Monday, January 14, 2013

Wealth Builder Ratios - Q4 2012 Update

Here is our Q4 2012 Wealth Builder Ratios update. During the fourth quarter of 2012, the Dow, Nasdaq and S&P500 indices were down 2.4%, 3.1% and 1.0% respectively. My company stock was also down 2.1%.  Our investment portfolio increased in value 8.8 % due entirely to an inheritance from my parents which was partially distributed in 2012.

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 2012
Q4 2012

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


 Q4 2012 was positive due entirely to a partial distribution of an inheritance to our portfolio.  The indices fell 1 to 3% and my company stock fell 2%.  In 2012, all the stock assets and the majority of cash was distributed to the heirs.  In 2013, we are working to complete the distribution of real assets and remaining cash.  So there will be another positive impact.  

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.  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
17.619.1During Q4, I had be slowly trickling funds back into the stock market.   However, the inheritance from my parents included several stocks and mutual funds.  So I became much more invested when the funds transferred to me.  I've decided to keep most the stock and mutual fund  intact, and have sold very little of the positions.

I plan to continue trickling in funds into stocks and ETFs during Q1 2013.
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 were:

1. Continue to maintain an Investment Income to Salary ratio > 0.8. (off track, achieved due special situation and not investment results)

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 was down slightly.   The positive performance of the portfolio was due entirely to the inheritance from my parents. If the stock market continues to be positive, it appears a Savings to Salary ratio of 20 will be achievable with another 6% advance in my company stock.
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, and believe there equal downside and upside potential going forward due to EU sovereign debt crisis and the US debt ceiling crisis.  So I continue to slowly add funds to the stock market, and hold my company stock and stock options

I continue to have the same financial goals for 2013. At this point, I am slightly optimistic 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.

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