2021 End of the Year Net Worth Update

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December 31, 2021
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 Lets take a quick whirlwind of how 2021 panned out for AVI family financially.

Review of Progress Towards FI in 2021

The year started out with AVI family crossing the ninth inning of the goal towards FI, as I originally defined back in July of 2019. Around the same time, I put down a target of achieving $50,000 in annual dividend income from equity investing. As such the choice of investments was geared towards high dividend safe bet stocks. I was quite confident of reaching this goal by end of the year. In my next post on annual portfolio review, I will take a look into how close I actually landed on this goal.

Late in December of 2020, Covid-19 vaccines became available. While myself and Mrs AVI were not eligible for vaccination in the first tranch of eligible individuals, we became eligible earlier than most folks we hang out with, courtesy of  Mrs AVIs work in childcare. Both of us got our first vaccine dose in early March, followed by a second dose in April.

Around the same time, AVI family net worth crossed FI status. Armed with better knowledge on various flavors of FI, I came to the realization that the goal I had outlined back in July of 2019 aligned well with the first stage of Flamingo-FI and as such I penned an article announcing our newly achieved FI status.

In the same article, I also refined the metrics for tracking net worth, which is traditionally measured as difference between total assets and liabilities, to separate out equity in the house and the KBB market value of our vehicles. I labeled the refined metric as the Accessible Net Worth metric. ANW as defined takes care of the “too much house” problem part of net worth and gives a better view on portion of net worth that should be accessible on short notice if need be.

Using ANW as the metric to track progress towards FI was quite informative. When the traditional net worth crossed our FI threshold, ANW was still lagging significantly, at about ~66 % of our FI threshold. This was indicative of the fraction of net worth (almost 34 %)  locked in primary residence equity! To be truly FI, our goal will be to increase ANW to atleast equal our FI number! As we will see later in the post, we are still some ways off that target.However, if I have to venture a guess, we should achieve FI status some time in the new year!

Then in May of this year, I penned my revised investment philosophy, (S)imple (T)olerable(E)nduring(P)assive– investing. The essence of this revised philosophy is to pursue long-term buy and hold strategy of equities in firms that are simple to understand, are profitable– can withstand short-term shocks and finally have prudent capital allocation to share holders in the form of share buy-backs or growing dividend payouts!  Some investments that I have made following this mantra in the latter half of 2021 are– Verizon, ATT, Merck, Markel, and Enterprise Products Partners.

The annual Bershire Hathway meeting happened on May 1st and as has been the tradition for me in the last several years, I spend the better portion of my day glued to Yahoo Finance screen. Two Buffet quotes from the meeting have stayed with me through this year– “We are seeing very substantial inflation” and the quote by Keynes that he shared to highlight the market FOMO sentiment “… But the position becomes serious when the enterprise becomes the bubble on a whirlpool of speculation“

I did a mid-year personal finance review in June. Back then I made a note of how difficult the markets were for investing and why I was pursuing  risk-off investment strategy of putting away any excess cash towards payment of primary residence mortgage. I also thought of adding portfolio insurance of some form to my investments– alas I never acted upon it to the detriment of my portfolio, given the market turmoil and stalling of value cycle in the last six months.

In July, we took a family vacation to Disney World Orlando and for the remainder of the year, my blog posting slowed down considerably although I did manage to do a comprehensive personal finance review on Labor day weekend. Back then I noted that home equity was the second highest contributor to AVI family net worth. I also reported on Alibaba being my third highest conviction investment, how has that fare as of this writing, a massive bummer!

After a bearish September, markets came roaring back in October when Dow for the first time crossed the historic 36,000 mark. Back then I made a note of all the market extravagance, which some may argue may very well bode bubble-territory.  After a wobbly November, amidst renewed fears of yet another COVID-19 variant, as of this writing we are back to all time highs for all 3 major US indices!

On that note, let us look into the numbers for how we fared in terms of Net Worth growth in 2021.

Net Worth Recap for the Year

Let us begin with a comparison of the net worth metrics vis-a-vis where we were on the 1st Jan of 2021

Net worth grew a whopping 51.15 points or ~56 %. Accessible Net Worth (ANW), which discounts for primary residence equity grew ~60 %. ANW shows that the growth in net worth was not all resulting from increase in home prices, which as we will see below, was certainly a significant contributor to overall gains in net worth.

At 143 percent of AVI family FI number, we are for sure sitting comfortably in Flamingo-FI status, though ANW<FI Number, still means there is work to be done. The Liquid assets to Debt ratio is now sitting at a healthy value of >5, which means, I should seriously start considering paying off home-mortgage, without ever worrying about being “house rich and cash poor”.

On the surface of it, a big downer for the year was the drop in cash balance on hand necessarily to sustain 2 years worth of living expenses. However, as I noted in one of my earlier posts, AVI-family has sufficient liquid assets to move things around should push-come-to-showe and with increasing inflation, sitting with so much cash on hand that produces 0 % return just does not feel right!

The whole idea to have robust cash balance is to pursue “sleep well at night” philosophy so that I can easily tolerate any massive draw down in markets without ever panicking. At current levels, I feel, we can still feel quite comfortable having 1 years worth of living expenses in cash. As such, in the new year, I will revise this metric to instead track the ratio of cash balance to 1-year living expense. So, although we see a drop of 30 % in cash balance, the cash balance is still relatively high for our comfort!

The chart below provides a peek into the evolution of various assets contributing to the net worth for AVI family.

  • Home equity — measured in terms of current market value (according to Redfin.com) minus the mortgage balance, saw a massive ~150 % increase for the year. Like last year, the combination of robust housing market in our-part of the country coupled with aggressive paydown of mortgage balance were the key contributors to the observed gains.
  • For the second year in row, non-retirement investment accounts saw growth of ~50 %. A significant portion of this growth has come about by AVI-employee stock vesting and the subsequent growth in the valuation of stocks for AVI-employer. Market gods continue to shower wealth, for example, S&P 500 index has increased a whopping 26.9 %, which certainly has also contributed to the massive growth in investment portfolio that I have seen. All this without me ever partaking in the lottery events that unfolded in the markets in 2021– Not owning Tesla, or any or the meme stocks and only a token amount of bitcoin.
  • Retirement portfolio is a good measure of how I did over all in the markets without numbers distorting cash injection. We saw a robust 23 growth in retirement portfolio, which is comparable to performance of any standard blended portfolio of stocks and bonds.
  • As discussed above, in the last few months, I have consciously been moving cash out and putting it to use. As such cash holdings decreased by ~30 % for the year.

In summary, 2021, (as was 2020) has been quite a successful year financially for AVI family quest towards FI.

Goals for the New Year

At the end of every year, I make a list of to dos for myself and do a recap of how I fared in those goals. In that spirit, lets revisit the goals from 2020 and get a score on success or fail!

  • Read atleast 6 book and summarize learning: Fail on the later goal of summarizing learnings. If anything, the lesson of 2021 for me was how important it is to manage your time efficiently. For better part of the year I struggled with time.. time to write blogs, time to read, time to study investments and time to exercise! Both AVI kids are growing and with that their activities! Mrs AVI work does not offer much of a leeway for her to venture out of house (she runs a home based daycare), and therefore all outdoor kids activities are the domain of Mr AVI. Again, in short, I did not make any progress on summarizing learnings from book reading. What about books, did I manage to atleast read 6 books? Lets see…
    • Go Go Years by John Brooks, a fascinating look into the market mania and subsequent crash of the nifty-fifty stocks and conglomorates..
    • Richer, Wiser and Happier, by William Green. The book got a lot of publicity in 2021, by the author through all podcast tours as well as by the folks such as Mohnish Pabrai, who is the subject of the first chapter of the book. While in my mind the book did not live upto the standards of the hype and the rave reviews it got, there were some very good life-lessons directly from the mouth of investor legends.. to name a few.. Mohnish Pabrai, John Templeton, Howard Marks, Bill Miller, and Jack Bogle.
    • The Caesars Palace Coup by Max Frumes and Sujeet Indap. The book very much reminded me of the classic business thriller Barbarians at the Gates. The subtitle of the book aptly describes the plot– How a billionaire brawl over famous casino exposed power and greed of wall street!
    • The Joy of Compounding by Gautam Baid. I found the book very inspiring. Gautam Baid in his very first book has demonstrated his unique ability to crystallize the essential principles of good living and investing. Its a must read for young adults as they begin their investing journey.
    • Midnight’s Furies by Nisid Hajari. The only non finance non-fiction book in the list. The book delves in the chaotic last couple of years of India struggle for independence and the personalities of two titans of Indian politics that shaped the course of history for the sub-continent forever.. with the partition of India and Pakistan, and finally two audio books
    • The Price of Wealth by Zachary Carter. Fascinating biography on John Maynard Keynes.
    • Atomic Habits by James Clear. My second attempt at learning habit forming ideas. The first book on the topic I read way back when was The Power of Habits by Charles Duhigg.
    • Warren Buffett, Inside The Ultimate Money Mind by Robert Hagstrom. In this book Robert Hagstrom breask down the essential concept of money mind as espoused by Warren Buffett.
  • Grow net worth to FI status: At the time of writing this goal, my mental model of FI was rather simple.. grow networth to match AVI family FI number. As such, we have met and quite handily surpassed this goal in 2021– Success. However, my view on definition of FI has evolved this year and I have carved out four stages to FI and 3 FI landmarks to achieve– Flamingo FI; Semi-FI and Traditional-FI. We achieved Flamingo FI in 2021
  • Grow Viewership for the blog: Massive failure. If anything, the blog regressed into the background in 2021 and as I noted above, I simply struggled with better time management to focus on things of value to my personal well-being.
  • Get Health into Order: Same story as in 2020 and same reason as above on completely missing on this goal as well

Total Score: A measly 1 out of 4!

Into the new year, I want to prioritize goals that I know I can accomplish and then take a stab at doing tad-better on some of the same goals where I failed miserably in 2021.

  • Semi-FI status: Move AVI family net-worth into semi-FI status.
  • Read 6 books
  • Develop an exercise regimen and research methods and execute on healthy-eating habits
  • Be more consistent with blog writing– especially on topics of investment decisions that I make for AVI portfolio in 2022

Video/Audio/Book/Articles– For the YEAR

Here’s my summary of best I found in 2021

Value Investing
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