December of 2018 was a rocky month for the stock market and ended up bringing down the net annual returns of the stock market and net worth for many investors. The year ended with negative returns of – 6.2% for the stock market index S&P 500.
Fortunately Let me Meander aka LMM asset value increased in 2018. Increase was primarily due to investment returns from overseas real estate. We had made investments in Indian real estate in 2006, which appreciated significantly and more than made up for the negative returns from the stock market.
We were not perturbed by the gyrations of the stock market as we are invested for the long term and have learnt to ignore the weekly or monthly changes. And that is precisely what the pundits preach- “Ignore the noise” or “Stay the course”. For more on this read my blog on Investment tips from Vanguard founder.
Welcome to the most important lesson in investing – Market fluctuations in the short term mean nothing and short term here means 10 years. We may not be used to thinking of time in such terms, but for a long term wealth creation, staying invested, ignoring the noise and buying into the market consistently is the key. Pretty simple. Right? Apparently not so!
During the year we also liquidated all international stocks and consolidated by buying into the S&P 500 index. With this move, most of our stock investments are now in Vanguard index funds. VTSAX and VFIAX has most of our money, with a small portion (less than 10%) invested in domestic technology stocks.
These funds give you ownership of hundreds of top US companies, in single giant, stable, low-fee fund run by an honest company. Over time, this single investment will outperform over 90% of financial advisers and investment bankers while letting you sleep well at night. Our total cost for managing the funds last year was .04 percent or $4 for every $10,000 invested. Cant get better than that!
We also sold our rental property in Chicago in 2018 and made a profit after taxes and expenses. So overall 2018 was a great year for the financial health of LMM. After factoring in the negative returns from the stock market, our total net worth increased by over 24% for the year.
What was our asset breakup in 2018?
Most of our money is invested in non retirement funds and hence are not locked in till retirement age.
We have paid down about 25% equity in the value of our primary home and have chosen to exclude that from the the asset break up chart. As we do not plan to sell our home in the near future, I believe the market value of the primary home is notional and gives a false sense of comfort.
Where did our income come from in 2018?
About one fourth of our income for the year came from non salary sources. While the net worth increased over 24% in 2018, our annual income increased by a smaller margin. Income from salary reduced slightly due to lower bonus payout.
Our rental income too reduced in 2018, as we liquidated the Chicago rental property after renting for six months last year , and also lost a few months of rent as our tenant faced financial and health issues. Our tenant was a Ivy league educated senior executive who had to file for bankruptcy as he could not tide over loss of income over a prolonged period.
Reinforces the fact that managing your expenses and consistently saving a portion of your income is more important than how much you earn. According to the data from the US Judiciary data and analysis office, 12.8 million people filed for consumer bankruptcy between 2005 and 2017.
On that somber note, If you were to lose your job, how long will your money last ?
If you are reading this blog, you are already on the right track and among the growing minority who value financial independence more than mass consumerism. More stuff will not bring happiness, in fact there could be a inverse relationship. But I digress.
We also receive rental income from an overseas property, which too was vacant for three months. So overall our rental income for the year was down by more than 50% in 2018.
Capital gains from sale of rental property in Chicago made up for the shortfall and bumped up the total annual income. Our dividend income grew marginally over the previous year.
Overall a growth of 20% over the previous year’s income.
What are the financial goals for 2019?
As we work towards the goal of reaching Financial Independence (FI) by 2022, we will have to watch our expenses closely this year. My elder daughter Richa will start college during fall, 2019 and college fees will be an added expense for the next four years. Money saved up in 529 College saving plan will take care of half the college expenses. Other half will have to paid out of monthly savings.
During 2018 we started the process of consolidation of overseas assets and swapped international stocks with Vanguard index funds as the first step. In 2019, we will continue the consolidation process with liquidating overseas rental property and investing the proceeds into the S&P 500.
What are your goals for 2019?
For more stories on personal finance read How to retire with a Million.