When I decided to move to a quarterly posting schedule for these updates, I did so out of fear that I was getting repetitive. How many times could I write, "Net worth was up/down a bit... Mostly it was thanks to stocks one way or the other"?
Pretty dull.
The first quarter of 2023 was not dull, however. The consequences of one conversation rippled outward and touched all areas of our financial lives.
The Texts That Launched 1,000 Ships
One Sunday in January, I got a series of texts from my sibling (hereafter Sib) regarding my poor parent (hereafter PoorParent). It was a horrible conversation full of disagreements.
I've thought about writing more details about this, but it's much too personal. Long story short, the worries I laid out in My Baby Boomer Parent is Poor are threatening us much earlier than I had anticipated. The reality for me and Sib is that supporting PoorParent right now is only possible by severely limiting our lives in other ways. It would also make it more difficult to help PoorParent in the future when more dire situations arise.
Sib agrees with me now, but getting there was an unpleasant path.
Enter Dave Ramsey
I went to YouTube and looked up advice for people in my situation. There's hardly any, which is shocking, and the only person out there really talking about the duties or lack thereof of children when it comes to supporting their elderly poor parents is Dave Ramsey. So Dave Ramsey re-entered my life for the first time since I read his book Total Money Makeover back in 2009.
Although I'm not a pure Ramsey-ite, Dave's thinking has deeply influenced mine. Many of my money concepts can be directly linked to The Total Money Makeover. I've been budgeting for that long because, well, he told me too. I've become a true budget believer, and so has my wife. Even our "Blow" category is directly taken from his budget outline. Suffice it to say, I was primed to listen to what he had to say.
One thing that became clear was that I'm allowed to say no. To use his metaphor, I'm allowed to put on my own financial oxygen mask before I help other people, and that includes my parents.
Additionally, I now suspect that Sib and I had been enabling PoorParent. We can only take so much responsibility because we were much younger, but I can look to specific choices that PoorParent made that were emotionally and/or logistically supported by us. Had we gone along with fewer of these choices, we might currently have a better situation on our hands.
Tchüss, Debt
I was taking too much risk. That giant loan I took out in August 2021 was dumb. Sure, the interest rate was rock bottom, but so what? The monthly payments were annoying, and they limited our actual choices.
In February, I mostly paid it off after selling off a bunch of my individual stock positions. There's a pre-payment penalty for nearly all German debt, so I left slightly more than three scheduled payments to avoid that trap. You'll see a big change in the assets and liabilities of our net worth chart.
My thinking about the loan was wrong from the beginning.
FOMO
Reflecting, I got the loan after visiting America and feeling FOMO. I had this sense that I should do something, which is not a great emotional place from which to make decisions.
Most of the time, as I'm learning, the adult choice is just to keep on doing smart stable things. As Dave Ramsey describes it, his baby steps 4 and onward are pretty boring. Saving for retirement takes time, dedication, and patience. It's exciting in terms of the power of compound interest, but otherwise, it's a boring process. I've listened now to many calls into his show where someone has had a windfall and wants to do something to maximize their return on that money. For most people, the correct answer is to simply pay off any debt and their mortgage, and invest in mutual funds. This advice is often unsatisfactory for the caller, however.
Since I've become much less tolerant of holding individual stocks, the cognitive dissonance of being in debt while holding individual stocks became unbearable for me. I have no idea if I'm any good at picking stocks. For someone like me, borrowing money while owning individual stocks is especially dumb. I've learned in the past that my thinking goes crazy when I leveraged a position, and sure enough, I felt perpetually crazy.
The risk I had taken was:
- Job loss risk and risk that I couldn't make the future payments
- Increased risk of emotional volatility leading to poor decisions
- Currency rate risk (borrowed in euros to buy in dollars)
- Opportunity cost since that income was tied to monthly payments
It also bothered me philosophically that I was in debt. I liked being out of debt, and it was a point of pride that I'd paid off my student loans early. Along the way, yes, I had some installment plans, but there was never any interest attached. But now, I was in debt and paying interest. Yuck.
But even those installment plans need to be a thing of the past. Making choices for future me to pay for stuff is a mean thing to do to myself. It also assumes that the future looks like the present, which is not guaranteed.
Re-enter the IRA
During my Dave Ramsey rabbit hole, I listened to the Chris Hogan book "Everyday Millionaires" and read Ramsey's "Baby Steps Millionaires". One of the statistics was that most millionaires did it by steadily adding to their 401k plans. I hadn't added to my IRA since 2012, which was my loss because the money I'd put in between 2008 and 2012 - a total of $1,750 - had quintupled.
Therefore, after a decade of avoidance and fear, I've decided to continue adding to my IRA. For expats, this is tricky but doable. I'll have to use the Foreign Tax Credit rather than the Foreign Earned Income Exclusion to prevent tax payments to the US. This is more work, but having tax-sheltered investments is too important.
Wiseguy 2.0
I'll continue adding to the Wiseguy Portfolio allocation across my various accounts. Using Portfolio Performance, this is relatively easy to do with the Asset Allocation feature.
I've made an adjustment to weightings, however, which I'm thinking of as Wiseguy 2.0. There's now a 10% weighting to REITs, now that there's a tax-sheltered place for me to put them. REITs in a taxable account are dumb dumb dumb, which is why I left them out before. Within the REIT basket is a 25% allocation to ex-US REITs, so 2.5% of the total portfolio. That may seem paltry, but the fees on the Vanguard ex-US REIT fund are high. I'd like exposure, but until the fees come down more, I can't justify a heavy weighting.
To make space for the 10%, I've reduced the bond allocation to 10% from 20%. I'm taking more risk, which means that any future drawdowns will likely be more stomach-churning. However, I'm hoping this will also lead to long-term greater returns. I can't access my IRA money for another 30 years after all.
So Wiseguy 2.0 is this:
- 25% US Small Cap Value
- 25% US Large Cap Growth
- 25% ex-US Small Cap Value
- 10% Long-term bonds (both Treasury and Corporates)
- 10% REITs (75% US/25% ex-US)
- 5% Gold
Net Worth
As of March 31, 2023, our net worth rose since December by 8.22% in USD and 6.83% in EUR to $135,357 and €124,753 respectively. Liquid net worth is $99,747.
This new chart is meant to simplify viewing. The previous style was pretty difficult to read, and this new iteration makes it clearer. It also, perhaps a bit pretentiously, uses typical business accounting terms for some items, such as "Cash and cash equivalents". "Accounts receivable" at this point means strictly dividends for which the ex-dividend date has passed.
Stock Performance
Stocks have more or less been in an uptrend. Of the Wiseguy components, US large-cap growth, gold, and bonds have all done very well. Small-cap value has performed poorly, likely as a result of banking industry volatility. The purchase of the REIT funds accidentally corresponded with a bounce for that asset class, which wasn't intentional but worked out in my favor.
Spending
In addition to the big macro money moves, we've also re-committed to following our budget. We reined in our grocery spending, cut down on subscriptions, and otherwise made choices that resulted in lower spending overall. I'm also turning reward points (classified as "intangible assets") into groceries or money as much as I can.
We did buy a plane ticket for my wife to visit her family in the States. That was necessary. However, we've declined to go on a big vacation this summer in the US. This was a secondary set of conversations with my family that were difficult, but I'm at peace about it.
Simultaneously, the elimination of the debt also eliminated the lifetime interest cost, which I had added to the liabilities side of our balance sheet. That was about €2,000.
Second Quarter Forecast
Considering how much activity there was in the past three months, it's hard to consider what might happen in the next three. Here's some of what we know:
Our heating bill has gone up a lot. We'll have to eat a big upfront cost in April, and our monthly warm rent will rise. That's a bummer, but it's the situation Germany finds itself in.
My wife and I will likely plan some modest trip for the two of us. We'll probably pay for it before the end of June.
I'm going to aggressively add to my IRA until I hit the max for 2023. $6500 is a doable number, and I hope to never miss hitting the max ever again. I doubt I'll get there by the end of June though.
The last debt payment will be gone at the end of May. Good riddance.
Until next time, stay healthy and avoid FOMO.
No comments:
Post a Comment