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 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.
To start with, let’s have a look at the split of our family’s portfolio 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.
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.
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:
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):
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.
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:
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!
About Banker On Fire
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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.
Find out more about me and this blog here.
If you are new to investing, here is a good place to start.
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