2021 Wrap Up: Net Worth and Investments

2021 was another strange year. Both of our incomes were depressed, and there was noticeable inflation is many of the staples we buy. In Germany, many of the activities we would have taken part in were curtailed by pandemic rules. My small side incomes sources shriveled to nothing as projects were cancelled or simply not planned.

Despite these challenges, our net worth rose year over year by 43% in USD and 53% in EUR to $124,045 and €109,697 respectively. In December, that represents a respective monthly rise of 6.65% and 6%. Our liquid net worth stood at $104,269/€91,544.

Investments in 2021

The power of compounding assets that work in the background is amazing and shocking. Yes, we made money this year. Yes, we saved money this year. But this relentless background grind of our assets - primarily in stocks, both taxable and tax-advantaged - overwhelmed whatever other forces were working on our lives.

And this was the case, despite the fact that my portfolio only returned around 20% against the S&P 500's 27%. I underperformed overall when compared to that benchmark, and still I'm surprised by how well it works.

In the period between January 7, 2021 (the date the Brexit transition hit my IB account) and December 31, 2021, our investments made a total of $15,752.53 within the taxable account. That includes $504 of dividends, with the rest being a mixture of realized and unrealized gains.

My primary contribution to this result was having some amount of fortitude to withstand all the fears hurled at us investors in 2021. The biggest gains were in positions that I'd bought in prior years and held. That's not to say that I did nothing.

In general, my decisions to sell were, at least in the short term, correct decisions. My decision to sell Square - now Block - was a good call. I sold Cloudflare, which was early but basically correct, and bought back in, which was not correct. I briefly owned a number of foreign growth stocks, but I realized their valuations were beyond comprehension, and I bailed on them. That turned out to have been a good call, though I held Alibaba too long and lost some money on that.

In May, I made big bets on Facebook - now Meta - and Amazon, which have been basically flat since then. I figured those were at least five year bets, so I'm holding without thinking about them too much. I did not expect my Apple position to continue to grow so well, but I can't complain. I also added a lot to Berkshire Hathaway and bought another share of Alphabet, both of which have paid off.

Late in the year, I took out a €30,000 loan with which to buy stocks. My largest single purchase was AbbVie, which was a terrible immediate-term pick since it declined 10% within 15 minutes, but since then has nearly returned enough on its own to pay for the entire interest cost of the loan. Other smaller picks like Intel and Enbridge have been flat but volatile. Greenbrick Partners is volatile but has given a good return so far. Likewise, small positions like Bank of America, D.H. Horton, and Pulte have all done well.

I entered the cryptocurrency space early in 2021, exited after becoming disillusioned, and then I re-entered just as a correction was starting. It's been an uncomfortable few months as my new purchases get swallowed up, but I view the space as promising enough to buy a little bit every month. However, I might be wrong, but I'm strictly using my personal allowance money (BLOW) to pay for these purchases.

On the last trading day of the year, my portfolio looked like this:

The Vanguard All World Stock Index Fund was my largest single holding since that's the entirety of my U.S. tax-advantaged accounts. The largest positions after that are Apple, Amazon, and Berkshire Hathaway, each larger than 10% of the entire investment pool. Some of that is due to deliberate position sizing, while in the case of Apple, that position simply became dominant despite a much lower cost basis.

Final Thoughts: Finding Yourself as an Investor

I have a friend who got an inheritance windfall in 2015. He basically knew nothing about investing, but he knew that he wanted to buy cheap stocks that had promising futures. Like me, he's an American in Europe, so he had to buy individual securities, and he bought around 40.

His performance has been quite good, having bought a mix of growth and value. Some choices turned out to be under performers, and they've have been cut. But he's been admirably steady in his positions even when they grow very large.

It's taken me years to "find myself" as an investor. I bounced from all sorts of styles, but what seems to work best is to be more like him: buy reasonably priced companies that have good odds of doing well in the future. Get convinced ahead of time that the purchase is a good one. It's ok to have some speculative stuff, as long as you're aware it's speculative stuff. And then for the most part let it ride.

Letting it ride is hard, but I'm getting better at it. Over the past month, the market has been rough, but my tendency to want to sell has been quiet. Likewise, I'm trying to get past the need to find the perfect investment or investment style. If I achieved greater than 10% returns annually over time, that would be an achievement.

I plan on writing more about 2021, especially about our income sand saving. Until then, stay healthy. May your 2022 be full of happiness and good fortune.

Update: May 2021

Our net worth dropped 1.36% in USD and 2.23% in EUR to $100,509 and €82,452 respectively. The major factors leading to this monthly drop were reduced income, higher one-time spending events, and volatility in the stock market. Year over year, our net worth increased just under 60% in USD.

The biggest factor affecting 2021 so far are our reduced incomes. My salary has steadily gone up over time, but because of reduced opportunities for doing extra work, I've not had those big one-off boosts to my income. Due to Covid-19, my wife's profession has been severely affected. I've written about this paradigm since the pandemic began, so I feel like I'm repeating myself, but conditions for us have remained very stabile. No one lost their job, but we are nevertheless reduced.

This has meant that we've been unable to take advantage of the market volatility because we're just having trouble saving anything. It's a tricky moment for us on the savings front.

Closed Lots of Stock Positions

During this last month, I closed a lot of positions. I liquidated my small cryptocurrency holdings, and I sold off a lot of stocks while putting that money back into other companies.

I wrote about my feelings on crypto recently, but the stock sales arose from a sense that I couldn't go to war with these names: I knew that I would have difficulty holding them through a serious drawdown, so I bailed on them now. That, and I wanted more Amazon, Facebook, and Berkshire Hathaway shares. I moved out of low conviction names into higher conviction names.

Selling some of those positions will likely have been a mistake when I have the benefit of hindsight. But increasingly, I'm admitting to myself that I am a stock picker, and that means that I need to believe in the position if I'm going to hold it long term. A bunch of small positions that don't mean much to me are just anxiety fuel, and that was especially true because so many of them looked severely overvalued. Some of the positions I sold will likely outperform the positions I bought, but I believe that my behavior will be better in the positions I bought because I have more faith in them.

My desire is to hold a few high conviction names for the long term. That means that I have to understand what's going on and be comfortable holding them through thick and thin. It also means that I will miss out on some other stocks' meteoric rises, but that will have to be ok. I don't have to take part in absolutely everything to have a good result, and, as I saw during the big March 2020 crash, I can hold on to high conviction positions even during trying times.

But to avoid similar culling in the future, I need to be more careful with the stocks that I buy. The sin here wasn't selling, but instead it was that I purchased some names using a half-brained theory, believing that I was a computer who could dispassionately buy and sell companies that I don't have any emotional investment with based on certain factors. This has been a recurring problem for me, and it's time to forego systems that treat me like a computer.

That said, don't be surprised if some of these stocks re-enter the portfolio. I'm not dead-set against them under all circumstances.

As has been the case for the past few months, you can see those positions under the Portfolio tab.

How's June Lookin'?

June will look a lot like May. Our incomes will basically be the same, and we have to pay our estimated taxes, which will hit our savings. Unfortunately, we won't be able to save much, which is a drag.

We're still waiting on our tax refund as well as the U.S. stimulus payments, but those will arrive whenever they arrive.

Self-Assessment: Early Coronavirus Edition

Now that our situation has settled into our new reality, which I'll call "Semi-Self-Imposed Lockdown," I have some time to think through our position and evaluate what's going well, and what's not going so well.

What we did well leading up to this crisis

• We have an emergency fund. I don't think it's large enough, but I'll get into that with the critiques section.
• We have a stable income. My job is such that I am unlikely to be laid off during this crisis. My wife's work scales up and down, which makes it more vulnerable, but there's no point where she's "fired": work will simply start to come back over time. Because of her stability via my income, she may come out of this with an even stronger position.
• We have liquid investments that could be turned into cash if necessary. I really don't want to turn them into cash, but if it were absolutely necessary, we could probably survive a year off of our current investments.
• We always tended to buy large amounts of shelf-stable food. We still had to go to the grocery store a few times at the start, but we could have eaten our stores of stuff if we felt it wasn't worth the risk.
• We have a large amount of unused credit on American credit cards. If we had to, we could run up a giant credit card bill. It's wouldn't be ideal, but having credit is better than not having it.
• We live in a country with a social safety net and a willingness to help its residents.

Critiques

• Our emergency fund wasn't large enough. Currently, we could last a month to two months with our emergency fund. Despite my employment stability, it's not a 100% guarantee that I come out the other side of this with a job if the German economy collapses for years. Although I'm unlikely to lose my job, I am also unlikely to easily get a new job quickly if I lose this one.
• We don't own our own home outright. Renting has long seemed the wise course of action, but not having to make rent payments would go a long way towards easing my mind.
• We don't have enough over-the-counter drugs. We have aspirin and some anti-histamines, but we have no expectorants, NSAIDS other than aspirin, acetaminophen, not to mention rubbing alcohol. The German Apotheke system is great when you get a prescription, but it makes getting certain normal items more challenging than in the US.
• My investment portfolio is not diversified enough amongst asset classes. I should be holding some bonds, for example, and I'm not.
• I came into this with margin debt. Holding margin debt years into a long-run bull market is dumb. Full stop.
• I underestimated the risk of pandemic to my investment portfolio and to my life.
• We should have larger food stores. They sell giant bags of rice here, and we should probably always have at least one. Likewise lots of pasta. Likewise lots of soy milk (the cartons keep for a long time at room temperature). The risk isn't so much that we'd run out of food due to shortages, but instead it's risky going outside right now to stand in a supermarket line. Minimizing grocery store trips is important right now.

Some Action Steps

First, I need to separate out our savings into clearer buckets. I've been dumping everything into the Tagesgeldkonto (savings account), even though I'd mentally earmarked it for taxes or tax prep costs. One account should be strictly for the emergency money, and it should get steady contributions to it until it reaches the famed 6-months-of-expenses level. It's possible that FATCA will make this more difficult than it should be.

Second, we should be saving money to buy property. That needn't have a specific end date, but it's one of those things that gives us optionality should a compelling offer arise. Somewhere I read that Ramit Sethi saves some money to buy a house/apartment not because he definitely wants to buy one but because having the option is worth it.

Third, I need to go to the Apotheke and pick up some useful over-the-counter drugs. I could also order them online.

Fourth, I should build a 10% position in long-term bonds. I can buy individual bonds in Interactive Brokers no problem. The interest rates are garbage, but they provide stability and rebalancing potential in terrible stock market situations. And at the end, you get your money back.

Fifth, I shouldn't use margin.

Sixth, this blog post is my attempt to come to terms with pandemic risk.

Seventh, honestly it would be irresponsible to try and build up large amounts of food storage right now due to the general run on the grocery stores that's happening. But once the shopping situation improves, we should get on that.

Rethink Risk

Lastly, I need to reevaluate risk. I'm not going to do that by selling stocks right now. That moment has passed. But the way I was using my money was clearly riskier than I appreciated or wanted.

I have to find a new way to judge my risk tolerance and build a portfolio of assets that match it. At the same time, this crisis will subside, and we all have to make sure that we're not just fighting the last war but imagining what new surprises might come our way.

January 2019 Net Worth Update

Since December 26, our net worth rose 17.5% to $43,488. In EUR it rose 17.3% to €38,114. Here's what lead to that result.

In December, I received an elevated payment from my employer due to some extra work I did. This essentially doubled my salary for the month. This money went various places:

• I paid off a medical bill that I'd been paying monthly. I'm hoping to reap a tax deduction from it.
• I bought some stocks.
• We bought a new iPhone when my wife's five and a half year old phone died after a tragic meeting with some water.
• We bought some furniture.
• We bought a coffee maker.

Now, you'll notice not all of this is savings. Sometimes it feels right to spend money. I'm not Early Retirement Extreme. But there's some logic here.

Telephone use is broadly tax deductible in Germany. I'll be able to deduct the cost of this phone over the next three years. Meanwhile, I'm hoping to keep it in our household for at least six or seven. This is one of those areas where we're willing to occasionally spend some money, so we did. The only thing I regret is that I made the purchase using an American credit card when the exchange rate made the euro unusually strong against the dollar, and it's unlikely to reach that rate again before I have to pay the card off.

As for the furniture, this particular upgrade was something we'd contemplated for several years. It wasn't excessively extravagant, but it was unusually expensive for us. I think we're done though with any other major home upgrades for a while, so I don't foresee any other such purchases in our immediate future.

The coffee maker will undoubtedly save us electricity (already shown in my electricity tracking spreadsheet), and it wasn't all that expensive. We'd been making coffee using a pour over method that required water heated on the stovetop. Once poured, the coffee would cool down quickly. The new maker uses less power to heat the water to begin with and then delivers the coffee into a thermally insulated carafe. The coffee is still warm in the late afternoon, meaning less coffee needs to be made in a day, thus saving electricity and grounds.

Note: it's funny what cultures are willing to spend money on. Coffee making in Germany, and likely in Europe as a whole, is an activity where people will spend hundreds of euros on a coffee maker. Some friends of mine have a coffee maker that's just under €1000. Ours was around €55. But the idea of convenient instant coffee is very pervasive here, and if you're not into instant coffee, then that often means a push button machine that takes coffee pods or grinds the beans on demand and coughs up a single cup of coffee.

Stocks did well this month, which boosted our numbers much more than our savings alone did. I don't know what to think of the stock market right now, so it's entirely possible that when I write this update for February, we'll have suffered another major drawdown. The last year has taught me to not get used to up days too much, because they reverse abruptly.

Forecast for the next few months: since I bought everything on credit cards, I'll be paying those off from our cash flows in February and March. That will impact those months' savings rates, but the cards will be fully paid off on time, and since this is a new awards credit card, we should see the bonus hit in February.

There are also some bureaucratic costs that we'll unfortunately have to pay because our tax statement from the government is taking so long to get back to us. It's easy to wander into those when you're a foreigner living abroad and don't entirely understand the system.

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.