Net worth = Assets – Liabilities

Assets / Income: My assets are my day job income and forex trading income. I suppose, to be more formal, my assets are my job skill set and my forex trading system, and those assets produce two income streams.

Liabilities / Expenses: I don’t carry debt of any kind and I live a simple, frugal lifestyle. I am 28 years old, single, and I live in a rented condo with a roommate. I’ve been very careful to keep my “status symbol shield” up. I know that as I get older, my wants increase, and as I buy things to fulfill my wants (bigger place to live, nicer car, nicer clothes, cool electronic gadgets), my sense of what is normal will be ratcheted up, and new wants will appear. Luckily, I rarely buy anything impulsively, and I’m able to control my wants and improve my lifestyle at a pace that trails my income. Put more simply, I pay myself first in the form of savings and I use whatever is left over for lifestyle improvements. I get much more excited about the prospect of achieving true financial freedom within 5 to 7 years than I do about the prospect of owning a BMW or HDTV today. Frugality is not perpetual self-denial. It is a recognition of ones means, and a mindful decision to live efficiently within them.

401K Contributions

I’m in the happy position of being able to max out my 401K contributions at work. That will be $15,500 this year. I know that this is pre-tax money and maybe I should deduct taxes and early withdrawal penalties from my liquid net worth total. Rather than worry about that, I’ll put a little * by my results that says “before taxes” when I make it to a million. When I get that far, the after tax millionaire part will easily follow.

Additional savings from job income

After I’ve funded my 401K and paid all of my bills, I’ve got a couple thousand per month left over. I plan to direct this money into mutual funds, money markets, or my forex accounts as dictated by my asset allocation plan.

Forex Trading System – now officially known as the Cable Glider, traded by me, Eddie the Cable Guy (ahem) — ?????? per month

Here’s the ace in the hole! I run an automated forex trading system that has produced a 58% compounded return over the course of the past 3 months. If this system continues to perform well for another 12 months, and I’m able to scale it up properly, it will do the lion’s share of the work toward my goal.

To stay motivated and focused, I will set mini-goals that are attainable, and celebrate each one wholeheartedly. Since my forex capital represents about one third of my total liquid net worth, I’ve set goals in terms of my overall net worth first, and my forex trading capital second.

$100,000 liquid net worth

$100,000 in FX trading capital

$250,000 in FX trading capital

$750,000 in FX trading capital

$1,000,000 liquid net worth

$1,000,000 FX trading capital

$2,000,000 liquid net worth

Financial Freedom (passive income great enough that a day job becomes optional)

Wealth accumulation is fun for me. I know that many people have emotional hang-ups about money, status, and class identity…rich, middle class, poor. For me, becoming a millionaire and achieving financial freedom at a young age are important enough that I will do it first and examine the consequences afterward.

It’s fun for me to state the goal this way, because I’m sure Steve will make it to a million, and I’m sure that I will too. 

My approximate liquid net worth at the end of January 2007 is…drum roll please….$74,000 

It’s on, Steve!  I’d use a tortoise/hare analogy here, but I’m not sure which one of us is which.  I also want to say that I’ve been hurting my chances of winning the race by buying products that Steve endorses.  and lining his wife’s pockets by booking intuitive readings!  That’s like running for class president and voting for the other guy. 

 

My overall goal from trading is to become financially free, and by that I mean that I would like to grow my equity to the point where my passive income covers my expenses and I no longer need a “day job” to pay the bills.  By passive, I’m talking about income from risk free investments…think T-Bills and money market accounts.  This goal seems attainable as long as I do not attach any time component to it.  I do believe, however, that it would be reasonable for me to achieve this goal within 5 to 7 years.

Now then, a backtest of System 20070110a (4) shows that a $10,000 investment would have grown to approximately $4,000,000 by the end of 2006. (40,000%) Well that sounds just wonderful, but it remains to be seen if I can actually trade a six figure or seven figure account effectively. It looks to me like I could begin to encounter some difficulty with liquidity and leverage at the $250,000 equity level, so my current plan is to open an account with another liquidity provider when my equity reaches $100,000. This will allow me to trade effectively to the $750,000 level, since this second, deeper liquidity provider allows me to automatically trade with my current leverage level up to $500,000 equity. At that time, it’s likely that I would reduce the leverage used in the system, which would allow me to trade much higher account sizes effectively, but naturally, that will severely reduce my returns.

Of course the big question is whether or not System 20070110a will continue to perform well in 2007.  I’m sure we all know that past performance is no indication of future results.

To summarize: Pie in the sky goal : 10,000% return

Realistic decision points: +400% — open multiple accounts to spread risk and continue to be able to trade with full leverage

+2000%… consider reduction in leverage

-50% — temporarily suspend trading and either recapitalize the account or permanently suspend the system

-100% … curse my inability to follow my rules, or if appropriate, curse some price shock that caused sufficient illiquidity to wipe me out

100% loss (blow up): Well at that point I’ll just have to hope I can publish a riveting book about how I blew up.