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.
When Should You Self-Insure? (Can I retire yet?) Our last life insurance policy is due to lapse in November of this year. Since we’ve hit FI, we’re letting it drop. h
I wrote earlier about going to my first farmer’s market a couple of weeks ago. While I didn’t sell a lot, I learned a lot and got some ideas on what sells and what might not, and how to better market my material. I also had a great time talking to the other merchants, getting some insights, and discussing their crafts and food.
One of the merchants there sold wreaths, make up of greenery, ribbons and other materials. In talking with her, she expressed an interest in whether I do work commissioned by people. When I said that I did, she told me that she needed to get a small storage rack to store her ribbons in her craft room. Her current method doesn’t work well – its very disorganized.
After discussion of what she wanted, I drew up a mockup of it. She looked at it and approved (with a few changes). From there, I was able to finalize the design, determine the materials, and estimate the amount of labor it would take to build (I was helped in this by all the time studies that I had previously done). For this first one, I didn’t add any overhead – just my hourly rate + materials. I thought it was good to start it this way for my first one.
So this weekend, my intention is to build this and apply finish, and really try to complete it. That way, I can deliver it before my next time at the farmer’s market. If all goes well, I’ll see her there, and she can sing my praises to the other vendors and customers.
Some Fascinating Retirement Statistics (Retirement Manifesto) Some of these are somewhat disturbing – like 51% of baby boomers are still paying on their mortgage.
How to Die with Zero (ESI Money) Using various strategies to die with $0 – but have sufficient money throughout your life to enjoy it.
Why Trying to Quit My Job (Sort of) Made It Better (Clipping Chains); Sometimes companies don’t realize your value until you state your intention to leave
Well, the stock market continues to be driven up, especially the S&P500, with the tech stocks leading the way, The other 495 stocks of the index are doing OK, but the five Tech Stocks have really driven up the price. Should we be worried.
I turned back to the Ben Stein book that I’ve written about before – “Yes you can Time the Market.” Its pretty much the trends on stock price, P/E ratio, and bond yields. I used it to determine how well I would have done if I followed it since I graduated (Roughly 8% – 11% better than straight dollar cost averaging over last 35 years), at the end of 2019 (where it predicted a drop) and in mid-March 2020 (where it predicted you should jump back in). The overall lesson is that, if you have a long-term outlook, you can do a little better than just following the market.
So how are we looking right now, in terms of the trend lines and ratios spelled out in the book?
Well, the concept is there are four (4) areas where you can follow the trend and determine if you should be purchasing stocks, or purchasing bonds.
Price of S&P500 vs. 15-year average: July 14, 2021 = 4,380 vs.15-year average of 2,328. Signal says stocks are overpriced, do not buy more
S&P500 P/E ratio vs. 15-year average: July 14, 2021 = 46.55 vs. 15-year average of 26.9. Signal says stocks are overpriced, do not buy more
S&P 500 Dividend yield vs. 15-year average: Jul 14, 2021 = 1.32% vs. 15-year average of 2.00%. Signal says stocks are overpriced, do not buy more
Earnings vs. AAA corporate Bonds. Jul 12, 2021 = 2.15% (1 / PE ratio of 37.74) vs. AAA bond yield of 2.64% (very low yield). For the first time since Jan 2010 (remember the 2008-2009 explosion), this signal is saying stocks are overpriced.
So all 4 of the 4 signals say stocks are overpriced! Note that the concept does not suggest you should sell all your stocks, or sell all your bonds. What it is saying is that in the current environment, the stocks (or bonds) are too high priced, and you should focus your purchases on another asset class. Relook at it later on, and potentially change your purchases with the new data (I look at it once/year).
My personal belief is that we’re long overdue for at 20%+ drop in stocks. Since most of my investments are automatic with the 401K, I will probably just leave them as is (see current allocation) but I am preparing myself psychologically for a large stock market drop. I guess we will see….
Rethinking the big financial killers (Financial chain Breakers); You need to be a conscious spender. Splurge on the things that matter, don’t spend much on things that don’t mean much to you
Well, July is here, and we’ve gone halfway through the year. If you’ve been reading my story, you know that this is an inherited IRA from my father, that I set up as a sort of “experiment” for an old-time dividend paying account, which would generate regular income – something a person could use once they retire.
I’ve had some ups & downs with it, and it has generated roughly 4% in dividends annually – but it hasn’t grown very much. Thus, in this era of growth fund investing and low interest rates, it hasn’t been able to generate the sort of returns necessary for someone to live off of in a long-term retirement. Still, its an interesting experiment, and good to know.
I started it back in 2016, and the fund was setup with 50% bonds, 25% dividend stocks and 25% REITs. After 2-1/2 years, I decided to divest from bonds, because with the low interest rates, they were only paying about 2% in dividends and dragging down the performance of the whole fund. Since then, its been a roughly 50/50 split.
In 2020, I started a “dog of the dow” investment strategy, where you purchase the 10 stocks with the highest yield on the Dow (i.e. their price vs. the dividend they are paying is lower). Its an old time strategy, and I’m not sure how its going to pay off long term. 2020 was a bad year for dividend stocks, but they’ve bounced back.
Now for the 2nd quarter, we generated a significantly larger amount of dividends, which is fairly typical for 2nd and 4th quarters. The value of the fund on July 1 was $138K, so we’ve regained all the ground lost from Covid back in March 2020. For the 2nd quarter, we coming in around 3.58% with a significantly higher stock valuation. I still don’t think this is a valid strategy for 100% of your retirement funds, I do believe the dividends can provide some value, especially with a solid tax strategy.
stock
Details
Investment value
Yield
Dividend
AMGN
Amgen
$9,750.00
2.89%
$70.40
CSCO
Cisco
$7,950.00
2.79%
$55.50
CVX
Chevron Corp
$5,237.00
5.12%
$67.00
DOW
Dow
$6,328.00
4.42%
$70.00
HR
Healthcare Realty Trust
$15,100.00
4.01%
$151.25
IBM
IBM
$7,329.50
4.48%
$82.00
KO
Coca Cola Company
$5,411.00
3.10%
$42.00
MMM
3M Company
$9,931.50
2.98%
$74.00
MRK
Merck & Company
$3,888.50
3.34%
$32.50
O
Realty Income Corp
$13,348.00
4.23%
$141.00
PFF
Ishares Preferred
$9,207.54
4.74%
$109.10
SVC
Service Properties TR
$7,560.00
0.32%
$6.00
UMH
UMH Properties Inc
$24,002.00
3.48%
$209.00
VTRS
Viatris
$2,143.50
3.08%
$16.50
VZ
Verizon
$5,603.00
4.48%
$62.75
WBA
Walgreens
$5,261.00
3.55%
$46.75
$138,050.54
3.58%
$1,235.75
I believe the “jury is still out” on whether the shift to stocks & REITS was a good decision or not. With the current US Fed and its interest rates, I don’t think Bonds will be a good return any time soon – unless you are willing to go into some very risky bonds. If I had additional capital, I might invest more here, as I think these dividend stocks are undervalued.
Why The Housing Market Won’t Crash Any Time Soon (Financial Samurai); While I agree with most of his points, I also think real estate is local, and there will be some crashes in local markets, especially in the cities.
If You’re Still Worried, You Aren’t Wealthy (A Wealth of Common Sense) I am a worry wart, so I don’t think I’ll every be serene here. Still, there are too many variables here to be completely calm going into retirement.
The SALT Deduction Limit (Go Curry Cracker); Tax benefits and penalties due to the reduction of deductions – and potential changes in 2022.
Frugal Fatigue 2021 (Retire by 40); I think that is an issue a lot of folks struggle with . They build a very austere budget, and then have trouble sticking with it.
I’ve written several articles on starting up a side hustle with my woodworking (see in “Categories” on the right). The primary reason was to start doing finance books similar to those for running a small business, with cash flow, balance sheets, etc. I’ve enjoyed the work, and its opened my eyes a great deal to the benefits and issues of running my own business.
Well, part of any business is sales, and I had the opportunity to work at a local Farmer’s Market and sell my wares last weekend. I wasn’t scheduled to do this till July 31st, but they had an opening and were looking for someone to fill it. So I did.
Depending on your outlook, it was either a very poor or a very good day. Poor in that I only sold one item (a Japanese style picture frame for $76). Good in that I was able to run through my setup, process a sale with a credit card, and learn some marketing lessons to prepare me for the two weeks I am scheduled to attend (July 31 and late September). My wife and some friends dropped by to also observe and provide some of their own thoughts on how to improve.
Some of the points that were talked about were:
For the tea boxes, open one up and put in costume jewelry, to show alternate uses
More informative signage, including items like:
Veteran owned & operated
Handmade/Handcrafted
Premium Hardwood (Oak, etc.)
Made Locally
Add verticality to displays
Signage on bookshelves, noting that it is easily disassembled
Vinyl banner
Cutting board holder to store more, and note “end grain construction, hardwood durability but easier on knives
Other items that are lower costs ($20 and $30 items)
Business card holders
My thoughts are this is that it was an excellent “dry run” and I’m looking forward to the end of July for phase II.
A Project of One’s Own (Paul Graham); One of the worries of FiRE is you lose your motivation. Having your own projects post-FIRE is key to your long term happiness.
