Calculated 12-month rolling NW average -- cool!

[mrteacher]

I have been tracking NW for nearly a decade.

The other day, I thought that it would be interesting to calculate a 12-month rolling average for each calendar year. I figured that the average would smooth out the often large swings month to month and reveal a more consistent, steady year-over-year snapshot.

It did that exactly. As our investments have increased, our month-to-month swings can be significant. The rolling average smoothed that out nicely, and revealed a great, steady NW increase over the past decade.

Does anyone else do this?

[Must_ache]

No.

However in my tracking spreadsheet I keep my current year NW updated but only keep year-end history. 
I don't think it's very meaningful to see it every month unless you want to know how much it could vary from month to month. 
Looking at annual changes will obviously give you a more stable view of outcomes.

[bacchi]

I calculate a rolling 3 year NW for withdrawal purposes.

[jrhampt]

No, but another cool 10 year view I just looked at is the investment returns/balances graphed over time in Vanguard.  Even after various withdrawals over the years due to home buying and student loan payoffs, my investment returns are now half of my total balance over the last ten years.  So basically my original investment has more than doubled (accounting for the withdrawals).  I guess I knew this would happen eventually, but I forgot about it and let it do its thing and now it has!

[simonsez]

Sorta, I do the NW % gain on a 12 month rolling basis.  In the accumulation phase, I like that downs in the market are mitigated by what the household is investing (economic psychology to highlight positives and reinforce investing norms to help stick to the IPS) and also seeing the change over time of how the bulk of gains stem more and more from markets vs contributions.  Plus, % figures aren't as personal as absolute $ amounts so it can be easier to talk about on the occasional times friends/family will chat about finances.  I.e. Saying "My net worth is up 40% compared to a year ago" might be more approachable than "My net worth just reached 750k". 

[Ron Scott]

I don’t understand the benefit to “smoothing“ changes in net worth over time.

I retired about six years ago and started calculating inflation-adjusted changes to my net worth, using my retirement month as the baseline. I find this more helpful because it tracks spending power not just absolute dollars.

[Tigerpine]

I don’t understand the benefit to “smoothing“ changes in net worth over time.

The benefit is purely psychological.  It's less scary to look at than a graph with sharper ups and downs.

The underlying reality is the same either way, of course.

I don't do rolling averages in net worth.  I personally think it's better to see the swings, as it gets you more accustomed to it and (at least in my case) less likely to panic when things temporarily go down.

[mrteacher]

I don’t understand the benefit to “smoothing“ changes in net worth over time.

The benefit is purely psychological.  It's less scary to look at than a graph with sharper ups and downs.

The underlying reality is the same either way, of course.

I don't do rolling averages in net worth.  I personally think it's better to see the swings, as it gets you more accustomed to it and (at least in my case) less likely to panic when things temporarily go down.

Exactly. Psychological.

I'm going to continue tracking monthly totals. And I've become totally accustomed to (even desensitized to, in a good way) the monthly swings.

I never looked at the 12-month rolling average as a groundbreaking revelation or a new and improved way to track -- just thought it was a neat calculation and another interesting data point.

[the barefoot badger]

Tracking net worth drives me crazy.  I would go from feeling like I was on easy street, to absolute rage over how much money I poured in that seemed to disappear.  So I track income instead.  Monthly, I estimate  how much I expect each investment / portfolio to earn in 12 months.  Most of my investments produce relatively reliable income, so this isn't exactly a roller coaster of excitement, when I buy something new, I make a little more money.  It keeps me feeling peaceful and also gives me good info on my tax liability as I go.

[bacchi]

I don’t understand the benefit to “smoothing“ changes in net worth over time.

I retired about six years ago and started calculating inflation-adjusted changes to my net worth, using my retirement month as the baseline. I find this more helpful because it tracks spending power not just absolute dollars.

As mentioned, I use smoothing for withdrawals. The VPW withdrawal method guarantees that withdrawals will last (no SORR) but doesn't guarantee the amount.

[Gerard]

I track income instead.  Monthly, I estimate  how much I expect each investment / portfolio to earn in 12 months.  Most of my investments produce relatively reliable income, so this isn't exactly a roller coaster of excitement, when I buy something new, I make a little more money.  It keeps me feeling peaceful and also gives me good info on my tax liability as I go.

I feel like this would be a good strategy for me. Now to actually change my spreadsheet to do it...

[ATtiny85]

I use a rolling type technique for looking at expenses. I use a very simple calculation for monthly expenses, just (starting balance) + (salary) - (taxable investment) - (ending balance) = (money that's gone). Simple spreadsheet that I update when the checking account statement is published. I then do some averaging "yearly based on this month" "yearly based on the last three months" and "yearly based on the last year". So it just rolls along and I can see "normal" months but also see how the lumpy expenses like property taxes look on a yearly basis.

I only started the spreadsheet a couple months ago, and it was interesting to start walking back in time with bank records. I only went to early 2020.

For net worth (actually only investments, I never consider what the house or car is worth) I normally only save it on 1 January.