Monday, March 16, 2020

It's Been a Minute

I've been sick, dear readers. For the past two plus weeks, I've had something that feels a lot like the flu. Though I was tested for the flu and it came back negative so I guess that means it was something...other than the flu. But the only test available was the flu test, so that's all I really know.

Mrs. Done by Forty and Baby AF had it, too, but got better quicker than I did. After the second week, I got a nasty (viral?) rash all over [photograph redacted], and that's what finally got me in to the doctor. 

They took a biopsy of a piece of skin on my left arm, I got my very first stitch, and we're still awaiting the results. I'm on a steroid and some sort of antihistamine pill, and, thankfully, as of today I'm feeling mostly better. I just have a bunch of weird tiny scars all over me.

In any case, we're isolating the best we can. And I'm finally feeling well enough to read and write some again. With Baby AF and Mrs. Done by Forty taking a nap, I figured this is probably the best time to sneak a little writing in.

So, about that stock market.

The standard advice is to simply not look at your account balances during downturns. And that's good advice, since a lot of us are going to be tempted to make changes. Like, bad changes. To sell or reduce contributions to retirement accounts.

Mrs. Done by Forty and I are odd ducks. We not only want to continue to buy investments during a downturn, but are actively looking for ways to invest more during these times. (We don't have a great way of doing so other than being a bit more frugal than we normally are, and investing the difference.)

Plus, we're pretty close to our financial independence number. I don't want to be the person who puts my head in the sand right now. If there's going to be a big change to impact our FI plans, I want to get the information and try to understand it, so we can deal with it. Why not face problems head on?

So how much did the most recent downturn impact our FI plans? Let's play with some numbers and find out.

When we looked at our 2019 spending earlier this year, here was our FI projection from the Mad Fientist's laboratory, based on a 'no-mortgage, but yes, daycare' figure: probably the closest to our current reality in 2020. 

Looking at where we were at through 2019, our projection was to hit financial independence by January 2021 (assuming a 3.5% safe withdrawal rate.)

Click for bigness.
And here is what the Mad Fientist's lab is saying our new FI date is, pulling our current investment figures (as of 3/15/20):

Click for bigness.
Even with two pretty bad months in a row, and our portfolio dropping 12.5% from the figures at the start of 2020, our financial independence date is only pushed out about eight months. So what gives?

A few things seem to be helping us mitigate the impact of the downturn so far. 

One, we have bonds in our portfolio. We use Bernstein's Simpleton's Portfolio (sometimes referred to as the "No Brainer Portfolio") which calls for 25% of the investments to be in short-term bonds. These bonds are not only smoothing out the bad part of the ride right now, but are also giving us some dry powder that we can allocate to buy more stocks, via rebalancing.

A second thing that is helping keep at least somewhat on track is the fact that we're investing more now than we were a year ago. One, Mrs. Done by Forty is working full time and is maxing out both the retirement accounts available to her. And, two, since we paid off the mortgage last year, we just have more money available each month to invest, without that monthly payment.

And I think the third, somewhat more sinister answer is that the market really hadn't gone down that much...yet. It seems like a big drop because of how quickly it came. But prices for the S&P500 are basically where they were at in February 2019: roughly one year earlier. 

It's bad, but not that bad. I suspect that the financial impacts of COVID 19, whatever they will be, are just starting to appear in the US. I have no crystal ball, of course. But if I had to bet, I'd wager that more bad news is coming.

Which all goes to say that we're not trying to dump in a bunch of money into the market all at once, because we have no idea where the bottom will be. The nadir will, like it always has before, come and go without us knowing that that was the "right" time to buy. 

Instead, we're just going to keep investing into our retirement accounts every paycheck. We'll maybe try to be a bit more frugal and maybe squeeze in a couple hundred bucks more into mutual funds than we would have normally.

The reality is that we don't have a lot of other options. We have no desire to leverage up, to say, take a mortgage out against the house and invest that. No, thank you. We've played that game once before when we paid off our first home. And we don't have the stomach to leverage up again, so close to FI

The only move we probably will make is rebalancing: taking some of the money in our bonds and buying the stock index funds that have cratered, bringing our asset allocation back into alignment. We usually do this just once a year, but our plan allows for more frequent rebalancing if our AA gets off its path by more than 5%, which is happening now.

Other than that though, I think we're going to just keep steady as she goes. Not like we have much choice about it.

I'm just happy that, at least as of today, all three of us are feeling better than we did a couple weeks ago. That we have enough food in the pantry for a couple weeks, and we have employers who are letting us work from home. 

Due to a cancelled trip and Baby AF not being on the schedule for daycare today and tomorrow, we're going to do a test run of a plan to share child care & work duties, trading off and on for an hour at a time. I'll watch Baby AF for an hour while Mrs. Done by Forty works, and then we'll switch. We'll catch up on work during his nap & when he goes down at night. Sure, it's going to be hard to juggle Baby AF and our jobs. But we also know it's a real blessing to be able to do this, when so many other people are being told to go in to work, even though schools are closed & there's often no child care available.

I'm trying not to focus too much on our portfolios and our personal financial situation right now. No matter how bad it gets for us, I know we're preposterously lucky. We are two of the very last people who should ever complain. With so much else going on around us, the least we can do is just feel a little gratitude, right?

As always, thanks for reading.

*Photo is from Presidencia de la Republica Mexicana at Flickr Creative Commons.

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  1. Oh wow, that's scary. I'm glad you're feeling better now.
    Good move being more conservative. Will you move some bonds to stock if the market crashes some more? We're doing that in tranches.
    Stay safe and don't go out. You're in CA?

    1. Thanks, Joe! We're in AZ (though Mrs. Done by Forty and I met when we lived in San Diego. We've been out here for a little over a decade now.)

      We're trying to stick to our previous AA plan, which calls for a rebalance once a year OR if any one of the four investments gets 5% off path. The bonds are above 30% so we'll be doing a rebalance & buying more stocks. I suppose if it gets 5% off course again, we'll do it again. :)

  2. Oh no! I do hope you're feeling better, good sir. That sounds like a nasty virus.

    On the markets - hard not to panic for so many. I understand the visceral fear in the country right now. With many individuals having no choice about the social distancing practices, let along having little or no access to health care services/testing.

    Get healthy. Keep calm and carry on.

    Glad to have your voice back in the game. Missed you.

  3. I'm so glad you're feeling better--that's so scary! And I'm so there with you on the investment front! We don't know where that floor is, so it's not worth better the farm. But have definitely been putting in a little more than usual lately.