What are you thinking of doing with your stimulus check?

          

The US Federal Government is looking to send out checks to US citizens as part of their stimulus package for the Chinese Corona Virus, and the effect it has had on the economy. The objective of these checks is to assist individuals who have been laid out, or who are having difficulties with their bills. The hope is that individuals will spend this money and keep the economy going, rather than having it “seize up” with folks saving and holding off spending.

If you think about it, a lot of folks (mostly non-FIRE folks) live paycheck-to-paycheck, and use debt to help fund their lifestyle. If you shut off their paycheck for even a week, they’re hurting – and they aren’t spending money on food, clothes, etc. If it kept up, then even folks with decent finances will find themselves hurting, because their businesses will have lost too much revenue.

Retire by 40 had a good article on this, in which he discusses the stimulus checks, unemployment insurance, and potential ways he is planning on spending it (some of it he actual intends to potentially use to help his tenants if they are in need).  

How much will you get?

  • $1,200 for single tax filers that make less than $75,00 adjusted gross income. It will be reduced if you make more, up to $99,000
  • $2,400 for married, filing jointless, up to $150,000 AGI. If you make over $198,000 AGI, no stimulus
  • $500 for each qualifying child.

Unfortunately, we did a $50K Roth conversion last year, so our AGI is around $188,000. This pushed us almost up to the max. Based on a calculator available from Kiplinger’s, it looks like we’ll only be getting $500 for the two of us. Still, its useful money to help stimulate the economy, and I’d prefer the money got spent on folks in worse financial straights than we are.

We’re already doing what we can while in self-quaranteen at home (everyone in New Jersey has been asked to stay home unless in essential industries). Both of us can do our jobs from home, so “no skin off either of our noses.” We are ordering takeout from our favorite restaurants, to try to help them stay in business. We continue to grocery shop, and we are helping out where we can (just gave $1,000 to our local Southern New Jersey food bank). Trying to help where we can, while staying out of trouble and not contributing to the sickness/panic.

Hopefully everyone is healthy and contributing where they can!

Mr. 39 Month

Starting Something New

As part of my plan to transition to FI, and to pursue what I want to versus working the rat race, I’ve decided to start working on my side hustles and researching to eventually move into a different field. As many folks have stated in their FIRE journey’s, its not that they want to stop working, its that they want to work in something that they love. That is what I’m going to do, and I’ll try and chart some of my progress here.

One of the areas I want to work at is in starting up and running a business, even a small, side-hustle one. My thought is to start in a small one centered around one of my favorite hobbies, woodworking. My plan would be to make items for sale at craft fairs and online. I also wanted to go through some of the thoughts and work here, including the numbers, so people could get an idea of the process (and offer advice & counsel on what I’m doing, if it fits them).

In reading through the book Street Smarts, written by two individuals who have helped guide entrepreneurs for decades, the first question they ask at the beginning of potential entrepreneurs is “why do you want to create and build this business?” Along those lines, I laid out the reasons why I wanted to start up this business:

  1. Learn how to work business numbers and run a business by them (P&L statements, Expenses, budgets, Capital spending, etc.)
  2. Improve my woodworking skills
  3. Learn to develop website
  4. Develop my marketing skills

Adding/improving these skills would help me move onto the next business I was planning on moving to (more on that at a later date). So what steps do I think I need to start with here?

  • Create a list of potential items I could make and sell, both online and at craft fairs
  • Determine material costs for those items
  • Determine Tools/Jigs necessary to build those items
  • Determine time in would take to manufacture those items

From that, I would at least have some idea of my material costs, and be better able to build a budget. My list of potential items to start is:

  • Photo Holder
  • Picture Frame
  • Cutting Board
  • Tea box
  • Fast boxes
  • Shaker carry box
  • Campaign collapsible bookshelf
  • Craftsman bookshelf

So the next step for me is to work out the other three items for each piece I want to produce. We’ll see how it goes.

Mr. 39 Months

Timing the Market – Update for Aug 2019

Back two years ago, I reviewed Ben Stein’s & Phil DeMuth’s book “Yes You can time the Market” in which they discussed ways  to time the market over the long term, using various signals signs to determine the long term (15 year trend) of the market. They definitely did not believe in short-term timing, but they did present a good case for how to look at the current state and make long-term determinations.

I followed up with several other posts in which I looked at short-term timing, and at what Stein/DeMuth’s strategy would have resulted if I had followed it since graduating college in 1986 (answer, I would have been 5% – 10% richer over a 30 year period, including the dot.com crash).

I thought I’d provide a slight update to folks in case they were interested.

If you remember, Stein/DeMuth had four key measurements to determine the long-term direction of the market:

  1. Price vs 15-year average
  2. Price-to-earnings ratio vs. 15-year average
  3. Dividend yield vs. 15-year average
  4. Bond yeld vs Dividend yield

For Jan 1, 2018, the numbers showed:

  • Price (adjusted for inflation) of $2,883 vs 15 year avg of $1,789 – don’t buy stock
  • P/E ratio: 24.97 vs 15-year average of 23.2 – don’t buy stock
  • Dividend Yield: 1.83% vs. 15-year average of 1.99% – don’t buy stock
  • Earnings Yield (inverse of P/E) vs. AAA bond yield: 4.0% vs 3.5% – buy stock

So three out of the four metrics said don’t buy. The S&P 500 for 2018 was down -6.2% (source CNBC). A lot of folks paid money for stocks that were overpriced at the beginning of 2018.

So what did Jan 2019 look like?

  • Price (adjusted for inflation) of $2,654 vs 15 year avg of $1,862 – don’t buy stock
  • P/E ratio: 19.6 vs 15-year average of 23.0 – Buy Stock
  • Dividend Yield: 2.14% vs. 15-year average of 2.03% – Buy Stock
  • Earnings Yield (inverse of P/E) vs. AAA bond yield: 5.1% vs 3.98% – Buy Stock

So three out of the four metrics say “buy stocks” – and the market is up 15.23% year-to-date

Does this prove that Ben Stein and Phil DeMuth’s market timing strategy is still valid. It appears to be still going well.

Anybody out there with an interesting market timing strategy?

Mr. 39 months

Its January, time to re-balance the portfolio! Yeah!

Boy, do I have a boring life. ….

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

Actually, since I enjoy the financial side of life, and like doing math, I do get some happiness from this. For those unclear on the concept, rebalancing is where you look at your current investments and compare them to the asset allocation (the split of where you have invested your money) and see if they are significantly different. If they are, then you sell some assets and buy others in order to bring them back into alignment with your goals.  You will be “selling high and buying low” which is the goal when investing.

Typically, you do this annually, or semi-annually (like I do every Jan and July). If you did it more frequently, you’d drive yourself nuts, and not gain much in the process. I usually look at my allocation, and see if something is more than 2% off from it is supposed to be (i.e. if my allocation is 17.5%, and its 18.3%, I tend to leave it, but if its 20.%, I’d sell part of it and buy something else).  If you remember my previous posts on this from Jan 2018 and July 2018, there is a specific process I go through.

With this year, the regular stocks and international stocks have really suffered in comparison to the bonds (and somewhat to my REITS). My standard allocation is:

  • 30% Index Bond funds
  • 17.5% S&P 500 Index
  • 17.5% Small cap Index
  • 17.5% International stocks index
  • 17.5% REITs index

This month I’ve found myself selling bonds (and some REITS) and buying stocks, especially international stock funds (which got hammered in 2018). Fortunately, the companies that we use (Vanguard, TRowePrice, etc.) make it relatively easy to do this, so I was able to do my calculations, and then make the moves on the computer for everything within 30 minutes. Again, as a finance geek, I enjoyed the process.

Lately I’ve been considering changing my allocation somewhat, to 20% for S&P500 and small cap, and 15% for REITs and International. We’ll see in February if I act on this.

Hopefully you are considering rebalancing, so you can “buy low and sell high” yourselves.

Have a great 2019!

Mr. 30 Months

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

Investment update for Nov 1, 2018

I think this post is going to be similar to a lot of FIRE posts in early November. The stock market, bond market, and every other market in the US got crushed near the end of October, and almost everything went down. Ouch!

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 down about 5.5%, with the big losers being the S&P500, Small Cap and International . My Bonds and REITs were down , but not as much.

  • S&P500: -7%
  • Small Cap: -10%
  • International: -8%
  • Bonds: -1%
  • REITs: -2%

My 401K/Deferred account at work is down even more, -7.6%. This is primarily due to it not having a REIT option, so since it is heavier with stocks, it suffered more.

Dividend Income Account: Allocation:

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

This account didn’t suffer as much. Part of that is its high weight in bonds & REITs (which didn’t suffer as much) and part of it is that the stock picks, especially Verizon, actually were up. Overall, its only down -2.8%

Value Investing Account: Allocation (remember I refocused this at the beginning of February):

  • 40% in individual value stocks I picked myself (2 each, 20% for each) – SBS and GILD
  • 20% USAA Market Index (my brokerage is USAA)
  • 40% in Vanguard Value Index fund

Gilead was down -11.7%, USAA was down 9.8%, and Vanguard value was down 5%. Surprisingly, Cia Saneamento (which has done terribly for the entire year) was up 25.8%! Very odd.

So what do you do after such a shellacking? I stay the course. For 2017, I had a tremendous year (the market was up 19%), so I got to reap the benefits of that. Now in 2018, with rising interest rates and the FANG stocks of the S&P getting hammered, it looks like its going to be a null year. You have to be willing to take the good with the bad.

How did you do in October?

 

Mr. 39 Months