What’s Your Net Worth?
What’s your net worth? Net worth is a simple calculation. There are several reasons to know your net worth. Take all your assets and subtract all your liabilities and the result is your net worth. Why do this? It gives you an idea how well you are doing for building wealth. I don’t recommend calculating your net worth on a frequent basis, but maybe once per year or bi-annually or quarterly. I have a saying that “one only does well what one measures”. If your financial goal is to build wealth, then you have to measure it in some way. We’ll discuss the average American’s net worth at the end of the article.
Let’s take a look at how to do this. What are your assets? Assets, by definition, are property or resources that have value and can used to pay debts or other commitments. This includes things like your savings, retirement accounts, stocks, bonds, cars, primary home, rental real estate, land, etc. Assets can also include things like collectibles, furniture, boats, or anything else that has value. For instance, if you own a Van Gogh painting that’s very valuable asset. Assets can also include intangible items such as copyrights, patents, trademarks, brand names, etc. These are much harder to value.
For simplicity, lets exclude intangible assets and hard to value property. In that case, to determine your assets, it really is just a matter of totaling up your savings, retirement accounts, stocks, bonds, primary home, rental real estate, and land.
On the other side of the equation you need to subtract liabilities. What are your liabilities? Liabilities, by definition, are debts or financial obligations. This includes items like credit card debt, student loans, mortgages, car loans, personal loans, etc. These are usually pretty straightforward to total up. There are online platforms to help with this. But I mostly use MS Excel since it is so easy to do.
The difference between your total assets and total liabilities is your net worth. How do you increase your net worth? Well you can increase assets, or lower liabilities, or do both. Lowering liabilities is a straightforward process. You need to spend less and use the extra cash to lower debt. On the other hand, to increase assets you need to save more or invest more and also generate a positive return. Many people who invest do not generate a decent return.
Is Your Net Worth Higher Than Average?
How does your net worth compare to the average American? Well, take a look at the tables below based on data from the Federal Reserve’s Triennial Survey covering 2013 to 2016. The Fed will publish the 2019 survey results in late 2020. But for now, you can use the data below for comparative purposes.
The first table is no surprise as people generally should accumulate wealth with time. The older you are the more your median net worth. The same trend holds true for mean or average net worth until you are about 64. After that, the mean declines some. The other point that comes out is that the median is much lower than mean. This is likely due to high net worth individuals, e.g. Jeff Bezos, skewing the average upward.
The second table also no surprise. The more education you have the greater the net worth. In general, those with college degrees out earn those without college degrees. Assuming a constant savings rate implies that those with college degrees will save more than those without college degrees. This is not a hard and fast rule as the stories on Secret Dividend Millionaires show. But still the median net worth of the with those college degrees is over 4X that of those with only a high school diploma. The mean net worth is over 6X higher for those with college degrees compared to those with only high school diplomas.
The third table shows that homeowners tend to build more wealth than renters. Again, this seems to be common sense. A primary residence is a significant part of a families’ wealth. In fact, on the expensive coasts it is arguably the largest component of wealth over time. This is due to a rise in equity resulting from paying down the mortgage and price appreciation over time. The difference here is stark. The median homeowner is over 44X wealthier than those who rent. Similarly, the mean net worth is over 11X higher for those who own homes compared to renters.
We can argue about this, but the data is clear. The issue with renting over an extending time period is that a renter does not build equity either through paying down debt or price appreciation. Instead, the landlord builds equity and enjoys price appreciation. Further, a renter cannot count the rented property as an asset. Renters only get a place to live in return for a monthly fee.
Ultimately, the main point of the data above is that wealthier people tend to be older, more educated, and own their homes.
Coronavirus Dividend Cuts and Suspensions List in 2020
I updated my coronavirus dividend cuts and suspensions list this past Wednesday. The number of companies on the list has risen to 304. We are now over 10% of companies that pay dividends having cut or suspended them since the start of the COVID-19 pandemic. Three companies were added to the list this past week. This past week I added Stellus Capital Mangement (SCM), Simon Property Group (SPG), and BT Group plc (BTGOF).
I removed Brookfield Infrastructure Partners (BIP) from the coronavirus dividend cuts and suspensions list. It was pointed out to me that the cut resulted from a spinoff of Brookfield Infrastructure Corporation (BIPC). Below is the statement from the company’s press release:
“Following completion of the special distribution and subject to Board approval, the quarterly distribution received on BIP units and Shares (commencing with the distribution anticipated to be paid on June 30, 2020) will be $0.485 per BIP Unit/Share. This represents a small increase to the current distribution level of $0.5375 per BIP unit, after adjusting for the one (1) for nine (9) special distribution, and is due to rounding. As a result, the aggregate distribution received by a holder on its BIP units and Shares (assuming the securities are retained) will be slightly higher than the holder would have received if the special distribution had not occurred.”
So, considering that statement I have decided to remove BIP from the list.
I will have an article out on Simon Property Group’s (SPG) dividend cut on Monday. Real Estate Investment Trusts or ‘REITs’ have not done well this recession from the perspective of dividend cuts and suspensions. This is especially true for those focused on commercial real estate. Most are faced with a fairly large percentage of tenants who could not pay rent or needed a deferment. Simon is one of the largest REITs focused on commercial real estate. It owns may malls and outlets. COVID-19 has significantly impacted retail and restaurant sales. In the end Simon probably needed to cut the dividend due to maintain cash flow. Check my blog on Monday for my article on Simon.
Stock Market Volatility – CBOE VIX
The CBOE VIX remained elevated this past week. However, it has come down some and is now below 30 again. It ended the week at just above 27. New infections of COVID-19 continue to rise across much of the southern U.S. and west coast. But there were some pieces of good news that probably soothed the market and caused volatility to trend down.
First, most of the states and leadership where new infections are surging finally bowed to reality and instituted rules or guidance for masks and ‘social distancing’. Next, Pfizer (PFE) and BioNtech reportedly had positive news in early trials for a potential COVID-19 vaccine. We are still a long way away from a vaccine as larger clinical trials must still occur. With that said, good news is still good news on that front.
The U.S. economy also had some good news on the unemployment front. Nonfarm payrolls increased a record 4.8 million in June after a 2.7 million number in May. Despite the positive headline news, you must still realize unemployment is still very high at 11.1%. This is greater than almost all prior recessions. Take a look at the chart below from the St. Louis Fed.
There is nothing magical here. Most of the people returning to work are those that were temporarily furloughed. Recall, we are still coming off record declines of 1.4 million in March and 20.8 million in April. As businesses reopen, they will bring back workers. Obviously, we have a long way to go before we return to how the economy was before the pandemic.
I am still of the opinion that we will see a spike in employment as businesses reopen followed by a longer drawn out recovery as they assess demand and employment levels.
Fear & Greed Index – What’s Your Net Worth
I have also been tracking the Fear & Greed Index. The current reading is now at 50, which is Neutral. The index is trending down from a recent peak at over 60 a few weeks ago and heading back to Fear. The S&P 500 is trading at a price-to-earnings ratio of 22.4X and the Schiller P/E Ratio is at about 29.4X. These have gone up again since last week. I still think the market for the most part is overvalued with some exceptions.
Secret Dividend Millionaires – Jack Gsantner
In this installment of Secret Dividend Millionaires, I want to talk about Jack Gsantner. Jack was another ordinary guy who became wealthy by living frugally and investing in dividend stocks and real estate. He died at the age of 84 in 2012. By the time he died he was worth $5.28 million. He died alone shortly after his wife of 55 years died. They had no children. His finances were also seemingly not well organized. It took many months to locate his will, which was 18-years old, and heirs, but many had died. Ultimately, most of the proceeds went to distant relatives and the tax man took a fairly big cut. This points to the importance of having an updated will and organized finances.
Jack Gsantner did not have particularly high paying jobs. He served in the U.S. Navy and graduate from Yale in 1948. He was billing clerk for Union Pacific Corporation (UNP) and also played bass for a popular Omaha orchestra. Seemingly, he was good with money and finances. Further, he and his wife lived very frugally in a simple house. However, some said he was frugal to the point of being miserly. One of his neighbors stated, “He never dressed like he had a dime.” In any case, Jack Gsanter became a secret dividend millionaire.
By the time he died Jack Gsantner owned his primary home, a town house in Arizona, several savings accounts with about $100,000 in each one. He also owned roughly 80 stocks and mutual funds including ExxonMobil (XOM), AT&T (T), Black Hills Corp (BKH), and many others.
There are some lessons here for many investors. First, make sure your will is up to date and your representative or executor knows where it is. Next, living frugally and simply is important for accumulating wealth, but at the same time don’t live like a miser. You really can’t take your wealth with you. You should enjoy the fruits of their labor when alive.
You can read about the other Secret Dividend Millionaires.
Here are my recommendations:
If you are unsure on how to invest in dividend stocks or are just getting started with dividend investing. Take a look at my Review of the Simply Investing Report. I also provide a Review of the Simply Investing Course. Note that I an affiliate of Simply Investing.
If you are interested in an excellent resource for DIY dividend growth investors. I suggest reading my Review of The Sure Dividend Newsletter. Note that I am an affiliate of Sure Dividend.
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