I was going through my computer the other day and found a spreadsheet I created almost exactly two years ago. The spreadsheet contained the amount I held in various accounts at the time. It was interesting to look back at how much I had and compare it to what I go today.
To give it a little bit of context, I'm going to compare it to the overall stock market. It would be helpful if I could also throw in what has happened in housing since housing represents the vast majority of people's net worth in this country. But housing is very hard to make a comparison to get a raw number from in terms of what it has done over the last two years. It has for certain dropped, but still not as easy as just looking at a stock graph. Using the S&P 500 as a benchmark I would say that it could be expected that most people would probably have less wealth than they would have two years ago. The S&P 500 is down about 39% since June of 2007. This even with the recent rally in the market.
Compared to this, I've done quite well. I am up about 18% over that period of time. Now before you think I'm some sort of stock guru, it is important to understand how I came by this number.
Net worth is the total cumulative value of all ones assets minus any liabilities. My assets include more than just my stock portfolio. It also includes the cash I have in the bank. My net worth can, and does, grow in ways other than stock market gains. For the most part, since income from this site is quite small, my net worth grows because I have a job and it pays me. This is why I've been able to do as well as I have.
In looking at my net worth, my stock accounts have done as poorly as the market, worse in some cases. My Roth, which has had no contributions from myself in the last two years, is down 40%. My other retirement account, my 401k, is down about 4%. But keep in mind, I've contributed a lot of money into it over the past two years, so this stat is very misleading. If I took out my own contributions over the last two years I still handily beat the market down only 20%. Most of that was because I have had the foresight to be in cash for a long time. More on that in a second.
But even given this, I've done quite well. How is this possible. Same way I got the money in the first place. I'm a very, very good saver. Keep in mind, my savings two years ago was quite substantial. Despite the ugly markets, I've been able to grow a rather large nest egg even larger by good old fashioned saving. The cash I have on hand is quite large now. This is partially why I have done so well why the market is bad. I have been mostly in cash for the last several years. It was one of those things that did not look so smart up until 2007. In fact, it looked downright stupid as the market rallied. But I stuck to my belief that the market was way overpriced. I just could not understand how housing could have the run it had without a correction very very soon. Lucky for me, it came .
So overall, I'm doing quite well over the past two years. I actually used the chart to map out how soon I could retire given a few assumptions. I'm a little bit off my target numbers for my current age but I'm in really great position given what the market has give us over the last two years. However, I'm not so optimistic I can reach my original goals since much of what I calculated assumed average market returns over the next twenty years. Honestly, I don't think that is going to happen. I really think we are going to be in a very long economic downturn which will squash any sustained market rally. Kind of gloomy huh?