I pretty much have a general feeling of malaise right now. Hiring freeze at one job, big group meeting about how “we don’t have to worry about layoffs… right now” at the other. And now it’s time to look at my incredibly shrinking net worth… I know I have it really good in general, but let’s just make this quick. 😉
Credit Card Debt
I do not carry consumer debt. In the past, I have been taking money from credit cards at 0% APR and immediately placing it into high-yield savings accounts or similar safe investments that earn 5% interest or more, and keeping the difference as profit. I even put together a series of step-by-step posts on how I make money off of credit cards this way. However, given the current lack of good no fee 0% APR credit card offers, I am just waiting to pay off my existing balances.
Retirement and Brokerage accounts
The media has pronounced last month as the “Worst January Ever” for the Dow (-8.8%) and the S&P (-8.6%). The value of our passively-managed portfolio shrank accordingly. Our 401(k) contributions for the month and new company match got swallowed up instantly by losses. Same old, same old.
Cash Savings and Emergency Funds
Our net cash balance (aka emergency fund) increased a bit, and remains more than 12 months of our total monthly expenses. Let’s hope we don’t need it.
I intend to contribute again to a non-deductible Traditional IRA for 2008. My reasons are basically the same as last year: Should I contribute to a non-deductible IRA? The limits for Roth conversions are removed in 2010, which is just around the corner.
Home Equity
I continue to estimate our home value using internet tools, starting with the average estimates provided by Zillow, Cyberhomes, Coldwell Banker, and Bank of America. After taking off 5% to be conservative and 6% for expected real estate agent commissions (11% total), I am left with $515,257.
I need to work out the last few kinks in my new long-term goals, in order to regain some focus. You can see our previous net worth updates here.
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Please update your net worth progress chart in the top right corner of the homepage. Thanks, long-time reader
I will submit that ANYONE that thinks they could sell their home right now would be in a world of hurt, especially at the price point you are in.
Under $420,000 could sell, above that amount, not good prospects.
I believe the temporary higher non conforming loan limit has expired.
I personally would value the home at 20% less.
Just my opinion.
Wow Jonathan, that was the most dreary monthly update I can remember seeing here. Things do suck, but let me remind you of your philosophy, stay consistent, keep your eyes on your long-term goals, and don’t let these short-term setbacks get you down.
You are in a great position right now. The markets have to come back someday, maybe 1 year, maybe 5 years, who knows, but you will be well positioned for the bounce back. If the markets don’t come back ever, then we all have much bigger problems to worry about.
I am 30 years old and in a similar situation to you. I bought my first house in June 2007 for $410k, and have seen it lose upwards of $100k in value since then. I sent in the paperwork for the state to re-assess my home value and they responded by saying my new tax base is $315k. On the bright side, that saved me quite a bit on taxes and I am not going anywhere for a while. 🙂
HEY,
When taking the value of your home…why don’t you look at comps in your area?
Also, you need to make it a goal to make a friend or find someone who is in real estate as a career. If you buddy up with them, go have drinks every once in awhile, when it does come one day to eventually sell your home I am sure they would sell for 1.5% seller’s commission…see it all the time as I am in the industry myself.
Glad to know I’m not the only one with lower net worth! Our net worth is actually lower now than it was in January 2008. Even though we have been saving a few thousand a month over that time period.
How’s this for a long term goal: Keep saving no matter how ugly the recession gets. Have a backup plan if you lose your job (for me its a second job that would allow me to go full time, albeit for a smaller paycheck). Ride this thing out and we will all be in a better place.
How is it that your credit cards decreased? I thought that with the monies collecting interest they could only increase. Unless maybe you had them in an interest accruing savings account that changed it’s rate since last month.
I have a question for all of you. Please feel free to answer.
Due to the recent market conditions and being a new investor (with no experience whatsoever) I would like to start learning about how the market behaves.
This being said, I would like to start with the most conservative of the securities (besides cash) in my opinion. I would like to start investing in (taxable) bond funds. Any suggestions or input that would be interesting to know.
Thanks,
Jansy
I have a question about the nondeductible IRA/2010 Roth rollover strategy. I’ve been doing that for the last few years as well, but I just assumed when the democrats talked about “letting the Bush tax cuts expire” that this Roth rollover trick would go away as well? Any insight on this? Was this provisions part of the “Bush tax cuts” as people braodly describe them? If so, I would guess (total speculation) that this loophole is in more jeopardy now than ever.
Klein, think about what he said about the balance transfers.
ALL credit cards require you to pay off a certain percentage of the balance each month. Most are set at about 3%, so his reduction of 3.5% makes absolute sense. Zero percent balance transfers have an interest rate of ZERO percent, hence no interest accumulating. He has stated that the cash is sitting there ready to pay it off before interest starts acruing.
But on the zero percent balance transfers, I just got a notice from Chase that they are changing the terms on my last zero percent transfer to ‘make it profitable’. What a bummer but I am only losing 3 months off when it would have changed anyways.
jonathan,
I forget now…is this a individual net worth of family net worth?
Assuming 5% on your mortgage, you’re paying almost $400 a month on that giant cash holding. Wasteful.
In term of house value, our house value has finally dropped to around the purchase price. I bought it 2.5 years ago. Here in the Pacific Northwest, the price drop is a little bit behind the rest of the country.
I’m wondering if I should sell my house now, rent for a while, and then get back to the market. Given all of the layoffs in my area, I think the housing market will continue to drop. I can probably buy a much bigger house if I sell now (which I probably will lose 10-20K on a 420K house.)
Curious to know what you think of such a strategy.
Now is a great time to get into solid dividend stocks for INVESTING, not daytrading or short selling. If you buy and hold a stock such as GE, you could see great gains, not to mention the dividend payout (hope that lasts).
There are several good buys out there and I’m purchasing stock now in my solo 401k. I am only 30, so I have about 30 years to ride out the ups and downs, but I’m content with any losses in the near future in hope for solid gains down the line.
so do you work 2 jobs ?
Are you buying any stocks? what about the TIPS is it better to buy VIPSX, but seems to have gone up over the last few months.
Keep up the good job
Jansy, you should do a lot of research before doing any investing at this time. Even the pros are telling us to sit on the sidelines to see what happens.
Do you have a year’s worth of money saved up? Why are you thinking about investing now? Trust me, you are not losing out on any money right now – preserve your cash.
I once got some good advice from a great investor: don’t buy on a downward trend. Sure, if you lose out on some money now you’ll definitely make it up later by buying on an uptrend. Why risk your money?
Why do you invest your money?
The last 3 years must have shown you that you lack the skills.
You would have been much better off putting your “investments/savings” in a CD the last three years. You’re both making ~150-200k per year. Saving 5-10k/month…….. and you’re only worth 213k…..
At this rate you don’t need to invest your money. Your goal is $1 million, you’ll reach that in 10 years, IF you just put it in a CD!!
You live in California, your house only dropped 0.4% in January? They are back to 2004 levels.
Buying a house isn’t an investment but a lifestyle choice.
You bought your house for 600k 1 year ago, suggesting that your house dropped 15% in a year. Most cities experienced ~30% drop in California in 2008. Clearly it’s just an estimation, do you really think you could sell your house for more than 500k today?
I agree with Quinton, you may have negative equity in your house.
I still can’t get over how you manage to put away $6000-$7000 EACH MONTH in cash savings. That is just bewildering to me.
if you’ve been following the thought process that went into buying the house you’d know Jonathan’s not planning on selling today or anytime soon
Thus his earlier hestitation to value his house at all and make it part of his net worth. If he lowered to you’re suggestion, his lowered net worth would be sensational to say the least.
Super is right about it being lifetyle not investment, especially at this point.
“I once got some good advice from a great investor: don’t buy on a downward trend. Sure, if you lose out on some money now you’ll definitely make it up later by buying on an uptrend. Why risk your money?”
A great investor, what were his/her returns like? I doubt they were good, now is the best time to invest. During good times for the market, Warren Buffett accumulates cash which he spends during recessions mostly. Most of his best investment were during a recession coke (1987), Wells Fargo (Savings and Loans early 90s), during the 1960s he considered retiring from investing because he couldn’t find any fairly priced stocks to buy in the bull market.
If you missed 10 best days (usually occur at end of a recession) in the S & P 500 between 1980-April-2008 keep in mind this is 10 days out of well over 5000 trading days:
http://www.icmarc.org/xp/rc/marketview/chart/2008/20080509CostofLosing.html
“There’s a better chance to make money now than ever before.” -Floyd Odlum, made millions investing during the Great Depression. He was one of the 10 richest men in America by the end of the Depression
“You Pay A Very High Price In The Stock Market For A Cheery Consensus” Article from 1979 by Warren Buffett
–http://www.forbes.com/2008/11/08/buffett-forbes-article-markets-cx_pm-1107stocks.html
Right now I am looking at 10-k/annual reports for banks, almost all banks are hitting multi year lows including one’s that are still posting record profits. I have been buying HCBK (Hudson City Savings Bank) every time I get $700 or more. Bought some today @ $11.61 (they have ~$9.80) in tangible equity per share (is a bit less due to shares held in trust for stock options not being included in that calculation). HCBK had record earnings of .$25 EPS vs $.16 EPS a year ago and last quarter was $.25 as well
FinancePhi, thanks for your response and advise. I have to admit I am a terrible saver. The reason why I would like to enter into this road and start investing in bond funds is that I need a safer investment vehicule to allocate any cash I decide to save. I know I can open a CD but I do not want, for now lose my liquidity.
My plans are to open a Roth IRA to shelter this cash “unreachable” to be me and invest it in bond funds and cash funds preferrably. I now if I keep it in a bank account the money will be lost in less than 2 weeks. I’m an expert in looking for excuses to spend money.
Thanks again, and Jhonnatan congratulations for this blog.
I live in an area in the southeast that hasn’t seen a drastic reduction in housing prices, however, even I have seen my value drop almost to the point where I would be lucky to sell for what I paid. Heck there was a $230,000 home listed at 199,000 in our neck of the woods. And that hurts my bottom line.
I don’t plan on going anywhere though so it shouldn’t hurt me in the long run. It just looks bad on your net worth statements
@Jansy: If you are looking for a safe place to put your cash but don’t want to be locked into a CD, then you want an internet savings account. I recommend dollarsavingsdirect.com. Like any bank it is FDIC insured, and the interest rate is competitive.
Bonds sound safe, but I’m not convinced that they are so safe right now. You have substantial interest rate risk depending on how long you intend to hold. Most of the “safest” bonds, i.e. treasuries, have been yielding near zero and bond values fall when interest rates rise. You can lose money investing in bonds, and you almost certainly will when the fear abates.
An internet savings account is a little less accessible than a regular bank account because you have to transfer to get the money. Frankly, a Roth IRA isn’t all that inaccessible either since you can always take out your principal. No matter what you do, you’re going to have to decide to have some mental discipline.
Jansy,
There are other routes to take for your goals, auto payroll deductions to an online savings account could work to help you save cash. Usually it takes a week to withdraw funds, so this limits your liquidity to blow your savings without much thought.
FinancePhil,
I don’t think you should view investing that way and wait around for the uptrend. If you do that you by the time you enter the market you’ll miss out on the potential gains, which history show as being large after a market recovers. In the longterm, large decrease and increases in the market will level themselves out and looking at a timeframe of 5-10 years you should average 8-10% returns. Stocks may go lower, but you can not time the bottom, os invest when you have the money and don’t sit on the sidelines.
Hi Everyone,
I am a new reader to this blog, and so far, I absolutely love it. I have just one question, that could possibly have been previously addressed, I just havent had a chance to read back that far.
I am wondering why cars are not included in the net worth calculation? Maybe you dont have one, but my guess is that you do, so I was just wondering the reasoning behind leaving them off.
Thanks so much!
@jansy – a better forum to ask that kind of question is bogleheads. Read the “asking portfolio questions” link on the left.
FinancePhil,
Be sure to come on here and let us all know when it’s safe to invest again. I’ll need to know when it is a true “uptrend” and not one of those one month long fake rallies only to go back down again. I’m not a sophisticated enough trader…err… investor…. to know these things…..
ouch. we had eerily similar net worths up until you bought your house. let’s just say i’m glad i didnt buy a house or stocks.
Hi mike, Pat, and NY Guy,
I’ll try to answer your questions and stir up some debate, but I certainly will not want to take the spotlight away from Jansy’s original question.
I am currently in the market, but I don’t think now is the time for novice investors to start investing. If you look at the bigger picture, home prices are down, the banks are insolvent, and America is bankrupt. I know you guys are paying attention to the unemployment data and corporate layoffs as well. What makes any of you think that stocks will go up in the near term? And what makes you think that a novice investor can make any money in this market? Some days the unemployment data comes out horrible and the markets rise, and other days they drop for seemingly no reason. It’s hopeless to encourage a new investor to trade successfully in this turbulent and nonsensical market.
I never mentioned I would try to time the market, and you can define uptrend however you wish. I will say however, that current market conditions are a down trend.
Please feel free to correct/teach me as I am a relatively new investor myself. I am only looking to make sure anyone who enters the market has the confidence and knowledge to back their choices. I don’t want to see anyone lose money. 🙂
P.S. It’s financePHI, not PHIL
Dude – take the house off – period. You’d be lucky to get mortgage balance after fees and losses. That’s a fact. $515K? Try $450K MAYBE.
Should have moved to Texas. California is and will be inflated a long time. Nobody is moving to CA even now. It’s a net exodus from that state.
Cash is king. Based on how much you and your wife work the market is out of your league. It’s a traders market the past year and requires constant attention to get in and out of positions fast taking profits and yes, losses when necessary while keeping a huge cash pile.
Amazing that some of you think you can value a house you have never seen and know nothing about. I don’t get it.
Jonathan – I thought you might be interested in this:
http://ripetrade.blogspot.com/2009/02/vix-hedge-allocation-for-s.html
It’s a better way to do a passive portfolio now that we have instruments available that track the VIX. VIX goes up greatly as the indexes go down greatly, so allocating some money to it helps drawdowns.
“I am 30 years old and in a similar situation to you. I bought my first house in June 2007 for $410k, and have seen it lose upwards of $100k in value since then. ”
I think you’re being highly optimistic about the value of your house. You bought it almost at the peak of the bubble in 2007 and it just sank $100k so far? That’s what I’m telling you folks, we’re a long way from the bottom as the consensus is still so optimistic about values. I sold my home in 2006, went all cash, and I’ve been buying gold coins since then. Hey, maybe Obama, Feinstein, Barney Frank, and Pelosi are really going to save the entire planet like most everyone thinks.
The stock market is rigged now. It’s nothing but pumping and dumping by big traders, helped by the media. I’m all cash since 2006 and buying lots of gold coins. The FED is having hard time to selling bonds and here comes $1 trillion bailout. California, the 8th economy in the world is bankrupt. Market rally during mass unemployment? Ha! The whole thing is about to implode.