A Banker’s Net Worth

Banker Net Worth

Many folks in the personal finance blogosphere seem to have a nearly real-time grasp on their portfolio.

I, on the other hand, find myself at the opposite end of the spectrum.

That means updating our family’s net worth tracker a few times a year at most – perhaps once a quarter – and any time there’s a significant windfall, bonus payment, or a life event.

The key objectives, other than sizing up the “stash”, are pretty simple: re-evaluate our asset allocation and do some good old financial housekeeping.

That being said, it’s also a great opportunity to stay honest with my readers.

Do I actually practice what I preach? Is it really all about passive equities and a healthy portion of real estate?

Or am I one of those fellows who knows a thousand ways to make love but doesn’t know any women?

Let’s find out.

The Backdrop

The rules of the road are pretty simple.

No, I will not be disclosing the absolute net worth number, though long time readers of this blog would probably have a decent idea (hint: well past the first million, but not yet in the coveted eight-figure territory).

And yes, I do think in dollars.  I grew up stateside and will most likely end up living there again sooner rather than later.

If you are new here, you may want to refer to my last portfolio update from November 2020.  Always interesting to see how things evolve over time!

Finally, you may want to review the five questions you should ask yourself when updating your net worth.

Portfolio Snapshot

To start with, let’s have a look at the split of our family’s portfolio by asset class:

By Asset Class

Since the last time I published an update, we bought another property, paying just north of $1.6m for it.

Hence, the proportion of real estate has gone up from 23% to 33% (note this is net of mortgage liabilities, not the headline amount), while equities and cash have declined.

However, our cash holdings are still significantly north of the c. 7-10% target levels, which is primarily a combination of three factors.

First, it’s a reflection of an outstanding year at work, which culminated in a solid bonus.

Second, it’s the recent cash-out refinance of our property, which added another $250k to our cash holdings.

Third, it’s the fact that we are looking to buy one property a year.

By default, that implies sitting on a chunk of cash until a good deal comes along.  Otherwise, that cash would long be sitting in a nice low-cost index tracker.

Cash Is… Trash?

I won’t lie, holding this much in cash is never comfortable, and it’s getting more uncomfortable with every passing day.

Historically, I would only have to worry about the opportunity cost of not being invested in the stock market.

But these days, I’ve also got to grapple with inflation, which risks decimating the real value of our cash holdings by about 10% a year.

The added challenge is everything that’s going on with interest rates at the moment.  Mortgage rates have moved very meaningfully in a span of weeks.

At the time of this writing, the 15% year fixed rate has just crossed 4.2%.  Last time it was this high was December 2018.  But… housing prices are not even close to where they were in December 2018.

Mortgage Rates

Source: Mortgage News Daily

Now, I am not saying that housing prices should, or will, revert to those levels – there are many other factors in the mix over and above mortgage rates.

But in the commercial real estate market, which is where I play, prices do move in line with rates.  And at the moment, it seems like many sellers haven’t yet come to grips with the fact that the value of their properties is about to decline.

Thus, my only option is to stay patient while exploring ways to hedge our cash holdings against inflation.  It’s an inherent challenge in real estate investing and sadly not one that gets a lot of airtime.

Crypto Riches

As you can see from the chart above, crypto now represents a whopping 0.7% of our overall portfolio.

In absolute terms, it’s actually a pretty meaningful amount, but there’s still a lot of work to do to get it up to my target range of 5% or thereabouts.

I will admit that recently, that “work” has been getting harder.

It’s not easy to buy four figures worth of Bitcoin, Ether, and Solana every month when the prices are tanking.

To make matters worse, the platform I use (Kraken) doesn’t offer an automatic investment plan, so I’ve actually got to click on “Buy” three times a month.

And yet, I keep buying.  I have a view on crypto and a five-year investment strategy which I plan to stick to.

Sadly, if recent volatility in crypto is scaring you off, you’re simply ngmi.

Our Equity Holdings

On a more “traditional” note, below is a snapshot of our equity portfolio:

Equity Breakdown

As you can see, my love affair with US equities is still going strong, notwithstanding all the years we’ve been together.

88% of our equity holdings are in low-cost index trackers.  The other 12% represents stock awards my wife and I receive as part of our compensation.

Sadly, we are currently underwater on both of our share awards – bank stocks have taken a bit of a pounding as a result of Russia going bonkers.

Hence, one of my to-do’s is to sell our shares (which are currently held in taxable accounts) and re-purchase them within our ISAs.

The idea, of course, is to avoid a capital gains tax – as any capital gains within our ISAs will be tax-free.

Before you ask – yes, I am fully cognizant this looks, walks, and smells like active investing.  But… I just can’t help myself.

Behavioral bias looms large, and after taking a hammering on these stocks in the past few weeks, I’m not about to crystallize a capital loss.  Feel free to beat me up in the comments!

Can’t Touch This

Equally important to the net worth picture is the split of our equity holdings between tax-deferred accounts (i.e. our pensions and LISAs) and the ones that are instantly accessible (ISAs and GIAs):

Deferred vs Non-Deferred

As of today, the vast majority of our stock market investments are in deferred accounts, which means we cannot access the investments for another 20 years or so.

Philosophically, I’m okay with that.

Utilizing our pensions and lifetime ISAs allowed us to take full advantage of both employer matching and generous tax breaks:

Pension wealth boost

This was particularly important for me, as I was eventually hit by the pensions taper.

The good news is that we are now in a place where our retirement is pretty much sorted.  And so, we can focus on building up the non-deferred accounts.

It’s these investments, alongside our real estate portfolio, that will pave the way to early retirement for us.

Not On The Spreadsheet

Finally, there’s a very important aspect of our net worth that actually ISN’T captured in our spreadsheet or the charts above:

Deferred equity.

Ahh, the two words that strike fear and loathing into the hearts of investment bankers and fundamentally change the economics of those lofty bonuses.

Back when I was a junior banker, I always thought it was a high-quality problem (which it probably still is).

These days, I’m not as relaxed about it – not least because I’m sitting on a deferred equity amount equal to about 15% of my overall net worth.

For avoidance of doubt, this is over and above the bank stock holdings you see above.  That bit is the equity that has already vested.

The positive way to look at it is that over the next couple of years, I will see a very meaningful chunk of equity transferred into my brokerage account.  If anything, it’s a nice way to have some predictability on my comp.

At the same time, I am (sadly) old enough to remember Lehman, when bankers lost millions in equity awards overnight.

I am also cognizant that every ear, my deferred equity balances will keep going up, as a function of (hopefully!) an increase in comp and stature.  The further up you make it in banking, the higher the equity component.

There aren’t many ways out, either.

One is to reach a retirement age, which is defined as your age + years of service.  For most bankers, it’s usually in their early 50s.

The other option, ironically, is to get laid off.  Yes, you get escorted through the lobby – but your share awards tag along with you.

Finally, you can transfer to a new employer (usually in the corporate world) that is willing to buy you out – and has a less draconian deferral policy.

Sadly, two of the three options imply spending quite a few more years in the workforce – but we’ll cross that bridge when we get there.

In the meantime, thank you for reading.  I hope you found some of the colour and strategies above useful.

As always, happy investing!

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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.

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19 thoughts on “A Banker’s Net Worth”

  1. Hi Damian, excellent post as always. I have been new to your blog (and the whole FIRE space) and currently been reading up your posts over the last few days – they are very enjoyable! I hope I can ask you what I am sure would be a very basic question – what do you include in net worth? I assume it would be cash, stocks, any real estate equity (net of liabilities) and deferred accounts (pensions/LISA’s) and any other investments. Anything else? Would you include Junior ISA’s – obviously the children are legal owners.

    1. Banker On FIRE

      Cheers Mkal.

      Yes, all of the above + crypto, though some folks have a different view.

      We do ours at a household level, so I’d include the JISA until the kids are old enough to fend for themselves 🙂

  2. Really interesting to see what other people do.

    I take stock monthly:
    – I dont include investment property as it’s a “permanent hold” and illiquid and MTM is a bit of a guess. Probably should though.
    – I do include crypto as it moves around so much
    – however I only set asset allocation target for “proper investments” – ie I treat the crypto as a side pot; perhaps indicative that I still have it mentally modelled as a punt… probably not entirely clear headed thinking
    – I tend to only rebalance once a year unless something out of the ordinary happens (eg a windfall or a big market drop that makes me want to buy in)
    – Cash is all held in an offset mortgage and is probably a borrowing anyway given I have mortgage debt so again I keep this out of asset allocation calcs
    – I run the numbers for my wife and I and essentially treat it all as one portfolio. Kids accounts are in global trackers and I log in to them once a year to do an annual top up

    Re Deferred Equity – the best way to leave a bank is to get a pay off – free cash and everything vests. Wouldnt think about doing it a different way 🙂

    1. Banker On FIRE

      Hah, tell me about it re: best way to leave the bank!

      Sadly, the only way I know of to get a payoff is to get laid off, which comes with it’s own host of challenges as far as future employability…

      But financially speaking, it is hands down the best way to have your cake and eat it too!

  3. Unclear if you are a US citizen or just grew up there but be careful placing ETFs or mutual funds in UK ISAs with PFIC regulations. And any single stock holdings there would still be taxable capital gains to the IRS though exempt with HMRC. The annual LISA bonus might need to be declared on US tax return as income too but I don’t know that for a fact. The fun of being an American abroad…

      1. Do you have any articles detailing the intricacies?

        I am an accidental US Citizen at the start of my accumulation journey and can’t seem to find answers on ISA eligibility, capital gains tax owed to the US, US tax on property income and my US tax reporting requirements!

        Any resources you could point toward would be greatly received.

        1. Banker On FIRE

          It’s a tricky one

          At its most basic level, the tax treaty between the US and the UK is designed to avoid double taxation. So in effect, if you are a 20% tax payer in the UK and a 25% taxpayer in the US, you will only pay an extra 5% to the IRS.

          In practice, however, there are multiple complexities/exceptions. I think you are best off consulting an accountant, which is what nearly all of US expats here do.

  4. I was a monthly or even more frequent.now I am trying hard to not update prices except semi annually. In the meantime I update purchases, divivies and other action taken in the xls.
    For someone going back to the states where property prices are a lot lower than uk but annual tax higher – how do you think about that piece of the puzzle ?

    I am geographically diversified but looking to put some cash to work in the US into commercial property. Haven’t found the right vehicle or set up as yet. Any thoughts or tips worthwhile (I need a manager as not willing to be hands on in a jurisdiction am unlikely to visit much – European family and live in Oz)

    The only other item I evolved to that may be of interest is to plot out your year by year cashflow (including deferred comp probability weighted if you like etc). I found this gave me a lot more comfort around the gap between now and date of access to pensions – ie how to cashflow fund it even if the swr across global portfolio is fine..

    1. Banker On FIRE

      Thanks Andy

      So I do have a deferred equity “waterfall” for the next 4 years or so. Problem is those pesky banking stocks, with share prices never moving in the right direction (I.e. highest at bonus time and all downhill from there!)

      North American property investment is a tough one. Realistically, I would not have gotten in that game had I not lived there / knew the area / had family and industry contacts. For direct ownership, you really need to have a good grasp on the local markets.

      Have you considered crowdfunding at all? That would be my fallback option (but you do need an LLC in the US)

  5. Hi Damien,

    Great post as always – out of interest, what would you say the rough proportion is for your net worth that comes from investment gains vs earnings from employment. Would you say a large part is from capital gains in real estate investments?

    1. Banker On FIRE

      Thank you – and a great question.

      To be perfectly honest, I don’t really know. Real estate is easier to track – I would say about 20% of total net worth is due to property appreciation over the years. That being said, I am being quite conservative on the value of properties in our portfolio.

      Equities are impossible to figure out as splitting out the contributions vs investment gains is something I’ve never done. Wish I knew the answer though!

  6. Thanks BOF!

    As always an interesting read!
    I can’t believe I just saw you use the acronym “NGMI” ?
    So are you are crypto bro now!?
    Just kidding 🙂

    I’m curious of your plans to FIRE. I assume you have a number ($10 mio+ I assume)? And how close are you to reaching it?
    Have you never been tempted to invest your cash stash? It seems the great deals are getting harder and harder to come by (it’s not getting any easier here in DK either).
    Is your real estate portfolio primarily in the US or UK? Just curious 🙂

    1. Banker On FIRE

      I’m a crypto mini-bro, what with my puny exposure and (what I consider to be) a rational approach 🙂

      All of our real estate is stateside. I do continue investing in the stock market, but real estate is a big part of our strategy. Am confident deals will come – just a matter of being ready to pounce when they do!

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  8. I tend to disagree with the way you classify your property investments (ie only accounting the equity slice of the investment as real estate). Don’t you think it would make more sense to account for the full value of property and classify the mortgage as negative cash (as you as are “exposed” to the full notional value of the property and not just the equity slice)?

    Fantastic article nonetheless

    1. Banker On FIRE

      Thank you and you are right – I’m very alive to the fact that my value at risk (to borrow a banking term) is far above the equity I’ve got invested in these properties. I’m sadly old enough to remember house prices in the US declining by 40% or more.

      So I do track the asset allocation based on headline values as well, but find that looking at it on a net basis makes it easier to figure out my returns on each asset.

      I.e. I’ll get c. 8% on my equity holdings (42% of total), about 10-12% on real estate (33% of total) and zero to -10% on the cash

  9. It should be relatively simple to hedge your deferred equity by buying put options on a platform like Interactive Brokers? I assume your employer is one of the large US banks with a liquid market.

    No idea what the cost would be and assume it will be elevated now given recent volatility.

    1. Banker On FIRE

      Technically, yes

      Practically, all of my trades need to be pre-approved by compliance and am sure they won’t be thrilled that I’m buying put options on the stock. Am quite confident actually there’s something in my contract that precludes me from doing so!

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