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 85% of it. The bank still owns the other 15% at the time of this post.
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. 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.
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?
- 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.
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 yardstick 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 motivation (to help you work towards your goals).
There are valid reasons to do it but I don’t obsess over 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 debt-destruction plan over time.
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.