Just Like a YoYo

Wow, you go away for a week and the market goes nuts. Down an unprecedented 600 points the day before Christmas? Up 1,000 points the day after Christmas? What is going on?

In my opinion, the market is still unsure of where the economy is going to go in 2019, and there are a lot of scared people running out of the market right now, trying to find safety. This is forcing mutual funds to sell at a prodigious rate, often times having to sell their winners in order to generate sufficient funds. It’s almost a self-perpetuating drop, as each new drop pulls the next group after it. The overall drop was around 20% from the market high, which brought us into “bear” territory. Time to panic and sell?

The problem is, as was just demonstrated with today’s 1,000 point jump, you not only have to get out before it drops and you have to get back in before it starts going back up again! Or you can do what so many good investors do, and don’t worry about it.

Stick to your plan. Invest regularly. Dollar Cost Average. Diversify. Take advantage when folks panic and sell at bargain basement prices to pick up some deals. The mutual funds that folks have shed will be there, ready to jump back up again shortly.

In a previous posting, I talked about the P/E ratio. The P/E ratio had dropped down on Dec 24th to 18.03 – still higher than its mean of 15.73. This was back below its Jan 2014 number. Still higher than its mean though, so we could have more to go before we get back to an average market.

I still have over 18 months to go before I hit my FIRE date. The typical market downturn is 12-24 months, which is why they tell you to have 1-2 years in savings bucket, to weather that storm. So I intend to stay with the plan, and keep investing.

How about you?

Other Bloggers on the topic:

Mr. 39 Months

Well I screwed up…..

 In working through my “Power of Zero” philosophy and plan, which included doing a Roth IRA conversion from my IRAs to Roth (in the hopes of keeping my taxes low to non-existent in retirement) I failed to take into account hitting the limits on who can pay into a Roth.

In order to put money away into a Roth, you have to have a Modified-Adjusted Gross Income(MAGI) less than $135K for singles, and $199K for married couples. Note that it starts phasing out at $120K and $189K. Modified Adjusted Gross Income is before you put in your deductions ($12K and $24K in the US). If you are over these limits, you cannot put money into a Roth IRA. You can put it into a regular IRA, but you can’t deduct the income for tax purposes (so what good is that?)

In this case, I converted over $100K from regular IRA to Roth, and combined with our regular income for the year, its going to push us over $200K. Thus, I am going to have to “claw back” $13K of my Roth contributions for 2018. Uggh!

I have heard that you can invest that into a regular IRA, and then at a later date (since you have already paid the taxes on it) convert it to a Roth with no tax implications. I’m not sure about that, but I am going to investigate it. I’ll let you know at a later date.

So for 2019, if I do a Roth IRA conversion, its only going to be for about $50K, so I can make sure that I stay under the amount. Don’t mess up like I did!

Mr. 39 Months

Frugal Win – getting gifts out early

         

Like most folks in the US today, I’m separated from my family by some significant distance. The closest family is 1 hour away, Mrs. 39 Months is 3 hours, and mine is 10+hours. We are scattered all up & down the Eastern seaboard – and we are starting to go out West (Utah). As you can expect, sending out Christmas presents can be a daunting (and expensive) task.

Typically, we end up not assembling our gifts until last minute, so that, in order to get them to the family on time, I have to spend a lot of money to pack & ship them(hundreds of $). For the most part, I have simply acknowledged that this is the way it is.

However, this year I have a business trip the week before the holiday weekend, so if we didn’t get it out this last week, then I pretty much had to accept the fact that it was going to arrive after the holidays. Instead, both Mrs. 39 Months and I worked to get everything purchase, made, boxed up & wrapped by the middle of last week. Then I could get it shipped out before having to head out on my trip.

Surprise, if you do this, then you can use the US Post Office and cheaper UPS ground to ship out.Overall, my shipment costs were less than $100 for the year, vs. $250+ for most years. That is with a significant larger number of packages going out (family is scattering more, as the nieces/nephews leave college and start into their first jobs).

So if you can plan early (and most FIRE folks are significant planners) then you should be able to save yourself some money on shipping for the holidays!

So how are you further saving money this holiday season?

Mr. 39 Months

Budgeting for the next year – when do to it/how to do it?

Typically it is around the middle of December when I start looking at my budget for the next year. By then, I’ve got 11 months of spending under my belt and I have a pretty good idea of what my spend has been. From that, I hope to be able to predict my spending for the following year.

I start off with a short review of the current years financial goals vs. where its looks like I will end up. In this case, while my investments have not done that well (thank you market), I still was able to save over 50% of my salary – the first time I’ve ever done that much! In addition, we remain debt free, and I am 12 months closer to FI. We did dip into our savings account somewhat this year, due to some medical bills (sucks to get into your mid-50s), so our savings account isn’t where I believe it should be.

From there, I try and set my budgetary goals for 2019

  1. Continue to budget to have excess funds for the year (i.e. don’t depend on debt)
  2. Put away more for medical (got caught short this year)
  3. Continue to try and keep my savings rate in the mid-to-high 40% range
  4. Continue to fully fund Charitable spending at the rate I did last year ($400/month)

With that in mind, here is a comparison of my monthly spend for 2018, and my budget for 2019.

Revenue Base 2018 Month Jan-19
$4,543.10 $4,456.42
$0.04 $0.04
Total Revenues $4,543.14 $4,456.46
Expense
Home
Property Taxes ($515.43) ($515.43)
PSE&G ($208.42) ($208.42)
Verizon ($279.15) ($279.15)
Water Bill ($33.55) ($33.55)
Life Insurance ($43.95) ($43.95)
Home/Auto Insurance ($219.79) ($219.79)
Investments ($333.33) $0.00
Groceries ($454.03) ($454.03)
Medical ($334.70) ($334.70)
Roth IRAs ($1,166.67) ($1,166.67)
Savings ($100.00) ($100.00)
Charity ($400.00) ($400.00)
Dining Out ($160.26) ($100.00)
Home Repair ($277.93) ($150.00)
Other ($57.91) ($50.00)
Total Expense ($4,585.12) ($4,055.69)
Operating Revenue ($41.98) $400.77

You will notice a significant chunk of funds being leftover at the end of the month. This is a little misleading, as I get paid every 2 weeks, so every 6 months, I get an extra paycheck. Thus, on a real monthly basis, I’ll be a little in the black until that 6th month. My intention is to dump that extra paycheck into savings to get it back where is used to be.

You’ll also notice that my take home pay actually went down about $100/month. That is because I didn’t take enough out in taxes and didn’t realize it until over halfway through 2018. I’ve corrected it, but the result is $100 less a month in income.

I also have a personal account which I pay myself $1100/month. I use this for paying for my lunch & travel food, gas, hobbies. Etc. I follow the same method to do that one, and plan on coming in each month “in the black”.

Some of the categories may seem outside the norm for FI people (groceries, dining out,etc.) but we intend to live some of life for now. Also, you can see that property taxes are pretty expensive in NJ – and my $6K a year is actually quite low for the state (its typically 2-3 times that).

With this in line, I can now go to my banks and investment sites and set up automatic transfers. I typically track my budget monthly, and make adjustments every 3-6 months, based on how I am doing.

Other articles on budgeting

What are you doing to plan for 2019?

Mr. 39 Months

Frugal idea – use your hobby to provide presents for the holiday

I have talked before of one of my main hobbies, woodworking. As folks reach a certain age, they tend to prefer experiences and demonstrations of love/attention more than they want “stuff”.This is the perfect opportunity for the frugal FIRE enthusiast to both save money and demonstrate more attention to their loved ones than someone who just runs out and “buys something.”

One of the problems I have is to create something that would be useful to my friends & family, but not too large. I’ve done an arts & crafts bookshelf that went together with pegs (rather large) and a Japanese inspired two-sided picture frame. Both were big hits.

For this year, I chose to go with smaller items, but to expand the number of folks I gave gifts to. I chose two simple items that I could make from “scraps” of wood in the shop. For folks who don’t realize it, working in wood (or really any material)tends to leave you with lots of spare pieces of lumber/material that you don’t need, and end up taking up space. Finding ways to use this is a great idea, and another way to be frugal.

The first item is a small candle/tea light holder. It is made from a series of 1-7/8” squares of various lengths, set into a pyramid structure (see picture). A 1-1/2” whole is drilled in each of them to hold the tea lights, and then they are assembled and glued together. The build probably takes about an hour for each, but you have to break it up into small blocks of time, due to the time it takes the glue to dry.

The second item is a simple pen & pencil holder. Taking a large block of wood, cutting two deep holes in it (for the pens & pencils) and then shaping the ends into a gentle curve with a bandsaw and then sanding. These will be for the nieces and nephews.

Again, these aren’t significant projects, but they are demonstrations of love & affection,often prized more than if you went out and bought something.

What do you do for fun that you can leverage for a holiday gift?

Kevin

Investment update for December 2018

Well, despite some of the headlines we’ve seen about the market tanking again, November was an “up” month for me in comparison to how October left me. It just continues to show how the markets work (up one minute, down the next, but overall following an upward, though jerky, trend).

I believe a lot of folks don’t realize how much the Fed has an influence on the markets. For the 7-8 years after the “great recession” of 2008-2009, the Federal Reserve, or Fed, pumped a huge amount of money into the economy in order to keep deflation from happening. Due to that amazing amount of easy money, the markets responded by essentially tripling in value over that time. However, over the last year or two, the Fed has been increasing interest rates and pulling money out of the market. The result is that the markets are having a hard time, with the Fed putting the breaks on.

Many companies are enjoying strong profits, and the P/E ratio of the S&P 500 is 22.05 (est.) which is what it was back in 2015. Think about that, companies are more profitable than they were in 2016 (total return 11.96%) or 2017 (total return 21.83%) – but they can’t increase their price. There just isn’t much new money in the system, and it appears that the profits from 2016 and 2017, at least, were partially driven by easy Fed money.

So what to do? I plan on staying the course, like so many others of you. Over time, the market will increase. We will just have to weather the ups & downs.

Retirement Accounts: Remember, my allocation for these is:

  • 30% Bond Index Fund
  • 17.5% S&P500 Index Fund
  • 17.5% International Index Fund
  • 17.5% Small Cap Index Fund
  • 17.5% REIT Index Fund

So for the month, I’m up about 2%, with the big gainers kinda matching the big losers of earlier in the year.

  • S&P500: +2.8%%
  • Small Cap: +5.5%
  • International: +1.9%
  • Bonds: +0.8%
  • REITs: +3.9%

My 401K/Deferred account at work is up a similar amount

Dividend Income Account: Allocation:

  • 25% Dividend Stocks
  • 25% REITs
  • 50% Bond Index Funds

This is up about 2.3%, with several of the REITs (especially HealthCare) going up strongly. Many of the dividend stocks (Chevron, Cisco, etc.) bounced back after big loses. Bonds went up, although my total bond market index greatly outpaced by intermediate bond index fund.

Value Investing Account: I sold off my value stocks in late November to pay for my Roth IRA rollover. I rolled over about $100K from regular IRA to Roth, and paid the taxes out of this “fun money” account. Due to the losses of the stocks, I was able to “harvest the tax loss” and reduce my taxes a little for 2018.

Allocation now:

  • 39% USAA Market Index (my brokerage is USAA)
  • 61% in Vanguard Value Index fund

Both of these were up in November. USAA’s extended market was up 1.8%, but Vanguard’s value index was up 5.1%. Again, these guys both got hit last month, so for the most part, it was gaining back ground.

For the year, I am down 1.99%, so I am hoping for a strong December to at least get me into positive territory for the year. So far, it hasn’t worked out that way. I guess we will see at the year end round up.

How did you do in November?

 

Mr. 39 Months

How to stand out and excel in life

One of the things that I was talking about with Mrs. 39 Months last night was the lack of drive or inquisitiveness of many people at work or in their life. It seems that both of us have a hard time understanding why people don’t question more, ask more, attempt more as they go through life. I don’t think either of us could work on one of the old fashion assembly lines where you do the same thing, over and over, for 8+ hours.

Yet there are many people who are perfectly happy & content with that kind of work life. They have a set structure, steps 1-7 that they do over and over, and they can do it in their sleep. They don’t stress out or have to keep their minds focused because it is routine. It is only once they leave their work that they truly start to “live.” Then they get to focus on their friends, parties, hobbies, and time away. Cue Drew Cary’s funny exploration of the song “Five O’Clock World”.

I can’t tell which type of person the FI community falls into. The typical FI person is very focused and able to work towards the goal, while exploring new options for enhancing that path. Yet, so many FI folks you read are trying to get away from the current job, similar to the second class of folks.

I do see a lot more FI articles from folks who have reached early retirement prodding people to look at what their life will be afterwards, and to plan for that. We need to be moving towards something and working on being our best as we strive towards FI.

I’ll leave you with something that has stared buzzing around the interwebs lately, the writing of Coach George Raveling (who Michael Jordan just calls “Coach”).  His article “23 life choices you are in control of” is a good read.

  1. Be YOU, not them.
  2. Do more, expect less.
  3. Be positive, not negative.
  4. Be the solution, not the problem.
  5. Be a starter, not a stopper.
  6. Question more, believe less.
  7. Be a somebody, never a nobody.
  8. Love more, hate less.
  9. Give more, take less.
  10. See more, look less.
  11. Save more, spend less.
  12. Listen more, talk less.
  13. Walk more, sit less.
  14. Read more, watch less.
  15. Build more, destroy less.
  16. Praise more, criticize less.
  17. Clean more, dirty less.
  18. Live more, do not just exist.
  19. Be the answer, not the question.
  20. Be a lover, not a hater.
  21. Be a painkiller, not a pain giver.
  22. Think more, react less.
  23. Be more uncommon, less common.