Saturday, February 10, 2007

January 2007 Net Worth Update + $37,438.72

This month experienced a very healthy increase - most of which was driven by the full impact of two incomes generating cash and the fact that we pre-paid January's mortgage payment in December.

Overall, if I read Quicken's investment performance report correctly for January, we experienced about $5k in gain. Quicken annualizes the gain to about 13.7% - my estimation is about 10.8%. Due to various transfers from Schwab to Vanguard, most of our money sat in Money Market funds while waiting to be invested, so any measurement for the period represents only a partial month and has little meaning.

The most important message is that our joint salaries can generate significant extra cash savings, my projections for February are a $23,000 net worth increase (outside of investment performance).

However, our ability to save is ephemeral. Sometime, by mid-year, we will move, my wife will take two months off from work and we will have significant transition and new home expenses. Now is the time for us to save as much as possible, knowing we won't be able to keep much until July or August of 2007.

Overall, Quicken projects our savings rate consistent with our retirement goals. Actually it predicts we will save about $4.7M for retirement in today's value. It assumes a 5% rate of return during retirement.

Here is our Net Worth progress and summary:

Our progress toward financial goals:

Our asset allocation is listed below. I have changed my 401k allocation plan to focus exclusively on foreign investments (DODFX, Dodge & Cox International), Bonds (PTRAX, Pimco Total Return), and Small Cap Value (Hotchkiss & Wiley Small Cap Value HWSIX). The purpose is to shift our investment allocation more clearly toward our goals - even though these are not the particular funds I would prefer to use (401k limitations).

Below is a description of our two trading accounts (Vanguard and First Trade).

The Vanguard Account is exclusively invested in Vanguard's Target Retirement 2025 fund - primarily because of it's index holdings and it's similarity to my target bond component (about 20%). The transfer of funds into the account happened during the full month, so a portion of the return represents money market rates.

The First Trade account is exclusively ETF investments, except for India fund (IIF) and easteru euro (RNE), which are closed end funds. My first trade account was a first attempt at doing several things:

1. Maintaining an after tax investment account in tax efficient investments (ETFs)

2. A first attempt at passive index portfolio construction (though I missed a few important asset classes - which wouldn't have sat well in a taxable account anyway). My portfolio is missing REIT and commodity investments.

The First Trade account is as follows:

Both IIF and RNE kicked out approx. 10% dividends on 1/5, which were quite nice. I hope they are qualified such that I pay the lower income tax rate on them.

The Vanguard non-retirement account is as follows:

The following is my account. Having travelled so much in recent months and been disappointed with interest rate expectations of borrowers, I have not invested any new cash into it. By this time, I have quite a bit accumulated. It looks as though two of my borrowers will default, though not that much money is at risk.

I have used the search tools to create new screens that are much more effective at finding and presenting loans than in the past. I continue to invest in A or AA rated debt.

Winning Bids reflects bids I've recently put out:

Loan Performance indicates I am making a 15.7% APY, which is a very nice rate of return. That ROI will take a hit if the two other loans go into default.

The only extraordinary expenses were:

  • $700 for pre-calculation of expected tax returns (I wanted to confirm how much we will owe - abut $10k).
  • Duplicate montessori and day care charges while our eldest tried the new school out - we expect the duplicate charges to end in February (extra $500).

Extraordinary income:

  • $3000 reimbursement from Big Company for my travel related expenses last year.

Prognostications for February:

  • Possible expense reimbursement issues with big company - TBD.
  • Transfer of Individual 401ks from Schwab to Fidelity will remove the investments from the market - transfer may not occur until March - Schwab was slow in December.
  • $500 for ridiculously expensive family photographs. Well done but ridiculously expensive.
  • I expect to shift $15k from our operating accounts to operating reserve (money markets).
  • We should max out our 401k contributions or come within 90%.
  • My wife's employer owes us $3k in various expenses, including dependent care and flex spending - due to poor administration - we may have to fight this one out. I have shifted our withholding accounts to Big Company - now I need to learn how to draw on them!
  • $400 to join United Airline's Red Carpet Club

This is one of the biggest networth gains we've had so far. Future networth gains will be almost half as big, but hopefully we will outpeform our expectations.

With almost $565k in investible assets and reserve cash our annualized monthly investment return is projected to be about $3,500 (excluding compounding over the year), while our savings rate should continue to exceed $6.5k monthly into cash and retirement accounts. This means we are about three years away from having our investment income exceed our savings rate (assuming no dramatic change in either investment performance or savings rate).

Regards, makingourway


mOOm said...

Congrats on a 6% + increase for the month. Some of those table graphics are too small to read.

Anonymous said...

That is an amazing month; you even beat MM!!

Thanks for the detailed information.

Terry Lange said...

A question of sorts. I was looking at your Net Worth progress chart and found a question. This may explain why I am in debt and you seem to be doing very well.

If you had $123,046.05 in Cash and Savings at the end of January, why do you still carry $4k in credit card debt and $33k in other debt. Wouldn't it be better to pay all of the debt off?

Maybe I am missing something here?

makingourway said...

Thanks for the support and comments.
Terry, the $4k in credit card debt is a rolling amount.
I pay off my credit card bill every month in full - it's usually due around the middle of the month.
This means that I usually have some debt sitting their at month's end waiting to be paid off.
I usually pay $0 interest except for the odd month or two - though not very often.
The $33k in other debt is a no interest loan. I keep the debt on the books to remind me that I eventually need to repay it. Actually it was a gift given by two different relatives, but I never felt comfortable accepting such generous gifts - so it will sit there on the books as a loan.

Hope this explains all.

Regards, makingourway

Terry Lange said...

Thanks... I understand now... So you are really in better shape than the chart suggests.