Monday, April 07, 2008

Wealth Builder Ratios - Q1 2008 Update

Here is our Q1 2008 Wealth Builder Ratio update. I am disappointed with this year's results versus goals and 2007 results. 2008 has not been very kind to our financial plans and goals so far. For more details on the relevance of these ratios, please see this How Much Is Needed To Be Wealthy - The NUMBER.

Ratio and Target


Q1 2008


Income to Salary

Target=0.8 2007 - 0.8


For the third year in a row, the returns of the stock market are on track to under perform in the first half of the year. This year's declines have caused our portfolio to lose 1.50 times my pre-retirement salary. The portfolio was down as much as 2.43 times salary when I did a mid quarter check on February 22, 2008.

Fortunately, we do not yet need to sell any investments for our retirement expenses. At this point, we are staying invested in the market.

to Salary


The significant loss is due to the stock market decline in Q1 2008.

Debt to Salary


Currently, our only debt is our home mortgage. Since we retired, we have not made our usual 4% principal payment in January. We will wait for the market to recover slightly before selling some investments to cover this payment.

My financial goals for 2008 are:

1. Continue to maintain an Investment Income to Salary ratio > 0.8. (off track)

2. Maintain a Savings to Salary (final before retirement) ratio of 20. (on track)

3. Reduce my Debt to Salary Ratio by 0.1 to 1.51. (off track)

(For reference, Salary refers to gross salary just prior to early retirement in October, 2007.)

Both #1 and #2 were directly correlated with how well our stock, bond, and CD investments did. Due to a weak first quarter in 2008, our stock, bond, and CD investments have returned -7.6%. This compares with an S&P return of -10.53% and a Dow return of -9.37% for 2008 YTD. Number 3 will be achieved once we make an additional payment equal to about 4% of our mortgage principal later in 2008.

In our Q4 2007 update, I noted that "2008 will be an interesting (and probably volatile) year, given the economic and political uncertainty, and the upcoming Presidential election. Next year will be a good test of the effectiveness of our investment strategies." So far 2008 is proving that statement to be correct:-)

For more on Strategies and Plans , check back every Monday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

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