Monday, July 01, 2013

Wealth Builder Ratios - Q2 2013 Update

Here is our Q2 2013 Wealth Builder Ratios update. During the second quarter of 2012, the Dow, Nasdaq and S&P500 indices were up 2.3%, 4.2% and 2.4% respectively. My company stock was down 0.9%.  Our investment portfolio increased in value 13.4% due almost entirely to the value of property inherited from my parents during this Q2. Without the inheritance, our portfolio would have been down 1.8%

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 2013
Q2 2013

Income to Salary
2012= 2.02
2.164.73This gain was due primary to receiving and inheritance distribution of property.  Without the inheritance the ratio would be slightly down at 1.82

I plan to sell some additional shares of company stock in my retirement plan, keeping only the low basis shares in my company retirement for a future NUA execution.  At this point, I have sold 90% of the stock options with an early 2014 expiration date.
Savings to Salary
Target >20
2007=23 2008=16.7 2009=15.3
21.223.8Again all of the gain was due to the property inherited.  The value would be slightly down at 20.9 without the inheritance.

During Q2, I continued to trickle funds back into the stock market.   I plan to continue trickling in funds into stocks and ETFs during Q3 2013.
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 2013 are:

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

2. Maintain a Savings to Salary ratio of 20. (on 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 flat performance of my company stock and the high proportion of cash, our portfolio was down slightly.

Although I am pleased with our portfolio results, I am not confident the gains are sustainable. Our short term expenses (next 3-5 years) are invested in CDs, bonds and money markets. I continue to be concerned about volatility of our investment portfolio, and there equal downside and upside potential going forward due to EU sovereign debt crisis and the US debt ceiling crisis.  So I continue to slowly add funds to the stock market, and hold my company stock and stock options

I continue to have the same financial goals for 2013. At this point, I am slightly optimistic 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 © 2013 Achievement Catalyst, LLC


AS said...

Could you please describe the calculation of the ratios.

1. When you say investment income, does that include (a) Interest & Dividends (b) Cap Gain Distributions eg. from mutual funds (c) One-Time Capital Gains from trades, (d) Rental income, (e) any other income?
2. When you calculate against your final salary, is it base pre-tax salary, total comp (including cash bonuses), or after-tax numbers?
3. You mentioned a few years ago that you assumed fully funding your child's college eduation in your solvency math. Was that done by increasing the savings ratio, or some other analytic / modeling technique?

The info would provide some perspective and a sense of how close or far we are from a similar goal! Thanks in advance.

Super Saver said...

Thanks for the questions.

1. Yes to a-d. I also include stock options gains. Savings also gets included since I don't separate gains from saving.

2. I use pre-tax base salary and don't include my bonus. For reference, 100% of my bonus went to savings when I was working.

3. My financial advisor used a Monte Carlo simulation.