Then and now
My net worth peaked in June 2008. Since then, I've held onto my investments (including one I should have offloaded) and stayed the course with pumping up my 401(k) and IRA, trying not to look at the sickening decline over time.
Exactly one year after the collapse of Lehman Brothers, I'm less than 1% away from my June 2008 net worth figure, not counting the value of my apartment. The number is essentially back where it was, but where I have it is altogether different. Since I paid off my mortgage, my biggest priority has been building up a substantial cash cushion. To that end, I've stocked up 22 months worth of living expenses and am planning to keep on keeping on until the end of the calendar year. On the equity front, I've continued maxing out my Roth 401(k) and IRA allocations, and the gradual recovery since March has given them a little extra buoyancy so far.
Being so close to my highest net worth figure feels really good in some ways, but all the aggressive saving in the world doesn't mask the fact that my portfolio is still down 18%. The figure 18% sounds better than the actual number, though: when I came up with the dollar figure that I'm still in the red, I felt pretty nauseated.
With a little more than nineteen years to retirement, I'm optimistic that the losses will eventually be erased. According to a cautionary story in the New York Times, however, the fact that substantial change in banking regulation and oversight is still lacking goes a long way towards convincing me that a large cash cushion is more important than ever.
One year after the fall of Lehman, how are you doing?
8 retorts:
I can't say my own circumstances have done anything but improve. Nothing to do with Lehman Bros though. In many parts of Canada, people have been hurting from the meltdown .... but either I am "lucky" or I insulated myself from the trouble with a great quasi-government job and a defined benefit pension.
My income has increased, and my expenses are down. That has allowed me to pay my mortgage down very aggressively. The real economic turmoil came from my (last) marriage breakdown. Starting over at 54 isn't easy, but it's do-able. I had no savings, investments or real estate left after we settled. Not because I did anything wrong, only because I was not willing to fight for my rights .... I just needed to get away.
My recurring message is this: make sure that you accumulate at least twice as much wealth as you need because you never know when you'll have to cut it in half or worse. Had I prepared well, I could have allowed lawyers to work it all out.
Lehman Bros is the least of your worries if you're in a bad marriage. 50 of marriages end in divorce. And in the end, they are all about money. Heard a comic last month talking about the divorce rate. He had a horrified look on his face when he said, "50% of all marriages ....... last forever!!"
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Well, towards the end of 2007 I came out of the stock market - yes I bought high and sold low which apparently is the cardinal sin. I lost several thousand pounds, but a small amount for peace of mind, had I stayed in I would have lost a lot more, in fact the market dropped a lot more than what I sold out for,and remains lower than what I sold out for, for me it was the right thing to do - I have nothing in the stock market now and I cant see that changing - its all in cash my net worth has grown and I havent lost one more single penny - It works for me.
Wow, 22 months of stocked up living expenses is surely a lot! It's nice to have that amount of savings, less worry for anyone since your expenses are secured already. :)
About 25% of my retirement savings went up in a puff of smoke in the "global financial crisis", and while the numbers are slowly starting to increase again it certainly made me glad I'm 42 rather than a decade or two older.
FZ ... I was intrigued by your statement that you have "a little more than nineteen years to retirement". I'd always assumed that one of the reasons you were accumulating wealth so vigorously was so you could bail out of the workplace sooner rather than later. (Oh, and my perception of "retirement" is not a sudden cessation of work, but a gradual reduction in paid work, with a corresponding increase in voluntary work and leisure. I've started this process already and have been working four days a week, and volunteering on the fifth, since my late thirties). Do you actually plan to keep working full-time till you are sixty? Sorry, this may be a topic for another blog entry … it would be interesting to hear others’ thoughts on this too. Best wishes!
In AUD terms we're a bit more than half way back to the peak level of net worth of $A527k which happened in August 2007 from the bottom of $A283k in February 2009. Now at $A414k roughly. Some of it is bounce back of investments and some of it is saving.
Savings work fine - I just realised that I am on track to have 10k Euro (14k USD) in cash savings for the first time in my life by year end! Ta-daa!
My exposure to the markets is via an Additional Voluntary Contribution pension plan (something akin to the original intent of the 401k) through my union. I will receive a defined benefit pension through my work, but save in this vehicle to prepare for what I anticipate will be higher care costs in older age due to my health conditions. (And no, because of those conditions, I cannot take out long-term care insurance.)
Anyway, so far I have paid 5k Euro into that plan, but it still has to reach a value that's equal to my contributions. But then, I have 22 years left to retirement, so here's to hope...
Gord - sounds like you are in an excellent situation. Marriage with assets is tricky. I certainly never figured it out.
Dorothy - too bad you're not as funny as the real Dorothy Parker. Thanks for playing, though.
Anon the first - If cash is the right way for you, I sure wouldn't impugn it. I'm glad you found your way to financial peace of mind.
Liz - Well, let's put it like this: I'm not taking out any payday loans.
Karin - You're right, my ideal plan is to get the hell out of Dodge well before sixty and have a great early retirement. As far as structuring my game plan goes, however, I tend to live by the fortune cookie advice Hope for the best, but prepare for the worst. If I stay till sixty with my current employer (and they don't change the rules), I get a very decent pension payout that starts the day I leave, plus I'm eligible for retiree health insurance. That's no small motivation to stay the course at the moment.
Moom - I'm glad you're on the way back. It takes time, though. I can be impatient.
goldsmith - Congratulation on having a nice nest egg. Well done! In the future, insurance is something I worry about as well. I am essentially uninsurable under private insurance plans, so I'm anticipating the need for a very healthy financial position in that regard.
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