Monday, October 04, 2010

Wealth Builder Ratios - Q3 2010 Update

Here is our Q3 2010 Wealth Builder Ratios update. During the third quarter of 2010, the Dow, Nasdaq and S&P500 indices advanced 10.4%,12.3% and 10.7% respectively. Unfortunately, our investment portfolio did not do as well. My company stock did worse than the indices with a 0% return during Q3. Although the performance of my company stock has helped in the past, it held back our portfolio earnings this time allowing only a 1.4% for this quarter.

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 2010

Q3 2010


Income to Salary

Target=0.8 2007=3.41 2008=-5.47 2009=-1.38


After a positive start in Q1, 2010 has turned negative. We have gone from a 0.77 gain to a 0.20 loss due to losses in the stock market in Q2. A large cash position has helped on the downside but not on the updside. Our large position my company stock is down 1% for the year which hasn't helped much either.

At this point, we are taking some profits from the September rally, and are raising cash to make additional purchases since we expect a market correction. Also, as my company stock advances, we plan to sell some shares and increase diversification.

to Salary

2007=23 2008=16.7 2009=15.3


The Q3 savings ratio of 15.1 is still comparable to the Q3 2009 ratio of 14.6 which is discouraging. However, it feels like our retirement savings have stabilized which gives me some confidence of better returns coming.

During Q3, my company stock was flat while the Dow, Nasdaq and S&P 500 gained 10-12%. Our total savings are down 1.3% for 2010 which is below the positive 2-3% returns of the major indices for 2010.

Debt to Salary

2007=1.51 2008=1.46 2009=0

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 2010 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. Maintain Debt to Salary Ratio at 0. (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 flat performance of my company stock and the high proportion of cash, our portfolio was essentially flat Q3.

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 sometime in 2011. I continue to be concerned about volatility of our investment portfolio, but believe there is more upside than downside potential going forward.

I continue to have the same financial goals for 2010. Hopefully, the markets will rebound into 2011, and allow our retirement investments to further recover.

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 © 2010 Achievement Catalyst, LLC


Financial Independence said...

It is a little bit hard to follow the ratios.

Is there a chance to post actual values along side?

To be honest I do not think that the markets will rebound any time soon and the volatility is in the driving seat and here to stay.

The only way how the market will rebound is with the inflation - a lot of people will try to invest money to protect their cash from inflation.

Super Saver said...

@ Financial Independence,

I chose ratios for a couple reasons. First, I think ratios allow readers to apply the information to their own situation as comparison. Second, I wanted to keep the value of my personal finances confidential, in case my identity was discovered.

I think the market have already rebounded, e.g. the indices are within 10-15% of 2007 highs. To me, the question is will the rally continue :-)