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.

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.

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]