Net Worth Update - 2008 Third quarter: Down 5.7%

It is probably unwise to post a Net Worth Update with the daily fluctuations in the market right now, but our Net Worth at the third quarter of 2008 was $622,297.

Our Net worth decreased by $37,837 (or 5.7%) this quarter. The return on our overall portfolio for the quarter was a negative 8.7%. I calculated our portfolio return using a formula for calculating portfolio return I mentioned in a previous post.

As I mentioned in a previous post on our target asset allocation, we aim for a 75/25 portfolio (75% Equities, 25% Fixed income). The current downturn in the stock markets has tilted the balance to about 67/33. This provides a good opportunity to re-balance, so I will be doing that over the next couple of months, mainly by selling bond funds in our retirement accounts and buying stock funds instead.

I also intend to sell some of the funds in our taxable accounts before the end of the year to claim capital losses in this year's tax return. You can deduct up to $3,000 in losses against your income, and carry over any remaining losses to future years. You can buy back the same funds after 30 days, to avoid running into the wash sale rule.

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Cool_sparrow said...

Hi Nigel,

You may remember me from RE Forum boards as the guy who talked about retiring at 37 in India. Well, I added up your portfolio returns over the last 4 quarters from your posts and they total around -18% or so for the past year. This tracks very closely to my -20% portfolio return from Oct. 2007-Sep. 30, 2008. Of course, the markets are tumbling even further.

I am really worried about retiring in India now as my retirement assets have declined by 20% so far. I am planning to work for 2 years in India to see how things shake out and during this period not touch my retirement income. While USD-INR rate has increased by ~15% over the same period, so my Indian income calculation using SWR is still only about 4% lower than my earlier assumption. Still, the tumbling world asset prices worries me a lot. Any suggestions?

Nigel said...

If your portfolio returns are similar to mine, you probably have an asset allocation similar to, or more aggressive than mine (75/25 stocks/fixed income). I don't think that is appropriate for someone close to retirement. The rule of thumb I have heard is that one should be prepared to lose 50% of the assets in stocks in any year. With 75% in stocks, I should then be prepared to lose 37.5% of my overall portfolio in a given year.

In our case, we don't plan to retire for another 10-15 years, so I am not overly concerned about the current downturn. If I were close to retirement, I'd probably keep no more than 40% in stocks, and also try to have 5-10 years of living expenses in cash, so that I won't be immediately affected by a bear market in our early retirement years.

Working additional years is clearly a good strategy to avoid withdrawing from your retirement assets. Good luck to you, and I hope things will get better soon.

cool_sparrow said...

Thanks, Nigel. I do have about 6 years of living expenses in cash to finance Indian living, so by that time, I hope that the equity markets rebound to a decent level so that I can do a re-allocation of my portfolio to about 40% equities, down from about 75% (which is now down to about 55% already by the way, thanks to Mr. Market!).

Anonymous said...


Wondering if anyone could shed some light on investment options for me.

I am in my mid thirties, employed with an annual income of around say 107K. I have currently about 50K+ in bank saving account and pay 6% towards 401K (equal share from employer).

I am a complete dumbass when it comes to money matters. Is there something I am missing? I don't want too much risk but would love a greater return.

Thanks in advance.


Nigel said...

The best way to manage your money is to learn to do it yourself. You could probably start with one of the several good books on investing that I listed in an earlier post.