Net Worth: October 2018

Our net worth spreadsheet gets updated on the 26th of every month. I chose this date because it's deep enough into the month that we've likely made most of our payments for the month, so that whatever remains is the accumulated surplus. I could inflate the numbers by doing the calculations right after my pay period, but that seems self-defeating to me.

For October 2018, our combined total net worth was $36,070.18 or €31,612.78.

Composition

Since this is the first of these posts, I should describe what makes up our net worth spreadsheet.

There's a U.S. dollar section and a euro part. Each one contains the following:

• Bank accounts, including checking and savings accounts.
• Credit card accounts.
• Investment accounts (currently USD only).
• Loans and other lump-sum liabilities.
• An "Other" sections, which includes rounded petty cash as well as the estimated value of loyalty programs.

These are added together, and along with the prevailing EURUSD exchange rate, I calculate the value in dollars and euros. Since this spreadsheet has data from 2013, some accounts are closed, but the rows remain in the spreadsheet in order to maintain their data. Some things that aren't there that may eventually make an appearance are:

• Physical Assets. We currently don't have any physical assets that are worth adding to the spreadsheet (cars, houses).
• Pensions et al. I haven't added my pension from my German job. I haven't figured out a good way to do it yet. Likewise Social Security or the German Rentenversicherung.

This is a complete net worth spreadsheet and not a true FIRE net worth spreadsheet, but it's easy enough to calculate those numbers with a few clicks in the spreadsheet. Just Control/Command click the necessary accounts, and I'm good to go.

Up top, I have a couple of interpretations of the data in discrete cells. Namely, what is 4% of our worth? If it's lower than $40k, then it's shaded red, and if it's higher, then it's shaded green. It's definitely shaded red. I also have a sheet that calculates the Millionaire Next Door categories "Average Accumulator of Wealth" and "Prodigious Accumulator of Wealth" values for us and how much we're below/above those amounts. If our wealth is below the "Average Accumulator", it's also shaded red, which it definitely is right now.

Those two items are purely reminders of long-term goals and reminders just how much needs to be saved rather than being explicit thresholds.

Factors Affecting Current Net Worth

The biggest factors that affected this month's net worth change is the stock market. I'm a long only investor, and October has been pretty rough on us. Additionally, most of my portfolio is value stocks, and those prices have been getting crushed. The "growth" stocks also suffered but not nearly as much. I also have some positions in German companies, and Germany's stock market has been lagging for about a year.

Because of this volatility, my tax deferred retirement accounts and my taxable brokerage account fell several percent. We saved a good amount of money this month, but the market mostly netted the change to zero.

Funnily enough though, because the euro fell against the dollar, the value of these accounts rose in value in euros, even as they fell in dollars. Silver lining?

This month, I began to calculate the estimated value of loyalty programs. I'm calculating the various points as being worth ¢1 a piece. It doesn't add a lot of value to net worth, but those points have some kind of value, so I'd might as well add them. I'm not sure if it's worth adding them in for past months, since it's such a small value (around $1k).

Regarding credit cards and loans, none of that costs us interest. We currently never carry a balance, and the one "loan" is an installment plan from a dentist that doesn't charge any interest. In the beginning of the spreadsheet, we did have interest-accumulating accounts due to student loans and the cost of moving abroad, but those are long gone.

So there's the first of hopefully many updates.

Getting Used to Market Drops

In the past week and a half, I've lost more money in the markets (nominally) than I ever have. I wasn't investing in 2000 or 2008, and I cashed out the few stocks I had in 2015 to help pay off the student loans before that year's turbulence hit. Right now, I'm sitting on a large net loss that I predict will become larger.

With the fall yesterday, the S&P 500 looks like it will close below the ten-month moving average. This is a fairly rare event, and it's one of those possible triggers for trend-following people to close their positions and wait things out. I'm not going to do that, but I am and have been girding myself emotionally for the potential of a big drawdown.

I don't really feel any panic about this. Maybe I'm fooling myself, and if there's a 50% drawdown, I could conceivably panic. But I suspect I won't.

Tempered by past panics

In the past year, my tolerance for big drops has improved. I had my first taste about a year ago when one of my large holdings dropped by 16% in a day and then kept falling. I panic sold, and the holding eventually recovered, much to my chagrin.

After that I held more doggedly through big drops and was rewarded. I hated holding, but I did it, and one big draw down became a big winner, which I sold for a profit when the price appreciation looked too good to be true.

And then 2018 came, and suddenly big drops for some names didn't recover. Currently, I'm sitting on some securities that are very much drawn down, and the speed with which their plummets happened feels a bit punitive. When I described how one holding has fallen 40% since April on no real news, a friend laughed and said, "It's because God hates you."

But there's also something irrational about the plummets. Many of them are falling not because of their current actual performance but because of fears of future performance or fears of their markets being encroached by newer technology players. Fair enough. But the penalties in many of these cases are extremely pessimistic, and extreme pessimism can equal good value opportunities if the world doesn't fall apart. Which is admittedly a big "if" right now.

Backtests

One exercise that also helped gird me mentally was all the backtesting I did. There are some market drops that can be mostly avoided. The dot-com bubble was one such example. If you'd bought value at that point, you breezed through that basically unscathed.

Meanwhile, 2008 was a different beast altogether. If you're long-only, the only real way to dodge 2008 was to not be there. But if you weren't there in 2008, you probably weren't there in March 2009, and if you were there in March 2009, you were rewarded. Big time.

It's not easy. But it does show that the big drops are opportunities if you're buying. And they're also something to plan for.

Dreams of cheap prices

So there's a part of me that wants to see prices really fall. Like, c'mon lads, let's do this. Since I'm still earning money, I'd love for my future money to meet much lower prices. The CAPE ratio is still high, and if we think it has any predictive power at all, all of us who are buying securities right now should be praying for it to fall.

The only people who should be hoping for higher prices are those who aren't buying anymore or who are mega-rich. Higher prices don't help young people. Higher prices don't help savers. Think about how much you've already saved vs. what you will save in the future. Which number is bigger? If it's the latter, then you should want an 80% drawdown to happen (as long as you get to keep your job) because the compounding effects of that money will be so much greater.

So to wrap up, I've been training my brain to not get too distressed about this. There's some distress, not going to lie, but it's not panic, and if I'm not panicking now considering the amount of money I've lost, I doubt I'll panic later.

CC Award Update

We got the award.

In an earlier post, I expressed some reservations about these big awards and the minimum spend required to achieve them. I still feel that, and my wife still feels that. We did drastically reduce our planned expenses. We don't like feeling incentivized to make big purchases.

But I still wanted the award for reasons I'll explain later, so I found a method of manufactured spending to make it work. There aren't many available to us Americans abroad, but there are some, and I took advantage.

The manufactured spend did cost something as a percentage of the spend, so it wasn't free. Basically, it's a cost for the accumulation of these points. I think it's better than buying a bunch of expensive stuff totaling $4000.

Why do it at all though? The basic calculation in my head was something like this: we are going to travel to the United States again at some point in the next two years, so therefore it's worth spending a little, to save much more later. The return is pretty good in this case (around $70 spent to save between $600-$1000 later). Even if I later eat the annual fee, the return is decent.

The reality is that we're going to visit family in the US at some point. It's important to both of us, and despite any savings goals we have, it's not worth sacrificing relationships or missing seeing child relatives grow up. Next summer we'll suffice with FaceTime, but the next year we'll almost certainly be heading back.

Or we'll help relatives who aren't as financially well off come visit us. It is much cheaper for us to pay to fly someone here, than for both of us to fly to the US and find accommodation and transportation.

Will we do this again? Maybe. I'm looking at other card award possibilities, but the trouble with manufactured spending is that it's kind of skirting the rules. I prefer to draw as little attention to myself as possible regarding my American financial accounts, and manufactured spending can open me up to closer inspection. I might do this with another similar card and then focus on things like hotel cards that provide free nights automatically. Since hotel costs were a high proportion of our last visit, cutting down on that would be worthwhile.

Or maybe I won't. I could just continue to add points to this card that I have and otherwise use normal German payment methods to get by. Germany doesn't have the same glut of strategies that the US has, but it has a few, and those might be enough to both satisfy the points accumulating itch and to keep things simple.

Markets Fall Too

TLDR; Nothing to do in response to stock drops. I'm just going to stick to my plan and console myself that things just got cheaper.

It was unpleasant watching the market fall yesterday, and if it falls again today, that will also be unpleasant. Since I own individual companies instead of broad indexes, it was rough seeing every name take it on the chin. I own value and growth. I own a variety of sectors and industries. They all got pummeled.

What to do? Nothing. Just watch.

But I can remind myself of a few things to help make sure that I don't do something stupid.

This Could Already be Over

Yesterday could have been a one-off event, or maybe it's the start of a longer down trend. I actually have my doubts about that unless global trade really blows up, but more importantly, I don't know. If I sell today, thinking that this will go on, markets could recover, and I'd be feeling like a dummy.

Falling Prices Make Future Money Worth More

I will save more future money than the money that's already in my portfolio. It's no fun watching past dollars lose value, but if there's a larger drop, I can console myself knowing that my future dollars will buy more of asset than it could have had prices risen forever.

There's no position in my portfolio that's so large I couldn't see myself adding to it, and falling prices make it a lot easier to buy more.

Selling Stuff Makes Tax Headaches

More sales equal more paperwork. I want to save myself as much paperwork as possible.

There's a Reason I've Chosen My Strategies

There's a reason I have what I have. I've done a fair amount of backtesting and research, and while that's not perfect, it does give me some idea of what's possible on the downside as well as the upside.

All I have to do is not freak out. Just follow the plan and let time do most of the work.

So there you go. That's what I'm reminding myself as the heads babble on TV and Twitter and blame this or that for why the markets move as they do. I don't know what's going to happen. Neither do they. Stick to the plan.