2008 Net Worth Change and Years to Recoup Loss

[dex]

Quote:

Originally Posted by dex I just completed computed my 2008 net worth (excluding home value) versus 2007: - Decrease of 16.1% I'm estimating it will take 4 years to get back to my net worth as of 12/31/07. That takes a little explaining on the computation for that. Basically the computation is: 1. 2008 net worth less living expenses versus grown by the estimated growth rates (varies) per year Versus 2. the 2007 new worth less living expenses grown at 3% per year

I made an error in what I wrote. It should be:

Estimate to get back to 12/31/07 net worth - 4 years.
The formula is:

2008 Net Worth less living expenses/yr times the estimated growth rate/yr.

Estimate to get back to 12/31/07 if no decline with a 3% net increase (after subtracting living expenses) per year - 8 years.

Let's assume the 3% net increase includes estimated inflation.

The key as aspect to this thought exercise is that getting back on track to the pre decline net worth take a larger percentage than just reversing the market decline.

It needs to account for
Market decline
Inflation
living expenses

Something like this - assuming a 20% decline

25% Market increase
3% inflation/yr
4% living expenses/yr


So if it took the market 2 years to increase 25% - the total would approximate - actually a bit more with compounding
25% Market
6% inflation
8% Living expenses

39% total increase

[Architect]

+30% approximately and reached our FIRE number. Or at least a number that we can live off of dividends/coupon if I get laid off or otherwise want to change jobs. The increase was due to an all bond portfolio, with no substantial physical assets (sold house) presently.

[FIRE'd@51]

Let's look on the bright side. If the S&P 500 price is distributed approximately log-normally, as most academics believe, the probability of a 50% increase is the same as that of a 33% decline.

[piano88]

NW down 18% even with contributions to IRA and 403b. Too much in equities, and learned the hard way. But, not planning to retire for another 5 years. May take that long to get it back?

[putty]

My net worth more than doubled this year! This is only my second year investing so it's inflated.

[FUEGO]

I checked and our net worth is exactly where it was July 1, 2007. Until yesterday.

[Shawn]

My net worth dropped by 9.4% in 2008. That includes everything, including my house (which also dropped by ~10%). Disappointing, but hardly the end of the world. I'm still working, which helped cushion the blow. If 2009 is a normal year, I expect to recoup my losses in 6-12 months.

I used the market drop to simplify my taxable portfolio. I harvested significant capital losses, which will give me a nice tax break over the next 10-20 years.

[Meadbh]

I usually calculate my NW on March 31 when all the year end reconciliations are in. Right now, based on my long term equity portfolio YOY losses of 25%, I'm conservatively assuming NW will be approximately $2m, SWR $80K @4%. If I lost my job today, I would be able to survive, though not retire as comfortably as I would like. I am going to continue saving, let time heal my portfolio and not worry too much.

[pasadenaDC]

NW up 66% for the year, though admittedly I am nowhere near most of the heavyweights of NW on this board. My 401K is down 37% for 2008, though most of my NW is cash savings, currently saving for a 20% down on a house.

[Meadbh]

Quote:

Originally Posted by pasadenaDC NW up 66% for the year, though admittedly I am nowhere near most of the heavyweights of NW on this board. My 401K is down 37% for 2008, though most of my NW is cash savings, currently saving for a 20% down on a house.

Well you didn't get there on investments, that's for sure! I envy young folks like you who have seen the worst so early and can make their first investments at (what we hope will be) the bottom. What's more, it should be a good time to buy a house.

[Spanky]

Nw -16.45%

[dmpi]

Net worth down 31%. I'm where I was in 2004.

[Grep]

In a way, I miss the good old days when my net worth rose solely based on my savings. There was such a feeling of control and self-determination associated with that.

Once upon a time, inflation didn't seem to matter, because I could easily out-earn and out-save it. Once upon a time, savings in the bank felt as good as gold (in the proverbial sense), and I didn't feel hostage to the vagaries of the marketplace.

No longer. Today, my income from labor is bound and chained, and savings from labor's income alone will no longer keep my accumulated savings topped off relative to inflation, never mind on the advance.

Today, my savings breathes in and out with a lusty life of its own. That's because I've felt forced into the mosh-pit, aka the stocks and bonds markets, in order to have some hope of keeping up with inflation. At least, that was a concern a year ago, and presumably it will be again sometime soon.

These days, I might make or lose more in a day than I can save from my labor in a week or a month or maybe even a year. Indeed, during 2008 I have lost more than I earned from all sources for several prior years.

However dismaying this is, it's also a source of some hope, for income from labor is something I'd prefer to graduate from.

May 2009 be a healthy and more profitable one for us all.

[tightasadrum]

Last time I looked, (I tend not to obsess over the numbers), I was down about 25% in net worth. This is based on significant retirement fund losses plus some estimated reduction in investment real estate value. Commodities have taken a heavy toll. I'm sure the amount I could sell investment property for has gone down even though the county has not reduced the tax appraised value at all. Even so, I have figured about 15% down from equity I had in 2007. It should prove to be an interesting year in 2009 from a tax value standpoint. So far I'm still 100% leased up. New leases sign up in Feb/March. We'll see how that goes this year.

But down only 25% overall? I'll take it, and hope for improvement in 2009.

[Meadbh]

Quote:

Originally Posted by Grep Today, my savings breathes in and out with a lusty life of its own. That's because I've felt forced into the mosh-pit, aka the stocks and bonds markets, in order to have some hope of keeping up with inflation.

Great metaphor!

Quote:

Originally Posted by Grep May 2009 be a healthy and more profitable one for us all.

Amen!

[Alan]

Quote:

Originally Posted by Grep From one day to the next, these days, I make or lose more in a day than I can save from my labor in a week or a month or maybe even a year. Indeed, during 2008 I have lost more than I earned from all sources for several prior years. However dismaying this is, it's also a source of some hope, for income from labor is something I'd prefer to graduate from. May 2009 be a healthy and more profitable one for us all.

Well said Grep. Last year I lost more than DW and I earned - gross - in the previous year. On the first trading day of 2009 I gained more than I earn in a month. Not thought about it that way before. Interesting perspective - and disturbing.

Health, Wealth and Happiness to all in 2009.

[FUEGO]

Yep - we lost about a year and a half's worth of salary during 2008 in our investments. But I'm sure that can happen more and more as the NW increases.

[waltwill8]

Down about 11% from 1/1/08 (-14% from the peak in 9/08). About 20% of that was income taxes from withdrawing IRA money to help one of the kids to start a business. Yes, he's paying me back with interest. (Have to pay tax on that, too! ) I was lucky, and got out fairly early, when the market started going sour. Slowly getting back in, and just pulled ahead on Fri.

[NW-Bound]

Quote:

Originally Posted by FIRE'd@51 Let's look on the bright side. If the S&P 500 price is distributed approximately log-normally, as most academics believe, the probability of a 50% increase is the same as that of a 33% decline.

Well, for its entire history the market has risen out of slumps before, so each 33% decline had to be followed by a 50% increase. The problem is that the time to decline is much shorter than the time to increase.

"Capital is like rabbits; it flees at the first sign of danger." -- Anon.

Which to me also means a market timer must be quick to sell, but can afford to be slow to buy.

Or is it different this time? Death of equities? Or 10 years to get that 50%?

Quote:

Originally Posted by Alan Well said Grep. Last year I lost more than DW and I earned - gross - in the previous year. On the first trading day of 2009 I gained more than I earn in a month. Not thought about it that way before. Interesting perspective - and disturbing.

Despite having nearly 50% in MM+Ibond, I got 1.9% return on the first trading day, or nearly half of an annual SWR . Such volatility! But I am staying in the kitchen, determined to become a cook, if not a chef. I am at least a dishwasher now.

[clifp]

I generally enjoy the end of the year financial calculations and this year was no exception.

The bad news was my liquid assets were down -28%, not surprisingly since last Jan I deliberately shifted from a 70/30 AA to 80/20 AA by selling my TIPs bonds, taking out a Home Equity loan, and then buying those high yielding financial stocks. When I am wrong, I am really wrong.

The good news is the I am no longer a member of the I lost a million dollars in the stock market club, thanks to the recent rally . I've never been so happy to be kicked out of a club before.

The better news is my expected income rose next year by 6%. Now a part of this resulted from taking on more risk (e.g. moving 100K from Vanguard GNMA to Vanguard High Yield) but a fair amount was that getting much higher dividends this year was quite easy. Despite much lower money market rates, and a number of dividend cuts my actual income (dividends and interest) only dropped by a few thousand. Surprisingly twice as many companies raise dividends as cut this year. (Of course never having seen a a single dividend cut in my life it was quite a rude awakening to get hit with 6 this year).

I discovered one of the big benefits of dividend income, is that because dividends are much less volatile than prices the year was easier to ride out pyschological. Much like Uncle Micks Norweigan widow, I found myself waiting by the mailbox awaiting the dividend check. In my case I updated my income spreadsheet every couple of month and was encouraged to see my annual income flucuated only a few thousand between updates.

So despite actual loses of 70K and paper loses 10x that amount, I am not really worried about how many years before I recover. I expect many companies that have historically raised dividends to suspend increasing, a few bonds to default, and perhaps a couple of more dividends to be cut. But by a large my income will be about the same as last year and with inflation low not a big reasons to be concerned. On the other hand I really wish I had established a small CD ladder to help get me through years like 2008...