Why Social Security Is Going Broke: Two Simple Charts

In 1940, the required age to receive full benefits from Social Security was 65. According to chart below, most people didn’t even reach 65 at that time. Today, average life expectancies are over 11 years longer (and still rising), yet the full retirement age is only 67. That’s a lot of people getting paid out.

The way Social Security works, taxes from current workers go straight to paying for the benefits of current retirees. Your money is not being “saved” anywhere to be withdrawn later. In 1950, there were 7.3 working-age people for each person over 65; now, the ratio is 4.7 to 1, and it is scheduled to drop to 2.7 to 1 by 2035. That’s a lot less people paying in.

These alarming demographics don’t help Medicare either, which has even more problems! The idea of having everyone work for 40 years and then retire for 20 years is going to be very hard to sustain.

The above information was taken from the 2003 paper Demographics and Capital Market Returns, which as the title suggest also talks about the effects on future stock market performance, as well as proposing some potential solutions. Found via Capital Ideas.

Posted in Retirement | 46 Comments »

Martin Lodge-on-Wheels: 10′x20′ House for $37,900

While looking for more LendingClub P2P loans ($25 bonus) to fund today, I ran across a couple that was trying to buy a tiny home called a Lodge-on-Wheels. The current model is 10 ft. by 20 ft. and costs $37,900. I thought it was pretty neat to help fund this loan for people trying to achieve financial independence.

Many more pictures here.

Inspired by her experiences after Hurricane Katrina, owner Julie Martin wanted to design an affordable tiny house that can be easily moved from place to place on a trailer. It is made primarily out of wood, unlike most of the RVs out there, which probably doesn’t make it something you want to be moving around all the time. But I love the look and feel of it, much more “homey” to me.

To get started, just park the LoW, plug in an extension cord, and connect a garden house. Some features:

• Composting toilet, no sewer line required
• Tankless water heater
• Microwave/convection oven, 2-burner stove, fridge/freezer
• Cedar countertops, and even cedar-walled shower.
• Fully insulated
• Hardwood (bamboo) floors
• Loft for queen-sized bed

Beyond emergency housing, the possible uses for such a place are interesting. The site seems to be catering towards hunters and outdoorsy folks looking for a portable lake cabin. However, as the couple suggests, this could be a permanent home for anyone. You could simply “rent” someone’s backyard space and live in it. Find some cheap land and own your home for less than a BMW. If you have the yard space yourself, you could create your own rental property or in-law suite.

This also reminded me of the 250 sf condos in San Francisco that were selling for $279,000. I wonder how much they are selling for now?

$25 LendingClub Bonus
If you are interested in lending, you can still use this special $25 lender sign-up link to get a free $25 to try it out with no future obligation. There is no credit check and you don’t even have to deposit anything. After you are approved, the $25 will show up in your account balance, and you can lend it out immediately.

Posted in Retirement | 34 Comments »

Monthly Net Worth Update – July 2009

Credit Card Debt
I have taken money from credit cards at 0% APR and placed it into online savings accounts, bank CDs, or savings bonds that earn 4-5% interest (much less recently), and keeping the difference as profit. I even put together a series of step-by-step posts on how to make money off of credit cards in this way. However, given the current lack of great no fee 0% APR balance transfer offers, I am mostly waiting on existing offers to end. My credit score remains high enough that I haven’t seen any negative actions.

Retirement and Brokerage accounts
Markets most went sideways this past month. 401k contributions are still going regularly, and I want to make my 2009 non-deductible IRA contributions soon. I still think the best thing to do is to keep investing regularly, although it is quite boring to watch.

Cash Savings and Emergency Funds
We still have a year’s worth of expenses in our emergency fund, and it is still growing. Possible uses for extra cash might include capital improvements to the house, including a solar hot-water system to reduce electricity bills, or a photovoltaic system to possibly eliminate them! I love the idea of selling electricity back to the city.

Home Equity
Using four different internet valuation tools – Zillow, Cyberhomes, Coldwell Banker, and Bank of America (old version) – I took the average and took off 5% to be conservative and 6% for real estate agent commissions.

We remain “underwater”, with our outstanding mortgage balance greater than what we probably would net after selling our home. Home equity variations continue to dwarf all other activity, which is somewhat annoying since it’s not that important. Just gotta shrink that mortgage!

Posted in Goals, Investing, Real Estate, Retirement | 27 Comments »

Creating Your Own Three Legged Stool of Retirement

You may have heard the term “three-legged stool”, taken from the idea that a stool needs three legs to maintain balance. (Photographers use tripods, no duopods or quadrapods. Even a four-legged chair will likely wobble.)

Old Three-Legged Stool of Retirement

Traditionally, the components of the three-legged stool of retirement have been presented as Social Security benefits, Pensions, and Personal Savings (401k, IRA, and other assets).

image via Michigan.gov

This is partially supported by data from the Social Security Administration:

image via Pbs.org

The Qualified Retirement Plans slice combines pensions, 401ks, and IRAs together, making it hard to see the breakdown. The Other Assets include income from other investments like capital gains or dividends from taxable accounts and real estate. We observe that a quarter of all income in retirement is still from working for a paycheck.

Shaping Your Own Retirement Legs

These are just averages, and each of us will have their own path to retirement. If you’re planning on retiring early, you won’t have Social Security yet. For people born after 1960, the full retirement age for benefits is already 67, and expect it to rise even further the younger you are. I think some form of SS will still be around when I’m 70, but who knows.

1. Flexible, reliable, part-time income
We already saw that lots of people over 65 still work. Even though I want financial independence early, I’ve also come to realize that I’ll never stop working. Ask yourself what are you really going to do in retirement? In addition, I think it would be stressful to stare at a big pile of cash and think to myself – “Crap, I hope this lasts for 30+ years!” Maintaining a part-time job and the related skills would help my cashflow, and also ensure that I could return to the workforce if disaster strikes.

I would want a part-time job that could provide some socialization and a sense of improving your community or helping others. Most of my imagined jobs involve teaching, coaching, sporadic technical consulting, or something tourism-related. It can’t be 9-5, and I’d want to be able to take months off at a time. This won’t be easy to find, so I need to start developing more “fun” skills as well as personal relationships now.

2. Personal Savings: Accumulate 30 times annual (non-housing) expenses
Without a pension or Social Security, you’ll need to live off your own savings. If you invest in a balanced portfolio of 60% stocks and 40% bonds, studies have estimated that you can have a “safe withdrawal rates” of about 4% per year. By being a bit more conservative than that, this means accumulating 30 times your annual expenses.

For example, if your annual expenses are $30,000, then you need to save $900,000. This is a very general rule of thumb. Taxes are tricky, but if your income is only $30,000 per year, you won’t be paying very much income tax. Check out the historical effective tax rate over a past 25 year timespan:

image via krusekronicle.typepad.com

For reference in 1995, to be in the bottom 50% (safely in Q1/Q2) your adjusted gross income had to be under $31,000. And this even includes payroll taxes of about 9%, which you won’t have to pay on investment income. The result: very low taxes (possibly under 5%) if you keep your expenses down! Which brings me to…

3. A Paid Off House
I don’t think everyone needs to own a home. However, I happen to enjoy many of the intangibles of owning a home, I love my house and neighborhood, and plan on staying here a while. The cost of this leg can vary widely, from a $1,900 house in Detroit to… where I live, so choose where you want to live carefully.

Financially, owning a home protects you from future inflation and rising rents. You are still subject to property taxes and maintenance costs.

In addition, not having to pay rent means you need less income from savings, reducing your needed nest egg in #2 above. You also pay less taxes. Withdrawing additional money from an IRA, for example, will mean subjecting them to your marginal tax rate, which could be 25% or higher. So to pay $750 in rent, you’d have to withdraw $1,000. Not very efficient.

So there, you have it, my three-legged stool. Yours may be very different – you may like renting, have a pension, own investment property, or have some other sources of income. I still worry about health insurance, but I’m still hopeful that some positive health care reform will occur that will create affordable health insurance for individuals under 65 not covered by an employer group plan.

* You can read more about the last two legs in my related post A Quick & Dirty Plan To Reach Financial Freedom.

Posted in Frugal Living, Real Estate, Retirement, Taxes | 10 Comments »

A Bad Argument Of Why Buy-And-Hold Is Bad Advice

A regular reader Don sent me a post entitled Long Term Buy And Hold Is Still Bad Advice. Okay, fine, everyone and their mom has been telling me this recently. But I read it, and it was such a bad analysis that I had to rebut it here. I think Mish writes a lot of useful and thought-provoking stuff on his popular blog, but he really missed a big error here.

First, a recap of the post. Basically, a guy called “TC” has the idea of comparing S&P 500 returns vs. that of 6-month CDs. I’ll ignore the fact that this has been done many times already. But wait! He comes up with a startling conclusion. For long periods of time, the S&P 500 has actually lagged or been about equal to the returns of safe and steady 6-month CDs. (!!!) His graph:

Keeping my parents in mind, you’re probably wondering how someone did by simply investing in 6 month CDs. The answer is for any holding period of less than 25 years, a stock market investor who made regular and equal contributions has actually underperformed a CD investor! Yes, you read that right for time periods of 1 – 20 years a CD investor outperformed the stock market by 1.6 to 20.1 annual percentage points.

Additionally, if one extends the time window to 50 years (clearly “long term”) CDs again have outperformed the stock market by 0.3 annual percentage points. Even when one extends out the time period to the full 59+ years (the start of the S&P 500 index); the stock market has outperformed short-term CDs by a mere 0.2 annual percentage points – not much of an equity premium.

The sky is falling! Oh wait, there’s a little fine print.

TC is ignoring dividends

Let’s bold that. The analysis and data above completely ignores the dividend return of the S&P 500. This is like buying an investment property and ignoring the rent payments coming in. What? There are checks coming in every month from the tenants? Nah, let’s not cash those.

Let’s take a look at the historical dividend yield of the S&P 500, courtesy of Bespoke Investments:

For the periods compared above, the a true owner of the S&P 500 has earned 2-6% annually from dividends alone, with a long-term average of 3-4%. Now, if you add another 3-4% to the analysis above, you see again the long-term equity premium. Instead of 8% vs. 8%, it’d be more like 12% vs. 8%. That’s an enormous difference.

(I also wonder where TC got his/her data for historical 6-month CD rates. Are these averages, since every bank offers vastly different rates, and doesn’t report them to a central bureau? How does one get the average 6-month CD rate across the country in 1959? Usually studies like this use 6-month US Treasury Bill rates instead, as the data is reliable and widely-accepted.)

Massive Conflict of Interest?
Another argument given as to why buy-and-hold is bad is because there is a conflict of interest between investment advisors and their clients, as they have a “vested interest in keeping clients 100% invested 100% of the time, even if they know it is wrong.”

Actually, brokers get paid the more you trade than anything else. They earn money based on total assets, but a huge chunk is from commissions. This means convincing you to buy stocks when they’re hot (tech stocks)…. and then sell them (cash!)… and then buy others (mortgage-backed securites)…. and then sell them (cash!)… and then buy new ones. Like right now, they’ll happily sell you gold or some non-scary bond funds!

True buy-and-hold means very little trading. At Vanguard, I buy-and-hold(-and rebalance) for a total cost of about 0.20% of assets annually. That’s $20 a year per $10,000 invested. Guess what the average expense ratio of a money market fund is? According to Lipper Inc., it was 0.60% at the end of 2007. The Vanguard Prime Money Market fund (VMMXX) has an expense ratio of 0.28%. The S&P 500 fund (VFINX) charges 0.18%. Even at Vanguard, they actually get less money from me if I hold stocks instead of cash.

Same Old Story
In any case, I grow weary. Bonds have outperformed Stocks both recently and other times in the past, even if people ignored it. This is why investors need to have a balance of both stocks and bonds/cash, not just 100% one or the other. If you needed the money soon, then you should have been at the most 60/40 in stocks/bonds, if not even more conservative. In that case, your portfolio would have dropped about 15% over the last couple of years up until today, and you’d be worried but not broke.

If you use the correct numbers (ahem), stocks still have higher historical returns over extended periods, with many rocky patches. We balance this knowledge with the also-historically steadier but lower returns of bonds and cash. That’s really about it. As for the future, nobody knows, as much as they’d like to suggest they do.

Posted in Investing, Retirement | 26 Comments »

Monthly Financial Status / Net Worth Update (June 2009)

Credit Card Debt
In the past, I have taken money from credit cards at 0% APR and placed it into online savings accounts or similar safe investments that earn 4-5% interest or more, and keeping the difference as profit. I even put together a series of step-by-step posts on how to make money off of credit cards in this way. However, given the current lack of great no fee 0% APR balance transfer offers, I am have not been as active in this “game” recently. My credit score remains high enough that I haven’t seen any negative actions.

Retirement and Brokerage accounts
Markets went up, although as usual I don’t know why. I’ve been swearing off CNBC so I’m especially detached from all the buzz. Most of our retirement accounts rose about 10% the last month, which was over a $10,000 gain. I actually wish it stayed down so I could start investing some of my new cashflow at lower prices. However, waiting for it to drop again is not logical behavior, or so I keep reminding myself…

Cash Savings and Emergency Funds
We did still save a good deal of cash from our income this month, but I shifted about $10,000 of it into my brokerage account so that I can start investing in taxable accounts, which skewed the values above a bit. We still have a year’s worth of expenses in our emergency fund, which always gives me the warm fuzzies.

Home Equity
Using four different internet valuation tools – Zillow, Cyberhomes, Coldwell Banker, and Bank of America (old version) – I took the average and took off 5% to be conservative and 6% for real estate agent commissions. These sites are really wonky. Last month I was actually up, but this month my home’s estimated value dropped over $32,000 in a month. Shrug. I’m lucky that our work situation is doing well and we have no plans on moving.

According to my quick and dirty plan for financial freedom I should start paying extra towards my mortgage, but I’m having a hard time pulling the trigger on this one as well. I feel inflation coming. Should I just invest in stocks, and keep my 5% mortgage as long as possible?

Posted in Goals, Investing, Real Estate, Retirement | 31 Comments »

Personal Finance Ratios: Savings-to-Income, Debt-to-Income, and Savings Rate-to-Income

There was a recent post on how much savings one should have at age 30 over at the Bogleheads forum. Being 30 myself, I was intrigued, but I am in the camp that believes that there is no right answer at 30. You’re still so young that you could just be out of school for a few years, and at that time it’s mostly up to how much student loan debt you racked up. Most important might be your ability to live under your means, and that you’re learning a valuable skill of some sort.

However, there was mention of a paper the the FPA Journal called Personal Financial Ratios: An Elegant Road Map to Financial Health and Retirement, where the author presents a variety of ratios as a rough benchmark to help clients determine whether they are on track to retire by age 65. These include Savings-to-Income, Debt-to-Income, and Savings Rate-to-Income.

The actual numbers depend on how you believe your investments will perform annually after inflation. (5% on the left table, 4% on the right.) Definitions below.

Savings include the current value of one’s investments, such as a 401(k), IRAs, brokerage accounts, investment real estate, and the value of any private business interests. The home is excluded as an investment. Debt comprises all debt, including mortgage, student loans, car, and consumer debt. Savings rate refers to the percentage of pre-tax income an investor is saving each year out of their total income.

A Hypothetical Example
Let’s take a look at a hypothetical 45-year-old individual to see how he might use the ratios to assess his financial circumstances. This person has the following financial statistics:

Salary $110,000
Mortgage $125,000
Auto Loan $25,000
Investments $260,000
Annual Savings $10,000
Employer 401(k) Match $3,000

Based on these statistics, the hypothetical individual ratios are as follows:

Savings to Earnings: $260,000 / $110,000 = 2.36
Debt to Earnings: ($125,000 + $25,000) / $110,000 = 1.36
Savings Rate to Earnings: ($10,000 + $3,000) / $110,000 = 11.8 %

As for us, we’re doing okay according to the table for age 30 regarding the savings-to-income ratios (0.5) and savings rate-to-income ratios (50%+). Our debt-to-income ratio is a bit high though, at around 2. Of course, this is highly dependent on our income number, which might change if we downshift with kids. I guess that’s another reason to wait until we’re a bit older to really start benchmarking like this.

One thing I don’t like about the ratios is that home equity is never included, because the author says that it’s hard to extract home equity. Okay, I agree on that point, but there is no mention of compensating for renters in the analysis. If I have no debt at age 65 + a paid-off house, that’s a lot different than no debt at 65 + still paying rent forever. My largest expense by far is housing (greater than all other expenses combined), and having that taken care of changes my retirement outlook drastically.

So… should we be using these ratios as a benchmark?

Posted in Frugal Living, Investing, Retirement | 24 Comments »

Monthly Financial Status / Net Worth Update (May 2009)

Credit Card Debt
In the past, I have taken money from credit cards at 0% APR and placed it into high-yield savings accounts or similar safe investments that earn 4-5% interest or more, and keeping the difference as profit. I even put together a series of step-by-step posts on how to make money off of credit cards in this way. However, given the current lack of great no fee 0% APR balance transfer offers, I am have not been as active in this “game” recently. My credit score remains high enough that I haven’t seen any negative actions.

Retirement and Brokerage accounts
The market rally was sustained during April, so our predominantly passive investment portfolio increased a bit. We contributed another $2,312 in 401(k) salary deferrals this month including company match. See my investment portfolio page for more details.

I get attracted to various different ideas as time passes, but I really haven’t changed my investment portfolio in about two years now. I always need to remind myself to stick to the basics.

Cash Savings and Emergency Funds
Our cash savings rose again, and although I want to keep one year of expenses for our emergency cash reserves, I need to start putting more money to work in the stock market and other investments. It’s just hard to let go of the security of cash right now. We are contemplating whether we want to save up for a rental property.

Home Equity
I used the same internet valuation tools as before – Zillow, Cyberhomes, Coldwell Banker, and Bank of America (old version).

I have zero personal input here, I just average out what the sites say. They say up. The number shown is after an additional 11% reduction to be more conservative. Not that it really matters, as I am primarily focused on paying off the mortgage, as outlined in my quick and dirty plan for financial freedom!

Posted in Goals, Real Estate, Retirement | 14 Comments »

Quick Review of ESPlannerBasic, Free Version of ESPlanner Retirement Planning Calculator

Background
There are an increasing number of sleek but simplistic retirement calculators out there, and most of them are basically the same. You put in your savings rate and overall asset allocation, and it crunches some numbers based on historical market returns to see if you can replace 80-100% of your current income in retirement.

Then there’s ESPlanner, which represents “Economic Security Planner”. It is based on consumption smoothing, an economic theory where the primary goal of financial planning is instead to avoid abrupt changes in one’s standard of living. Here is one graphical explanation:

This method has gotten some extra publicity because it often tells you that you need to save less money as compared to other calculators. However, since the software cost $149, I never really got to try it out. But now, they have released ESPlannerBasic, which is a slightly stripped-down but free version that everyone can tinker with. For example, it assumes that everyone will live to 100 in its computations.

You input various financial information like income and assets, and the calculator will give you a “spending and saving plan” for each of the rest of your life. I think the most important column is savings:

Saving is the recommended increase (reduction) each year in your regular financial assets. This saving is over and above your specified contributions to retirement accounts.

Sample Run of ESPlannerBasic
Let’s take a look at some of our results, using very rough numbers and a retirement goal at age 50. (Sound familiar?) Our “standard of living” has us spending $60,000 per year as a couple forever. During the next few years, we are supposed to save about $75k per year. (I specified zero future retirement contributions for simplicity, it’s all included in the $75k.)

Then at my chosen retirement age of 50, things change fast, with us starting to take large withdrawals from savings:

That’s be scary! Then, at age 65, the calculator assumes that Social Security will kick in, which almost has us at a zero savings rate.

Criticisms and Compliments
My thoughts on this calculator are pretty much in line with my thoughts on consumption smoothing in general.

For starters, I don’t like the idea of a calculator telling me what I should be spending in retirement. I like the idea of constructing this on my own, based on conscious decision making. However, the fact that the calculator chose $60,000 per year is creepy. Beforehand, I had already estimated my non-housing expenses in retirement at $24,000 per year. My housing costs are current about $36,000 per year. Add them up, and you get.. $60,000! Of course, at that rate the mortgage should be paid off after 29 years. Still, just an interesting coincidence?

In addition, the calculator gives very specific results based on what are essentially wild guesses. I have no idea if my income will stay the same, increase, or decrease. I have no idea if Social Security will change the full retirement age to 75, or if benefits will be means-tested. I have no idea what tax rates will be 30 or 40 years from now. So I’d take the results with a big grain of salt.

However, since the calculator is free, I can play with many different scenarios and see how different inputs change the given results, and this may help in my retirement planning. What are the most sensitive factors? I hope to try exploring this next.

Via Bogleheads and WSJ Wallet.

Posted in Retirement | 10 Comments »

A Quick & Dirty Plan To Reach Financial Freedom

Despite the current financial funk, I still desire financial freedom. The general idea is simple; I need to generate enough income from my assets to pay for my expenses. Here is how I’ve been framing the problem in my mind recently. I’m 30 now, let’s say I want to be “retired” by age 50.

Part 1: Accumulate 30 times annual (non-housing) expenses

There are numerous studies about the “safe withdrawal rate” from a portfolio, and they usually end up at around 3% to 4%. This usually means that with $1,000,000 dollars, you have a high (say 99%) chance of being able to produce $30,000 to $40,000 of income each year plus inflation adjustments for a long period of time (30+ years).

This is the same as saying you need to save 25 to 33 times your annual expenses.. If you’re conservative (or young), I’d go with a higher number, so I picked 30. Multiply your annual expenses by 30. You need that much money to retire. All of these are based on historical numbers, so this is only an estimate.

Right now I’d estimate our annual non-housing expenses at about $24,000 per year ($2,000 per month). Previously I’ve found that we spend about $18,000 per year, but that neglects a few things like health insurance and car deprecation. (Again, health insurance for those that retirement very early and are not healthy might be a bogey.)

$24,000 x 30 = $720,000.

At about $200,000 in non-housing assets right now, that leave me $520k left. Divided by 20 years and assuming no investment return, that would require $25k per year (not inflation-adjusted). At a 3% annual real return, I’d still need to save nearly $20k per year.

Remarks
With this part, you can see the power of frugal living, or the damage done by lifestyle inflation. $500 a month is $6k per year. $6k x 30 = $180,000.

So if I could cut $500 a month in my expenses, I’d need to save $180,000 less. On the other hand, if I grow some bad habits and start spending $500 more a month, I’d need to save $180,000 more. Either way, that’s a big number! This is why I still need to complete my line-by-line examination of expenses.

Part 2: Own my house / Pay off mortgage

I currently have 29 years left on a 30-year fixed mortgage. For us, that would mean another ~$470,000 in mortgage principal, but more when you count in all that interest.

According to this mortgage calculator, if we make one extra monthly payment per year (simulating a bi-weekly acceleration plan), that’d give us about 24 years before we’re done. If I made two extra monthly payments per year, it’d be shaved down to 20 years, which has the house paid off at age 50. Lots of other considerations, but I’m strongly leaning towards it.

Remarks
I know that you could easily roll up “housing” costs into Part 1 above, but I didn’t for a few reasons. For one, housing is one of the few expense areas where you can essentially “buy” all future costs. For example, you can’t pay a lump sum in exchange for all the electricity you’ll consume in your lifetime. Same thing for your grocery bill, or even a car since you’ll have to replace it. But if you own your house, you’ve basically cut out rent forever (just left with maintenance and property taxes). It also reduces the danger of inflation eating up your spending power.

The second reason is lower taxes. Owning your own house not only saves you from have to pay a housing payment, but also keeps you from having to earn the gross income needed to generate that after-tax amount. Ignoring house, I saw above that I only need to generate $24,000 of income per year total. The income taxes on that amount is very, very small. Using current numbers it might be less than 5% overall, with my marginal tax bracket at a mere 10% after taking out the personal exemptions and standard deductions.

But if I need to generate another $24,000 of income to cover housing ($2k per month in rent), then that additional $24k would be taxed at much higher rate of 15%. With state tax, the difference might be another 5%.

Try out this method with your own numbers, and see what happens. When I run the numbers like this, I know that I could retire much earlier if I moved to a cheaper place upon retirement. But is it worth it? It’s all about priorities…

Posted in Real Estate, Retirement, Taxes | 42 Comments »

April 2009 Financial Status / Net Worth Update

Finally a bit of green!

Credit Card Debt
For newer readers, don’t worry. In the past, I have been taking money from credit cards at 0% APR and immediately placing it into high-yield savings accounts or similar safe investments that earn 5% interest or more, and keeping the difference as profit. I even put together a series of step-by-step posts on how to make money off of credit cards this way. However, given the current lack of good no fee 0% APR balance transfer offers, I am just waiting to pay off my existing balances.

Retirement and Brokerage accounts
March was a rebound month for the stock market, and our balances went up accordingly. We contributed $10,000 into IRAs, and $12,969 in 401(k) salary deferral and company match. A chunk of that was a true-up contribution from 2008. Score! See my 2009 Q1 portfolio update for more details.

Cash Savings and Emergency Funds
Our cash savings did drop due to the IRA contributions, but we still have over a years worth of expenses set aside. I want to keep one year of expenses for our emergency fund, and start looking for places to invest the rest.

Home Equity
I used the same internet valuation tools as before – Zillow, Cyberhomes, Coldwell Banker, and Bank of America (old version). The magical elves have decided that my home is worth a tiny bit more this month. The number shown is after another 11% reduction to be more conservative.

It’s been about a year that I’ve had this mortgage, and I am wondering if I should commit some cash towards paying down the mortgage principal too. If I make an extra mortgage payment each year, I replicate a biweekly accelerated payment plan, and can shave around 5 years off my 30-year mortgage.

Posted in Goals, Investing, Real Estate, Retirement | 33 Comments »

2009 Q1 Investment Portfolio Update – April 6th, 2009

2009 is already over one-fourth over, so I think it’s a good time to check on the ole’ battered portfolio.

Contribution Details
In early 2009, we each made a $5,000 contribution towards our non-deductible IRAs for the 2008 tax year, for a total of $10,000. We have also contributed $12,969 so far into our 401ks through regular salary deferrals and the company match. We haven’t made any after-tax investments in our portfolio yet.

YTD Performance
According to my spreadsheet, the 2009 year-to-date time-weighted performance of our personal portfolio is -15.5% YTD.

For reference, the Vanguard S&P 500 Fund has returned -6% YTD, their FTSE All World Ex-US fund has returned –6.36% YTD, and their Total Bond Index fund is -0.13% YTD as of 12/8/08. The Vanguard Target 2045 Fund has returned -4.70% YTD. Part of the poor relative performance is probably due to the timing of my large lump-sum investments.

Investment Changes
We have used our new contributions to bring us closer to our asset allocation target, with a 85% stocks/15% bonds split.

You can view all my previous portfolio snapshots here.

Posted in Investing, Retirement | 16 Comments »