Monday, October 05, 2009

Wealth Builder Ratios - Q3 2009 Update

Here is our Q3 2009 Wealth Builder Ratio update. During the third quarter of 2009, the Dow, Nasdaq and S&P500 indices advanced about 15%. Through September 30, 2009, the Dow is up 10.7%. The Nasdaq rose 34.6% and the S&P 500 was up 17.0%. Although my company stock gained 14% during Q3, it is still down about 4% for the year. Due to the leverage of company stock options and paying off our mortgage in May, 2009, our retirement savings are down 12.3% this year.

For more details on the relevance of these ratios, please see this How Much Is Needed To Be Wealthy - The NUMBER.

Ratio and Target

Q2 2009

Q3 2009


Income to Salary

Target=0.8 2007=3.41 2008=-5.47


The stock market performance for the third quarter of 2009 improved our returns by a ratio of 1.72, but not enough to eliminate the loss of -3.78 for the first half of 2009.

At this point, we continue to stay invested in the market for our tax advantage accounts, and still taking the opportunity to increase our cash position during rallies. If there is a significant market correction in October, 2009, I plan to increase the amount of funds invested in equities.

to Salary

2007=23 2008=16.7


During Q3, my company stock advanced 14% and the Dow, Nasdaq and S&P 500 advanced 15% which helped increase our investment returns. Our total savings are still down 12.3% for the first half of 2009, primarily due to my company stock still be down 4.1% for the year.

Debt to Salary

2007=1.51 2008=1.46

We said bye-bye to our mortgage on May 20, 2009. Eliminating a mortgage payment has reduced our expenses by 24%.

My financial goals for 2009 are:

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

2. Maintain a Savings to Salary ratio of 20. (off track)

3. Reduce my Debt to Salary Ratio by 0.1 to 1.36. (met final goal of 0)

(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 returns. With the continued rebound of the market in Q3, our investments have also shown a good gain.

It has been very challenging retiring at the beginning of a bear market. Our short term expenses (next 3-5 years) are invested in CDs, bonds and money markets. So we can wait for the stock market to resume an upward trend, hopefully in the next 1 to 2 years. At this point, I continue to be concerned about reducing our withdrawal rate, and have taken on two part time jobs.

Hopefully, this will be the rebound year, as I propose in my 2009 economic predictions, and allow our retirement investments to recover. Otherwise, it's back to work I go :-)

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 © 2009 Achievement Catalyst, LLC

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