Wednesday, October 8, 2014

Net Worth Update - September 2014

While cash flow is more important when it comes to financial independence, it's still good to look at the balance sheet too, which is why I provide these net worth updates.  The S&P 500 declined 1.55% during September and crossed the 2,000 mark for the first time.  Since more and more of my net worth is tied to the markets, there's a larger correlation between my net worth and the markets and for August my net worth rose with the markets.  As a dividend growth investor I'm not overly concerned with the short-term gyrations as long as the dividend stream remains in tact, but the markets' effect is noticeable.  I had just under $5,200 in after-tax savings from my paycheck, almost $800 in ESPP contributions, and just under $1,100 in 401k contributions counting the employer match.  The rest of the changes were due to dividends received and changes in the stock market.  All in all September saw a $1,573.43 decrease in my net worth.

Current Assets: $578,370.56
Current Liquid Assets: $193,858.26
Current Debts: -$189,078.13
Net Worth: $389,292.43

The second half of 2014 hasn't gotten off to a great start with my net worth declining in July, increasing in August but another decline in September.  Nothing to really worry about but it's been a quick change from the monthly increases that I had been seeing.  During the month I made just two larger purchases in my regular taxable account but also added $825 to my new Loyal3 portfolio.  If the markets settle down then I should continue to make monthly gains but if volatility persists then it will depend on where we are in the cycle.  Liabilities continue to make very little progress and consist of just the mortgage on our house.  I don't see the point in paying extra on the mortgage given our relatively low interest rate and think we'll come out much further ahead investing extra cash flow for the time being.  So we make very little progress on the mortgage each month but we are up to 21.23% equity in our home.

September's net worth was a 0.40% decrease from the end of August but year-to-date I've had an increase of 21.61%.  That's a $69,178.21 increase in total.  My goal for the year is to have a $125k increase but I expect that to probably be out of reach barring a big move higher in the stock market.  We're a full 75% of the way through the year and I'm only 55.34% of the way towards my goal so there's a lot of work to be done over the last quarter.  I'll need to average over $18,600 monthly increases, so yeah, that's not going to happen.  No worries though because the net worth goal is a secondary goal since a lot of it is out of my control since I invest in the stock market.  So I'll just focus on what I can control such as my savings rate and investing in high quality companies at fair prices.

I've changed the chart for my net worth to better reflect our situation now that there's significant debt on the books with our mortgage.  The chart will now show both assets and liabilities as well as the net worth.  I also changed the colors because I didn't notice this until April but assets were red and liabilities were green.  So that's now been fixed.


My after-tax savings rate for September came in at 66.47% which is over my goal of 50% 65%, but not enough to really help increase the annual savings rate.  I don't expect to have too many other big expenses or items to save for the rest of this year so almost all excess cash flow will be funneled directly into savings for investment purposes.  This should help increase my savings rate throughout the rest of the year.  Although, this is a big drop-off from 2013's 81.31% rate that's because I changed the way I calculate my savings rate.  It's now just savings from my after-tax income that is specifically marked for investment.  I think this gives a "purer" savings rate since it's only true savings/investment capital from my after tax income.


Based on my expenses from September, my liquid savings would last for 6.08 years, a 0.31 year increase from August.  Most of the gain was due to my expenses normalizing since my net worth declined, although I did eek out a gain in my liquid assets.

I've updated my Progress page to reflect September's changes.

Make sure you sign up to receive new posts to your email so you don't miss anything.  And be sure to follow me on Twitter@JC_PIP to get up to the minute news of new purchases for my portfolio.

How did your net worth do in September?  

13 comments:

  1. The biggest bit of wisdom in your whole article that everyone should take away is regarding mortgage payoff. I'm at 4.375% - could be better, could be way worse. With historical stock returns >4.375% I see only two reasons to payoff the mortgage.
    1) Guaranteed security of 100% mortgage payoff
    2) Guaranteed return = mortgage rate by paying off early.

    If you assume some risk, which I do by investing in stocks, paying off my mortgage early doesn't seem like a good idea.

    WE#1

    ReplyDelete
    Replies
    1. WE,

      With the tax break for carrying a mortgage I don't see much advantage, especially if the interest rate is less than 5%. Although I do plan on paying the mortgage off early but I won't starting funneling savings that way until my dividends are much closer to covering my expenses. If you have a long time horizon then by all means invest in the stock market.

      Thanks for stopping by!

      Delete
  2. Where do you put your liquid savings? Are they all in investments? Is your emergency fund separate? I currently have a 6-month Emergency Fund (only) and I am trying to increase that by a lot.

    ReplyDelete
    Replies
    1. Morrigan,

      I keep my liquid savings, mainly emergency fund and other savings for things like property insurance, property taxes..., in my two savings accounts. The rest of the liquid assets/"savings" are generally invested in the stock market so it will see wilder swings than cash only accounts. But they are still liquid assets since they can be turned into cash relatively easily.

      Is there a reason you're looking for more than a 6 month emergency fund? It's highly personal and dependent on job security, your own comfort level to remain level headed in times of market volatility, family to support... If you are planning on bumping that up to say 9 or 12 months then I'd suggest sitting down and figuring out a way to eek out a bit more return by starting a CD ladder or "high" interest savings account, something better than the measly interest rate that the big banks are dishing out.

      Thanks for stopping by!

      Delete
  3. JC,
    The stock market has been down and most DGI investors are heavy on stocks, I dont worry much about stock fluctuation but instead I use it to my advantage to purchase more high quality stocks that been hit by the decline. And like you I may not reach my goal, mine is having $100,000 in my portfolio before year, maybe I aim to high. Whats the worst that can happen if we dont reach our goal, to me is having more money and more income compared to last year! :)
    Have a good day!
    FFF

    ReplyDelete
    Replies
    1. F2FF,

      The only reason I'm worried about stock market fluctuation right now is that I haven't been able to follow the markets the last week or so and haven't been able to invest capital. Due to the complications with my son I want to try and hoard a bit more cash than I'd like because I'm not really sure how things are going to go. If there wasn't anything going on though I'd have probably invest about $10-15k over the past week. Lots of companies I'd love to be adding to.

      My net worth goal is much more of a secondary goal because like you said a lot of that figure is out of our control. We can control savings and expenses but we can't control where the markets go over the short term. As long as the longer term trend is higher then you're doing just fine.

      Thanks for stopping by!

      Delete
  4. JC -- I really like your Net Worth graph showing assets in green and liabilities in red. It really tells a story!

    Just this morning I read an article suggesting that most investors would do better paying off their mortgage rather than invest in stocks. The average investor makes just 2.1% per year, underperforming even the benchmark indices. So paying off a mortgage at 4+% would indeed be a better strategy for the average investor.

    As DG investors, however, we know that a properly constructed dividend growth portfolio can quickly generate 5+% of dividend income. So, I'm with you -- why pay off a (fixed rate) mortgage faster when you can earn more than the interest rate in dividends?

    ReplyDelete
    Replies
    1. Ferdi,

      For those that think they can time the market then they'll be much better off just paying down the mortgage. Study after study shows just how poorly the average "investor" is and how badly their returns lag a basic index. Changing investment styles/plans with every move in the market is going to be hell on your returns, especially if you have to add commissions and taxes as well.

      For true investors then paying down a sub-5% mortgage is probably not the best use of their capital unless you're nearing FI or retirement. As of now my plan is to get my dividends up to around 90% of expenses, maybe less, and then funnel as much savings as possible towards paying down the mortgage. I want to be mortgage free before considering myself FI, plus that gives an extra cushion. I guess there's a bit more planning that needs to go in to that once I start nearing the 50% level so there's still time.

      Thanks for stopping by!

      Delete
  5. Not that bad of a drop. I am scared to plug in my numbers so far lol

    ReplyDelete
    Replies
    1. A-G,

      My savings really helped to make it look okay in September, but October is probably going to be ugly if the stock market continues how it's been so far.

      Thanks for stopping by!

      Delete
  6. Can't win every time I suppose :) It's a good thing your savings rate is still so high, which helps to cushion any market corrections. $1500 decrease isn't too bad. The question is what about October? I don't know about you but my net worth is down about $10K so far this month haha. We'll see if the markets recover though.

    ReplyDelete
    Replies
    1. Liquid,

      The high savings sure helps to keep the ship afloat so to speak. October though is looking like it's going to be ugly. My guess is at least a $10k decline probably closer to $15k after accounting for savings. No worries though since I've been able to add to positions through my Loyal3 account and hopefully add to some in my brokerage account as well.

      Thanks for stopping by!

      Delete