While I still don’t post any net worth updates
I begin most years running My Own Advisor with lofty goals.
2019 was no different.
You can see how we achieved some of our goals in recent years here:
Goals are great. But when it comes to net worth goals or any related net worth valuation posts, spoiler alert, you won’t find those in any detail on my site. This post will explain why.
- I can’t control the stock market returns
Passionate index investors remind me there is nothing “magical” about dividend investing.
You know what – I agree.
However….while juicy, growing dividends are never guaranteed they do represent business stability and therefore dividend payments can be optionality for the investor.
Dividends can be taken as cash, or reinvested over time to make more dividend income, with some evidence below to prove it.
So, what does my focus on dividend income have to do with my net worth? Actually, a lot!
Because I focus on the income my portfolio generates, which I do monitor, I don’t really care what stock market does or doesn’t do short term. I don’t focus on the net worth of my portfolio.
When it comes to managing my portfolio, ignoring any short term market noise (along with announcing whether my invested portfolio value is up or down) – helps me stay the course. Your mileage may vary.
- I can’t control the real estate market
Own a home?
Me too, well, about 80% of it. The bank still owns the other 20%.
That said, we when bought our current home we had expectations it should rise modestly in value over time.
Damn, that was wishful thinking!
When I factor in our major home upgrades, money spent on general maintenance, interest payments to the bank, I’m not sure we’ve made much profit on our house over the last 8-9 years living here. Crazy when you think about it. Depressing to a point. Aren’t houses supposed to be “good debt”?
So, another reason I don’t focus on net worth? While my home is a big part of that net worth statement I can’t control that market value either.
Yes, real estate assets might be fun to track but I don’t dwell on those numbers.
I have to live somewhere. You probably do too.
- If I’m going to do something, might as well do it right
Do you know the present value of your pension?
Do you know the after-tax value of your RRSP?
Do you know the depreciated market value of other assets like your car, your boat or another sellable asset at current market prices?
Yeah, that’s what I thought. Me neither!
To accurately compute your net worth, you need to do it right and that includes taxation and depreciation values in mind.
Too detailed? Maybe. Is that the correct way to do it? You bet.
Corporations can’t get away with fluffy accounting for long (unless you’re Nortel!) and you shouldn’t either as the CFO of your own financial affairs.
There are many reasons why net worth calculations are valuable.
1) It can provide a yardstick to understand where you’re at. I would suggest you do a net worth calculation before you starting your investing journey to help you understand where you stand. Maybe you shouldn’t be investing yet at all.
2) It is interesting to track – net worth calculations can help trend if assets are growing faster than liabilities.
3) It can be motivation to help you realize your financial goals.
There are very valid reasons to track your net worth. I do my own back-of-the-napkin math just for fun every now and then but that’s where it ends for me.
Because there are many factors out of my control – I would suggest you don’t obsess over your net worth calculation.
Focus instead on what you can control like your savings rate, gaining more confidence about investing, and staying the course with your debt-destruction plan over time. Do those simple things well and I will guarantee those net worth numbers will rise without much encouragement.
What are your thoughts on net worth calculations? Agree or disagree? Am I missing out on this site by not posting that stuff and broadcasting it to the world? Let me know your thoughts as always.