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September 2009: Net Worth Update and Stock Market Investing

Published 9/30/09 (Modified 3/8/11)
By MoneyBlueBook

Update: Finally Feeling Bullish and Hopeful For The Future Once Again

Despite the fact that historically, the month of September has traditionally been a down month for stock market investors - after months of sitting on the sidelines and hoarding online savings account cash, I've finally pulled the trigger and re-entered the market en masse. Rather than take the often advised path of investing in small bite size chunks through dollar cost averaging, I decided to plow all of my investment cash into long term equity positions simultaneously. I don't plan to pull out of my newly invested positions anytime soon and am very determined to stay the course for the very long haul - in excess of 5 years or longer. Despite the recent run up in the market, stock market prices are still at historical once-in-a-lifetime lows - and I have every intention to double or triple my investments in the next 5 years. The irrational fear and gloom of pending economic depression that gripped the whole world back in spring 2009 has mercifully passed and it now appears the beaten down economy is finally back on the track towards recovery.

Of course, this is not to say that we are anywhere close to experiencing a traditional bull market anytime soon that's punctuated by rising employment numbers and increased consumer spending, but at the very least, the specter of a crippled financial system kamikaz-ing into an irreversible death spiral has disappeared - and replaced by faint glimmers of hope. Who knows if President Barack Obama's second economic stimulus package truly worked or whether any of the resuscitative measures implemented by Congress such as the increased FDIC insurance limits, the Cash For Clunkers Bill, the $8,000 Federal Housing Tax Credit for first time home buyers, or even the appointment of new Treasury Secretary Timothy Geithner really did much to jolt the economy back to life in a sustained way. But at the very least, these measures have at least reassured formerly scared to death and shell shocked investors like myself that the federal government is finally ready, willing, and able to do whatever it takes to get this economic ship steaming full speed once again. That seemingly firm commitment, as evidenced by the number of quick and decisive emergency measures the federal government has thus taken - is enough to assuage my once irrational fears, and encourage me to think about a more optimistic future once again.

While I do not know where we will all be economically 12 months from now, I'm starting to have more faith that things will be okay in the coming years. With the possibility of a disastrous economic Armageddon finally out of the way, I'm willing to finally start placing long term economic bets for the future, and allow the normal economic tensions of fear and greed to put the market back to normal equilibrium once again. True economic recovery may be months or even years away, but as savvy investors like Warren Buffett will agree - it's during the worst of times that enormous amounts of wealth are created by those willing to take on a measure of calculated risk. For the next few weeks and months, I intend to take advantage of every dip in the market to invest more. As I continue to make money blogging and generate income through my small legal practice, I intend to plow all upcoming profits into this market while prices are still attractive. Price dips from here on are all potential buying opportunities in my investment opinion.

Do you agree or disagree that the economic recession is nearing the end? Remember, the stock market is a forward looking entity, and has historically attempted to project what economic reality is to come an average of 6 months in advance. Optimism in terms of increased consumer spending and job growth numbers won't likely be experienced by ordinary American consumers until the second half of 2010. Personally, I think the very sign that mergers and acquisitions are finally creeping back into the marketplace again is an extremely and exceedingly bullish sign that overwhelmingly overrides any of the current negative lagging indicators like low employment rates or even struggling consumer sentiment statistics.

My Current Net Worth and Financial Status Update Compared To Last Month

Assets Balance $ Change % Change
Cash $74,765 -$18,118 -19.51 %
Stocks $440,506 $10,369 2.41 %
Bonds $0 $0 -
Retirement (401K, Roth, IRA) $14,924 $223 1.52 %
Car and Vehicle Value $0 $0 -
Real Estate and Home Value $9,000 $9,000 -
Other Real Estate (Deposit) $25,000 $25,000 -
Total Assets: $564,195 $26,474 4.92 %
Debt and Liabilities Balance $ Change % Change
Credit Cards $43 -$1,249 -96.67 %
Car Loans $0 $0 -
Home Mortgage $0 $0 -
Student Loans $26,585 -$101 -0.38 %
Total Debt $26,433 -$1,444 -5.18 %
Total Net Worth
$537,762 $27,918
5.48 %

Picking Out Final Options To My New Construction Single Family House

As I mentioned in previous networth updates, I'm in the process of finalizing the purchase of my very first home - a 2,300 square feet, 4 bedroom, 4.5 bath, single family new construction house. After weeks of persistent meetings with my real estate agent and the home builder, I've finally completed the process of choosing and pricing all of my optional upgrades. After much thought, I decided to ditch the cheaper carpet route and go with all hardwood floors - even in the bedrooms. Despite the fact that hardwood costs substantially more in the way of optional upgrades, I think the cleanliness and maintenance conveniences of hardwood floors greatly outweigh the dirt and dust accumulation headaches of carpet floors.

With all optional upgrades including finished basement costs, upgraded hardwood flooring, a hardwired security system, and stainless steel appliances tossed in, the total price of the home will be around $620,000. I'm sure some of you who live in the Midwest or the South will be shocked at how much a mere 2,300 sq ft (excluding finished basement) home costs, but remember, I live in the state of Maryland - deemed by CNN Money to be the current wealthiest state in the United States, with high state wide income rates and high home prices to match. Pricey real estate in the general Washington DC, Virgina, and Maryland region is just a way of life for us. The ever present availability of federal government jobs here and the presence of highly ranked schools in my state make this area pretty desirable for singles and families alike.

In terms of good news in the real estate networth department, I'm pleased to note that my future home has already gained in home equity value, even though the home foundation has yet to be laid. Most recently, due to surging demand for up scale single family homes in my future neighborhood, the home builder who will be constructing my future house has decided to increase the base selling price for my home model by $9,000. At least in my future neighborhood (a pretty upscale D.C. suburb area of Maryland), the home resellers and new home builders are feeling extremely bullish about future housing demand.

With fingers crossed, I hope this is a portent of greater things to come in terms of future home appreciation. As I noted many times in past blog posts, I'm forever thankful that I was not unwittingly snagged by the housing craze of the last few years. By purchasing a home in 2009 after national home prices have collapsed by more than a third or even a half in certain regions, I'm in a much better position than many to experience the upside of home value appreciation. My prediction is that home prices will steadily rise from here on - certainly not at the crazy and outrageous pace that we all flabbergastically witnessed following the 2000 dot com crash, but I think home prices overall will very slowly but steadily trend upwards from here on as trepidatious home buyers return. The demand for housing never really abated, but the drastic plunge in home prices in recent years did scare away many prospective buyers, and force wannabe home buyers like myself to hold off until now. Remember, when prices are falling, consumers frequently ask themselves, "why buy now when I can buy later for less" as I myself did until very recently. But when buyers finally realize that there is indeed light at the end of the tunnel and that overall home pricing declines have significantly decelerated and are on the verge of���� stabilizing, they will invariably return.

Paying Estimated Taxes For Self Employment, and Factoring In My New Home Deposit Into Real Estate Net Worth

This month, as I do every 3 months, I paid out a large chunk of my business profits in the way of quarterly assessed tax payments that likely deflated this month's improvement in financial networth. Because my monthly revenue from my blogging business, legal practice, and other small business ventures are fairly significant, I pay out a tremendous amount of money every three months in the way of mandatory federal and state income taxes. Obviously, I'm hoping President Obama will be keen on keeping universal federal tax brackets low as he ought to, but with his apparent crusade to crack down on high income earners and push through his health care social agenda, I'm bracing for the worst in terms of future tax rate increases.

In terms of real estate networth, because I also paid out a $25,000 new home construction lot deposit this month that will be payable towards my future mortgage down payment, I intend to treat this $25,000 figure as home equity for now (as reflected in the table above). Eventually when my mortgage loan application goes through and I get a more finalized home valuation number, I'll include the home value and mortgage numbers into my net worth calculations.

Back In the Stock Market Again As A Bull Market Investor After A Year Long Hiatus

After being away from the market due to excessive fear of the unknown, I'm finally back. This month, I plunged the vast bulk of my cash savings into aggressive stock market positions, primarily investing my money into popular exchange traded funds (ETF) with great future upside like the Financial Select Sector SPDR (XLF) and the iShares MSCI Emerging Markets Index (EEM) among others. Both are admittedly rather risky and considered to be more volatile positions, but like I mentioned earlier, I'm now in it for the long haul. Even if the market drops or dips 5-10% lower, I intend to hold on for the ride down and hold my breath for the swing back up again. I never feared normal stock market price fluctuations. It's always been the catastrophic 30-75% price drops that scared the bejesus out of me -���� the type of market plunges we witnessed from September 2008 of last year to March 2009. But with financial markets back on the mend and with irrational panic and economic hyperventilation among the masses finally in check, the risk of future major bank failures or collapses of major financial institutions to trigger another massive and prolonged sell off seem less likely now. Of course, anything can always happen from hereon, but the probability of such a return to the brink of disaster has drastically diminished.

Those on the sidelines may want to now consider opening up an online broker account for cheap stock trades and start investing again, or for the first time. If you haven't opened a Roth IRA brokerage account, now may be the best time to do so. I know it seems like a cliche thing to say, but prices really are quite low at the present time, particularly for long term investors willing to buy and hold for 12 months or longer.

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16 Responses to “September 2009: Net Worth Update and Stock Market Investing” 

  1. Anthony Reed says:

    Still want to stay in this market? Dow, Nasdaq, and S&P 500 are all tanking big time today. Lots of problematic noise coming from the Federal Reserve today about creating a system to allow these formerly too big to fail companies the ability to gently fail if need be. Scary stuff if you're an investor! Yes things look better but this will not be a V shaped recovery...I predict months if not years of sluggish growth if any

  2. Credit Card Chaser says:

    My personal opinion is that there will be some false signs of hope for a while but we still have not hit bottom. One advantage to you putting money into the market is that you have a nice hedge in a way with some of your other ventures where you are more in control of your own destiny as a self employed person. Best of luck with the new house!

  3. Four Pillars says:

    You should stick to passive investing and instead spend your time on making money with your blog which is where your strength is. If you are buying now, you missed the bottom by a country mile - what makes you think you know where the market is going from here?

    Good luck with the new house - I'm looking forward to new updates.

  4. Cali Investor says:

    Well sounds like your life is on the right track based on your impressive stats.

    As for stock market investing, while it may seem like we've all missed the 50% surge since march 09, I think if any investor is willing to hold for at least 5 years from this point on, he or she will do very well with the passage of time. There is no such thing as missing the bottom if you're investing for the long run. Sure stocks will tank here and there, but in the long run, the market will recover.

    Stay strong and stop checking stock prices all of the time! It'll drive you crazy. I should know...I plunged a lot of money into financial stocks a few weeks ago and today's plunge in the DOW and S&P 500 is freaking me out. The way I keep myself sane and solidly invested+avoid the temptation to irrationally pull out is to avoid looking at my brokerage account numbers to begin with. Once you're invested and have the belief that stocks will ultimately recover...stay the course. If you keep selling out everyone there is a slight panic in the markets, you'll ultimately wind up buying high and selling low...which is a big no-no.

    Good luck. You can doooo it!

  5. Reese says:

    Greats stats and progress..congrats to you. Really enjoy reading along every time you post.
    I hope the market goes up (for your sake), but I'm short the S&P. My opinion is that the doom and gloom is not over. It is slowly returning. The gov't has injected a lot of money into the private sector, but banks have turned around and dumped it into treasuries as well as trying to clear up their balance sheets. The gov't gave them money so those business could resume lending, not sit on the cash or invest. Think about it, the banks get a 0% loan from uncle sam, then get 1-2% or so on their safe investments. So the credit crunch is still there, and it's tightening. Small businesses are not getting the credit they need. Remember, small businesses make up 50% of the employment in this country and 38% of the GDP. But they are hurting, while the gov't saves the banks that are 'too big to fail'. This isn't a political comment, it's just matter of fact.
    So that being said, banks are lending, small businesses aren't hiring, unemployment is running wild, and the economy is contracting. We're in a deflationary period already. Most are worried about inflation, but that won't come for a few years at best. Right now, the private sector is shrinking at a faster rate than the gov't can prop it up. So the net effect is a contracting economy (deflation). Once we make it through deflation, assuming we're not in a lost decade like Japan, then inflation will hit, but that's too far down the road to speculate.
    I just think it's going to get a lot worse with housing, credit, unemployment and the dollar (gov't will want to devalue, but creditors will be pissed (China, Russia, Japan etc).
    I hope the market plays nice for you and in five years you've quadrupled your money. Shoot, I hope you make ten times the amount. Me, I just think it's going to get much worse before it gets better. It may not be like the Great Depression, but any simple minded person like myself can look at all the spending by the gov't, the lack of spending by consumers, the lack of credit available to business and consumers, and make the judgment call that this recession has certainly not bottomed out. Warren Buffet is saying it has, but he's always tried to be the voice of optimism. Just wish there were more out there that told the American people the way that it really is and will be. Kind of like Obama saying 8% tops for unemployment when the majority of economists were saying no way in hell it would stay that low.
    There's a lot of charts out there and data to absorb. Listen to it; it's the most beautiful music you'll ever hear.

  6. Financial Samurai says:

    Wow, $440,000 plunked into the stock market, and just this past September? You've got balls of steel :) I'm too worried about a correction, and am already worried for the $350,000 in exposure I already have through my company stock. Fingers crossed it doesn't collapse after rebounding 130% this year (from a very bad 2008).

    This is a great post with a lot of transparency. Thanks so much! I hope to see you over at Financial Samurai one day.

    Good luck with the house purchase! It's very exciting to live in your own castle!

    Best, FS

  7. Raymond says:

    Well, if I was a short term investor looking to profit from quick gains in a matter of weeks - than yes, I would certainly need "balls of steel" to endure the volatile swings of today's market. However, I'm investing for the future and looking to hold on no matter what for at least the next 5+ years. The economy will recover sometime soon - it's just a matter of time. Now is the time to start placing long term bets for the distant future.

  8. Financial Samurai says:

    Raymond - Sounds good. Although there were a lot of 'long term" investors last year who did capitulate. It's easier said than done. In the industry, the use of "long term investors" is generally used to take the long term view b/c the short term they've been wrong. It's not in your case, just saying.

    Good luck!

  9. Financial Samurai says:

    BTW, can you share your thoughts about your student loans as well, and why not pay them off? I'm in the similar predicament, as my loans are at only 2.6% vs. my blended cash yield of 4%.

    Is it irrational for me to not pay off my student loan, if I have save $600,000 cash in the bank at 4%? Or, do you think it is completely rational?

    thnx

  10. AM says:

    Still want to stay in this market? Dow, Nasdaq, and S&P 500 are all tanking big time today. Lots of problematic noise coming from the Federal Reserve today about creating a system to allow these formerly too big to fail companies the ability to gently fail if need be. Scary stuff if you're an investor! Yes things look better but this will not be a V shaped recovery...I predict months if not years of sluggish growth if any

  11. Bulldog Gin says:

    Raymond - Just wondering in your income calcluation. You write you make over $250,000/yr and are in the 25-29 year range. How did you do it? Thought you went to law school. Did you graduate pretty early? ARe you including your blog income?

    thnx

  12. Raymond says:

    In my financial net worth reports, I factor in all of my various income sources, including affiliate income through my blogging business, capital gains through market investments, income earnings through my small legal practice as a solo practitioner attorney, and additional profits through my other real world business ventures. I have never talked about these other business ventures before but will probably discuss them more in greater detail in the future.

    I work part time as an attorney and blog in my spare time. I also run a few other pet projects. I graduated in the usual 3 years from law school. As for my age, I need to update my networth IQ and profile age as I'm now finally in my very early 30's.

  13. Chris says:

    After reading the first paragraph, I thought you were joking. I guess not...

  14. MachineGhost says:

    No, I don't believe the worst is over. We're now starting a second wave of mortgage resets that dwarfs the first in terms of $. That means even more foreclosures and even more unemployment. In addition, the regional and community banks are now effectively bankrupt with commercial mortgages defaulting (unlike homeowners, commercial owners wait and wait and wait until all tenants are effectively gone before turning in the proverbial keys to the bank).

    Whether the market has discounted the above remains to be seen. The only problem with stocks at this point is they're not priced to deliver great long-term returns, only about 6%/year average. GAAP 2010 Q2 estimated 12-month P/E is a nose-bleeding 26.10. A retest of the March lows or a break would be the "once in a lifetime" buying opportunity.

  15. Raymond says:

    Hi MachineGhost,

    Well the way I invest, I invest for the future. Of course the worst is not over at this very point in time, but 6-12 months from now we will be in the clear. That's why I'm placing my bets now for the distant future. Forward looking is my approach.

    The reason why I held all of my funds in cash form back in early Spring 2009 was because I thought we were headed into a major economic depression that had the potential to last 5-10 years or longer...based on what people were screaming about back then. But now, I think we have cleared that hurdle. Recession yes from hereon, but catastrophic depression-no.

    Retesting the March lows will not happen in my opinion. That occurred during a period of major bank failures and amidst serious questions of whether the federal government would do whatever it took to bail out the economy. It's quite apparent that they are now determined to do just that. All of the fear and gloom sentiment that remains is very healthy...I think it confirms to me that we are not experiencing another wave of irrational exuberance as we climb out of this recession.

    Yes, there is also something very troubling about foreign governments like China buying up all of our debt to power us out of this economic recession, but I think with their help, the US economy can and will successfully recover in the coming years.

  16. Monevator says:

    Raymond, I have no problem with you buying the market now - I'm pretty bullish on equities from here long-term - but I do think you might wonder why you've waited so long? As Four Pillars says, it might be that you're better investing passively rather than judging it to be safe to re-enter the market when it's risen 50%.

    I don't mean this facetiously, it's a problem I see all over the money blogging world. Perhaps money bloggers discuss the very real problems so much they stop seeing the wood for the trees? Certainly, missing the first 50% of every bull market will devastate your long term returns (unless you believe you can also avoid the first 50% of the bear market plunge ;) ).

    Anyway, just a thought. I like your long rambling style which is close to my own heart - and blog! - and I'm going to take a look at a few more posts. Good luck with the house!

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