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Thursday, 28 May 2015

Me vs. BRW "Rich List" 2015

Years ago I picked the cut-off net worth for getting onto BRW magazine's "Rich-200" list (the wealthiest 200 individuals in Australia) as a suitable "benchmark" for evaluating how well my net worth was tracking. As the cut-off more than 100 times my net worth, I divide the annual report's threshold by 100 and compare it to my current net worth as shown below (the graph is on a log-linear scale, as compounding tends to make wealth grow exponentially).

The chart clearly shows how I have been generally tracking quite well against this benchmark, with the exception of 2008 when the GFC caused me to have to liquidate a large part of my geared share portfolio at the bottom of the market. Over the past four years I have been slowly making up ground against the benchmark, probably due to my portfolio being overweight in Sydney real estate and the stock market, whereas many of those on the "rich-200" list have a large part of their wealth tied up in resource companies.

This benchmark is quite challenging due to a couple of reasons:
1. Being limited to the wealthiest 200 Australians, the population growth means that this is slowly becoming a more exclusive cohort
2. As under-performers get dropped from the list, the cut-off is biased towards those with the best investment performance

On the other hand, starting from a relatively low level of net worth means that initially my income was a large percentage of my net worth, and that savings were making a large contribution to my increasing net worth. This effect is slowly diminishing as my net worth grows to a larger multiple of my salary package (currently around 13.7x) and hence the ROI of my existing investments starts to outweigh the increase due to my savings. Of course, once I retire and start to draw down on my savings, rather than adding to them, it will be almost impossible for my net worth to keep pace with this bench mark...

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