Net Worth Review: August 2007

Every month, I give a bit of detail on how my net worth did the prior month. This post will detail how I did in August 2007.

What a roller-coaster month in the stock market, huh? In August 2007, the S&P 500 went up 1.43% in the first few days of the month before dropping like a rock and falling -6.05% to the low point in the month. (This was the point where people were heading for the hills, claiming the sky was falling, etc. Instead, I bought more shares in my index fund.) Finally, the market rallied and finished the month up 1.29%. 

My net worth was up 0.84% for the month and is now up 6.48% so far for 2007. I'm on track to be up 9.72% for the year if it keeps going at this rate. For the year, the S&P 500 is up 3.95%, so I'm doing fairly well.

A couple things to add:

• My net worth did worse than the market this month because I continued to take the value of my house down in Quicken (so it more accurately reflects the home's true worth.) I'm doing this over the course of a few months to even out the drop and I'll be done adjusting in a couple more months.

• On the extra shares of index funds I bought during the month (when the market was falling quickly), I made an average return of 3.28%. Not too bad for a 15- to 20-day investment, huh? Of course, we'll see how this money does in the long run -- that's what will really tell if it was a good move or not.

Finally, I have a question for you all. Does anyone out there like these monthly updates? If not, I'll simply skip them as I feel they're not adding a lot of value. Maybe I'm wrong -- you tell me.

Comments

[Dan]

I like reading them. It gives an understanding of what you are doing and I compare to my net worth to understand what I should be doing or could be doing too. Or even better, what I could be doing better. It's a nice comparison of thoughts, snapshots, and a review of my future as I read your report.

[Kurt]

It is not valid to compare your net worth growth to the S&P500 performance. You get paid for your job. The S&P500 doesn't have this luxury. Your net worth goes up as you accumulate salary, regardless of what the S&P500 does.

[Kurt]

Oh, I like the updates. Keep it up!

[Bronco]

FMF, I like them but I usually look at mine on a quarterly basis as one month has too much fluctuation. The quarter view gives me a good barometer of progress.

[paidtwice]

I like 'em!

[Rob]

I think it is interesting (but then again I'm a finance geek). I started tracking our net worth at the beginning of the year as well since you were giving these updates. Although right now I am doing it more to see how much our net worth increases due to the fact that we are paying off debt (we don't have much invested at the moment...)

[The Dividend Guy]

I enjoy reading the updates - I think it is the voyeur in me!! In all seriousness though, I find that we can learn from each others actions and how each blogger handles each situation.

The Dividend Guy

[Phil]

What's the point of tracking your house in your net worth and claiming some kind of performance? The value of your house is completely out of your control. Your primary residence is not an investment like your mutual funds- it's something you buy and use. If you predicted that the real estate prices were going to drop in your area, you wouldn't sell, pull up stakes and relocate to a place where the real estate prices would be expected to climb! Hopefully your home appreciates, but that shouldn't be part of your investment strategy or retirement plan - its way too risky and can be greatly affected by a random event totally out of your control, e.g housing market tanks - or booms, you have a forced sale because you must relocate, house is destroyed by natural disaster or fire or termites, you live on the coast and your ocean-front property becomes the ocean. If in fact you make it through several years to retirement at the same residence and decide to downsize, any profit on the sale should be taken as gravy - not the meat of your retirement funding.

[juanny]

I had this question the last time you mentioned it, but for some reason forgot to comment. You mentioned above that you bought more of your index fund when the market dropped. While I find this to be a good idea, isn't that in essence trying to time the market, which you have stated previously is not a good idea? Don't get me wrong, it makes sense, just playing a little "devil's advocate" here.

[buhler]

I also enjoy the updates, gives me something to shoot for and as other have mentioned it is good to compare to others and learn from them.

[FMF]

Kurt --

I know it's not perfect, but it's the best measure I can think of (I'm open to ideas if you have them.)

It's not as easy to beat the S&P 500 with a net worth as it looks at first glance. Consider:

*My home is in my net worth, and it's value is decreasing.

*My cars are listed in my net worth and their values are decreasing.

*I have a significant amount of cash sitting in a money market account waiting to buy a new home (downpayment) if and when we decide to buy one. This is earning well below what the S&P 500 can expect to return.

So, yes, while I do include savings from my paycheck, I also have a few anchors that are pretty significant.

BTW, I also have a personal goal that I track against -- that my net worth would increase by 12.5% per year on average over the long term.

[FMF]

Juanny --

That's what some would say (that it's market timing). I don't think so (and it's not a regular strategy), but you can decide for yourself. See this entry and the comments below it for discussion of this topic:

http://www.freemoneyfinance.com/2007/08/stocks-on-sale.html

[Jeff]

Once a quarter would be good. That would see a bigger chance or trend in your wealth, and it would be less work for you!

[Rick]

I like the monthly posts. Reading bloggers' monthly net worth updates is what prompted me to start tracking my own (always a good thing). So keep it up. That's my vote. Thanks.

[Kurt]

"It's not as easy to beat the S&P 500 with a net worth as it looks at first glance. Consider..."
True enough, but if those things are more than your paycheck, you have a larger problem. :-)

[FMF]

Kurt --

They are. My house is paid off and is worth more than my annual salary (at least it was -- I'm not sure any more the way the housing market is going.) ;-)

[Blaine Moore]

I read them.

[Anthony]

The S&P500 should be easy to beat. When new companies get added or taken out of the index, this is announced several weeks in advance of the actual includion/exclusion date. Of course, the S&P500 is the most tracked index in the world, so every fund manager scrambles to buy these stocks that will be included, and sell those issues that will be excluded from the S&P500. So, you end up buying overvalued stocks and selling stocks whose values have been beaten down by investing directly in the S&P500. Bad move!

Also, the S&P500's dividend performace is poor. Dividends have been quantitatively shown to hep smooth out bear stock markets. Dividend growth is responsible for something on the order of 70% of the increase in stock values in the last 50 years. The S&P500 is lagger in this category.

Finally, the S&P500 has been a historically poor performer during periods of inflation. Whether the "stats" actually admit it or not, inflation is a BIG problem. Oil and wheat at all time record highs, gold approaching record highs, etc. And, you see it every time you are in the grocery store.

Investing in real estate, the S&P500, and most other things right now is a poor choice. Gold has outperformed the market for the last 5 years, and given the cutting of interest rates and devaluation of the US $, gold will outperform the stock market over the next several years.

[FMF]

Anthony --

Ha! Yeah, right.

[Anthony]

FMF--

I know, the truth hurts. Go ahead, keep flipping houses and watch your real estate "investment" crash.

And, just look at any chart of the S&P 500 from 1966 to 1982...a scary sight, especially given the rampant inflation that was occuring then. You would have been far better off investing in your savings account. Even the "Maestro" Allen Greenspan has said inflation rates will likely reach "double digits" in the upcoming years...not good for the S&P 500 and certainly not good for real estate.

And, FMF, do you doubt that Gold/ Silver has outperformed the S&P 500 the last several years? Obviously, you have no clue of the financial markets. Gold has risen from $400/oz to over $700/oz from 2005 to current, the S&P 500 has a return rate no where near that.

[FMF]

Anthony --

I'm not a short term investor. Looking at a few years for any investment's performance and then projecting that out to 20-30 years is dangerous.

You keep investing in gold and I'll do what I'm doing. We'll see who's ahead in 25 years.

[Skott]

Gold is not even a good investment compared to other precious metals.

[Kurt]

"Even the "Maestro" Allen Greenspan has said inflation rates will likely reach "double digits" in the upcoming years"

Really? I think you are confusing interest rates and inflation rates (and misspelling the gentleman's name), which doesn't inspire confidence in your financial acumen.

http://www.usatoday.com/money/economy/fed/2007-09-14-greenspan-book_N.htm