Monday, April 04, 2005

The Man Who Plans to Retire at 37 (RET37) Reports Q1 2005 Results

RET37 today reported that earnings for the quarter ended March 31 has decreased 25% at $7k from $9.3k compared to the previous quarter ended December 31, resulting from decreasing income from stock and mutual fund portfolio.

Expenses decreased 4.7% from $4305 to $4299 on lower car costs, and new provision (100$ a month) for luxury items (mainly, a provision for travels).

Assets increased $6k to $181k from $175k in the previous quarter. Liabilities were nearly unchanged. Liabilities include $26k put aside in provision accounts, comprising $21k for contingencies, $1,500 future tax provision, $300 for travel, $500 for car repairs and $2k for home repairs, up from $25k in the previous quarter.

Total wealth (net assets) at the end of the quarter amounted to $112k.

Flat investment returns in the quarter
Yields on stock and mutual funds were much lower compared to the previous quarter, particularly at the end of March. A single stock, which makes about 20% of the stock portfolio, decreased nearly 25% during the quarter. This was partly offset by a stake in a oil and gas stock (15% of the portfolio), which increased 12%. Bond investments were flat as incomes were offset by a comparable value decrease.

RRSP portfolio returns were a non-annualized -2.1% on a nest egg of $39k during the quarter, but the yield is a non-annualized 4% in the trailing six months. Other investments include $20k cash in an INGDirect account yielding an annual 2.4%. Unregistered stock and mutual funds portfolios amount to $52k.

The stock market correction was expected, as you can see in the previous quarter report. The largest part of stock shares are invested in Canadian stocks (about 60%), American stocks make about 25% and international shares, 15%. About 33% of shares are actually ETFs.

Forward looking statement
I expect the stock market to be mixed in the next quarter. Canadian stocks could benefit from higher energy costs, since the TSX is highly exposed to oil-related stocks. Interest rates are not expected to move a lot in the next quarter, as inflation is kept under 2%. On the other hand, American stocks might decline, as higher inflation could result in interest rates increase by the Federal Reserve.

Statement on Retirement Target
Retirement is scheduled for not later than October 1st, 2012. Since the retirement plan was decided eight months ago, results are on track to raise about $175k registered and $169k unregistered and $40k equity in real estate for a total of $384k at 2012’s dollar. Expenses in 2012 would be inflation-adjusted $20k annually.

According to calculations using historical data (using FireCalc) and the number of years before target, I estimate that the probability of retiring by the target date has decreased to 72% in this quarter from 73% in the previous one. The main reason for this decrease is negative returns on investment.


Blogger John said...

Im curious as to how you setup Quicken for the liability accounts for future expenses such as new car or furniture?

This is something I dlike to start doing.... saving money AHEAD of future expenses.

Also curious why they are setup as liabilities

6:20 AM  
Blogger Jack said...

I don't know for Quicken, I don't use it, sorry...

These are setup as liabilities to balance the equivalent cash in your bank account.

For instance, if you have 2000$ in cash that you'd like to save for future expenses such as buying a new car, and also want your balance sheet to reflect this, you have two alternatives:

Withdrawing 2000$ from your bank account and putting it aside (another account that is not used is not included in Quicken, for instance, or a pig bank) or keeping it in your "assets" and add a liability of 2000$ in your balance sheet. Both alternative will result in the same net assets.

Many enterprises use this principle: for instance, banks put provision for loan losses or organisations are liable for future taxes. Since you know you'll have to pay for something, then this is a liability.

Be careful however, all future expenses are not liabilities. For instance, if you expect to pay down 2000$ on your mortgage, this payment will decrease your mortgage, thus your sheet is already balanced. Buying a car is a little bit more complicated. If you put aside $20,000 to buy a car, the day following your purchase, your car will be worth about $15,000. Thus, your real forward liability is $5000.

You can view your car as a fixed monthly expense (like that would occur if you rented it instead of buying it) or as an asset which depreciates each year. The latter is a bit complicated if you also have a loan on the car.

To simplify things, here are I manage my car asset/liability:

- I already own a car
- I keep my car for > 5 years, likely seven years
- My car is 5 years and half old, thus paid-out
- my budget includes a slot for "car depreciation", 200$ amonth. The 200$ stay in my bank account.
- I put aside the 200$ a month in my liabilities
- In one year and half, I will have nearly $5,000 in this slot, my car will be worth say $2,000.
- Then, I will buy a new car, sell mine for $2,000 and put a cash-down of $7,000 on it. The car I will buy will cost say $17,000, thus I will have a five-years loan of $10,000
- The loan will cost $200 a month
- and so on, forever.

Thus, my budget for the car acquisition is always $200 a month and my balance sheet does not overestimate my assets during the two years I am saving for the next car.

Hope it helps.

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