It’s that time of the year when I take a closer look into how the year has panned out financially for the AVI family.

Let’s begin with a comparison of net worth metrics vis-a-vis where we stood on Jan 1st, 2022

Net worth dropped 7 points or about 5 %! What a turnaround when compared to what we witnessed this time last year. For the year 2021, AVI family net worth grew by a whopping 56 %. What gives?

Unless one was living on a different planet, it would not be news for anyone to know that we witnessed a regime change in the financial world in 2022. The 40-year bond market bull run, supported in part by the Fed action of easy monetary policy and low-interest rate environment came to a screeching end in 2022! We started the year with the Fed fund rate at 8 basis points and as of this writing, we are at 433 basis points, which is a 54-fold increase, just in a year!

I should be celebrating that the AVI family net worth decreased by a mere 5 percent! As we will see below, the biggest contributor to this decrease was the market price of the AVI family’s primary residence. As Fed fund rates have gone up, so have the mortgage rates on home loans. The result is, a drastic slowdown in housing markets. At one point in time in 2021, houses in our neighborhood were selling at $100,000 to $200,000 above the asking price within days of listing. From the craziness that was 2021, we are now witnessing a significant slowdown in demand for housing, which is reflected in the current market price for our property.

Accessible Networth (ANW) metric on the other hand discounts primary residence equity, and therefore is not affected by fluctuations in the market value of the primary residence, witnessed a modest gain for the year! Our ANW crossed the 90 threshold for the first time! We are growing ever closer to declaring ourselves FI!

A significant portion of AVI family assets is invested in the equity markets. As such, I am quite pleased to see ANW ending modestly positive, even in an environment when all major US indexes saw double digits losses for the year!

The liquid assets to Debt ratio has grown over the year crossing 6X multiple. The buffer of liquid assets is something that I cherish as it gives me the leeway to explore entrepreneurial opportunities in something that I truly cherish! As such, starting in 2023, I will be embarking on my entrepreneurial journey as a money manager!

As I noted in my report last year, having a liquid cash balance to manage two years’ worth of living expenses, is overly conservative. My idea was to move towards having this ratio reach 0.5, i.e. sufficient cash balance to cover 1 year’s worth of living expenses. Based on the numbers above, this goal should qualify as a “work in progress”!

Now onto charts to take a peek into the evolution of various assets contributing to the table above!

• Home Equity: Measured in terms of the current market value (according to Redfin.com) of our primary residence minus the mortgage balance, took a big hit for the year. From a massive 150 % increase from year prior to a drop of 20 % for the year, the change could not have been more painful! A reminder of why its never a good idea to count, residential home equity in calculating one’s net worth.
• Investment Assets: The majority of AVI family’s net worth is exposed to the vagaries of public equity markets. As such, I have focused a significant amount of my time on keeping a hawk eye on my investments. The investment assets are divided into retirement accounts and non-retirement accounts, with the former mostly invested in a diversified ETF portfolio and the latter invested in individual businesses that are publicly traded! Given what we have witnessed in 2022, it is not surprising to see that my retirement portfolio, produced negative returns for the year. For non-retirement assets, it was a different story and one that I want to ascribe to my style of investing– contrarian value! I was fortunate to have missed out on the heavy losses that some of the Covid-19 darlings witnessed in 2022. I was able to eke out positive returns for the year, though the performance was hurt by my exposure to China and Meta!

So was 2022 a success financially speaking? Depends on the lens through which we view the numbers– Compared to the explosive growth we saw in 2020 and 2021, the year 2022 was if anything a big disappointment! However, given the massive macro headwinds that emerged in 2022–  the regime change in Fed stance, going from almost 0 interest environment to >4 % interest environment, the rising inflation, and war, our performance for the year may qualify as success!

Goals for the new year

• Build Money Management Business: My goal for the year will be to focus on building my money management business. We are starting out with a select group of individuals to pool funds to invest in public markets. My goal is to continue to work on developing the art of contrarian value investing– with the long-term goal of compounding our investments at a rate of 15 % per annum!
• Run a Half-Marathon: I have read several books in 2022, but none was more influential than the book by Haruki Murakami, titled  “What I talk about when I talk about running”! The book is an elegant self-reflection on the author’s life as a marathon runner. He’s become an inspiration for me to aspire to run a  marathon! Given where I am physically, I do not feel, aspiring to run a full marathon would be possible in 2022, being an ever-realist, I am therefore setting up my goal to run (or at least walk) a half-marathon distance this year!
• ANW to cross 100— I want to move AVI family net worth status to semi-FI, which requires for ANW metric to breach 100. We currently stand at 91!
• Practice the art of articulating an investment thesis in depth
• Read atleast 6 books