Monday, December 30, 2013

Wealth Builder Ratios - Q4 2013

Here is our Q4 2013 Wealth Builder Ratios update. This will be the last update before my sabbatical from this blog.   During the fourth quarter of 2013, the Dow, Nasdaq and S&P500 indices were up 8.5%, 10.2% and 9.5% respectively. My company stock was up 8.5%.  Our investment portfolio increased in value 7.6% due mostly to my company stock.

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 2013
Q4 2013

Retirement Income to Salary
2007= n/a
2008= n/a
2009= n/a
2010= n/a
2011= n/a
2012=  n/a
0.790.84This is the new metric that I'm using which is based on a 4% withdrawal rate of the liquid assets in our retirement and savings accounts.

The initial target I'm using is a 0.8 ratio, which would be 80% of our pre-retirement pre-tax income.   We were very close in Q3 and passed the target in Q4, due to the advance of my company stock. 
Income to Salary
2008= -5.47
2009= -1.38
2012= 2.02
4.445.89I will use this metric through the end of 2013 and then replace it with the Retirement Income to Salary ratio.

5.89 is the highest increase in our wealth ratio ever. The increase in Q4 was due to the increase of my company stock.

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 85% of the stock options with a  2014 expiration date.  I will sell the balance in 2014.  
Savings to Salary
Target >20
2007=23 2008=16.7 2009=15.3
23.525.0I will use this metric through the end of 2013 and then replace it with the Retirement Income to Salary ratio.

Most of the gain in Q4 was due to increase of my company stock.

During Q4, I slightly increase the amount of funds invested in equities.    I plan to add more funds into stocks and ETFs during 2014, especially if there is a correction.
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 were:

1.  Maintain a Retirement Income to Salary ratio >  0.8.  (met target at 0.84)

2.  Continue to maintain an Investment Income to Salary ratio > 0.8. (exceeded target with 5.89)

3. Maintain a Savings to Salary ratio of 20. (exceeded target with 25)

4. Maintain Debt to Salary Ratio at 0. (met target of 0)

(For reference, Salary refers to gross salary just prior to early retirement in October, 2007.)

 #1,  #2 and #3 were directly correlated with how well our stock, bond, and CD investments returns. With the advance of my company stock and the high proportion of cash, our portfolio was up less than the indices.

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 are equal downside and upside potential going forward due to EU issues and the US debt ceiling crisis.  So I continue to add funds to the stock market during dips, and sell off my company stock and stock options in a tax efficient manner.

I continue to have the same financial goals for 2014. 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

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