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Sunday, 8 February 2009

Net Worth Update: January 2009

My net worth as at 31 January decreased by another -$45,270 (-6.85%) during the month to $614,565 (AUD). This month the decline was due to further significant losses in my geared equity investments (down by -$25,825), another drop in the valuations of our real estate investments (down -$$12,494 or -1.62%) and a decrease in the value of my retirement savings (SMSF down $7,440 or -3.04%). The balance of my half of the mortgage was fairly constant at -$367,377. Further interest rate cuts have meant that soon we won't need to make any further redraws to meet the monthly interest charges on the loan. While DW works part-time (uat least ntil DS2 starts school in a couple of years) we are unlikely to pay off any of the investment property loan principal.

If the stock market continues trading sideways during the rest of February, this month might see a slight improvement in net worth due to a small rebound in house price sales data for our suburb, and the payment of three months (Oct-Dec '08) worth of 'salary sacrifice' and SGL superannuation payments by our employer last week. It would be nice to finally see a month with a positive change in my net worth - so far there have only been two positive months (Apr and Aug) since the GFC took hold in Nov 2007. During this period my net worth has declined by a massive -$557,862 or -47.58%!

Things would have been a lot different if I'd reduced my level of margin loan gearing during 2007 (Plan B, with capital gains draw-implications), or actually followed through with keeping enough Index Put options in place to "insure" against a sever bear market (Plan A). Looking back it's hard to believe that I didn't make enough effort to buy new Put options in Dec '08 when my previous ones (bought around Mar '07) expired (a quick online search didn't find a suitable option on offer at the Index level I wanted for Sep 08 - I should have called my Comsec options broker to get some help). At the time it didn't seem urgent as the market was still testing new highs, and the sub-prime crisis in the US in June didn't seem to have had any impact on the "real economy", especially globally. I let the fact that the expired options had cost me around $8,000 and that most market pundits were predicting a flat market in 2008 (or single digit returns) after three years of 20%+ gains, lull my into a false sense of security. The slight dip in the second half of 2007 appeared to have been the limit of the impact of the US sub-prime fiasco, whereas in reality it was just the first ripple warning of the coming financial Tsunami.

Lesson from all this: if you make a financial plan (I my case to sell Index put options rather than sell physical stocks to reduce my gearing) you have to FOLLOW THROUGH with it!

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