Friday, 2 May 2008

Net Worth Report for April 2008

I am now reporting my net worth at the 1st of each month instead of, say, the 15th, which is what I used to do. As a result, the increase for this month may seem smaller. This is all artificial.

Cash: $717
Stocks: $22,967
Retirement: $3,130
Cars: $5,825
Kiva: $107

Net Worth: $32,746

This is looking good because my goal for this month was $31,560, and I am beating that comfortably!

My aim is to have a net worth of $40,000 by the end of this year. In 2009, I plan to get a second job and then increase my savings rate from $500 per fortnight to $2,300 per fortnight.

The recent good performance mainly comes from what looks like a rebound in the global stock market. I should say that in the bad moments I lost up to $2,000 in the stock market. Last year in November the All Ords, which measures the performance of the Australian stock market, was at highs of 6600. It dropped to about 5200 at the beginning of this year and now it seems to be rebounding to 5700.

The performance of my stocks depends mostly on the Australian stock market but it is also affected by other stock markets around the world. Nevertheless, the world's stock markets seem to move roughly in tandem in the short-term.

When I say I lost $2,000 in the stock market, that can be misleading. What I mean is that the value of my stocks went down by $2,000. However, I never sold any stocks or mutual fund units and over time it went back up again, so I have recovered some of those losses. Did I really lose the money then? Some people argue that I did because I could have sold stocks or units before the downturn and then purchased them when prices bottomed. This assumes that I have the psychic abilities to actually pick when prices will peak and bottom. If I had these psychic abilities, why not play the lottery and win million of dollars instantly. If we use the argument that I could have picked the right times to get out and into the stock market, why can't this ability be used to say that all of us are losing millions every second because we could have chosen the right numbers for the lottery?

This little thought experiment shows that it's best to not be fussed when the mutual fund statement report says your investment performance for the last financial year is negative. There is nothing wrong with this.

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