Six Month Checkup on Spending

Earlier in the year, I wrote about re-looking at our spending a couple of months in, to make sure our budget was tracking fairly well. Depending on your viewpoint in the FIRE community, you can be rather blasé about your budget (maybe just pay yourself first and spend the rest) or you can be very nitpicky. We tend to fall more towards the former category, but being very frugal, we typically end each month with a little more than we started. We’ve also reached that point in our lives (mid 50s) where we have purchased all the major things we need/want (cars, furniture, home, clothes, etc.) so we just have to maintain, rather than increase.

It does make sense, however, to occasionally review your spending, so you don’t get surprised at some point. With the Chinese Covid virus hitting, it has caused a lot of folks to alter their spending habits, in some cases significantly. For example, we are both working from home, so our grocery bill has gone up significantly, but the money we spend to eat at work (coffee, lunch, snacks) is non-existent. Our vacation and entertainment money has also seen a drop off.

So how have we done for the first half of the year?

Here is my earnings, deductions, and expenses for July 2020, as a percentage of total income.

Revenue
AreaCategory% of total
EarningsRegular Pay99.4%
EarningsCell Phone reimbursement from my company0.4%
EarningsExpense Reimbursement0.2%
TotalTotal
Deductions
AreaCategory% of total
Deductions401K Roth4.5%
DeductionsDental0.5%
DeductionsH.S.A.4.1%
DeductionsLong-Term Disability0.3%
DeductionsMedical3.2%
DeductionsSpousal Surcharge0.6%
DeductionsVision0.1%
DeductionsWellness Credit-0.5%
TotalTotal12.7%
Taxes
AreaCategory
TaxesFederal Income Tax14.3%
TaxesMedicare1.3%
TaxesSocial Security5.7%
TaxesState Income Tax4.8%
TaxesNJ Family Leave, Disability, Unemployment, etc.0.6%
TotalTotal22.9%
Expenses
AreaCategory
AreaCategory
AutoAuto Fuel0.4%
AutoAuto Repair1.1%
AutoAuto Registration0.0%
AutoAuto Tolls0.1%
CharityCharity3.1%
ClothesClothes0.3%
EntertainmentBooks0.1%
EntertainmentLA Fitness0.2%
EntertainmentPostal/office supplies0.1%
EntertainmentHobby1.2%
FoodGroceries3.1%
FoodDining Out0.9%
FoodFood/Snacks1.4%
HomeHome Repair2.0%
InsuranceLife Insurance0.3%
InsuranceHome/Auto Insurance1.4%
InvestmentsInvestments33.4%
InvestmentsSavings0.6%
MedicalMedical – H.S.A0.1%
OtherOther1.5%
OtherHaircuts0.1%
TaxesProperty Taxes3.3%
UtilitiesPSE&G2.2%
UtilitiesVerizon1.9%
UtilitiesWater Bill0.2%
TotalTotal59.0%

Some things, which stuck out after doing this analysis:

  • Still have about 5% “unaccounted for” in spending. This ends up being the extra we have that has gotten plowed back into savings.
  • Taxes still take a big bite (22.4% of gross pay for Federal & State income + property tax). Since we aren’t paying a mortgage anymore, this is our biggest hitter
  • Investments coming in 33.4% of gross pay (if you count the Roth, its 58.3% of take home pay after taxes & work deductions). Doing a fairly good job of putting stuff away
  • Medical is coming in at 4.2% of gross – with just about all spending coming out of the H.S.A. We still have funds in it, so its been a good choice for us.
  • Food and Utilities each around 5%
  • Charity is about 3.1% of gross, about 9.6% of net pay coming in. We don’t itemize, so we get no deduction from this on our taxes, but we try to give as much as we can.

So like most, our home utilities and food have gone up, our spending related to our work and going out have gone down, and we seem to have spent less over the last six months.

The only big surprise for us this year (other than Covid) was the tax bill. We ended up owing $2,600 federal and $600 to the state. We adjusted our tax withholdings up (that is why the percentage is higher now than my February update). We continue to be on track and in fairly good shape, even with all the shutdowns. Mrs. 39 Months has had her hours cut 20% (one day/week furlough) but I’m still earning. We appear to have stayed relatively within budget and continue to save large amounts of our take home pay.

How are you doing with your budget and spending so far in 2020? How has Covid affected you?

Mr. 39 Months

I’ve reached 39 Months!

July 1, 2020

Well, 39 months ago (Apr 2016), I started the blog, with the idea of tracking my progress, as I sought to reach FI within 39 Months, by July 1, 2020. My hope was that my comments, thoughts, mistakes and learning might assist others in their pursuit. I also took the opportunity to share some of my hobbies and books that I read on the subject.

At the beginning of 2017, we had already reached a major milestone, in that our Net Worth was over $1 million. We had paid off the last of our home loan, so we owned our house free & clear.

  • Real Assets (home, cars, etc.) – $303,237
  • Liquid Assets (savings, checking, emergency funds, etc.) – $139,572 (Mrs. 39 Months likes a large emergency fund)
  • Investments (IRA, 401K, small brokerage, etc.) – $824,129
  • Debt: $0
  • Net Worth: $1,266,938

Based on the money we were sticking aside every year and some expected returns (3% inflation, 9.8% stock returns before inflation, 4.6% bond returns before inflation) we projected our net worth increase each year. The net worth would grow to $1,406,316 (not counting the house). Using the 4% rule, we came to a little over $56K/year, which, when combined with our future social security (big if) I felt was sufficient. I created and published a drawdown plan on the blog (and its one of my most popular posts, as I have updated it as the time has gone by).

Its been an interesting and rocky road over the last 39 Months

  • Home value has not improved significantly ($321K now vs. 297,950 in 2017) – about 3% per year
  • .Good 2017, wth 12.3% increase in net worth. No debt, kept funding
  • Terrible 2018, with 1.6% drop in net worth due to market crash
  • Awesome 2019, with a 22.2% increase in net worth
  • Crash in 2020, with a -5.9% loss in our investments to date

Also, our assumptions for our retirement have changed significantly. Last year, we engaged a financial planner, because Mrs. 39 Months wanted a second opinion on the potential for retiring early. We had a series of meetings with him, which helped me appreciate some of the nuances of retiring early and its impact on the finances. We had some disagreements (future inflation, return on future investments, etc.) but I ended up adopting a lot of his numbers in our analysis.

  • After discussions with Mrs. 39 Months, we set our annual retirement spending at $78,000/year base (going up each year for inflation)
  • Inflation at 3.25%, with 6% inflation for medical inflation
  • A 7.2% return on investments (based on a 60/40 allocation) or roughly 4% above inflation rate
  • Drop in lifestyle spending (travel, dining out, etc.) by 35% after age 75 (pretty typical)
  • Get social security at age 67, but discount mine (the higher wage earner) by 50%. I think SS will have issues in the future, and one of the ways they’ll make it work is to cut benefits.

So, with that it mind, where are we at the 39 Month mark? We are actually pretty close to what we thought back in April 2017.

  • Net Worth around – 1,704K (vs. goal in April 2017 of $1,716K)
  • Real Assets (home, cars, etc.) – $328K
  • Liquid Assets (emergency fund, etc.) – $167K
  • Investments (401K, IRA, brokerage)  – 1,209K

So are we financially independent at the end of 39 Months? No.

Based on our new assumptions (6% medical inflation, 7.2% returns for stocks, etc.) the money we currently have + taking social security at 67 means that we would be able to fund a lifestyle of roughly $64K per year (not counting use of a reverse mortgage). We pretty much fell in line with the original plan, but the needs of retirement have increased. As I noted before, this was after consultation with Mrs. 39 Months, so I think the $78K number is a lot more “solid.”.

Based on the new analysis, assumptions and the current market conditions, it appears that we will achieve FIRE in 2023 (about 30 more months). In the meantime, I’m looking at side hustles that I can use to generate income after we hit FI and potentially stop the 9-5 grind.

Thanks for reading over the last three years, and I hope to hear from you on my blog in the months and years ahead!

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Mr. 39 Months

Investment Update June 2020 – what is up with the stock market?

We’ve had three months of lockdown in the US, where the economy has been throttled, followed by a week of people trying to burn the major blue cities to the ground (and doing significant economic damage to those cities). GDP is supposed to take a beating for 2nd quarter in the US. Yet the markets keep shooting up, and they are close to returning to their all time highs of late December. What the heck?

If there was ever a time which showed that the stock market is not the economy. The economy is going to be hurt for 2020, but it appears the market may rebound.

I have my own personal theories on this, which include:

  1. Everyone who can continue to work is, and they have automatic deposits set for their 401Ks, IRAs, etc. The result is that money continues to flow into the market no matter what, driving the prices up.
  2. A lot of folks sold off and dropped to the sidelines and cash, but with the US Federal Reserve dropping rates, they aren’t getting anything for their money is the “safe harbors” of savings or bonds. They are being forced (kicking & screaming?) back into the market

Either way, the markets continue to jump up, even as the overall economy appears to suffer. We will see how that goes in the months ahead. For now, May was as kind to our investments as April – things appear to have rebounded nicely.

As you know, the allocation for my retirement accounts (IRAs, 401K, etc) is pretty much index funds, spread out between the  S&P 500, small-cap, international, REITs and bonds. Due to this allocation, I didn’t get hit as hard as some folks in March or in late 2018 – but I also didn’t get as big an “upside” in 2019 either. It all depends on your risk tolerance.

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

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

Growth for May

  • S&P500: +4.8%
  • Small Cap: +7.7%
  • International: +4.8%
  • REITs: +1.7%
  • Bonds: +0.5%

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

  • 50% Dividend Stocks
  • 50% REITs

I had to switch my dividend account from my bank (USAA) over to Vanguard, as the bank was shifting it to Schwab, and I really didn’t feel like having my investments split to a third bank. Luckily I was able to make that move at the end of May with no real effects. Overall the dividend account was up 1.3% on average, with stocks being the big drivers up and REITs sort of staying still. June will be dividend payout month, so I’ll get a better idea of overall quarterly performance then. I’m planning on some of these companies cutting dividends due to the economy.

My brokerage account at my bank was shut down (they were moving it to Schwab and I don’t want to have three large firms with our investments) so I shut it down and invested it all into Vanguard Value Index average fund, to try and chase some value stocks. It was up 5.1% in April, once the change was made.

My Vanguard value fund (where I’m keeping my “fun money” right now was up about 3% for May.

Overall, I was up 3.4% for May, though I am still down -8.03% for the year. I tracked it back, and my investments are back to where they were in early October 2019. Like many of you, I intend to “stay the course” rather than make any radical moves, though I am considering changing my allocation when I rebalance in early July. I think low interest rates will be killing bonds, and I’m not so sure about REITs in the post-Chinese Virus world. I’ll let you know my thoughts on that later.

Hope everyone is healthy and your June turns our well!

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Mr. 39 Months

Investment Update May 2020

Like most folks, April was a lot kinder to me than March. For March, we lost about $161K of our investments (though it was as much as a $191K loss as late as March 23rd). With April being an “up” month, states and countries opening backup, and businesses starting to discuss getting back to normal, let’s hope the economy starts rolling. Our unemployment rate in the US is going to be pretty substantial, and we’ll probably be spending the next 12-18 months cutting it back to normal.

As you know, the allocation for my retirement accounts (IRAs, 401K, etc) is pretty much index funds, spread out between the  S&P 500, small-cap, international, REITs and bonds. Due to this allocation, I didn’t get hit as hard as some folks in March or in late 2018 – but I also didn’t get as big an “upside” in 2019 either. It all depends on your risk tolerance.

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

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

As you would expect, everything was up, though in different amounts.

  • S&P500: 12%
  • Small Cap: 14.5%
  • International: 5.5%
  • REITs: 6%
  • Bonds: 2%

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

  • 50% Dividend Stocks
  • 50% REITs

The dividend paying stocks were up anywhere from 11% – 23%, though most of them are still in negative territory from the beginning of the year. My dividend yield from 1st Quarter was 6.13% (annualized) which was a big increase from last year, but a major part of that yield equation was the low stock price. Still, I collected 18.6% more in dividends in 1st qtr 2020 than in 1st qtr 2019, so we’ve made improvements there. Now we just have to hope these companies don’t cut their dividends.

My brokerage account at my bank was shut down (they were moving it to Schwab and I don’t want to have three large firms with our investments) so I shut it down and invested it all into Vanguard Value Index average fund, to try and chase some value stocks. It was up 5.1% in April, once the change was made.

For March, I was down -13.68% overall. For April, I climbed up 8.55%, but I’m still down 11.13% for 2020. We’re back to over $1.1M in invested assets. Plan to continue working on hitting our FI number.

Hope everyone is healthy and your May turns our well!

Mr. 39 Months

Quarterly Update – April 2020

Well, it’s early April, and the market’s appear to be starting the long “slog” back up to where they were. The economy is still frozen, awaiting the orders from each state’s government to free it up and let all of us get back to work. The Chinese Corona Virus is still around, but it appears that we have “bent the curve” somewhat, and are heading into the home stretch of getting past this. We will see.

Most folks goals for the year have seen a dramatic shifting from the lofty days of January 2020. For many, survival was a key goal over the last couple of months. How did we do for the 1st quarter?

My Goals for 2020 (some financial, some not):

Finance:

  • Save $28K in tax-advantaged accounts (saved over $75K in 2019 – but a lot of that was in the Deferred). 401K, and Roth IRA.  Grade A. Saved $4K in our 401Ks for the 1st qtr. Plan to put my $14K bonus into the Roth in 2nd Qtr.
  • Save $41K in regular accounts (compared to $5K in 2019). As I noted above, we’re going to be taking about $3K per month and sticking it in regular investing, after paying taxes on it versus putting it in pre-tax with the company’s deferred. Starting to build that bucket of funds we’ll need prior to hitting age 65. Grade A: Put $9K into accounts in 1st Qtr, plus the $5K rollover, so appear to be on track.
  • Increase dividend income from all accounts to $27K/year (compared to 29K in 2019). Grade A. Dividends up slightly ($5.9K vs $5.7K in 1st qtr 2019). Should be able to hit the dividend goal.
  • Passive income covers 30% of base living expenses in retirement, estimated at $78K per year (previously, I was using $72K, but after meetings with our finance guy and Mrs. 39 Months, the budget ended up being $78K).  My long-term goal is to get my dividend/passive income up to where it covers over 100% of my expected retirement living expenses, so my investments can continue to grow. Grade C. Hard to say at this point. With dividends up only 2.6% for 1st qtry, this has my dividends coming in a little over $30K for 2020, which would only be about 38.8% of the annual $78K in spending. Now with interest rates the way they are, its possible that dividends will drop in the second half of 2020.
  • Beat net worth growth rate of 6% (it was +20.1% in 2019 with the stock market run up). This is my historical growth rate for the last 10+ years, so I want to beat my average. As I stated earlier in January, I’m expecting the market to be flat this year, since we jumped up so much in 2019. Grade F. Ouch! Like just about everyone, my net worth took a beating in 1st qtr, down roughly $218K, or 12.8%. Starting to come back, but I think it will be a push this year to hit a 6% growth rate.

Business:

  • While not getting a membership, I want to attend six (6) of my local real estate investors association meetings this year. I’ll probably join permanently in2021. They hold a regular monthly meeting, a monthly meeting for new investors, and a monthly meeting for my specific county. All three could be interesting. Grade F. Haven’t attended one yet, and now we’re not having meetings due to the Chinese Coronavirus.
  • Double the number of blog visitors in 2020. Last year it was a little over 6,000. I want to get at least 12,000 this year, so I need to put myself out there more (i.e. comment) and write interesting topics. My thanks to everyone who stopped by, and I try to return the favor, and comment as well. Grade F. Not seeing a real jump on this – sort of staying stable. Guess I need to get out more, link and comment.
  • Create TKD Woodworking (my side-hustle name) with an LLC, website, finance tracking, etc. Sort of a trial method for running businesses. Grade B. Incorporated it, began building projects, established a website(pretty bad one). Still need to upgrade website, complete about 3-4 more items to sell, and begin marketing. Still, coming along.
  • Make $1,000 in sales (not necessarily profit) on items with TKD woodworking. Grade F. Haven’t sold anything yet.
  • Write/publish a book on finance.  I wrote one for new graduates in 2017, but I have identified an area of the community which hasn’t been served as well in the past. Hopefully I can assist with something here.  I’ve got the first five chapters outlined/partially done, but still have a ways to go. Grade F. With all this extra time, you’d think I could make progress on this. A little lazy I guess.

Personal:

  • Increase weight lifted by 10% from 2019. Was able to exceed this in 2019, need to continue to push it. Grade B. Jumped up about 7% in 1st qtr, but haven’t been lifting in March, so my bet is that I’ll drop back down. If I keep at it, I should still be able to hit this.
  • Average 2 hours of cardio per week, which is about what I’m doing now. Grade A. Walking daily , so hitting this.
  • Backpack over 90 miles on AT (did around 80 miles in 2019). The trail that I haven’t hiked is getting further and further away, making it impossible to do weekend trips. Going to get harder. Incomplete. Had to push a scheduled trip in April out to September. Plan was to hike for a week in May, but that may get pushed off as well.
  • Continue volunteering at Pennsbury Manor at their joiner’s shop (woodworking). Really enjoyed this. Incomplete. Site is closed down
  • Reduce weight by 20 lbs. from Jan 2019 (lost 2 lbs. in 2019). Again, I want to get in better shape as I get closer to financial independence. Grade D. I’m down 3 lbs in 1st qtr, 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. Five books in 1st qtr, and I really enjoy it.

Travel:

  • Visit three national parks (that is the plan, right now). Incomplete. Trip planned for June
  • 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. Incomplete. Trips planned, but haven’t done them yet.
  • Take a week at the shore and just relax with family. Currently planned for July, but we’ll see how many family members can come. Incomplete. Trip planned for July.
  • 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. Incomplete. Closed for now.

Overall, I’d say I’m doing OK, not stellar. A lot of travel is dependent on the next 3-4 months and the status of the virus, so we will see.

How was your first quarter of the year?

Mr. 39 Months.

Dividend Account results – 1st qtr 2020

I’ve been tracking my dividend/income account for some time, to see how I could create an income stream out of my investments, rather than just depending on growth stocks and selling them off as I move through retirement and use my  bucket system. The old traditional way was to use dividend paying stocks and bonds to live on (reinvesting some of them to keep up with inflation).

This worked for many years, until the dot.com bust and the “great recession,” when the US Fed dropped interest rates to try and keep the economy out of recession and to fend off deflation – A terrible economic situation, where prices tomorrow will be cheaper than today. When you get a continuous time period of deflation (see America’s great depression of the 1930s) its hard to get the economic engine going again. Folks wait to purchase, because it will be cheaper tomorrow.

Well, due to low interest rates, US stock dividends and bond dividends have been small pickings, and the result is difficulty for folks who want to follow traditional ways of investing their retirement money and drawing down. As I noted at the beginning of the year, my attempts haven’t been that good.

In the early part of the year, I chose to ditch my bonds in the account (which made up 50% of it) and go to a 50/50 split of dividend stocks and REITs. Yes, I know, great timing! So how has it gone for the first quarter? Not bad from a dividend standpoint, but sucky from a stock value standpoint.

Dividend Account
stockDetailsInvestment valueAnnual YieldDividend
CATCaterpillar$5,695.000.00%$0.00
CVXChevron$3,762.256.86%$64.50
CSCOCisco Systems$5,870.253.58%$52.50
DOWDow$2,800.4010.00%$70.00
XOMExxon Mobil$3,971.008.76%$87.00
HRHealthcare Realty$12,570.004.77%$150.00
IBMInternational Business Machines$5,400.006.00%$81.00
PFFiShares$9,807.604.36%$106.95
PFEPfizer$5,004.004.56%$57.00
ORealty Income Corp (REIT)$9,086.005.10%$115.75
SVCServices PPTYS TR$2,604.0024.88%$162.00
MMM3M Company$4,035.302.91%$29.40
UMHUMH Properties$10,802.007.33%$198.00
VZVerizon$5,457.004.51%$61.50
WBAWalgreens$5,457.003.35%$45.75
 Bonds  $132.95
$92,321.806.13%$1,414.30

So I cashed in $1,414 in dividends in 1st qtr 2020 versus only getting $1,192 in 1st quarter 2019 – an 18.6% increase in income (not too shabby). However, 1st qtr 2019 investments were worth $132,151, so that was painful. However, if the objective was to get and live off the income, I could let the investments sit there and move back up. I’m not sure if these companies will cut their dividends in the new year, we’ll have to see.

So the experiment continues.  Right now, I still think investing in index funds and going for growth is the better way to go, and that is where the lions share of my investments are.

Othalafehu dividend performance for 1st qtr

Mr. 39 Months

Investment Update Mar 2020

Well, March came in like a Lion! Like most folks, March was not kind to me, with a significant drop off in the market. My investments went up & down like a yoyo, but I’m hopeful that all the Chinese Corona Virus effects have been marked in, and we’ll be ready for a little less turbulence.

Its interesting how the market has recovered over the last week. I did a quick update on March 23rd, and was down $191K for the month, but by the end of March, I was down only $161K. Still sucks, but at least its starting to come back a bit. My bet is we end up about 10% down for the year.

As you know, the allocation for my retirement accounts (IRAs, 401K, etc) is pretty much index funds, spread out between the  S&P 500, small-cap, international, REITs and bonds. I did rebalance my portfolio at the beginning of the year, selling stocks and buying bonds to get back to my target allocation. That helped a lot!

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

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

Everything was down, just at different points. S&P500 was down about 12%, Small cap -20%, International 14%, REITs -19% and Bonds about 1% (?). Overall, down about 13% in my  major investments.  

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

  • 50% Dividend Stocks
  • 50% REITs

Boy, did I pick a wrong time to get out of bonds! Everything took a pummeling, down about 17% total (stocks were hit a little worse than the REITs). The interesting question is whether the stock companies will curtail their dividend payouts in 2020? We will have to see.

My brokerage account has two value index funds, and their down about 23% for the months. Again, like everyone, we just got savaged – down about 22%

So For March, I’m down -13.68% overall, and down -18.62% for 2020. I still have a little over $1M in invested assets (just barely) but was below the millionaire mark for a lot of March. Time to build back up!

Hope everyone is healthy and your April is better!

Mr. 39 Months

So how have your FIRE calculations been affected by the recent “Unpleasantness?”

As I write this, the American S&P500 Stock index is down 31.8% from its high on Feb 14, 2020. Trillions of dollars have been wiped out in the span of five weeks, primarily due to the uncertainty of the Chinese Corona Virus. Many folks, myself included, expected some sort of a market correction this year (the P/E ratio of 24+ vs. a historical average of 15 almost guaranteed it). Still, this as been a staggering loss for many, including myself.

My paper losses have been something around $250,000 from the beginning of the year (it would have been $350K if my allocation was 100% stocks). My plans to achieve FI on July 1st of this year are pretty much trashed (even without the recalculation that our financial advisor forced upon me). So how is my morale?

Actually not bad. I think this is due to my age – “with age comes wisdom.” In terms of the Chinese Corona Virus, my generation has been hearing about the end of the world so many times, that this sort of things bounces off. We will get through this like so many other things. In terms of market dropping, I’ve been through 1987, 2000, 2008 and now this. The market will recover, and the younger folks have even more time that we do. It does look like my retirement timeline will need to be reset, but even that doesn’t have me too frustrated.

Like many folks, I’ve been sequestered from work for this past week, working from home. While the workload has been heavy, I’ve been able to get it done. However, I find that I miss the comradery of my work peers, and it has made me realize that I can’t just retire and sit on the porch (most FIRE people can’t either). So when I retire, I am going to have to make sure I have a lot to keep me busy (side hustles, charity work, etc.) In the meantime, I think I will be OK with working a while longer in order to build myself back up to my FI number.

How are you doing in terms of your drive towards FI? How has this drop affecting your plans, if you are already retired or moving towards it? Are you handling this downturn well? What moves have you chosen to make (if any) in your investment strategy or allocation? I hope that you aren’t “overreacting” or panicking like so many folks I hear about. The S&P 500 is trading at a P/E ratio of 17.34 – which is still a little high vs. its historical average. Bonds aren’t selling well, due to the Fed’s interest rate drop. What do you do?

I’d like to hear from other people on how they are reacting to this. One great thing about our community is how much we share, including the “nitty-gritty” details.

Good luck in the weeks ahead!

Mr. 39 Months.

Timing the Market – is now the time to go “All In?”

Like most experienced FIRE investors, I don’t see the recent market “correction” as a disaster – I see it as a buying opportunity! The stock market is the only place where people go into despair when things go on sale. Very odd.

I wrote about the potential for a market correction back at the beginning of the year. At that time, the market timing signals laid out by Ben Stein were heavily weighted towards “do not buy additional stocks.” Note that this didn’t say to sell stocks, only that purchasing additional ones at the inflated prices of Jan 2020 was unwise. In this case, it appears the market timing had some validity.

So now that the market has fallen 30%+, I’m interested in potentially changing my current investment allocation, and purchasing more stock now that it has fallen, and reduce my new investments in bonds. Again, the idea is not to sell your current investments, but to guide you on what to purchase going forward. So what do the tea leaves of market timing say?

If you remember there were four categories of the timing:

  1. Price (Current price of S&P500 vs 15 year trend): For March 17th the S&P500 was at 2,529 vs. a 15-year average of 2,030. The signal is that stocks are still too high, so NO  to new stock investments
  2. P/E Ratio (Current S&P 500 P/E ratio vs 15-year trend): For March 17th, the assumed P&E was 19.03 vs. a 15-year average of 23.4. Since the current P/E is lower, this signal says Yes to new stock purchases
  3. Dividend yield of S&P500 vs 15-year average: For Feb 2019, the dividend yield was 1.97% vs. a 15-year average of 2.05%, so this signal says No to new stock investments
  4. Earnings of S&P500 vs. AAA corporate bond (stock earnings “yield” vs. yield of AAA bonds): For March 17th, the P/E ratio is 19.03, or the equivalent of a 5.25% yield (1/19.03) vs. a current AAA bond yield of 2.94% – thus the stocks are providing a better earnings yield than AAA corporate bonds. This signal says Yes to new stock purchases.

So we are 50/50 on the potential for new stock purchases. It appears the signal is saying that stocks still may be overpriced, even after a 30%+ sell off.

So what to do? I was originally thinking of changing my new investment allocations and going for a 100% stock purchases for new 401K and brokerage account purchases. Now that I’ve run the numbers, I think I’ll stick with my current allocation, and just go with that.

Also, if you remember, I changed my income account from a 25% stock, 25% REIT and 50% bond allocation to a 50% stock/50% REIT allocation – just in time to get hit with this massive sell off. This decision was a completely emotional decision, not based on a lot of analysis. So I’m not very confident in my ability to make decisions without firm analysis and numbers – my emotions seem to be 100% off.

So I’ll keep my current investment allocations (30% bonds, 17.5% REITs, 52.5% stocks in S&P500, small cap and foreign). I believe the market will recover one we get this Corona/Wuhan Flu out of our system.

Retirement Manifesto: Benefits of a Bear Market

Hopefully you are all weathering the storm alright!

Mr. 39 Months

What a difference a week makes….

Well, I am sure many folks are looking at their investments and going “holy *@#$%.” The S&P500 is down over 11.5% from just a week ago, and almost all the other investment folks have (Small Cap, International, etc.) have been similarly pummeled. Instead of late 2018’s gradual drop down, this was a quick slide into the hole. Ouch.

I actually did a quick update of my investments on Feb 21, just to look at them. I had made some significant moves in January, especially to my income account, and I wanted to make sure I had all my tracking in line for my monthly update. As of Feb 21, I was up 3.14% for the year, having recovered from January’s slight pullback. Things were looking good!

Now, for the year, I am down 5.55%, and have lost a total of $68,977. However, it is all “paper losses” that are offset by my huge gains for 2019. If you remember, I had noted previously that, in order for my annual net worth increase to stay on target compared to the last 18 years, I would have to experience a net loss of 9.6% for 2020. Heck, we are already there – and I have nowhere to go but up!

Seriously, this loss is, in my opinion, temporary. The market was overpriced (S&P  500’s P/E ratio was 25.04 as of Feb 1st – way above its 15-16 average. Even now, as of Feb 28, it is estimated to be 22.23, so it is still historically overpriced. The market sell off is, I think, a reaction to the supply chain interruption caused by eh Corona virus. Without raw materials and finished goods from the east, many companies will not hit their earnings for 1st and 2nd quarters, resulting in this drop in price as Wall Street recalculates potential earnings. By the end of the year, I expect we will be back to where we were back on February 21.

Therefore, it is steady as she goes right now. If I had some money on the sidelines, I would be investing in the market right now – but I dollar cost average and invest every month. I did rebalance at the end of 2019, selling stocks and purchasing bonds. My bond funds are up roughly 2% for February, so that helped even out the blow. The S&P may be down 11.5%, but I am not down as much, due to diversification and rebalancing.

I hope that you will stay the course and recover as well!

Mr. 39 Months