While I still don’t post any net worth updates
I begin most years running My Own Advisor with lofty goals.
This past year was no different.
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!
Takeaway: 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.
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, almost all of it. The bank owns the rest for now.
When you and I factor in our major home upgrades, money spent on general maintenance, interest payments to the bank, I suspect your real estate returns are less than you think.
So, another reason I don’t focus on net worth?
Takeaway: while my home is a big part of that net worth statement I can’t control the real estate market value either.
When it comes to real estate 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 or LIRA?
- 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!
Takeaway: if you’re going to track something, do it right. To accurately compute your net worth, you need to do it right and that includes taxation and depreciation values in mind.
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.
While I still don’t post any net worth updates summary
There are many reasons why basic net worth calculations are valuable.
1. It can provide a financial snapshot in time to understand where you’re at. Quick net worth calculations (assets – liabilities = net worth) are fine before you starting your investing journey to determine if you should be investing at all.
2. It is interesting to track.
3. Tracking net worth can be some form of motivation if you need it (to help you work towards your goals).
There are valid reasons to track net worth but I don’t obsess over it. I barely track it.
Because there are many factors out of my control don’t obsess over your net worth calculation.
Focus instead on what you can control. Focus on your savings rate. Focus on gaining more confidence about investing. Focus on developing a good financial plan and staying the course with your plan.
Do those very simple things well and I will almost guarantee your net worth will look after itself.
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.