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I have to apologize slightly in advance for this week being a little heavy in "progress" posts, as it has has been my "catch up" week in evaluating my financial goals (published Tuesday), net worth progress (this post), and blogging goals for 2011 (on the way soon). However, since I haven't reported on these points in about 3 months, there's definitely much to discuss! So, let's get started.
As I've mentioned before, the goal of this running net worth progress series is twofold- 1) to share how I (as a fairly normal non-financial professional) approach various financial issues that come at me throughout life so that you can use my learnings to assist you in your financial decision making and 2) to make me more accountable in sticking to my various financial goals that I set forth by periodically evaluating my status and making adjustments. As always, if you have any questions, please ask!
Overall, the 2nd half of 2011 has started off sufficiently (not tremendously - I'll explain why below).
I spent the majority of the summer months getting started and learning how to do research in preventing the protein aggregation that is believed to be a cause of Alzheimer's disease. I was able (surprisingly and with some luck) to successfully pass my PhD Qualifying Exam in early September. I am definitely glad that is over with and that I don't have to retake the exam, as I spent many a late night preparing the research paper that was required! Overall, I have been very satisfied with my professional progress the past few months (both in my scientific research and growing the My Personal Finance Journey community, with your help of course).
As far as the overall stock market goes, things have been fairly disappointing (hence why I mentioned above that the start of the 2nd half of the year has not been spectacular by any stretch of the imagination) since the last net worth update in late June. However, since I am a passive investor and do not try to fool around with market timing, I try not to let this bother me and focus on things I can control.
With all of the up and down that has occurred, let's take a look and see how it affected my net worth progress...shall we?
Liquid Net Worth Growth (not including condo AND NOW, not including blog income tax savings)
Recently, I had to make a fairly significant change in how I calculate my net worth and asset allocation percentages each month. The change pertained to the cash I have been saving up throughout 2011 in a high interest online savings account (Dollar Savings Direct) in order to pre-pay self-employed income tax to the government, either in the form of a quarterly tax payment or next April (depending on what levels of blog income I was realizing). What was happening was that the balance in this tax savings account (which was being counted in to the cash portion of my asset allocation) was becoming too large, and it started to skew my asset allocation calculations.
To remedy this, this month, I've started a system of calculating my liquid net worth, which includes all of my various equity and fixed income holdings but excludes 1) my equity and debt related to my condo and 2) the amount of savings I accumulated so far earmarked to pay the tax man.
Keeping this important change in mind, let's continue...
From 23-June-2011 (when the last portfolio update was published - see link below for more information) to 19-October-2011, the S&P 500 index went down another 6%. Yikes! That means that the market has now decreased 12.5% since the end of April this year. If this downward run continues and gets to a 20% decrease, I may be changing my tactic to using excess money during the rest of 2011 to buy additional equity index fund shares instead of focusing on repaying my condo home loan!
My Personal Finance Journey - May-June, 2011 Portfolio and Net Worth
During that time period, my liquid net worth (excluding condo ownership, and now excluding blog income tax savings) decreased by 5.5%.
However, overall, I am pretty satisfied with this result. First, it is slightly better than the market's loss during the same time period, which is always a promising sign. Additionally, this is not a terrible result since the bulk of my excess funds over the past few months have been funneled in to paying off my condo home loan and saving for taxes (both of which are not reflected in this figure).
Condo Equity Growth
I am very proud to share that I now currently have 16.3% home ownership in my condo (up from 11.4% only 3 months ago), with this accounting for 34% of my real net worth (so net worth subtracting the condo loan - this is different from the net worth above).
Condo Equity Growth
I am very proud to share that I now currently have 16.3% home ownership in my condo (up from 11.4% only 3 months ago), with this accounting for 34% of my real net worth (so net worth subtracting the condo loan - this is different from the net worth above).
Update on Financial Goals for 2011
I have now achieved the following financial goals in 2011. I have done quite well I think - thanks to everyone's help for keeping me motivated and accountable!
I have now achieved the following financial goals in 2011. I have done quite well I think - thanks to everyone's help for keeping me motivated and accountable!
- Have contributed the maximum allowed by law for 2011 to my Vanguard Roth IRA ($5000).
- Am maintaining my target of 6-9 months of expenses in a cash reserve fund in my Dollar Savings Direct high yield online savings account.
- Have rebalanced my mutual fund portfolio to maintain my asset allocation target %'s (75% equity, 25% fixed income overall)
- Have donated $1,300 to Multiple Sclerosis Foundation in 2011 (5% of income) and passed my target fundraising amount of $5000 for my MS 150 ride that took place June 11-12, 2011. I will most likely be shooting for raising $7500 for 2012. Rock n' Roll!
- Have saved 30% of self-employment income from my blog in order to pay taxes for the 2011 year.
- Have accumulated 1% of my condo value for home maintenance repair expenses that randomly pop up. I read a post a while back discussing that 1% is probably not the best ultimate goal to save for, but it is a start for me to feel pretty secure in being able to fix things that go awry.
For a detailed list of my short term, mid term, and long term financial goals, click on the link below:
My Personal Finance Journey - Financial Goals
Review of Current Asset Allocation (excludes condo and blog income tax savings)
- Overall Fixed Income / Equity Allocation
- Currently, 27% of my net worth is invested in fixed income instruments (cash or bond funds), and 73% is invested in equity.
- This is only 2% off from my targets for these categories of 25% (fixed income) and 75% (equity) and well within my +/- 5% allowable band limits. So, all looks good here!
- Equity Allocation
- In the equity portion of my portfolio, 72% is invested in US Domestic Equities with the remaining 28% being held in international equities.
- This is almost perfectly aligned with my equity breakdown targets of 71% and 29%, respectively, for US Domestic and international holdings.
While the overall percentages for these categories look fairly good, a detailed look (table below) at the allocation breakdown reveals the real story and provides for better analysis of the current state.
Remember: in order to maximize the likelihood of increasing your net worth, a red flag goes off if your current % allocation in a category is greater than +/- 5% off of the target allocation. This is my trigger that I need to rebalance that aspect of my portfolio.
% Cash (money market target 5%) 9%
% non-inflat. Bond Funds (target 15%) 15%
% TIPS Bonds (target 5%) 4%
% International Equity (Target 11%) 10%
% International Emerging Markets (Target 11%) 10%
% Domestic Large Cap (Target 8%) 8%
% Domestic Small Cap (Target 8%) 9%
% Domestic Small Cap Value (Target 14%) 14%
% Domestic Large Cap Value (Target 13%) 13%
% REIT (target 10%) 9%
Analyzing my current asset allocation percentages, it appears that my current asset allocation is aligned with my target levels within the +/- 5% band limits.
Because of this, no action needs to be taken at this time, as this will correct itself as we move forward in the summer and I naturally spend more money.
Note: Even though no action was required today, I did have to do some rebalancing at the end of September (not explicitly covered by a net worth update) to account for the ~6% downturn in the market in recent months.
- At that time, I invested ~$400 of new money in my taxable Vanguard mutual fund account, buying more shares of the Vanguard Small-Cap Value Index Fund.
- Additionally, in my tax sheltered IRA account, I sold approximately 1% of my net worth held in a short-term bond index fund and exchanged the money to buy more shares of an equity index fund. The goal of this was to maintain my asset allocation targets despite the decrease in the market.
- See how rebalancing forces you to buy equity when the market is undervalued? This is why I am a big supporter of this strategy.
My next moves for the October-November, 2011 time frame will be to do the following:
- Now that I have fully funded my Roth IRA, any extra money I have will go towards paying off my condo loan and obtaining even more equity in that investment. The only other option I would have is to invest in my individual mutual fund (taxable) account. But, I feel that it would be a more efficient use of my time to build up more equity in my condo. What do you all think?
- Additionally, as I indicated the other day in my financial goals update, I am also going to slightly increase my monthly savings for a vacation I am wanting to take to the Grand Canyon and for installing a washer/dryer in my condo.
- Continue investing $41.67 each month in microloans to help the working poor and support sustainability Latin America. This is part of my 2011 goal of having $500 in microloans. I am currently more than half way there!
- Save 30% of any income from blogging for 2011 tax payments next year at tax time. I will also need to execute on a quarterly payment very soon.
Wish List
- At some point, purchase the Vanguard Total Stock Mkt Idx (MUTF:VTSMX) to replace S&P 500 index fund. This gives better, broader diversification to the US stock market.
- Install a stacked washer/dryer combination unit in to my condominium. This one will be a long shot, but it just may be possible! More than likely, this will be something that I will do in 2012-2013.
How about you all? How did you progress with your net worth in July-October 2011? What are your thoughts about the strength of the market right now? Do you think it will rebound? Have you had to rebalance your portfolio recently (buying more equity shares) to account for the market downturn?
Share your experiences by commenting below!
