Networth of board members

[twacowfca]

My net worth isn't that high, but my savings rate is somewhere around 90% of net income.

 

Aren't your parent complaining about having you in their basement?

 

Hey! Lay off the guy.  That's how I got MY start!  :D

 

Lol just kidding... how can you achieve 90% saving rate, I'm at 40% and I don't know anybody that can match me.

 

BeerBaron

 

 

 

[Guest broxburnboy]

What is an asset? - something that produces cash flow

                           - sits on the balance sheet and produces income  on the income statement

What is a liability? - something that produces negative cash flow

                           - sits on the balance sheet and produces monthly expenses

How do you grow net worth?

                             - buy yet more assets with your positive cash flow

How do you reduce net worth?

                             - buy yet more liabilities with your cash flow

 

Now looking this way at RE investments outside of the location that you need to live in also produces some problems. Using this logic, the way that assets and liabilities flip across the balance sheet based on whether or not they are rented is problematic. according to this definition if they are rented then they are an asset but as soon as that renter moves out then that RE is now a liability. So, when you buy some RE with the plan of renting it out you are actually buying a liability which goes against your definition of creating net worth. So by your argument you should only buy RE after someone else has gotten renters into it and if the renters ever leave then you should sell it immediately because you don't want to have any liabilities.

 

This sounds like a recipe for poor returns.

 

Remember that investing always happens in the real world where we need a place to live and we need a good night of rest to be able to function properly. Any investment strategy that doesn't take these basic things into account is a recipe for disaster.

 

SmallCap

the other problem with this thinking is how

 

 

The value of commercial real estate (like your theoretical rental property) is valued for sale or purchase by calculating its capitalized free cash flow..using a desired cap. rate (in percent). If a property generates 100,000 bucks per annum after all expenses (its NNN triple net income) and an acceptable cap rate to the buyer is 10%  the value of the property is deemed to be 1 million dollars.

The acceptable cap rate however, varies with the risk to its income stream. A multi tenanted commercial building with AAA tenants and long term leases demands higher prices and purchased at a lower cap rate. The cash flow from your single tenanted revenue property carries more risk (like vacancies, vandalism, repairs) and would only be purchased at a much higher cap rate to reflect the risk to net cash flow. A vacant commercial property loses market value, the longer it sits.

If you apply this method of valuation to personal real estate you will come up with value for investment purposes of Zero (actually less than zero because it always generates negative cash flow).

That is why your personal real estate equity is not included in your investable net worth.

 

Frankly I don't care what the definition of a liability is, nor do I care if people want to count their home, their fancy car (i have one of these), their expensive boat as part of their notional net worth. But to leave this thread thinking that these things are financial assets implies that your net worth can be increased by purchasing more of them... no attitude could be more disastrous for you future networth... they ARE liabilities in the financial (money) sense and will impair your ability to make accretive investments and eventually threaten your solvency. End of Story.

 

[Myth465]

We have alot of brain power on this board being dedicated to one of the more inane arguments I have seen recently.   

 

Shouldn't you all be researching value ideas and sending them to me, or something else more useful such as lying on the beach. 

 

Dad. :P

 

Lol, you guys really know how to make a guy lol during a boring day at the office.

[stahleyp]

My net worth isn't that high, but my savings rate is somewhere around 90% of net income.

 

Aren't your parent complaining about having you in their basement?

 

Hey! Lay off the guy.  That's how I got MY start!  :D

 

Lol just kidding... how can you achieve 90% saving rate, I'm at 40% and I don't know anybody that can match me.

 

BeerBaron

 

 

 

 

My parents loved having me home! Truth be told, I didn't move out until my late twenties. Bad for the ladies, good for my pocket book.  :P

 

I bought a foreclosed home and fixed it up. So no rent/mortgage to speak of. My girlfriend stays with me and we share expenses. I try to minimize costs for things that I don't really need or want, like cable and no home phone. It's pretty easy to do. Although, admittedly, my lifestyle isn't for everyone. By the way, when my savings rate of 90%, I am including 401k matches.

[UhuruPeak]

I bought a foreclosed home and fixed it up. So no rent/mortgage to speak of. My girlfriend stays with me and we share expenses. I try to minimize costs for things that I don't really need or want, like cable and no home phone. It's pretty easy to do. Although, admittedly, my lifestyle isn't for everyone. By the way, when my savings rate of 90%, I am including 401k matches.

 

Let's see if the discussion gets as heated with the question I'm about to ask  8): how do you guys calculate a savings rate? I always did it by looking at how much savings & debt principal I'd pay (+ 401(k) match or even pension, why not) and divide this by my gross salary.  So just by virtue of the taxes I can't see how any one gets above ~80% even without spending a dime on anything.

How do you guys calculate this?

[stahleyp]

I bought a foreclosed home and fixed it up. So no rent/mortgage to speak of. My girlfriend stays with me and we share expenses. I try to minimize costs for things that I don't really need or want, like cable and no home phone. It's pretty easy to do. Although, admittedly, my lifestyle isn't for everyone. By the way, when my savings rate of 90%, I am including 401k matches.

 

Let's see if the discussion gets as heated with the question I'm about to ask  8): how do you guys calculate a savings rate? I always did it by looking at how much savings & debt principal I'd pay (+ 401(k) match or even pension, why not) and divide this by my gross salary.  So just by virtue of the taxes I can't see how any one gets above ~80% even without spending a dime on anything.

How do you guys calculate this?

 

I was looking at net income + 401k profit sharing as my - expenses as my savings rate. Ulitimately, that might not be exactly fair because of the taxation on 401k distributions.

[ERICOPOLY]

Most of the liabilities that I've faced with my house are things that I faced as a renter.  Either I pay for the property taxes and repairs myself or I pass them through the landlord's income statement as "rent".

 

The house being owned by me hasn't created anything new in this regard.  True some people have their net worth depleted by paying for taxes and repairs, but unless the alternative is sleeping in their parents' basement they'll need to pay rent instead -- and rent will also deplete their net investable net worth.

 

So much of liability is just a new form of rent.  The property, let's say it is owned outright, often and perhaps most likely in the long run becomes largely dead money in real terms.  I don't buy the idea that it decays in value to nothing because you are maintaining it (paint, siding, roof) using money that would otherwise be going to rent.  Any conversation about it being a liability needs to look at these expenses in light of whether they go away without the real estate ownership -- thus, take into account the rent that you'll be paying to the new home owner.  

 

Some home owners manage to make their homes far more expensive in terms of cash flow than renting, but often that's because they keep it in a nicer condition than their rental -- it's not strictly necessary though, that's personal choice.

 

The house being wholly owned might be dead money... but that doesn't mean it has no value for your net worth.  Short term treasuries are largely dead money (look a the yields), but we still value them in full when calculating net worth.  You don't assign higher values to assets that yield more -- you merely use the market inputs.  You might own some art -- it doesn't earn a yield yet it still counts towards net worth.

[ERICOPOLY]

Re: gold as an investment

It produces no cash flow either positive or negative, if you store it yourself. It does however keep its relative purchasing power and can not be devalued like fiat money... it is the ultimate store of value and has accordingly to WEB, outperfomed BRK over the last decade (in fiat money terms).

 

Is PHYS (Sprott Physical Gold Trust) an asset or a liability?

 

http://www.sprottphysicalgoldtrust.com/Theme/Sprott/files/US_prospectus_Feb_25_2010.pdf

 

By your definition it is a liability because it just makes you poorer over time (management fee of 0.35% guarantees this, and total fees and expenses can run as high as 0.65%. 

 

Notice though that the fund prospectus speaks of "net assets".  This despite the fact that the fund is a net liability by your accounting methods.  How do you reconcile this?  Will you engage Mr. Sprott and ask him to correct this mistake?

 

 

[beerbaron]

I calculate my saving rate as Savings/Gross Salary. My mortgage payments are considered as a full expense it simplifies the calculation.

 

A personnal account does not have to be GAAP accounting. For as long as I have enough to retire on I'll be happy.

 

BeerBaron

[CONeal]

I caculate savings only looking at my biweekly paychecks savings/net income. 

 

Income from buying and selling stocks are not used for living expenses and always reinvested (for now) so I view it seperatly from savings.

[UhuruPeak]

No offense, broxburnboy, but this statement is telling of your dementia

 

Can we drop the inflammatory language already?

[Guest broxburnboy]

No offense, broxburnboy, but this statement is telling of your dementia: "Frankly I don't care what the definition of a liability is, nor do I care if people want to count their home...as part of their notional net worth".  I think it's apparent by now that you really do care if people use the value of their home as part of their net worth.  It's also apparent that your rambling was non-sense given that you just claimed that you don't even care what the definition of a liability is--you know, the other part of the assets/equity equation.  

 

 

Dementia?

For pointing out that personal real estate produces negative cash flow and must therefore be considered a financial liability?

Your insistence that personal real estate is a financial asset even though you agree it produces no income is potentially hazardous to your own solvency... but that's my dementia speaking.

And by the way thanks for pointing out that the best way to increase net worth is to simply purchase more and bigger personal real estate...who would have thought it...especially in light of all the recent bankrupts who believed as you do... that they were purchasing an asset.

 

As for the tone of your post... I think it says more about the state of your own thought processes than it does about mine....

[Guest broxburnboy]

Re: gold as an investment

It produces no cash flow either positive or negative, if you store it yourself. It does however keep its relative purchasing power and can not be devalued like fiat money... it is the ultimate store of value and has accordingly to WEB, outperfomed BRK over the last decade (in fiat money terms).

 

Is PHYS (Sprott Physical Gold Trust) an asset or a liability?

 

http://www.sprottphysicalgoldtrust.com/Theme/Sprott/files/US_prospectus_Feb_25_2010.pdf

 

By your definition it is a liability because it just makes you poorer over time (management fee of 0.35% guarantees this, and total fees and expenses can run as high as 0.65%.  

 

Notice though that the fund prospectus speaks of "net assets".  This despite the fact that the fund is a net liability by your accounting methods.  How do you reconcile this?  Will you engage Mr. Sprott and ask him to correct this mistake?

 

 

 

Physical gold and PHYS which is backed by physical gold are stores of commodities in the same way that a warehouse of wheat is comprised of bushels of wheat.

They are not a promise to pay...They produce nothing, neither positive or negative cash flow. They are assets because they have intrinsic worth, but they are not financial assets because they produce no flow of cash.

They are what they are... a store of value denominated in ounces of gold, or in the case of wheat.. bushels of wheat... in the case of Physical Silver trusts...ounces of silver... in the case of Copper trusts pounds of copper...

Physical gold is increasingly being  purchased by those who wish to store purchasing power because gold is universally accepted as money. As fiat currencies are being increasing devalued by their issuers, they become useless as stores of wealth.. to stuff them under the bed for any length of time is to incur a loss in purchasing power. As the devaluation of fiat currencies continues, their exchange rate to ounces of gold, bushels of wheat, barrels of oil, pounds of copper, suffers.

This makes it appear that the value of any one of these commodities is going up.. but the reality is that the real purchasing power of the fiat currencies are going down.

This is the value proposition of exchanging fiat currencies for gold... a proposition that seems to be catching on by those who have noticed that fiat currencies are losing their value faster than we can accumulate more of them.

This discussion, is of course ground that we have been over many times in previous threads with you (Ericopoly) taking the view that the increasing price of gold is a "bubble" phenomena created by deluded goldbugs and myself taking the opposing view (that Sprott adheres to) that fiat currencies are the bubble.. specifically government bonds.

I feel I must point out at this point that since we first took opposite sides in this debate about 2 years ago, that the strength of your position has continued to erode in face of the relentless and obvious competitive sovereign currency devaluations as reflected in the soaring US dollar price of gold.

 

[Parsad]

Hi Guys,

 

Please no name-calling.  If you are getting worked up, walk away from the thread.  

 

If I see name-calling or any sort of taunting, I'll be removing the offending poster, not just the post next time.  Thanks!

 

[Rabbitisrich]

Brox, I don't think the distinction between a financial asset and other asset categories is useful to this thread. Personal net worth should utilize accounting methods that most closely represent economic reality, as opposed to GAAP which prioritizes clarity and uniformity.

 

That notional value may be difficult to measure does not eliminate the economic reality of the asset. If accuracy is your goal, it is no more conservative to understate an asset's value with a cost basis than it is to overstate the value.

 

It would be more accurate to separate the liability from the asset. In the case of a house, you can create a contra account or a liability account for the PV of expected expenses, while also accounting for the PV of expected realized value, or the current market value. This method provides for a range of expected outcomes instead of stuffing those outcomes into the asset or liability side based on the direction of cash flows over some arbitrary period.

[twacowfca]

Brox, I don't think the distinction between a financial asset and other asset categories is useful to this thread. Personal net worth should utilize accounting methods that most closely represent economic reality, as opposed to GAAP which prioritizes clarity and uniformity.

 

That notional value may be difficult to measure does not eliminate the economic reality of the asset. If accuracy is your goal, it is no more conservative to understate an asset's value with a cost basis than it is to overstate the value.

 

It would be more accurate to separate the liability from the asset. In the case of a house, you can create a contra account or a liability account for the PV of expected expenses, while also accounting for the PV of expected realized value, or the current market value. This method provides for a range of expected outcomes instead of stuffing those outcomes into the asset or liability side based on the direction of cash flows over some arbitrary period.

 

 

Excellent post.  Now lets all move on, as our moderator advises.

[stephentaub]

hi all

 

as for as factor , if you have g8 mind and knowledge ...

.......no age bar .................

 

..will power and  you lead . 

 

 

thanks With Regards

 

Stephen Taub, canada

[twacowfca]

hi all

 

as for as factor , if you have g8 mind and knowledge ...

.......no age bar .................

 

..will power and   you lead .  

 

 

thanks With Regards

 

Stephen Taub, canada

 

??? You're quite welcome.

 

[opihiman2]

Hi Guys,

 

Please no name-calling.  If you are getting worked up, walk away from the thread.  

 

If I see name-calling or any sort of taunting, I'll be removing the offending poster, not just the post next time.  Thanks!

 

 

Ouch.  No doubt and will do.  It was bizarre, however, that I was being confused with the rest of the arguments on this thread when I only said one thing on the topic.  How I got lumped in with the rest of the crew is beyond me. 

[opihiman2]

From what I've read in various consumer financial magazines, the net worth calculation includes the home equity but subtracts the remaining debt as a liability.  The estimated market value was also used in the net worth calculation.  Of course, all of this is pre-tax, so estimated net worth is generally lower after liquidation or proceeds occur.  

 

Was what I said before.  By the way, it's quite humbling to see so many millionaires on here.  I still have a ways to go.  My student loan debt still needs paring.

[ERICOPOLY]

Broxburn,

It is not accurate to say that I believe gold is in a bubble.  My view is that the price of gold fluctuates around a central real value, and where we are today relative to that value I cannot say -- so I am cautious.

 

The past thirty years has seen the price of gold fluctuate meaningfully both up and down over decade long periods.  It was perhaps expensive in 1980, then perhaps cheap in 2000 -- but this depends on some central real value -- I cannot quantify it, so I find it risky to treat as a replacement for dollars with these short term gyrations.  For long terms I don't like it because I could go with Ko.

 

 

 

[CONeal]

 

 

Was what I said before.  By the way, it's quite humbling to see so many millionaires on here.  I still have a ways to go.  My student loan debt still needs paring.

 

Paid mine off last week.  Glad that debt is gone.  Not sure how long you have been paying on it but my interest rate has been 0% since 2008 (variable rate loans) so that helped take a chunk out of it.