Oh my, what a crazy 2020 so far. Not that 2019 or especially 2018 were tame, but COVID-19 and a rolling global shut-down knocked everyone back. Add-in a whole host of smaller events like Tropical Storm Isaiah hitting the East coast, historic flooding in China starting to affect some supply and industry, Kobe Bryant dying in a helicopter crash, etc…
But 2020 hasn’t been a bummer year for our Net Worth! We paid off our second/final auto loan and committed to maxing out our retirement accounts at of the beginning of the year, before Coronavirus hit. We continued steadily saving through it all, even though I was furloughed for a few weeks. I had made myself extremely useful in a number of roles; not quite irreplaceable but close. This limited the number of weeks I had to take off unpaid compared to others. Continuing to buy during the massive 30% dip (3/19/20 below) meant that we saw great returns on the way up. We didn’t Dollar Cost Average per se (http://prudentcoin.com/dollar-cost-averaging-is-timing-the-market/), but invested like normal as soon as we had the cash.
There were two financial moves we made but wouldn’t necessarily recommend, but happened none-the-less:
First, we changed my 401k plan’s allocation; it had been in a Target Date Retirement plan with 70% stocks and 30% bonds. We had been fearful of a market crash and it better fit our risk profile. After a near 30% market drop, but knowing it could drop even further, we decided to re-balance to a 90/10 fund. This ultimately made us more money when the market rebounded as bonds hadn’t dropped quite like stocks had. However, we wouldn’t recommend as we were going against our own investment principles and actually timed the market. Sure, it worked out this time… or did it?
By being in a lower percentage of stocks for several years, we were seeing lower returns than we would have if we were 90% in stocks. So, even though our portfolio fell less in March 2020, the greater returns of the stocks over the preceding years would have been more than enough to cover the difference (blue line is 90/10 and orange is 70/30 stock/bond with Vanguard Target Date retirement funds):
Our second abnormal money move was… we had money left over from a cash-out refinance on our house last fall. We had put in a lot of sweat equity, given the kitchen and frankly the whole house was nasty when we bought it 2.5 years prior. We wanted to get back to a 75% LTV so we could finish a few more needed projects, like a garage that needs a new roof, door and opener, siding, etc. We maxed out our 2020 [Roth] IRA’s plus filled up the last of our limit for 2019. We did this in March, when the market was 20-25% down from it’s previous high, as we knew it was a good value. Even if the market went lower, we were content. We hadn’t planned on this, but it was too good an opportunity to pass up.
Since our last Financial Update was in December of 2018, let’s cover 2019 with a chart too. The major bump in the Fall was our cash influx and adjustment of our home’s value from the refinance and new appraisal. While that certainly was very nice, the major takeaway should be the steady growth from consistent contributions and staying in the market throughout the entire year.
2019 was a year of slow and steady growth, but it is exciting to see that in 2020, even with the crazy times, compound interest really becomes exponential as the balance adds up. But that doesn’t happen unless you make sacrifices on the front end. In 2020, we are saving ~50% of income + in our 9th year of delaying gratification and busting rear working 80+ hours a week. That’s what it takes to see this kind of growth after 5+ years into our FI journey. Our stretch goal this year was to hit a $320k net worth, and we are surprisingly on track to even surpass that. We will see!
We are not saying we’ve made it, but so excited how far we come after the sacrifices we’ve made. Please go back and read our updates and mindset from several years ago. As our net worth grows, it might be hard to relate if you are just starting out. But read our 2016 posts, especially: http://prudentcoin.com/being-frustrated-with-where-you-are-at-financially/ There is light at the end of the tunnel. For us, a solid Financial Independence (FI) is still 10 years out, but we have some FU money now. Start with the basics: save and invest, then save and invest more…