Sunday, March 1, 2020

Net Worth Update February 2020: $1,669,100.45 (-$130,243.25, -7.24%)

Welcome to my monthly net worth update! Here is how my assets, liabilities, and net worth have changed over the past month:

Beginning balance
on 2/1/2020
+ Cash inflow
+ $ P/L= Ending Balance
on 2/29/2020
% P/L% Equity
Current assets
Total current assets1,387,886.452,076.24(105,854.18)1,284,108.51-7.63%76.93%
Tax-deferred retirement account257,988.703,759.26(20,639.60)241,108.36-8.00%14.45%
Roth IRA101,410.76(9,689.40)91,721.36-9.55%5.50%
Other non-current assets368.0810.33378.412.81%0.02%
Total assets1,805,767.525,835.50(136,205.16)1,675,397.86-7.54%100.38%
Current liabilities817.87(90.66)0.00727.210.04%
Long-term liabilities
Student loan5,605.95(35.75)0.005,570.200.33%
Other non-current liabilities0.
Total liabilities6,423.82(126.41)0.006,297.410.38%
Equity (net worth)1,799,343.705,961.91(136,205.16)1,669,100.45-7.57%100.00%
Net worth: Bottom line up front, my net worth decreased by $130,243.25, -7.24% this month due to marked-to-market investment losses (-$136,205.16, -7.57%), partially offset by net cash inflow ($5,961.91, 0.33%).

Here is the breakdown of my balance sheet:
Cash: Most of this sits in my savings and brokerage accounts, with a little bit in checking account just enough to pay the bills. The moving target is around $10-25k cash for dry powder in case of a market downturn. My cash reserve has gone deeper into the red as I kept buying stocks especially into the selloff during the last week of this month. I cannot resist a good bargain!

Bonds: Most of my bonds are in Groundfloor limited recourse obligations (LROs), which are senior secured balloon loans for house flippers. I earn low double digit returns on these loans, which is pretty good, considering that most of these loans have a short term of one year or less. The Groundfloor loans have been doing pretty well. I still have a little over a hundred dollars in LendingClub loans, which I'm slowly winding down (no new investments and withdrawing any cash from interest and principal repayments). I also started an investment of $2,400 in Upstart unsecured P2P loans in July 2018. The Upstart investment is rapidly deteriorating; more charge-offs and delinquent loans, contributing to the negative return. It was a mistake. I should have learned my lesson from LendingClub never to invest in unsecured p2p loans. Well, sometimes it takes 2 stings to learn a lesson, and I have definitely learned mine now.

Stocks: This is the bulk of my net worth, held in taxable accounts to fund my early retirement and store wealth. Most are held in brokerage accounts with the rest in direct stock purchase plans (DSPPs). The goal here is to maximize after-tax growth.

Tax-deferred retirement account: This is my retirement account associated with my work, not to be touched till after age 59 1/2. It is currently allocated 50% Foreign and 50% US Small Cap. These two are the only stock fund options besides the S&P 500 index, to which I already have a lot of exposure in my taxable accounts.

Roth IRA: This is currently all invested in IJR to keep things simple. IJR is probably the best investment with all the desired characteristics: diversified, small cap, growth, quality, low cost. 

Home: Home value is from Realtytrac. The prior value was derived from Zillow, but Zillow has not provided an estimate for my home for many months now.

Gold: I currently have 10.77 troy oz of gold coins as part of my coin collection. Each month I multiply that by the spot gold price. I do not plan on adding to this any time soon, unless gold breaks below $800, then I will likely add some. If below $500, I will almost certainly add some. I do not plan on ever selling (transaction costs too high, and I do like to look at the shiny yellow metal from time to time).

Other non-current assets: Includes new 529 accounts I opened in anticipation of the passage of the SECURE Act paving the way to use 529 for student loan repayment. I could include other assets like furniture, car, clothes, books, stamps, coins, etc. However, since these assets are not income-producing and can also be a liability as some of them require cash expenditure to replace them, I choose not to include them here.

Current liabilities: These are accounts I owe and due within 12 months, mostly credit card accounts.

Student loan: This is loan I took out for college, now consolidated at a low 2.5% fixed interest rate. I had a variable interest rate until I consolidated my student loans last year and locked in a fixed 2.5% rate for 10 years in a graduated repayment plan. I am certainly in no hurry whatsoever to pay it back given such low interest rates. Stocks are expected to generate much higher returns. The extra leverage this affords helps to grow my money faster. My currently monthly payment is only $46.41, of which the cash (outflow) shown is applied toward principal which lowers the loan balance.

Other non-current liabilities: None at the moment.

Below is a chart of my net worth since I started tracking on a monthly basis. Due to my aggressive stock allocation, my net worth has mostly mirrored the stock market.

The bull market logged another correction, dropping more than 10% in just a few days during the last week of the month due to coronavirus scare. Losing more than $130k in a month, my biggest monthly loss in dollar amounts, is something I need to get used to, as my net worth increases and markets are increasingly more efficient, taking less time for prices to reflect changing fundamentals. It does not faze me to lose what I make in a year in just a month, because the market will rebound and go much higher in the long run.

My monthly performance against the S&P 500 is shown below:

2020My Portfolio ReturnS&P 500 TRExcess Return
Despite the big drop, February was a good month for me, as I lost less compared to the market. As Warren Buffett said, it does not matter what you make in absolute terms, but how you perform compared to the market. It's all relative.

Still, the 66 bp over the market this month does not make up for the whopping 300 bp loss last month, so YTD I am still down 211 bp. It will take a lot to make up for the huge deficit dealt in January.

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