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Financial Status Update – Dec 2018

What. A. Year.

A lot happened in 2018 for us…

Finished my Bachelors Degree
Received solid promotions with raises at both my full-time and part-time jobs
Had a baby
Paid off 2 loans

And 2019 is looking bright as long as we keep up the hard work and save, save, save!

PersonalCapital_2018_All

$149,238 – I upped the value of our home by $10k twice during the year to match a truer value. Subtracting that, we saw an increase of almost $18k over the year. Not as much as we wanted, but a solid gain on all fronts.

Our investments grew by more than 25% this year, between additional contributions and returns. And to be honest, the market downturn at Christmas followed an overall poor year. Meaning that we actually added more than Personal Capital gives us credit for; we just lost it in negative returns. But we have a long-term view and use low cost index investing.

PersonalCapital_2018_Investments

The Home

We completed a lot of little things this year, postponing some needed items to 2019 or even 2020. Much of the almost-a-need items, such as replacing very old, drafty windows or fix the leaking [detached] garage roofing, could be done now with a loan. But we want to be debt-free besides the mortgage and have a solid cushion for when the next recession comes around. Fixing the remaining big ticket items could cost $15-20k all said and done, and we don’t want those bills hanging over us just yet. But the home has the value potential, so they will be completed for us to enjoy them well before we move out.

We did increase the value of our home from $200k to $210k within Personal Capital as it is easily worth that now. That is $10k less than our new taxable value (we fought the city and won, reducing the taxable value by $20k!!!). Zillow now zestimates the home at being worth near $270k which is crazy and probably not realistic. But talking with a Realtor doing comps, we could sell the extra lot for around $46k and our home is still worth the taxable value if not more. So, while we plan to keep the land intact for now as we really enjoy it, we have some hidden value when we need a bigger home or different location.

Loans

We paid off our 401k loan (used to complete needed renovations prior to moving in) and the second car loan (very early in 2018, if memory is right). We just have our mortgage, a Home Depot no-interest loan for pre-move-in work, and a minivan loan. All interest rates are very low (2.8% & <5%), so we are paying off the no interest loan due this year asap. With our estimated tax return coming in Feb/Mar of 2019, we should have it paid off quickly.

Savings

We are saving a good chunk each pay period between what is automatically deposited into the retirement accounts and a HSA. We have a goal to increase some additional savings into an IRA, but we are missing our goal. We need to revisit that goal and redouble our effort.

The Market goes UP and the Market goes DOWN

Boy, what a crazy week for the entire stock market this Christmas [2018]. If you were paying attention… I heard the news and rushed to see my investments falling in $ value. But I left them alone (mostly 70/30 index funds), and continued to watch them fall. Even the investment portion of my Health Savings Account (HSA) was down over a thousand dollars meaning I had less than what I had initially invested. Not good at all!

But then I remembered my investment philosophy. I am betting on and investing in the whole market and whether inflation, growth, recession, war, or whatever happens, the value of the market full of small, medium, and large cap companies will be there. Consumers, businesses, and governments will always need employers and suppliers of both raw materials and finished goods. My investments are slowly increasing in value again, but I would not be surprised we see another drop. But just like the second half the week, I won’t pay much attention. I will just keep purchasing more within my 401k and other investments vehicles.

Why was PROSPER my worst investment?

What is Prosper / Peer to Peer Lending?

Prosper is one of several Peer-2-Peer lending companies that match investors with consumers who want to borrow money. Given the interest rates, most of these borrowers it would seem were denied financing by more traditional routes that required collateral or good credit history. Peer to Peer lending charges higher interest rates in return for an unsecured loan (no collateral); with the loan origination process doing some vetting and the sheer number of loans hoping most won’t be losers. But besides placing a black mark on a credit report, not much Prosper can do with late borrowers besides ask nicely. Peer to Peer Lending in a nutshell, at least.

“Promised” Returns & Investment Plan

ReturnsAdvertised

One has to click only one link from Prosper’s homepage to see these current “historical returns”. I am not saying they are lying, nor that you shouldn’t invest, but [hint, hint] I did not see any where near even these low-ish returns given the risk of the investment.

My plan going in was to spread my money out between as many different loans given the $25 minimum per loan. Starting with $2,000 in mid 2014, and then reinvesting repaid principal and returns (last in early 2016), I bought $3,300 in notes across all the risk categories $25 at a time. I wasn’t too picky, except for staying away from the more frivolous-sounding loan reasons such as vacations and sticking with smaller loan amounts, and trusting the large basket and Prosper’s loan origination process to overcome the bad few with enough winners. I chose to stick with 3 yr loans, but accidentally bought a few 5 yr loans. Basic, but fit in with what Prosper promoters recommended.

NotesRating

Actual Results

ReturnsDetails

Before talking about my returns, I will mention I am confused by some of what Prosper does. For example, they mention “Lender Promotion Returns” which bump me just over 2%, but have no idea the specifics (the * asterisk doesn’t clarify). More puzzling, although it’s probably what kept my returns positive, is the 27 notes sold by Prosper on my behalf, without me telling them to. It seems that these 27 “sold” notes were likely way past due and Prosper gave me some money for them. A wise investor said he doesn’t invest in what he doesn’t understand (hint, it’s Warren Buffet). The problem here is it isn’t worth figuring it out as the returns are low; just want my remaining few loans to be paid/charged off so I can be done.

CompletedNotes

Basically, I made some money, but only a little. But that $95 and change isn’t all profit as I discuss in my Takeaways section. Looking at my current Active Notes, an “E”-risk note has a Yield of 24.9% while an “A” note has a Yield of 8.66%; which is far from my actual results – the problem is so many failed to pay. The numbers don’t look too bad in the screenshot below, but I am sure the “interest missed out on” would be a huge number.

PerformanceSummary

Takeaways

Knowing what I know now, I wouldn’t invest like this again. For the $95 I have made, it has cost me $20 more a year to file taxes because I had to upgrade to TurboTax Premier to handle the 1099-OID form I was sent. And the numbers on Prosper’s tax forms (25+ pages with a break-down for each note) never seem to neatly fit into TurboTax. It has been the worst part about tax time, to be honest.

TurboTax

The minimal return, the extra cost and work on my part at tax time, the fact my 401k did really well from 2014-2017, and the amount of risk this type of investment has just makes it not worth it in my opinion. But others seem to really like it.

Financial Status Update – Jun 2018

Quite a lot has changed in the last year and a half, both personally and financially. Besides moving up at work and a growing family, we have also continued to save a large chunk of money each month. In addition, we bought a fixer upper and continue to sort-of invest/dump money into it. So where are we at?

PersCap_NW_2018_Jun

Our Net Worth has skyrocketed! Well, sort of. Part of this change from $50k to bouncing around $130k is that I have added in more accounts to Personal Capital; but we have also saved much more in the roughly eighteen months since the last financial update. Let’s cover this one by one…

The House

We bought a house for $168k with 5% down so that we could do all the needed renovations (such as gallons of KILZ oil-based primer to cover all the smoke stains). We essentially have a new house as the floors, kitchen, and bathrooms (save the tubs) are all practically new. But we knew this all going in. The home is in a high-value area; close to many well-paying jobs but far enough out that you aren’t in endless congestion. The SEV x2 on our house is $240k (and in a few years after all the work is done and the market likely goes up farther it will probably be worth that), but a rather conservative estimate would be $200-205k. The large bump in April 2018 in the Personal Capital chart above is due to me raising the value of the home to $200k from $190k, which was the appraisal before all the work was done when we bought it in July 2017.

Included in the kitchen renovations are nicer cabinets with soft-closing drawers and hinges, quartz countertop, and a custom layout. The floor has a nicer pergo flooring through-out and we are working on finishing a part of the basement in addition to finishing the first floor. And, we are fixing up the decent two-car garage and 15x30ft workshop; both of which have power and the workshop has natural gas with heaters hung from the ceiling. And did I mention we have over an acre with only a two minute walk from a high-end downtown. It’s a very nice place to live, and while taxes are quite high, it is the perfect place for us now. And we only have $197k into the house so far. Our best estimate is $210-215k depending on how much we fix up before selling in 5-10 years.

As an FYI, I use a manual value for my home value as opposed to Personal Capital’s Zillow “zestimate” because it is [in my opinion] wildly high and rather volatile making the growth charts hard to follow. We currently have $44k in home equity given a conservative estimate of the home’s value.

Retirement Accounts

Besides two work retirement accounts, the wife and I each have an IRA with Vanguard (a company we highly recommend, by the way). All said and done, we have roughly $50k in investment accounts, although either the market took a beating (I mainly use index funds) or Personal Capital glitched in syncing an account. This is in addition to cash (~21.6k per PC) and other liquid assets held in non-linked accounts.

PersCap_Investments_2018_Jun

Speaking of retirement… There are two scenarios I am tempted by. First is a semi-retirement starting at 50 years old and then working part-time for another 10 years as a well-paid, but no-benefits-package consultant. This simulation is at a 63% chance, and a decent/median chance of working out just fine:

PersCap_Retire50_30kYear_2018_Jun

The other option is to retire at 60 years old after having worked full-time for 40+ years. Both options delay taking Social Security until age 70 (the current age to receive the highest monthly payments) and a conservative estimate of only $25k/yr combined for the two of us. This second option results in a 77% success rate and a median ending portfolio value of a million dollars more than the first:

PersCap_Retire60_30kYear_2018_Jun

The nice thing about these two plans, and the real one I finally decide on, is that I don’t have to decide now. I just keep putting in the work now; earn more money and save more money and invest more money. And, options will open up.

Miscellaneous

A short section, but I did want to clarify that the Net Worth above doesn’t include sundry consumable items up to and including vehicles. In fact, we have one auto loan and I haven’t even offset it with the value of the vehicle that is worth maybe a thousand dollars more than the loan (need to set a reminder to add that in to make it a fairer value). We are also working on paying off a <$5k loan from a 401k to help with the home remodel, along with a no interest credit card from Home Depot. And that about sums up where we are at. Oh, thanks to paying cash and some help from work tuition reimbursement, I do not have any college debt having just completed by Bachelors in Business.

I wrote in 2016 that I was very frustrated with where we were at financially. We have definitely made up lost ground, but we are not there yet. But all of this only happened because we have been saving, saving, saving and increasing our income by working hard and smart…

Congo Dandies vs American Consumers

I recently watched a RT Documentary titled, “The Congo Dandies: Living in poverty and spending a fortune to look like a million dollars” on YouTube (link). According to RT, “Congolese soldiers returning from France after WW2 brought back the latest Parisian fashions and took to dressing like Dandies”.

congo_dandies_1

Source: YouTube

Today, “Les Sapeurs”, as those in the La Sape movement call themselves, allocate more time than their wives getting dressed, spend relative fortunes on imported clothes, and show off their well-dressed frames along muddy, trash-filled streets. One of the men interviewed mentions that he spent two years of savings to buy a pair of dress shoes. From watching this documentary, two main things stood out to me, along with their correlation to Americans.

First, these well-dressed men spend their productive time and life savings on their own personal appearance. Instead of spending it on their wife, children, and home, or improving their earning potential, they buy high-end name brand dress shoes, suits, and glittery watches. One man even admitted that normally he would “have bought a plot of land” if he hadn’t spent the money on his pair of shoes. While most Americans have basic utilities and don’t live in such an environment, the same financially self-destructive tendencies still exist. We know we should be saving for a rainy day and adding money to our retirements accounts. And yet we don’t. And even when we do save money, it is an afterthought and only a pittance of what we should be saving. Instead, we max out our credits cards, buy newer cars with $20k+ loans, max out home mortgages; or some combination there-of. Are we really that different from these flashy poor?

congo_dandies_2

Source: YouTube

The second main takeaway is how these men are regarded by their peers and community. They aren’t viewed as crazy or berated by their wife for their spendthrift ways. Rather, they are viewed as celebrities when they walk around town. One vendor in the market hailed a passing Les Sapeur as the “pride of our area”. Even his own wife views herself as lucky to have such a showy man, when he could have had any girl. While this seems ridiculous, is America or any country really that different? We praise the person driving a luxury car, even if if they are loaded with debt and are living paycheck to paycheck. Income, but especially spending, are our barometers of success. Not net worth or savings.

While a longer video at 26 minutes, even watching the first 5-10 minutes should make you blush as you think about some of your own spending habits and initial opinion of someone based on their looks.