2020 Year-End Net Worth Update


Yes, it’s that time once again!  Every year I make one of these “net worth” blog posts in January to add-up all the different accounts, and calculate my net worth.  I do this only once per year, so it’s a complete surprise to me when I see the final numbers!

Honestly, I have no clue what my net worth is the other 364.25 days of the year.

Why do I only look at it once per year?

Many bloggers post their net-worth much more frequently, (and I suppose it’s great for building excitement among readers) but my feeling is that net worth reporting is a lot like reading-out the air temperature on a random day.  It’s almost meaningless.

Net worth numbers fluctuate constantly — As soon as a net-worth number gets published, it’s almost certainly wrong the following day.  Mr. Market is constantly re-valuing assets, and thus those valuations are forever in flux.

Instead of worrying about little blips in temperature, I try to focus my energy on improving the climate… i.e. compounding my assets.  In other words, growing the number of assets I own OR growing the intrinsic value of those assets over time.  This distinction (between price and value) is often difficult for people to understand.

Over time, Mr. Market should reflect that compounding with a rising net worth… but he’ll only do so in fits and starts.  Some years you’ll own the “popular” assets.  Other years you won’t.  Your net-worth will simply fluctuate up and down with the market.

At any rate, let’s take my temperature and see how I did in 2020…

 

Year End Net Worth

Despite 2020 being a tumultuous year, I’m happy to report that the Tako family net worth grew by 10.6%.  At the end of 2020 we had a total net worth of $4,129,132. 

Yep, over four million now.  If you recall, five years ago I reported a net worth number just over $2 million.  We nearly doubled our net worth in five years.  This growth seems completely surreal to me.

At the end of last year I thought perhaps $4 million might be in reach, but here I am one year later announcing that we exceeded it!  During a pandemic no less!

While 2020 was not without it’s difficulties (some stocks declined significantly in 2020), I’m happy with the overall portfolio growth in 2020.

Here’s the 3-year breakdown by account:

As you can see in the account breakdown above, not every account had a great year.  Some did better than others.  Our worst performance came from Taxable Account 2, which held some airline, travel and energy stocks.  Those stocks declined significantly due to pandemic restrictions, and haven’t come back yet.

Will they turn positive once again in 2021?  Your guess is as good as mine!  Long term, I think these assets will eventually do OK, but it might take a few years for things to “get back to normal”.  Patience is going to be key.

Meanwhile, the rest of our accounts saw steady increases.  It was something of a “pivot year”, but performance was quite good where we invested new money.

tako family net worth 2020

Taken into context against the S&P 500 however, these returns are not particularly impressive…. but there are a few important things to remember:

  • 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 still need to eat, unlike an index fund.  Our annual expenses were $41,891 in 2020.  This was 1.6% of our taxable net-worth in 2020.
  • 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 dividends and capital gains.  The S&P 500 doesn’t have to pay taxes.
  • The S&P 500 is a 100% invested figure.  This means the S&P has the potential for much larger returns during “up years” than portfolios which are not fully invested.  At the end of 2020 we held around 12% 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 calculation.  Unlike the S&P 500, real people have to pay fees on funds and (some) stock trades.  While fees are not a significant expense (less than 1%), they do reduce our overall return.

Frankly, given all the different kinds of friction our net worth experiences in a year, I’m happy with how things went (financially) in 2020.  This year saw terrible performance from energy, travel, and entertainment stocks… which we happened to own going into the pandemic.

Ouch!

It was a perfect recipe for a financial disaster, yet we still managed a good result!

 

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 (in money market funds), and a couple of REITs.

These taxable accounts are worth a combined $2,635,286.

Unfortunately, as I mentioned earlier, performance of Taxable Account 2 was not so good in 2020.  It held the bulk of our energy and travel stocks, which were real stinkers this year.

Meanwhile, Taxable Account 1 held the bulk of new investments made in 2020: HD, AMGEN, AX, as well as significant additions to our DFS position.  Returns on these new investments ranged from 50% to 143%.

Dividends in our taxable accounts amounted to $60,737 for the year.  I go into more detail on this dividend figure in my December 2020 Dividend Income & Expenses post.

 

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 comparable to the increases in relevant indexes (minus fees) for the given funds or ETF’s.

Tax Deferred Account 4 is a small IRA that I invest in two individual stocks.  Yep, just two stocks.  Performance in this account was excellent in 2020, with a 47% increase over 2019.  Due to the small number of holdings, this account it tends to be more volatile than other accounts…. it just happened to do extremely well in 2020.

While the taxable accounts (discussed earlier) are used to fund our lifestyle, our tax deferred accounts are simply left alone to grow.  We don’t use these accounts to fund our lifestyle, and probably won’t for many years.

We’ll likely wait until the “official” penalty-free retirement age of 59.5 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 ended the year at $27,540, which was a HUGE increase from 2019.  Although the amount of cash increased, this is a non-significant change because the amount in the account fluctuates all the time as we pay bills — like our mortgage, daycare, food, utilities, and so forth.

In other words, “There’s nothing to see here!”

Every few months we regularly refill this cash account from the taxable brokerage accounts (as necessary).  This cash is usually dividend income, but may (from time-to-time) include capital gains.  This pays all of our regular lifestyle expenses.

 

Real Estate Equity

Real estate equity is the value of our home equity (as represented by a “best estimate” of our home value).  We do not currently own any rental properties.

Just like 2019, owning a home is still very expensive in our area (a Seattle, WA suburb).  2020 saw a steady increase in the price of homes in our area.  Zillow estimates the value of our home at $942,409.

My feeling is that Zillow’s ‘zestimate’ tends to be a little inflated when I compare to other homes sold in our neighborhood.   Like last year, I continue to use 90% of Zillow’s number to estimate the value of our home, which works out to be: $848,168.

Just like last year, we pay-down our mortgage every month, which grows our equity.  The balance of our home mortgage is now $262,345. 

Subtracting one value from the other gives us $585,822 in home equity.

real estate equity YE 2020

While 2019 saw a slight decline in our home equity value, this trend reversed itself in 2020.  We saw a gain of 15.3%.

While it’s fun to see our home equity increase like this, please remember this is only an estimate of what our local RE market is doing.  My “90% of Zillow estimate” could be off by thousands of dollars.

When I look at recent neighborhood comparable home sales, they’re all over the place — from $840k to $1 million.  I think it’s fairly safe to assume we’re somewhere between those two figures.

Wrap Up

Well, that pretty much wraps things up for 2020!  As you can see we experienced some significant difficulties in 2020, but (happily) managed to catch some of those big upswings too.

Much of this was simply because March was a very good time to invest, and that’s when I invested the bulk of our money in 2020. In total we moved $166k from cash into stocks in 2020.  I only wish I had invested more!

Our timing appears to have been quite good (based on the gains we saw during the back half of 2020), but it’s anyone’s guess what 2021 will bring.  Honestly I’m amazed that stocks did as well as they did in 2020.  Profitability at most publicly traded corporations was down for the year, yet stocks were up.

I attribute this counterintuitive move (mostly) to stimulus money and low interest rates.  Generate enough “free cash” flying around the economy, and some of it will inevitably land in the stock market.

Perhaps we’ll see more of the same in 2021!  Best of luck to all investors in 2021!

 

[Image Credit: Flickr, Gify]

26 thoughts on “2020 Year-End Net Worth Update

  • January 10, 2021 at 3:07 AM
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    Those are some really nice numbers, Mr. Tako, especially given you’re living directly off your portfolio. Congrats on breaking through the $4M mark! Time to update your side widget. 🙂

    2020 was a good year for us as well. Our NW was up ~13% from the prior year in December, and we opt’d to move a chunk of that gain into a donor-advised fund. This allowed us to donate appreciated stock and take some nice tax deductions for 2020 (especially helpful since we sold off an appreciated rental property this year).

    Wishing you and your family another bountiful year ahead!

    Reply
    • Thanks Michael! The side widget should already be updated! 🙂

      Reply
  • January 10, 2021 at 5:07 AM
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    Hi There,

    So you have a post in March or April that highlights your rationale for moving $166K into stocks? I’d love to read your rationale.

    Thanks

    Reply
  • January 10, 2021 at 5:51 AM
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    Great summary, we are similarly situated except my wife and I are older and spend twice as much, but still a small percent of our assets. Usually we spend zero to less than one percent. If I stop consulting this year, which is likely, we will have to start withdrawing more. Since your cash account is small compared to your 12% cash allocation where do you keep the extra cash and in what form?

    Reply
    • Mostly in money market funds in the brokerage accounts. Which of course earn practically nothing, but I can invest it quickly when necessary.

      Reply
  • January 10, 2021 at 6:10 AM
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    Wow congrats Tako, you’re a quadra-millionaire! You’re setting a great example and here’s to another great year!

    Reply
    • Thanks Dave! Always appreciate your comments! 🙂

      Reply
  • January 10, 2021 at 6:48 AM
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    Honestly 2020 was just surreal. The swings in my net worth were just nuts.

    Anyhow, congrats on breaking the $4M level. See you at $10M in 5 years

    Reply
    • Wow, $10 million! That seems impossible, but then again I felt the same way about $4 million!

      Cheers Backpack Finance!

      Reply
  • January 10, 2021 at 8:57 AM
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    You are a rock star – that’s for sure! Congrats on the awesome net worth! Like you said, it can change on a dime, but it sure makes life a little easier when it’s up while retired.

    That’s been something in the back of my head since retiring a couple of years ago. The market was strong back then and I was a little worried we were at the top. The sequence of returns risk can be a real pain in the behind if so. We’ve tried to mitigate that a little with a cash bucket of a few years, but I’ve been happy that the market’s still climbing for now.

    Here’s to a great 2021 – maybe you’ll be posting this again next January with a net worth of $5 million! 🙂

    Reply
    • Wow, I can’t imagine what growing net worth by a million dollars in a year might be like! That would be insane! 😉

      Indeed, we lucked out of the sequence of returns risks didn’t we? The market has been very good for a LONG time.

      Reply
  • January 10, 2021 at 1:07 PM
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    Congratulations! It truly is a blessing that one of the worst recessions we’ve ever experienced led to a stock market increase. It also makes me wonder if we are at an overvalued stage.. but it’s better to buy and hold and forget about it instead of doing otherwise.

    Here’s to you eventually reaching the $10MM mark!

    Reply
  • January 10, 2021 at 3:18 PM
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    2-4M in 5 years is awesome – congratulations. And many thanks for sharing your numbers. I was curious about where you park your “12% in cash” – you mention money market funds in a comment above. Does that not bother you? We’ve parked ours in VMMXX and we’re looking for a smarter alternative.

    Reply
  • January 10, 2021 at 3:34 PM
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    Wonderful that your accounts are growing even though you’re retired! Great work! When did your wife fully retire? Are either you or your wife doing any side hustles to still earn income?

    Reply
  • January 10, 2021 at 5:08 PM
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    I predict you’ll see $10 Million before another 10 years passes by.

    To your decamillionaire future!
    -PoF

    Reply
    • Oof! That’s a tall order! I’ll see what I can do! 😉

      Reply
  • January 10, 2021 at 6:46 PM
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    Wow doubling in 5 years. Very nice Mr. Tako! Should we wager on when you’ll hit $10M?

    Reply
  • January 10, 2021 at 8:07 PM
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    Congratulations on hitting $4M! 🙂 wishing you and your loved ones a very happy new year!

    Reply
  • January 15, 2021 at 6:36 AM
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    Wow! Appreciate you sharing this Mr. Tako. This really gives me something to aspire to. Will there ever be a point when you take a significant portion off the table? Into government bonds or cash or something of that sort? Seems you may be beyond the need to preserve wealth now.

    Reply
    • We already have half a million in cash… that seems sufficient to me. There is probably not a good reason to hold more than 10 years of annual expenses in cash.

      Reply
  • January 20, 2021 at 11:40 PM
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    Hey Mr. Tako! I am your new reader! Thank you for sharing your net worth details and congratulations on hitting $4M milestone!

    Can you elaborate a little why do you pay capital gains taxes when selling asserts from your taxable accounts? The long-term capital gains tax rate in 2020 for married couples filing jointly was 0% for up to $80K. Given that your family only needs $40K/year means that you shouldn’t be paying any capital gains taxes.

    Reply

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