Monday, January 30, 2012

Wealth Builder Ratios - Q4 2011 Update

Here is our Q4 2011 Wealth Builder Ratios update. During the fourth quarter of 2011, the Dow, Nasdaq and S&P500 indices were up at 12.6%, 7.9% and 11.2% respectively. Our investment portfolio returns improved from -3.0% to 3.0% due to the overall market improvement and my company stock having a  6.4% return during Q4.

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 2011
Q4 2011

Income to Salary
Target= 0.8 2007= 3.41
2008= -5.47 2009= -1.38
2010= 1.29
2011= 0.5


2011 has started out poorly due to a negative return for my company stock, but has recovered nicely in the fourth quarter, ending with a positive return for the year.  I have sold all the company stock in our IRA, keeping only the low basis shares for a future NUA execution. As my company stock (hopefully) advances, we plan to continue execute the remaining stock options I own..
Savings to Salary
2007=23 2008=16.7 2009=15.3
16.117.1I sold most of our stock investments in June 2011, and kept my company stock and stock options. We avoided most of the volatility in the fourth quarter.  So the change mainly reflects the positive change in my company stock and the contribution of the salary from my temporary full time job.
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 2011 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 positive performance of my company stock and the high proportion of cash, our portfolio increased less than the indices in Q4.

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 continue an upward trend. I continue to be concerned about volatility of our investment portfolio, but believe there is more downside than upside potential going forward due to EU sovereign debt crisis and continued deleveraging.

I continue to have the same financial goals for 2012. At this point, I am pessimistic 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.

Copyright © 2012 Achievement Catalyst, LLC

1 comment:

Dr Dean said...

Afraid I join you in my pessimism for 2012. The economy and the stock market don't offer much encouragement.