Thursday 2 August 2007

Net Worth Update July 2007

My net worth as at 31 July dropped by $23,420 during the month to $1,126,770 (AUD), due to a perfect storm of asset classes all declining simultaneously (so much for non-correlated asset classes). My leveraged stock portfolios decreased by a net -1.39% last month due to the overall weakness in the stock market. Whilst the estimated valuations for my share of our home and investment property also decreased slightly by -0.85%. The valuation of my retirement account decreased quite significanlty during July (-3.23%) as there were declines in both domestic and international stock funds, listed property funds and bond funds.

Given today's large drop in the Australian stock market I don't expect this month to turn out to be a net positive either...

Copyright Enough Wealth 2007


Anonymous said...

Do you have any suggestions to protect one's self from this type of market decline? Especlly when it seems to affect "non-correlated asset classes". said...

I have some partial protection via the Index Put Options I'd bought. This at least offsets some of the loss due to declines in the AU stock market. (Such protection is not cost-effective over long periods, but I put it in place at the beginning of this year as the market had been in an unusually strong bull run for several years, so seemed more likely to fall than normal).

Although it's unpleasant when non-correlated asset classes drop at the same time, I just put it down to coincidence. Over the longer term investing in a diversified portfolio on the efficient frontier should work out OK.

The most important thing is to not panic and sell-out of a well-thought out investment mix when there's a severe "correction". As long as you aren't at risk of being forced out of your investments (eg. by gearing too aggressively) you should just sit tight. At times like this I amuse and divert myself by focusing on the small amount of money I have in a forex trading account and concentrate on making or losing a few hundred dollars day trading currency. Meanwhile market swings add or remove tens of thousands from my net worth. After a few years of daily tracking you get used to the occasional extreme ups and downs that come along ;)