August and September, 2020 Update

Our net worth rose in August by 8.34% and then fell in September by 5.96% in dollars. The EUR figures are similar.

In August, we, along with anyone who owned stocks corresponding to the U.S indexes, saw our wealth shoot up rapidly. It was both fun and unnerving, since the biggest news related to Apple and Tesla's stock splits. Sure enough, shortly after both companies split their stock, the markets began to fall.

The good thing about having survived March by just watching prices plummet, is that normal corrections barely register. Now, if we suffer a protracted decline à la 2001-2002, that might be harder to stomach. But the truth is, I'm not done saving: I want prices of great companies to fall. I was nervous in August because I knew we wanted to buy more stock, rising prices now lowers future returns.

The Election

I am not changing anything about my financial goals in response to the election. That doesn't mean I'm not worried. I've imagined all sorts of horrible scenarios, such as:

• Consequences for Americans abroad due to strained relations between the US and its allies
• A closing off of American society that begins to affect the lives of Americans abroad
• A drastic change to the tax code that doesn't adequately incorporate the needs of US expats
• A collapse of the rule of law in the US
• Major civil unrest and/or civil war

I hope none of these things happens. I don't think any of them will (though the US probably isn't done writing tax laws that harm citizens abroad), but I'd be a fool not to imagine them, especially since things like this have already happened.

It's worth imagining. It's also worth remembering that the U.S. tends to figure its problems out and that having some faith in the country is likely the best course of action. You know, it's the "Triumph of the optimists".

Outlook

I'm not expecting a major change in October. We're continuing to save for the piano, and we've planned on renting to buy beginning in December. That will cost us more money vs. buying it all at once, but I view it as buying an insurance policy: just in case the world falls apart and I lose my job, I have an out. If we get to December 2021, and all is well, it will be easier to part with the full cost.

Good luck out there. It's a weird and stressful time. We've been getting some laughs by watching Cobra Kai on Netflix. I've heard it described as a guilty pleasure, but I don't feel guilty at all liking it.

Net Worth Update: June and July, 2020

In June, our liquid net worth¹ increased by 8.01% in USD and 5.7% in EUR to $68,000 and €60,606 respectively. In July, it increased 13.67% and 9.48% to $77,298 and €66,350 respectively.

The biggest factor in both months was the stock market. Like anyone who held positions similar to the overall market, we experienced terrific growth. It is counterintuitive that in such a moment, with as much economic hardship as exists, that the stock market should be on such a tear. I honestly don't know exactly what it is that the market sees, and I won't pretend to. I listen to a lot of stock market talk, and some experts claim that this is a bubble that's likely to pop at any moment, while others say otherwise. It's pointless to try and act on this chatter. I know what my time horizon is, and I hold.

Cash is King (Sometimes)

One thing I haven't been doing, however, is buying. Our savings the past few months has gone exclusively to cash. That's not a stock market timing call but rather a series of tactical moves given the relative uncertainty of the moment. I know that we have certain large expenses in the future, but I don't know what my wife's income will be, and it's hard to guess it more than a few weeks out. Therefore, I've been preemptively saving to knock out those costs whenever they arise, in order to prevent having to scramble to pay for them from that month's cashflow. You might be thinking, "Well, duh, that's the way savings works," and you'd be right. But our situation has changed enough that we have to do this for stuff that we could previously just pay for out of cashflow.

That means saving early for tax preparation costs, estimated taxes, and large purchases. We've also been continually adding to our emergency fund. An emergency fund is basically early saving for known recurring expenses in addition to surprises, after all. One unsettling aspect of this pandemic is that my industry has been especially hard hit, and my seemingly secure job doesn't feel as secure anymore.

A couple of large cash infusions also buoyed these months' changes. In June, we deposited the stimulus check that was sent out. US expats who file their taxes were also eligible, and we were happy for the money. Secondly, my employer paid me early for August, and without any message from them, I truly don't know what that was about (new employee clicked the wrong button on the bank website maybe? I've done it).

And on top of that, because most of our cash is in the euro, the recent upward spike of the euro's value has made that lump more valuable in USD.

Vacation?

Although it's summer vacation time in Germany, we have decided to stay home. And by home, I mean our apartment in Germany. We contemplated some trips, but hotel prices in Germany weren't low enough to really make it worth our while. Outside of Germany, some prices are incredible, but we quickly wrote off getting in a plane or bus or long distance train, especially since those prices also aren't all that great.

I will say, the FOMO is real. The weather's also not been very summer-like, so it's been kind of lonely and dark. We've used the time to take care of some home improvement projects, and I've been using FaceTime more often to get in touch with American family.

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1. This includes: bank accounts, investments (excluding German private pension but including US IRAs), credit cards, rewards programs valued at 1¢ per point, cash, installment plans and any other debts. ↩︎

Net Worth Update: May, 2020

This is late, but our liquid net worth increased in May by 10.46% in USD and 8.95% in EUR to $62,959 and €57,340 respectively.

Honestly, that feels like an absurd number to report considering the economic upheaval happening around the world, but whatever the stock market is doing, it helped us in May. Of course, we're not especially wealthy, so a 10% increase meant around a $6000 change. But whatever the case, I'm happy for the positive month. I hope the asset price optimism is worth it, and that the stock market's implied future situation for the worldwide economy is correct.

Additionally, I got the last of the assistance payments for my dental work. In all, the dental work was a big cash suck (over several years), but the various bits of help from my insurances lightened the blow a bit.

Why Late?

There are two reasons this took me longer to publish than normal.

The first is that I didn't succeed in coming up with the non-liquid NW number. It turned out to be more complicated than I expected. For example, we'd need to estimate the value of both my and my wife's Social Security value as well as our Deutsche Rentenversicherung value. It's certainly doable, but it's tricky.

The second reason is that with the protests happening in the US and abroad following the murder of George Floyd, it felt tactless to write about how I made money in May. Maybe it's no better this week to do it, but that first week of June felt like attention should be focused on the protests and the issues surrounding them.

Despite the fact that I'm trying to improve our economic situation by saving as much income as is feasible, I recognize that the system has major flaws that leave a lot of people out. I think those of us trying to take advantage of the capitalist system as it stands should look at those failures and be honest about them. I don't have any answers to offer about those failures, but the first step is acknowledging them.

June Forecast

As has been the case since the start of the pandemic, my wife's income has been hit hard. I'm incredibly lucky that my job has survived thus far, and my pay hasn't been too adversely affected, but our household income is down a lot.

We got our US stimulus check in May, and after several weeks of trying to figure out how to deposit it, we finally succeeded. So that will be part of the June change.

And of course, the stock market is going to do whatever it does. This last week was crazy volatile, and I expect that we'll see lots more of that.

Net Worth Update: April, 2020

Our net worth increased in April to 8.68% in USD and 9.68% in EUR to $56,998 and €52,630 respectively.

After two months of declines, the numbers reversed with one of the best months for stock longs in decades. That was the primary basis for our own results because our income was definitely down. I earned less at the end of March than usual, and my wife's income was also depressed.

Because I own a mix of growth and value stocks, individual stock performance was all over the place. Some got creamed in March and barely recovered during the April rally, while others roared back to all time highs. Already, some companies are announcing cuts to their dividends, which I'm not worried about: I prefer that they cut their dividends than risk the viability of the firm.

We did pretty well with our savings, saving 35.51% of our mixed pre/post tax incomes. Our spending was drastically reduced in April, and I suspect that May will be the same. One area where spending remained high was groceries. Despite using some Payback points (a popular European loyalty program) to get about €100 in grocery store vouchers, we still we on the high end of our budgeted amount. Part of that was my elevated alcohol consumption at the beginning of April (even the cheap stuff adds up), but I'm still a bit surprised. I guess by not eating out ever we're just eating more groceries.

Re-thinking How I Calculate Net Worth

Currently, I add up the follow to come up with net worth:

• Bank accounts
• Investment accounts (including tax-advantaged accounts)
• Credit cards
• Loans (0 currently)
• Installment plans for large purchases (0 currently)
• Cash
• Loyalty programs with a clear cash value
• In both USD and EUR

However, we have other stuff that has value and should be added in, such as:

• Defined benefit pension
• Social security in the US and Germany
• Physical assets with some kind of sale value
• The remaining value of our labor

That's definitely part of our worth! If I took out a life insurance policy on myself, I'd try and value what my income means to my wife, and some kind of discount cash flow model would probably be the way to determine the value of the policy.

Plus the "stuff" we have has value. Just looking around the room where I'm sitting, I could probably get more than a few thousand for the random bits of technology that we have. Now, to be sure, those are depreciating assets - meaning they lose value over time - but they're assets and should be counted as such. And that's before we get to owning large physcial assets such as a house or car.

There are two reasons I haven't included them before:

1. There's a certain amount of guesswork involved in valuing these things. A DCF (discount cash flow) model has some major assumptions baked in, for one, and guessing how much I could get for a computer or camera or dining room table is tricky. Unlike cars, there's no Kelly Blue Book for most depreciating assets. I'll probably use eBay averages to get a sense of what something's worth, but it's still an assumption.
2. None of these are liquid assets. Although they might be part of my monetary worth, I can't spend this stuff. I couldn't access my pension or SS, and turning a coach into cash is hardly instantaneous. That said, my IRA accounts in the US also aren't liquid: the tax consequences are so onerous that it would be absurd to turn those into cash and spend them.

Therefore, I'll have to arrive at two numbers: a "total" net worth and a liquid net worth. I think for most people interested in FIRE (Financially Independent Retire Early), the liquid net worth is the more important number.

I think I'll have this ready to go at the end of May, but that's only a guess.

Until then.

Net Worth Update: March, 2020

Our net worth dropped since this time in February by 12.16% in USD and 12.48% in EUR to $52,448 and €47,985 respectively.

The reason is obvious. Our stock portfolios fell precipitously as Europe and the United States responded aggressively to the COVID-19 pandemic.

Big Picture

Thankfully, I still have my salaried job, and my employer has stated that we're at no risk of dissolving. My wife's work hours have dried up considerably, but she is still working over Zoom for those clients who can still manage it. My sibling still has a job despite vast layoffs. Both parents have Social Security at least and one has a healthy retirement portfolio.

Most importantly, none of us have caught the virus yet. However, I don't know how long I can expect that. Two family members live in one of the hot-spot cities in the US. One parent is working again and coming into contact with people. I have nagged them to take precautions as far as is reasonable, and I have to trust them to take care of themselves.

As of right now, I feel like I'm in an enviable position, and I consider myself very lucky. But when I see charts like this:

Or this:

I recognize that anything that affects so many people will eventually affect me as well. It's just a matter of time, and I've been mentally preparing as best I can.

Savings Rate and Other Factors

Our savings rate of our mixed pre/post tax income was 46.3%. Easiest way to get your savings rate up is to hold expenses steady when you earn more money, and this month is clear evidence of that.

I received an outsized payment at the end of February due to some extra work I did. My employer also gave me too much money, and that will be taken out of my end-of-March payment. That will obviously hurt April's savings.

We paid estimated taxes in March. Fun fun.

We spent much too much on groceries this month. We didn't stockpile aggressively at all, but we ended up well outside of our budget.

We received a refund for overpayment of health insurance for my wife. Because she's self employed and utilizes the public system (the gesetzliche Krankenkasse), her payments are based on income and fluctuate every year.

April

April is going to be tight. I wish I had a lot more money to throw at the market or our emergency savings, but it's not going to happen unless we get one of these stimulus checks from the IRS in the next few weeks.

Good luck and stay healthy.

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.

Constant Acceleration of Coronavirus News

In the past few days, it feels like the news is accelerating rapidly and in ways that directly impact us:

• The United States is no longer accepting travelers from the Schengen area of Europe, including Ireland and the UK and my personal expat home of Germany. If I were to find a flight back, according to the consulate in Frankfurt, I would have to self-quarantine in the US for two weeks, though it's unclear how that's enforced. Basically, this renders all vacations into the US impossible.
• Germany has closed its borders with France, Denmark, Austria, and Switzerland.
• Restrictions are going up on businesses, including restaurants, clubs, gyms and shopping centers. Many will be forced closed, while others will only be able to operate in shortened time windows.
• The stock market had its worst one-day crash since the 1987 crash.

And there's so much more happening, such as the restrictions going up in municipalities in the US and other European countries, that I can't list out here. It's too much.
Over the weekend, there was a clear shift in tone about this outbreak. Friends who posted skeptical memes about the virus aren't posting that stuff anymore. I have a colleague who felt safe enough to travel outside the country over the weekend and is now worried about if and when he'll be able to get back. I've been saying no to social engagements in an effort to practice "social distancing," and no one has pushed back. My employer has suspended most in-house work for the time being. My wife's work is drying up. I will continue to be paid my salary, but we are facing a definite reduction in income.

On the upside, I've had more time to contact friends and family in the US. They're less busy, and so am I, so it's been good to reconnect. There's also less temptation to spend money! So I got that going for me, I guess.

I'm continuing to hold my stock positions, but it hurts. Many have been hit much harder than the market as a whole, and I have to remind myself why I purchased them. Focus on the picture 20 years out, and it becomes easier to sit tight.

Otherwise, my wife and I are having to adjust to our new realities of being complete homebodies. And of course, we hope that we don't catch this thing.