Net Worth Update for 2009: My Best Year Ever

At least once a year I give an update on my net worth (I used to do it monthly, but there isn't really that much new news each month) and this post is my update for the year ending December 31, 2009.

The summary is that it was my best year on record. A few pieces of info:

• I ended 2009 with my highest net worth ever.

• My net worth was up 28.8% in 2009 -- the highest percentage gain since I started tracking my net worth in 1996 (second biggest gain was in 2003 at 28.3% and third best was 1998 at 22.8% increase.)

• In 2009 I also had the largest absolute dollar gain ever from one year to the next.

• My net worth was up 8.5% from where it was at the end of 2007 (my previous best year-end number.)

• With this result, the compound annual growth rate for my net worth from 1996 until 2009 is at 14.5%.

• My net worth was up 37.9% versus its recession-bottom level in February 2009.

So, in the end, it was simply a great, great year.

What drove the results? Two main factors:

1. The stock market (Wilshire 5000) was up 26.5% for the year (and up 67.6% from its bottom on March 9, 2009). Now I'm not 100% invested in US stocks (I have bonds, international stocks, real estate, bond-like investments, cash, etc. as part of my asset allocation) and there are chunks of my net worth that earn basically nothing (the value of my house, the cash I keep in our emergency fund and for upcoming large purchases, etc.), so you can't simply say I should be up at least 26.5% if the market was up that much. That said, a large part of my net worth is in the US stock market, and for the most part, my net worth goes the way the market goes. In particular, it helped BIG TIME that I was buying all the way down in the darkest days of the crash. Those purchases performed very well over the final months of 2009.

2. My savings rate. I know I harp a lot on getting income high and expenses low so you can create the largest possible gap between them, but the reason I do this is because it makes a HUGE difference in how quickly you can grow your net worth. If you work to grow your career and develop other income streams and keep a tight handle on expenses, you'll have plenty of money to make some wanted discretionary lifestyle purchases as well as grow your net worth by leaps and bounds.

Now that I've written this, I see that there's not much to learn from this post. But I guess I wanted to do two things with it:

1. I wanted to give you a report card on how I'm growing my net worth (so I'm accountable to you in part.) This update was much better than the one last year, don't you think? ;-)

2. Let you know that if you apply the principles we talk about here every day you will have financial success. I'm seeing it and you can too!

How about you? How did your net worth end 2009?

Comments

[Funny about Money]

That's inspiring news.

It's interesting that you describe your success as depending on not one but two strategies: investing & saving. IMHO, this is one of the keys to moving forward financially. It looks like it's crucial to have more than one PF strategy in hand at any given time. In my case it was investing + extra income stream + saving. The extra income stream went into savings (or, at one point, to pay off a debt) and the savings went into investments.

Best year I ever had? Well, noooo, not when you factor in the layoff. However, the investments are very much on the mend, and the extra savings generated by the second income stream will keep the rowboat from sinking during 2010. I hope.

[Crystal]

Our net worth increased by about 19%...great year!

[MC]

My NW increased by 45% (I had almost nothing in stocks at the time of the crash). A very good year!

[Investor Junkie]

We are approx 5% ahead of where were where two years ago almost breaking past our top net worth. From jan 2009 - dec 2009 our net worth is up 11%. What do you think was the primary cause of being above the Wilshire 5000? Buying at the lows? We did that and didn't yield the same results :-( did you have a lot of excess cash to invest at the time?

[Andrew]

Our net worth increased from -$55k to about 0. We paid off about $47k (started with $67k) in student loan debt. We still have about $20k, but our assets are probably worth about $20k.

My situation is a great illustration of your second point. We graduated and started working - HARD! We didn't significantly increase our spending, but now we make alot more than we did in grad school. Although, we have very little invested. (less than $3k), our income has allowed us to dig ourselves out of the debt.

The goal is to finish off the debt by May 15. Then save about $20k for an Emergency fund. Finally, we will begin to contribute 15% to retirement. We should easily max out our Roth IRA's. This time next year our net worth will be much more than 0.

[Rob G.]

I started tracking our net worth in 2007. Here are our annual results.

2007 +21.4%
2008 -19.1%
2009 +38.0%

Clearly, 2009 was the best year so far. I attribute the return more to the high contribution rate than the actual gains in our assets. I expect to have lower increases in the future as our assets grow.

[Ken]

Our net worth went down because we built a new home. We are adjusting to all the "new" expenses that renting did not entail. We will get there...it's a learning curve right now. Good post! Congrats on a good year.

[LotharBot]

I don't own a home, my non-investment "assets" are a pair of paid-off cars and an apartment full of furniture, and I have no debt. Given that, I figure "cash/investments" is a good proxy for net worth.

Cash/investments at the start of 2007: about $7K
at the start of 2008: about $55K
at the start of 2009: about $110K
at the start of 2010: about $210K

The vast majority of the gains the first 2 years were raw savings. My wife and I were saving aggressively to be able to buy a home, and kept virtually everything in cash equivalents as we waited for the bubble to burst. When the housing bubble brought the entire stock market crashing down with it, we decided to use a bunch of that cash to get into the stock market at a great price (we were lucky to make our move almost exactly at the bottom.) About half of our gains in the past year were raw savings, and the other half are unrealized market gains.

So we're in a similar boat -- good gains driven by a combination of savings and investment returns, with a big boost due to our strategy of hanging on to cash when the markets (housing and stocks) seemed overvalued and then jumping in when panicked investors gave us a great price.

[BillV]

This is advice I give and it's the best for a solid foundation. Of course you can build on it, but without it everything else is a non-starter:

2. My savings rate. I know I harp a lot on getting income high and expenses low so you can create the largest possible gap between them, but the reason I do this is because it makes a HUGE difference in how quickly you can grow your net worth. If you work to grow your career and develop other income streams and keep a tight handle on expenses, you'll have plenty of money to make some wanted discretionary lifestyle purchases as well as grow your net worth by leaps and bounds.

Thanks FMF. You can't say this enough.

When I left my employer ( after 30 years ) I left with a defined benefit pension. But. I made extra contributions to a deferred compensation plan (extra as in beyond what was taken from my check for the employee contribution to the pension plan). My actual take home pay was slightly more in retirement than when I was working. Plus, I get 3% annual increases. My friends that still work there, they get no pay days. Some times fortune smiles on the prepared.

For anyone younger people who read this, FMF is on target. Spend less than you make; invest the surplus; stay out of as much debt as practical. Manage your career and pray for a little luck.

[Flexo]

From a strict percentage perspective, 2003 was my best year when my net worth increased 464%. But that's not a difficult feat when you consider I had just crossed over into positive territory. From a dollars standpoint, 2009 was far and away the best for me, as well. I don't know if 2010 will be as kind to me.

Thanks for sharing your finances online to the public. I've been doing the same for almost seven years and it's probably the best thing I could have done for myself, and I'm glad I'm not the only one doing it.

[FMF]

Investor Junkie --

Yes, we did. We took cash we had saved for the purchase of a house, which we later decided against, and invested it. In addition, we kept investing in our 401k and taxable accounts.

[Eugene Krabs]

Let me take a look....

2009: +33.5%
2008: +35.7%
2007: +161.5%

I'm actually kind of surprised that my % is still as high as it is, because my stock trading performance this year was fairly poor, especially when you compare it to the last two years. And in 2008, you have to remember that most people were posting a negative return of anywhere from 30% to 40% losses (in their investment portfolios).

Well, maybe I just got lucky all this time, and it's finally catching up to me. Truth to tell, I'm thinking about getting out of stock trading anyways, and go completely passive. I don't know, we'll see.

[Gus]

My net worth percentage difference at year-end
2007: -36.8%
2008: +140.6%
2009: -50.6%

Caveat: I'm a perma-bear. Obviously I should change my style of investing/trading.

Congratulations to everyone who had a great 2009!

[Investor Junkie]

Interesting I just pulled my old Quicken files since 1995. Where my net worth was pretty much zilch. It was then when I had the biggest percentage change, I guess as you get higher in the net worth, your percent change starts more to match inflation and stock market increases. You become more the market, like a large mutual fund.

[Jackie]

My net worth is down, and that's directly attributable to one thing for me: massive spending. It's a wonder it wasn't down even more than it was (a tiny bit). That was a good wake up call for me though. I'm getting back on track.

Congrats on your nice upddate :)

[billyjobob]

Not really sure exactly what my numbers would be. But I do know 2009 was a great year. However, I only atrribute that to the fact that we (investors) lost so much during the bear market. I feel pretty good about the comeback...but... I'm still not where I was in October of 2007. My net worth is still below where I was at then. And I also consider that since I have maxed out my retirement contributions the last several years. We still have a bit to go before I have fully recovered from those market losses.

[Eugene Krabs]

Um, yeah... I'd say there is a "You might be a perma-bear if" joke in there somewhere, Gus. :D

My trading was actually the highest in 2008 as well because I went bear even though I'm very bullish at heart. The "problem", if you want to call it that, is that I trade only a portion of my portfolio, so my trading wasn't enough to offset the losses I took in my passive investments.

I was still bearish throughout 2009 because I didn't think the fundamentals for recovery was there. And they weren't. I just didn't realize the market would response so positively to the stimulus, nor do I know how long this liquidity bubble will last. We may find out this year.

At least, I didn't take any losses, but my 2009 trading returns were muted for sure.

[Gus]

Congratulations, Eugene :)
Keep up the good work. It's amazing you made lots in the stock market even though you were bearish! Micro-managing at work?

[Eugene Krabs]

Hehe... erm yeah. Please don't tell my bosses. :D (Actually, they know about it, but they don't care so long as it doesn't interfere with work.)

The crazy part is that I never shorted anything. I didn't want to take on the risk associated with shorts.

However, I did get so squirrely that anytime there was a gain, I would sell the position out completely. No DCA, or take some off the table. Just give me the cash. All of it. Right now.

Of course, an intra-day gain or loss back in 2008 was anywhere between 10% to 30%, and you didn't have to twist my arm to lock in gain like that! Then I just bought back in when it slipped another 10% to 30%....

2009, my trades were completely wrong. I was still bearish and I expected a flat market, but it turned out to be a huge bear rally. Luckily, since I'm always long, I still got to ride up along with the market through quality names with nice dividends. Of course, I could have also had a coma, gone completely passive with no trading, and probably still have done just as well. :D (The Dow went up about 23% or so through 2009.)

Hopefully, 2010 will be better. Anyways, thanks. How about you Gus? You're shorting the market the entire time, right?

[Mike Hunt]

Congrats FMF,

My net worth at the end of 2009 was also at an all time high, 12% higher than 2008. However this mostly came from savings with some from the stock market recovery.

I sold too soon, though. Got out of my individual stocks in May 2009 and started going short on the market in July 2009. It would appear that my timing is about 7 months too early.

Took my IRA / 401k out of stocks and into bonds in October 2009. Will look to change this again as I expect interest rates to raise fairly soon. Right now I have no exposure to stocks besides holding some ETF's that are short on financials in the US.

The rest is sitting in cash earning under 1% in various bank accounts.

I think 2010 may be interesting, with a good chance of retesting the market lows seen in March 2009. Time will tell but I'm betting against the market in the short term. I think buy & hold is a bad strategy for the next few years.

Saving 50% of my gross salary is a guaranteed strategy to net worth growth so I'm not beating myself up too badly for missing the run up.

-Mike