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2008 Net Worth Change and Years to Recoup Loss
Old 01-01-2009, 11:06 PM   #1
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2008 Net Worth Change and Years to Recoup Loss

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

++++++

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
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Old 01-02-2009, 08:09 AM   #2
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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.
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Old 01-02-2009, 08:29 AM   #3
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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.
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Old 01-02-2009, 08:48 AM   #4
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Overall Annual Rate of Return was -17%

Drop in Net Worth was -20%

Not pretty.
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Old 01-02-2009, 08:57 AM   #5
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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".
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Old 01-02-2009, 09:02 AM   #6
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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).
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Old 01-02-2009, 09:10 AM   #7
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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...
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Old 01-02-2009, 09:29 AM   #8
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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.
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Old 01-02-2009, 09:43 AM   #9
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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).
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Old 01-02-2009, 09:55 AM   #10
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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.
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Old 01-02-2009, 10:00 AM   #11
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Quote:
Originally Posted by FIREdreamer View Post
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.
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Old 01-02-2009, 10:08 AM   #12
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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
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Old 01-02-2009, 10:10 AM   #13
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Quote:
Originally Posted by grumpy View Post
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...
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Old 01-02-2009, 10:13 AM   #14
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Quote:
Originally Posted by grumpy View Post
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.
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Old 01-02-2009, 10:40 AM   #15
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Net worth not including the house, down 12%

I don't have a good valuation of the house. Last appraisal was in '02, although we just refi'd, but I don't yet have the new appraisal. We live out in an area where it's not easy to assess valuation (not in a neighborhood with good comps, etc.) I don't think housing ran up very much in these parts though, and don't expect it's come down much either. It's not really a big factor for us anyway. We don't expect to sell for many years.

Total portfolio down 28% (using XIRR function, tracking all cash flow in/out in Excel)

Stock portfolio down 37% (also using XIRR function, tracking all cash flow in/out in Excel). About the same as the S&P 500, and with significant Intl, EM, and REIT exposure, so there's some consolation! It could've been worse.

I went from about 50/50 stocks/FI at the start of year to about 80/20 at the end of the year. Unfortunately too much of that went into stocks before the big fall, but a good chunk has gone into stocks since early Oct. I've got some more cash coming too so I've still got a bit of dry powder.

Saved 61.8% of after tax income, so it doesn't feel quite as bad as it would have with no new savings.

Here's to hoping for a better '09!
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Old 01-02-2009, 12:21 PM   #16
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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.
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Old 01-02-2009, 12:37 PM   #17
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My 60/40 investment mix of mostly Vanguard index funds produced a -21.45% return for 2008. Since most of this stash is in retirement funds that I will not tap until 2014 or so (RMD), -21% is not a fatal blow nor does it alter any of my plans. I do not track my residence as part of my investments as I consider it just a place to live in, even though it represents several hundred thousand bucks in value.
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Old 01-02-2009, 12:41 PM   #18
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FIRED and not including house.... overall -26.72%

$$$ needed for short term = -19.48%
$$$ needed for long term = -36.00%
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Old 01-02-2009, 03:16 PM   #19
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NW -14%. Would have been -19% if not for the fact I'm still working and contributed heavily into investments in 2008. AA is now 30% equities, 40% cash/bonds, and 30% real property (real estate, water rights, mineral rights).

Thus it will take 3 years of working to earn back what I lost in 2008.
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Old 01-02-2009, 03:33 PM   #20
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Originally Posted by haha View Post
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.
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