Monday, January 04, 2010

Wealth Builder Ratios - Q4 2009 Update

Here is our Q4 2009 Wealth Builder Ratio update. During the third quarter of 2009, the Dow, Nasdaq and S&P500 indices advanced 5.4%, 6.7% and 7.3% respectively. Through December 31, 2009, the Dow was up 22.7%. The Nasdaq rose 43.9% and the S&P 500 was up 26.5%. Although my company stock gained 5.5% during Q3, it is still down 1% for the year. Due to the leverage of company stock options, paying off our mortgage in May, 2009, and living expenses our retirement savings are down 8.3% 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

Q3 2009

Q4 2009


Income to Salary

Target=0.8 2007=3.41 2008=-5.47


The stock market performance for the third quarter of 2009 improved our returns by a ratio of 0.68, but still not enough to completely eliminate the loss of -3.78 for the first half of 2009.

At this point, we continue to stay invested in the market for our tax advantage accounts, and still taking the opportunity to increase our cash position during rallies.

to Salary

2007=23 2008=16.7


During Q4, my company stock advanced 5.5% and the Dow, Nasdaq and S&P 500 advanced 5-7% which helped increase our investment returns. Our total savings are still down 8.3% for 2009, primarily due to my company stock still be down 1% for the year and paying off our mortgage.

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 were:

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. 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 continued rebound of the market in Q4, our investments have also shown a good gain.

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 continue to be concerned about reducing our withdrawal rate, and have taken on three part time jobs.

I continue to have the same financial goals for 2010. Hopefully, the markets will continue to rebound in 2010, and allow our retirement investments to further recover. Otherwise, it's back to full time 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.

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