It is time, yet again, for the monthly airing of my private financial laundry. My goal is that by maintaining a journal of my savings, I will provide enhanced motivation to save. It will also serve as a record, so that I can look back and analyze.
All of the prior updates in this series are available on the Savings Diary page. The first, I’m Just Saving…Personal Finance Diary kind of provides the “origins story.”
Investments
In January, things came roaring back. I ended up back at $188,000 after dropping down to $179,000 at the end of 2018.
I remain “overweight” foreign stocks. See Media Pin of the Week – More GMO, Weekly Media Pin – Grantham on Graham, Best Foreign Value Factor ETFs, Resource Roundup: More CAPE, and Foreign Value Factor ETFs Update. I got killed even more than you home-biased valuation agnostic, new era, type investors.
I have about a quarter of my portfolio that I run in a little systematic trend strategy. That strategy flipped back to 100% stocks as of the beginning of February. Referring to it as a “trend strategy” is probably a bit grandiose. Basically, if the market is expensive and in a downtrend, I am out (with that account).
I do have another very small account that I am experimenting with using another systematic trend + value system in and one of the signals I use is related to the yield curve. It is still 100% long.
February 2019
That being said, let us turn to the savings update. As discussed recently on my blog, I try to use the revelations of behavioral finance/psychology to structure my financial affairs. See I’ll Have What He’s Having – Behavioral Personal Finance. I therefore automate my saving and spending to a great degree. As a result, I know that I contribute a little over $3,000 per month to new investments as sort of my “baseline.”
That baseline savings rate will be tweaked from month to month. I use some other sort of mental accounting tricks to save more and some months I really hit that. Other times something like a trip to the ER for my son will pop up and impact the savings. Nothing material happened in February so I saved a little over $3,000.
As I’ve noted before, The Capital Speculator does a helpful summary of asset class returns on a monthly basis. In February, the Russell 3000 was up about 3.5%, with emerging markets stocks about flat and foreign developed (EAFE) up about 2.6%.
The market increases combined with my new savings to put me at a little over $194,000.
Total Net Worth
As a reminder, I usually only include liquid investments in the monthly figures, as I don’t think it is very helpful to start marking my real estate and other illiquid assets monthly. I have a deferred compensation arrangement, which is essentially an annuity or pension. If you have a similar asset, I think this is a solid valuation methodology.
I started playing with the TNW calculation the other day and it looks like it would add between $200,000 to $350,000 (ish) to my stash, depending on discount and inflation rates, future raises, my lifespan, and a few other assumptions.
One other thing I will mention is with my personal residence I sort of cross-checked the price based on sale comparables with Zillow and then tried to back into a comparable valuation using rents (and a cap rate). In my sort of urban market there is a good blend of rental data and sales, so I feel ok about that. I then took a pretty big haircut (~15%) to the valuation based on illiquidity and the very large transaction costs involved in selling real estate. If I were a real estate developer, putting together a personal financial statement for a loan (or to pump my financial guru status on my blog), I could probably reasonably claim around $600,000 in total net worth.
But for my purposes, I’m going to go with a current estimate (~$108,000 deferred comp. + ~$100,ooo RE + $194,000 securities) of ~ $402,000.
Onward
To sum up, February continued the bounce from a nasty December 2018. I continued the savings grind. My overweight to foreign stocks continues to fail to perform. I am getting close to $200,000. That is a little bit exciting. Based on a historical 10% CAGR that would throw off over $1,600 per month in gains and income. These greenback workers may soon be really helping my family “pull the rope!”
I also took a stab at my total net worth. I am going with an estimate of $402,000. I will update this again in about a year.