Net Worth – Aug 2009

Well welcome to the recovered edition of my net worth updates.  See the numbers below.


House $322,000
RRSP $21,800
LIRA $9,800
TFSA $6,600
Pension $9,900
Wife’s RRSP $11,000
Wife’s Investment Account $7,400
Wife’s TFSA $5,600
My Investment Account $5,800
High Interest Savings Account $3,900

Mortgage $130,400

Therefore my net worth now stands at $273,400 for the end of Aug 2009. That is an increase of $21,700 or 8.6% from my last update.  Of that my investment net worth was $81,800 which was an increase of $10,300 or 14%.

On a year to date basis net worth is up 24.4%, while investment net worth is up 66.6%.  It  is interesting to note that now my net worth is within $1600 of my all time high of April 2008.  So I would call this a recovery, at least for me.

I did increase my house value this month.  The house across the street just sold giving me a very good reference number to what my house is worth.  Also we continued the mortgage pay down campaign so that keeps dropping at a good pace.

On the investment front we continue to bulk up my wife’s investment account with some contributions, but in general the market’s recovery has more driven this net worth increase more than anything else.  Essentially I’m seeing a the payback of buying those investments around the bottom of the market earlier this year.

Also I realized my graphs were getting cut off during the transfer from the original spreadsheet so I adjusted the amount of data being displayed so they should show properly now.

(Click for a larger image)


Why Do I Want Stupid Gadgets?

I think they spike electronics so when you get near them you breath in some addictive chemical which keeps you looking at things for way longer than you should.  Or something else, because I seem to be abnormally attracted to some gadgets.  My current obsessive thoughts are about getting an ebook reader.

I know that in all practical terms I don’t need one.  Actually I would have limited use for one since most of my books come from the library.  So that would leave me reading a highly limited number of books  which I would have to pay for while paying like $300 to $400 for the thing.  Not really a good investment, since the technology is likely to improve over the next few years and the price will drop.

Yet despite all of that I still find myself wanting one.  Hence the title of the post: why do I want stupid gadgets?  It’s like a drug or hard wired problem in my brain.  I think perhaps I’m obsessed with the idea of carrying a few hundred books in a light weight object.  It is irrational but I know the source of the obsession is those lovely ‘news articles’ that tell you about new product releases like somehow it is ok to have an ad posing as an article when the product is brand new.

So how am I dealing with this new obsession? Actually fairly simple.  I’m putting the thing on my Christmas wish list and ignoring it for the next few months.  I’ve done with many times over the years and it seems to work out well.  It costs too much for most people to bother buying it so I won’t likely get it, but I might get some gift cards I can use on it.  In the mean time I can save up for it and buy it myself after Christmas if I’m still obsessing.

So what irrational things do you obsess over? How do you manage your obsession?

The Average Return Fallacy

It’s likely the most common error in every retirement plan in existence: the average return fallacy.  You just assume a straight line rate of return of 5% for your entire life.  Of course things don’t work that way in real life, often you get 5%, 2%, 9%, -10%, etc,  so the numbers never match your plan.  Yet since we can’t model future markets we are stuck with this problem. Now that provides two distinct challenges: one is saving for retirement and the other is while in retirement.

The first challenge of saving for retirement is more manageable in terms of impact.  If your assume 5% for a straight line return and you end up being a little short at your desired date you can obviously just keep working for an extra year or two to make up the difference.  Or the other way is you might find yourself at your goal a year early.  Essentially you let the dollars determine when your done rather than your desired date.  It means letting go of your perceived control of the situation, but otherwise it’s a manageable issue.

While in retirement, the situation is much more serious.  Your portfolio could never recover from a string of bad years in a bear market since you have no new cash coming in to make up the loses from the down years. Also hiding in bonds won’t cut it since you could see your spending power cut down too far by inflation over the long term.  So what can you do?  Well here are a few ideas on managing the risk.

  1. Save Some Extra.  Padding your numbers for a bit is not a bad idea to help reduce the risk.  One example is a three year spending cushion of cash beyond your basic capital requirement in a separate fund for the express purpose of being able to limit withdraws during a down market.   Some other people just add 10% to their spending to cover off some risk.  It’s really up to you how to pad your numbers.
  2. Do Some Work.  Even if you don’t need the money for a very long retirement you might consider keeping some part time or contract work.  This has two fold reasons, you will increase your CPP payout when you qualify and second it offsets some cash withdrawals from your portfolio during your early years giving it a better chance to survive a down market later on.
  3. Be Willing to Sell Other Assets.  If you have a vacation property you can sell or be willing to downsize your home it might be able to top up your portfolio if it gets too much of a drain early on from your withdrawals.  This has the risk of the local real estate market might fall on you so don’t depend on this one too much.
  4. Reduce Your Spending.  Having a little fat in the budget is a good thing to allow you to cut back later on, but keep in mind depending on how bad the damage is to your portfolio you may be cutting back your spending permanently.
  5. Buy Some Insurance.  An annuity might seem a bit odd of an idea, but it does transfer the risk to the insurance company from you.  As part of an overall plan this might make sense to buy a few smaller ones to stabilize a portion of your income.

In my own case I’m considering using all of the above to some degree.

  • I’m considering moving my three year case reserve from inside the portfolio in the current plan to outside of it.  Yes I might have to work an extra year or two, but so be it.
  • I’ve also planned on doing some work post retirement, so that also provides some backup.  I’ve never planned how much, I intend to play that by ear.
  • I’m planning on downsizing my house at some point to reduce my bills (mainly property tax and heating) and because I won’t need the space once the kids are gone.
  • I’m willing to give up my vacation fund if need be.
  • I haven’t ruled out a smaller annuity to help manage my overall risk during my retirement years.  It’s not my first choice, but I’m willing to consider it.

So that’s my take on the problem.  It is a problem, but one you can cover off to a degree with a few backup plans.  Obviously I won’t know if I will have done enough until after I die with some money in the bank and then it’s not my problem.  So yes you need to manage the risk, but don’t let the gloom and doom talk keep you working longer than you need.  Some balance is required.