When I woke up this morning and checked my email/bank account, I received a very pleasant surprise. Not only did I receive my regular biweekly paycheck from my job, I also received a deposit labeled, "ACH CREDIT IRS TREAS TAX REF ON 04/15." At first, I figured this was some sort of glitch since I had already received my federal government tax refund. Then, I remembered seeing a news headline that said that coronavirus stimulus package payments would be coming out soon...
Category Archives for Invest & Retire
2019 Personal Finance Review and Reflections
2019 was an action-packed year.
Welcome Son # 2!
We started the year off in the midst of caring for our 2nd son, Thomas, who had just been born in mid December 2018. It was a special time because both of my parents had retired and were able to come help us take care of things for about 6 weeks before and after Thomas was born.
Career Change
At my "day-job," things continued to go well. Although my vacation days were limited due to taking time off after Thomas was born, we were thoroughly enjoying our family day-trips to hike, snowshoe, and have fun in the Front Range Mountains of Colorado. Life was comfortable, and we settled into a lovely routine after living in Colorado for close to 5 five years.
Fast forward to the March time frame, I started to get clues that my opportunities for career development and advancement might be limited. Still, I continued on, trusting that things would get better if I continued to work hard. Then, in June, it became clear that I wasn't going to be able to advance my career in the timeline that I desired.
So, I had a tough to decision to make, and made it...
After the job searching and interview process, which lasted most of the summer months, I found a great new position in the Raleigh, North Carolina area doing gene therapy downstream process development.
Moving To North Carolina
The majority of Q42019 was consumed by selling our home in Colorado, moving across country, buying a house in North Carolina, and starting my new role. Lots of changes on personal, personal finance, and professional levels to say the least! However, they have all been good changes! 🙂 We do miss the Colorado mountains but are looking forward to getting out to the NC mountains once the coronavirus goes away.
Net Worth Growth
Although filled with immense changes, 2019 was quite good to us financial.
Our combined family net worth (including home ownership/loan) increased 15%, and our liquid net worth (not including home ownership) increased 45%.
These seemed to be driven largely by two factors: 1) a favorable stock market increase and 2) the "on-fire" Colorado real estate market having increased the value of our home by 40-50% from when we purchased it in late 2014. Because of our home sale, we were able to convert those theoretical earnings into cash-account and mutual fund account savings. We also purchased a home in North Carolina for less than we sold our home in Colorado (even though our NC home is 10% larger inside and has 3x the yard size).
Savings Rate
Throughout the year, I like to track our savings rate to gauge how efficient we are being with our personal finances. I define this as the amount we squirrel away into cash savings, mutual fund, and retirement accounts expressed as a percentage of our take-home income (meaning after taxes, etc).
Because of the sale of our home mentioned above, we put a lot of money into savings in 2019. In fact, we put more into savings last year than I will earn this year in gross salary. For 2019's calculations, I made an exception to the way our savings rate is calculated by including the net money we received from the sale of our home in Colorado as take-home pay." Calculating things this way, our savings rate was 62%. Not bad! 🙂 Some people like to celebrate how much money they spend. I like to celebrate savings!
Outlook for 2020
Barring unexpected changes, things look pretty on the personal finance front.
My new role/company offers really good benefits at reduced out-of-pocket costs for employees, so that greatly boosts my take-home salary. Our largest monthly fixed expenses are our mortgage and tuition for our two sons' daycare (which, surprisingly, costs more than our mortgage payments).
Now, It's Your Turn...
How did 2019 treat you all financially and/or personally?
Share your experiences by commenting below!
Portfolio Rebalancing During Market Downturns
For the past 12 years, I have been a believer and practitioner of an investment strategy employing modern portfolio theory, asset allocation, and passive investing through low-cost index mutual funds.
Since obtaining my bachelor’s degree and entering the workforce in 2008, I have maintained an asset allocation consisting of 70% equity and 30% fixed income. For the most part, maintaining this allocation has involved selling equity and buying fixed income (rebalancing), since the stock market has experienced a very nice run-up in that time. I haven’t yet personally experienced a significant decline in the market until recently.
It’s often said in personal finance literature that an investment strategy is only as good as one’s ability to stick to it in good times and bad. Thankfully, I can still report that I’m plenty comfort with my investment strategy in a “bad” time.
Portfolio Analysis / Rebalancing Frequency
There are different schools of thought in the personal finance world regarding the frequency with which someone that uses a passive investing strategy should assess their portfolio, tally up their net worth, and rebalance back to asset allocation targets if needed.
For the past 10 years or so, I have employed the approach of analyzing my portfolio once per month (12 times per year) and rebalancing back to my allocation targets if needed. Typically, rebalancing has only been needed 1-2 times per year, so not that much in the grand scheme of things.
With the coronavirus now being a part of our daily lives, we’ll have to see if this monthly analysis frequency results in an uptick in rebalancing. I am not sure yet what I would define as the limit of TOO much rebalancing, especially if trades are being made in tax-advantaged locations within commission-free environments (like my portfolio at Vanguard).
My Recent Portfolio Rebalance Experience
Yesterday, on target with my monthly schedule, I analyzed my portfolio. And, due to the recent market downturn, I had to rebalance since my fixed income allocation had risen to 39% (outside of the 30 +/- 5% allowable banding I’ve established).
Listed below is a summary of my findings/actions:
- As would be expected from portfolio design, my fixed income holdings (cash, short term bonds, TIPs) were unchanged in value from the previous month.
- However, every equity asset class (international, small-cap, small-cap value, large-cap value, REIT, emerging markets) had all decreased ~ 20% from the month prior.
- There didn’t seem to be a single equity asset class that was hit harder than any of the others.
- To re-establish my target asset allocation, I sold 9% worth of TIPs and short-term bond fund shares in exchange for emerging market, small-cap value, and large-cap value index fund shares.
- The equity fund types were selected due to having the lowest % asset allocation among my equity holdings.
- My small-money experiment with Harry Browne’s Permanent Portfolio that I started in 2012 is still going strong. True to its form, the Permanent Portfolio does provide stability compared to more equity-heavy portfolios, as it only declined 3% compared to the prior month. However, as I noted in my post, the shelter from declines also comes with the cost of missing out on potentially large market increases.
- My overall portfolio value decreased by only 11-13%, meaning that my cash and fixed income holdings are doing a good job of stabilizing portfolio value.
My Thoughts on the Recent Coronovirus Stock Market Decrease
According to Google Finance at the time of this writing on 28Mar2020, the S&P500 has decreased 25% from the market peak in mid-February, with the lowest point being a 34% dip going to 23Mar2020.
These are truly the times that test our abilities to stick with our financial plans, both short and long term.
For me personally, this is likely the first true market decline I’ve experienced as a first-hand investor since starting to receive “real paychecks” upon entering the workforce in 2008. As such, it’s a test for me as well.
The Importance of a Reality-Checked Asset Allocation
I’ve written many times on this blog about how having and MAINTAINING a realistic and appropriately-selected asset allocation is one of the most critical parts of personal finance.
There are great sections and tables (some of the key information reproduced below) in Larry Swedroe’s book, “The Only Guide to a Winning Investment Strategy You’ll Ever Need,” that I used close to 10 years ago to select my asset allocation.
Based on my asset allocation of 70% equity / 30% fixed income, I have to be able to tolerate a 30-35% decrease in portfolio value in a single year. In the midst of the current decline, I still feel this is appropriate and tolerable.
With the asset allocation you use, can you tolerate the corresponding possible loss listed below?
Maximum Equity Exposure Maximum Loss
20%……………………………..05%
30%……………………………..10%
40%……………………………..15%
50%……………………………..20%
60%……………………………..25%
70%……………………………..30%
80%……………………………..35%
90%……………………………..40%
100%……………………………..50%
I Fear The Majority of People Are Over-Exposed to Equity and Risk
Based on my personal, family, and financial interactions over the past 10 years, I fear that the reality is that most people invest too much in stocks for their age and investing lifecycle.
One of my pet peeves is that target-date retirement funds (run apparently by “professionals”) seem to overweight to equity.
For example, in my 401k retirement plan at my work, I invest in the Vanguard Target Date 2030 because it delivers my target 70/30 asset allocation split and is the best amongst the choices.
But wait, I am 34 years old. I’m more like 30 years from retirement, not 10 years from retirement as the name suggests.
If I invested in a fund “appropriate” to my age (Vanguard Target Retirement 2050 Fund), they would have me at an asset allocation of 90% stocks, which would be overweighted from my asset allocation determination calculations.
I Intend to Continue “Business-as-Usual” With My Personal Finances
So, what do I intend to do right now? Basically, I just plan to continue running my personal finances/investments as normal.
Since I usually tabulate my net worth each month and re-balance to maintain my asset allocation targets if outside my set banding, I continue to do so in the next few days.
It’s likely that I’ll need to sell some fixed income and buy some stocks….
So, how is everyone feeling right now? Did you all have a well-selected asset allocation?
What is the Relationship Between Risk and Return?
The primary goal of investing is to grow your money as much as possible.
Regardless of whether you’re planning for retirement or saving for a down payment on a new home, your child’s future college fund, or something else, investing can potentially help reach your financial goals sooner than simply saving your money.
Unfortunately, every investment carries risk, so you need to think carefully about your investment strategy and understand the relationship between risk and return.
20 Best Dividend Stocks for 2019
Today, it's not so easy to generate cash flow. Bond yields are at record lows with the 10 year hitting 1.46% and the 30 year hitting 1.94% and real estate has much higher barriers to entry for the beginning investor. So where do you turn to generate yield? High paying dividend stocks!
Saving for the Costs of Health Care in Retirement
Most people get the basics right when it comes to retirement planning. There’s housing, food, transportation, and travel—the obvious things that are easy to plan for since they’re already in your budget. What trips people up, however, is saving for the cost of health care in retirement...
Why You Need An Emergency Fund
Do you think about saving money but just can’t seem to get it done? Or, do you wonder what the big deal is about having a savings account? Whether you call it a rainy-day account or whatever, you need an emergency fund. You might not think it’s important, but I’m going to show you three reasons an emergency fund could make all the difference in your life...
The Best Ways to Manage Your Investment
By now, most people have a clear understanding of how far the world has progressed over the years. Every year, it seems like something new is presenting itself, not to mention that the way we handle different tasks is constantly changing, especially when you take the advances of the internet into mind. It’s hard not to say that the internet has dramatically changed the way we have been living our lives. Think about all the things that can be done over the internet, like when it comes to stocks. When it came to purchasing stocks in the past, the process of doing so wasn’t as easy as it is now. Before, it had to go through a complex process before the finalization could even be complete. With the evolved usages of the internet, things are much simpler and easier than they used to be.
Is Crowdfunded Real Estate Investing Right For You?
The amount of money and responsibility it takes to invest in real estate traditionally keeps many people away from this type of investment. However, there’s another option for you if you’re interested in real estate investing: crowdfunded real estate investing...