Net Worth – Aug 2012

The following is a update on Tim’s plan to retire early.  The current metric to tracking this goal is my net worth.  This will be the last year for these posts, since once the mortgage is paid off it will cease to be useful.  At that point future updates will shift to investment net worth only in 2013.

Assets

House $377,000
RRSP $29,200
LIRA $11,400
TFSA $16,400
Pension $51,600
Wife’s RRSP $29,100
Wife’s Investment Account $13,000
Wife’s TFSA $11,400
My Investment Account $6,200
High Interest Savings Account $700

Total Assets $ 546,000

Debt
Mortgage $10,700
HELOC $0

Total Debt $10,700

Net Worth $535,300 (+$12,800 or +2.4%) [+ 13.1% YTD ]
Investment Net Worth $169,000 (+$5400 or +3.3%) [+13.1% YTD]

Die, damn you, die! I have to admit I’m having a bit of child like glee watching the last of my mortgage fall away.  As you might have noticed I decided to finish off the last of the line of credit balance since the last update.  It’s been a busy summer, so between vacation and trips to the dentist I’m a little behind where I would like to be on the mortgage (ideally I wanted to be below $10,000 now), but we should be able to make up the difference in the next two months.

Now I’ve turned my mind to starting to brainstorm some new metric to track my progress to financial independence.  I know that using my investment net worth is a little problematic since it can swing a fair bit on a month to month basis.  So should I focus on yield from the portfolio instead?  Then compare that to the average of our last 12 months of expenses?  I’m not sure if that is much more stable or not.  Any ideas on this would be welcome, so feel free to leave a comment on what you do below.

Oh, for those that are curious I do plan to have a small party once the mortgage is gone.  After that the rest of the year will be piling money into our RRSPs to offset some taxes.  Nothing terribly exciting I know, but it does give us some time to discuss our priorities as a family and make plans  for 2013.

Any questions?

(Click image to see larger version)

17 thoughts on “Net Worth – Aug 2012”

  1. Congratulations on nearing the end of your mortgage! That has got to be a very exciting feeling! My family and I have another 2-3 years to go and we can’t wait!

    I’ll be curious to hear about what you guys plan to do with your money after the house is paid off! Investment real estate?

  2. I feel that comparing yield from the investment portfolio to twelve months of expenses would be stable. It would only be appropriate if you are investing primarily for yield (which is what I do).

  3. Well, I don’t see anything wrong with showing true portfolio returns – warts and swings and all. They’re going to fluctuate and that’s normal so it seems slightly disingenuous to me to only show things going up all the time. Having said that, it makes me happy when I see that my dividends are going up even while my total balance may have gone down. So I would keep both measures on your KPI scorecards.

    One way to measure that would be neat is to show your expenses item by item in relationship to returns – eg. if you invest in a dividend stock that pulls in $100/month, there you have your monthly insurance bill covered. Once all the expenses are covered in this manner, the game is over and you’ve won. OTOH that could be crazy making if you trade a lot.

  4. > So should I focus on yield from the
    > portfolio instead? Then compare that
    > to the average of our last 12 months
    > of expenses?

    I track both the income vs. expense and net worth. Each can be goals, though I’m most interested in whether my income from dividends can pay the bills.

    For what it’s worth, my portfolio yield is about 7.5% these days with a sizeable chunk of that coming from a small levereaged portfolio. The income would pay for about half of our expenses at this point.

  5. As I was formulating my ER plans back in 2007-08, I projected my income based on a portfolio which would be in place at that time. This not only assumed cashing in my company stock after I left my old company but also assumed any transfers within my existing portfolio (i.e. moving some of my muni bond fund holdings to higher yielding taxable bond funds) and after paying the income tax bills on the company stock payout.

    Once I had my projected ER portfolio in palce, I could then compare the income I expected it to generate to the projected expenses in my ER budget. Those expenses included my latest 12 months of expenses adjusted for items which would increase (i.e. health insurance – rmember, I am in the USA) and decrease (commutation expenses and payroll taxess, both of which would become zero).

    Then I built in a cushion to cover me in case I had any unforeseen (but not huge) expenses.

  6. I think if you added your monthly expenses in one column, then added up your monthly dividend/investment income in another, it would make a somewhat stable comparison to see how much passive income you still need to make each month in order to retire.

    I plan on doing this in a few years on my blog once my passive income reaches $1000 each month.

  7. Good to see your mortgage going away, we just received a letter from the bank yesterday, last payment due Sept 14th, $276.80, yes…Worked hard at this, doubled
    payments twice and full 10% down every second year.
    Feels great, 13 years to zero…..hmmmm, now for that shinny new red corvette….lol

  8. Way to go mate…. that’s great news about the mortgage. You both are doing so well. I’m just running our numbers now to see where we stand. Three years into our mortgage and I think we should be able to bash it on the head if not then it’s just around the corner. Maybe we can both have a mortgage burning party hahah…

    Cheers, well done so far!
    Mr.CBB

  9. First off, congrats!

    Secondly, I’m sure you’ve considered other investment opportunities outside of the stock/bond markets to invest your savings? Can you direct me to a post of yours, or briefly explain , why you choose that investment strategy over diversifying into not only stocks, but maybe a rental property, or owning (but not running) a small business, etc?

    Thanks,

  10. Just eyeballing your investment returns, I think you might be including contributions (ie. pension) in your total increase? If you are, I think you should back them out and it will give a truer representation of return. Or at least show both total growth including contributions and your internal rate of return. Since your contributions likely won’t be on a regular schedule in future, you’d have to use the XIRR function in excel to do that which will also adjust for being only 8 months into the year and give you an annualized return.

    Oh – and congrats on almost killing the mortgage! (I’m going to do the opposite and extend the term when mine comes up for renewal this fall. Maybe even get that HELOC…)

  11. @Tim:
    Your question “So should I focus on yield from the portfolio instead?”
    As I see it(as did some others), that is the only way to look at it unless you sell your paid off house and live in a hovel. And $169,000 will not generate enough income to live on but you already know that.
    I am not up to date on what your future retirement plans are but I be surprised if you don’t work at least 5 more years.

  12. Wow, thanks for all the ideas everyone.

    @Canukguy – Oh god yes, I’m working for likely five or more years at this point. I was asking for how to measure financial independence as I switch from paying down debt to building the portfolio. I know I’m not there yet.

    @Jacq – Oh good idea..track everything. I’ll have to think about that. Yes the percents above do include contributions at this point. I’ve been more interested in overall growth that rate of return up until now. With the switch to investments I should post both numbers.

    @Dave,

    Actually I don’t think I’ve formally written all that down yet. It’s a good idea for a post, but in summary. I’m ok owning a rental property, but haven’t done that yet as it is currently overpriced as hell where I live (the yields suck right now – I had an offer to buy half a condo for rental and passed it up since the yield sucked). So for now I would stick to REITs. I’m less certain on owning a small business (but not running it), as that requires knowing who is running the business and trusting them. I would likely be more comfortable with a % of a business but making sure the person running it has some significant stake as well. In the end, I’m open to other investments, but haven’t found one I like yet.

    Tim

  13. Tim – I think it would be educational to post the returns of “Tim’s hedge fund”. More than that, it will give you good data to use after you hang up the work thing. If, in the next 5 or so years, you realize you only averaged returns of (X%)-XX%, that’s something you need to know.

    How much you grew your portfolio when you were working and contributing is a meaningless statistic (albeit kind of superficially gratifying in terms of “the number” I will admit.) Mostly because you won’t be contributing anymore after a certain point – then what, do you show your balance going down sometimes? And “the number” means nothing in the end if you’re looking at cashflow to fund ER. I’ve seen people on the early retirement forum investing in GIC’s or equivalents that can only manage a 2% SWR (if that) because of their risk averse nature. Obviously their “number” needs to be a lot higher than the average bear.

  14. @Jacq,

    Oh I totally understand your point about the return less contributions being very important in the long run. I have calculated an estimate of that before to confirm I’m in the range I need to be for the plan to work.

    Yet until now that wasn’t as important since most of my savings was pouring into paying of the mortgage. After that is gone the huge cash flow to investing will totally screw with the numbers so I know I have to separate the portfolio return less contributions.

    I’m just trying to figure out how to do that in the case of my DC pension. I know they publish some return numbers, but I have to look up how often they are updated to help me sort out how often I can update that return. This will be more significant in the short term as it is a large part of my portfolio right now (~30%).

    Ah the joys of performance calculations…I think I see a new tracking spreadsheet in my future.

    Tim

  15. Tim – nice site, I’m new to it. I too track many things, and suggest having a networth statement, updated monthly. This way you can look back and track a YoY to how much it has changed. In addition to that you track monthly expenses, and roll it up at EoY and compare back to your networth growth. You want your networth growth YoY to be greater than your EoY expenses+some value for inflation. This past year my wife and I decided I could retire (at 39!)since the networth has been growing at almost double our expenses. We figure in about 5 more years, she’ll be retired too. best of luck and i look forward to reading more of your blog.

  16. One crutial error in my previous post.
    You want your networth growth YoY MINUS ANY SALARY, AFTERTAX INCOME to be greater than your EoY expenses + some value for inflation. Ultimately this defines finacial independance. measuring performence really tells you how efficiently you are using your money to get to this point. Focus on what is important to you – not working, or hardly working since efficiency to get there might interfere with what retirement is supposed to be about.

Comments are closed.