
Best of luck to all investors in 2020!
[Image Credit: Flickr]
It was an amazing year indeed Tako. You better be careful or your net worth will start approaching a level that some of the presidential candidates might target for a wealth tax.
Kidding, but maybe not either 😉
Congratulations on a great year! I find your story so inspiring. Read all your posts and often reference your post about the road to FI. My wife and I just crossed into the “middle” part of the road this year and are aiming to get there this decade. Very unique blog a favorite just wanted to say thanks for writing.
Thanks Bray! It’s always great to hear such positive feedback from readers! Thank you! 🙂
Yeah, well that’s usually how things go. Those ‘new’ taxes start out being for the rich, but eventually they trickle down to us middle class folks as the politicians get greedy for a raise.
Personally I think the estate tax is a perfect tax on excessive assets for the wealthy. Why do we need a second asset tax while we’re alive?
Congratulations! Wishing you a great year ahead! The Tigermom and marshmallow dad family hope mom can retire this year The financial plan is there, cash cushion starting soon!
Congrats Tigermom! Enjoy your retirement!
Always so inspiring to see your net worth posts. Thanks for sharing and congrats on almost reaching $4M!
Thanks Laurie! Good luck to you in 2020!
Approaching $4M is nothing to sneeze at. The rising tide of the market has made a lot of people very wealthy. Our household just crossed the $5M mark during 2019 and that is with zero members of the household working for a job and me just doing some very part time consulting.
Wishing you a great 2020. I really like the photo of the rocket launch. Just remember what comes up must come down.
-Mike
Indeed! Good reminder. Thanks Mike H!
I appreciate your obscure blog 🙂 It’s motivating to see what other post-FI families are doing, and how keeping track of your financial progress doesn’t stop once you quit your day job.
Thanks Kim! 🙂
Great year Mr Tako! Do you have a ROTH IRA account? If so, do you classify it as Tax Deferred or taxable? Thanks!
No, I don’t have a roth IRA. Since taxes have already been paid and future earnings are not taxable, I would call that non-taxable. There are exceptions to this of course.
Congratulations Mr. Tako, that is an impressive net worth! That’s the beauty of the power of investing, you’ll knock down even bigger milestones faster and faster 🙂
Indeed! Thanks DGX Capital!
Fundamental return = div yield + earnings growth. According to Goldman, 29% for sp 500 price index can be divided in 2% earnings growth and 27% multiple expansion or re- rating . It was no great year for fundamental return, ie the weighing machine. This is probably why Buffett says ” Charlie and I don’t consider ourselves to be richer or poorer based on what the stock does. We do feel richer or poorer based on what the business does.” SP 500 as business wasn’t great last year. Know you understand all this and you hold individual stocks, but I think many “investors” out there don’t and that their expectations are likely to experience a rude awakening.
I tend to agree with Buffett on this matter. Business growth is more important than PE expansion.
Hi Mr. Tako
When I opened the link and I saw the rocket I knew that the year was good 🙂
Congratulations on the evolution of the Net Worth! Let’s hope for an even better 2020.
Cheers!
Thanks Odysseus!
I love that you have the self discipline to limit yourself to a 10K car whilst your net worth is knocking on the 4 million door!
Surprised the Honda Fit did not suit as I bought one this year and it is like a Tardis inside. I did not have your self discipline though and bought new – but I did get a great deal as they are just bringing out a new version so were selling off the current one very cheaply. As I will be keeping it around 10 years I can live without the bells and whistles of the latest version.
I checked out the Fit’s but they were just too damn small. Mostly I don’t need any fancy features, it just needs to get from place to place. Heat and A/C are very nice to have though.
Nice job! How did you deploy the $700,000 in cash you said you had at the beginning of 2019? I think I missed that.
I think your referring to this post: Why I Love My Big Fat Cash Pile
For the record, we’re still holding that cash.
Wow what an amazing year you had. Congrats Mr. Tako!
Thanks Bob!
Congrats on such an amazing year! I look forward to yours and Tawcans year in review posts every January. Thank you for all the great content in 2019! Will 2020 finally be the year where we get a Mr. Tako cookbook?
Wow, that’s incredible. Congratulations. Good luck in 2020!
Now THAT’S an incredible year! Congrats and good luck on hitting a crazy $4 mill!!!
Thanks Jim!
Congrats Mr. Tako! Great blog and Congrats on a very impressive year! I was wondering, doesn’t your wife’s working income cover your annual expenses so you don’t have to use any investment income and also living in the state of Washington you don’t have to pay any State income taxes correct?
We use a significant amount of investment income to cover our expenses. I write the checks, so I know.
As far as income taxes, you are correct that Washington State doesn’t have a income tax. Other taxes are higher of course to make up for that. It’s not a low cost state (unfortunately)
Congratulations for the great result! It is always exciting to read your articles, also about the experiences with your family. Keep on I am still at the beginning of my journey compared to you, so I like to read from people all over the world who have already made it. Greetings from Germany
Finanzjongleur