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Retire By 40 Net Worth VS S&P 500

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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

retire by 40 net worth vs s&p 500

We didn’t do too badly over the past 5 years.

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.

If you need some help keeping track of your finances, you should try using Personal Capital to manage your investments. You can keep track of your income, expenses, and investments, all in one place. Personal Capital is geared for investors and have many great tools. See my review of Personal Capital and how they helped me reduce what I’m paying in investment fees.

retirement fund 2040

This 2040 target date fund did very well in 2011

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.

Net worth before retire

Poll closed

That’s all folks. I’m happy with 2011 result, but hopefully 2012 will be even better.

track your net worthSign up with Personal Capital to help keep track of your income and net worth. Personal Capital is geared for investors and have many great tools. See my review of Personal Capital and how they helped me reduce my investment fees.


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{ 55 comments… add one }

  • Michelle @ Making Sense of Cents January 6, 2012, 5:27 am

    I guess it depends. If I had $2 million now, I think I would retire now, but if I didn’t have $2 million until age 60, I think I’d push my retirement age past that, just because of the time value of money.

    • retirebyforty January 6, 2012, 9:12 am

      I think $2 million is the sweet spot right now. It used to be 1 million, but inflation took its tool. The average retiree is worth much less that that. An average 65 and over house hold is worth around 250k, not good.

  • Roshawn @ Watson Inc January 6, 2012, 5:42 am

    Joe, you win the award for linking to the post that made me “jealous” of someone’s net worth decrease! I love @fabulouslybroke, and thanks for reminding me that I need to stop by more often…freakin awesome! Also, thanks for the comparing your net worth over the past 5 years with the S&P. That’s an interesting analysis. Kudo’s for doing well!

    • retirebyforty January 6, 2012, 9:13 am

      The best time to travel is when you are young. She is pretty awesome.

  • Everyday Tips January 6, 2012, 5:53 am

    I was bitter when I saw my 401k statements for 2011.

    You are doing a fantastic job, I love that you are putting the S&P to shame!

    Regarding retirement amount, I would probably feel comfortable retiring with 2.5 million, but would love if I had more! 🙂

    • retirebyforty January 6, 2012, 9:14 am

      My 401k was terrible as well. We contributed and the total is still below Jan 2010. 🙁
      $2.5 million is a pretty lofty goal. 🙂

    • ppd September 2, 2012, 8:54 pm

      he is not putting the S&P 500 to shame. Remember that RB40 continues to dollar cost average invest each month to his base investment while the SP500 remains static in terms of base.

      You can’t call incremental investment additions of principle the same thing as return. They are two different things. Yes your total balance grows, but that’s not the same thing as earning an investment return.

      If you rerun the graphs and subtract your contributions (and the gains on those contributions to keep us all honest) then you will know if you are really beating the index, or simply adding to your principle contributions at a faster rate than those investments are losing money. Kinda like bailing water..

      me smells the birkenstocks from here..

      • retirebyforty September 3, 2012, 6:03 pm

        Yes, that’s the point. If you keep investing and dollar cost average in then you will probably do OK. A lot of people stop investing when the market turn down and couldn’t take advantage of the recovery.

  • YFS January 6, 2012, 6:02 am

    Thank you for including me. Looks like you’re kicking the S&P 500’s butt! Great job Joe.

    Hopefully I have a great 2012! Also, I would give up 30k to travel the world like Fabulously Broke….

    • retirebyforty January 6, 2012, 9:15 am

      It only look that way because we keep adding money every month. If we didn’t, it would be just about as bad.

    • Steve January 25, 2012, 5:26 pm

      By definition, if you are investing in index funds and contributing money, you will beat the index. Call it the “Beardstown Ladies Strategy.”

      • retirebyforty January 25, 2012, 9:58 pm

        Yeah, pretty obvious. 🙂

  • Jai Catalano January 6, 2012, 7:14 am

    I put 10 million because there was no billionaires option. I figure if I fall short it won’t hurt as much. 🙂

    • retirebyforty January 6, 2012, 9:16 am

      Sorry Jai, I should have put one billion dollars. 🙂 I figured $10 million is already a stretch for most of us.

  • Forest January 6, 2012, 7:57 am

    10% is a very respectable gain, way above inflation :).

    • retirebyforty January 6, 2012, 9:16 am

      That’s with all the additional contribution too. I’m just waiting for a bull market to reappear. 🙂

  • Money Beagle January 6, 2012, 8:03 am

    Thanks for the mention. I find that as time goes on, net worth changes are more closely tied to the stock market performance. That’s not really a bad thing as it means that we have more invested.

    • retirebyforty January 6, 2012, 9:17 am

      That’s what it looks like for us. We only have about 10% in bond right now and will need to add more there as we get older.

  • Lizzie January 6, 2012, 9:42 am

    Hi RT40
    I am happy for you to include my net worth even though it has been an awful year. At least I have (hopefully) taken all the plain now and it can only get better!!

    • retirebyforty January 6, 2012, 12:59 pm

      Ouch! Sorry to hear that. Is this a good time to pick up a vacation property in Greece? Added your link in the main post.

  • krantcents January 6, 2012, 10:20 am

    Good job! Your overall growth proves dollar cost averaging works! Asset allocation is another key factor as you mentioned.

    • retirebyforty January 6, 2012, 1:00 pm

      Many people get discouraged and stop investing. That’s a bad move. As long as you keep investing, it should turn out all right.

  • Aloysa January 6, 2012, 10:38 am

    10% gain is a good one in my books. Keep up a good job!

    • retirebyforty January 6, 2012, 1:00 pm

      I’m very happy with 10% as well. Thanks.

  • Jeffrey January 6, 2012, 11:11 am

    I like the analysis. Seems like things are looking good for you other than a few setbacks.

    I voted for $5 million, but I think I’d feel okay at $3 million. I can’t imagine being 100% retired at age 65 with much less than that. I plan to live to at least 90 🙂

    • retirebyforty January 6, 2012, 1:01 pm

      $5 million is a lot of money. Is that realistic? I’ll amend the post to say in today’s money. The average 65+ American household is worth 250k. That is a long way to $5 million.

  • kathleen January 6, 2012, 11:20 am

    I wish I’d tracked my net worth a year ago — I know I’m way better now, because a year ago my net worth was negative!

    • retirebyforty January 6, 2012, 1:03 pm

      Positive is much better than negative. Way to go!

  • Hunter - Financially Consumed January 6, 2012, 11:23 am

    You’re well ahead of the curve Joe…sorry for that cliche.

    • retirebyforty January 6, 2012, 1:03 pm

      Thanks Hunter. I think having a kid later helped a lot too.

      • Hunter - Financially Consumed January 6, 2012, 2:16 pm

        Yes, I think that’s a fair statement. I just came back to vote, missed it the first time. Nice article Joe.

  • Miss T @ Prairie Eco-Thrifter January 6, 2012, 11:35 am

    Looks like you are doing quite well. Keep on the good track.

    It is hard to pick a number because with inflation you end up needing more down the road. Even $2 million is starting to look like not enough. I would say that somewhere between $2 and $3 million would be good if you still have 15-20 years of work left in you.

    • retirebyforty January 6, 2012, 1:04 pm

      Thanks Miss T. Forget about inflation and just use today’s dollar. I think $2 million is plenty. 🙂

  • Evan January 6, 2012, 12:29 pm

    Very cool way to track it! Thank you for the kind words about my gains.

    • retirebyforty January 6, 2012, 1:04 pm

      You did great in 2011. Good luck this year too.

  • MyMoneyDesign January 6, 2012, 6:48 pm

    Nice work with the illustration. I am very impressed that although your net worth follows the same shape of the market, it also significantly outpaces it on the rise. You really said it – dollar cost averaging! Don’t give up on your investment plan when times are sour. It feels good to buy things on sale, and stocks are no different.

    Since I estimate will need about $60K per year during retirement and only plan to withdrawal about 3% from my portfolio, I guess I will need about $2M. However, I’m not waiting around for that. I plan to “stagger” my retirement income by cashing in on my plans one-by-one starting with a 72T, Roth IRA, 401k, and then ultimately Social Security.

    • retirebyforty January 7, 2012, 8:51 pm

      Exactly. Many of my friend gave up on stock investing after the down market.
      60k/year is our current need as well, but we are working on our side income and that should help out a lot.
      I like your stagger plan. I’ll have to figure out something similar.

  • SB @ One Cent At A Time January 6, 2012, 8:24 pm

    Let me go straight way to my Yodlee data. very interesting, I too am speechless by YFS numbers. Heading over there now.

  • youngandthrifty January 7, 2012, 1:27 am

    You’re so good with the graphs, RB40!

    Great job! I did about the same as you 🙂

    I would feel comfortable with $2million (you know, since $1million is like a drop in the bucket here in Vancouver lol)

    • retirebyforty January 7, 2012, 8:53 pm

      I’m getting better with excel, but it took quite a while to figure out how to make a graph like that.
      $2 million is a good number to shoot for. 😉

  • My University Money January 8, 2012, 7:28 am

    I’ve been nervous about sharing specific numbers as well. Since I’m quite a bit earlier in life than a lot of the PF bloggers out there, my net worth statistics don’t really stack up and makes me irrationally self conscious (I’m sure no on expects me to be a millionaire, but still). Cool idea of showing it versus the S&P, maybe I’ll do one in relation to the TSX.

    • retirebyforty January 9, 2012, 8:48 am

      Everyone has a different comfort level. I don’t know if I will ever share the specific net worth. That’s too much information. 🙂

  • Invest It Wisely January 8, 2012, 1:51 pm

    You totally kicked the S&P 500’s butt!

    I would want to be worth at least 5 million probably for “sit on my ass and never do anything again” retirement, but that’s a very long way in the future. For simply getting out of the rat race, it’s more about side income rather than net worth.

    • retirebyforty January 9, 2012, 8:53 am

      Thanks Kevin. $5 million is a lot of money and it will be a difficult journey. I’m focusing on the cash flow as well and I don’t think I’ll ever reach $5 million net worth.

  • 101 Centavos January 8, 2012, 2:12 pm

    Looks like you had a decent year. Second IIW’s comment, for me it’s more about covering living expenses with good cashflow, rather than total wealth.

    • retirebyforty January 9, 2012, 8:54 am

      You still need some level of net worth to generate the cash flow right? There are other alternative like writing a best selling book or other royalty producing products, but for regular people, dividend/interest is the easiest way to go.
      I’m focus on the cash flow as well.

  • Darwin's Money January 8, 2012, 2:32 pm

    Great thoughts on net worth and retirement. I don’t have a particular dollar figure in mind because I plan on having various fixed income streams in retirement but I’m so far off, it’s impossible to model them out. I will be “entitled” to Social Security, but who knows what I’ll actually get out of it in the future. Then, I plan on having more real estate income streams but I’m only on my first deal now so I don’t know how large the inflows will be decades from now. I also have a pension but without knowing when I retire it will be difficult to predict payout/monthly payments. I have some rough assumptions now but will have to continue to refine in the coming years.

    • retirebyforty January 9, 2012, 8:55 am

      It’s great that you have a pension as well as social security to fall back on. Good luck with your real estate and other income streams. Your side business is also doing very well right?

  • retirebyforty January 9, 2012, 9:04 am

    2x passive income is a very nice goal. That would give you a lot of leeway on travel and other fun things. Good luck!

  • Dr Dean January 10, 2012, 5:25 am

    Great post, lotsa great discussion. I like how everyone is focusing on covering expenses and are interested in additional passive income streams in addition to Social Security and their retirement plans. That is the only thing that has a chance of saving our lifestyle.

    • retirebyforty January 10, 2012, 9:40 am

      You are right. We really need that extra income streams now that pensions have mostly gone away. It’s no longer enough to save up a huge nest egg. Most people won’t be able to do that anyway.

  • Renee January 14, 2012, 5:00 pm

    I’m 28 and my husband is 26. We both work full time and have three kids. If I had 1 million dollars I would leave my current job right now. We only have a little more than $21k in reality so it’s safe to say I’m staying. haha. Even if I left employment I would still pursue the education track I am on for Nursing and spend time with the kids until they don’t think I’m cool anymore. Then I would work part time as a nurse on my own terms for benefits like health insurance and what have you. If we had the $1 million dollars, I believe my husband would also quit his job (yes we are nuts) and pursue his business.

    • retirebyforty January 14, 2012, 10:08 pm

      That’s my measuring stick to see if you like your job. If you have a million dollars would you still work? A million isn’t enough to retire on, but it will give you a cushion until you find something else. You’re still young, good luck! 😉
      I have two brother and it was great. It’s too bad families are getting smaller and smaller these days, but the cost of raising a child is so expensive…

  • Steve January 25, 2012, 5:33 pm

    My wife and I could probably retire on 1 million PLUS whatever it would take to cover health insurance costs in perpetuity, or age 65, or death, whichever comes first. Unfortunately that caveat is quite possibly another million – and hard or impossible to calculate. Maybe we should move to a country with free health care?

    • retirebyforty January 25, 2012, 10:00 pm

      That’s why I’ll vote for public healthcare any day. Hahaha. Canada is a good option, but it is cold up there. We can move to Thailand and get free basic healthcare (I’m from Thailand.) Health care is a big problem for early retirees.

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