2023 Update: New Worth, Reflections, Businesses

Staying the course worked.

When I wrote my end-of-year update for 2022, I was feeling pressure due to the severe drawdowns in our assets. 2022 was a rough year in nearly every asset class, and we were not spared. However, the choice to begin using ETFs for much of our portfolio meant that I didn't make any catastrophic choices despite the drawdowns, and that change paid off in 2023.

In 2023, I made additional changes, which have further solidified my temperament. Namely, my eliminating debt and restarting IRA contributions, I've taken steps that will pay off for decades while taking off some of the pressure to nail stock picks.

Net Worth Update

At the end of December 2022, I wrote:

However, December was also the first time that our net worth was down in every metric that I track. There are four comparisons at the top of my spreadsheet: USD month over month, EUR month over month, USD year over year, and EUR year over year. For the first time, all of these metrics were negative.

The story was very different in 2023.

Our net worth rose in December to $167,897/€152,080, which is a month-over-month rise of 6.6%/5.15%, a quarter-over-quarter rise of 13.90%/9.16%, and a year-over-year rise of 34.11%/30.10%. This represents an all-time high for our accumulated wealth.

2023 Changes

Debt and IRA

The biggest change was the decision to close out the loan I'd taken and restart my IRA contributions. This was not taken lightly, though some triggers made 2023 the year. I've mentioned those triggers before, but I'll summarize:

• A family conversation made me feel like I was being pushed into choices that I didn't agree with.
• Looking for emotional support to say "no" to family members, I found Dave Ramsey episodes.
• He's anti-debt, and I was in debt, and - after analyzing my feelings - I realized how stressed I was about it.
• His book Baby Steps Millionaires reminded me that tax-advantaged accounts are powerful tools for wealth building.

Looking back, had I not sold anything to pay for the debt reduction, I'd have more money today. But how would 2023 have felt? I didn't like that monthly payment to the loan company. I felt like our budget was overly tight because of it. It was a negative in my mental life, and although I'd have more money now had I simply persisted, I don't think I'd be as happy.

I filled up our IRA contributions for 2022 and 2023 early in the year, which meant I'd have to do the more complicated tax filing using the Foreign Tax Credit. I managed that, and it's not so bad, but U.S. tax filing remains a major net negative in our lives. Every year it's a stressful frightening experience.

Small Business People

We've been active small business people here in Germany. My wife made great strides in 2023, acquiring new customers and increasing her income. She diversified away from a single high-volume, low-paying customer and negotiated higher rates from several new clients. It was impressive.

I have several small businesses, and while they aren't able to compete with my wife's for income, they have increased our bottom lines. One of them is still in its infancy and therefore unprofitable, but I believe that will change in 2024. The other is almost pure profit. The attention is give towards them is what I might have in the past directed towards stock picking. This new focus is much more productive and fun.

This year, we've modified our budget spreadsheet to account for these varied sources of business income.

2024 Expectations

I don't know what will happen. At the end of 2022, I didn't expect that a single conversation with my sibling would so disrupt me. I didn't think I'd seriously enter this new line of business. I thought I might leave my job, which I didn't.

I know there will be disruptions, and there will be surprises. At least I hope so. If I could completely plan year 2024, that would be outrageously boring.

Until next time. Happy new year, happy saving in 2024, and stay healthy.

2023 First Quarter Update

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

Image: A stacked bar chart of our net worth over time. Click to enlarge.

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.

Why This Expat Isn't Buying German Real Estate

As I recently mentioned, I just took out a loan to buy stocks. Right now, interest rates are temptingly low, and while the U.S. market overall is expensive, there are still undervalued companies there and elsewhere that can overcome the loan's interest rate cost.

My impression is that few people do this. Stocks are risky, and those who lever up can flame out hard. Stocks, in addition to being volatile, are nearly always available to be traded. I could get drunk, get scared at falling prices on my iPhone, and close every position in my portfolio at a giant loss with six or seven taps. Applying leverage to that is risky, no doubt, and buying stocks on leverage attracts a certain amount of skepticism and disdain.

Real estate leverage attracts much less scrutiny.

Stating the obvious, the high price of a single real estate unit usually requires a buyer to finance the purchase through a mortgage or other lending structure. That's naturally as true in Germany as in the US. And that leverage means, theoretically, that you can turn your down payment into a much more potent force, where you can reap the levered gains from rent and from the price appreciation.

For those who do this, it's possible that rental income more than covers the monthly cost of the mortgage. Indeed, one of the oft-repeated strikes against renting is, "You're paying someone else's mortgage." For a landlord who accomplishes this repeatedly, they can create an empire of rental units paying off his or her debts all while accumulating value through appreciation.

It sounds like a dream.

Expensive

In Germany however, it looks much less dream-like. To be fair, there are serious real estate investors here. I know two of them personally, and their wealth is absolutely real. But recently, both have said the same thing: everything's too expensive.

For all the complaints about costs in the US, German real estate feels increasingly out of reach. Yes, if you live in the hot American cities, purchasing real estate can be nigh impossible. But even in the not-so-hot German cities, buying an apartment can be a ludicrous amount of money for what you get.

Prices in many cases have outstripped the possible rental income you can get from the property. I sometimes see properties listed with a renter in place. That means the rental income starts immediately without having to go through the hassle of finding a tenant and doing all the necessary background checks.

But if you do the math it stops seeming so nice. I've gone through the listings and priced out mortgages for given down payments to see what kind of cash flow can come from these properties, and it doesn't work. In general, the down payment would have to be enormous for the property to have positive cash flow from the rental income. But having an enormous down payment cancels out the benefits from the low interest rates in the first place.

Tenant Protections

For an American, you might ask, "Why not just raise rents?" But we're not in Kansas anymore, and there are legal and cultural realities you have to adapt to. In general, German renter protections are much higher. And, as a renter, they're great.

Leases are continuous, and the renter can leave at any point if they notify the landlord 90 days in advance. So there's no new lease signing event to hike rents. Instead, there are prescribed rules about when and by how much a landlord can raise rent on an existing tenant, and it's biased in favor of the tenant. For the ambitious landlord, there are ways to force it, such as by doing a large Modernisierung of the unit where it's materially nicer and more energy efficient and therefore deserving of higher rents. But that's yet another cost, and do you really want to spend your time doing that?

Dealing with tenants, by all accounts, is hard in Germany. One of my landlord friends says that you basically can't raise rents once a tenant is in place. Kicking tenants out who don't pay rent is, by all accounts, difficult and lengthy. In addition, tenants are allowed to lower their rent payments for cause, such as loud construction nearby. German renters have non-profit organizations that can go to fight for them for nominal membership fees.

High Taxes and Fees

If you're versed in basic investing wisdom, you know that keeping fees low is a primary requirement of the wise investment. But for the German real estate investor, taxes and fees are deadly. When you buy an Immobilien in Germany, you pay a series of up-front fees that are an immediate loss.

If you visit a site like ImmobilienScout24, they list fee estimates for a given property. For example, the estimated fees for an apartment in Stuttgart is around 10-11%. That includes the following:

• Maklerprovision (3.57%, broker fee, and the one fee that can be avoided)
• Grunderwerbsteuer (5%, property transfer tax)
• Notarkosten (1.5%, lawyer fees)
• Grundbucheintrag (.5%, registration fee)

So in my Stuttgart example, according to Sparkasse's calculator, we get an estimate of €50,350 in Nebenkosten.

Here's an actual example in Stuttgart from a 56m² (about 603 sq. ft) Maisonette apartment with slanted walls with a property price of €298,000 where the Nebenkosten add up to €27,952, which equals a total cost of €325,952. And that's with a slightly lower Maklerprovision.

To be sure, the fees vary depending on location. The Maklerprovision and the relevant taxes depend on the local government rules. But they're all high, and the fees are purchase price dependent. The Maklerprovision gets a lot of hate despite it being the one fee that is sometimes avoidable, but the Grunderwerbsteuer by itself will bite you hard. With property values at high levels, you're getting hit twice: you're at higher risk of a fall in property values, and you're hit by the upfront fees attached to that price¹.

You're also guaranteeing yourself high opportunity cost. You'll have to save up those fees since banks generally won't finance them for you. To save up, you'll likely stick the money in a savings account earning nothing, and it might take years. You have to ask yourself if the lost potential gains in the stock market are worth it. If it takes you two years, those are two years of compounding you never get back. And when you eventually buy, your down payment might go entirely to the fees and not towards the property, leaving you financing 100% of the property value.

Those fees mean that there's never a guarantee that you earn any money from the purchase. It's an immediate hit of ~6-12% up front of the levered cost, and if you're compelled to sell for any reason before compounding has overcome that hurdle, then it's a shocking loss of potentially more than your entire down payment. That's the two-edged sword of leverage.

At the very least, it means that you'd better be damned sure that this is the best use of your money or that you have some special insight or strategy that makes those costs worth it. And you'd better be able to hold on.

Property Tax

There is property tax (Grundsteuer) here in Germany, but trying to estimate it in advance is hard. Just know this: you will have ongoing property taxes. They are not particularly onerous, which is one advantage compared to the US.

What I've divined from the online literature is this: the tax varies based on the type of dwelling and depends on an official value assessment (Einheitswert) by the state (Bundesland) you're in. This number is much lower than the purchase price and gets adjusted every six years. That number is multiplied by a small percentage (Steuermesszahl). This value is then multiplied by several hundred percent (Hebesatz) - depending on the state - to equal your yearly tax. Clear?

Expat Issues

I haven't even talked about the potential challenges of being a U.S. expat doing this. For one example, Robert Kiyosaki likes to extol the virtues of not owning anything yourself to protect yourself from liability issues and lawsuits. That would likely mean putting your properties into a corporation or other such entity. But you, the American expat, have to consider the implications back in the States and what the IRS will make of your German arrangements. Controlled foreign corporations require extra compliance and paperwork.

There's also the rule that the IRS can declare that you have capital income from your mortgage if the exchange rate changes in your favor.

Lastly, there are the normal challenges of being a real estate investor that exist everywhere. All the stuff listed above is layered on top of that already substantial levered risk burden.

High Prices, Lots of Rules, High Fees, the IRS... What's Not to Like?

If you're excited by real estate, and other options won't do, then more power to you. There are likely unexplored riches because the hurdles are so high, and there are likely strategies that can work for those geniuses who recognize and execute on them. If you're actually receiving cash from your purchase in excess of your outflows, it dulls - but doesn't eliminate - the impact of the up front fees, especially compared to owning a home as a residence.

But at this moment, I can type some numbers into my computer, get an appropriately-sized loan relative to my income, buy a diversified basket of stocks, and go on with my life. If that sounds irresponsible to you, you have to ask if losing potentially tens or hundreds of thousands of euros up front guaranteed for a likely overpriced asset to service tenants whom you can't kick out sounds responsible.

Maybe neither sounds responsible, and that, at least, would be consistent. But I want to use low interest rates to my advantage, and although I'm attracted to real estate, I look at the reality of it and am turned off in comparison to other options.

Does that mean never for this oft confused expat? Of course not. I've moderated my opinions often, even after writing negative articles. Buying stuff is fun, and property captures my imagination. I know all this because I regularly stare at property listings, after all. But there's a lot of friction in buying real estate, and I assume that I'd bail before putting my name on the dotted line.

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1. In comparison to the US, Bank of America estimates the closing costs for a $500,000 property in Charlotte, NC with a 5% down payment at $12,921. In New York City, it'd be $21,547.↩︎

September 2021: 3Q 2021, One Terrible Trade, A Loan for Stocks

In September¹ our household net worth inched up .74% in USD and 1% in EUR to $111,947 and €95,518 respectively. For the third quarter 2021 (July-September), it rose 9.46%. Year over year was a net worth 42.15% rise.

Portfolio Performance

If the Portfolio Analyst feature of Interactive Brokers is to be believed, my taxable brokerages and IRA portfolios returned -.65% for the quarter. I was keeping pace with the S&P 500, but my portfolio fell harder during the September drawdown.

There's some uncertainty around that number because of the loan - more on that later - and because I added external accounts to the Portfolio Analyst system, which is kind of wonky. Let's just say the way PA works is kind of opaque. Long story short², I slightly underperformed the S&P500, but by the exact amount is a bit unclear.

I'm not pushing stocks on anyone, so I don't know how much people care about that sort of number. As I've matured as an investor, I've looked at how things will perform given longer future time horizons. I don't know if I'm good at that yet, but I've learned that three month stretches don't really give me much information to work with.

Additionally, I rarely look at any individual position as "full" or "complete". I like adding to positions, and lower prices are helpful for that.

I'm happy, on the one hand, that I didn't crash and burn during these last three months, but given how I close I was to the index, I'm probably more or less closet indexing with a handful of small wildcard positions that have small effects on the portfolio. I'm trying to get away from that by making more educated and larger bets that I can hold for the long term but that will likely perform much differently than the major indexes.

My Worst Timed Trade Yet

I did have my single worst timed stock purchase though. On September first, I bought my first 50 shares of AbbVie. In 15 minutes the stock fell by 10% because of some FDA news. It was pure bad luck because if I'd bought 15 minutes later, I'd likely be sitting on a small gain rather than the loss I currently have. It's not a disaster, and I don't regret the purchase, but there's a real, "You pays your money and you takes your choice," feeling here. Stocks are risky after all.

Speaking of risk...

I Took Out a Loan to Buy Stocks

In September, naturally with my wife's input and consent, I took out a €30,000 loan with an effective interest rate of 2.39% and a repayment over 7 years. You can see the effect in the stacked column chart by looking at both the asset and liabilities side.

It's surprisingly easy to shop for loans in Germany, and the banks are desperate to get euros off their books and some positive cash flow coming in thanks to negative interest rates.

It's taken me years to act on this idea. I discovered the loan shopping sites several years ago, but I didn't act on it, and even in the last several months, it was an idea that I bounced around but left in the drawer. While deliberating, I priced out loans and had bankers calling and emailing me. I had to psyche myself up for it by listening to Rich Dad, Poor Dad a few times³ and listening to a terrific episode of The Investors Podcast about using debt proactively to buy assets.

In my case, I've borrowed to buy stocks rather than borrowing to buy real estate, for example. In fact, the terms of the loan explicitly state that I may not use it to buy real estate. A mortgage would likely have meant a lower interest rate, but RE in Germany is a much different animal than in the US.

I had a few guidelines going in:

• The interest rate needs to be an achievable return. As in, I need to be more or less assured that over the life of the loan, I don't lose any money to interest.
• The monthly payment needs to be lower than the amount I normally save towards my stock purchases. I'm still going to be adding money monthly in addition to the loan amount, and I never want us to feel pinched by the monthly repayment plan.
• The stocks purchased should help diversify away from large cap tech stocks (which are the largest single positions in my portfolio). Doesn't mean I can't buy any tech if a great opportunity arises though.
• The combined dividend yield of the companies I purchase should pay a growing dividend in excess of the loan's interest rate.
• Since I don't want to lose the principal either, the companies purchased should have reasonable-to-great valuations while also not being value traps, melting ice cubes, junk.
• Diversification away from the U.S. would be nice, but is not required.

The stocks I've purchased thus far satisfy those requirements and have been in healthcare, real estate, homebuilding, and banking. I've added here and there to smaller growth positions. I've achieved the dividend/interest rate goal already and still have about $10,000 left. I've probably done more stock research in the past week than I've ever done before in order to decide what to do with this $10,000. It's exhausting, but I've learned a ton, so maybe I'll delay indefinitely and just keep learning until I find more 1 foot hurdles.

October Forecast

We'll have to pay our tax preparers, which will eat some money, but otherwise October should be a pretty standard month for us.

Reminder: I, like all Americans living in Europe, find myself forced into individual securities. The dual taxation/regulations placed on US citizens in Europe via FATCA, the FBAR, PFIC taxes, and MiFID II rules mean that we are excluded from buying financial products such as mutual funds and ETFs unless we misrepresent our actual residence. In many cases, US citizens in Europe are denied simple bank accounts. We are a group that is actively being discriminated against by multiple countries for the crime of being US citizens abroad.

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1. As of September 26. ↩︎

2. Basically, after adding the loan to the PA feature, it made the portfolio look like it had fallen by 25% or so. They don't treat their own margin debt that way, so I'm not sure why it was different for an external loan. Additionally, adding historical data for external accounts is very counterintuitive. ↩︎

3. Don't listen to Robert Kiyosaki's market predictions though. ↩︎

Margin

I sold some positions yesterday in my brokerage account. They passed my selling rules and on the whole I made a small profit with those positions, but I wouldn't have sold them except I wanted to close out my use of margin.

I used margin in my brokerage for the past year, and although my timing was shit, and its use probably amplified the loss I'm sitting on now, the loss isn't what bothered me about it. Instead, it was the mental games it played with me that forced me finally to shut it down.

Dangerous Thinking and Actions

I don't write this blog to give anyone else advice. I'm not a money professional, and I don't want anyone to think my word is correct or actionable. But I do want to point out a few of the dangerous lines of thinking and risks that margin use exposed me to, and maybe someone else will find this helpful.

Careless Security Selection

When it's borrowed money, I found it easier to buy stuff that I otherwise might not have bought. It was easier to say, I'll buy a bit more here on this pullback. I'll buy this security just 'cause. The dividend is higher than the interest I'd be paying. I'll day-trade just this once... twice... three times....

Looking at some of the stuff I'm still holding, all of that thinking was stupid. I have stuff I shouldn't have bought. I took risks that were unnecessary. I'm sitting on losses that will take several years to recover from. It's not the end of the world, but it was a mistake.

Constant Desire to Close Out my Margin Use

This is more stressful than financially destructive, but I thought a lot about my margin use, and I was always itching to sell to close it out. That's just stressful, and I don't want to live my life worrying about that. And speaking of stress...

Constant Need to Check the Portfolio

Because I was using margin, there was always the risk of a margin call. I never borrowed all that much, but the possibility was always there, and so I told myself I needed to regularly check the portfolio.

Well, if you constantly checked your portfolio this past year, you were probably pretty stressed out by it with all the volatility. Checking the portfolio probably contributed to some of the buying and selling that I regret in the past year because I got worried about a big crash wiping me out.

Playing Russian Roulette with Risk

As Nassim Taleb says, some risks are like playing Russian roulette with a gun that has hundreds of chambers. The likelihood of the bullet going off is low, and because it doesn't go off, you forget that there's a bullet in the gun.

I backtested the percentage of margin that I used, and the margin call bullet never went off in my tests. But it doesn't mean that it couldn't have. Especially because so much trading is done by computers, there's always the possibility that something crazy happens that causes a major after hours fall in prices that triggers the margin call. Because my broker insta-liquidates once that point has been reached, there was always the possibility of being forced to sell at crazy low prices even if the prices quickly recover.

That's an unacceptable risk. Last June, my broker had a glitch and sent out an email to many of its customers that their maintenance margin limit had been reached and their portfolio was liquidated. I literally woke up to read this email, and I'll never forget that feeling. The first thoughts were how I was going to discuss this with my wife. Perhaps World War III had started while we were sleeping and the world market crashed.

Eventually, I figured out that it was a glitch, but the fact that it was even a possibility that I could have considered hasn't sat well with me since.

This is Hard Enough

I buy individual stocks, and that's hard enough. Some of them may go bankrupt. I've sold a few for losses, which sucks, but on the whole, I believe that the portfolio will march higher as a group, despite some individual losers.

But using margin exposes me to something else entirely. It exposes me to permanent loss of capital based on price swings alone. It exposes me to risk that takes me out of the game entirely. My wife and I earned and saved this money by sacrificing pleasure now for gains later, and taking permanent capital loss risk with that is stupid and foolish.

Some instruments, such as shorting or options use, force you to use some kind of margin. I don't want to say that no one should do those things because they're useful. I respect smart short sellers. I respect that people can figure out options and appreciate the kind of insurance they can provide a portfolio.

But I don't have to. No one has to do that kind of stuff because just buying securities at reasonable prices in reasonable amounts and holding is hard enough without worrying whether I get to be in the game another day.

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.

My Money Mistakes: Student Loans

One of my early money mistakes was my student loans. Although they weren’t my first money mistake, they were definitely my first big mistake.

First, I chose a field in college that could easily be described as a “hopes and dreams” field. I don’t want to say what the major was, but let’s just say that taking out loans for it was dumb. For some salt in the wound, because I came from a relatively poor household, I got grants and scholarships high enough to cover the costs and living expenses of college. Let me repeat that: I got enough financial aid and merit scholarships to go to school for free, and I still took out student loans in addition.

You can see why I consider this my first big mistake.

Over the course of my undergrad years, I amassed a total of around $22,000 in student loans. I also took out some credit cards during that time and often carried a balance.

In the summer before my final year, it hit me that I was reaching the end of college, and that I had this giant debt and no idea what to do next. I know, I know. I listened to the Dave Ramsey show a bit today, and there are debts that are much greater than my $22k. Compared to someone who's amassed a $600k student loan sum, my amount sounds paltry. But that's also a danger of making comparisons like that: $22,000 is a lot of money for someone in his 20's who graduated with an impractical degree. In any case, it felt like a lot.

In my last year, I applied myself seriously at school. I'd been an OK student before, but in my last year I really tried. In so doing, I made contacts that would ultimately lead to real career advancement later. The loan amount climbed though as I took out my final loans for my undergrad years.

By the end, I had the previously quoted $22k debt. Around $1500 was in an unsubsidized loan, while the others were all subsidized. That was a bit of accidental good luck.

In the intervening years before moving abroad, I went to graduate school paid for with a teaching assistant position, and I did a variety of jobs, some of which were related to my field and some not. I consolidated all my student loans at a 7% interest rate right before the financial crisis caused interest rates to drop to basically nothing. I used tools like Upromise to shuttle extra pennies into the loans, and I used Sallie Mae's offers to lower the interest rate after a certain number of on-time payments and with automatic withdrawal.

The payment plan I'd selected meant that the payments were interest-only for a decade or something crazy. However, I tried making whatever extra payments I could to lower the principle enough that the scheduled payment amount would also take off at least some of the principle.

While I worked in graduate school, the loans went into subsidized deferment even though I was earning a very modest salary. I used that time to keep paying money into the loans, and left graduate school with a lower principle amount. I also opened my Roth IRA at that time.

I listened to Dave Ramsey and tried to get the "baby steps" thing going, but what ultimately got the loans paid off was two things:

• The habits and the desire to pay the loans off that built up while I was essentially broke.
• Getting a job that paid me a lot more money.

I would have eventually paid off the loans on my previous track, but it would have taken decades. I was dedicated though. All that was missing was the income to get the job done, and I got that moving to Germany. When I look at our net worth chart, I'm shocked at how quickly things changed once we had a steady situation. We went from a negative net worth of $23k when we moved here to a positive net worth of around $16k in two years.

I think there are a lot of warnings one can take away from this. The first: avoid debt. Just dodge the bullet, and you won't have to waste time trying to heal the wound.

The second: earning power is important. My degree was a silly degree to go into debt for. I don't regret the degree itself because my life is good, but I sat in negative net worth territory for too long, and a lot of my earned money went to interest payments. That's money that Sallie Mae gets to loan out now and earn income on.

Meanwhile, because my income was so low so often, I often had credit cards that needed to be taken care whenever I got enough money for debt-paydown times. I wanted to be done with the student loans, and looking back, I had periods where I intelligently managed my money, but lack of steady income plus debt equaled lots of squandered time as income came and went along with emergency funds.

The third lesson is that learning to live frugally is worthwhile from as early an age as possible. I got serious about saving money once I left school. I still made plenty of mistakes from that point, but I was beginning the saving practice in earnest then. If only that could have been shifted to when I was 16 and earning my first paychecks from my fast-food job. I had friends who already did have a savings mindset and who saved up thousands before leaving high school just from side jobs.

And the fourth I'll list is this: student loan debt can be paid off. You can get rid of it. You can do it pretty quickly too if you set your mind to it, earn enough, and spend it frugally. Just get it done and move on. When you make the final payment, you sadly won't get a screen full of balloons and a giant "Congratulations!", but it's something that you'll never have to worry about again.

Some US Expat Challenges

Before I moved out of the US, I didn't give much thought to the challenges of saving money and trying to build wealth. I was just happy to have a job, and I was happy that my wife accepted this new adventure.

But once here, it became increasingly clear that we Americans have challenges while living abroad that are unique to us. Here are some.

Filing Two Tax Returns

This is the big one. We Amis have to file both in our resident country as well as the US, and under certain circumstances we can owe taxes to both countries. There's no exit interview when you move abroad, so you just have to learn this on your own by reading the IRS website or by asking other expats. If you miss one or several returns, you're going to have a bunch of work to sort through to catch up, not to mention potential penalties.

As for the actual filing, you can use programs like TurboTax to file in the States, but TurboTax doesn't know everything. As soon as you move away from simply being an employee for a single employer earning under whatever the cutoff for the Foreign Earned Income Exclusion is, you enter a much more complicated tax situation. For example, being self-employed while resident abroad requires some familiarity with the treaties negotiated between the US and your resident country, if such a treaty exists.

U.S. Banks Probably Don't Want to Deal with You

You face an uncertain result if you tell your American bank back home that you've moved abroad. Many simply maintain an American address with a family member rather than take the risk of their bank closing their accounts. It's the same story with credit cards and investing accounts.

Foreign Banks May not Want to Deal with You

Because of the long arm of the U.S. government, foreign banks are required to disclose information about American account holders to the U.S. government. When opening an account abroad, you may be sent IRS Form W-9 from the foreign bank.

Many banks don't want the hassle, and they may simply refuse to give you an account because of it. When FATCA was passed, there were lots of stories of Americans losing access to banks and banking products. It's gotten better since then, but we always have to assume that it could happen again.

Floating Currencies and Conversion

Living abroad subjects you to currency risk. If you have any kind of financial life in the US, you will need dollars at some point, and you will then be hit with the reality of ever-shifting global currencies.

When my wife and I first moved here, the euro was worth around 1.38 dollars. In the first year, we tried just getting our lives together and didn't aggressively pay down the debts accrued to move here. Within around a year, the euro plunged in value, and suddenly we faced debts accrued in dollars becoming larger relative to our European incomes simply due to currency fluctuation.

On top of that, converting currencies costs money. If you use a service like XE Trade or Transferwise, they will charge you some kind of fee or make money by converting at a slightly disadvantageous rate. But they're much better than using a bank or one of those conversion kiosks.

Complex Rules for Investing

Once you've actually saved your money, it's unclear where to put it. Save it abroad or in the US? What kind of vehicle? Savings accounts pay basically nothing (especially in the eurozone), but when you look at equities you are entering a new world of complexity. Individual stocks or funds?  Real estate and rental income? You have to consider the taxation rules for both countries when making your decision, and you have to consider potential future changes to the law. What strategy is the lowest risk within this complex matrix of possibilities? I've made my own choices here (buying individual stocks rather than funds), but each person will have to make their own choices.

For example, buying funds as an American in Germany is really risky. If you buy funds in Germany, the US will tax them punitively. If you buy funds in the US, Germany taxes them less punitively than they used to, but I find the rules excessively complex and somewhat punitive.

Do You Speak the Language?

We are at risk, though this applies to everyone, when we don't speak the home country's language as well as everyone else. The fine print matters, and if you find English legalese tricky, it's only going to be trickier in a language you didn't spend speaking during your school years.

That list should give you an idea of what we're dealing with. In many ways, of course, we're very privileged. We chose to be abroad. We chose this country. At least in Germany, most Germans seem happy to have us living here.

But there are a lot of traps you can step in while living abroad. I'm still learning.

Why Save?

A colleague of mine was told recently by his boss that he had two days to visit his dying mother. She's in North America. He's in Germany. If you haven't made that flight, it's basically a day per trip. If he wanted more time, he could personally hire a replacement, whom he would have to pay himself.

I have long believed in saving, but this was a strong reminder. It was like an extra push on a slowly turning wheel.

Keep saving!

We should save because it gives us options. We should save because we hate being forced into a corner and accepting something just because we're forced to financially. Don't you hate that? That feeling of being stuck? I do.

Once we've saved enough, we have all sorts of choices. Before then, we have few choices.

I asked myself what I would do if in that situation. Right now, I'd probably accept it even though I've saved a bit. But in a few years, I hope to be able to say without much second thought, "Then it's been a pleasure working with you," and quit.

My colleague is in constant financial distress. He's quite open about it. Mortgage. New gadgets. Car loan. Expensive hobbies. The usual story.  He has few choices in this most recent situation. He has few choices in all sorts of situations. I really don't know what he'll do. Sometimes I just want to shake him.

But I don't know the magic words that would get him to change without him just resenting me, so I just try to be a good example and not heap too much praise on his expensive stuff. And I'll write here, to remind you and to remind me to keep at it.

Give yourself options.

Save.