Monday, August 03, 2009

Wealth Builder Ratios - Q2 2009 Update

Here is our Q2 2009 Wealth Builder Ratio update. 2009 continues to be brutal for our financial plans and goals. Through June 30, 2009, the Dow was off 3.8%. The Nasdaq rose 16.4% and the S&P 500 was up 1.8%. Due to the leverage of company stock options and paying off our mortgage, our retirement savings are down 22.6% this year.

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 2009

Q2 2009


Income to Salary

Target=0.8 2007=3.41 2008=-5.47


The stock market performance for the second quarter of 2009 improved our returns by a ratio of 0.70, but not enough to eliminate the loss of -3.04 of the first quarter. However, this gain was offset by paying off our mortgage which was 1.44 times my pre-retirement salary. This year's declines and mortgage payoff have caused our portfolio to lose 3.78 times my pre-retirement salary. Most of the loss occurred in my company stock which fell significantly during the first quarter.

While we did sell some equities to pay off the mortgage, we do not yet need to sell any investments to cover retirement expenses. At this point, we are staying invested in the market for our tax advantage accounts, and taking the opportunity to increase our cash position during rallies.

to Salary

2007=23 2008=16.7


My company stock advanced 7% during the second quarter which helped reduce the loss due to paying off our mortgage. Our total savings are still down 22.6% for the first half of 2009.

Debt to Salary

2007=1.51 2008=1.46

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 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. (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. Factoring out the mortgage pay off, our stock, bond, and CD investments have lost -3.9%. Including stock options, our investments fell -14.0%. This compares with an S&P gain of -1.8% and a Dow return of -3.8% through June 30, 2009. When the market rebounded in May, 2009, we decided to pay off our mortgage, which increased are savings losses by about 10%, only 8% if stock options are included.

It has been very challenging retiring at the beginning of a bear market. Our short term expenses (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

1 comment:

The Dividend Guy said...

This is an interesting approach to managing your goals. One thing I have found is that we need savings goals, however it is difficult to tie them to market performance as we never know what the market has in store for us. As a result, I look at it purely from the aspect of how much of my pay I am setting aside and let the market do what it will do (knowing that over the long term it will go up).