2021 Year-End Net Worth Update
Happy New Year! It’s time again to do the final accounting for 2021 investment gains, and this is traditionally the one-time a year I look at our family’s net worth.
Why only once a year? Looking at net worth is a lot like taking the temperature. It’s changing constantly (like the weather), and almost certainly “wrong” only moments later.
Focusing on this ‘net worth’ number itself is probably not a good idea. Instead, it’s probably more productive to focus on the activities which improve net worth, rather than the number itself. Activities, like saving, investing, and traversing whatever financial storms the world might throw your way.
This is primarily why I try to ignore net worth in my blog posts. That said, it also feels great to occasionally see the progress of our hard work over time — Hence my once a year net worth post!
Year End Net Worth
Financially speaking, 2021 was an amazing year. At year-end, our net worth grew to $5,613,512. That’s an increase of $1,484,379 from last year. Holy Cow!
Yep, we broke $5 million this year! A gain of 35%! It was like we strapped a rocket ship to our net worth. Nearly every stock or fund we chose to own did extremely well in 2021. After a lackluster year in 2020, this was a fantastic improvement!
No, I’m not trying to brag here. All this growth seems outstanding to me, but it needs to be taken into context. When considered against inflation (nearly 7%), our real return is much lower.
Here’s the 3-year breakdown by each account:
Clearly, the gains were not evenly distributed across all of our accounts and assets. Our home value (for example) went completely crazy in 2021. Real estate alone drove a $400k gain for the year. That’s a crazy-pants 68% increase in one year!
Why did people start bidding-up real estate in 2021? That’s a very good question! I wish I fully understood why! (There seems to be a lot of factors). Even with no changes or improvements, our house is worth $400k more.
Meanwhile, the rest of our investment accounts made steady progress, mostly matching the S&P500 (they’re partly invested in index funds).
Still, this was the largest net worth increase I’ve seen since I started tracking the numbers:
Compared to the S&P500’s annual return of 27%, our results this year seem great! But here’s a few important things you should consider when looking at the results:
- 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.
- We pay taxes. A lot of taxes! A significant portion of our assets are held in taxable accounts. 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 2021 we held around 7% of our taxable accounts in cash. Cash earns very little, but it does provide 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 these days (less than 1%), they do reduce our overall return.
Even considering all these ‘drags’ on our performance, I’m quite pleased with how our investments performed this year.
Taxable Accounts
Taxable accounts 1 and 2 are our primary investment portfolios. These brokerage accounts hold nearly 3/5th’s of our net worth. This is where our taxable dividend income is generated (the dividend income number you usually see in my monthly reports).
We mainly hold individual stocks in these accounts, but also plenty of cash (about $250k in money market funds), and a couple of REITs.
These taxable accounts are worth a combined $3,395,570.
Unfortunately, performance of Taxable Account 2 was not as good in 2021. It lagged our other accounts primarily because this is the account where hold a few airline and energy stocks. They did terrible in 2020 AND 2021. Long-term who knows if the airlines are going to come back, but I’m trying to think long-term.
Dividends in our taxable accounts amounted to $63,238 for the year. I’ll post more information about this dividend income when I get around to writing my December 2021 monthly report.
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 three individual stocks. Yep, just three stocks and I started with a mere $8,000. Performance in this account was excellent in 2021, with a 28% increase over 2020. Due to the small number of holdings in this account it tends to be more volatile than other accounts. It continues to do extremely well.
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’re going to wait until the “official” penalty-free retirement age of 59.5 before we begin using the money in 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 $27,267, which was essentially unchanged from 2020 (a minor decrease only). The amount of cash in this account fluctuates constantly as we pay regular monthly bills — like our mortgage, daycare, food, utilities, and so forth.
Small changes in this account are totally expected, but we try to keep around 6 months of expenses in cash to deal with emergencies or other unexpected occurrences.
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 (besides a few REITs).
Just like 2020, owning a home is still very expensive in our area (a Seattle, WA suburb). 2021 saw a steady increase in the price of homes in our area. Zillow estimates the value of our home at $1,379,800.
My feeling is that Zillow’s ‘zestimate’ tends to be a little inflated when I compare to other homes sold in our neighborhood. Just like previous years, I continue to use 90% of Zillow’s number to estimate the value of our home, which works out to be: $1,241,820.
Just like last year, we pay-down our mortgage every month, which grows our equity. The balance of our home mortgage is now $253,496.
Subtracting one value from the other gives us $988,323 in home equity. This is an amazing increase in just one year!!
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 $1.2 to $1.7 million. It’s fairly safe to say the value of our home fits somewhere between those two numbers
Wrap Up
After such an incredible year, I’m absolutely stunned to see the final results. Never would I have expected such an incredible gain during a pandemic… but investors had excess cash to spend and they bid-up the price of assets in 2021.
Obviously large market gains like this can easily go in the opposite direction when the tide eventually changes. I’m not going to suddenly increase my spending, or buy a silly sports car because of a market upswing. Caution is prudent. Market gains can fluctuate wildly (both positively and negatively), and it makes sense to keep our regular spending tied to dividend income (aka business earnings).
With the Shiller PE at an epic 39, I’m keeping plenty of cash in-hand, especially considering the Fed might raise interest rates any day now. Could 2022 see a big market downturn? I guess we’ll find out!
Thanks for a great 2021 everybody!
[Image Credit: Flickr]
Wow! Congrats, Mr. Tako. That is very impressive and your featured image is quite accurate.
Long time reader and first time commenter here. We saw nice gains this year as well but on a materially smaller asset base.
Market returns over the last few years have been pretty wild. I have to imagine we’ll see a pullback at some point soon, but who knows, this gravy train could keep going.
Yep, who knows! Although there does tend to be a inverse correlation between asset prices and interest rates. I suspect we might see a “down” year in 2022.
Our portfolio was very similar – broke that $5m mark too and was a similar massive increase yoy with a eye popping change in our home. We have not yet taken the plunge to RE and are suffering that 1 more year syndrome…so I just love to read this and go “of course we can do this”….you might see me add this to the 2022 plan and comment later this year….thanks for helping to give confidence and a playbook to use.
Hello Fit-with-Kids,
Having grown up with very modest means, it’s hard for me to pull the plug. Old fears surface when I think about it, to be completely transparent. So I can completely relate to the “1 more year syndrome”. It’s good know though that we finally can and this itself is such a great feeling to have. And see posts from Mr. Tako here also gives me confidence. (Thank you Mr. Tako for sharing your journey openly as it serves as a role model for me.)
No problem FI-with-Kids! Thank your for reading! I love to hear stories like your own! 🙂 Keep at it!
Thank you for posting your breakdown! I found it interesting to read.
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You are most welcome Into the Fire. Thanks for reading!
Very good post Mr. Tako. I value and appreciate your transparency, thoughtful words, and how you organize and present the information. Congrats on your success and here’s to another great year ahead, and beyond.
Thanks Vinay!
Wow, you really know how to make another multimillionaire feel like a poor man! I can’t imagine living in a million dollar house, houses are much less expensive around here. We are looking at building one in a wilderness area and a nice two bedroom two bathroom new house can be built for well under $200K. In fact our 3,000 sq ft four bedroom four bathroom house on two acres that we live in might not even fetch $200K if we sold it tomorrow.
Well, it certainly wasn’t a million dollar home when I bought it! It was a modest family home! I swear!
I can barely believe the prices people are paying here. Mrs. Tako and I wonder every time a house sells in our neighborhood, “How do they afford the mortgage on that house?” At 3.5% a 1.3 million dollar mortgage (assuming 10% down) would be nearly $6k/month after taxes and so forth.
Consider yourself lucky not to have a payment like that.
Boom! Nicely done, and the house price jump is both exciting and a little scary. Our own much more modest rise in price has me on the fence – excited for the paper net worth increase, but worried about the running costs (esp. Texas property taxes) until we sell. And when we do sell down the road, where are we going to live??? 🙂 Congrats on a big jump and staying true to what got you there.
Thanks Paul! The increase in property taxes is certainly a concern, especially for those in high-property tax states like yourself. Yikes!!!
I’ve always said that, “Cost you don’t control are costs that eventually eat your wealth.” This idea has been front and center in my mind when deciding where we might move.
Holy smokes, I thought my house has been going up a lot but 400k in one year!? Congrats to you, you chose well, of course that comes with increased property taxes but it’s all in context. You’re killing it Tako!
Thanks Dave! Yeah, that property tax bill is going to be a killer I’m sure… but I have something of a plan. 😉
To be continued (in a few months)…
Wow what a year! Congrats! Thanks for the continued inspiration. Your blog is the first “FIRE” blog that I discovered and it’s very inspiring to follow your journey. I’ve been reading your old blog posts from the very beginning to learn more and am currently on your 2019 posts. I’m learning so much and look forward to following your journey. Happy new year!
Thanks Mari! Happy New Year to you too! And thanks for reading! It’s fabulous readers like yourself that keep me going!
Wow… incredible! Congratulations on the $5 mil mark! Time to start spending some of that on yachts and other toys, right? 😉
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🙂 Very funny Jim. I consider a lot of that $5 mil as being similar to the foam on top a beer.
Sure it looks nice, but you can’t really drink it, and given a long enough time period that foam will eventually go flat. No yachts or toys for us.
This is really inspiring. How wonderful for your family – congratulations Mr. Tako.
I’m curious, at what point will you start travelling First Class? I’ve often wondered how rich are those guys? Some might be living it up, or really hacking (points and all), but those who pay.
May be time for you 🙂
For me at least, fancy perks like First Class would be driven by excess cash generation. That’s currently not the case. We have ‘enough’ to pay the bills certainly, but not enough cash to waste on things like First Class tickets. We still watch our budget very closely.
Market gains can disappear very quickly.
Assuming similar yields on larger basket of assets, I could see enough cash being generated for ‘unnecessary’ luxuries like that at the $10+ million point.
Wow that’s crazy. Congrats on the $5M mark. The real estate equity certainly grew quite a bit in 2011. Amazing stuff and very inspiriting.
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Thanks Bob! It certainly was a surprising year. Who could have guessed real estate was going to increase like crazy during a pandemic? I certainly didn’t.
Wow! Congratulations on passing the $5 Million mark and an incredible year! It’s always interesting for me to see the account breakouts of other bloggers. Like you, our home values have been shooting up here in AZ, which would be awesome if we were selling today, but I suspect will be quite a downer at property tax time.
Happy new year and best wishes to you and your family in 2022!
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That’s amazing! That’s a huge percentage gain at this point. Congrats on passing the $5 million mark too. You guys had a very impressive year.
I don’t think our home value went up much at all in 2021. Portland just had too many problems.
Wow! I had similar results this last year. @34% NW
21 – $2,058,234.72
20 – $1,526,695.75
19 – $1,148,591.73
18 – $883,821.12
17 – $756,983.55
16 – $600,556.20
The “big” move for me was paying the house off in 2020. If my math is right I should hit 5M in 2026 and 15M in 2031
Good luck.
It’s not luck it’s math 😉
That’s a fantastic return for you — any time you can beat the market as you did, that’s certainly something to be happy about!
I’m new to your blog and, after some looking, didn’t see any posts where you discuss your portfolio beyond what sounds like a dividend focus in your taxable accounts (part of which is airlines, energy and REIT stocks) and perhaps a more growth-oriented view in your tax-deferred accounts. Have you shared (or can you share) more details on your dividend investing? It would be great to hear your philosophy on how you pick the stocks you invest in (e.g. sector breakdown, diversification, etc.) or even see a glimpse of some of your largest holdings.
I ask because, as I’ve looked at building a dividend portfolio, one approach I see if just using low-cost, dividend-focused ETFs (e.g. SCHD, VYM) to provide diversification that might be hard to manage thru individual stocks. So, I’m curious how you’ve approached this.
I think you’ve got the wrong idea. I’m not a “dividend focused” investor. Dividends are just one measurable metric of stock returns.
For now, I’m not sharing my portfolio. I’ve though about it over the years, and it might be something I’ll offer to subscribers in the future.
Sorry if that was a mis-characterization of your investment style, and I certainly didn’t mean to imply that dividends/yield were the only (or even the highest-priority) factor in your investment strategy. Having now had a chance to read thru more of your historical posts, it does seem that, because you’re using dividends largely to fund your day-to-day life, they are a real consideration for you when you invest in a company (along with matters such as dividend growth, dividends as % of cash flow, industry trends, …).
I also use dividends as my primary income stream in retirement. Although I try to avoid “chasing yield,” I do tend to focus on stocks/ETFs that pay dividends. Although I do own a handful of individual stocks that I believe are strong companies that have proven, sustainable dividends, I mostly use a few ETFs that I believe do a good job balancing yield with quality (at very low fees).
I totally respect your not sharing your portfolio — honestly, you share an impressive amount as it is. And I do see from previous posts, for example, that you like (or have liked) the banking sector. I was more curious how you chose to pursue individual stocks (instead of ETFs), what level of diversification you seek (e.g. 10, 20, 100 holdings?), how often you buy/sell or rotate into or out of a sector, …
Regardless, it’s been great reading so far… really appreciate your openness!
Your taxable accounts and real estate equity keep rising very nicely.
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Great read, thanks for the inspiration. I’m at a lowly 2.5 and very envious of your $5M. Colorado real estate has treated us pretty well recently, but it seems like I’m just poking along.
Like another commenter above, we are building a small mountain getaway and “investing” in that for hopefully many great memories to come.
I appreciate the effort you’ve put in the recap the years results and to goal set. I better go do the same! Thanks!