Sunday, September 20, 2020

August 2020 Net Worth Update

Led by continued increases in the stock market, our net worth hit another all-time high in the month of August, ending the month at $1,149,900. 


CASH

Our cash balance dipped a bit, but this was expected since we had several things hit in August that were either one-time or won't come again for a while like our annual homeowners insurance bill and several things to get ready for the new school year. We still would like to get it up over $40k and we should be able to get there soon. Our property taxes are due this fall, but should be able to stay at or above $40k even after that is paid. 

People often ask me where to park their extra cash since savings accounts pay so little. We keep the bulk of our savings in an online savings account. The rates are historically low, but better than you'd get at your typical bank and emergency funds aren't meant to be put at risk. The Federal Reserve recently came out and indicated that rates will stay at these low levels until at least 2023, so I suspect that more and more people will be looking for higher interest on cash. To anyone looking to do that, I simply say "BE CAREFUL". I suspect we will see more and more people out pitching 'risk free' investments that come with strings attached and heavy commissions to the person selling them. 

INVESTMENTS

Our investments went up with the market, and grew by about $35k. It's hard to believe that my first job out of college less than 15 years ago paid me as much in a year as we now regularly earn in a month. The power of compounding is real. We continue to invest primarily in index funds, and haven't made any remarkable changes to our allocation. While I don't consider our paid off house as part of our portfolio, knowing that we have that gives me additional comfort being invested heavily in equities. 

We skipped adding to our taxable investment account this month but plan to resume that as soon as we pay of our property taxes since we didn't want to tap into our savings account to cover things like that. While there is not upper limit on our accounts at this point, we are watching for when our taxable investment account balance can hit $100k and $200k and may make some large purchases with a portion of it when it reaches those milestones. 

OTHER

We are getting close to finishing our bathroom renovation and will then push pause on large home project until at least 2021. Overall we will have saved more than $10,000 by doing the work ourselves but we are getting to the point where we're just ready for it to be done. Cosmetically it looks mostly done, but we still have a few faucets and drains to hook up. We have a few other large projects in mind next but we need a breather to build up cash and to get some other things done that we've been putting off. 

Saturday, August 29, 2020

July 2020 Reading Review

Yet again, I finished the month having read 8 books. Some were short and one was an audiobook, but in future months I'm aiming to read fewer titles. Here's a run-down of what I read, in the order I enjoyed them with the best listed first. 

    I really enjoy Bethany McLean's writing and her choices of topics. If you follow my reading, you'll know I read a ton about the financial crisis so it's rare to find something that offers a new perspective or detail. This one went into some interesting background and detail on Fannie Mae and Freddie Mac that I either didn't know, or hadn't thought about in the way it was presented. 
    Besides finding it fascinating, one of the reasons I read so much on this topic is to better understand the inter-connectivity of our economy. They say that history doesn't repeat itself but it often rhymes, so the better I know history the better I feel equipped to understand the present.

    It was only coincidental that right around the time I was reading this, CEO's of four of the largest tech companies in the world were testifying in front of Congress to discuss antitrust matters. I really liked that it was short and to the point, and it gave me some things to think about. Tim Wu was also a recent guest on The Prof G Show Podcast if you'd like to get a taste for the content in podcast format.

    This book really causes you to think about things that you may consider to be 'common sense' and to question how you know what you think you know. For example, in the Army they were trying to determine whether recruits from cities or rural areas would fare better in training. The original hypothesis was that those from rural areas would do better since they may be used to the living conditions more that those from cities. After doing a study though, they found that recruits from cities actually did better and they attributed it to comfort with hierarchy stemming from more familiarity with the hierarchies of large companies or organizations.  
    Sometimes I've found myself reading the results of a study and thinking "did they really even need to do a study on that? It seems so obvious." This book helps shed light on the fact that what may seem like 'common sense', still needs fact checking and validation. I really like behavioral economics and this one was a similar style, but not focused on finance. Definitely an interesting read. 

    The Great Depression left emotional scars on the psyche of the generation who lived through it and influenced the investment behavior of an entire generation. Likewise, those who lived through the high inflation periods of the 1960's, 1970's, and 1980's have formed beliefs and fears that influence their behaviors today. This was interesting to read more about all the different ways inflation impacts our behavior and the economy, and gave me some things to think about as we plan for our future. 
    Inflation is one of the biggest risks for early retirees, which we planning to do. No plan is without risk, but it is important to me to make sure we are planning for things like inflation as best we can.

    This came recommended to me from some co-workers while on a business trip to India a while back and I just now got around to reading it. I wish I had read it before I had my trip since it really gives new perspective and who knows when I'll ever be able to get back. I knew that England had colonized India, but I had no idea the that the colonization was largely done by a private company and militia sanctioned by the government. 

6. Enemy Contact (Jack Ryan #27) - Mike Maden 
    Lumping these two together as they were equally enjoyable, and most all the same characters. These are predictable and always seem to wrap up loose ends way too quickly, but I really like the characters and can read one of these books in ~3 days. No one can truly replace Tom Clancy but the Jack Ryan books that keep coming out do a good job of honoring his legacy. 

    I really wanted to like this one, but really didn't get much out of it and won't be recommending it to anyone just getting started. I know the author has inspired a lot of people in the personal finance and early retirement community, it just didn't do much for me. 

Monday, August 10, 2020

July 2020 Net Worth Update - another all-time high

Even as the global pandemic continues to rage, our net worth continues to climb. We ended July at a new all time high, crossing over $1.1M to end at $1,117,400.


CASH

Our cash balance dipped a bit as we made our semi-annual car insurance payment, had some car repairs/maintenance, and new windows for the bathroom remodel that is still ongoing but nearing completion. August will also be an expensive month but we should be able to get up to $40k in the not-too-distant future. Above $40k we will likely add more to our taxable investment accounts.

We generally don't keep much cash on hand, but I did withdraw some cash early in the pandemic to have on hand in case there were a shortage. I hadn't been counting that cash in these totals and had honestly forgotten about it until I found it while cleaning out my closet. In July however, I spent this cash (and a bit more) on a bicycle. This is something that I've been wanting for a while now, but for years has always been a 'not until after we pay off the house' type of purchase. Of course, as soon as we pay off the house a global pandemic hits that causes a lot of people to spend a lot of time at home. Nationwide it seems like everyone wanted to buy a bike all at the same time so it has been hard to even find anything besides the most expensive models. I finally found one that I like a lot and now have been biking most days when I previously would have gone on walks.

INVESTMENTS

Our investment accounts are about as boring as it gets. The bulk of our portfolio is in index funds, and we don't plan to touch it for 10+ years. The part that I am excited about though is watching the taxable account balance creep up. We might use some of this within 10 years, but don't have any real plans so we'll keep it invested and be comfortable with any downside risk we may have. 

Our next big milestone is to get our Liquid Net Worth to be $1M. This will take a few more years but we're well on the way. Now without a mortgage we're able to invest even quicker than before when we were only doing enough to get the company match on my 401k.

Tuesday, July 28, 2020

June 2020 Net Worth Update

June was yet another good month for our Net Worth. We ended the month up almost $19k to $1.086M. 

CASH

Despite having my pay cut due to the COVID-19 pandemic, we've still been able to add to our cash balance and are looking to get this over $40k in the near future. My job still has a lot of uncertainty and while things are becoming clearer, we aren't likely making any large purchases until we are more comfortable that my position is secure longer term (which also hopefully coincides with my pay cut being rolled back). 

INVESTMENTS

Our investments continue to perform with the market and nothing really has changed here. I'm considering doing some additional Roth IRA conversions this year if we do have excess cash but again that's something that would require some more clarity on our financial outlook before we do it. 

It is nice to see our non-retirement investment accounts growing now too. While this could be considered an extension of our emergency fund, our intent is that these investments have a time horizon of 5 years or longer before we would use them. Anything else we plan to spend in the next 5 years we can cover through our normal cash flow. 

OTHER ASSETS

Housing in our area continues to sell quickly and we have noticed a few people taking advantage of low interest rates to upgrade their home. I hope for them that it doesn't come back and bite them, but I am loving living mortgage free and haven't even considered going back into debt. 

We've been adding to our 529 accounts as well and will likely continue at this pace for the foreseeable future as we do plan to fund some (but not all) of our kids education using a combination of 529 accounts, cash flow, and non-retirement investment accounts. It's important to have a healthy amount set aside beforehand since we could have up to 3 kids in college at a time.




Sunday, July 12, 2020

June 2020 Reading Review

So apparently I read 8 books in the month of June. Some were pretty quick reads, but I really didn't think I had read so much in the month. That puts my at 47 books finished so far this year, purposefully slower than last years' pace. Here are the books I read, ranked from best to worst.  


1. Untamed - Glennon Doyle

    This one was the best book I read this month and really gave me a lot to think about. In it, the author weaves a lot of different life experiences around the theme of being authentic to our true selves, with a great analogy about a cheetah born and raised in captivity catching glimpses of its true nature. 

2. Sharing the Work: What My Family and Career Taught Me about Breaking Through - Myra Strober

    Myra Strober is a professor at Stanford, who helped pave the way for women in academia. This book follows her story and the challenges she faced starting her career in the 1970s when women were expected to be secretaries or lecturers, but not tenure-track faculty. A lot of progress has been made, but sometimes it's good to read things like this to help see how far we've come. I think it's something that's also important to men to read, especially those who may make hiring decisions. 

3. A Falcon Flies - Wilbur Smith

    This is the first in a series of books following the Ballantyne siblings, who in 1860 traveled to southern Africa to try and reunite with their missing father. Much of the book also focuses on the slave trade and if nothing else, this book should be read to see some of the horrors associated with the trade the often will get glossed over or ignored when discussing slavery. This was a really long book and I liked it, but it ends with enough closure that I'm unsure whether I'll continue the series or not. 


4. Big Bets Gone Bad: Derivatives and Bankruptcy in Orange County, the Largest Municipal Failure in U.S. History - Philippe Jorion

    In December 1994, Orange County, California declared bankruptcy. This book was a quick read about what happened and how to prevent something similar from happening again in the future. Perhaps the greatest lesson learned for me is something that also applies to personal finance and that is: 
"Don't Invest in Anything You Don't Understand"
Follow that one piece of advice and you won't avoid losses, but you will likely avoid financial catastrophe. In the case of Orange County, it was complex derivatives like interest rate swaps. In my experience, I've seen people go broke trading options, levered ETF's, and inverse ETF's. The one common thread in all stories is that they couldn't clearly articulate how the risks associated with their investments.  


5. Humans of New York: Stories - Brandon Stanton

    We have followed this account on Instagram for years where Brandon Stanton goes around NYC taking pictures of total strangers and interviewing them for a brief caption. The book is really just a compilation of Instagram posts and captions, but is also a way to support the author. It was fun and in some cases interesting, but also it pleases me to know that we're at a point in our lives financially where we can afford to buy books where the content is already available elsewhere for free but we still buy it to support the author.   
    I really enjoyed 'The Divide' by Matt Taibbi so wanted to read more of his stuff. This one though ranks pretty low in terms of books about the financial crisis, banking system, etc. Seemingly every paragraph uses hyperbolic adjectives to illustrate his disdain for the financial establishment and individuals involved (there's a whole chapter about Alan Greenspan called 'The Greatest A**hole in the Universe'). Even though I agree with a lot of the conclusions drawn by connecting the dots, there are better books out there. 
    If you want to read a snippet from the book, check out the author's article about Goldman Sachs in Rolling Stone magazine 


7. The Players Ball - David Kushner

    This book follows two characters through the start of the internet era who end up in a battle over a valuable domain name. One was the successful creator of the dating site Match.com who owned several other site, and the other a shady character who allegedly store a domain name the first guy owned but wasn't using. This was back when things like domain names weren't recognized as having as much value as they do today, but quickly became a major lawsuit when the stolen site began making millions. 
    If you're looking for a good read about shady characters on the internet, I would recommend American Kingpin, the story of the founder of the Silk Road, the largest website in the world for illegal activity until the founder was caught and jailed. 


8. The Art of Loading Brush: New Agrarian Writings - Wendell Berry

    Most everything on my shelf was recommended to me by someone at some point, but for the life of me I couldn't recall where this recommendation came from. The author is a great thinker and there were a few parts in this book that definitely gave me pause and made me think about the decisions I make with regards to food choice and sourcing. Overall though, this was a pretty difficult read that mixed philosophy with economics into a long essay about food production. Interesting, but really wasn't my sort of book.

Wednesday, June 24, 2020

Roth > Traditional

One of the goals I have before I retire is to convert the majority of our retirement accounts over to Roth balances. You don't have to search too hard to find folks who can show you how mathematically the Traditional IRA is superior because of tax deferral, or how lower tax rates now reward those who deferred taxes in prior years. 

But personal finance is personal. You can't always just rely on math and always choose the most optimal solution. Just like I could show you how mathematically we're foolish for having paid off our house early, there are real but intangible benefits to the peace of mind I gained from doing so. 

Having more of our retirement assets in Roth accounts is one of those things. Here's a few stories of things I've seen that have shaped my feelings on this topic. 

Phantom Money:

Years ago, I met with a couple in their late 60's who lived in a part of the country hit very hard by the housing crash. Due to a series of sub-optimal decisions and unfortunate timing, they found themselves trying to sell a house that was worth about $100k less than what they owed on it. 

The wife in this couple had mostly been a homemaker but had held a part-time job for several years that allowed her to contribute to a 401(k). After many years of growth, this account was worth around $100k at the time we met. Seeing a potential solution to their being underwater on their mortgage, she asked me 'Well, can't I just use that $100k to pay down the mortgage and be done with the house'?

I'll never forget the look in her eyes when I had to explain that taxes would be due on the amount withdrawn from her 401(k) and that the $100k balance she had become used to seeing on her statements, would really only be ~$70k, still leaving them $30k in the hole. Up to that point, she had always thought she had $100k, when in reality she never actually had the amount on her statement available to her. 

There are ways to take money out over time to minimize the tax consequences, but that wasn't an option when they needed a large amount of money in a short period of time. It's hard not to see your balance and think about what you could get for it, but whenever you see a pre-tax 401(k) balance you should always see that number and deduct ~25%. Our Roth accounts on the other hand, are all ours.

Too Much Tax Deferral:

Is there such a thing as too much of a good thing? Most certainly yes, even in deferring taxes. I've met with several retirees whose primary strategy in their working years was to save as much as possible into tax deferred accounts, with little to no thought put into a withdrawal strategy. 

One particular scenario that stuck in my mind was a client who had saved about $5M for retirement and going into retirement had based their expectations upon a certain level of fixed income to come from those assets. Throughout their careers they were usually in the highest tax bracket, and had put as much as they could into every tax sheltered vehicle possible, including deferred compensation accounts. This was done partially with the belief that in retirement, their tax rates would be lower.

At the point we met, they were within a few months of retiring and finally starting to look at a withdrawal strategy. What became clear fairly quickly was that because of the requirements on deferred compensation payouts and timing of Minimum Required Distributions (MRDs) from retirement accounts, it was going to be virtually guaranteed that they would still be in the same, highest tax bracket for at least the first 15 years of their retirement. 

Yes, this is a great problem to have. But it just goes to show that withdrawal strategies need to be considered early on. With the benefit of hindsight that client wishes they had done some Roth conversions earlier in their careers even though the tax bill at the time seemed unpalatable. They also maybe wouldn't have deferred as much income and would have just done non-retirement investing (the deferred comp account only earned CD-like returns), or possibly even retired sooner.

Lessons Learned and Our Strategy:

I have two main takeaways from these examples. First, never look at a pre-tax investment account balance and think that whole amount is actually yours. I would much rather have a $100k Roth IRA than a $100k Traditional IRA. Second, planning withdrawal strategies needs to be on your mind throughout your accumulation years. Asset location (the type of account) is as important as asset allocation (the type of investment).

As mentioned before, our strategy is that we want as much in Roth accounts as we can afford to by the time we retire. This means that all 401(k) contributions we make go in as after-tax contributions. This reduces my take home pay by more than if we did pre-tax contributions, but also means we're putting more away into retirement accounts than if we did the same percentage of income but pre-tax. 

Each year, we also pay the taxes on a portion of our pre-tax accounts and convert that balance to Roth. We have a lot to still convert with only about 1/3 of our total retirement accounts in Roth, but we are still 10+ years from retirement so should be able to make very good progress between now and then. Also now that we are no longer paying a mortgage, we can afford to convert a bit more than we were doing in previous years. 

Lastly - we plan to be retired younger than age 59 1/2, which means that we can't solely rely on our retirement accounts to live on for the time before we hit that age. With the house paid off, we are now contributing monthly to our non-retirement investment accounts an amount similar to what our minimum mortgage payment was. This amount, while taxable, is what will get us to age 59 1/2 if I retire in my early 50s. 




Thursday, June 11, 2020

May 2020 Net Worth Update - New All-time High

Coming off the heels of a strong month in April, we reached another new all-time high net worth in May, up almost $37k to $1.05M.



CASH


We finally got the cash refunded from our cruise that was cancelled back in March. This was the primary reason our cash balance went up by almost $6k. Our bathroom remodel expenses were much lower in May than in April, but we still spent $1,700 on some new tools and hiring out some of the trickiest plumbing parts. 

We typically hate hiring work out when doing home improvement projects but there are times when we know our limits and ran into one of those situations with the plumbing. We've now reached the point where tile is going down so soon it will start to look like a bathroom again. 

Our cash cushion is feeling much more comfortable now. It should be more than 6 months of expenses, but we haven't had a month since paying off the mortgage where we haven't had large 'one-time' expenses so it still feels possibly a bit lighter than we'd like.

INVESTMENTS


The S&P returned 4.5% in May, and our investments performed similarly since we are primarily invested in US Stock Index funds.

We continue to add a bit each month to non-retirement investment accounts, but mentally those accounts still feel as 'untouchable' as our retirement accounts even though I know we could technically get at the money penalty free at any time. We are now up to over $6k in those accounts and since we have no immediate spending goal for that money, it is invested in index funds. 

With the house paid off and already having crossed $1M in net worth, the next medium-term goal is to get our 'liquid net worth' above $1M. The timing of this obviously depends on a lot of variables like the market and my income/bonus, but I suspect we'll get there around 2026.


OTHER ASSETS


Our 'Other Assets' remain unchanged other than that we are adding to our kids college savings accounts each month. There are a few large purchases of what I'll call 'toys' that we have been waiting on until the house was paid off that when we finally bite the bullet and buy them, I don't plan to include in our net worth. 

We do include our primary vehicles in our net worth, if we were to buy something like a boat, RV, or ATV I would just show a big drop in cash with no corresponding asset. Nothing like this is imminent, but I wouldn't be surprised if we did buy something 'fun' in the next year or two. 

Sunday, June 7, 2020

May 2020 Reading Review

Last month, I finished 6 books, bringing my year-to-date reading up to 39 books. If you're looking for a good read, check out some of the summaries and links below in the order of my preference among these titles.
 
    A lot of non-fiction books I find to be too long, but this one was just right. It got to the point and didn't add too much fluff, and gave a few things to think about. I am not an entrepreneur, but do see the appeal and this definitely gives some things to think about. His main thing is to discourage young graduates from joining consulting firms or 'big law' in favor of startups where they'll have much more latitude to implement things they've learned and make decisions that actually drive the success of the enterprise. 
    I'm personally not a big fan of the 'chew them up and spit them out' culture of the major consulting firms and am dubious about the training they provide, so it's definitely something to consider. Say what your want about Andrew Yang's politics and his failed attempt to run for president, this was a good read if you are one who dispenses career advice to high school and/or college students.
 
    If you've ever been to the Biltmore or seen the mansions in Newport Rhode Island you may have wondered what type of vast wealth was required to build those massive homes. This is a great read to see how that wealth was both accumulated, and subsequently squandered. I didn't know, but within 5 years of the Biltmore opening it's doors, the owner was essentially broke. 
    Also interesting, the land around the countries largest privately owned house (over 175,000 square feet!) is now just a small fraction of the acreage originally purchased to be part of the estate. I have not illusions that my wealth will ever reach 'Vanderbilt' proportions, there are still takeaways for the importance of instilling work ethic and drive in the next generation. 
    Another surprising takeaway was that compared to some of the wealth that exists today the numbers didn't seem that big when compared to some of the wealthiest Americans today. In fact, Warren Buffett, Bill Gates and Jeff Bezos each have more than 10 times the net worth of the peak Vanderbilt family wealth adjusted for inflation.

    This one was good, but not as good as Dare to Lead. The concepts have some similarities and are worth thinking through, but Dare to Lead definitely seemed much more relevant to my life at the time that I read it than this one did at this time. I'll keep reading Brene Brown and listening to her podcast, but if I'm going to recommend a book of hers it would be Dare to Lead over this one. Your results may vary, so definitely give it a read if the subtitle seems relevant.
    I never would have guessed that Airlines would have been in such dire straits financially when I got around to reading this book that was recommended to me a few years ago. It was only a coincidence that I started to read this while Airlines were seeking government loans and seeing passenger volumes down by more than 90% as a result of COVID-19 restrictions.  
    While I typically enjoy a good corporate biography, this one read more like a history of airline mergers and acquisitions, and inside baseball about new route strategies. It was interesting, but I would have liked it more if it had focused more on things that happened inside the company at levels much lower than the C-Suite.   
    Similar to the previous book, this one had a lot of play-by-play of private equity deals over the years, but didn't have as much of a specific 'crisis' like 9/11 and airlines that they had to overcome. Blackstone now has over $500 billion in assets under management which in an of itself is a lesson in the power of compound interest, and the power of strong past performance being a good indicator for future inflows of cash and ability to raise capital for the next fund. 

6. I am Charlotte Simmons - Tom Wolfe

    Years ago, I read The Bonfire of the Vanities and loved it. The story integrated Wall Street Culture, wealth inequality, and racial tensions in a way that had me hooked to the end. I mentioned this to someone a while ago and was persuaded to read more from Tom Wolfe so picked this one up from the library. 
    This book focuses on the college experience of Charlotte Simmons, a brilliant girl accepted into an elite university from a small town in Appalachia. The story also dives into problems with student athletes, NCAA corruption, fraternity culture, and wealth inequality all from the lens of characters embodying extremes. There were a lot of parts that I could have done without, but the story really made me think about a lot of things and reiterate that I really have a lot to teach my kids before they go to college. Thankfully I have plenty of time for that, and am not opposed to them living at home and commuting to a nearby college/university for their first year or two.


As always, please let me know of any recommendation you may have for future reading.  

Monday, May 18, 2020

April 2020 Net Worth Overview - Back Above $1M

What a difference a month makes! After having the worst month ever for our household net worth in March, April came roaring back for our largest single month gain ever. We still aren't back to our peak, but ended the month up over $55k with a total net worth just over $1M.


CASH

Our cash balance went up slightly in April. We got some money from the federal stimulus package and promptly spent it all and more on our bathroom remodel. We're bought the most expensive things for the remodel already, but still have a lot of work left to install all the tile and new fixtures. Although we requested a refund for our cruise that we were supposed to go on in April, we still hadn't received it by month end so eventually we'll also see our cash bump up for that. 

Normally we prefer to keep a cash balance of about 6 months expenses. Our cash balance of $31k is currently adequate for a 6-month emergency fund, but we are looking to boost this a bit higher given current economic uncertainties. Since we are a single income household and my company is going through a rough patch because of the COVID pandemic, I'd rather have a larger cushion until the dust settles. We're not cutting back on every day expenses, we just aren't buying big things outside of the bathroom remodel (which we have no choice on now since we tore it completely apart down to the studs).

INVESTMENTS

Even though our retirement accounts are where the bulk of our investments sit, this is the area that requires the least amount of effort to manage. We have everything on autopilot and don't try to make changes the could be seen as attempting to time the market. Including company match, I put 15% of my pay into my 401k. Even though times are uncertain and we're wanting to build cash, I'm not stopping these regular contribution. 

Not only do we want to keep building our nest egg, investing regularly in volatile times allows us to dollar-cost average, or buy in at different prices. For example, last month the market was down a lot and we bought in at low prices. This month, the market was up a lot and we bought at the higher prices. Over time this means that I am buying at more 'average' prices, and never buying large chunks at the top or the bottom since it is NOT possible to time the market. 

Likewise we are now adding to our taxable investment accounts each month and have also set up automatic monthly purchases. If I kept the money in cash and 'waited for the right time', I would possibly forget or find a reason to wait for 'a better time'. Setting it up automatically takes I never have to think about it. Our taxable investments are partially for bridging the gap between when I retire and age 59 1/2 and may also be used in a few years if we ever want to start a business and need some start-up capital. Normally I wouldn't invest money in the market that I need within 5 years, but we're ok with the risk since it's still unclear if or when we may ever use it.

OTHER ASSETS

Not a lot has changed with our other assets, but not a day goes by that I'm not reminded at how happy I am to not have a mortgage anymore. We've now gone more than 2 months without a mortgage and it's finally starting to sink in. I mentioned earlier that my company is going through a rough patch and I definitely know that many co-workers are stressing out about potential layoffs. I can't say that it doesn't worry me at all, but the difference in stress I feel now vs the last time I went through layoffs is night and day. 

I still don't know if/when we'll see layoffs, but each day I just keep my nose the grindstone and do my best. Having no debt of any kind whatsoever gives me great comfort knowing that we can weather whatever economic storm may be coming. 

Monday, May 4, 2020

April 2020 Reading Review

If you would have told me earlier this year year that I would spend an entire month working from home I would have thought you were crazy. And yet, I spent the entire month of April working from home.

My workload has leveled off, but we've also been doing a major bathroom renovation so I haven't filled up all of this new found time reading like I would have in the past. During the month of April, I completed 6 books, listed below with the best ones listed first.

#1 Becoming -  Michelle Obama

It's still early in the year, but I think this one is likely the best book I will read this year. I loved the way that this gave her view of events surrounding President Obama's life leading up to and during the presidency. It isn't really a book about Barack Obama, but it's hard not to have him be a central figure. It's actually unfortunate because Michelle Obama is such an impressive individual on her own and being married to a former President causes her to be in his shadow. This is a must read, regardless of your political beliefs.

#2 Grant - Ron Chernow

I love a good biography and the fact that this one was written by Ron Chernow was an automatic endorsement for me to add it to my shelf. This was a really long read but really had to be in order to fully capture so many interesting details. Whenever I think of Grant, I just think of Civil War General turned President and how that seems like a natural progression. I didn't really know much more than that. What I wasn't expecting to learn was how much he still had to fight to keep reconstruction efforts ongoing long after the fighting ended Civil War after the fighting was done.

Here's another interesting tidbit. Have you ever heard of the Alabama Claims? Basically the US sued the UK because Confederate ships were built in UK shipyards, helping extend the length of the Civil War. I thought I had read a lot about the Civil War, but had never really read about this. Likely because it happened years after the fighting had stopped. Grant played a critical role in these negotiations.

#3 All the Devils are Here: The Hidden History of the Financial Crisis - Bethany McLean

I'll read just about anything written about the 2008-09 financial crisis and this one was very good as a standalone if you're looking for a good overview of how we got ourselves in that mess. This one focused more on the people, companies, and events that got markets to the point they were at in 2008-09, but didn't get into as much of the bailouts or response. I don't know that I necessarily got much new from it, but that's because I've already read dozens of other books on the same topic. It was very well written, and I regard the author highly and have more of her writing on my shelf. It's always interesting to see how different people connect the dots with the same events, so I'll keep reading books about the financial crisis until we start getting books about the COVID-19 crisis.

#4 Tom Clancy Code of Honor - Marc Cameron

Generally I don't like when authors allow someone else to use their name to write stories with their characters, but I've enjoyed Marc Cameron's Tom Clancy series enough that I try to read them all (I'm not a fan of the Tom Clancy Op Center, or Splinter Cell books as they feel more like I'm reading my way through a video game level). There are more than 25 Jack Ryan/John Clark books out there and while this one was good, I would recommend going back closer to the beginning (chronologically or by published date) to get to know the characters more if you haven't already.

#5 A Framework for Understanding Poverty - Ruby Payne

A while back I helped a friend out with a tank of gas and offered some financial coaching. The gift of gas was accepted, but the offer for coaching was not. It later came to my attention that another mutual friend had been helping this person with financial coaching and that several other friends have also been asked for money by this individual. We're still friends, and that's all good, but someone else recommended this book to me to help understand how people living in poverty think differently about money. What may seem like a completely irrational decision to me, may make more sense when looking at their circumstances differently. This is a quick read, so worth picking up if you're interested in learning more.

#6 A Short History of Drunkenness - Mark Forsyth

Like the title suggests, this was a quick and entertaining read, all about drunkenness. I've enjoyed reading more about Prohibition or other events, and this one was basically just about getting drunk and the different was in which various cultures and societies have done so over time. It won't take long to read, and you're bound to learn a bit of trivia that could be fun to share at the next happy hour.

I expect I may read a bit more in May, but 6 books in a month I feel pretty good about. I added a few more titles to my shelf this month, but am always on the lookout for good recommendations. If you have any, please send them my way. 

Tuesday, April 28, 2020

A 401k Match is part of your compensation

Throughout our careers we have always saved a little from each paycheck towards retirement, mainly using our company sponsored 401(k) plans. Having studied Finance in college, I knew the importance of starting to save as soon as possible, but didn't really have much to save until I graduated and started working.

When choosing which type of account to use when investing for retirement, companies will often provide an incentive to do so by matching employee contributions to the company sponsored 401(k). We've been fortunate to have had employers with some very good matching programs and have always taken full advantage of the match.

While searching for jobs coming out of college, whether the company had a good 401(k) honestly wasn't that big of a factor for me in evaluating a job offer. I mainly just wanted to get a job, and frankly was just lucky that the job I got had a much better retirement savings plan that other companies that friends and family members work for.

The young me wouldn't have thought to ask for details about a 401(k) program before joining a company, but now I would never accept a job offer without knowing all the details about the company 401(k). At the end of the day, I know that I'll always contribute enough to get the match - so it's really part of my compensation. I don't know anyone who would accept a job not knowing the salary, and this is all part of that discussion.

Growing up my parents were either self-employed or worked for small businesses, so I wasn't as familiar with things like 401(k) matching programs. What I've learned as I've now worked for a few large companies is that finding a good match isn't as hard as I would have thought. Where it can be difficult though, is if you work for a small company as it is harder for them to offer costly perks

You can go to sites out like Brightscope to search for a company to get high-level stats on their 401(k) program, but it won't get you the specifics of the match. To give a sense for what we've seen throughout our careers, here are some details on plans we have participated in:

Company Employee Contribution Company Match Company Contribution
Job 1 5% 5% 0%
Job 2 6% 6% 10%
Job 3 7% 7% 10%
Job 4 5% 5% 5%
Job 5 5% 5% 2%

As you can see, we've been fortunate to always have a company match at least equal to what we put in. I've seen friends with as low as 25% match up to 4% (i.e. if he put in 4%, the company would put in 1%), and some with no matching whatsoever. We've never had a match less than dollar for dollar, and in all but one instance have had our company put money into our 401(k) even if we didn't put in anything.

Recently there have been companies making headlines for eliminating their 401k matching programs during the COVID-19 pandemic. Make no mistake, this is a pay cut. It may not feel like it right away, but it is. Hopefully these things come back quickly. If this does happen to you, go see what this does to your long-term retirement plan using something like the free tools on Personal Capital. At least half of our portfolio is directly attributable to 401(k) matching, so cutting this would have huge long-term consequences.

If you happen to find yourself looking for a new job, be sure to know the details of the 401(k) program and factor that into your total compensation when evaluating an offer.

Friday, April 10, 2020

March 2020 Net Worth Update - Millionaires no more

March was a doozy for our Net Worth, like it was for pretty much anyone else I know. It was also our first month of not having a mortgage payment though, and I was repeatedly surprised at how many times I found myself comforted during the market downturn because we had no mortgage. We ended the month with our net worth down nearly $67k, ending at $961,700

Having a >$1M Net Worth was nice, but just like our lives didn't change when our net worth went over $1M, nothing has changed now that it's back under $1M. Eventually the market will find a bottom, stabilize, and begin to recover. Meanwhile, we'll be dollar cost averaging into the market with each paycheck, so it's only a matter of time before we are back over $1M. 


Now with the house paid off, our next financial goal is to get our liquid net worth up to $1M. We've got a long way to go, but this new view for our household balance sheet breaks up our assets slightly differently to help me better see how we're tracking towards that goal. Here's a run-down of the different areas:

CASH

Our cash balance crept up this month since we didn't have a mortgage payment to make, and would have gone up more but we started a long awaited bathroom remodel and spent about $3k on some of the new materials. This total includes our checking and savings accounts, minus our credit card balance that we pay in full each month.

We should see our cash balance go up again in April as we're now expecting a refund for a cruise we paid for that we were going to go on in April, and like much of America we're holding off on large purchases (other than the bathroom remodel) until we have more information on the economic implications of COVID-19. I also have had my pay cut by a significant percentage for the foreseeable future, but will still be able to save money as we've been living on much less than the remainder of my income. 

PRE-TAX INVESTMENTS

This category includes all of our traditional IRA's and the pre-tax portion of our 401k's. Each year we convert funds from pre-tax to Roth, but not enough to actually bring down the balance of these accounts after earnings. These accounts are invested exclusively in broad based index funds.

While I have had a few years of my 401k contributions being pre-tax, over time we have done more Roth contributions than not. But because employer 401k contributions can't go in as Roth even when my own contributions are going in as Roth, we have ended up with more money in pre-tax accounts than after-tax accounts with the majority being the accumulation of years of generous employer matching contributions and the associated growth of those assets (with one short exception, every employer we've had has provided an employer match greater than 100% of our contribution).

ROTH INVESTMENTS

Our Roth Investments include each of our Roth IRA's and the Roth portion of my 401k. Typically I hold funds in our Roth accounts with higher long-term expected returns than the holdings in our pre-tax accounts to take advantage of the tax-free nature of the account. This means that in our Roth accounts we lean a little more towards international equities, hold absolutely zero bonds, and have done the occasional options trade or individual stock (I currently hold Amazon stock in my Roth IRA). 

My 401k contributions are currently going in as Roth, and new contributions are invested the same way for the Roth or Pre-tax funds. I don't quite max out my contributions, but with employer match will contribute over $20k/yr in total. Even though our cash flow would allow us to max out my 401k, I am choosing not to in order to build assets that are accessible before age 59 1/2. 

TAXABLE INVESTMENTS

The past several years we have been focused on paying off the house and only investing enough to get the company match in my 401k and haven't really invested outside of retirement accounts. We would like to be able to retire early so we'll need investments outside of our retirement accounts, which get penalized for withdrawals before age 59 1/2.

We have a long term investment account where we are investing in index funds, and another account designated as my trading account where I trade individual stocks. I'd like to be able to trade more actively, but my job doesn't allow me much time during the day to keep track of markets.

RESTRICTED STOCK

My job gives me restricted stock grants that I am including in our total net worth, but excluding from liquid net worth until they vest. Since I don't have plans to leave the company any time soon, I'm assuming that I'll be there long enough for the shares to vest. Upon vesting, my plan is to immediately sell since I don't believe in holding too much stock in the company I work for. I have seen far too many cases where people were heavily invested in their employer stock and it didn't end well. 

COLLEGE SAVINGS / 529s

We started these accounts a few years back but decided put a hold on contributions after only a year or two to focus on paying off the house quicker. To make up for lost time, we've now starting adding back to these accounts 3x what we were doing before. We received very minimal financial support from our parents in college and want to provide more for our kids than we got, but don't plan on fully funding their educations. We're still ~10 years away from needing to worry about this, so aren't too concerned about saving the amounts we're planning to provide. 

HOUSE / CARS

As I mentioned earlier, this month we started the demolition of our master bathroom and the associated remodel. We've basically gutted the bathroom down to the studs, but have decided to not do some of the bigger floor plan changes we originally envisioned that would have involved a lot more plumbing and framing changes. We're doing pretty much all the work ourselves and only have 1-2 days a week that we can actually dedicate to the project, so it may be a few months before everything is all put back together.

The value of our cars doesn't seem to change much anymore, since they are old enough to where they will mostly hold their value as long as we take care of them. I had to get a new battery for my car this month, but other than that we haven't been driving much and are lucky that our auto insurance company is giving us a 'shelter-in-place' rebate since so many fewer people have been on the roads recently and accidents are way down. 

So there you have it. Our net worth grow over $1M, we paid off our mortgage, and then saw our net worth drop back below $1M all in the span of just a few months. Paying off the house truly has given me such a different attitude in the midst of all of this uncertainty. Our investments lost more in March than the total value of all of our investments in 2008, and I haven't lost a wink of sleep over it. 



Sunday, April 5, 2020

March 2020 Reading Review

Like many of you, I've spent most of the month of March working from home. My workload is a bit heavier than normal as my company has been heavily impacted by the COVID-19 outbreak and I have been doing a lot of financial scenario analysis. Nevertheless, I still was able to finish 7 books in the month of March and wanted to document them here.

I have gotten to the point that if a book truly isn't good, I don't finish it. So the fact that I finished all 7 of these is a sort of recommendation for any of them. There are, however, some that were better than others and I've broken them out below.

My Best 3 Books of the Month:

Young Money: Inside the Hidden World of Wall Street's Post-Crash Recruits - Kevin Roose.
If you know a young person considering a career on Wall Street, this is a good recommendation. When Michael Lewis originally wrote Liars Poker, he says he thought it would have been a rebuke of the industry and was later surprised to see that it actually caused many people to flock to it. This book shows another side of the coin that reflects the reasons I chose to avoid this particular career path, mainly mental health and work/life balance. 

Where are the Customers Yachts?: Or a Good Hard Look at Wall Street - Fred Schwed Jr
Written back in 1940 yet remarkably still applicable, this book takes shots at Wall Street banks, the ways they make money, and the relationships they have with their customers. I enjoyed it and it was a fairly quick read.

The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution - Gregory Zuckerman
This was a fascinating view into one of the most successful hedge funds that you've probably never heard of (their flagship Medallion fund had 30 year average annual return from 1988-2018 was a whopping 39% after fees!). One part that repeatedly stood out to me is how the personalities in the book differ so much from the stereotypical trader and align with engineers, coders, or mathematicians. If you're looking for a more 'Wall Street' book, check out 'The Greatest Trade Ever', by the same author.

Other books I also read in March:

The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters - Gregory Zuckerman.
I didn't realize until I was going through this that I had actually read two books from the same author in the same month. Coincidentally I also happened to be reading this book when oil prices plummeted to their lowest point in years. When I first saw the drop in oil prices, my mind immediately went back to an article I read that caused me to want to learn more about the players in fracking and having now read this book, it further reinforces my belief that we're likely to see a lot of bankruptcies in the fracking space.

How Full is Your Bucket - Tom Rath
This was a really quick read and gave me a few things to think about but wasn't exactly life changing. I tend to be a pretty upbeat person already, and this caused me to think about how my attitude influences others. This is especially important in the workplace right now during uncertain economic times, and I have to try especially hard to brighten anyone else's day since my entire team is working from home 100% and has been for the last few weeks.

We Were the Lucky Ones - Georgia Hunter
This book follows various peoples lives and stories throughout the horrors of WWII, all based on true stories. I've read many similar accounts, and each one causes me to be thankful to live in the time and place that I do and to do my part to not allow the mistakes of prior generations to repeat.

Conquistador: Hernan Cortes, King Montezuma, and the Last Stand of the Aztecs - Buddy Levy
This one came recommended from a friend living in Latin America and dove into details of the Conquistadors I never knew about, but also hadn't ever thought about.

I welcome any recommendations you might have as I am plowing through my 'to-read' shelf and always need to be adding new titles.

Thursday, March 26, 2020

February 2020 Net Worth Update

February is usually our highest income month, and this year was our best yet. This year I used most of my annual bonus to make our final payment on our house! The market started to slump in the end of February, but we still managed to end the month with an increase in net worth of $9k to $1,028,625. 


CASH


Our cash balance is up to a much more comfortable level now, especially now that the house mortgage is paid off. Our fixed monthly expenses are down by quite a bit, so what was once a ~5 month emergency fund all of the sudden became a ~9 month emergency fund. As of the end of February, storm clouds appeared to be brewing for my job and the economy as a whole, so we're comfortable not deploying this cash right away. 


HOUSE / MORTGAGE


Did I mention that we paid off our house? I've gone through some rough economic times, including being a financial advisor throughout the 2008 crisis. I know that people who work for me may be worried about their jobs and the market, and I do what I can do provide advice and comfort. What I was not expecting was how calm I feel through the midst of uncertainty knowing that I not longer have a mortgage. I never realized how much stress it caused me to have a mortgage until I paid it off and it truly is a weight lifted off of my shoulders. 

INVESTMENTS


Even though we aren't ready to invest all of our excess cash, we have started to automatically invest monthly outside of our retirement accounts and started adding back into our 529 savings accounts. I'll be showing a different breakout of our accounts in future months, but until this point almost none of our investments have been outside of retirement accounts. 

There is a part of me that has wanted to be opportunistic and buy into a down market with large chunks, but we've decided to stick with our plan to automatically invest monthly and not allow emotions to cause us to deviate from that set schedule. The difference in days between investing when we think we see the right opportunity and our normally scheduled purchases won't make a difference in the long run, so I'm keeping this hands off. 

In February I also did a Roth Conversion, something we try to do at the beginning of each year. Sadly, the amount we converted is already down in value and we'll still be responsible to pay taxes on the value at the time of the conversion. Prior to 2018 it was possible to undo a conversion to avoid this exact situation, but that is no longer an option. I'm still happy with did the conversion, and will continue to do them as quickly as we can afford.

OTHER


Similar to January, I also read 10 more books in February. Here are some of the best ones:

The Rosie Project by Graeme Simsion. I don't read much fiction, but this one came recommended by Bill Gates, and I have always enjoyed his recommendations (I also wish I could read as fast as he does). The main character in this book is a very quirky professor of genetics whose methodical routines are ruined when Rosie enters his life. 

Dopesick: Dealers, Doctors, and the Drug Company that Addicted America - by Beth Macy. The opioid crisis in our country continues to destroy thousands of lives and this book goes into the story of how Oxycontin spread so rapidly and then how addicts have gone from popping pills to injecting heroin. I've read a few books on this topic, I like the way this was one written, following the lives of multiple users and learning each of their own unique paths.

Monday, February 24, 2020

We Did It!

As of this month, we are officially MORTGAGE FREE! Our mortgage servicing company had this nice note posted the day after we wired them the final payoff but it still hasn't sunk in. 


I've been at the same company now for almost 7 years and have received progressively larger bonuses each year. Most of those years, we've taken pretty much the entire bonus and used it to pay down our mortgage. We're very fortunate to have a high income, but at the same time I also know co-workers who make as much or more than me who are nowhere near paying off their homes. 

When the direct deposit hit, I had all the information ready to get the wire transfer out and within about an hour of getting the deposit I had sent the wire to our mortgage company for the last and final payment. You could say I was a little excited. The next day, we celebrated by taking a long weekend family trip to one of our favorite spots just a few hours drive away. 

We have had a mortgage payment pretty much consistently for the past 13 years on three separate houses. We've become so accustomed to making monthly payments that it still doesn't seem real that we'll never have to make another mortgage payment. I'm really looking forward to the first paycheck I get in March that won't have to go straight towards the mortgage, maybe then it will seem real.

Saturday, February 22, 2020

January 2020 Net Worth Update

January was a fairly unremarkable month for the DIY$ household financials, but we did manage to have our net worth creep up by $2,811 to $1,019,162. Read on to see how things all shook out. 



CASH

The only somewhat concerning change in January was our cash balance dropping below $20k. I'm not super concerned since I'm getting a bonus in February that will fill it back up, and this is only because we had to make final payments towards a vacation we have planned for later in the year with the kids.

HOUSE / MORTGAGE

I love seeing our mortgage go down, and dropping below $20k is a fun milestone. I get paid twice a month and for several years now we have basically been using one paycheck to live on, and throwing the other paycheck entirely towards the mortgage. We are on track to have the mortgage fully paid off in February and I'm not sure what it will feel like to have an entire paycheck each month not be automatically spoken for. 

OTHER

In other news, I had to make a trip to India in January for work. It was my first time to that part of the world and I really enjoyed my time there. The long flights and time away from family weren't fun but did help me complete 10 books in the month of January, starting the year well ahead of my standard goal of 52 books per year. 

The best books I read last month were:

Shoe Dog by Phil Knight. This is the story of Nike as told by the founder. It's a fascinating story, and one thing that really blew me away how many times the company teetered on the edge of insolvency despite massive annual sales growth. 

Talking to Strangers by Malcolm Gladwell. I've read every book Malcolm Gladwell has published and this one was a different topic from his other books but was still the same well crafted narrative style I enjoy. Among other things it talks about the snap judgments we make interpreting body language of strangers and how to identify internal unconscious bias, something we'd all do well to root out. 

Saturday, February 8, 2020

2019 Year End Net Worth Update

2019 was a great year for the DIY$ household finances. We had our highest income year ever (thanks to a promotion and two pay raises), saw huge gains in our portfolio, and banked a lot of our income towards paying off our mortgage. We got soooo close to paying off the house, but still need a couple of more months to get it completely paid off. 

For the month of December, our net worth went down a bit, mainly because Zillow shows the value of our home down a lot. This happened a year or so ago and quickly went back up, and I'm using the their figure to stay consistent.  


Even with a $33k reduction in home value, we still ended the year at $1,016,351

The end of the year is also a good time to take a step back to see the progress we've made over a longer time frame. 

In 2019, our net worth grew by nearly $200k, our largest annual gain ever. This is more than I earned in 2019 so it's really nice to see the impact of our investment earnings added to our regular savings. 

A few observations:
  • I know we've been putting a lot of money towards paying off the house, but seeing that it was $65k in a single year was little surprising. We'll have it completely paid off soon, and it's crazy to think that we could increase our other investments/savings at that rate once the mortgage is done.
  • Once the house is paid off, I'll be viewing our net worth slightly differently. The plan is to look at our liquid assets separately from our other assets (house, cars, etc) as we focus on the next goal of reaching $1M in liquid assets.
  • Our cash balance is creeping lower and will get even lower before it jumps back up at bonus time. I would much rather be in a position where I am waiting for a bonus to replenish my cash than to need the bonus to pay off consumer debt. When I was a financial advisor, we were paid quarterly bonuses and some co-workers would consistently rack up credit card debt each quarter, relying on their bonus to dig out of the hole they dug.
  • 2020 is off to a good start for our finances, but not without uncertainty similar to any other year. Our spending habits are mostly the same, but we do have some celebratory spending planned shortly after paying off the house. 
  • Most of what I've put on this site has been 'money stuff', and not very much 'DIY'. This year we'll be starting a pretty major DIY project at our house and I plan to document more of that.