Friday, 4 July 2014

June 2014 Annual Net Worth Review

As promised for several months I have compiled an annual net worth review which will attempt to not only give you an insight into how I have performed over the last twelve months but also a better look at how I structure my portfolio and my reasons for doing so.  I have never provided this level of detail before in a post so I hope you find it interesting.

A brief look at my 12 month net worth performance

Over the last 12 months my net worth increased from $368,000 in June 2013 to $503,000 in June 2014 however as you can see from the chart below this was almost all an increase in my assets with my liabilities staying flat reasonably flat.  If you look at my portfolio construction below you will see why my liabilities barely move month to month.

My liabilities stayed flat over this period but my asset performance was what drove my net worth result.  A summary of my net worth performance is as follows:
  • My assets increased from $724,000 to $860,000 an increase of 19%
  • My liabilities increased from $356,000 to $357,00 an increase of 0.3%
  • My net worth as a result increased from $368,000 to $503,000 an increase of 36.5%
My asset mix shifted
significantly over the period as well.  If you look at the two charts below you will see what my assets (excluding liabilities attached to these assets) looked like in June 2013 versus June 2014:

I value my investment property at it's book value and although the value of the property may have shifted over the year my net worth does not account for this.  Other assets are marked to market however and saw a proportionate increase in their weighting in my portfolio.
  • Cash moved from 14% to 16% of my assets 
  • Shares moved from 18% to 25% of my assets
  • My superannuation moved from 7% to 8% of my assets
Note that if you want the actual dollar value of each of my asset classes at the start and the end just multiple the above numbers by my asset values above ($724,000 at the start of the period and $860,000 at the end).

A look at my net worth performance through time 

Although it is interesting to see my net worth performance over the year, one of the advantages of having tracked it for this long is that I can start to see how I am performing over the longer term.  

The chart above is fairly interesting for several reasons:
  1. Firstly you can see that my net worth improvements have started to plateau - my ability to influence my net worth through pure savings along diminishes as my wage and savings becomes smaller relative to my portfolio
  2. Secondly my ability to bank and save my net annual bonuses is what gives a real kick to my net worth every year - it will be interesting to see what this chart looks like next year when I 'blow' my bonus on a sports car this year

Portfolio construction

I have been asked before what drives my net worth performance so for the first time I thought I would set out how I structure my portfolio and why.


I think about my assets in 4 separate classes: cash, shares, property and superannuation.  I know that technically superannuation is a vehicle and not an asset class in it's own right however I treat it differently - for me it is a set and forget type investment which is why it has it's own category.

If I look at each of these asset classes in turn:
  • Cash (14% of assets)
    • My cash balance is extremely high for someone my age and you may be wondering why
    • I am actually saving for my own property in 2 - 3 years from now and I want to take as small a  loan as is possible when I buy my property (due to the lack of tax advantages of having a personal property loan).  I do not have this cash in shares because shares are too volatile over the short term 
    • While I am building my cash balance I keep it in an offset account effectively earning me the interest rate on my home loan (currently ~5%)
  • Shares (25% of assets)
    • My shares are the fastest growing and most volatile part of my portfolio
    • It includes my direct share investments (84%), cash in my share trading account for new opportunities (3%), my restricted cash and shares (7%) and managed funds (6%)
  • Property (51% of assets)
    • I value my investment property at the amount I bought it for - I'm sure that I have some sort of gain on this property but I'm not going to mark to market every period.  If I ever have it officially revalued for any reason then I will update this valuation
  • Superannuation (8% of assets)
    • I hold my superannuation in a 'balanced' portfolio.  I understand the rationale for having it in a high growth option given my age however I prefer to be more aggressive in my own personal share investing and to have a beta hedge through my superannuation portfolio


I only have a few basic classes of liabilities
  • Investment property loan (98% of liabilities)
    • This is an interest only loan - I could pay it down however I use it almost as a floating facility to pay for all my other investments
    • As my assets have gone up and my loan has been held flat I have effectively been degearing significantly.  In normal situations I would look at gearing up again however buying my own property in a few years has me a bit more cautious on this front
  • Credit card liability (1% of liabilities)
    • I pay off my credit card bill every month and this amount varies greatly from month to month
    • I never pay interest on my credit card and only use it as a form of payment and not as a long term form of debt
  • Tax liabilities (1% of liabilities)
    • As I buy and sell shares I create tax liabilities which need to be paid and I keep track of this in my net worth tracker - to date it has not been a large part of my thinking

Portfolio structure

I am a minimalist and prefer to keep things as simple as possible.  As such I do not have any trusts or self managed superannuation fund structures in place.  Maybe at some point in the future when the benefit of this outweighs the cost of the complexity I will consider it however for the moment all my assets and liabilities are in my own name.

My goals for the coming year

Setting a net worth goal a year in advance is inherently tricky however it allows me to put a line in the sand.  Last year I aimed for a net worth of $550,000 by the end of the year and I got to $503,000 which I was reasonably happy with.  This year I am going to have the same goal of $550,000 as last year.  Although this may look like I am undershooting I have done this because I have some very large expenses coming up this year including:
  • ~$10,000 on an engagement ring
  • ~$50,000 on a wedding and honeymoon
  • ~$20,000 on a car
Excluding these my goal for the year would have been $630,000 which would be achievable, if a stretch.  If I manage to achieve more than the $550,000 for the year I will be incredibly pleased.

Do I still think $90 million is achievable?  Definitely although it will take time.  My 5 year goal is $1 million dollars and hopefully my new businesses and an increased focus on my investments will get me to this point.

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  1. Great breakdown mate! Very scientific!

    Have you tracked your journey to $90m on an exponential curve to see whether you're on track?

    Huge jump in your net worth in such a short period of time! Congrats!!

    1. Thanks mate! Really appreciate the comment.

      I haven't run it forward yet but it would be an interesting thing to do. Actually my curve is flattened out for a while as I got to a stage where I couldn't really impact my net worth through my savings every month. Hopefully my investment returns will kick start this again (although that's inherently hard to predict).

  2. I've gone through the same process of trying to model my returns to track how I'm going to my target.

    As you can imagine, past performance is not a predictor or future returns, but it can certainly act as a good proxy. I use the model to constantly tweak my investment strategy (in my case, just my monthly investment amount) so that I can keep on track.

    Worst case scenario, assume everything returns 8%. :)

    I'm finding that I need to keep increasing my asset base in order to work towards my target. As I'm using gearing, my liabilities increase, just by less that my assets. A dangerous strategy, but risk is needed when aiming for big numbers