Monday 3 November 2008

Net Worth Update: October 2008

I thought last month was pretty dismal - this month proved that I didn't really know what a bad month was. There's an old saying that the equity markets go up by the stairs and down via the elevator, but last month it felt as if the elevator cable had broken and I was hurtling to my doom. At the moment the emergency brakes appear to have been applied, but I'm holding my breath waiting to see if the plunge resumes.

My net worth as at 31 October decreased by another -$141,895 (-15.68%) during the month to $763,094 (AUD), due to the huge losses in my geared equity investments (down by $93,422 (60.72%!) to only $60,429 despite a slight rebound in the last few days of the month) and a drop in the valuations of our real estate investments and retirement account. The estimated valuation of my share of our real estate assets decreased by -$12,263 (-1.47%). The balance of my half of the mortgage increased by -$939 to -$367,778 as we continue to redraw some of our advance payments to cover the interest payments while DW is working part-time (until DS2 starts school in a couple of years). The recent large cuts in the official interest rate by the RBA has now flowed on to a reduction in existing variable home loan interest rates, but the monthly repayment amounts won't decrease until December. There is widespread speculation that the RBA may cut rates by another 0.25%-1.00% at their next monthly meeting, but the scope for further interest rate cuts to offset the effects of the global recession are limited by continued inflation concerns. We have around half of our property loans at a fixed rate for the next 3-4 years, so we avoided the full impact of increased home loan rates. But a cut in the interest rate on the variable component of our home loans will make life easier.

I had to sell off most of my US stock portfolio and deposit the cash into my Australian margin lending accounts to avoid margin calls, but my margin utilisation remains over 90%. Continued market declines would force me to sell off some stocks and park the proceeds in a cash management account. The timing of the sale of my US stocks could not have been worse - I managed to sell "at market" on the morning of "Black Friday" which cost me around $15,000 compared to selling a day earlier or later. Such is life.

The balance of my retirement account also decreased substantially this month, by -$35,271 (-12.31%) to $251,236, as it's now invested about 98% in the Vanguard Lifestages "High Growth" fund which is allocated mostly to domestic and international equitites. There was no employer contribution into our SMSF account this month, although two month's worth of contributions were processed on 3 November, which will boost next month's balance. Hopefully by the time I retire the "blip" in stock market in 2008 will look similar to the "blip" that occurred in 1987, and not the one that happened in 1929...

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traineeinvestor said...

That sounds painful. It's been quite surprising how quickly many of the gains of the last few years have been wiped out (although not as quickly as the 1987 sharemarket crash).

Anonymous said...

Sounds painful. I have suffered quite a drop in my stock portfolio too.
You persevere on too!
May we hopefully see brighter days ahead.