October 2008 Score Card — Part I: Net Worth
Because of the vacation in September and October, I haven’t posted an update of our net worth for two months. I ran a quick check before I left for vacation in September and the numbers were not looking good, but still acceptable. However, after I left the country at the end of September, things on the Wall Street turned from bad to worse (it was good that I didn’t have to watch the process). At the end, all three major indices finished the month with the worst records ever in the history. When that happened, I know it’s not going to be an easy month and I know it will be bad. I just didn’t realize how ugly it is until I put all the numbers together.
Comparing to the market value of our investments minus all the liabilities on September 19th when I did my last minute check before going for vacation, our net worth on October 31st shrank by $99,037.51 to a grand total of $465,936.74! That’s a loss of 17.53%. If I compare the number to what we had at the end of August, a total of $111,4313.26 has disappeared on paper 
Basically, we lost more than 20% in two months.
Here’s a quick look at each element that I am tracking every month:
- Credit card balance(-): I guess the only benefit of being away for more than a month is that we charged less on our credit cards, but not by much. At the end of last month, our credit card balance dropped $1,446.56 (8.23%) to a total of $16,125.09.
- Cash(+++): Since we didn’t spend a lot when we were away, more of our money went to our savings accounts. For the month, we saw a $13,256.26 (19.14%) increase in our cash. On October 31st, we had $82,498.67 in our bank accounts. I just opened a Dollar Savings Direct account a couple of days ago, so I will be moving most of our money from FNBO Direct and Capital One to Dollar Savings Direct to earn 4.00% return. Now that return is good
- Taxable accounts(—–): Here come the hardest part, the part that I was so proud of in the past. Now our investments are dragging our net worth down and down. The stocks and mutual funds we own dropped sharply last month, resulting a $67,694.02 decline (26.98%) in market value in October to a total of $183,243.36. Maybe it’s time to rethink my risky investments.
- Retirement accounts(—-): Even our investments in low-cost, diversified index funds couldn’t escape from being ruined last month. Our 401(k) and IRA accounts suffered a blow of $43,056.21 (18.67%) last month to $187,604.37. For a long time our taxable accounts held our largest asset, now it’s the retirement accounts
- 529 plans(—): I am very disappointed by the $2,791.16 (17.61%) loss in our daughters’ 529 plans because we only use index funds in college savings accounts. That’s by far the largest single month drop, which shows there’s no where to hide in this market. At the end of October, the market value of the 529 plans was at $13,055.97.
- Bonds(+): Our investments in I-bonds increased by $100 (0.72%) to $14,114.00. Even with the latest increase in the fixed rate part of I-bond interest rates starting November, I don’t plan to increase our investments in I-bonds. I will be more comfortable to put our money at FDIC-insured banks.
YTD, our net worth shows a loss of $142,185.62 (23%) , which came almost entirely from the last two months. Comparing to the same period in 2007, which was the peak time of both the stock market and our next worth, the total decline is at $193,567.40 or 29.35% (
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Why do you carry a balance on your credit cards? Unless you’re taking advantage of some 0% APR offers, even at 9.99% it’s hard to get that rate of return on your investments in this market and any cash on the sidelines is getting less than half of that. So why not pay off the credit cards with your cash, carry 0 balance, and save that % that the banks/credit card companies are making off you?
Wow- October was bad, wasn’t it? I lost a bunch of money in stocks. Only being 23 years old, I invest in extremely aggressive stocks (hardly any bonds) and have really taken at hit this past month. Sad thing is, I learned how to invest at the very TOP of the market!
Great blog; I enjoy your work. Keep it up.
PS. And the graphs are great!
Cynical: Yes, a large part of my credit card balance comes from a 0% APR balance transfer which will end next February. For all other balances on the cards, I pay them off in full every month.
Trevor: Hopefully November won’t be as bad as October
That said, I am not really worried about my investment at this time and I am not making any radical changes. I am a long way from retirement so I am going to take this as an opportunity to investment and hope for a better return years later.
You reference to I-bonds vs FDIC-insured bank made it sound that I-bonds are any less safe. While there are other reasons to chose CDs vs I-bonds, but safety is not one of these reasons. Treasury bills and government bonds are actually safer than CDs: they have full tax power of the US government behind them (as well as printing power…). As a broker in class once explained if the government is broke and has only a limited amount of money left it’s going to pay its treasury bills and treasury bonds first, FDIC insured CDs second.
Also, I am curious why you income average into I bonds rather than chose the 6-month period when the fixed portion appears attractive and just put the allowed amount. If you are not sure, you can make two or three deposits in a year. It’s not like 5K a year is such a big deal, anyway. Certainly sometimes it is difficult to predict where the rate is going – although you can watch inflation – but at least it was totally obvious that it wouldn’t go below 0%. So why put any money at all in I bonds when the fixed portion was 0%, especially since there was no chance it would go down in fall and some chance it would go up? The way I do it is buy when the fixed portion is attractive and not buy when it is not. I bought all of my I-bonds for the year last April. Not only was the fixed portion back then looked good, there was also no reason to think it would go much higher. At the time the allowed amount was 10K (5K through treasury direct and 5K through bank). A week after I had bought they reduced the max amount you can invest during the year to 5K total. I would never buy an I bond when the fixed portion is at 0% — the only way this would beat a CD is if you have high inflation and low interest rates which is not likely to happen too often. I haven’t decided yet if I’ll buy any early next year — I’ll certainly wait till close to the end of the period and see what the inflation is doing, what the rate on TIPs is, etc.
BTW – I also lost a small fortune in stock values. But at least I had 40% of money in stable value, bonds and CDs last year.
I just added a couple of municipal bonds to the mix. Because of credit crunch some of the yields were hard to resist. I got 10K worth AA and AAA bonds with yield-to-maturity of 5.3%. This is tax free, both federal and state, so to me it’s almost the same as 8% taxable. No, this is not insured, so there is some risk, but the risk is small. Also, if I don’t hold to maturity – which is a long way away – the value may change. I have a CD that matures in a week; I plan to keep some money on a CD and use some to buy more municipal bonds. I am also looking at some corporate bonds, but am still not sure as it is a bit riskier.