I have noticed that over the past 6 months or so, my net worth is extremely correlated to the broad market. Yes, I know that this is beyond a first world problem since most people in the first world probably don’t track their net worth (nevertheless have a personal finance blog where they publish said calculations).
Why is My Net Worth Correlated to the Market?
What is my net worth made up of:
- House – Not correlated, but I also haven’t increased the value in 3 years
- Retirement Accounts – Broad Market funds & Large Cap stocks = Correlated
- Dividend Account – The only purchases made in this account are those that have paid increasing dividends for the past 25+ years, and as such, they tend to be established companies that have a very low beta
- Cash Accounts – uncorrelated but don’t move
- Debt – Slow to be paid off 0% Credit Card Debt, and even slower 30 year amortized loans (mortgage and law school loans)
I also have cash value life insurance, but do not bother to include it when calculating my net worth. As such, I have balance sheet items that don’t move (house and cash) along with 100% stock positions. That will do it!
Does it Matter if my Net Worth is Correlated to the Market?
Personally, for me, the answer is no. I understand the risk I am taking, and as important, I am relatively young. As young as when I started this blog? Hell No, but at 34 I can take a 50% market swing without endangering the welfare of my family. As I get older, I hope to be less correlated through additional line items in my balance sheet which could include investment real estate and/or additional businesses.
Should this view be the same for everyone? Absolutely Not. If you have a lower risk tolerance or are older than me you may not be able to take the violent and nauseating swings that a correlated portfolio or net worth might cause.
While I am not going to do anything about it in the near future it was just a trend I have noticed recently and I am annoyed enough about it to bitch.