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January 2019 Financial Goals and Status Update

  • Posted on February 5, 2019February 5, 2019
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  • Barry Beaker
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January is finally over. While it seems like it’s been a full year since 2018, we’ve still got 11 months left! Thankfully the market performed well during the month, so even with the polar vortex, there’s a silver lining.

January was a strong start to the year both in my public market and private investments. I’m already seeing some great progress toward my 2019 and longer term goals. That said, my outlook for the rest of the year is far from constructive. The volatility we experienced in 4Q18 I fear was a mere pre-shock of an eventual crash. Whether that takes the form of trade war-driven economic pressures, slowing housing growth, bubbles in commercial real estate or leveraged loans, I don’t know.

But what I do know is that we are in the longest bull run in history, and all good things must come to an end. With the preponderance of negative headlines looming over our investments, it’s important for us investors to prudently manage our risk exposure to weather the coming storm. In a bull market, we are all susceptible to falling into the trap that we are genius investors. But there inevitably comes a time when, as Warren Buffet says, the tide goes out and you find out who was swimming naked.

Portfolio Update

That’s why I have started positioning my portfolio extremely defensively. I’d much rather miss out on some market gains if it means suffering smaller losses when the market turns. To accomplish this portfolio de-risking, I have done the following:

  • Changed my Wealthfront account’s allocation to a risk score of 4.0 (from 10.0). This decreases my equity allocation to 59% and increases my fixed income allocation (via municipal and corporate bonds) to 41%. Doing so introduced more negatively correlated assets and greatly increases the overall portfolio yield, which should outperform in a recession
  • Sold most of my single name stock positions, especially those with long-term capital gains treatment. Taking profits off the table is always a good thing. Lock those profits in!
  • Bought some VRP, a preferred stock ETF with a 5% yield and very low mark-to-market volatility
  • Bought several defensive positions across residential, data center, healthcare, industrial, storage, and retail REITs. All offer a dividend and are positioned with strong assets in class A markets that should outperform in a downturn

The remainder of my holdings are in either retirement accounts (401k, Roth IRA) or illiquid investments (real estate crowdfunding, VC investments, hedge funds). The retirement accounts have a long time horizon, so I am less concerned about weathering market volatility in those accounts. The illiquid investments are fortunately not subject to the daily machinations of the market. They also benefit from being long-term investments.

2019 Goal Update

My financial goals in 2019 are as follows:

  • Increase net worth by 50%
  • Generate passive income of $2,500 per month (39% of the way there!)
  • Achieve a FI ratio of 75%
  • Adhere better to my specified budgets, especially dining out and discretionary shopping

Net Worth: +5.32% in Jan, +5.32% YTD

In 2018, my net worth increased 44%. The selloff in the fourth quarter destroyed a large portion of year’s gains, but 44% is nothing to sneeze at! I achieved this through a combination of regimented, automated savings practices (read about those here), a performance-based bonus at my job, and a shift in my investments toward cash flowing opportunities.

This year is already off to a great start, but given my pessimistic macro outlook, I expect my 50% goal to be a bit of a stretch.

Passive Income: $902 in Jan, $902 YTD

January’s passive income was a strong $902. My three month average is $980 due a strong December. Fortunately, my second real estate crowdfunding investment will begin paying in March 2019, so that should almost double my current real estate crowdfunding income.

Using my trailing 3 month average (to smooth out month-to-month variations), my current FI ratio is 16%. If I achieve the goal of $2,500 per month in passive income by the end of the year, I will be at almost 28% FI ratio.

I know this seems low given the relatively high passive income target of $2,500 per month. Remember, this number is unique to each person’s situation. I live in an incredibly expensive city, so my rent and daily expenses are much higher than average. I prioritize travel over almost everything else, so I’ve allocated nearly a quarter of my spending to that. Add in a couple fancy meals here and there and a concert, and pretty soon all these things add up. What’s important is that you craft a target that fits your individual situation.

To get there, I hope to invest in five new real estate crowdfunding projects, a real estate debt account with AlphaFlow, and to buy a cash flowing online business. My success here will depend heavily on my job-based compensation, my ability to cut back on unnecessary shopping expenditures, and continuing to maximize my automatic savings.

Cash Flow

Admittedly, this is where I need the most help. I track all my cash flows and budgets with Mint, but I still haven’t gotten great at keeping my expenses within the budget’s limits.

In January, I outspent my earnings and dipped into savings. I overspent on restaurants and drinks, as well as gifts and shopping. I have identified these categories as ones that require some triage to bring back in line and will be tightening the shoestrings a bit going forward. Fortunately, the rest of my categories were at or below their budgeted amounts, so the impact of overspending was muted.

I’ll provide a more thorough breakdown of my spending in February, once I have a chance to implement a better cost control strategy. Stay tuned!

Wrap Up

January was great, but I’m trying not to get ahead of myself. I remind myself constantly to stay focused on the goals above and disregard the daily movements of the market. I’m trying to stay disciplined in my approach and remember it is the patient investor who wins out in the end. Only time will tell how this year plays out, but with the right systems and mindset in place, succeeding at personal finance becomes a winnable game. Happy experimenting!

Disclaimer: I am not a financial advisor or financial planner. All investments, allocations, investment ideas, and opinions presented in this blog are solely those of the author and should not be construed as investment advice. Please consult a financial professional to get advice tailored to your needs.

Barry Beaker

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