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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). Also, on the way soon will be my 2012 goal setting posts. 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 went pretty well. On one hand, I made a lot of progress towards my personal, professional, and blogging goals, but because of the lack of a strong stock market, my net worth really hasn’t moved much. In fact, in performing a quick 30,000 foot view of my net worth spreadsheet, it appears that it hasn’t moved at all from June to the end of December 2011!
As for November and December specifically, these were busy months with getting ready for the holidays, traveling, and also beginning to build a personal finance speaking service. More details to come about that project! However, they were also very fun months, filled with running races and seeing family/friends.
As far as the overall stock market goes, the situation was looking fairly disappointing during the beginning of the 2nd half of 2011. However, since the last net worth update in October, the market has started to recover and is now in a more “neutral” position for performance in the 2H2011.
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 nor blog/graduate fellowship unpaid income tax savings)
In October (just before the last net worth update), 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 had 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.
- If you have a business in its first year of profitability, be sure to pay the quarterly estimated taxes throughout the year. Do not wait until tax time to “settle up,” as this can incur penalties on the unpaid taxes.
- If you have multiple sources of income, make sure to take ALL of them in to account in figuring how much you need to have saved up for tax payments.
Keeping this important change and lessons learned about estimated unpaid taxes in mind, let’s continue…
From 19-October-2011 (when the last portfolio update was published – see link below for more information) to 27-December-2011, the S&P 500 index . Overall, in 2011, the S&P 500 index increased 0.69%. Not bad, but not good either!
During that time period (October-December 2011), my liquid net worth (excluding condo ownership and unpaid tax savings) increased 8.06%. As far as the 2011 year overall goes, my liquid net worth increased 8.94%.
Condo Equity Growth
I am very proud to share that I now currently have 18.17% home ownership in my condo (up from 9.07% at the beginning of 2011), with this accounting for 30% of my real net worth (so net worth subtracting the condo loan – this is different from the net worth above).
2011 was a great year as far as achieving financial goals goes. Listed below are the financial goals I realized in 2011. 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).
- 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!
- Saved 33% 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 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, 71% is invested in US Domestic Equities with the remaining 29% being held in international equities.
- This is 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 benefits of your asset allocation strategy, 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%) 14%
% TIPS Bonds (target 5%) 4%
% International Equity (Target 11%) 9%
% International Emerging Markets (Target 11%) 11%
% Domestic Large Cap (Target 8%) 7%
% 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 rebalancing action needs to be taken at this time.
Looking back at all of 2011, it appears that I only needed to rebalance one time during the entire year, despite the fact that I analyze my portfolio for if I need to rebalance once per month. This is a very good sign because it tells me that I am keeping a watchful eye on my portfolio without being overall active (which can trigger short term capital gains and/or trading commission fees if you’re not careful).
My next moves for the January-February 2012 time frame will be to do the following:
- First, I will need to review/update my life values, life dreams, and short/mid/long term financial goals for the 2012 year before knowing exactly how to take action during 2012. Keep an eye out for that post on the way soon!
- However, one decision I’ll be facing during the first few months of 2012 that I could use some input from you all on is the following:
- Which account should I prioritize funds to first – my Roth IRA or the Individual 401(k) that I opened at the end of 2011?
- Both accounts are located with Vanguard and have the same investing options available (same mutual funds offered).
- However, if I make contributing to the Individual 401k (specifying the contributions as 2011 contributions) a higher priority, I could significantly reduce my tax liability for 2011.
- If I put off contributing to the Roth IRA until after tax time, I’ll most likely still have time/funds to max out the account before tax time for 2012 rolls around. So, I’m thinking I should proceed first with the Individual 401k.
- What’s you all’s take on this?
- At some point, purchase the Vanguard Total Stock Mkt Idx (MUTF:VTSMX) to replace S&P 500 index fund, whenever more money is needed to increase my domestic large cap asset class holdings. This gives better, broader diversification to the US stock market.
How about you all? How did you progress with your net worth in November-December 2011? What are your thoughts about the strength of the market right now?
Do you think I should prioritize Roth IRA or Individual 401k contributions for the first few months of 2012 (see details listed above)?
Share your experiences by commenting below!
***Photo courtesy of http://s0.geograph.org.uk/photos/02/20/022053_8548f29f.jpg