Wednesday, May 14, 2008

net worth update year end may, 2008

Results for the 2 Months Ended May 15, 2008
  • Debt/Asset ratio dropped to 0.51% (very close to having 2x more assets than liabilities)
  • Net Worth moved up 11.3%
  • Total Assets increased 4.7%
  • Total Liabilities decreased 1.0%
  • House Value/Total Assets dropped to 69.7%
  • Non-Registered Portfolio grew 30.1%
Results for the Year Ended May 15, 2008
  • Debt/Asset ratio fell from 0.60% to 0.51%
  • Net Worth moved up 39.6%
  • Total Assets increased 12.5%
  • Total Liabilities decreased 5.4%
  • House Value / Total Assets dropped from 76.5% to 69.7%
  • Non-Registered Portfolio grew 107.9% over the year

Results for Two Years Ended May 15, 2008

  • Net Worth moved up 190.7%
  • Debt/Asset moved from 0.77% to 0.51%

In two years we grew our net worth by an average value of $4,168 per month. We also went from having $0.77 cents of debt for every $1.00 in assets, to presently having $0.51 cents in debt for every $1.00 in assets.


Wow, what a great bi-monthly report! A combination of several factors allowed us to rebound in a big way from the March, 2008 update. These include an employment income bonus, tax return, and stock market gains.

For the year, I am very happy with the results as we grew our net worth by $43,226, which amounts to $3,602 per month, or $7,204 per bi-monthly update. All of this occurred in an environment with generally declining stock markets. The S&P 500 index is down more than 6% looking one year back from today. Basically all of this tells me that a significant portion of our income went towards growing our net worth. I believe if we can continue this while we are young, it should pay serious dividends later in life.

*previous net worth figures were adjusted for an error that I made on a debt repayment calculation


pitz said...

I know you have the exact numbers, but here's my attempt at reverse engineering:

May 2008:
Total Equity = $152,482
Debt/Assets = 0.51
Therefore, Equity to Assets = 1-0.51 = 0.49.

Therefore, total assets = 152,482 / 0.49 = $311,187

Of which, your house = 69.7%, or $216,897

A year before:

Total Equity = $109,256
Debt/Assets = 0.60
Therefore Debt/Equity = 0.40
Therefore, total Assets = 109,256 / 0.40 = $273,140

Of which, your house was 76.5% = $208,952

So yeah, it doesn't appear that you're juicing your figures by quoting quite an inflated amount of appreciation on your house (unlike what I've seen in many other blogs, where the mark-to-market gains, at least for the past couple of years, were ludicrous).

I think you'll find it hard to sustain your overall ROE going forward if you keep reducing the liabilities. With the Prime rate having fallen so much lately, you'd probably be well advised to accelerate your mortgage prepayments, and fund future non-reg portfolio additions with a margin or HELOC loan @ prime, instead of in cash.

pitz said...

Also, do you quote your numbers net of tax liabilities or not?

Personally I consider taxes to be debt on my balance sheet, albeit at a zero rate of interest (until I sell, of course). Obviously, if you have a zero-rated loan, you'd never want to pay it off, just like I want to never sell my stocks. Seeing the tax liability there, in bright red on my net worth spreadsheet is a powerful psychological motivating tool, good, and perhaps bad, I guess.

pitz said...

And yeah, (last comment tonight, I promise), keeping your housing expenses under control probably is one of the biggest factors that is allowing you to build your wealth out as quickly as you are. $200k, give or take a few thousand, probably is fairly close to the replacement cost of a house; you aren't spending your monthly paycheque paying a big premium to live somewhere, and you're still earning a decent salary wherever you are. You'd be hard pressed to build a house, any house that's actually liveable, for much less than $150k-$180k these days (and the builder has to have some profit), so its fairly apparent that your tight expense control is paying dividends (no pun intended) in spades!

MG (moneygardener) said...

Hi Pitz, Thanks for the great comments. Your numbers seem very close.

What do you mean by 'sustain my ROE'?

No I do not use tax liabilities. I understand where you are coming from but I feel it would add complication.

I agree whole heartedly about the housing cost hurdle. We are living below our means in this respect.

Middle Class Millionaire said...

Phenomenal results! Congrats.

pitz said...

mg, ROE = return on equity (net worth). As you decrease leverage, your ROE trends increasingly towards your ROA (return on assets). Your results of the past few years have been spectacular because of the sheer amount of leverage that you employed (~4X leverage when you just started out, with, what I assume was a 25% house downpayment).

I do like your strategy of trying to achieve a high ROA, and that's why I read your blog -- for ideas on how to do that, companies to invest in, etc. Any old monkey can borrow a gazillion bucks and throw it in the stock market, the housing market, etc. -- but it takes true skill to make good returns in stocks, real estate, commodities, whatever without the heavy use of leverage.

MG (moneygardener) said...

pitz, your comments on this blog are awesome. We actually made only about a 10% down payment on our home.

I do often wonder if I could get ahead quicker by borrowing more money and investing it. I am likely a bit risk averse in this respect although that is essentially what we did to buy our house. I guess I kind of see the house as a big leveraged bet, so why add more. I might as well generate ROA off stocks, while keeping the leverage in RE.

Dividends4Life said...

Congratulations, that is an excellent report!

Best Wishes,