Monday, January 30, 2017

2016 Wealth Builder Ratios

A little delayed, but here is our year end 2016 Wealth Builder Ratios update. During  2016, the Dow, Nasdaq and S&P500 indices were up 13.4%, 7.5% and 9.5% respectively. My company stock was up 5.9%.  Our investment portfolio increased in value by 1.1%.

Overall, the investment return was poor versus the indices, primarily due to a high proportion on cash and the lower performance of my company stock.

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

Although I will continue to track these and previous wealth building metrics, this will be my last report on this blog.  I realized that after 9 years of retirement that wealth building should no longer be the strategy.    I will come up with a new measure, which I will track and report on a yearly basis,

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
0.790.79This is the 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 low return in our portfolio, we had no increase in in the ratio.

As I write this post, I'm thinking I should revise this metric to better reflect the retirement income versus our spending/expenses.  Perhaps, I will show this as a net withdrawal percentage in future summaries.
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 2016 were:

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

2. 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 was directly correlated with how well our stock, bond, and CD investments returns. Due to a high cash position and the lower return of my company stock, our portfolio had a return worse than the indices.

2016 was a another humbling investment year.   I continue to reduce my company stock holdings and look for opportunities to increase equity investments.  In addition, I am migrating towards building a portfolio of higher dividend paying stocks

 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.

Copyright © 2017 Achievement Catalyst, LLC

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