January-March Net Worth Review

Last year I gave monthly updates of my net worth. That was a bit much since nothing really changed month-to-month, so this year I'll be updating my progress once a quarter. Here's what happened in January through March this year:

• The market was down bigtime this quarter as the S&P 500 fell -9.90%. Ouch! I continued to buy and invest all the way down (most of my investing is automated, plus I put in some extra buys), knowing that my long-term view (20-25 years) would end up giving me good, solid gains if history was any indication of the future.

• In addition to the hit from the market, I took $15k of equity out of my home. As I've said before, we may want to be creative with our home if and when we sell it, so I want the net worth in my calculations to be low. That way, I have the most flexibility possible without taking a huge net worth hit (though I'm taking it now bit by bit.)

• Given these two major negative impacts, you'd think I would be in the dog house financially. Well, it wasn't pretty for my net worth, but it was much better than expected. For the quarter, my net worth was down -4.58%. At this rate, I'm on track to be down 18.31% for the year. But if this rate continues, things will have to get very, very bad indeed. I'm guessing that I'll still be up this year, but probably only in the single digits.

So how did I do so well given the market's plunges and the loss of home equity? Savings. I have managed my career to produce a decent income and we've set our lifestyle at a fairly low level. Hence, we spend a lot less than we earn. As such, we have a good monthly surplus and we've continued saving and investing these past three months -- my 401k is fully funded, the kids' 529's got a donation, we fully contributed to the Coverdells we have, and we saved/invested in taxable accounts. We couldn't generate enough to fully cover the market hit, but we did fairly well given the circumstances.

By the way, all of these savings weren't generated by just my income. I have some side business pursuits that contributed a good amount, plus I had a few miscellaneous contributions from things like my credit card rewards strategy -- where I earned several hundred dollars using the Blue Cash from American Express card and the Chase Freedom Cash Visa Card.

I'm looking forward to better months from the market for the rest of this year and am hoping that all of the low-priced investments I've made over the next several months will pay off handsomely by the end of the year. But if they don't, I'll still keep investing as I'm in it for the long run. Eventually, the market WILL turn and, boy, will those be happy days! ;-)

Comments

[Curt]

I'm not so sure the economy is going to turn around this year .. or the next. The falling dollar and coming inflation, may just change the definition of good personal finance advice.

If the dollar continues to lose value, then investing in dollar based equities in a 401k is not such a good idea anymore. With a falling dollar, stocks have to increase just to stay even with the value of the dollar. So, you need a 10% increase in stock value just to break even. Your networth calculation does not account for this. The recession is likely to further drive down earning, profits and eventually stocks.

I know ... you're in it for the long haul ... but we have not had to deal with the level of inflation that we are now facing for a long time. The dollar is facing a currency crisis. If foreign nations continue to lose trust in the dollar (as they are), the dollar may fall much further in the next few years. That drop could drastically reduce your purchasing power and potentially wipe out the value of your savings.

The financial advice of yesterday, to live on less than you make and save/invest your money, is losing its safely net - even in the long run. Over the last year, the investment risks have increased dramatically.

[Suze]

Well, Carl, that's a lot of doom and gloom and very little advice. What do you suggest an individual investor do if your scenario plays out?

Laura Rowleys column in today's Yahoo Finance takes the position that "this has all happened before" and leans toward FMF's point of view regarding long term investing.

http://finance.yahoo.com/expert/article/moneyhappy/77092

Curt, I'm seeing a lot of words like "if," "could," and "potentially"...the worst is always possible but you have to look at your other options. That being said, I think investing consistently in the stock market is the only good alternative no matter what's going on economically. Markets are always going to go up and down..but you can rest assured that after they go down, they will recover at some point.

[Anthony]

Look no further than the 1970's if you are concerned about dollar depreciation. The Federal Reserve's attempt to bail-out the housing market for a select few who lied on loan documents and took on too much house is now resulting in widespread inflation and dollar depreciation for the rest of us, not to mention much lower savings rates which are well below even the published CPI. The FED's interest is in debasing the currency to make current debts look less onerous in future (i.e., less valuable) dollars. Although commodities may be looking for a short-term correction, you'd be a fool not to have some position in them along with companies who can actually pass along rising prices to consumers. Or, buy gold and silver. A fellow on this board criticized me for saying this many months ago, but they have significantly outperformed the S&P 500 for the last 6 years. And, if you think commodities are in a "bubble" similar to the housing market; forget it. So few people have commodity exposure compared to stock market or housing market exposure that even a re-allocation of assets from stocks to gold would result in a huge upleg in the current commodity bull market. Then again, I bought most of my gold at $400/oz.