Monday, January 03, 2011

Wealth Builder Ratios - Q4 2010 Update

Here is our Q4 2010 Wealth Builder Ratios update. During the fourth quarter of 2010, the Dow, Nasdaq and S&P500 indices continued to rally and advanced 7.3%,12.0% and 10.2% respectively. Our investment portfolio returns were in the middle at 9.9%. My company stock had its best advance in 2010 with a 7.4% return during Q4.

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

Ratio and Target

Q3 2010

Q4 2010


Income to Salary
Target=0.8 2007=3.41 2008=-5.47 2009=-1.38


2010 was a tumultuous and good year. This year is the first positive return for our portfolio since 2007. After a positive start in Q1, 2010 turned negative and then was positive again. We have gone from a 0.77 gain to a 0.41 loss and then back to a 1.29 gain. A large cash position has helped on the downside but not on the updside. The position in my company stock was a significant factor, accounting for 58% of the gain this year.

For 2011, as my company stock (hopefully) advances, we plan to sell some shares and increase diversification, primarily in large cap dividend paying stocks.

Savings to Salary

2007=23 2008=16.7 2009=15.3


For now, it feels like our retirement savings have stabilized which gives me some confidence of better returns coming.The Q4 savings ratio of 16.6 is comparable to the Q4 2008 even though we paid off our mortgage using about 1.4x of my salary. Excluding the mortgage payoff and accounting for monthly payments, our savings ratio would have be about 17.7

During Q4, my company stock gained 7.4%, excluding dividends while the Dow, Nasdaq and S&P 500 gained 7.3-12%.

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 were:

1. Continue to maintain an Investment Income to Salary ratio > 0.8. (on 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 good performance of my company stock and the high proportion of cash, our portfolio basically matched the indices 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 continue an upward trend, hopefully through 2012. 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 2011. Hopefully, the markets will continue to rebound in 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 © 2011 Achievement Catalyst, LLC

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