Monday, October 01, 2012

Wealth Builder Ratios - Q3 2012 Update

Here is our Q3 2012 Wealth Builder Ratios update. During the third  quarter of 2012, the Dow, Nasdaq and S&P500 indices were up 4.3%, 6.2% and 5.8% respectively. Our investment portfolio returns were up 11.5 % due mainly to a 13.2% advance of  my company stock.

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 2012
Q3 2012

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


Unlike Q2 2012, Q3 2012 has been very good to our portfolio.  While the indices rose 4 to 5%, my company stock advanced 13.2%, due in part to QE3  This resulted in a positive return of 1.97 my pre-retirement salary.   I had sold all the company stock in our IRA, keeping only the low basis shares in my company retirement for a future NUA execution.  I bought back a very small amount near the bottom of the trading range in June 2012.   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
15.717.6I 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 . In May 2012, I started a long short portfolio and went exclusively long in July 2012 for about 1% of our investable assets.  So almost 100% of the gain has come from 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 positive performance of my company stock and the high proportion of cash, our portfolio rose  more than the indices in Q3.  With my company stock breaking to the upside of a narrow range, it appears a Savings to Salary ratio of 20 will be achievable with another 14% advance in my company stock.  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.

Although I am pleased with our portfolio results, I am not confident the gains are sustainable. Our short term expenses (next 3-5 years) are invested in CDs, bonds and money markets. 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

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