We were surprised by how many personal finance bloggers publish their net worth numbers. J. Money over at RockstarFinance maintains the world’s first and only (to our knowledge) blogger directory and out of almost 1,000 bloggers, over 250 publish their net worth. So, should we publish ours? What good is all that stealth wealth business (see the excellent posts from Physician on FIRE and The Retirement Manifesto) if I post our net worth on the blog? Well, if someone were to find out who we actually are then with or without the precise number it would be pretty obvious that we’re well off. Whether our net worth is $500,000 or $5 million, what’s the difference, then? People get mugged on the street every day for much less. So we might as well show our numbers, right?
Soooooo, where in that $0.5-$5m interval is our net worth? It turns out that our net worth is pretty much in the middle: $2,873,234. Here’s a more detailed breakdown:
The net worth numbers in detail
- Checking account and credit cards: Since this is the month-end and right when the paycheck rolls in and right before the mortgage and credit card payments are due we have a lot of cash sitting around. Throughout the month, we try to keep the checking account balance at around $1,000-$1,500.
- A brokerage account with Fidelity is worth just under $300k. 100% in low-cost Fidelity index funds!
- Our account with Interactive Brokers to implement the options trading strategy we wrote about before holds just under $580k. It’s not exactly an equity investment but most of the risk certainly comes from equity fluctuations. How do we deal with the fact that we hold about 70% of the principal in Muni bond funds and Preferred Shares? We still call that a 90/10 split between equities and bonds because the bonds and bond-like investments are held purely to squeeze some extra yield out of the margin cash. Essentially all of the fluctuations come from futures and options on futures that are all traded on margin.
- 401k, IRA and Roth/HSA accounts are just over $900k. All invested in 100% equity index funds.
- Deferred compensation is a plan that’s available at work for voluntarily deferring already vested bonus payments. The actual number is quite a bit larger, about $250k (all invested in equity index ETFs), but we already take into account that we’ll get hit with a large tax bill when I quit my job and cash out the deferred comp plan. Unfortunately, all the income tax will come due at that time and it will be at our high federal and state marginal tax rate. Ouch!
- The small 529 (college savings) account for Little Miss ERN (3 years old) has about $22k, all invested in an equity index fund. We expect to contribute more over the years but won’t go overboard with the contributions. The objective is to fund a college education at a decent state college, not an all-expenses-paid four-year vacation. I was debating whether to include this account in our net worth. The reason it belongs in the net worth calculations is that, as our blogging friend Green Swan pointed out, it could serve as a last resort liquidity reserve in case our retirement plan doesn’t work out. We hope it doesn’t come to that but if it does… sorry kiddo, you’ll have to rely on student loans in that unlikely event!
- We have about $300k in private equity investments. Most of the funds are in real estate ventures, specializing in multi-family housing. We spread $270k over three LLCs and I count the combined book values of the funds. All funds have already announced that they see sizable capital gains on the current real estate investments but out of an abundance of caution, we don’t adjust our book value until the gains are actually realized. We also have a small $30k investment in a venture capital deal (a long story, more details in another post). If this turns sour it won’t be the end of the world. There were a few bad days in the stock market when we lost more than $30k in a single day, so we consider this investment our “play money”
- Our home equity: We take the Zillow estimate of our condo, knock off 7% (5% broker commission plus other fees when we sell our unit next year) and subtract the first mortgage and the home equity line of credit (HELOC).
- Other assets: A hodgepodge of other small accounts, mostly fixed income or fixed-income-style investments.
In case we haven’t mentioned this often enough: We don’t like bonds too much. Equities aren’t cheap either but we just can’t get ourselves to invest more in bonds in the current environment: still very low bond yields, and the prospect of rising yields and more losses in the bond market. But, you may ask, don’t we want diversification? As we wrote before, diversification with bonds is overrated, you don’t want to own bonds when you still have a mortgage and the current equity volatility is so low that we don’t even notice the high equity weight. When was the last time the S&P500 dropped by more than 2%? September 9, 2016!
Where do we go from here?
It’s pretty obvious that we will not be able to retire right now right here in our current city. We have over half a million dollars sitting around in (dead) home equity, though still have a huge mortgage payment every month. But the income we could generate from our investments outside of the retirement accounts would not suffice to finance the mortgage payment and the high living expenses in this mega-metro area.
So, together with some modest capital returns, some more savings and especially the annual bonus to be paid out in early 2018 we hope to grow our net worth to about $3.1m by 3/31/2018. We’ll then sell the condo, move to a cheaper locale, cash out the deferred compensation plan and plan for the following split in our assets (rough estimates, rounded):
- $1m in retirement accounts, not to be touched until later when Mr. ERN turns 60.
- Our income engine in early retirement: $2m in taxable accounts (about $1.35m at Interactive Brokers, $350k in private equity, $300 in public equity). Over time, we will shift some of the funds from the options trading strategy and into real estate.
- We plan a withdrawal rate of around 3.25-3.50%, based on our research. Make sure you also check out our white paper, posted at the Social Science Research Network (SSRN). It was recently ranked #9 of all recently posted papers!
- We also plan to have $30k in the 529 plan and another $70k in other investments, including a small cash cushion of a few months worth of expenses. This will be a very small cash cushion. Why? Recall our post from a few weeks ago where we wrote about the futility of keeping a large cash cushion to shield against an equity market drop.
- Notably absent from this list: we will most likely not own a home in early retirement, at least initially. We’ll rent for a while and weigh our options about when and where we like to settle down. Maybe we’ll even catch the travel bug like GoCurryCracker or Millenial Revolution for a while.
Wow, I can’t believe I just spilled the beans on our finances! It’s a bell we can’t unring now. I could have done the click bait thing where I dangle “Our net worth is …” in front of you and then after the WordPress “Read More Tag” just write:
“… easier to calculate than our savings rate“
or “… none of your business.”
or “… almost sufficient to retire early.”
or “… the result of careful planning and wise investment decisions.”
But what the heck. If 250 other bloggers can post their net worth, so can we. As we pointed out in our post a few weeks ago, our blogging community seems to be a pretty nice crowd. We’ll keep updating these numbers quarterly from now on, so stay tuned!