Your Net Worth Is An Illusion Sorry To Spoil Your Delusion!

Net Worth Illusion

Your net worth is an illusion. Unless your house is fully paid for, and unless you can access your retirement accounts today, your net worth is not real.  

Although we’ve recovered quite a long way since the 2008-2009 financial crisis, we can never fully count on the full value of any of our assets. This is especially true for less liquid assets like real estate and private equity investments. You just don’t really know the truly value until you try to sell.

The only thing we can really count on is cold, hard cash. It is a little disingenuous to say you are worth $1,000,000, when 70% of your net worth is tied up in an illiquid asset called “home equity.”

Your home is only worth as much as someone is willing to pay for it. And you just don’t know how much someone is willing to pay for it unless you try to sell.

In 2021, I thought I got a great deal selling my rental house for $2,745,000. In 2H 2021, a random realtor who believes I left $655,000 on the table! Go figure. Everybody has got an opinion, just like butt holes.

Even your 401K and IRA are suspect because those accounts can easily collapse. When it’s time to withdraw, you don’t know exactly what the government tax laws will be.

Your Net Worth: Th Asset Side Of The Equation

Here are all the assets that may be included in your net worth calculation.





Private Investments

Primary Residence

Rental Property

Valuables (Jewelry, Collectibles)

Pet Bunny

For retirement purposes, your assets should equate to CASH + liquid securities you can sell today + MORE CASH.  

Calculate Your Net Worth Conservatively

The way to look at net worth is consistent with my “Going Broke To Win Big” methodology. In uncertain times, like we are experiencing during the coronavirus pandemic, you want to operate life as if none of your assets except for your cash is dependable.

Perhaps your retirement goal shouldn’t be a net worth goal, but a cash or savings goal if you want to be really conservative. If your home equity, 401k, IRA, private equity investments so happen to be there when you retire, great! If not, no big deal because you never counted on it anyway.

Unfortunately, our government is printing cash like it’s no tomorrow to bail us out from this coronavirus devastation. Hence, even our cash is suspect in value. You may want to buy real assets outside the country with stronger physical systems. 

If you can’t do that, I’d diversify your cash into as highest possible yielding rental property as you can. Rental property is a very powerful asset to make money and hedge during inflationary periods.

As you age, feel free to regularly convert your investments into cash or more risk-free assets like U.S. Treasury bonds or AA-rated municipal bonds for that bankable guaranteed interest income. The wealthier you are, the more you need to focus on capital preservation.

Your Net Worth: The Liabilities Side

The liability side of the equation on the other hand is very straight forward. Your liabilities are all your debt. Debt includes credit card debt, student loans, auto loans, mortgages, personal loans, IOUs, and more.

Your Net Worth Is An Illusion

To better protect your net worth, you should view your net worth like it’s an illusion. It’s not real, so don’t count on most of it.

By risking all your retirement savings in the stock market, you’re doing yourself a disservice. I’m not saying don’t continue maxing out your 401K and IRA accounts every year. That is a given. I’m just saying one should think twice before adding MORE of your cash into the stock market.  

One of the easiest allocation rules can simply be your age. A 40 year old should think about allocating 40% of their liquid assets into cash or stable bond funds, a 50 year old should allocate 50% to cash and so forth.

If you insist on including the value of your illiquid investments into your net worth calculation, then take at least a 50% haircut to the value. Have a cash retirement goal and not a net worth goal. You’ll be happy you did.

Related: The Average Net Worth For The Above Average Person


Track Your Wealth For Free: In order to optimize your finances, you’ve first got to track your finances. I recommend signing up for Personal Capital’s free financial tools so you can track your net worth, analyze your investment portfolios for excessive fees, and run your financials through their fantastic Retirement Planning Calculator.

Those who are on top of their finances build much greater wealth longer term than those who don’t. I’ve used Personal Capital since 2012. It’s the best free financial app out there to manage your money.

Planning for retirement when paying for private grade school
Link up your accounts and see whether you’re on track to retirement in great shape or in poverty

This post was originally written on 9/18/2009 and updated on 7/20/ 2021. Time flies when you’re having fun!

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