Thursday, 12 April 2007

Reviewing Net Worth Progress

Apart from a monthly update using NetWorthIQ, I also update a spreadsheet with my net worth data each data. I get daily values for my stock portfolios, margin loans, and retirement fund. The real estate valuations and mortgage loans are only updated monthly. This suits me as it only takes a few minutes each morning and its fun to see the daily gyrations in the various values. I find that I've gotten used to daily ups and downs, so that even fairly large "crashes" don't worry me as I treat it as just part of the "noise" in my investment returns.

My retirement fund is pretty well on track to provide for a comfortable retirement, so what do I compare the total NW to? I've chosen a couple of indicators that are shown on the chart below.

Firstly, I've used a logarithmic scale for the chart, so that projected ROI of 7%, 10% and 13% are straight lines. These values are my personal view of what would be "poor", "likely" and "good" returns over the long term for my ideal asset mix - assuming an inflation rate averaging 2.5%. The grey scale at A$1m is adjusted for the actual CPI data from 2002 to 2007, and projected forward at an assumed rate of 2.5%.

Secondly, I've plotted available data from the annual HILDA reports to show what the top 10% NW is for a single-person of my age at that year (actually HILDA only reports household data, so I've taken half the household value as an approximation for the single-person NW).

Thirdly, I've plotted available data from the annual HILDA reports to show what the top 25% NW is for a household with head of household of my age at that year.

Finally, I've plotted 1/100th of the annual BRW "Rich 200" list cut-off value. I scaled it to 1% so the figure is in the region of my NW. I think that the annual cut-off figure of the "rich list" is a good indicator of what returns the best investors are actually each year - with some upward bias as those whose do badly drop out of the "Rich 200" list, and more successful investors are added to the list.

Overall I'm quite happy with how my NW has been tracking in terms of both absolute return (averaging more than the expected ROI of 10%pa) and in comparison to the "rich list". In fact I've slowly been creeping up on the "rich list" data points - at this rate I might make it on to the list if I live another 200 years or so!

It's rather depressing to see how the NW of even the "top" 10% and 25% of Australian households has been progressing - it seems to be keeping pace with my "poor" average ROI of around 7%. This is probably due to "choice" of asset mix these households are making -most likely just a stake in their own home, a mortgage, and their compulsory superannuation being invested in the default "balanced" option. It would be interesting if the HILDA studies included details of asset allocations.

It will be interesting to track my continued progress against these "KPIs" in future years - since 2002 we've had the real estate boom go bust in Sydney, while the stock market has had a phenomenal bull run for the past 3-4 years.

Enough Wealth


mOOm said...

There's a combination of returns and saving from earned income in all these numbers.

But wow, even I don't collect daily data! said...

The ROI calculations deduct a "nominal" $30K per annum I "save" - via actual savings plan additions, DRP, principal component of home loan payments etc. So the NW obviously includes both returns and savings (as do the HILDA and rich list figures) but the ROI estimates allow for the effect of savings. I don't have the exact savings figure as it's "too hard" ;)