Net Worth Update August 2011 (-0.92%) – Market Correction Edition

Welcome to the Million Dollar Journey August 2011 Net Worth Update – Market Correction Edition. For those of you new to Million Dollar Journey, a monthly net worth update is typically posted near the end of the month (or beginning of the next) to track the progress of my journey to one million in net worth, hopefully by the time I’m 35 years old (end of 2014).  If you would like to follow my journey, you can get my updates sent directly to your email or you can sign up for the Money Tips Newsletter.

Quite a bit has changed in the market in one month.  In July, there were talks of rising interest rates but in a matter of days, the rising interest rates has changed to talks of recession. Recession in combination with a U.S debt downgrade means bad news for the market which resulted in the first significant market correction of 2011.

The first real market correction of the year brought the first negative month over month net worth update since early 2009. To put it simply, my investment accounts took a pounding. What did I do during this mini market meltdown? Raised cash! I sold off a couple of small high risk positions to increase my RRSP cash position, transferred cash into the RRSP and moved more money into my leveraged investment account. I’ve done some investment shopping within the indexed RESP and dividend portfolio but nothing extreme.

What about the numbers? As per the routine, savings was relatively strong this month which helped buffer the rather large portfolio losses. You’ll notice a significant increase in the leveraged portfolio which is due to adding more cash to the account. As previously mentioned, I’ve invested a portion of the money, but there is still a large amount of cash remaining to be invested in case we get another leg down in the market.

How did your net worth look this past month?

On to the numbers:

Assets: $ 643,848.00 (+1.54%)

• Cash: $4,500 (+0.00%)
• Savings: $51,000 (+6.25%)
• Registered/Retirement Investment Accounts (RRSP): $115,000(-4.09%)
• Tax Free Savings Accounts (TFSA):  $30,000 (-6.25%)
• Defined Benefit Pension: $35,600 (+1.14%)
• Non-Registered Investment Accounts: $29,300 (+0.00%)
• Smith Manoeuvre Investment Account: $86,700 (+18.44%)
• Principal Residence: $291,748 (+0.00%) (purchase price adjusted for inflation annually)

Liabilities: $80,900 (+23.14%)

• Principal Residence Mortgage (readvanceable): $0 (0.00%) (Paid off in 2010!)
• Investment LOC balance: $80,900 (+23.14%)

Total Net Worth: ~$562,948 (-0.92%)

• Started 2011 with Net Worth: $505,800
• Year to Date Gain/Loss: +11.3%

Some quick notes and explanations to net worth questions I get often:

The Cash

The $4,500 cash are held in chequing accounts to meet the minimum balance so that we pay no fees (accounting for regular bill payments – ie. our credit card bill). Yes, we do hold no fee accounts also, but I find value in having an account with a full service bank as the relationship with a banker has proven useful.

Savings

Our savings accounts are held with PC Financial and ING Direct. We usually hold a fair bit of cash in case “something” comes up. The “something” can be anything that requires cash such as an investment opportunity that requires quick cash or maybe an emergency car/home repair.  We also need cash to cover any future tax liabilities.

Real Estate

Our real estate holdings consist of a primary residence and REITs plus a rental property. The value of the principal residence remains valued at the purchase price (+inflation) despite significant appreciation in the local real estate market.

Pension

The pension amount listed above is the value of both of our defined benefit pension plans.  I basically take the semi annual statement and add the contribution amounts (not including employer matching) on a monthly basis.  The commuted value of the pensions are not included in the statements as they are difficult to estimate.

Stock Broker Accounts

Another common question is which discount broker do I use?   We actually have accounts with multiple institutions.  I’m hoping to reduce the number of accounts that we hold in the near future.  Here is a review of some of the more popular online stock brokers.