I’ve been monitoring my net worth since October 2017. But I’ve not considered my second pillar into it. Why ? Because I don’t get a monthly report on my second pillar. However, I don’t really need it since I can extrapolate from the monthly results. I just was too lazy before to do it.
I decided to stop being lazy and do it. Let’s see how (and why) I did it.
If you need, first take a look at how to calculate your net worth.
Adding my second pillar to my net worth
Before the how, let’s see the why. Why would integrate the second pillar into the net worth ? One could argue that you cannot take it out before retiring. And it’s also possible that we may not be able to take it out as a capital at all in the future. Nevertheless, it’s your money! Even if you don’t take it out as a capital, it will grant you a pension. This pension will help you in retirement and as such should be part of your retirement plan. Another good reason is to have a complete picture of your assets! The only way to have a good idea of your asset allocation is to take all assets into accounts.
Now, to the how! A the beginning of the year, I receive my second pillar report. This report is telling me how much money is inside and how much I would get if I were to take it out. This document contains a lot of numbers and is different from each pension fund. In my case, the number I’m using is, pardon my french, “Prestation de sortie effective au 31.12.XXXX “. This is what I would get at that date. For instance, using my 2017 pension fund report, I can know how much I had at the 31.12.2016. To get the monthly information, I’m extrapolating between the numbers of two years. This gives me a monthly update. And for the current year, I’m simply using the same extrapolation in the future. Once I receive the next report, I’ll simply update my net worth backward.
My pension fund company decided to send the report only mid-year, this year. I have to extrapolate values of 2018 from 2017 report. This is not an issue since the actual values will be higher than the extrapolation. It is better to underestimate assets rather than overestimate them.
Enough about that, show us your net worth!
Alright, my last second pillar value is 22’701.80 CHF at 31.12.2016. Once you extrapolate, I have an estimated 31,993.00 CHF as of April 2018. Which makes my net worth 88,421.66 CHF.
Since I haven’t been tracking my net worth for long. I’ve also integrated the monthly second pillar values up to the beginning of October 2017. So my net worth graph does not have a big jump. As you can see here:
Not only do I now know more correctly what is my net worth, I also have a better view of what is my net worth made of. Since before I did not include the second pillar in my net worth, I only had a view on some of my assets. When I was taking a portfolio decision, I was taking a decision based on a partial information. Obviously this is not good. Now, I can take decisions based on a the full view of net worth.
My current (will soon change) pension fund is quite diversified. It has a significant percentage of bonds, cash and real estate. And also a small number of domestic and international stocks. For simplicity’s sake, and because these pension funds are quite safe for now, I will consider it as 100% bonds. It’s not totally correct of course, but is enough for me to have a full view of my assets. This gives me the following current asset allocation:
Recently, I’ve purchased some bonds for my portfolio. I’m now realizing that I have much more bonds than I thought when taking my second pillar into account. I’ll have to review my portfolio again soon. I made the mistake of not considering the big picture when adding to my portfolio. For now, I don’t need any bonds in my investment portfolio.
We can look at my asset allocation over time:
I’ve successfully reduced the amount of cash of the allocation. However, I also need to reduce the number of bonds. For instance, I still have too many bonds in my third pillar. This is because my third pillar is invested in three different PostFinance funds (25, 45, 75). As soon as the 25 and 45 parts are earning again, I’ll reinvest them to the 75 plan.
What about you ?
Now that you (and I) know a bit more about me, I’d be very interested to know how you compute your net worth ? How do you keep track of your second pillar ?
I’m not the only one computing my net worth in such a way. I was inspired by Mr. RIP’s way of computing the net worth. But you can also find out how MP from Mustachian Post is computing his net worth.