your salary to portfolio ratio

[alertmeipp]

some discussion on other thread makes me wonder... what's everyone's income to portfolio size ratio and cash weighting?

I am thinking the first is effecting the latter.

 

I am not good with computer, how to set up a poll like that?

[Myth465]

Very good and important question, should be combined with the cash poll.

 

I have 3 in my portfolio, and 2 in my salary. So 1.5 would be my rating. Holding 100% cash inmo doesnt make much sense for me. If it were 10 to 1 I would hold more cash.

[watsa_is_a_randian_hero]

I think a more relevant figure that I keep track of is the ratio of portfolio size to annual personal spending (rather than to income).

 

net worth (portfolio) / pre-tax income = about 1.45x pre-tax income

net worth (portfolio) / expense = about 4.2x spending

net cash (net of margin & credit card debts) / net worth (portfolio) = about -0.5%

cash (gross of margin & credit card debts) / net worth (portfolio) = about 5.0%

 

 

While the cash balance is probably very low relative to others here, I keep significant margin borrowing capacity available, and have very little expense (single, no kids), and am well insured in terms of health/disability.

[vinod1]

A more appropriate measure would be "portfolio value" to "annual expenses". Shows how many times your expenses are covered. Expenses are much more stable compared to salary although they are very closely related. This might not be for everyone, but it is how I tend to think of wealth.

 

Vinod

[watsa_is_a_randian_hero]

A more appropriate measure would be "portfolio value" to "annual expenses". Shows how many times your expenses are covered. Expenses are much more stable compared to salary although they are very closely related. This might not be for everyone, but it is how I tend to think of wealth.

 

Vinod

 

I agreed (above).  Not only are expenses more stable, but taxes for people are different depending on their deductions and source of income, and therefore pretax vs aftertax income can differ for many.

[Guest Bronco]

Before marriage and kids - 5 to 1  portfolio to salary ratio.

 

After marriage and kids - no net worth.

 

American dream though.

 

Have a good weekend.

[alertmeipp]

thanks everyone.

Nice point about after-tax income and expense.

 

my after-tax ratio: ~7x (and dropping fast along with SD :))

my expense is super low (cheap guy) so I would post the ratio.

[Sea Island]

Also: debt to portfolio size matters as well, especially in a deflationary environment, no?

[alertmeipp]

>>Also: debt to portfolio size matters as well, especially in a deflationary environment, no?

 

I don't have debt so it does apply to me. But if u have debt load to service.. i bet it's important.

[Sea Island]

Well, if you ever wanted some debt, now would be a terrific time

[ragnarisapirate]

I suppose, the real question is this (for all the people who don't have their own fund): at what ratio of portfolio to salary do you stop punching a time card for someone else?

[alertmeipp]

I am thinking 40x.. then I only need 2.5% to get my salary.

I am not sure if i will ever get there!

[Mikenhe]

Before marriage and kids - 5 to 1  portfolio to salary ratio.

 

After marriage and kids - no net worth.

 

American dream though.

 

Have a good weekend.

 

 

;D

 

I know that feeling...Portfolio value to gross salary would be a false measurement for me

 

With a wife, 3 kids, a large mortgage a few debts etc etc… its not easy to increase the portfolio value apart from the growth of the portfolio itself.

 

The portfolio would not be sufficient to live on with my current expenses.

 

However I do make sure that with the 401K and another saving plan that I’m adding about 20% of my gross salary to my portfolio each year. If I can up that to 30% next year then I’d be very happy.

 

 

By the time the immediate expenses of children (and that includes a house , 2 cars etc etc) has diminished then I fully expect that the portfolio will be able to sustain the expenses of a 2 person household – and one that expects to travel a fair bit as well.

 

What is that as a multiplier of my gross salary? I have no idea but I think if I keep growing the portfolio then I stand a good chance of it working.

 

My biggest concern is medical coverage costs for what ever reason. maybe A healthcare provider could start doing discounts for shareholders – I’d look into that!!!

 

 

[turar]

When counting cash weighting, does anyone not include emergency cash? I guess what I'm trying to say is, I try to have a chunk of cash that I don't even count as part of my portfolio, as if it's not there and not ever available. Or do you just plan on selling assets at any price if a need for cash suddenly comes along?

[Myth465]

When counting cash weighting, does anyone not include emergency cash? I guess what I'm trying to say is, I try to have a chunk of cash that I don't even count as part of my portfolio, as if it's not there and not ever available. Or do you just plan on selling assets at any price if a need for cash suddenly comes along?

 

I dont have enough assets for this, but have a natural hedge. No Kids, Parents live down the street, and low costs life style (very little in assets, or capex). Its prudent though if you have kids or real worries.

[hyten1]

networth is good and call.

 

but i rather have positive cash flow that equal and exceed my current expenses. for me networth is secondary to cash flow.

[turar]

I dont have enough assets for this, but have a natural hedge. No Kids, Parents live down the street, and low costs life style (very little in assets, or capex). Its prudent though if you have kids or real worries.

Winter/spring of 2009 taught me that a drastic stock market decline can go hand-in-hand with a job loss. I'd hate to have to be forced to sell my holdings at the most inopportune moment.

[oec2000]

I suppose, the real question is this (for all the people who don't have their own fund): at what ratio of portfolio to salary do you stop punching a time card for someone else?

 

I've been retired for awhile and have several friends who retired early too so can speak to our experience.

 

I think 25x portfolio/annual estimated retirement expense (incl taxes) is comfortable. 40x is super conservative. You can get by with significantly less than 25x (if you have decent investing skills - ability to do abt 12% CAGR without taking undue risk - you might get away with 12-15x expenses).

 

Two other points to bear in mind:

 

1) Don't simply assume that your expenses in retirement are going to be the same or less than they are now. You have to take into consideration whether you will spend more time and money travelling; you should allow for healthcare expenses later on too.

 

2) Your performance the first few years after retirement are critical. You don't want to get hit with a 50% drop in your first year of retirement (like 2009). So, if you are looking at numbers after an extended bull market, you might want to build yourself a margin of safety.

[alertmeipp]

just wonder, why u said early retirement.. how early?

[alertmeipp]

I meant to say "what you said"..

[twacowfca]

Before marriage and kids - 5 to 1  portfolio to salary ratio.

 

After marriage and kids - no net worth.

 

American dream though.

 

Have a good weekend.

 

Your treasure is where your heart is.  Check out the final scenes in the Richie Rich movie.  :)

[oec2000]

networth is good and call.

 

but i rather have positive cash flow that equal and exceed my current expenses. for me networth is secondary to cash flow.

 

Sounds reasonable but don't you think it is necessary to have a margin of safety, e.g. cashflow/expenses should be at least 1.5x or 2x? The problem with using CF is that it matters a lot what its quality is. CF that comes from high-yielding stocks (that has low or even negative growth longterm) is not the same as CF from blue chips like JNJ. That's why I favour the net worth/expenses ratio. Just my preference - not saying that my method is better.

 

just wonder, why u said early retirement.. how early?

 

I'm assuming this question is for me.

 

40-45 years. Most of us have been retired for ~10 years so have experienced adverse markets in retirement. Our circumstances for retiring were very different - some were planned; others were forced (by layoffs) but our philosphy towards investing, money and spending are very similar. We are all risk averse value investors, see money as a purely a means to an end (rather than an end itself), and practical and prudent in our spending (i.e. we are prepared to adjust our lifestyle to circumstances: bad year = spend less; good year = pamper yourself a bit).