This is a really interesting discussion on how to properly determine net worth and evaluate performance, particularly on things that have not been realized.
I’m not an accountant so for the most part I don’t understand this, lol.
Perhaps, I’m way oversimplifying my goals, but I’m not as concerned about total net worth or appreciation of my net worth also long as I can achieve a steady stream of income from sources other than a job based on what I have, and maintain those stream(s) of income for decades to come.
Ideally, I’d like to have a steam $150k-$200k/year income stream assuming all my major expenses have been paid off (housing, kids education). Some of this comes from rental, but ideally also from other income bearing investments.
If I have a crapload of money, I wouldn’t care how low this return was (up to the point that it would be ideal to at least be above the rate of inflation). And would rather pick the lowest and safest returns that meets that steady income stream and beats inflation slightly in exchange for some more predictability of being able to be consistent 20-30-40+years from now. How I go about doing this, I’m trying to figure this out. I think $90-100k comes from rental income, that I understand could vary and go up and down to, but to some extent is more constant than other things. What I’m trying to get a handle on is, how get the remaining $50-100k/year from other sources.
These unusual 22%+ S&P500 gains are nice, but I wouldn’t count on this being typical for the long term.So I’d like to take some of these usual larger gains these past few years and put them into something more predictable and “stable”… Real estate aside, I think I need about 4-5% consistent return on everything else, with an asterisk. 4-5% on “everything else” would allow me to meet my objectives IF those returns could be used right now..The problem is part of that “everything else” is retirement accounts that cant be touched for another 12 years minimum. So gains in those accounts aren’t going to be very useful in the case of an early retirement. Between retirement and non-retirement, it’s a 50/50% split.
So not sure how to convert some of these short term wins into long term consistency, albeit at a lower return rate. I already tried to do this by reducing my exposure to the domestic stock market, but I don’t think what I’m doing really helps. Because while on UP days, my accounts aren’t rising as fast as someone else fully vested, on down days, my accounts aren’t necessarily going down less than others that are fully vested….they also still take some sizable hits….
I’m trying a little experiment with my kid’s 529 account. I recently exchanged 80% of my kid’s 529 account from traditional indexes into a time based fund-of-fund with a target date. 80% of the 529 went to this Vanguard Target Enrollment 2024/2025 Portfolio, which does a portfolio allocation based on a need to use the funds in 2024/2025.
The returns so far are a lot lower than what was in index funds, but I’m hoping that lower return buys a lot more stability for the next 3 years. I’m not as concerned about chasing the highest returning funds. The funds thus far has grown to $300k since making regular monthly contributions starting in 2006, and if more is needed, I could dip into other sources. Just want more predictability now that we are getting closer to needing to use it.
Same idea could be said about my holdings if my goals are early retirement.
