Sunday, December 31, 2006

Initial Assessment for December and 2006

It will take quite a while it seems till I have final figures for December and 2006. One reason is that my supplemental 403b plan isn't showing up on TIAA-CREF's website - I e-mailed them to query this. I guess I should at least get a paper statement for the end of the quarter some time but that will take a long time. As of today I am at a net worth of around $365k which represents a gain of $95k in net worth - 95% of my goal for the year. Total after tax earning including salary, investment gains, retirement contributions totalled around $121k with around $26k of spending. Of that income. $69k came from non-investment sources and net income tax paid and $52k from investments. Changes in exchange rates contributed about $12k of the latter. Net realized short-term capital gains on stocks (not counting mutual fund distributions) were around $8k. Trading the NDX added just $2300 for the year with December adding $60. But at least the losing streak of the last few months has ended. The rate of return on investment (pre-tax) was about 18% and 23% on non-retirement accounts as my retirement accounts have been quite conservatively invested.

As numbers are finalized over the next few weeks I will present a lot of reports on the different factors and how they contributed to the results for the year. The main thing though is I am now at a stage where investment earnings are covering living expenses though there is no guarantee that that will continue. In 2005 my investment return was only 3.4%. On the other hand I continue to learn and improve (as objectively measured by indicators such as my portfolio alpha). Over the last three years my alpha is 10% p.a. relative to the MSCI and 14% relative to the S&P 500. Beta is 0.6-0.7. That means in an average 10% year for the indices I should return between 18-22%. If the indices fall 10% I should return on average more than 12% in theory... But I can have a bad year too unrelated to index performance. Is this enough yet to consider myself "financially free"? Obviously I need to manage my money actively and a bad year could have very significant impact. So I consider myself on the verge of being able to make a living as a trader/investor but still need to accumulate more assets and show a more consistent and better trading performance.

December alone added about $10k to net worth with a 2% investment return and about $2000 of spending. If I could keep that up I would easily meet next year's goals :)

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