Change to Allocation

I continue to be stunned and surprised at the increase value of the market as the year continues. From its March 2020 low point of 2,237.4, the S&P500 has now hit $4,524.09, basically doubling in value in 17 months. It seems like the market will just keep going up & up!

We all know this isn’t possible, but folks have been betting against the market (including me) for months now, and we continue to get it wrong. That’s why its always important to stay in the market, no matter what. Don’t pull your money out, because by the time you figure out the market has turned back up, you’ve already missed a significant amount of gains.

That being said, I have had two major concerns at this moment:

  1. The presence of high inflation may continue and force the fed to raise interest rates. If so, that will do some damage to the returns of my bond funds (which haven’t performed very well comparatively for the last several years).
  2. The S&P 500 continues to be way overvalued, with P/E ratios more than 2X historical values.

So I made the decision to make some changes to my investment allocation.

  • Change Bond allocation from 20% to 10%, reducing my exposure to the Fed raising interest rates
  • Change S&P500 allocation from 20% to 15%, reducing my exposure to the “overvalued” S&P
  • Add 15% allocation to dividend stocks – typically those steady stocks that continue to throw off income, even when the market sinks somewhat

While you could say that this might reduce my returns by reducing my exposure to the S&P 500, I actually have increased my stock allocation from 60% to 70%. I’ve just changed some of the stock investments to dividend stocks, which may not grow as fast, but should grow and throw income off better than bonds in the current environment.

So, my new allocation for my IRAs is:

  • 10% bonds
  • 15% dividend Stocks
  • 15% S&P 500
  • 20% Small Cap stocks
  • 20% International stocks
  • 20% REITS

We will have to see how that goes in the near future.

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Mr. 39 Months

Blogroll Purge IV – Aug 2021

I have written several times before about the need to clean up/purge the blogroll to the right, so that viewers can get recent, up-to-date commentary on FIRE related topics (and other areas that I’m interested in).

People stop writing in their blogs for a variety of reasons. Some folks like Cracking Retirement, just exhaust what they want to say, and decide to step away – and take the opportunity to announce it on their blogs.

Others do a “slow fade” and stop posting regularly. What I always try to do is leave them up for several months, in the hopes they will get “re-inspired” and start posting again. After 3+ months, my thought is that they will probably not be returning – so I drop them.

This gives me the space and opportunity to put up new bloggers and commenters on the blogroll, and introduce people to other ideas. Hopefully its of service to you.

Enjoy!

Mr. 39 Months

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Quarterly Update – July 2021

Well, it’s now August, so I’d better report out on how the first half of the year went. The Chinese Flu continues to cause concern and create issues throughout the country, and it looks like we may be heading back in for lockdowns. Not sure what effect that is going to have for the economy in the 2nd half of the year, so we’ll see. I’m not sure the American

My Goals for 2021 (some financial, some not):

Finance:

  • Save $29K in tax-advantaged accounts – 401K, and Roth IRA.  Grade A. Saved $4.8K in our 401Ks for the 1st qtr. Due to the size of my bonus, I’m not going to be eligible to do a Roth IRA contribution in 2021, so I’m just putting that money into my regular account.  
  • Save $41K in regular accounts.  Grade A. Put my bonus and additional funds in, so that’s $35.5K for the first half of the year. Great start.
  • Increase dividend income from all accounts to $27K/year (compared to 29K in 2019). Grade C. Dividends are still down for the year in the major accounts/mutual funds. Was only able to put $6.1K in for 2nd qtr, which leaves me at almost $11K for the year. Need 3rd and 4th Qtrs to be bigger than last year.
  • Passive income covers 38% of base living expenses in retirement, estimated at $78K per year. Grade C, covered 30% for the first half of the year. However, my 401K and Deferred don’t report dividends separately, so I may not be getting the full amount. We will see.
  • Beat net worth growth rate of 7%. Grade A. Due to market and real estate value, the new worth is up 12.2% for the first half of 2021. Very hard to believe.  

Business:

  • Attend twelve SJREIA meetings. Grade A; I’ve attended ten in the first half of 2021. My local market is pretty heated (like so many others). Still, its good to get the information.
  • Double the number of blog visitors in 2020. Grade F. Still not a large number of folks reading – maybe a little bump from last year.  Only 3,000 “hits” for 2021.
  • Sell $1,000 on TKD Woodworking (my side-hustle name). Grade: Incomplete. Made my first sale at the end of June – $71! Had some additional sales in July, as well as a commission sale, so we’re off and running!
  • Setup funding for TKD homes. Plan to get into real estate means setting up funding. While I’ve got a significant amount of money set aside to start this, I also need to explore additional funding methods.
  • Write/publish a book on finance.  Grade F: Haven’t done anything on this for a whole year. Not sure how to reboot this – need to try.

Personal:

  • Regular Workouts with Gymanstic Bodies internet system: Grade C: Was still doing this at the beginning of the quarter, but then got a shoulder injury and have been going through physical therapy for it. I am doing my PT religiously though – not sure if this counts.
  • Average 2 hours of cardio per week, which is about what I’m doing now. Grade A. Walking daily, so actually doing at least 3+ hours.
  • Backpack over 100 miles on AT (did around 50 miles in 2020). Grade: Incomplete. Did 29.8 miles in April. Plan to do 60 miles in August, and another 30 miles in September, so it looks like I’ll hit this goal.
  • Continue volunteering at Pennsbury Manor at their joiner’s shop (woodworking). Really enjoyed this. Incomplete. Site is still closed down
  • Reduce weight by 15 lbs. from Jan 2020 Again, I want to get in better shape as I get closer to financial independence. Grade C. I was down 3 lbs in 1st qtr, but only 1 lbs for 2nd quarter. Still have a long way to go, and the virus is keeping me from eating as healthy as I’d like.
  • Read at least one book a month. I surpassed this goal in 2018, and re-learned the joy of reading. Grade A. Six more books in second quarter and I really enjoy it.

Travel:

  • Visit one national parks (that is the plan, right now). Grade: Incomplete
  • Visit family in Tennessee, Vermont and New York. Family is very important to me. One of the things I am looking forward to with financial independence is the opportunity to visit family more often. Visited brother in VT. I would like to go to NY for my wife’s family, but she’s reticent due to the Covid. Grade: Incomplete
  • A week with Mrs. 39 Months for our 35th anniversary. Grade: Incomplete. We spent our 25th in Vermont with my brother, but it was only a 4-day weekend. Still, it was nice to get away.
  • Visit Ellis Island. Still want to do this – its so close. As 50% Czech from immigrant great grandparents from the turn of the century, I believe they went through there, and I want to see it. Grade F. Cancelled.

How did your second quarter go this year?

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Mr. 39  Months.

Rebalancing – July 2021

I’ve written before about performing regular rebalancing of your investments. This makes you sell off your items which have become too much of your allocation due to increase, and purchase of items that are low in your allocation, due to decrease in value – basically buying low and selling high. I usually do this fairly regularly, every six months.

African elephant female and her baby elephant balancing on a blue balls.

Since rebalancing does incur some costs, you don’t want to rebalance too frequently – but you do want to do it. Recently, I’ve read several articles on the subject (including this one from thebalance). The suggestion from many of them is not to do it on a specific, regular date, but when your portfolio shifts in a significant amount – usually 20% above your allocation or more (i.e. if you have your S&P allocation of your portfolio be 25%, when it is either goes up to 30% or down to  20% of your allocation, then it would be time to rebalance).

I’ve rebalanced fairly regularly every six months, but I thought I’d give it a try for 2021 and 2022. At this point, my allocation hasn’t shifted enough to be 20% off for any of my asset classes. 

I’ll let folks know when it does.

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Mr. 39 Months

Investment Update June 2021

Well the market and our investments continue to move up overall, with the typical ups & downs by investment class. We continue to be on track with what we are looking to add in 2021, and our allocation plan has not really changed. Like a lot of folks in the FIRE community, once you get everything set up, automated and regular, it gets a little boring. Kinda “Steady as she goes.”

Our allocation remains pretty much the same as when I set it back at the beginning of the year, and back in 2020:

  • 20% Bond Index Fund
  • 20% S&P500 Index Fund
  • 20% International Index Fund
  • 20% Small Cap Index Fund
  • 20% REIT Index Fund

My 401K doesn’t have REIT option, so it’s just 25% for each.

Overall, our investment classes performed as follows:

  • Bonds were up about 0.7%
  • S&P was up 0.7%%
  • International was ups 3.2%%
  • Small Cap up 0.1%
  • REIT Index up 0.8%

I also have a Vanguard value fund (VVIAX) where I put in my after-tax investment money. That was up 2.9% for the month. I’ve been seeing a lot of articles of Value funds and ETFs doing better than the S&P500 – I guess we’ll see. I may do some additional research and write about this in the future.

My dividend account new allocation (as of Jan 2020) was:

  • 50% Dividend Stocks
  • 50% REITs

The dividend paying stocks were up an average of 1.8%, and the REITS were down an average of -1.6%, so we’re roughly even for the month of May.

One of the things I did this month was shift my automatic investment amount from my Vanguard Value fund to savings. Its my intention to do a Roth conversion of some funds from my regular IRA to my Roth by the end of the year – because I believe taxes are going up in 2022. I want to try to shift as much as possible into the ROTH, and I’ll be using the money I normally put into investments to pay the taxes on the conversion.

Hope everyone is healthy and your market returns for the rest of the year go up!

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Mr. 39 Months

Quarterly Update – Apr 2021

Well, it’s mid-April, and the year has started out fairly well, all things considered. While the Chinese Flu continues to cause concern and create issues throughout the country, for the most part it appears the economy has continued to move forward, markets have stabilized, and the world moves on. There are still a lot of issues out there, but hopefully we are turning the corner.

My Goals for 2021 (some financial, some not):

Finance:

  • Save $29K in tax-advantaged accounts – 401K, and Roth IRA.  Grade A. Saved $4.1K in our 401Ks for the 1st qtr. Plan to put my $14K bonus into the Roth in 4th Qtr once I know my tax status.
  • Save $41K in regular accounts.  Grade A. Good start.
  • Increase dividend income from all accounts to $27K/year (compared to 29K in 2019). Grade C. Dividends are down for the year in the major accounts/mutual funds. Was only able to put $5.8K in for 3rd qtr, which leaves me at $17.6K for the year. Unless 4th qtr is a “gang buster” dividend time, I won’t hit it.
  • Passive income covers 38% of base living expenses in retirement, estimated at $78K per year. Grade C, covered 23% of 1st qtr. However, my 401K and Deferred don’t report dividends separately, and usually 1st qtr isn’t a heavy dividend quarter. We will see.
  • Beat net worth growth rate of 7%. Grade A, because we’re up almost 3% / $70K for the year already.  

Business:

  • Attend twelve SJREIA meetings. Grade A; I’ve attended six already, just in the first quarter. My local market is pretty heated (like so many others). Still, its good to get the information.
  • Double the number of blog visitors in 2020. Grade F. Still not a large number of folks reading – maybe a little bump from last year.  
  • Sell $1,000 on TKD Woodworking (my side-hustle name). Grade: Incomplete. Website is up and running, I’ve tested the e-Com, and it appears to be fully functional. I’ve got two reservations at a local craft fair/farmer’s market. We’ll see how it goes.
  • Setup funding for TKD homes. Plan to get into real estate means setting up funding. While I’ve got a significant amount of money set aside to start this, I also need to explore additional funding methods.
  • Write/publish a book on finance.  Grade F: Haven’t done anything on this for a whole year. Not sure how to reboot this – need to try.

Personal:

  • Regular Workouts with Gymanstic Bodies internet system: Grade A: I’ve gone through all the starter programs. Almost ready to start on their phase I program.
  • Average 2 hours of cardio per week, which is about what I’m doing now. Grade A. Walking daily, so hitting this.
  • Backpack over 100 miles on AT (did around 50 miles in 2020). Grade: Incomplete. Actually just got back from 4-days, 29.8 miles in Virginia, so I’m off to a great start.
  • Continue volunteering at Pennsbury Manor at their joiner’s shop (woodworking). Really enjoyed this. Incomplete. Site is still closed down
  • Reduce weight by 15 lbs. from Jan 2020 Again, I want to get in better shape as I get closer to financial independence. Grade B. I’m down 3 lbs in first quarter, but still have a long way to go, and the virus is keeping me from eating as healthy as I’d like.
  • Read at least one book a month. I surpassed this goal in 2018, and re-learned the joy of reading. Grade A. Six books in first quarter alone and I really enjoy it.

Travel:

  • Visit one national parks (that is the plan, right now). Grade: Incomplete
  • Visit family in Tennessee, Vermont and New York. Family is very important to me. One of the things I am looking forward to with financial independence is the opportunity to visit family more often. Need to get up to see my brother in Vermont. Grade: Incomplete
  • A week with Mrs. 39 Months for our 35th anniversary. Grade: Incomplete
  • Visit Ellis Island. Still want to do this – its so close. As 50% Czech from immigrant great grandparents from the turn of the century, I believe they went through there, and I want to see it. Grade F. Cancelled.

How did your first quarter go this year?

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Mr. 39 Months.

Should you plan for inflation in 2021?

There have been talks for the last several years about the potential for inflation, and the effects it would have on individuals spending, investments and lifestyle. The inflation rate has jumped around significantly throughout the 20th century, and it wasn’t until Reagan and Volker (in the 1980s) took the steps to “slay the inflation dragon” and get it to a more controlled level, without the wild swings in the past (it went from 4.7% in 1976 to 13.3% in 1979!).

Since the 1991, the inflation rate has stayed under 4% every year, and average around 2% for the last two decades. Whole generations have grown up without the threat of watching their purchasing power melt away over a short period of time. Some argue that the CPI (Consumer Price Index) is not measuring accurately, and that the key items for living (shelter, food, transportation, etc.) have been going up at a much higher rate than the CPI index shows. This is similar to the Monevator’s article on personal inflation rate I noted earlier in the year.

Now with the huge amount of government spending over the last year (added to the large amount of government spending since the 2008-2009 crash) has led to renewed articles on the potential for inflation in 2021 and its effects. Stocks continue to rise well above all levels of base P/E ratios, and more people are talking about a bubbles. So what can you do?

I’ve written before about having a SHTF plan and what you can do to prepare. The key is to look at the items that will increase in value, and do things to ward off the effects of rising prices.

  • Invest in stocks vs. Bonds. Bond rates typically don’t keep up with inflation rates, so you can lose buying power, while the stock price of companies tend to go up at a better rate
  • Invest in hard assets to hedge (gold, oil, etc.). As the purchasing power of a dollar goes down, these items will increase in value.
  • Real Estate: Inflation typically makes real estate values shoot up (see house prices in the 70s). They’re already on the rise now – which lends to the belief that we are already experiencing inflation

The last bit of advice I have in regards to this is the opposite of what you typically should do in times of high inflation. The base suggestion would be to take out loans (especially low interest loans) with today’s dollars, and then when the dollar inflates, you can pay the debt off with lower value dollars. My suggestion in times of high inflation is to pay off your debt – not take on more. High inflation times are uncertain times, and job losses and economic disruptions happen. Having little or no debt will help you to weather through these tough times.

My hope is that we don’t see anything major happen in the next decade or so. However, I am very concerned at the out of control spending at the federal level. It just isn’t sustainable.

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Mr. 39 Months

Investment Update Jan 2021 – they did it again!

If you remember, at the end of last month, I noted that the market appeared to take a small dive right at the end of the month. In January, the market dropped about $40K in the last week, leaving me from a +3.0% to a -0.5% return for the month.

In February, I checked the market on Thursday, Feb 25th in the morning, less than 36 hours before then end of the month, and I was ups over 5% for the month. Yeah, baby! By Saturday morning, however, when I went to check it, the market had dropped close to 3% again, and I was only up 2.8% for the month. Still up over $41K, but not the $70K plus that it was on Thursday. They did it again!

In talking with some folks in the community, we all agreed that it was madness to be checking the market continuously. It is s also to be noted that all these gains/losses are just paper gains/losses. Until you sell the stock/mutual funds/ETFs, its all on paper, so it doesn’t do you any good to cry over a loss or crow over a gain. Just track it and see how it does over time.

So how did I do for the month of January? Overall, pretty good.

My allocation remains pretty much the same as when I set it back in July 2020:

  • 20% Bond Index Fund
  • 20% S&P500 Index Fund
  • 20% International Index Fund
  • 20% Small Cap Index Fund
  • 20% REIT Index Fund

My 401K doesn’t have REIT option, so it’s just 25% for each.

  • Bonds were down about -1.8%
  • S&P was up 2.8%
  • International was ups 2.3%
  • Small Cap up 6.1%
  • REIT Index up 3.4%

I also have a Vanguard value fund (VVIAX) where I put in my after-tax investment money. That was up 5.0% for the month. Maybe 2021 will finally be the year value investing starts beating the growth stocks? Who knows.

My dividend account new allocation (as of Jan 2020) was:

  • 50% Dividend Stocks
  • 50% REITs

The dividend paying stocks were up an average of 1.5%, and the REITS were up an average of 3%. These specific REITs really starting paying off in February, after a couple of months of almost nothing. It will be interesting seeing them in the months ahead.

Again, wow. The dividend account has been down all year and hasn’t recovered anywhere near what the 401K/IRA accounts have. Now its come roaring back. Hopefully it will end the year in the black.

Again, my intention is not to alter my asset allocation or “get out of stocks” but I am mentally preparing myself for a very bumpy 2021.  As I stated in January, I think the market is overvalued right now. We will see.

Hope everyone is healthy and your market returns for the rest of the year go up!

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Mr. 39 Months

Investment Update Jan 2021 – the market makes you go Oof!

Over the last several months, I have learned something interesting for those of us in the final stages of getting to FI. When the market “sneezes” you may freak out.

When we were younger and had a smaller amount of money in the market (say $100K total in 401K, IRA, investments, etc) a market drop of 2% – 3% (which is fairly normal) would cost us $2K – $3K that day. While its money, its not the sort of thing that gets your stomach turning over. You knew that long-term, the market will go up. Just “buy and hold” baby!

Well, fast forward 10+ years and we’re coming in for a landing on the FI runway! At the beginning of the year, we had $1.46M in our various investments, and hoped to get up to $1.6M by year-end with what we were putting in and market advances. Yay!

A week before the end-of-month I checked, and we were up around 3% for the month, so over $40K while continuing to work at our current jobs. Looking good? I should have known better, because every time I check a little before month end, I end up regretting it. This was no different.  

For the month, we’re off $0.45%, or roughly a $6.2K loss. Not too hideous (especially compared to 1st qtr 2020) but a far cry from up 3%. We saw almost $50K of value evaporate in the space of 4-5 trading days. As the folks at Stacking Benjamins have noted in the past, it really does make a difference when the market drops and you lose 5-6 figures vs. a few thousand (or hundred). It shakes you.

I’ve spoken earlier how I think stocks are currently overpriced and due for a serious correction (20%?). I have to prepare myself that, if that happens, I’m going to see $280K of my money evaporate like that! I don’t want to leave  the market – I’m just not a market timer. So I’ll have to just prepare myself and soldier on if it happens.

For the month, some items performed OK, others “not so much”

S&P500: -1.0%

REITs: +0.2%

Small Cap: +2.8%

International: 0.0%

Bonds: -1.0%

My dividend account (dividend stocks and REITs) was down about -0.9%.

Again, my intention is not to alter my asset allocation or “get out of stocks” but I am mentally preparing myself for a very bumpy 2021.

Hope everyone is healthy and your market returns for the rest of the year go up!

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Mr. 39 Months

What do you do at the beginning of the new year?

So it seems everyone has their own method/ideas for closing out the old year and starting the new one. There are “new years resolutions” and lists of financial and personal decisions to review and update. I find this time of year fascinating on the FIRE blogs, because you really get a chance to see where people are, how their decisions throughout the year “panned out” and what their thoughts on for the new year. Hopefully you’ll write and share yours.

For me, I typically start out my review where I’m most comfortable – the numbers! As an engineer and a FIRE guy, I enjoy looking at my spreadsheets and investments to see where I am and to plan for the future. So what do I do with my finances?

  1. Update Investment status: I track my investments monthly, and at the end of the year, I determine, for each investment, its overall growth and its percentage in my overall portfolio.
  2. Calculate dividends: I also take the opportunity for each investment to determine its dividend yield and the amount of “passive” income it has thrown off. I use this for planning the potential for retirement income in the future.
  3. Individual Investment Performance: Determine if I need to sell/buy new investments, based on performance.
  4. Updated Net Worth: Adding all of this together with my real assets (home, cars, side hustle) and our liquid assets (checking & savings) I determine our net worth, and the growth of our net worth in the past year
  5. Determine rebalancing moves/stock sales & purchases: Finally I look at each investment and what its overall percentage is in the portfolio – and then determine if I need to buy/sell items to bring everything in line (I also rebalance in the middle of the year).

With all this done, I have a better idea of where we are financially, and where we are in relation to our goals.

At this point, I turn to the “softer” items on my new year review

  1. Review previous years goals: In addition to financial goals, I’ve got a long list of goals that I was working on (fitness, reading, traveling, visits to family, etc.) I try to put real numbers or performance measures on each, so I can actually grade myself on accomplishing/not-accomplishing them.
  2. Review 5-minute journals from past year for insight: Like so many others, I use a journal on a daily basis to write about my thoughts and feelings (I use the five-minute journal). I go back and review my writing for any insights.
  3. Go through “Year End Review” list of question: I have a “year end review” list of questions I picked up from my reading that I do at the beginning of the year, that I reflect back on weekly. The idea is to answer these questions and reflect on them
  • Identify 20% of people, projects or ideas which provided 80% of enjoyment/powerful emotions for 2018
  • Identify 20% of people, projects or ideas which provided 80% of stress/pain/powerful emotions for 2018
  • Try and spot patterns from #1 and #2; Determine action steps to increase #1 and reduce #2:
  • Identify Three things to add to my life
  • Identify Three things to remove from my life
  • Ask folks close to you, what you should do more of and what should you do less of?
  • Start putting stuff into the calendar. If it is on the calendar, we will do it
  • Questions from “Happy Money”.
    • For Purchases, “how will this affect my use of time”
    • “How will I use this thing on Tuesday night”
    • $100 to most increase happiness?
    • $500 to increase happiness?
    • $1000 to increase happiness?
    • Take 20% of liquid cash, how would you apply it to increase your quality of life?

I then set new goals for new year: Based on all this, I go and set new goals for the year, and then post them where I can reflect back on them regularly

So what do you do for your year-end review?

Other Bloggers on the topic

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Mr. 39 Months