2020 Wrap Update

By December 26, 2020, our net worth rose 4.1% in USD and 1.72% in EUR to $87,233 and €71,385 respectively. This caps off a year where our liquid net worth rose by 46% in USD.

December Update

This is almost entirely a story of strong stock market performance. In December, our taxable account rose by 5.5%.

We spent a fair amount of money in December. I purchased a new computer for €1550. We spent a lot on groceries. Since we're in lockdown again, we're spending a lot more time at home, which means we're just eating at home a lot and trying to make that as interesting as possible. I've purchased more novelty meals that I normally would because it's hard not to think, "Eat, drink, and be merry for tomorrow we die".

We also earned a bit extra. I got my December bonus, which is 1/3 of a month of pay. My wife did a new type of work that gave her a big one-time boost. I made some money from my photography hobby.

Regarding the computer, we saved for this. Since last summer, we'd been saving money every month, so with the extra cash this month plus that savings, it became easy to pull the trigger. I also signed up for a US credit card, so hopefully next month, the signup bonus will land.

2020 Wrap

As of December 26, 2019, we were worth $59,577. That means we experienced a $27,656 rise in wealth in 2020. Of that, we deliberately saved about $17,500 for a savings rate of about 28%. Some of that was the big stimulus check, which we, also, received and left in a US savings account. We also took on a large debt (sans interest) for this piano, and so the rest was stock market appreciation.

Our taxable account had a time-weighted return of 30.3%. Our US tax-deferred accounts rose by 16.5%. That compares to the S&P 500's performance of 16.26%.

It has also to be said that we were extraordinarily lucky this year. Yes, we had good stock market performance, and I deserve some credit for not panicking and selling back in March. However, I got to keep my job, and my wife actually managed to expand her customer base and offer her services online in addition to in-person. Had either of us experienced a complete zeroing out of our incomes, things could have gone very differently.

Not everyone was so lucky, which is true even here in Germany where the social safety net is so high. There's a visible increase in people sleeping outside in our neighborhood, and so we're going to start making monthly donations to a local organization that serves the homeless in our neighborhood. There's one here that's doing visible good work and has had to adapt to the challenges of coronavirus.

Lessons of 2020

Here are some takeaways from the year.

Use budgets to estimate reality and not to impose strict personal austerity

I'd been trying to reduce spending in a few areas by artificially tightening the budget there. For example, our groceries item was always estimated to be lower than the reality. This didn't do anybody any good and just made us feel guilty. I'd still like to get our budget lower, but our budget spreadsheet isn't the place to do that.

Just budget for reality and try and do better than that.

Have the Portfolio You Can Hold Before The Crisis Occurs

It's worth asking yourself what, if anything, about your portfolio makes you uncomfortable. Think through a crash that takes your portfolio with it. What position will keep you up at night when the S&P 500 falls 10% in a day? Deal with it now, when the markets are stable because once they crash, you're going to want to panic sell it.

I took some big losses in March, because I had positions that weren't "hold worthy". I was using some margin, and this was an extra stressor when markets began plunging. I sold a bunch of positions to cover it much earlier than I otherwise would have. It wasn't a catastrophic error, but it could have been. I had also overweighted a position that was too risky, and I ignored the signs that it was turning against me. That will probably stand as my largest loss for a long time.

Check In With Used Prices Often

This is my wife's input, and she's right. We should regularly check in with what something costs used so that we experience sticker shock at the new prices. She has found an online second hand clothing service, and she's been ordering things for €5.

Take Walks: You Never Know What You'll Find

This is neighborhood specific, but my wife's walking habit in May and June got us some nice free used items. Nothing was especially luxurious, but you never know what a neighbor would rather be rid of immediately for free if you don't get outside and look around.

At the same time, we also often leave some free things out front for passers-by to take, so it's a virtuous cycle.

2021 Thoughts

It's hard to make estimates for what a year will bring. This time last year, coronavirus wasn't on our radar. I never would have guessed that we'd have bought a new piano or computer. Nor could I have guessed that we wouldn't fly to the US.

I'm going to keep making monthly stock purchases. I'm going to try and get more of these photography jobs as well as look for other avenues of income generation. I assume my wife will continue diversifying her customers. I assume my employer will still exist. I want to fly to the US.

We wish you a healthy and prosperous 2021, and if you experienced any misfortune in 2020, I hope that 2021 will be a happier year for you.

October 2020 Update

Our liquid net worth fell 5.07% and 6.51% to $74,763 and €63,252 respectively in October.

The reason for the fall is entirely because we bought a piano, and they're expensive. We actually ended up getting a better deal than expected, which will save us about 1k EUR, but it meant receiving it now rather than later. To keep myself honest, I've listed it on our balance sheet as a liability since we'll be paying for it over the course of the next year. It's a rent-to-buy: we'll be making payments while simultaneously saving for the lump-sum payment we'll have to make in one year. However, there's no interest accruing, and the price we could have paid all at once was the same as the price for rent-to-buy.

You can see the liability on the chart as a pink mass below the zero line.

Otherwise, stocks performed surprisingly well. We saved some money. I got an automatic raise due to my employment length with the company. It's the kind of raise that helps a little now, but over the course of years it really adds up. My wife is working more hours.

New COVID Lockdown

Yesterday, new coronavirus-related rules went into effect across Germany, which limit certain activities. We're allowed to go outside, and while my wife's profession isn't currently impacted, my company can't earn any revenue for the next month at least. We've been assured that it's not an existential crisis, but of course the mere mention of that idea raises alarm bells.

It's good to have savings in a time like this, though we wish we had even more. I can hear you now, "Then why the hell did you just buy a piano?" And the answer is because it was important for my marriage, which is more important than any one bout of employment. It was clear that this was very important for my wife, and I think my company will most likely survive this.

The alarm bells are nevertheless a good reminder to keep socking away cash.

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.