Investment Blogs

January 22, 2010

Seven Years of Earning and Spending

Filed under: saving — Tags: , , , — Madame X @ 2:15 pm
In the comments on my December 2009 net worth post, someone asked about the change in my net worth since 2003 and whether I'd gotten a higher paying job or had changed any of my spending habits to enable my net worth to grow as it did. It prompted me to tackle a project I'd been thinking about for a while: a long-term analysis of my income vs. expenses.

2003 is the first year for which I have full data in Quicken so I looked at that seven year window, and the results were quite interesting! First, let's just look at after-tax income vs. expenses (click on image for larger view):

I thought it would be easiest to take taxes totally out of the picture, so my income is net after all those deductions, and the taxes paid are also taken out of my expenses. (I also backed out my tax refunds from the previous year's taxes paid.) Income includes salary, bonus, gifts received and interest earned on bank accounts. It does not include dividends and investment gains as those are reinvested into my investment accounts.
As the graph shows, my income has been gradually increasing, and my expenses have been much more flat, and tending to increase in proportion to my income-- just what I wanted to see!

So what made up my expenses? First of all, let me explain the category definitions here, as I've grouped things slightly differently than in previous expense breakdowns.
  • Household: mostly laundry and drycleaning but also includes some minor decorative stuff like curtains (not new furniture, as noted below)
  • Education and Information: this is a new one, which I thought made a good catch-all for newspapers, magazines, books, music, French lessons, internet access and other miscellaneous entertainment. (I actually meant to name the category "Entertainment and Information")
  • Travel and Vacation includes commuting, family visits and trips for fun.
  • Food & Liquor includes restaurant meals, take-out, and groceries for home cooking
  • Miscellaneous includes haircuts and other random "stuff" like art supplies and electronic gadgetry, etc.
  • Housing includes mortgage payments (to interest and principal), condo charges, property taxes, homeowner's insurance, and gas and electric bills
  • The rest are pretty self-explanatory.
In the chart below, I'm including taxes again just to get the full picture, though again the refunds have been backed out of the previous year's taxes paid. The next largest expense is housing.

I then did another chart of the expenses without housing or taxes, so you could get a larger view of all the types of expenses that are more variable and controllable. Here, I tried to order the different expense categories so that the bottom of each bar is the stuff that stayed really steady from year to year, with the things that changed the most on the top. It's amazing how consistent some things are!


A few things to note:
  • My pay is part salary, part bonus. I got an unusually large bonus in 2004 that slightly skews the always-up trend of my income.
  • I started this blog in 2005 and my expenses went down noticeably that year: did the self-scrutiny make me more frugal? Probably!
  • I moved at the end of 2006 so I've had higher housing costs since then. For the purposes of this exercise, I did not include some large one-time expenses relating to my condo purchase and moving (like closing costs, moving & storage charges, and new furniture, all totaling almost $30,000 over 2 years) but I did include minor stuff like hardware store items and lots of cleaning supplies under "Household"
  • I bought a new laptop in 2008, which is why miscellaneous expenses spiked.
  • My "Gifts Given" expenses were high in some years because I bought my mother plane tickets at a point when she was separated from my father and having a hard time making ends meet.
  • I took a big vacation in 2008, and another significant trip in 2004. My travel budget was also affected by the end of an international long-distance relationship in 2007.
  • In 2008 I started spending more and more time with a new, local sweetie. We tend to alternate paying for things kind of haphazardly, which has blurred the line between grocery and restaurant expenses and some household stuff, even though we don't live together.
  • My medical expenses have increased gradually over the 7 years, mainly due to higher health insurance costs for what's not covered by my employer.
But here's the best part: the bottom line. That differential between income and expenses is all savings that went into my 401k and other savings and investments accounts (and this time I DID include all the the one-time condo purchase expenses, including about $75,000 that went into home equity, so I still "have" some of that money in a different way).
It's great to be able to say that I saved more in 2009 than I ever have before:

2003 $27,558
2004 $34,664
2005 $5,210
2006 $-13,429
2007 $29,699
2008 $35,559
2009 $43,214


I'm sure I'll keep staring at all this data and digging into individual years and categories to see more detail-- it is weirdly fascinating! The whole thing was fun to pull together and I highly recommend that you try it for yourself!


January 15, 2010

December 2009 Net Worth

Filed under: investing, saving — Tags: , , , — Madame X @ 4:23 pm
I am finally getting around to posting my year-end net worth. Drumroll please...

$408,490

Yes, I finally crossed the $400k mark! That is a good feeling... though it is slightly diminshed when I remember that in January 2008 I was hoping to hit $410k by the end of that year!

During 2009, my net worth increased by 37%-- a pretty nice recovery from last year's dismal performance. The NetWorthIQ graph says it all:


December 2009: $408,490, up 37% from '08, up 13% from '07
December 2008: $298,700, down 17% from '07
December 2007: $360,008

If you just extrapolate the trend I was on until 2007, I'm still not quite back on track, but the economy isn't the only factor affecting that, as I've had higher housing costs since then. And who knows, if I hadn't bought my condo, I probably would have been even more exposed to the crash in the stock market-- I think my home value has actually held up better than some of my investments.

Here's the breakdown for year-end 2009:
Cash & Bank Accts $56,442
Retirement $241,708
Stocks $20,898
Bonds $5,091
Home Equity $86,318


Credit Card -$1,967

My cash and bank accounts are almost $18,000 higher than they were a year ago, so it's not just investment performance that has bounced back-- I've saved cash, too. One thing that's actually lower than in December '08 is my home equity, as I took that down by $10,000 a few months ago due to sales data on comparable apartments in my area. My credit card balance is slightly less than it was a year ago, which I guess means I spent less on holiday gifts!

I'll post my 2009 expenses and income soon... and after I get my head around that, I will have to tackle setting some goals for the rest of 2009. Stay tuned!


January 11, 2010

Economic Indicators

Filed under: Uncategorized — Tags: — Madame X @ 5:09 pm
So, what's the mood out there? Do you find yourself noticing little things that might be signs of the recession?
Here's one I've been thinking about over the last week or so: crowds at the gym.
I remember last year at this time, when it seemed like people were really panicking about the economy. So many companies in New York had been laying people off and things looked pretty dire. For me, my gym membership seems like one of the easiest expenses that could be cut if I had to economize, so I wondered if I'd notice a decline in the attendance at my gym.
As it turned out, I didn't. Last January, my gym always seemed to be packed. January is always a busy time in gyms, when people make New Year's resolutions and are still sticking to them. And the bad economy even increased that effect: when people lose their jobs, they have more time to go to the gym, and perhaps more desire to feel successful in weight loss and fitness goals, since their career goals are undergoing a setback. Also, many people probably pre-pay for a year's membership since it's cheaper than going month to month. The gym allows you to suspend your membership, but most people probably figured that the money was already spent, so they might as well just keep going.

So what about this year? When I returned to the gym on January 4th, I was dreading the crowds-- I'm always rushing to get a spot in the pool without having to wait, so having to compete with even more people beyond the usual regulars was not appealing. But the pool was no more crowded than usual, and the locker room seemed quieter than usual. And it's been that way every day since-- I keep waiting for the crowds of people to be jostling each other for lockers, waiting in line for showers, searching for empty treadmills... but it's just been pretty quiet and relatively empty.
Is it because people have found new jobs and don't have time to work out? Or is it because more and more people have let their memberships expire as they remain unemployed longer and longer? Somehow, I suspect it's the latter. New York just doesn't feel like it's bouncing back from the recession anytime soon... How about you? What sorts of economic signs do you see in your everyday life?


January 5, 2010

Bail-out Bankers’ Compensation

Filed under: Uncategorized — Tags: , , , — Madame X @ 2:44 pm
This is a fascinating-- and infuriating-- article from last Sunday's New York Times Magazine:
What's a Bailed-Out Banker Really Worth?

Here's a few outtakes from this story, which details how Kenneth Feinberg went about negotiating (rather than czar-ishly dictating) compensation packages for top executives at companies bailed out under the TARP program:

Citigroup and Bank of America, for example, concluded that everyone in their executive suites [deserved multi-million dollar compensation packages because they were] above average when compared with peers at other giant banks that didn’t need a bailout. Or there was A.I.G.’s behind-closed-doors argument against Feinberg’s directive to pay its top people in large part with A.I.G. stock. The company’s reasoning? That the stock — trading briskly at the time at around $40 on the New York Stock Exchange — was actually worthless.
How does anyone actually say that with a straight face? "I want my $10 million bonus in cash from the US government, because the stock of the company I'm running has no value!"

Here's another gem:
That Dodd led the attacks on A.I.G. when what came to be called the retention bonuses were revealed infuriates [an unnamed friend of the author's, who works at A.I.G.]. He says that his boss asked everyone at A.I.G. Financial Products “to contribute the maximum to Dodd, because he was so important in Washington in terms of regulating the products we sell.” My friend went on to say: “Before he attacked us, Dodd was in our office” — in Wilton, Conn. — “giving a speech telling us how great we were. And our checks were in envelopes stacked up right there.”

Federal Election Commission filings show 31 maximum $2,100 contributions to Dodd during the last quarter of 2006 from employees of A.I.G. Financial Products. My friend’s former boss, A.I.G. Financial Products’ head, Joseph Cassano, who is listed as giving $2,100, did not return calls to his home, nor did his lawyer return calls seeking comment.

Asked about the event, and about checks stacked on a table, Dodd said: “Yes, it happened. I remember having a fund-raiser there. . . . I can’t finance my own campaigns. I have to raise money,” he added. “But what does this guy think? That if they give me money I have to do what they want me to do? That tells you something about them.”

Of course this sense of entitlement isn't just an issue at TARP companies-- almost all big corporations now operate in this rather closed world where all their top executives sit on each other's boards and reinforce the idea that they "deserve" more and more money:

“The boards of these companies just don’t have an arm’s-length relationship with these executives,” says Lucian Bebchuk, a Harvard Law School expert on executive compensation who advised Feinberg. Board members are frequently executives or board members at other big corporations, Bebchuk explains, and therefore are likely to be steeped in the same entitlement culture. Indeed, they are lavishly paid, too; in 2008, A.I.G. board members earned an average of about $300,000 for their work in 2007, the year when apparently unsupervised trading in toxic financial products destroyed the company.

“No director wants to be the skunk at the garden party,” says Sonnenfeld, the Yale Management School associate dean. “And the headhunters, whose compensation, by the way, is based on how much executives make, won’t pick them for boards if they’re going to be dissenters.”

Which leaves us with this stat:
Over the last 50 years, the ratio of top pay to average pay at public companies has multiplied roughly 11 times (24:1 to 275:1). That’s more pay in one workday for the chief executive than his average employee makes in a year.
Are top executives really working that much harder these days? Are they really delivering that much more value to shareholders? I don't think so, and I just don't understand why more people aren't furious about it. Everyone who holds shares in public companies, in the form of stock or through mutual funds in your 401k, is affected by this-- this is millions and millions of dollars that could be paid out in dividends to shareholders, or invested in more workers and new technology to help the company and the economy grow. Instead, it's going into the pockets of a tiny, well-connected group of people who think they can use that money to buy politicians and elections, not to mention an awful lot of personal luxury (not all of which is necessarily stimulating the economy within our borders).

I have no problem with people getting rich. There will always be a small number of people at the top of the pyramid, and many of them will have done something extraordinary to get there, something that will have provided value to millions of other people, in the form of money or convenience or entertainment, etc. But something is seriously screwed up when executives who have destroyed value, destroyed livelihoods and nearly destroyed an economy still think they deserve to earn more every single year than 90% of Americans will ever earn in a lifetime-- even when their big paycheck is coming straight out of taxpayers' pockets.

The article ends on a slightly optimistic note, hoping, as I do, that there's a way to use the ideas of people like Kenneth Feinberg and Warren Buffett and others to more fairly structure compensation on a broader scale, to appropriately reward good performance and encourage innovation while curbing the kind of risk-taking that leaves taxpayers holding the bag when things go wrong. But a lot of attitudes are going to have to change for that to happen.


In With the Old, Out with the New

Filed under: Uncategorized — Tags: , , , — Madame X @ 3:54 am
Now is the time of year when everyone seems focused on renewal, improvement, and new stuff. And I have a couple of new things myself, but in two particular examples, they made me think about the value of keeping old things.

First, the butter dish. A couple of months ago, I bought a new butter dish for about $9 at Beth, Bath and Beyond. I had tossed it in a corner and kind of forgotten about it, which was probably the first sign that I didn't really need a new butter dish. I had thought about replacing my old plastic butter dish because it was starting to look a little scuffed up and old... because it IS old: I bought it in 1992 or 1993, when I was moving into my first apartment, and I've kept it with me through a few moves since then. When I moved in with a partner, it came with me, and when that relationship ended, it came with me. Now that's butter dish loyalty, isn't it!
Now I'm thinking I actually might keep using it, even though I've discovered the new butter dish-- I actually use two dishes, and my old one is used for margarine. The real butter is in a glass dish I bought about two years ago, which I've actually hated since the minute I started using it because the lid doesn't fit right. I never would have thrown out my nice old butter/margarine dish for that one, and now I'm starting to think that it's still more worthy of being kept. It probably cost me about $2.99 when I bought it, and it pleases me that something so cheap has done its job for so long.

The other thing is my alarm clock. I was noticing recently that my snooze button didn't seem to be working very well any more-- I am not a morning person, so my snooze button gets used a LOT! And my clock, I'm pretty sure, goes back even further than my butter dish: I'm pretty sure it's the same one I brought to college with me as a freshman, and probably used for a few years even before that. (I won't enumerate all the various ex-lovers who were also awakened by it!)

This time, I didn't have to buy a new clock. One of my father's many quirks was that he was always trying to find the perfect digital clock, and in the last few years before he died, he seems to have purchased about 20 of them. He had them stashed in different places around the house, and their various beeps and bleeps were freaking my mother out, so she gathered them all up and was going to get rid of them until I happened to mention that I could use a new one. In an admirable burst of frugality, my mother put 3 clocks each in my and Sweetie's Christmas stockings, and told us to keep whichever ones we wanted. (This isn't to say that Mom didn't go overboard on other Christmas spending, but that's a story for another day.)

These two examples may be a long and convoluted way of saying so, but it's just nice sometimes to enjoy the things you have and appreciate the value you've gotten from them, instead of only admiring things that are new and shiny. So many people just think "oh, I've had that for a few years, it's time for a new one," whether or not the item actually needs to be replaced. If you start adding up those $9 butter dishes and $20 digital clocks and who knows what else, it can turn into significant money after a while. So in this new year, why not resolve to appreciate the old, and keep it around for a bit longer?


January 1, 2010

Saving Saves the Day

Filed under: investing, saving — Madame X @ 10:03 pm
Happy New Year everyone! I thought this article from the NY Times was well worth sharing: For Savers, It Was Hardly a Lost Decade. As everyone looks back at the '00s, there will be lots of talk about how the stock market came full circle and at least in terms of overall averages, isn't worth any more than it was 10 years ago-- but as Ron Lieber points out, that doesn't have to mean that investing is a lost cause.

If you invested $100,000 on Jan. 1, 2000, in the Vanguard index fund that tracks the Standard & Poor’s 500, you would have ended up with $89,072 by mid-December of 2009. Adjust that for inflation by putting it in January 2000 dollars and you’re left with $69,114.

But that is not how most real people invest. They don’t pour everything they have into just one type of asset and then add nothing to it for 10 years. Instead, they buy stocks of all sorts, and bonds and perhaps other things, too. And many millions of them dutifully add more money regularly, usually into a retirement account that they won’t touch for longer than a decade.

For those people, it was not a lost decade at all. Even those who started with a low six-figure balance could have doubled their money in the last 10 years.

I don't have accurate data going back 10 years, but I'm sure my net worth was less than $50,000 at the beginning of the 2000s. Today, it's somewhere around $400,000. It's certainly not because I'm an investing genius, and it's not because I saved $350,000 in cash. It's because I spread my investments among different kinds of assets, and made sure to save at least some percentage of my income every month with automatic deductions. If you keep your portfolio balanced and regularly add to it with monthly savings, you can weather pretty much any economic storm.


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