Chris's blog

How and Why to Calculate Your Net Worth

Net worth is a term that refers to the sum of your assets after subtracting your liabilities. Calculating your net worth allows you insight into your financial situation at any given moment. It is a snapshot of your money and investments, but it is not static. It changes over time as you earn, save, and spend money. That ever-changing aspect of net worth is where the real value of tracking and calculating it lies.

When a person tracks their net worth over time, they are recording data that can help them analyze the performance of their financial decisions. The process of calculating net worth requires examining all of your assets and liabilities, which may unearth potential problems or inspire ideas for potential growth. Watching net worth change over time may also allow an individual to see how their net worth may change in the future.

How to Calculate Net Worth

A simple spreadsheet, a calculator, and access to your financial accounts are tools that you need to calculate your net worth. The first step is to list all of your assets and liabilities. Assets may include cash on hand, savings accounts, property, retirement investments, and other kinds of long and short term investments. Liabilities may include a mortgage, credit card debt, student loan debt, lines of credit, car loans and other debts that must be paid back over time.

Once you have listed each investment, add up the total of your investments and subtract the total sum or your liabilities. The result is a theoretical amount meant to represent how much money you might have if you sold all of your assets and paid back all of your liabilities, also known as your total net worth.

Calculating Net Worth To Reflect

By calculating their net worth, an individual has the chance to take a step back and consider their finances from a bird’s eye view. If you are not in the habit of checking your net worth, the end number may come as a surprise to you. One individual might be surprised to see the total amount of credit card debt they have accumulated, while another individual might be pleased to discover how much equity they have in their home or the health of their assets. By reflecting on how your calculated net worth is different from your predictions, you may be able to make more informed and productive financial decisions for the future.

Calculating Net Worth For Financial Decision-Making 

Over time, as your financial situation changes, so will your net worth. There are a number of questions you may ask yourself in order to better analyze the data you are collecting.

●      How is my net worth changing over time?

●      How do those changes align with changes to my lifestyle?

●      What are the biggest assets and liabilities impacting my net worth?

●      Could I make any simple changes that would have a positive impact on my net worth in the future?

●      Is my long-term strategy performing as expected, or are adjustments in order?

●      Projecting my net worth into the future, am I on track to meet my goals in retirement? 

Calculating your net worth may inspire you to rebalance your portfolio, clear debt, increase savings, adjust your investment strategy, or to stay on track without making any changes at all. It helps you make more informed financial decisions.

Comparing Mutual Funds With Exchange-Traded Funds

Mutual Funds and ETFs (exchange-traded funds) may be attractive to investors because they commonly offer diversification and professional management for a comparatively low cost compared to some other types of investments. The range of types of funds available to investors allow access to a range of investment strategies and philosophies. Mutual funds and ETFs are similar in many ways, but it is important to note their differences as well.

An investment fund is a portfolio of investments that many investors put their money into together. This may decrease exposure to risk and can allow both beginners and more experience investors to tap into a diverse investment. Mutual funds and ETFs represent a range of investment styles and strategies.

Mutual funds date back as far in history as 1924. ETFs, however, have only been in existence since 1993. Despite being a more recent investment product, ETFs are gaining in popularity.

What Is The Difference: ETF and Mutual Fund

Perhaps the biggest difference between an exchange-traded fund and a mutual fund is in the way they are traded.

Mutual funds are purchased either from a broker or from the mutual fund company. The net asset value of the fund is calculated as the market closes each day, and all of the buy or sell orders that have been placed throughout the day will execute at this time.  

ETFs are traded through an exchange, as the name suggests. An ETF calculates its NAV at the end of the trading day similarly to a mutual fund, but investors  can purchase shares at market value, throughout the day.  This is an important distinction from a mutual fund.


When it comes to fees, one of the biggest factors in comparing expense ratios is whether the investment is passively or actively managed. Similarly, both types of funds represent such a wide range of characteristics that it is impossible to say that one has a typically larger expense ratio than the other.

Rather, each type of fund has certain common fees that investors should keep an eye on. For example, ETF investors are sometimes responsible for brokerage fees, while mutual funds are may or may not have a sales charge associated with the purchase. Account fees, redemptions fees, commissions, and more may all be be part of the costs associated with a mutual fund. 

The fees and expense ratio of each individual fund will be located in the prospectus. While both mutual funds and ETFs may have y lower fees that other types of investments, small fees may have large compounding effects on the total investment return. This makes it important to analyze each investment to ascertain the total cost of owning it prior to making a purchase.

Similar But Not The Same

ETFs and mutual funds have some marked differences. It is important, as an investor, to understand the investments and financial products you purchase. At the same time, both ETFs and mutual funds are available to represent the full range of conservative to aggressive investment strategies. No matter your investment strategy, investing in a  mutual fund or an ETF  may provide a diverse portfolio.

Bonds: A Beginner's Guide to A Classic Investment

A bond is a way for an investor to loan money to a company or government. When you buy a bond, the company uses your money to invest in the company and pays you an interest rate. Most bonds pay interest annually or semiannually. When the bond matures the face value of the bond is paid to you as a return of principal. 

Depending on the length until the maturity date of the bond, an investment in bonds may be a short, medium, or long-term investment. Bonds can be for any length of time and may command a higher return with longer maturities.

A bond is a simple-to-understand investment that gets a little more complicated when you buy and sell bonds instead of holding them. The price of a bond is influenced by interest rates, meaning a bond’s par value can change from the time you buy it to the time you sell it. If the interest rate goes up the value of the bond tends to decrease. If the interest rates go down, then the price of your bond would tend to increase.

Types of Bonds

Some bonds have a greater potential yield than others. One bond may have less chance of being defaulted on than another bond. The first thing to understand about what makes bonds different from one another is who issued the bonds and what type they are.

  • US Treasury Securities- “Backed by the full faith and credit” of the United States, the United States Treasury would have to be in a state of major economic catastrophe for these bonds to be defaulted on. Prices rise and fall on the market, but there is very little chance the investment will lose significant value while you hold it.
  • US Savings Bonds- Also issued by the federal government. These are simple and straightforward. They can be purchased in small amounts, making it an accessible option for people who do not have a lot of money to invest.
  • Municipal Bonds- These are issued by non-federal government bodies such as states, cities, and counties. Many municipal bonds support specific projects, such as purchasing new fire department equipment or repairing roads.
  • Corporate Bonds- Are issued by all kinds of companies. Corporate bonds are segmented by the types of industry, according to the company that offers them. Being backed by a company instead of a government body means that there is a larger chance the bond could be defaulted on if the company goes under.
  • Bonds in International and Emerging Markets- These are bonds issued by governments or companies that are not in the United States. Although international and emerging markets can be used to diversify a portfolio, they carry a separate set of considerations than other types of domestic investments.

This is not an exhaustive list. There are many more kinds of bonds you can invest in, including some that are complicated to understand. Just like any other kind of investment, you must perform the due diligence required to make sure you’re investing in bonds that are right for you and your investment strategy.

A diverse portfolio holds many types of investments, and bonds tend to play a role of stability and income. That diversification continues to be important even as beginner investors gain experience and experiment with more aggressive investments. The conservative nature of bonds make them an investment worth considering for young and experienced investors alike.

How To Assess the Performance Of An Asset

Measuring the performance of an asset means looking at whether the investment is doing well and is worth keeping in your portfolio. The phrase is sometimes used when speaking about the performance of a company, while other times it might refer to the performance of the company’s stock price.

Company Performance

Different company metrics can shed light on how the company is performing in comparison to others in its industry. These tools include numbers like:

  • Cash conversion cycle- a metric that measures the time it takes a company to start with cash, produce inventory, sell the inventory, and hold cash again.
  • Return on assets ratio- a metric that measures the ratio between the amount of profit a company makes and the total number of assets the company holds.
  • Fixed asset turnover rate- a metric found by dividing the number of total sales by the total number of company property, plant, and equipment (fixed-asset investments). 

Assessing performance of a company could mean comparing these metrics against the average numbers for the industry, or it could mean noting whether the metrics are showing an improvement from a period of time. For example, a company that finds a way to sell their produce faster may improve their cash conversion cycle outlook.

Return on Equity

One potential way to assess the performance of an asset is to look at the returns earned since the asset was purchased. This can manifest in different ways, such as regular dividends or an increase in the value of the stock. An investor might be pleased with the performance of their asset if it performs as expected in accordance with his or her investment strategy.

Investing Is More Than Metrics

Two investors studying the metrics of the same company may disagree on whether or not the asset is performing well. That is because measuring the performance of an asset means more than consulting numbers. Assessing performance means understanding how the asset fits into your investment strategy, what role it plays in your portfolio, and whether or not it is performing as expected.

A company that focuses on shareholders could choose to release regular dividends instead of investing profit back into the company with the goal of growth. Another company could focus solely on investment and make no promise of dividends to their shareholders. These choices may influence whether or not an investor is satisfied with their asset performance.

The Role of Asset Allocation In A Healthy Portfolio

Asset allocation is a phrase that refers to how you allocate your funds into different classes of investments. It is a simple concept, but the way you allocate your assets may have big impact on the overall performance of your portfolio.

Investment Classes  

There are three basic type of public investments:

  • Equities or Stocks:

Equities or stocks are an investment class where the asset you own is a portion of the company itself. The price any given equity may change, although the “market” has gained 7% to 10% a year on average overall. (Past performance is not a guarantee of future performance.) Investors attempt to sell equities for a higher price than they paid for them, sometimes by holding the stock for a long time and sometimes by selling the stock quickly if the price rises.

  • Fixed-Income

Fixed-Income investments bring in income for the time that you hold them. An example of a fixed-income asset is a bond which pays the stated yield twice a year until it matures for the original face value. The value of bonds fluctuates and some bonds are more stable than others, offering investors a range of conservative to aggressive strategies.

  • Cash Equivalents 

Cash equivalents are assets that offer easy access. It is easy to purchase these investments, for example, savings accounts or a money market fund. Although cash equivalents usually offer a low interest rate, the reason to keep them is to have fast, easy access to money.

Asset Allocation Formulas

Many professionals who give advice on asset allocation claim to have a magic formula that anyone can follow in order to understand what their asset allocation should be. Commonly, these formulas begin with the age of the investor, which allows the formula to make assumptions about how aggressive the investor can “afford” to be.

The idea is that a younger investor has potentially many years ahead of them to earn money compared to an investor closer to retirement age. Therefore, according to the theory, a young investor can take a more aggressive investment stance while an older investor might want to be more conservative. The more aggressive the investment strategy, the higher the potential to lose money. The formula hinges on the assumption that younger people can more easily recover from a loss than older people.

However, generalized formulas do not take unique situations into perspective. In fact, it is fairly easy to imagine, for example, a young investor requiring a more accessible and conservative portfolio compared to an older investor who may not have such a great need for access to cash. The truth is that deciding your asset allocation means understanding your specific needs, goals, objectives and financial situation in order to determine the best asset allocation for you. 

Keep Asset Allocation at the Forefront

To determine your asset allocation, you will need to examine your financial situation carefully. Consider how much of your portfolio you may need to be able to access quickly, what kind of risk you are comfortable with and what your long- and short-term financial goals are. These are the core questions to determine your asset allocation, which is crucial to any investment strategy.