At its most basic level, net worth is simply the value of your assets less your liabilities. You take the value of things like your house, stocks portfolios and cash in the bank and subtract from this any debt that you have like mortgage debt or investment debt and credit card debt.
When to check net worth?
Don’t get me wrong, tracking asset value can possibly give you early warning signs into the health of specific companies or investment that you hold, if there are fundamental reasons for why something is up or down. Expectations of a poor sales performance from a company that you are invested in perhaps, or a product not performing well. There are other ways and means to validate and understand this rather than looking at stock prices. Investments in equities or property are investments in things that you expect to be around from many years.
Nobody thinks to revalue their house on a daily basis, but its interesting that we take this approach to our investments and net worth and attempt to track this daily, weekly, monthly. Too great an obsession on net worth leads to a distraction that takes you away from achieving an end goal and sticking to an investment strategy to get there.
A net worth update may make sense where you have made major repayments of debt and you want to see what your new financial position looks like, particularly if you are looking at financing a big purchase or need to document your net worth position to a lender. Apart from these instances, obsessing too much about how your financial position has changed from day to day may actually distract you from the end game.
Goals take time and dedication and persistence to achieve, and you need to follow a plan to get there. This is true if you are saving for a house or car or trying to get into college. A net worth obsession, and periods of falling net worth in particular, cause you to question something when there may be no reason to do so. And it’s almost certain that you will have periods where things trend down, even if the health of your underlying investments is perfectly sound.
Look at the Dow now!