Monday, April 06, 2009

Wealth Builder Ratios - Q1 2009 Update

Here is our Q1 2009 Wealth Builder Ratio update. 2009 continues to be brutal for our financial plans and goals. Through March 31, 2009, the Dow was off 13.30%, the Nasdaq down 3.07% and the S&P 500 down 11.67%. Due to the leverage of company stock options, our retirement savings have fallen more, with losses of 19.6%.

For more details on the relevance of these ratios, please see this How Much Is Needed To Be Wealthy - The NUMBER.

Ratio and Target

Q4 2008

Q1 2009


Income to Salary

Target=0.8 2007=3.41 2008=-5.47


The stock market perfomance for the first quarter of 2009 signficantly reduced our returns. This year's declines have caused our portfolio to lose 3.04 times my pre-retirement salary. Most of the loss occurred in my company stock which fell significantly during the first quarter.

Fortunately, we do not yet need to sell any investments for our retirement expenses. At this point, we are staying invested in the market, and taking the opportunity to increase our cash position during rallies.

to Salary

2007=23 2008=16.7


The significant loss versus the ratio of 16.7 in 2007 is due to my company stock, which was down 23.3% durng the first quarter. Thus, due to the leverage of stock options, our total investment losses were -18.2%.

Debt to Salary

2007=1.51 2008=1.46

Currently, our only debt is our home mortgage. Since we retired, we have not made our usual 4% principal payment in January. We were waiting for the market to recover before selling some investments to cover this payment and the recovery didn't happen.

My financial goals for 2009 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. Reduce my Debt to Salary Ratio by 0.1 to 1.36. (off track)

(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. Due to the bear market in 2008, our stock, bond, and CD investments have lost -6.5%. Including stock options, our investments fell -18.2%. This compares with an S&P return of -11.67% and a Dow return of -13.30% through March 31, 2009. With this year's poor market performance, we did not yet make an additional payment equal to about 4% of our mortgage principal.

It has been very challenging retiring at the beginning of a bear market. Our short term expense (next 3-5 years) are invested in CDs, bonds and money markets. So we can wait for the stock market to resume an upward trend, hopefully in the next 1 to 2 years. At this point, I am very concerned about reducing our withdrawal rate, and am looking at possibilities of generating regular streams of income through part time employment, and if needed, full time employment.

Hopefully, this will be the rebound year, as I propose in my 2009 economic predictions, and allow our retirement investments to recover. Otherwise, it's back to work I go :-)

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 © 2009 Achievement Catalyst, LLC

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