Monday, November 14, 2011

Wealth Builder Ratios - Q3 2011 Update

Here is our Q3 2011 Wealth Builder Ratios update. During the third quarter of 2011, the Dow, Nasdaq and S&P500 indices were down at -12.1%, -12.9% and -14.3% respectively. Our investment portfolio returns declined from -1.7% to -3.0% due to the overall market decline and my company stock having a  -1.4% return during Q3.

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 2011
Q3 2011

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


2011 has started out poorly due to a slight negative return for my company stock. As my company stock (hopefully) advances, we plan to continue selling  shares and increasing diversification, primarily in large cap dividend paying stocks.
Savings to Salary
2007=23 2008=16.7 2009=15.3
16.316.1Although it feels like our retirement savings have stabilized, I think the second half of 2011 may be weak.  I sold most of our stock investments in June 2011, but still have my company stock and stock options. The change mainly reflects the change in my company stock.
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 2011 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 poor performance of my company stock and the high proportion of cash, our portfolio declined less than the indices in 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. At this point, I am pessimistic about the economy and the stock market.

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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