Monday, October 07, 2013

Wealth Builder Ratios - Q3 2013

Here is our Q3 2013 Wealth Builder Ratios update. During the third quarter of 2013, the Dow, Nasdaq and S&P500 indices were up 1.9%, 10.1% and 4.7% respectively. My company stock was down 1.1%.  Our investment portfolio decreased in value 1.3% due mostly to the decline 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 2013
Q3 2013

Retirement Income to Salary
2007= n/a
2008= n/a
2009= n/a
2010= n/a
2011= n/a
2012=  n/a
n/a0.79This is the new metric that I'm using which is based on a 4% withdrawal rate of the liquid assets in our retirement and savings accounts.

The initial target I'm using is a 0.8 ratio, which would be 80% of our pre-retirement pre-tax income.
Income to Salary
2012= 2.02
4.734.44I will use this metric through the end of 2013 and then replace it with the Retirement Income to Salary ratio.

This decline was due mostly to the decline of my company stock

I plan to sell some additional shares of company stock in my retirement plan, keeping only the low basis shares in my company retirement for a future NUA execution.  At this point, I have sold 90% of the stock options with an early 2014 expiration date.
Savings to Salary
Target >20
2007=23 2008=16.7 2009=15.3
23.823.5I will use this metric through the end of 2013 and then replace it with the Retirement Income to Salary ratio.

Again all of the gain was due to the property inherited.  The value would be slightly down at 20.9 without the inheritance.

During Q3, I slightly reduced the amount of funds invested in equities.   If there is a correction, I plan to add some funds into stocks and ETFs during Q4 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 2013 are:

1.  Maintain a Retirement Income to Salary ratio >  0.8. (off track)

2.  Continue to maintain an Investment Income to Salary ratio > 0.8. (on track)

3. Maintain a Savings to Salary ratio of 20. (on track)

4. 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.)

 #1,  #2 and #3 were directly correlated with how well our stock, bond, and CD investments returns. With the  slightly down performance of my company stock and the high proportion of cash, our portfolio was down slightly.

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 there equal downside and upside potential going forward due to EU sovereign debt crisis and the US debt ceiling crisis.  So I continue to add funds to the stock market during dips, and sell off my company stock and stock options in a tax efficient manner.

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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