Monday, January 04, 2016

2015 Wealth Builder Ratios

Here is our 2015 Wealth Builder Ratios update. During  2015, the Dow, Nasdaq and S&P500 indices were down 2.2%, up 5.7% and down 0.7% respectively. My company stock was down 12.8%.  Our investment portfolio decreased in value by 8.0% due mostly to my company stock.

Overall, the returns were very poor for our investment portfolio.

For more details on the relevance of these ratios, please see this How Much Is Needed To Be Wealthy - The NUMBER.

Ratio and Target

Retirement Income to Salary
2007= n/a
2008= n/a
2009= n/a
2010= n/a
2011= n/a
2012=  n/a
0.880.79This 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 target I'm using is a 0.8 ratio, which would be 80% of our pre-retirement pre-tax income.   With the decline in our portfolio, we fell below a 0.8 ratio.  
Income to Salary
2008= -5.47
2009= -1.38
0.99-2.07In the transition, I will report this metric for 2015 even though I have replaced it with the Retirement Income to Salary ratio.

-2.07 is the biggest decrease in this wealth ratio since the Great Recession. This was caused primarily be a decline in my company stock of 12.8%.
Savings to Salary
Target >20
2007=23 2008=16.7 2009=15.3
26.024.0In the transition, I will  report this metric for 2015 even tough I have  replaced it with the Retirement Income to Salary ratio.

Almost all  of the loss was due to decrease of my company stock.

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 reduced our monthly expenses by 24%.

My financial goals for 2015 were:

1.  Maintain a Retirement Income to Salary ratio >  0.8.  (below target at 0.79)

2.  Maintain an Investment Income to Salary ratio > 0.8. (below target with -2.07)

3. Maintain a Savings to Salary ratio of 20. (exceeded target with 24)

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 decline of my company stock, our portfolio had a negative return worse than the indices.

2015 was a very humbling investment year.   I continue to reduce my company stock holdings to prevent a similar deviation from the indices in future years.  In addition, I am migrating towards building a portfolio of higher dividend paying stocks

I will only keep goal #1 and #4 for 2016.  I believe these will be better and less volatile measures. At this point, I am slightly optimistic about the economy and the stock market.

For more on Strategies and Plans, check back Mondays for a new segment.

This is not financial advice. Please consult a professional advisor.

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