Sunday, July 19, 2009

Blogging My Net Worth

I've been using a tool to track my household net worth for years and I think that it has been an enormously helpful tool as a motivating factor for helping me to make the correct decisions.

The tool I have been using is NetWorthIQ. You can view a small sample chart that they produce. But I think that more than the chart, it is about the motivation that the chart provides. Besides providing a simple line of how your net worth has grown or shrunk, it shows how your net worth can be impacted by the events of the day and how well you've navigated those storms.

Personally, the great opression of 2008/2009 has been awful. It has left me feeling somewhat void. My feelings are not that unique, and my approach is not that unique. From the perspective of making money, it is difficult because the people that tend to do well are people who are far out on the risk curve, people who are doing something different.

So, with the net worth tracking tool, I am able to determine that my approach, while bad, may not be so awful. My net worth is essentially flat since this crisis began. And the vast amount of the destruction of worth is a result of the crash of the stock market. The value of my cash accounts (my fdic certificates of deposit and savings accounts) is stable. Furthermore, my home, while now worth less, is really only a loss on paper.

Paper losses, which is what many people feel is the case with stocks, are losses you can tolerate. Tolerating these losses only happens if you are in a position where you don't need to sell the assets. The key to avoiding selling such assets is to avoid leverage. As such, I've avoided debt like the plague other than a mortgage and I've been paying off student loans and auto loans and other debt with wreckless abandon. All of this is motivated at consistently and carefully growing my networth.

The importance of this strategy comes back to one point that most professional investors agree with when it comes to money: Don't Lose Any! So, this is my feeling also. I look at the net worth chart as a scoreboard. If I lose in one category, I want to have gains in another that offset the change. In the end, only time will tell if this crisis will end quickly. Many people feel like the changes in March 2009 are indicative of a good possibility that is has now ended, but only time will tell.

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