2008 Net Worth Change and Years to Recoup Loss

[dex]

I just completed computed my 2008 net worth (excluding home value) versus 2007:

- Decrease of 16.1%

I'm estimating it will take about 7 years to break out even (after selling costs) on what I paid for my house in 2006

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

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I think one of the lessons from 2008 is that, when modeling financial projections it is better to error on the low side for growth rates. When I hear radio commentators talking about 8% annual growth rates I cringe (Dave Ramsey actually said 12% for stock mutual funds).

I think a simple formula for decades of estimating is - portfolio grown at 4% - less expense budget grown at 4% (not 4% withdrawal rate)

++++++

I compute future growth rates two way to see how they compare.

1. 4% growth as above

2. 2009 - dollar weighted average of interest/dividends plus estimated portfolio growth rates. Future years is that number less 1% until it reaches 4%
It looks something like this.
2009 - MM funds growth 2.29%; Funds interest/dividends 3.75%, Funds Growth rates 10% equals 9.67% weighted average growth rates - Future years are reduced by 1% each year until it reaches 4%

The two methods are fairly close after 35 years.

++++++++++++
Living Expenses here
2008 Actual Spending and 2009 Budgeted Spending

[FUEGO]

17% drop in net worth here over the course of 2008. I would expect to recover that loss in about a year as long as the market doesn't go down too much. New investments and debt reduction still drive net worth growth for me.

[ziggy29]

About -19% here. Minus the house, about -23%. About 2/3 of my net worth was in retirement accounts at the start of '08, so I got pretty well hammered.

[retire@40]

Overall Annual Rate of Return was -17%

Drop in Net Worth was -20%

Not pretty.

[Alan]

Drop in net worth was -6.5% despite market losses of over 16%. This is because I'm still working and pumped in ~$90k of contributions.

If I include the value of my pension then net worth went down by 3.2%. (Pension is worth $951k).

[yakers]

Down about 19% for 2009 but this included paying off a small travel trailer, a looong road trip to arctic Canada & Alaska and year two of youngest son's college. 2009 will be the first year of full retirement for DW & I so it will be interesting to see how the market goes. Bad news, not adding to IRA; good news, we are not planning on drawing down our IRAs until 2010 if there has been any semblance of recovery in the market. If 2010 is like 2008 then we will have to figure out "Alternate Plan B".

[soupcxan]

Investments: -12% (weighted average including new purchases throughout the year)
Overall net worth: +11% (assumes house value flat throughout the year)

Discrepancy due to the fact that we're still working and saving...but our NW could've been +25% if it wasn't for the market...

[Running_Man]

Net worth change 2009 +9.3%

Mostly due to being 90 percent fixed with a few timely stock purchases along with a 2.5% increase from contributions.

[grumpy]

I am wondering if everyone responding above is still working, thus adding savings to net worth? Since I am FIRE'd, decrease in portfolio translates directly into decrease in net worth - I was down 30.1% in 2008 (although that also includes effect of large wedding gift to son and new daughter-in-law and costs for us to attend the wedding in Brazil).

[ziggy29]

Quote:

Originally Posted by grumpy I am wondering if everyone responding above is still working, thus adding savings to net worth? Since I am FIRE'd, decrease in portfolio translates directly into decrease in net worth - I was down 30.1% in 2008 (although that also includes effect of large wedding gift to son and new daughter-in-law and costs for us to attend the wedding in Brazil).

Well, yeah -- anyone who is adding money to savings and investments isn't seeing their net worth fall as quickly as their overall XIRR. The only reason I was "only" down about 19% on my net worth is because in 2008 (between 401K, Roth and HSA contributions, vested company 401K match and deposits to savings) we had an inflow of about $38,000 to slightly offset some horrifying losses in the existing assets.

2008 was actually a great year for us in terms of cash flow -- but a terrible year for our investments, obviously...

[ejman]

Quote:

Originally Posted by grumpy I am wondering if everyone responding above is still working, thus adding savings to net worth? Since I am FIRE'd, decrease in portfolio translates directly into decrease in net worth - I was down 30.1% in 2008 (although that also includes effect of large wedding gift to son and new daughter-in-law and costs for us to attend the wedding in Brazil).

Thank you for pointing out the big difference FIRE'd/not FIRE'd would make to changes in NW (also depending on the size of the nut). My own was a decrease of 21% all from FIRE funds.

[FUEGO]

Quote:

Originally Posted by grumpy I am wondering if everyone responding above is still working, thus adding savings to net worth?

Yes, that describes me. NW down 17%, but investment portfolio is down 36.9% for the year (100% equities, 50% foreign). Lots of new contributions throughout year and some vesting of retirement benefits 12/31/2008 helped.

Given that US equities are down around 37% for 2008 and the broad international markets are down 44%, I feel pretty good overall with my own results for 2008. It was a good test of my risk tolerance. And hopefully it will be one of the worst years in the market that I will see in my lifetime.

edited to add updated portfolio results for 2008.

[FIREdreamer]

Our net worth was down about 6% in 2008. Home prices have been stable to slightly up in our area. Our portfolio's IRR was -29% for the year (ER portfolio represents about 80% of our net worth). But, between a higher (earned) income, reduced expenses, and consequently a higher savings rate we did OK. Actually, for the first time ever, we saved more (a lot more in fact !) than we spent in 2008. I am pretty proud of that achievement.

If the market goes nowhere for a while, it should take about 4-5 months to get back to our 12/31/2007 net worth.

[Alan]

Quote:

Originally Posted by FIREdreamer Our net worth was down about 6% in 2008. Home prices have been stable to slightly up in our area. Our portfolio's IRR was -29% for the year (ER portfolio represents about 80% of our net worth). But, between a higher (earned) income, reduced expenses, and consequently a higher savings rate we did OK. Actually, for the first time ever, we saved more (a lot more in fact !) than we spent in 2008. I am pretty proud of that achievement. If the market goes nowhere for a while, it should take about 4-5 months to get back to our 12/31/2007 net worth.

Something to be proud of - well done

If we maintain our savings rate and there is a zero or slightly negative market return we should recover our net worth in 12 months.

However, then it is the big ER so no more contributions.

[haha]

My NW is down about 22%. IMO, not too bad considering my very heavy equity exposure during a rough year for equities, and no cash inflows other than interest and dividends.

As far as when it recovers, how could I know? It may recover this year, it may never recover. Down 22% means I would need a 28% gain, plus 4% or so to counterbalance outflows. Doesn't seem likely this year, but it is impossible to tell. If oil and gas recovers, I get well fast.

If this past year has taught me anything it is that nothing is sure. But then if I were capable of learning I would have already known that.

Ha

[clifp]

Quote:

Originally Posted by haha My NW is down about 22%. IMO, not too bad considering my very heavy equity exposure during a rough year for equities, and no cash inflows other than interest and dividends. As far as when it recovers, how could I know? It may recover this year, it may never recover. Down 22% means I would need a 28% gain, plus 4% or so to counterbalance outflows. Doesn't seem likely this year, but it is impossible to tell. If oil and gas recovers, I get well fast. If this past year has taught me anything it is that nothing is sure. But then if I were capable of learning I would have already known that. Ha

Ye of little faith. S&P +28 Dow +258 today, there are a twenty more trading days left in Jan, so we could easily erase 2088, with the Jan effect.

Waiting for my end of year statement to do my calculations, but I am liking 2009 so far.

[Corporateburnout]

NW -15.25% Overall portfolio -27.89%

401 and IRA contributions as well as the mortgage reduction are the difference.

Should recover to end of 2007 levels in 2 years if market returns average 5%.

[freebird5825]

Income increased with 5.8% COLA, making the survivor pension a much higher "breadwinner" than the TSP-turned-annuity. No surprises there, all going according to plan.
2008 overall portfolio change -24.7 %, a bump in my FIRE highway, but I'm still not blinking.
No radical change in my home value. I still have 100% equity with no plans to move. The local housing market was not affected by national dropoffs, because there never was a bubble here in East Nowhere NY.
Years to recover? As long as it takes. I plan to continue the bonds = age rule, keeping a 50/50 AA +- 5%, and let things continue exactly as I planned before. A simple plan works fine.

[haha]

Quote:

Originally Posted by clifp Ye of little faith. S&P +28 Dow +258 today, there are a twenty more trading days left in Jan, so we could easily erase 2088, with the Jan effect. Waiting for my end of year statement to do my calculations, but I am liking 2009 so far.

Ha-for sure! I'm up $40,000+ today. Won't take too many more until I am well. But one swallow doesn't make a spring, does it?

BTW, when I said-"It may never [recover]"-I didn't mean the markets, I meant my own retirement. As we all know the unceasing drag of living expenses can sink one's porfolio even as market averages recover.

ha

[putty]

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