Starting this year, I occasionally blogged about my net worth. I calculated it based on (Total Assets – Total Liabilities). However, in defining “net worth”, I have left out the “bulky” and iliquid assets/liabilities like property and car. The reasons being it is difficult to translate them into cash immediately when needed, it is also challenging to assess its market value and as I called them – are bulky and can easy slew the analysis.
Following an analysis yesterday, I realised that my net worth has experienced a roller coaster ride very much like the local stock market through the last few months. And one new development from my analysis is the concern that I may be overly invested. If the local stock market really tanks, my net worth will decline significantly and I will really be in deep deep trouble. And this trouble will double or triple if you are into margin financing massively.
Below is the chart showing my net worth in last 8 months (Dec 2017 – July 2018), index to Dec 2017 number as 100.
It gained 10% by end of April 2018 but after that, it started to decline until June before picking up slightly in July to end at 106, +6% above my net worth assessed at end Dec 2017 => in some way, I am happy with it as I am “richer” now that I was 7 months ago.
However, what was most enlightening was that when I overlapped this with the STI by the similar indexing, I realised that the profile matches quite closely. STI also peaked in April before declining to June and picking up slightly at end July. The key difference however is that STI at end July 2018 is still 2% below the start of the year. The reason is the step cash increase from my annual bonus.
I have kept my cash level at 9 to 14% of my net worth throughout these few months. In other words, 85-90% of net worth is invested, mainly in companies and corporate bonds listed on the local stock exchange and the SSB. That may explain the similarity in the profile between my net worth and STI.
By the way, the increase in March were due to crediting of my annual bonus into the bank account. Net worth increased despite the reduction in STI. It goes to reinforce that the income from my job is still a major and contributor to my net worth.
From this analysis. Do you feel that I am taking on too much risk?
Is holding 10% cash sufficient? I remembered a useful article from AK last weekend on the need for emergency cash … I will need to spend some time to look into this => it’s not a good feeling to be so vested in the stock market … peace of mind is priceless
Have a good weekend folks.