Bulls take the stairs, bears take the elevator

At the start of 2020, our investment accounts surpassed 550K and I began to daydream about an early retirement.  Our asset allocation had gotten a bit out of hand with our 90% stock / 10% bond portfolio and I sold around $50,000 worth of equities to get into bond funds.  I had a big smile on my face when I checked our portfolio on February 19^th and saw this:

When I checked our portfolio on February 27^th, that big smile turned into a frown after seeing this: 

Our net worth took a bit of a tumble all of a sudden.  For those of you that enjoy watching the stock market regularly, you’ve probably noticed that the markets contracted ~8% over the last 2 weeks (at one point the market dropped ~15%).  Of all the reasons the stock market could have experienced a pullback, the coronavirus (COVID-19) seems to have struck with little warning. 

S&P 500 returns over the last 6 months

I first read this fun post on Bogleheads on February 5^th, 2020 where user CnC shared that he was going to time the market by moving some stocks into bonds.  China had begun to quarantine whole cities and pausing their economy.  Over time, I’ve seen many of these types of posts on Bogleheads, where a user will announce that they are calling the top of the stock market, selling all of their stocks and going into bonds or cash equivalents.  The trend over the last few years is that these market timers end up sitting on the sidelines and missing how fast the markets recover. 

There has suddenly been a surge in public hype and fear.  While I do not actively try to follow the news, it’s hard to get away from hearing constant updates about this new virus.  Many people are getting sick and some are dying.  My neighbors and coworkers can’t stop talking about it.  Entire industries have been put on hold over this virus scare.  Flights are being cancelled.  Conferences and musical festivals have been cancelled.  Movie filming and movie premiers have been cancelled.  One continuing education conference I was scheduled to attend in March has been cancelled.  Many business activities have come to a halt.

My mother called me a few days ago in a state of panic making sure I was always washing my hands, and advised me to avoid shaking my patients’ hands as well.  My mom has been hunkered down in her home and will only head to the grocery store and back, masked up and wearing surgical gloves while she’s out.  I go to Costco every 1-2 weeks to stock up on everyday items.  On my most recent visit, Costco was completely sold out of many basic items such as toilet paper, paper towels, hand sanitizers, and bottled water.  There is a new level of hysteria courtesy of the news media.  The fear is palpable. 

Investors are definitely spooked.  The markets have been ending up mostly in the red over the last 2 weeks with significant volatility along the way.  Some stocks in certain industries have been getting hammered, such as airline, cruise, and hotel stocks.  The overall market will be down 3% one day, up 2% the next day and then down another 3% the day after.  The stock markets hate uncertainty, and reacts wildly in response.  Losing money, even if on paper, hurts.  In 2 weeks I’ve seen our portfolio drop by over $52,000!  It’s rebounded some since then.

The famous investor Warren Buffett once said that it is wise to be “fearful when others are greedy and greedy when others are fearful.”  Is it time to be greedy or is it time to be fearful?  Is the coronavirus the fuse that lights the fire for the upcoming stock market crash and global recession?  Or will this new pandemic burn itself out like other similar viral scares (SARS and MERS) of the past?  While many countries such as the US, Italy, South Korea and Iran are just starting to see the effects of the crisis, new infections in China (the epicenter of the outbreak) seem to be declining.  If one can imagine this coronavirus spreading as a storm, then we can see that this storm started in China and has moved on.  This storm too shall pass. 

Stock market pullbacks like this test our chosen asset allocations and behavioral weaknesses.  No one knows what the future will hold for this virus, our local/global health and/or the stock markets.  What this recent market drop has taught me is that our asset allocation of 90% stocks and 10% bonds is too aggressive.  I never used to get too worried about drops in the stock market when our portfolio balance was at 100K.  Things are different now that our portfolio balance is over 500K.  When this whole ordeal first started, we took some money and moved it into bonds before things really got bad.  We now have a more conservative asset allocation of 60% stocks and 40% bonds.  As the stock market has been dropping, my bond fund values have been surging.  While stock market rides can be turbulent, bond funds smooth the ride.      

The market has lived through many setbacks including recessions, September 11, 2001 attacks, the dotcom bubble, 2008 housing crisis and more - and has always come out reaching new all time highs.  Time in the market has always proved to be a better strategy than timing the market.  I’m no expert but my guess is that we will probably have a rocky (volatile) few months followed by a quick market recovery as the coronavirus burns itself out.  Or who knows, the shit may hit the fan and our world’s situation devolves into social and economic collapse.  In any event, we will continue to invest through the market downturn by dollar cost averaging our contributions and regularly exchanging bond funds for stock index funds.  We’ll continue to live a purposeful and happy life, wash our hands frequently and try to avoid touching out faces.

I'll continue to update our financial progress over time.  Here's our portfolio balance today:

Here are some great articles to read regarding stock market crashes and more level headed responses:

Read about Bob, the world’s worst market timer:
https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

JL Collins on major stock market crashes: https://jlcollinsnh.com/2012/04/15/stocks-part-1-theres-a-major-market-crash-coming-and-dr-lo-cant-save-you/

Mr. Money Mustache’s take on the current situation:
https://www.mrmoneymustache.com/2020/03/03/coronavirus-stock-market/

The White Coat Investor on market timing:
https://www.whitecoatinvestor.com/should-i-try-to-time-the-market-friday-qa/

Here's a bonus fun discussion with Reddit users commenting on uplifting news regarding the COVID-19 outbreak: https://www.reddit.com/r/AskReddit/comments/fezt5a/what_is_some_uplifting_news_about_the_covid19/?utm_source=share&utm_medium=ios_app&utm_name=iossmf

Here's a look at how the S&P 500 has performed over the last 50 years:

The recent pullback looks like a tiny blip on this chart.

Meet the Frugalwoods

Elizabeth Willard Thames (aka Frugalwoods) is a financial independence blogger I follow from time to time.  She is an excellent writer and her blog discusses the benefits of simple living on the path to financial independence.  The Frugalwoods have had success with high incomes, a profitable rental property, as well as a popular online blog.  Their financial success has allowed them to purchase a homestead in Vermont, where the young couple work from home and raise their 2 children.  Towards the end of 2017, Mrs. Thames wrote a book titled Meet the Frugalwoods: Achieving Financial Independence Through Simple Living.  This book has been on my reading list for a while and is the second book I’ve finished reading in 2020.

Meet the Frugalwoods is a memoir of the choices Mrs. Thames and her husband took along their journey towards financial independence.  The book reads very much like a short story rather than an educational textbook.  The writing is deeply personal with wonderful storytelling.  It feels like Mrs. Thames wrote this book to help get her family and friends to understand her mindset on the choices she’s made on her own journey.  The book aims to get people to rethink their whole lifestyle by sharing how frugal living can help you live a dream life.     

Right at the beginning of the book, Mrs. Thames acknowledges her privileges - which include coming from families in stable marriages, having parents that helped pay for college, and having access to higher levels of education.  She acknowledges that her and her husband have had high paying careers and that being frugal may not be enough to reach financial independence at a young age for everyone.  Being frugal can help almost anyone live a better though. 

Mrs. Thames makes an excellent case for how proud one should be of living a life of “luxurious frugality”.  Mrs. Thames emphasizes that frugality is not about giving things up, but about gaining freedom.  A big theme of her life is to rely on herself and her husband to solve problems on their own, without spending more money.  By insourcing things such as cutting each other’s hair and home remodeling, Mrs. Thames and her husband strengthen their relationship with communication and collaboration.  Frugality is good for the environment, as it involves reducing waste and reusing products. 

 Frugalwoods on being frugal:

“The key (to frugality) is to identify less expensive options that’ll yield the same or a similar end result.  Thus, you end up not feeling deprived, you save a boatload of money, and you are motivated to find even more opportunities for dramatic changes and the resulting savings.  Once you begin down the road of frugalizing, it’s nearly impossible to stop.  It becomes a game, a competition, and an invigorating challenge.  You get to win at your own life.”

“Once you eliminate an expense, you’ve eliminated it forever. It’s not just about saving an amount for one year, but saving that amount every year for the rest of your life.”

There are haters out there that complain about how much income Mr. and Mrs. Thames have made with their careers and continue to make.  But there is no doubt that the Frugalwoods are genuinely frugal.  Mrs. Thames wears no makeup – as she puts it: “no painted nails, blush, powder, concealer, mascara, eye shadow, eyeliner, or lipstick.”  Mrs. Thames stopped buying clothing for over 3 years.  She stopped going to get haircuts at the salon.  The Frugalwoods only go out to eat one meal a month.

Frugalwoods on financial independence:

“I view financial independence as the point at which you no longer have to earn money in order in live.  In other words, your assets are such that you can live off of them without the influx of a monthly paycheck.  If you want to work you can, but you don’t have to in order to pay your bills and feed your family.  You are freed from the need to earn money; ergo, you are financially independent.”

 “A very basic definition of financial independence is as follows: when a sustainable level of withdrawals from your assets is more than your ongoing expenses.”

“There are actually only three variables in the financial independence equation: income, expenses, and time.  The less you spend, the more you save, the faster you save it, the less money you need overall.  Considered in this context, frugality is a compounding proposition and one of the fastest ways to reach financial independence.  A high salary alone is meaningless if you don’t save any of it.  The more distance you can put between your earnings and your expenses, the faster you’ll reach any financial goal you set.”

Frugalwoods on savoring infrequent events:

“We’ve discovered that the rarity of something’s occurrence serves to enhance its enjoyment.  Just like eating to excess or drinking to excess, spending to excess delivers no lasting fulfillment.”

“When Nate and I go out to dinner, an infrequent event, we savor each bite.  We thoroughly enjoy ourselves and we appreciate the uniqueness of the experience.  Frugality turned us into people who feel profound gratitude for everything we have, as opposed to the people we used to be, constantly scraping and grasping for more.”

Frugalwoods is a very skilled and gifted writer.  My only complaint about Meet the Frugalwoods is Mrs. Thames’ excessive use of complex vocabulary, which I found to be a bit distracting.  She fills her book with many beautiful vocabulary words that I’ve never used in my entire life; words that one would ever expect to use in daily conversation.  I hate to say it, but this use of vocabulary took away some of my enjoyment of the book and comes across a bit arrogant, which doesn’t really seem to be the feeling I get from reading her blog.   

Here are some of the words I had to look up in the dictionary as I read Meet the Frugalwoods: ennui, gauche, suavity, elephantine, en plein air, acquiesce, canapés, doyenne, demure, mete, aggrandizement, goaded, diatribe, profligate, ramrod, kismet, apocryphal, yeoman, erstwhile, girded, rankled, haranguing, Rumspringa, tchotchkes, ersatz, vacuousness, ernstwhile, anathema, prodigious, bucolic, sleeting, dowager, ensconced, agrarian, corybantic, amalgamation, meting, mercurial, and bulwarks.  If you’re not an English major, you’ll want to have a dictionary nearby.  I do not recommend the audiobook version of Meet the Frugalwoods. 

Meet the Frugalwoods is a fun story of self-discovery, emotional growth and financial independence.  You can buy it on Amazon here or simply check it out at your local library, which is the frugal way to read this book.

Side hustles February 2020

The great thing about doing side hustles to generate extra income is that you can hustle on your own terms.  The more hard work, time, and creative effort you put in, the more extra money you can make.  You can hustle as little or as much as you want, whenever you want.  It’s your extra money, and you can choose how you want to spend it.  Instead of focusing on what ideas don’t apply to you, try focusing on different side hustle ideas that you can implement to work for your situation.

Once a month (usually on the 1^st), I like to post a short summary of our personal and financial situation for the previous month.  While I don’t often post articles, I am committed to documenting all of my side hustle income.  Here I’ll share some of what’s been going on with our lives and our side hustles. 

Welcome to March! Did you have a good February?  As usual, it’s been a busy month for our family.  Our kids are both growing so fast and playing with each other more.  I can’t believe our son is starting Kindergarten soon.

We visited the Aquarium of the Pacific in Long Beach two times.  Our kids love exploring exhibits and reading books in the gift shop.

We celebrated a friend’s birthday party at the Sky Zone trampoline park in Anaheim.  This is a great place to jump around and get exercise!

We visited Chuck E. Cheese with friends and their kids.  Chuck E. Cheese offers unlimited play cards for unlimited games.  The play time lasts an hour and can be paused once (while eating).   

We continue to get the kids out to walk around our neighborhood.  They both run so fast and have so much energy.

Here’s our monthly summary of side income that we have generated in the previous month of February.

Cash Back

On 2.2, I received an $88.90 statement credit on my Chase Sapphire Reserve card for a hotel reservation I made for our family’s hotel stay in Carlsbad.  This was part of the annual $300 travel credit this card provides.

On 2.2, I received a $16.90 PayPal deposit from The Guestbook, a cash back site that gave me 5% cash back on our hotel booking at the Grand Pacific Palisades in Carlsbad where we stayed when we visited Legoland.

On 2.5, I received a $34.42 statement credit on my AMEX Blue Cash Everyday card for redeeming my reward dollars.  This credit card is one of the best cash back cards to use without an annual fee.  It earns 3% cash back at US Supermarkets and 2% cash back at gas stations and department stores.

Rental Income

On 2.5, we received a net profit of $450 from our rental property. 

Survey Income

On 2.18, I received a $30 check from E-Rewards Medical for completing a medical survey. 
On 2.18, I received a $35 check from E-Rewards Medical for completing a medical survey. 

Miscellaneous Income
On 2.16, I sold some items on eBay and made $98.01 profit (after shipping and eBay fees).
On 2.17, I sold some items on eBay and made $22.45 profit (after shipping and eBay fees).

Saving on expenses

On 2.9, I switched rental property HO-6 insurance from Farmers to Travelers and saved $319.89.  I wrote about it here.

Monthly Totals:

We earned $140.22 from cash back

We earned $450 from rental income

I earned $65 for completing online surveys
I earned $120.46 of miscellaneous income by selling some items on eBay
We saved $319.89 on our rental property insurance

All of this totals $1,095.57 from our side hustles for the month of February!  Having some extra side hustle income allows us to take advantage of the big stock market pull back we are currently experiencing.  While we are picking up extra stocks on sale by front-loading our Roth IRA contributions, there’s no telling what will happen in the upcoming months.  The market had a drop of about 15% from all time highs during the last week of February.  We could be in for a wild ride.  There’s a lot of media speculation and fear mongering out there.

In the meanwhile, we are staying the course with our investments.  We are practicing good hygiene, doing work we are proud of and trying to live a good life.  Stay healthy out there.