I’ve been reading quite a few very interesting net worth updates on various blogs and they inspired me to do some analysis of our own net worth. I’m not ready to disclose the numbers though so I thought it would be nice to compare our net worth to the S&P 500 index over the past 5 years.
Retire By 40 VS S&P 500
Unfortunately, I only have a few data points per year so I had to interpolate the data and smooth out my line. I’ll keep a monthly tally from now on so future updates will be more accurate.
You can see that the two line graphs have very similar shapes. These shapes indicate that we invest in the stock market through thick and thin and didn’t do anything tricky like pull our money out and buy gold.
The S&P 500 hit its low point in February 2009 and you can see that our net worth also took a big dip. We were back where we started in October 2006. It was very discouraging because we kept contributing to our retirement funds every year and to be set back 3 years means that all those monthly contributions have disappeared.
All is not lost though because we persevered and kept investing. From that low point, our net worth recovered and actually gained momentum. The slope of the net worth is steeper than the S&P 500 slope and that means we had a bigger % gain. This is because we continue to invest during the down market and pick up extra shares on the cheap. You can see dollar cost averaging at work here. If you keep investing and adding money to the stock market, you will beat the index.
I don’t know how to time the market, so as long as we have good salaries, we’ll pile more money into stocks. Once we slow down our retirement fund contributions, the story will change and we’ll have to come up with a different strategy.
In 2011, our net worth made a gain of about 10%. This is quite surprising because my 401k went down about 8% even with new contributions. I had a big chunk in foreign and emerging markets in my 401k, so it was a bad year for me. Other areas did well though and made up for the poor performance. Check out Mrs. RB40’s retirement fund, courtesy of Personal Capital. Her 401k is invested in a 2040 Target date fund. I love the steady progress of her retirement portfolio.
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I’ll continue to stick to our asset allocation strategy for now. I’m sure that at some point the European and foreign markets will recover.
In conclusion, the “lost decade” isn’t really lost at all. If you keep adding money to your investment, you should be much better off than 10 years ago.
My question to you is this: How much would you have to be worth before you consider retiring from your day job or even cut down to half time? If I follow my exit strategy and quit my day job, then our contributions will slow way down. I don’t plan to withdraw from our investments until I’m 65 so whatever is there will have time to grow. I know the answer is different for everybody. One of my co-worker said he won’t retire until he is worth $20 million dollars… His mom is loaded though so he is counting on the inheritance.
Please take the poll below. Forget about inflation and just use today’s dollar in your vote.
That’s all folks. I’m happy with 2011 result, but hopefully 2012 will be even better.
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