Monday, July 02, 2007

Wealth Builder Ratios - Q2 2007 Update

Here is my Q2 2007 Wealth Builder Ratio update. This update also represents results for the 2007 year to date. Overall, I am disappointed with this year's results so far versus 2006 results. 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 2007

Q2 2007

Income to Salary


While our stock market and fixed income investments have done well, my company retirement plan has declined this quarter due to a 3.1% decline in our company stock this quarter. Thus, the return for this quarter was only 5% of salary.

Tracking this number is giving me an indication of what our income might be like during retirement. Obviously, with income at 9% of my salary, we would have been spending our retirement principal during Q1 and Q2 2007. I am still not comfortable with that kind of situation.

to Salary

The small investment gain and three months of savings has increases this ratio by 0.1. I had been targeting for a 0.75 increase by mid-year.

Debt to Salary


Currently, our only debt is our home mortgage. In January, we made a payment equal to 4% of our principal.

My financial goals for 2007 are:

1. Continue to maintain an Investment Income to Salary ratio > 0.8. (off track)

2. Add 1.5 to my Savings to Salary Ratio for a year-end value of 16.5. (off track)

3. Reduce my Debt to Salary Ratio by 0.1 to 1.53. (on track)

(For reference, Salary refers to gross salary.)

Both #1 and #2 are directly correlated with how well our stock, bond, and CD investments do. If our stock investments return about 10% in 2007, I should be able to comfortably achieve these goals. The S&P returns through June 29, 2007, are 5.5% and the Dow is up 7.6%. The market gains have been offset by decline of company stock in our retirement plan which is down 5.1%, and is causing me some concern for this year. Number 3 is on track since we made an additional payment equal to about 4% of our mortgage principal.

When I was bullish on the market, I expected to achieve these financial goals for 2007. While I still believe 2007 will be a strong finish for the market (and my company's stock), I may need to revise my investment strategies in second half to get closer to the 2007 goals.

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 © 2007 Achievement Catalyst, LLC

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