Net Worth Update February 2013 (+1.15%)
Welcome to the Million Dollar Journey February 2013 Net Worth Update. For those of you new to Million Dollar Journey, a monthly net worth update is typically posted near the end of the month (or beginning of the next) to track the progress of my journey to one million in net worth, hopefully by the time I’m 35 years old (end of 2014). If you would like to follow my journey, you can get my updates sent directly to your email or you can sign up for the Money Tips Newsletter.
Lets start with the stock market which basically traded sideways for most of February, but regained some strength at the end of the month. The TSX gained about 1.3%, and the SP500 approximately 1.2%, both including dividends. The relatively encouraging market returns helped prop our RRSP (+1.39%) and leveraged dividend portfolio (+5.36%). Mind you, most of the dividend portfolio gains is due to moving $5k into the account, which means my investment loan increased by $5k as well.
I’ve been really behind in the TFSA strategy where most of it is sitting in cash. I’ve written about putting REITs in the TFSA, but the problem is that most REITs have been on a tear over the past few years. So I’ve decided to amend the strategy to include sustainable dividend paying stocks that have higher than average yield, but have been oversold. The equities I have my eye on are HR.UN, IPL.UN and CPG.
On to the numbers:
Assets: $829,800 (+4.03%)
- Cash: $4,500 (+0.00%)
- Savings: $20,000 (+0.00%)
- Registered/Retirement Investment Accounts (RRSP): $139,000(+1.39%)
- Tax Free Savings Accounts (TFSA): $52,200 (+0.38%)
- Defined Benefit Pension: $41,600 (+0.73%)
- Non-Registered Investment Accounts: $145,000 (+3.57%)
- Smith Manoeuvre Investment Account: $118,000 (+5.36%)
- Principal Residence: $309,500 (+3.00%) (purchase price adjusted for inflation annually)
Liabilities: $99,800 (+5.39%)
- Principal Residence Mortgage (readvanceable): $0 (0.00%) (Paid off in 2010!)
- Investment LOC balance: $99,800 (+5.39%)
Total Net Worth: ~$730,000 (+1.15%)
- Started 2013 with Net Worth: $690,400
- Year to Date Gain/Loss: +5.74%
In my last update, readers suggested to chart my net worth progress over time. Below are the net worth values since Dec 2006 with data points taken semi annually.
- December 2006: $198,500
- June 2007: $254,695
- December 2007: $279,300
- June 2008: $310,483
- December 2008: $309,950 (rough second half)
- June 2009: $355,850
- December 2009: $399,600
- June 2010: $456,910
- December 2010: $505,800
- June 2011: $558,713
- December 2011: $585,228
- June 2012: $631,400
- December 2012: $690,400
Some quick notes and explanations to net worth questions I get often:
The Cash
The $4,500 cash are held in chequing accounts to meet the minimum balance so that we pay no fees (accounting for regular bill payments – ie. our credit card bill). Yes, we do hold no fee accounts also, but I find value in having an account with a full service bank as the relationship with a banker has proven useful.
Savings
Our savings accounts are held with PC Financial and ING Direct. We usually hold a fair bit of cash in case “something” comes up. The “something” can be anything that requires cash such as an investment opportunity that requires quick cash or maybe an emergency car/home repair. We also need cash to cover any future tax liabilities.
Where Does the Savings Come From?
We don’t live a lavish lifestyle (how we save money) and do not carry any bad debt. The only debt we have is an investment loan (which pays for itself), so we end up pocketing a majority of our earnings. Our earnings come from salaries, private business income (via dividends to shareholders), and eligible dividends from publicly traded companies.
Real Estate
Our real estate holdings consist of a primary residence and REITs plus a rental property. The value of the principal residence remains valued at the purchase price (+inflation) despite significant appreciation in the local real estate market.
Pension
The pension amount listed above is the value of both of our defined benefit pension plans. I basically take the semi annual statement and add the contribution amounts (not including employer matching) on a monthly basis. The commuted value of the pensions are not included in the statements as they are difficult to estimate.
Stock Broker Accounts
Another common question is which discount broker do I use? We actually have accounts with multiple institutions. I’m hoping to reduce the number of accounts that we hold in the near future. Here is a review of some of the more popular online stock brokers.
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Congratulations MDJ. I think we are probably in a similar position to you. I tend to focus more on dividend paying stocks, with a goal to drive $50k in passive income from these. I view the net worth that results as more of a byproduct, but find this nicely tracks dividend income increases over time. We currently track to $27k /yr of dividend income. I expect networth to cross the $1M mark in another year or so. Its great to read your story and see the application and hard work.
Integrator
@Integrator – congrats on the significant passive income thus far! What is your dividend investment strategy?
Hey FT,
I’ve been following your blog off and on for some time now, and have been trying out all the strategies you suggest (which are all very good strategies btw), but it seems really difficult starting out to grow my net worth to the degree that you seem to have been able to. I was looking at some of your past posts and you claim that you and your wife graduated with 40k in student debt, a 25k car loan, and a 100k mortgage (I am in a very similar situation). I’m assuming you had at least some assets which would include the unstated value of the house, worth a minimum of 100k. That means your 2003 net worth was, at minimum, -65 000 plus whatever other assets you had at the time.
By June 2007, your claimed net worth was 254 695. This means that your growth over that time period was at most 319 695 (254 695 + climbing 65k out of the hole). Therefore your net worth increase for the years ’03-’07 was on average 79 924 per year.
I am in what seems like a similar situation to you (tens of thousands in student debt, car loans, mortgage, engagement ring, etc), but I am having great difficulty saving a fraction of what you were able to. How did you get through these first few years with so much gains?
@Patrick, you sound skeptical. :) Within the period of 2003 to 2007, we saved like crazy, paid off our student loans, paid down the mortgage as much as possible, leveraged and purchased another rental property, kept costs as low as possible (rented out a portion of our home), drove economical cars. Note that we are both professionals, so our salaries rose substantially during that time, but our lifestyle remained the same, which meant higher savings. Finally, we didn’t have our first child until 2008. :)
I think calculating in future taxes is beyond the purposes of this exercise. You’d also have to consider future capital gains taxes on the investment loan increase… which again is determined by when you plan to sell them (if ever). Complex and not really necessary for calculating a net worth that is just used to compare against an arbitrary goal ($1 million).
Sarlock: Present value of future tax payable is always estimable based on your current plan, if you have any. Plans can change so you adjust the estimate accordingly.
FT: I have a DB pension, so withdrawing my RRSP will always result in a tax liability (after age 60), no matter how slow I take it out.
Hi FT,
I noticed that you verify these postings before putting them up…this is more of a request to you than it is a comment. I find entering capital gains from non registered accounts so tedious, I was wondering if you wanted to make a post regarding this. Someone has to have created an excel file that can handle various data outputs from discount brokerages, it could be worthy of a discussion.
Cheers
This is unrelated to this topic, but given that most readers use Questrade I thought this would be useful.
Calculating capital gains outside of a registered account is a very large annoyance. Questrade gives a CSV that you can export with the data that you will need to use, but if you want to use this CSV, you still have to make a lot of adjustments to calculate capital gains.
I created an excel file that should be useful. When you post this questrade data in questrades export format, it automatically calculates all of your capital gains for that year based on the CSV (as long as you sort the data according to ticker, and then date lowest to highest).
I want to share this with all of the readers so that it can be perfected. If you are interested in playing with this spreadsheet and especially updating and proofreading it, email FT for a copy.
Consider this scenario:
FrugalTrader and Mrs. FrugalTrader decide to split up (hoping this doesn’t happen, buddy… I’ve seen how nasty it gets).
To keep things “simple” they decide to liquidate everything and go their separate ways. To do this, they need to sell everything, split the result 50/50, move to a different neighborhood they can both afford with the cash flow at the time (with near $500k each that won’t be too hard), but close enough to share the kids.
So, what happens to the house?
It gets sold. It’s an asset that needs to be split (which will include costs, which should probably be taken into account). As do liabilities. They need to figure out the net worth through immediate liquidation, and split the difference that results.
Now, there’s some wiggle room in this. A very short sale on a home will give a much lower price than waiting a few months for a good offer. As will doing an auction (which is more common in some parts of the world). The timing of liquidating investments will have varying tax implications. There’s much more to this, but it should give the gist. All of this means that it’s near impossible to have just one number that represents Net Worth. Really Net Worth should be a “reasonable” range. If I had to sell everything today (and pay the tax implications), then in the best case the net at the end of the day would be at least $x, and at most $y. It seems that FT keeps this in mind by going with a somewhat conservative “inflation” based valuation of the residence. That probably counteracts not taking into account the tax liabilities of liquidating the investments (though now investments are growing sizable enough that the balance is likely tipping).
If you have to go with just x or y or z (which is between x and y), then as long as it’s consistent the measurement is reasonable for tracking against some goal. The only thing that value really affects is whether he’s “won” the game of getting to $1 Million by a particular date.
A side question (related to all of this) that I’ve often wondered while reading this is: what does a $1 Million net worth mean in the context of this blog? It seems to be the sum of the assets and liabilities of a small family. But if Mr & Mrs FT were to split the moment the magic $1M goal was hit wouldn’t he really only have a net worth of $500k (and potentially much less if the kids are to get some of their due)?
Just a thought.
>>>>Similarly, the $139k is FT’s fantasy world RRSP value, one without taxes…
Ah yes, fantasy world without taxes. You’re talking about Alberta, right? :)
Sampson, it makes a lot more sense if you say:
Networth: $500,000. And what good is that going to do you since you never expect to do anything with it? There’s a purpose to measuring your networth, normally tracking retirement savings growth or debt repayment, and for most of us home ownership contributes nothing to our goals. Home ownership just…is. It’s technically an asset, but realistically, there’s almost nothing we can do with it.
Anyway, it’s semantics. I just assumed house value has little to nothing to do with net worth in a practical sense. In a technical sense, yeah, it counts I guess.
The plan with an RRSP is to try to pull it out with as little tax owing as you can. It’s not possible to estimate what this tax impact will be at this stage so it’s just best left how it is… an early retirement can use a good chunk of an RRSP with very little to no tax.
I am very confused about this set of comments.
So if I had 0 in investments, yet owned (outright) a home worth $50,000,000…
my networth would be… 0
(makes no sense to me)