Key Reflections And Takeaways From Our Most Recent Net Worth Update

Net worth update in market downturns

The day has finally arrived.

On Easter Monday, with our son dozing off for his afternoon nap and our daughter mesmerized by yet another episode of Peppa, I have finally managed to sneak into the home office and update the spreadsheet.

Over the past few years, I have become far less dogmatic on tracking our net worth.

It is time-consuming, we are not planning to retire anytime soon, and our investments are pretty much on autopilot.

In the past, I used to check our net worth every month. More recently, I switched to quarterly updates – and it’s as much a progress update as tying up all the loose ends related to financial housekeeping.

That being said, I will admit that I was approaching the most recent update with a certain sense of curiosity. When everyone else in the personal finance blogosphere is crying wolf, it does kind of want to make you look over your shoulder and check on the stash.

To be clear, today’s post is not about the actual numbers or our asset allocation.

To begin with, comparing your own net worth to others is not a productive endeavour. Everyone has a different starting point, income, cost of living, aspirations and many other aspects that influence their rate of progress.

If you want absolute numbers, read this and this instead.

Ditto for asset allocation. I am a big fan of US equities, which have treated me exceptionally well in my investing career. That does not mean everyone else should run out and load up on the S&P index trackers.

Instead, I would rather share some broader observations on the back of our decade-long wealth-building journey. My hope is that you will find them helpful references on your own path to financial independence.

Seeing Red

One of the advantages of just starting out on your path is absolute momentum.

Every month, you are ruthlessly reducing your debt. Your investment portfolio may be small, but it is growing substantially (in % terms at least) every time you make a contribution.

And if you are doing so in a bull market, it feels exhilarating! You are on a rocket ship and in control.  Let the good times roll!

Over time, that will change. The obvious benefit of building up a bigger portfolio is that your money is now doing more of the heavy lifting for you… until it doesn’t.

At some point, the market fluctuations will have a much bigger impact than your contributions – and it works both ways.  And that means you better get ready to see some red.

You and the stock market

What you see when you check your portfolio in a downturn…

Our most recent update is just the third time our net worth has declined over the past decade. The first time it happened was when our rental unit temporarily declined in value about seven years ago. The impact was minute.

Next time it happened was in December 2018. The stock market has come off nearly 20% and there was a pronounced hit to our portfolio. That one hurt a bit more – but the stock markets recovered in an eyeblink.

This time, the absolute decline was multiples of anything we have experienced before. It sure does not feel great, but it’s definitely par for the course.

If you are serious about building wealth, you need to get used to the feeling now. If you don’t, you may well end up doing something silly in the future.

What You (Don’t) See Is What You Get

I have not banged my favourite pensions drum for a while now so here goes.

Some people out there may have the strongest willpower in the world.

I don’t. And there’s certainly something magical about having the money you’ve never even seen in your bank account compound over long periods of time. Add a sprinkle of employer matching, a seasoning of a tax break and you are golden.

Less than a decade after we started contributing, our combined pensions now represent a significant chunk of our absolute net worth. Even if we were to leave them alone now, they would provide a very reasonable standard of living by the time we get to cash them in.

I won’t lie – it feels good. If you want to feel just as good in ten years, then you may want to read this and check out some of the related posts.

Yes, retirement is far away (by the way, for most people that’s good news!)

And yes, you can totally use the money now. Who wants to wait until they are 59?!?

But don’t forget that you don’t need to access the money to feel good about it. There’s something incredibly calming that comes with the knowledge that your retirement is taken care of. Trust me, your future self will thank you.

In addition, take advantage of whatever free lunches you can get. A SAYE plan is as good as it gets – you get to ride the upside while protecting the downside.

If your company offers one, you need to sign up pronto – this year you may even get the benefit of much lower starting valuations.

Don’t Wait To Buy Real Estate – Buy Real Estate And Wait

Between the lockdown and rent strikes, there’s a lot of talk about the attractiveness of real estate as an asset class.

No matter which way you cut it, long-term ownership of real estate is one of the most powerful ways to build wealth.

Sure, there may be a period of missed rent and increased vacancies over the next few months. However, it will leave nothing but a minor dent against the powerful forces of cash flow, price appreciation and mortgage paydowns.

It is really, really tough to lose money on real estate provided you buy a cash flowing property in a place with a growing population and decent macro prospects. Ignore this asset class at your own risk. I certainly won’t be.

Better Lucky Than Smart

Back in my MBA days, I’ve had a chance to meet Linnea Roberts, a very successful investment banker (who also happens to be married to one of the richest men in the world).

In our conversation, she recounted how back in the early 90s, she got the short end of the career stick by being placed into Goldman’s technology team. At that time, it was not the place to be.

Fast forward a few years and technology was all the rage. Linnea rode the wave all the way to the coveted partnership position at Goldman, a feat very few manage to accomplish.

In her own words: “Better lucky than smart”.

Closer to home, I’ve spent the  entire last year trying to do my next real estate deal.  Having failed at it, I ended up with roughly $500k of cash sitting on the sidelines, missing out on roughly $150k of stock market gains.

Needless to say, after the recent stock market meltdown, I don’t feel so bad about it anymore!

Better lucky than smart.

Personal finance can be incredibly frustrating – because you can do all the right things and still get the short end of the stick. Your index funds tank while your golf buddy is riding high on some silly crypto gains.

But at the end of the day, you’ll get your breaks too.  And if you are consistent in doing the right thing over a long period of time, you simply cannot lose.

About Banker On FIRE

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Banker On FIRE is a London-based 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.

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9 Comments

  1. Nice post, almost making me reinvest cash pot I’m sitting on. In my head I’m hating to use the phrase “this time it’s different” but it is. In any previous crash/recession business and people were free to work/earn/spend as they want and the market can recover.

    Today that’s not the case. Everything is on hold due to government intervention. It’s very hard to tell who will survive at all. The only think guaranteed to rise is gold.

    Real estate. Last year we sold all our investment properties. Yesterday I was chatting to the buyer and boy has he had a tough year since then. Councils changing rules. Charging more for all sorts of stuff. Students vanishing home and not paying rent. A planned refinance to allow more building work unable to proceed as the mortgage company would allow HMO (6 months ago it was ok) so a refinance was needed with fees wiping out 2 years income.

    As for lucky timing last year decided to buy a sports car instead of putting it in the stock market. So in the end the “loss” has been the same 😆

    • I have a more optimistic outlook based on the massive fiscal and monetary response. Governments worldwide have essentially cushioned both the economic and financial risk with their intervention and will do whatever it takes to keep it that way. After what is still perceived as a banker bailout in 2009, not supporting Main St now is political suicide.

      The main beneficiaries, as ever, will be the asset owners as low interest rates will underpin yet another asset bubble. So my bigger worry is what will happen once the dust settles. Higher taxes are a certainty. More inequality and divisiveness. The financial crisis has given us Trump, so what’s next?

      Love the sports car point 🙂 Which one did you get?

  2. Real Estate I keep umming and ahhing about tbh. I contribute a significant amount to pensions and am prioritising this but not filling these. I am also filling an isa most years now. Plus Saye and sip at work. However that doesn’t leave me much cash if anything which would mean I’d have to change my investment strategy and hoard more cash.

    With Isas I am happy to be almost fully invested Bar an emergency fund whereas if I had property I’d want alot more cash on hand.
    All this puts me off going into btl. I would totally consider it if I was an additional rate tax payer like you clearly are with a much smaller pension allowance. I’m also heavily exposed with my own property albeit not earning income.
    Would welcome your thoughts?

    • Given you own your own property you are essentially neutral real estate, which is a good starting point. The question then becomes about asset allocation as you correctly point out. Given you are able to double your money on the spot through pensions, I’d keep topping them up for the time being.

      Once your pension balance is where you want it to be, it becomes less clear cut. There are disadvantages to real estate as I’ve written about before but if you find a property with a 6% cap rate and can finance it at 2% with good LTV, equity returns quickly become very appealing. You just need to make sure the cap rate reflects proper vacancy assumptions, all the one-off costs etc etc (Steve’s comment above has great examples of things that can go wrong).

      The other advantage of real estate is that it’s (mostly) uncorrelated with the stock market.

      • Good point. Although I’ll probably be too old once I’ve got my pension where I want it and my isa. Aiming for about 300 to 400 k in the pension and maybe 250k in Isas before I think about property
        I’m a long way from that but hoping now I’m 200k in pensions and 100k in Isas I’ll start to see returns doing more heavy lifting

        • Is the £300k in pensions the amount you ultimately want there or is it the amount you want to build up before you refocus on ISAs and property?

          The mandatory nature of contributions is great but it makes it tricky from a planning perspective, especially if you continue working.

  3. I have a question about real estate. At this point I‘m not ready to buy a property for a few different reasons. I have a full emergency fund and investments in ISAs and pensions, about 90% equities.

    Are the other ways of getting into property any good in your opinion – e.g. REITs? Or is it better to just stick to index investing in this kind of situation?

    • I think the best way to start in property is to buy your own place. You learn the ins and outs of home ownership and then can turn the property into your first rental unit.

      It’s certainly what my wife and I have done. We closed on a place two weeks before I was admitted to an MBA program in the US. As a result, we ended up living in our flat for six months before moving out and renting it out. It turned out to be the best investment we’ve ever made.

      If that isn’t an option for personal reasons, I’d stick to equity index funds for the time being.

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