2022 Year-End Net Worth Update

It’s January 2023, and you know what that means!  Net worth post time!  Every year I take the time to do one of these “net worth” blog posts for the previous year.  I add-up all our different stock and retirement accounts, and then calculate my net worth.  I do this just once per year.

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

Why do I do this only once a year?  IMHO, worrying about your net worth number is silly.  Markets fluctuate constantly.  It’s never going to be “right”, no matter what number gets posted.  My net worth is constantly changing, and is going to be “wrong” mere moments after I publish this post.

But the world uses net worth as a popular scorecard.  It’s a way to say “I’m making progress and getting wealthier every year”.  (As if the world didn’t have enough ways to keep score, and pump-up our fragile ego’s.)

Unfortunately 2022 was a pretty painful year for investing, and the Tako family net worth suffered.  I certainly can’t say we got wealthier or “made progress”.

Year-End Net Worth

Most of our investments didn’t do great in 2022, but there were a few that managed to keep our portfolio from falling into the pit of despair.  At year-end, the Tako family net worth decreased by 5.5%, falling to $5,301,770.  That’s a decrease of $311,742 from last year.  Ugh!

Our net worth is still above $5 million, but there’s less wiggle room than before.

Here’s the 3-year breakdown of each account:

2022 was the worst performance I’ve recorded since I started writing these net worth posts in 2015.  Ouch!  That said, one bad year is not a long-term trend.  Looking at the long-term, we’ve made quite a bit of progress in growing our net worth over the years:

Compared to the S&P500’s return of -19.51%, we did pretty good in 2022!  Here’s a few important things you should also consider when looking at our 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.  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 year end 2022, we held over a million dollars in cash.  Cash earns very little, but it we are currently “house shopping”, and this should get turned into real estate equity soon.
• 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.

I estimate this performance drag to be about 2-3% annually.  Even considering all these ‘drags’ on our performance, our investments did OK on a comparative basis in 2022.  If we removed these factors from the equation, our return was significantly better than the S&P 500.  That’s something to consider.

Over the last 7 years (since I started blogging and recording these numbers), our compounded annual returns have out-performed the S&P 500 by several percentage points (inclusive of fees, dividends, taxes, and interest on uninvested cash).

I’m pleased with this performance, even though it doesn’t outperformed *every* year.  On down years like 2022, we seem to do much better than the index, which is perfectly OK by me.

Taxable Accounts

So what’s in these 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 $370k in money market funds), and a couple of REITs.

These taxable accounts are worth a combined $3,179,069.

Unfortunately, performance of Taxable Account 1 was not as good in 2022.  It lagged our other account primarily because this is the account held more technology stocks.  Meanwhile Taxable Account 2 did better in 2022 because energy stocks did a lot better in 2022.

It’s kind of a yin-and-yang between the two accounts as the different classes of stocks balance each other out to some extent.

Dividends in our taxable accounts amounted to $89,732 for the year, which was a yield of 2.82%

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 decreases in the index (minus fees) for the given funds or ETF’s.

Tax Deferred Account 4 is a small IRA where 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 2022, with a 25% increase over 2021.  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 use for paying regular monthly bills.  It was also where we deposited the money from the sale of our Washington home.  Hence the huge increase in cash in this account.

Thie account ended the year at $1,054,355.  Yes, that’s a lot.  We don’t expect to hold this much cash in the account for long.  As soon as we find a property we like, most of that will be committed to the new-home purchase.

Small changes in this account are totally expected, but 2022 was unusual due to the home sale.  We typically 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 (usually represented by a “best estimate” of our home value).  In 2022 we sold our Washington home and realized over $1 million in cash after fees, and loans paid off.  Real estate equity is now $0.

We do not currently own any rental properties (besides a few REITs in our taxable accounts).

Hopefully this will change soon, and we manage to find a new home to live in.  My opinion of the current real estate market is not good.  I think most home owners are afraid to sell and move.  They are either locked into really cheap 3% loans, or paid too high a price in 2021-2022 and don’t wish to sell at a loss.

For now, it’s just a matter of patiently waiting for one of the 3-‘D’s to happen (Death, Divorce, or too much Debt).  Eventually something will turn up.

Wrap Up

In general, 2022 was not a fantastic year for our investments.  We lost ground, and it was our worst year since I started blogging.  The only consolation prize here is that we did much better than the S&P 500.  That’s something to cheer about, I guess!

I don’t expect 2023 will improve the climate much either.  The Fed will probably continue to raise rates, and the stock market will most-likely suffer again this year.  Unemployment will probably rise, and U.S. GDP growth will halt, or go into recession.

This is normal, and exactly how markets work.  Sometimes they swing up, and sometimes they swing down.  Right now we just happen to be in the middle of a downturn.  Oh well!  2023 will probably turn into a good year to hunt for bargain investments.  Investments that get thrown out with the bathwater of a bad economy, but really shouldn’t be.  The ones that can keep growing, even during a recession.

Keep your eyes pealed for those bargains!  I know I will!

Catch you next time!

[Image Credit: Flickr]