What a brutal winter. The weather in New York was pretty miserable all the first quarter. Good thing the market rallied over 13% during that time! Nothing like strong market performance to make you forget how cold it is outside.
Despite the fantastic performance of the stock market in the first quarter, my mid-term outlook on the market hasn’t changed. As we move even further into the longest bull run in history, we draw ever closer to the eventual downturn. We know from basically every personal finance guru and book that as retail investors, we shouldn’t try to time the market. As such, I will continue to prudently de-risk my portfolio and acquire long-term investments that will be resilient to market drawdowns.
After the portfolio update I gave in the January Financial Goal and Status Update, my portfolio has remained fairly stable. My Wealthfront account is still a 4.0 risk level. I still hold the REITs and single name stocks I owned then, with one exception. I sold about half of my Amazon holdings when the priced reached $1,800 per share a couple of weeks ago. Amazon had become such an outsized position within my account that I felt it was a good idea to take some risk off the table. I have kept the proceeds from that sale in cash for now.
After I received my annual bonus at my day job, I made several decisions:
- To invest in a time-sensitive real estate crowdfunding opportunity, I drew on a portfolio line of credit in my Wealthfront account. I paid off the remaining balance on the portfolio line of credit immediately upon receiving my bonus.
- Topped up my checking account, which I treat as a working capital account for my daily expenses.
- Paid off outstanding credit card debt – a clean slate.
- Max out tax-advantaged accounts. I maxed out my annual 401k contribution. I also contributed the maximum to an IRA, which I then rolled over into a Roth IRA (called a backdoor Roth).
- Transferred all other cash to a high yield savings account, awaiting my eventual company acquisition.
GOing forward, I will continue to send weekly contributions to my Wealthfront account. Rather than continuing at the
- Interactive Brokers allows me to access many more financial instruments than Fidelity. I am now able to trade bonds, currencies, commodities, futures, and complex options strategies. Keep in mind, these products entail their own unique risks and may not be suitable for unsophisticated investors. Please consult your financial professional before investing in any new asset class.
- IB pays a strong rate on idle cash in the portfolio and charges a much lower rate on margin loans.
- Commissions are significantly lower than Fidelity.
- More control. With IB, I am able to select the execution algorithm I want to use when trading. Even though I’m not trading massive amounts, sometimes liquidity is sparse and even a small order can move the market. I’m trying to minimize my transaction costs.
I’m excited to see how Interactive Brokers performs in the coming months. I’ll write a comprehensive review of my experiences with the platform in a few months, once
2019 Goal Update
My financial goals in 2019 are as follows:
- Increase net worth by 50% (DONE)
- 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: +66.00% in Q1, +66.00% YTD
From my January update: “In 2018, my net worth
At the end of the quarter, I received my annual performance-based bonus from my job. To my positive surprise, it was more than I thought it would be. I am humbled to have been rewarded for doing well at my day job. It’s nice to be rewarded well for hard work! My bonus is also tied to the performance of my market, meaning when things finally sell off, I’ll be lucky to get anything. Feast and famine at its finest.
That said, whether your bonus is $100 or $1 million, you should have a solid plan for how to save and invest it. Remember, it doesn’t matter how much money you make, it matters how much you keep.
Because of my bonus, I was able to increase my net worth by 66% in the first quarter. The large ups and downs in the graph above happened because of differences in cash transfer settlement times.
Passive Income: $2,091 in Q1, $2,091 YTD
Due to the timing of dividends, my passive income profile in the first quarter isn’t terribly consistent. I was still able to average just shy of $700 per month during the quarter, but February’s $389 income brought down the average. Unfortunately, my second real estate crowdfunding investment did not begin its payments on time, so I went without that additional boost. In April, I expect my second and third real estate crowdfunding investments to begin paying distributions, which should significantly increase my monthly passive income run rate.
Using my trailing three-month average (to smooth out month-to-month variations), my current FI ratio is 13%. If I achieve the goal of $2,500 per month in passive income by the end of the year, I will be at a 28% FI ratio.
Having a large amount of cash sitting in a high yield savings account will produce a decent amount of passive income as I continue to search for a company to acquire. That said, because I have reserved nearly all of my bonus for this acquisition, I think I will likely fall short of my PI goal for the year. I doubt I will be able to invest in five new cash flowing real estate deals.
That’s fine with me though. I believe investing in an acquisition represents a completely new chapter in my life that should produce dividends far greater than any investment I might find this year. In the meantime, I’ll be patient and take whatever interest the bank decides to give me.
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 certain categories
As you can see, shopping is far too large a portion of my monthly spending. I am actively working to curtail my shopping addiction. I do usually have one expensive splurge after I receive my bonus, so I think the shopping portion should decrease naturally in the second quarter. My home expenses are roughly in line with the 30% guideline you see all over the web.
Going forward, I will increase the proportion of my spending dedicated to charity. Now that I have a bit of a cushion for myself, I will dedicate a much larger portion of my earnings to charitable giving. I’m also going to prioritize travel going forward. For the amount my shopping slice decreases, I hope to increase my travel slice. Increasing the amount spent on travel as a portion of the whole means both traveling more often, and opting for more comfortable travel options when possible. I’ve done enough trans-Pacific flights in
Keep in mind this chart is my spending only. It does not account for any savings during the period. Since I save almost my entire bonus, my overall savings rate hovers in the 60-70% range. For that reason, I find it’s more informative to show only spending.
The first quarter 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.