Monday, August 20, 2012

Wealth Builder Ratios - Q2 2012 Update

Here is our Q2 2012 Wealth Builder Ratios update. During the second quarter of 2012, the Dow, Nasdaq and S&P500 indices were down  2.5%, 5.1% and 3.3% respectively. Our investment portfolio returns were -8.7 % due mainly to a decline of  my company stock of 8.9%.

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 2012
Q2 2012

Income to Salary
Target= 0.8 2007= 3.41
2008= -5.47 2009= -1.38
2010= 1.29
2011= 0.5


Q2 2012 was not kind to us.  While the indices fell 2-5%, my company stock fell 8.9%.   This resulted in a negative return of 1.42 my pre-retirement salary.   I have sold all the company stock in our IRA, keeping only the low basis shares in my company retirement for a future NUA execution. As my company stock (hopefully) advances, we plan to continue execute the remaining stock options I own.
Savings to Salary
2007=23 2008=16.7 2009=15.3
17.215.7I sold most of our stock investments in June 2011, and kept my company stock and stock options. We avoided most of the volatility in the fourth quarter but missed the gains in the first quarter of 2012 and the percentage drop of my company stock fell was greater than those of the indices. The change mainly reflects the negative 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 2012 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 negative performance of my company stock and the high proportion of cash, our portfolio fell  farther than the indices in Q2.  With my company stock trading in a narrow range, it appears a Savings to Salary ratio of 20 may not be achievable with our current plan.  In late 2012 or early 2013, our savings will have a positive impact due to an inheritance from my parents.   However, this will be a windfall and not due to investment results.

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. I continue to be concerned about volatility of our investment portfolio, but believe there is more downside than upside potential going forward due to EU sovereign debt crisis and continued deleveraging.  So I continue to stay mainly in cash, which the exception of my company stock and stock options

I continue to have the same financial goals for 2012. 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 © 2012 Achievement Catalyst, LLC


S. B. said...

Down to 15.7 times income. Sorry to hear that. That means you'll need 6.4% + inflation going forward, so you may need some luck. But you have been this low before, so hopefully you can get through with some part time income.

Super Saver said...

Yes, it seems that our savings ratio is stuck in the 15 to 17 range. And given the lackluster perfomance of my company stock, there is more downside risk than upside potential. On a positive note, the ratio is based on my pre-retirement income and our annual expenses are about 50% of my pre-retirement income.

Yes, I will need some luck :-)