Time flies! It’s been six months already since our inaugural Net Worth report. For some reason, we never did a Q2 update! Actually, there is a reason. Watching the ERN family portfolio progress is a little bit like watching paint dry. It’s slooowwww, at least in percentage terms! Every year in the first quarter, we get a nice noticeable bump when the annual bonus rolls in, but outside of bonus season, we feel a bit like living paycheck to paycheck! OK, that’s an exaggeration because we still max out our 401k contributions and pay down the mortgage principal (which we consider savings). But about half of our savings come from one single paycheck and the other half is spread over the remaining 23 paychecks. That’s the privilege of working in the finance industry! So in Q2 and Q3, we might have added a little bit of savings, but the growth in our net worth came mostly from the pretty solid returns in our different investments.
Let’s look at the numbers in detail…
So, here’s the Net Worth update for Q3, and I throw in the Q1 and Q2 numbers for comparison as well: Almost $200k higher than six months ago! Unless there’s a $65,000 tax bill in the mail that we don’t know about yet, our net worth crossed the three million dollar mark and grew to $3,064,822 as of 9/30! Awesome!
A few comments about where the growth came from:
- Our total Net Worth is up by 6.67% since 3/31. The growth rate would be 8.55% if we look only at the assets outside of our primary residence home equity.
- For the most part, we benefited from the strong performance in stocks. Since 3/31, the S&P500 gained about 7.7% with dividends reinvested!
- In the accounts where we still make regular contributions (401k, HSA, 529) we see the largest percentage increases, quite a bit higher than even the S&P500 return. Makes sense!
- Our various real estate investments currently pay roughly an 8% p.a. dividend (i.e. 4% during the two quarters). It’s paid out in monthly and quarterly installments. We transfer the dividends to the other accounts every month, so the growth in the value of the Real Estate investment portfolio came entirely from an additional capital call (contribution) into one of the funds.
- Our options trading strategy performed really well over the past two quarters. The 7.93% gain even understates the actual return by a bit because there was a net outflow from this account to fund the capital call in the real estate fund. Not bad considering that an 8% return is actually what we budget the strategy will make per year once we’re in retirement.
- According to Zillow, our home value went down in each quarter. Note, this value already takes into account the transaction costs (broker, fees, etc.). The home equity increased a little bit in Q2 but only due to paying down the mortgage. But in Q3 the home price fell further and even the mortgage principal paydown couldn’t reverse that. To be sure, the change was a small percentage of the home equity and an even smaller percentage decline of the home value, but this is definitely something we’ll monitor. One more reason to argue that a home is not an investment. It’s a consumption good!
Where do we go from here?
In our Q1 2017 net worth update, we had assumed a $3.1m retirement goal for our retirement date in Q1 of 2018. Wow, we almost reached that already on September 30! Hoping I don’t jinx anything, I’ll increase the net worth target to $3.2m for March 31, 2018. With moderate equity returns and a nice bonus in Q1, we should be able to get there even if the property prices in our area keep going sideways or even slightly down.
A few changes in the plan since last time: We don’t believe we’ll sell our apartment by 3/31. Likewise, we will likely not get access to the deferred compensation plan until the second half of 2018, maybe even early 2019. I think my company wants to make sure Big ERN hasn’t been running a secret Ponzi Scheme at the office and will hold back part of the compensation until later, just to be sure. The things we deal with in the finance industry!
Once we sell our home and get the loot from the deferred plan we’ll start shopping for a house in our new (tax-friendly!) location and put the rest into the options trading strategy, one of the cornerstones of our drawdown strategy. Actually, capital preservation plan would be a more appropriate term!
So, it looks like our retirement plan is getting more concrete. We will pull the plug in early 2018 and also go public around that time! In fact, the first public event for me will be the Camp FI in Virginia in April next year! If you want to attend, too, make sure you secure your tickets soon. I hear they are close to selling out!