Recently, Kiplinger’s published an article (both in print and on the internet) which raised the question of whether stocks were in a bubble. It raised some interesting items, many of which have been covered in the FI “sphere” already.
Year-long boom since the 2nd qtr 2020 Covid Crash
Major market indexes pulling back and tech-heavy Nasdaq down
Irrational speculation in specific stocks (Tesla, Gamestop, etc.)
Incredibly high P/E ratios
Eventual stopping of the Fed’s “pumping money” policies
The article then covers some moves you could make, some of which I agree with, and some I don’t:
Park some of your gains in a low-risk money market account (don’t agree, not paying anything)
Purchase some 10-year Treasury notes (not sure, currently paying 1.03%, so not a great deal)
Focus on stocks with defensive traits (agree, value stocks, high dividend stocks, etc.)
Consider sector investing for specific cyclical stocks (agree, certain sectors do better in market downturns)
Consider emerging markets (somewhat agree, I have a portion of our assets in this)
Stay the course (definitely agree. Have a plan, stick to it, continue to invest)
Time to build a Lazy portfolio (the frugal expat); Not exactly a “set it and forget it” portfolio, but ones that take very little monitoring or adjustments.
There is value in chilling out (pick up pennies); For all those super-FI folks out there with 10+ side hustles, good for you! Just don’t sneer at those of us not interested in starting stuff up for a variety of personal reasons.
For most folks who are tracking dividends, 2020 has been a crazy year (unlike the rest of the folks?). Yields went up dramatically in the first half – because stock prices crashed. Yields returned to their normal levels, or were lower, because stocks hit the roof! Yield percentage ended up not being the best way to track performance because of the wild swings in stock value – the key was to track the actual dividends paid.
My brokerage account is invested in a Vanguard value fund 100%, so dividends aren’t that much of an emphasis. Still the yield on that was 1.92%, which beat the S&P500 (my Vanguard S&P 500 was yielding around 1.5%). The dividends paid out were slightly higher than last year.
My stretch IRA, which was built to generate dividends, really showed the effects of 2020. The value of the account dropped 12% for the year (I had a lot of REITs), but the dividend was up 5.7% for the year. While their value dropped, they did pay me more income.
Vanguard Stretch IRA
International Business Machines
Realty Income Corp (REIT)
Services PPTYS TR
This was offset by the performance of my 401K, IRAs and Roths. I’ve talked before about my mix, and I dropped my bond allocation for 2020 from 30% to 20%. This appears to have hit my dividends, because they are down 8.2% for the year (about $2k). Yet the gains in the funds for the year are up 8.3% (over $100K) – so I think I made the right choice reducing my bond allocation.
Overall, I received about $957 less in dividends in 2020 vs. 2019. Again, I think the change in bond allocation affected this – which probably means my dividends will drop further in 2021 since I’m getting out of bonds. We will see.
Variance in Value 2020 vs 2019
Variance in Dividend
Vanguard Stretch IRA
TRowePrice Roth IRA
Vanguard Roth IRA
As I have stated previously, I use this account to experiment and look to see how I might use a lump of cash to generate income. In the book “Power of Zero” they point out that if you keep your income below a certain threshold, dividends and capital gains are tax free. That is going to be one of my goals for my retirement, to keep my taxes very low.
How did everyone else do with the dividends in 2020?
Now that I’ve gone through the financial side of my “end of year checklist”, its time to review the goals for 2020 and see how I’ve done. I’ve done the goal setting posts before and gone over my 2017-2019 goals in previous posts. As for most people, 2020 was a mixed bag. Surprisingly, most of the finance goals were accomplished, but for the non-financial goals, it was a mix. As I stated before, as the FIRE gets you, you end up with a lot of the finances on auto-pilot, and then you really start to concentrate on what really matters.
For 2020, my financial goals reflect that we are closing in on “coming in for a landing” and need to adjust for that. We continue contributing to the match on our 401K and the max on our Roth IRA, but we’ve shifted a lot of our investments to post-tax, so that we can have more flexibility when we retire early. We started that in 2019, and kept it up.
Officially, I’m 6 months past the original date I set in the blog. When I run the numbers, I believe we have achieved FI, even with the reduced returns that our financial advisor has. Like so many others, I’m starting to rethink actually leaving at that time. No so much because I need the funds (although that would be nice) but because I still enjoy some aspects of the work, and may not be ready to jettison it. I think what is more likely is that I’ll depart at some point, but continue to work on “side hustles” off to the side for some time.
So what about 2020?
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 – $29,311
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 – $43,100
Increase dividend income from all accounts to $30K/year (compared to 29K in 2019). Grade C – $28,912
Passive income covers 38% 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 B- 37.1%
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 A: +14.6%
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 A: Attended 8
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 – decreased by 19% from 2019
Create TKD Woodworking (my side-hustle name) with an LLC, website, finance tracking, etc. Sort of a trial method for running businesses. Grade A – Created business
Make $1,000 in sales (not necessarily profit) on items with TKD woodworking. Grade F – no sales
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
Increase weight lifted by 10% from 2019. Was able to exceed this in 2019, need to continue to push it. Incomplete. Chinese Virus killed gyms, didn’t get back in
Average 2 hours of cardio per week, which is about what I’m doing now. Grade B: Completed, but mostly daily walks. No intense cardio
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. Grade D: 58.1 miles
Continue volunteering at Pennsbury Manor at their joiner’s shop (woodworking). Really enjoyed this. Incomplete. Site shutdown due to Virus
Reduce weight by 20 lbs. from Jan 2019 (lost 2 lbs. in 2018). Again, I want to get in better shape as I get closer to financial independence. Grade D. Only lost 8 lbs and I think at least half of this is muscle
Read at least one book a month. I surpassed this goal in 2018, and re-learned the joy of reading. Grade A. 23 books
Visit three national parks (that is the plan, right now); Incomplete due to virus
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 C – Visited Vermont and Tennessee, but didn’t get up to NY
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 due to virus
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 due to virus
So those are my somewhat ambitious goals for 2020. I am going to do my best to hit them, so wish me luck.
Why chasing returns is sure way to lose (physician Philosopher); Good analysis with numbers to show how many folks chase the hot “item” but lose out, because its already peaked and on its downslope when it becomes “hot.”
Best 50-day rally ever (LPL Financial); Review of 2020, its up & downs and the surprising climb for the last 50 days.
Why is the market doing well lately? (oblivious investor); “The value of the stock market at any given time is essentially the market’s consensus as to the present value of the expected future earnings of publicly traded companies”.
Stop listening to “Them” (Freedom is Groovy); We are constantly being asked to believe in credentialed “experts” who seem to be more and more wrong every time, from housing design, to choice of schools, a lot of the conventional wisdom of the last 40+ years is wrong.
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
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!
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
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:
how to work business numbers and run a business by them (P&L statements,
Expenses, budgets, Capital spending, etc.)
my woodworking skills
to develop website
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
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:
Shaker carry box
Campaign collapsible 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.