Hot damn, what a year!
After an 8.3% net worth decline in 2022—which was the first annual decline I’d ever experienced since tracking my net worth, including through 2008—our net worth rebounded by 11% in 2023. As a result, it was interesting to look back at what I’d said at this time last year when the S&P 500 was down 20%.
I noted most people had a very bearish outlook for 2023, but that "most crappy years are followed by good ones.”
Still, true to form, I was as wrong with my prediction that "we get a moderate recession, but a volatile year, with a single-digit increase in the S&P 500 for 2023, i.e., about 4,100 for the end of 2023.” Instead, we had the opposite.
It was a relatively calm year, with no recession, and the S&P 500 rocketed up 24%, within inches of a new all-time high. Other indices also had an incredible year (e.g., Nasdaq 100 was -33% for 2022, but ended up +44% for 2023).
What’s more, this all happened despite 11 Fed rate increases, raising rates faster than any time in the last 35 years.
That’s a big deal and I know of no one who predicted this would go well for the stock market. Indeed, most criticized the Fed and said a “soft landing” had “never happened" in our history and was essentiality impossible to engineer—but surprise! The Fed and Biden Administration—who does not get enough credit—killed off the most virulent inflation while maintaining the lowest unemployment in 50 years and, at least as of yet, seem to have dodged a recession.
Even gas prices are back to levels that are now lower than they were 10 years ago! Thanks, Uncle Joe!
The picture is not all rosy, of course. Higher interest rates stalled the housing market and housing—particularly for younger people or those who did not participate in the housing market’s historic increase after Covid-19—are faced with serious challenges as mortgage rates remain relatively high and prices have not softened enough to make housing affordable.
Yet, despite it all, we achieved a bit of alpha versus the S&P 500 over the last 2 years on a total return basis.
That is, even though on a market price basis (which is usually what I look at for simplicity in the shorter term) we only ended up 15% for 2023 (versus 24% for the S&P 500), on a total return basis, i.e., with dividends included (which is all that matters), we were up 17.5% for the year (versus 25.8% for the S&P 500). When combining 2022 and 2023, however, we beat the market on a total return basis and, worth mentioning, did so without as much volatility.
Combined S&P 500 Total Return 2022 & 2023: +7.69% (-18.11 and +25.8)
Our Combined Total Return 2022 & 2023: +8.81% (-8.89 and +17.7)
On a personal note, we spent six months sailing the Caribbean. We met some incredible people and truly enjoyed "the life” at sea, including spending lots of time socializing with other boat families and time with our friends and family who came to visit.
Being out there is our happy place, without a doubt, and I’m excited to embark on another six-month voyage in 2024 to explore some new places. Unfortunately, it will be the last longer voyage for a few years as my youngest wants to resume in-person schooling for 8th grade and then high school, during which time we’ll be taking shorter trips until she graduates.
We also finally completed a yearlong remodel on our home. Like any remodel, it took longer and cost more than we anticipated, and was more complicated than we imagined, but it’s done. All in, we spent a little more than $830,000, which came from funds I'd already set aside from my 2021 business liquidation and was never included in my net worth (mainly, to make "the spend" less painful for me to watch).
Sitting here admiring the final product, I feel good about it. The fact is, we overpaid for this home (as did the people who bought our prior home, I like to remind myself), but there’s something magical about having your space that is just the way you like it. Besides, our improvements were all well-thought-out and unquestionably improved the property and its potential resale value.
Still, even though our net cost is now $3.8 million, I’ve kept our NW value at $3 million (less transaction costs), which is exactly what we (over) paid in early 2022. This is because, according to the St. Louis Fed, real estate prices dropped 10% in 2023 and, I think, more so since the peak. Moreover, with so many people locked into ultra-low interest rates, existing home-sales transactions have literally “crashed” this year, leaving things murky. So, we can reevaluate real estate later when and if there’s more market clarity, but I much prefer to underestimate values than overestimate them.
That said, I do not expect a huge drop in real estate values and, frankly, think more people will choose to remodel their existing homes than move if it means taking on dramatically higher mortgage payments, leaving the market supply of existing homes fairly tight. I do hope home builders go nuts, however, by building lots of affordable new homes so other people can also enjoy a place of their own.
This month also resulted in several end-of-the-year passive "cash distributions” from various side hustles that, after taxes, netted me about $480,000. Since I’m done with major capital expenses or purchases for the foreseeable future, I’m going to include that money in my net worth, dumping it into my “Stocks & Bonds” category until I decide how to deploy it long-term (i.e., FMVXX pays a decent enough rate for now and I’ll just buy more index funds when the market swoons down one day).
I do still have some major expenses coming up in the next year or two—such as graduate school tuition for one of my daughters—so I’m going to replenish my “set aside” account used for the remodel (and not included in my NW) with additional passive cash as it rolls in over the next year or two. That should cover me for the time being and make it easier to write tuition checks.
But, with that additional income, plus a stock market on fire, we’ve crossed over $30 million for the first time—another milepost.
On that note, another thing I’ve been thinking about more is the psychology of money—generally.
I recently read the book, The Psychology of Money by Morgan Housel and loved it. It's a book that I will probably read again, not because it taught me anything especially new, but because it validated a way of thinking that got me to where I am today. It, along with Morgan's blog posts, addresses something I’ve had a hard time with and that’s spending money (e.g., this is why I need those “set aside” accounts above). See https://collabfund.com/blog/a-few-laws-of-getting-rich/
The next finance book on the list is the much-talked-about Die with Zero by Bill Perkins. Although I already feel like I know what the book is all about from reading about it online, I am interested in hearing more about his thoughts on spending and, in particular, giving money to kids before you die (or at least spending it on them).
In the past, I’ve agreed with Buffet that "I want to give my kids enough so that they could feel that they could do anything, but not so much that they could do nothing.” That’s still true for me but maybe Bill Perkins will help me find a better middle-ground.
We’ll see.
It’s now time to go sailing again, but before I do I’ll take a crack at market predictions for next year, even though my predictions are notoriously wrong. For 2024, I think the trend continues. We avoid a recession and end the year with the S&P 500 up 10%.
Not a terribly bold prediction since, after all, it’s an election year.
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