2016 is officially over and it’s time to be honest with ourselves and give a grade. When I add it all up 2016 will go down as one of the best years we have EVER had both financially and personally speaking. It was my first full year of being in a full FIRE (Financially Independent Retired Early) status and many of my concerns have been dealt with and conquered. Going forward I’m quite happy with our life design and with our ability to thoroughly enjoy a fulfilling, rewarding life of gusto and passion. Let’s break the year down into the major components for a thorough vetting:
Our overall net worth increased by 14% for the year. As a reminder, for net worth I count all investment accounts, all savings accounts, and the value of our home equity. It just so happens that our home’s market value took off in 2016 and now exceeds our purchase price by about $40k. Nevertheless, I do NOT count any equity above purchase price. I like to be conservative when it comes to real estate so call it a margin of safety. I also do NOT count all the depreciating crap – cars, furniture, appliances etc. Those things are nothing but cash draining liabilities. All of that said, I can’t begin to describe how happy I am with the 2016 result since I wasn’t working full time and we took two major vacations, numerous side trips and mini vacations, added a major piece of new furniture (an Amish hand made maple dining table), and had a lot of expenses getting GO4ITUSA.Jr2 lined up for college. Net worth wise it was a great year. Breaking things down to the individual components the portfolio looked like this:
INVESTMENT ACCOUNTS – 2016
Berkshire Hathaway – started year at about 60% of portfolio. It helps when 60% of the portfolio mashes out a 23.41% gain for the year. Berkshire is now 63% of the portfolio.
VFIAX (Vanguard S&P500 index fund). Sold about 40% of it during BREXIT crisis and traded for better opportunity in VHDYX (Vanguard high dividend fund). VFIAX is now 12.7% of the overall portfolio and with dividends included came in at 11.93% for the year – a very satisfactory year for the market.
VHDYX – Bought on 28 June in midst of big BREXIT sell-off. VHDYX is now 12% of the portfolio. VHDYX has a yield at just over 3% which precisely matches our target annual withdrawal rate. My little maneuvering on 28 June turned out to be a wash for the year though. Had I just held VFIAX I would have come out just about the same from that date through end of year. But I got what I wanted which is a higher yield.
WFCPRL (Wells Fargo non-callable preferred) – Started year at $1159.10 and ended at $1190.00. I view Wells Fargo Preferred shares as a non-callable bond. I also view Wells Fargo as an extremely safe balance sheet that never suffered the same duress during the financial crisis as its big bank peers. Wells Fargo is managed much more conservatively than say Citigroup or Goldman Sachs etc. and is mostly brick and mortar retail banking. This recent scandal does nothing to change my view on the overall health of the bank. As a bond proxy WFCPRL churned out a juicy 6.4% yield throughout the year for a combined return of 9.06%. WFCPRL is now 7.2% of the portfolio.
VFISX (Vanguard short term Treasury) – started year at $10.66 and ended year at $10.64 which means it did exactly what it’s supposed to do. VFISX is our emergency fund and provides a cushion to withdrawal from in case of a huge market crash so I don’t have to sell stocks at fire sale prices. VFISX comes in at 2.3% of the portfolio.
Money market funds and savings accounts comprise the rest at about 2% of the overall portfolio and our Prosper.com peer-to-peer lending account is about 1.5% and I am in process of winding that sucker down to zero. Added together, the bonds, cash, prosper holdings come out to about 13% of our total liquid assets which of course in rising markets serve as a performance drag yet provide a degree of downside protection.
Overall for the year, consolidating all investment accounts, we were well ahead of the market which gave us the luxury of making some withdrawals yet significantly growing our net worth. Counting everything in our consolidated investment portfolios, including all the cash/bonds, we ended up 15.61% for the year for investments. Looks like the S&P500 came in at 11.97% (dividends included) for the year. When I consider that approximately ~80% of managed mutual funds fail to beat the market in any given year and we managed to beat it by about 3.6% while holding a significant percentage in bonds and cash means we beat the market and did it while holding 13% in low performing assets. That marks 2016 as a very elite year and we couldn’t be happier! It would be nice if every year were so good!
BRUTALLY HONEST LOOK IN THE MIRROR
So when it comes to purely stock investing and stripping out all the cash/treasuries to get to an apples-vs-apples comparison how am I faring vs. the S&P index? My benchmark? I like to use rolling 5 year time periods to gauge whether or not I’m personally adding any value whatsoever to the equation. If I’m not? Then I should be brutally honest with myself, sell all holdings and put it into the S&P500 Vanguard index. If I am adding value? Then continue what I’m doing. Here’s the latest 5 year snapshot:
– S&P 500 2.1%
– GO4ITUSA 14.7%
– S&P 500 32.4%
– GO4ITUSA. 29.24%
– S&P 500 13.7%
– GO4ITUSA. 24.48%
– S&P 500 1.4%
– GO4ITUAA. (-)10.96%
– S&P 500 11.97%
– GO4ITUSA. 20.66%
Compounded over 5 years $10,000 would now be worth $17,451 had I stuck it in the S&P 500. Doing it myself, $10,000 became $19,825. Huzza! I’m adding value and will continue to invest a good chunk of our money myself.
This is usually a boring category which has us ensconced in our home and patiently waiting for any increase in value. In that light, 2016 was a wild ride. In fact, I am hard pressed to imagine that we will ever again face a better confluence of events staying in our current home. Enter BREXIT stage Left. As posted here BREXIT caused a bit of a panic amongst the weaker species and many of them piled into the safe haven of US Treasuries which drove yields to historical lows. Chaos? Chaos ALWAYS presents opportunity – please read my core philosophy. So with mortgage rates plummeting we made a significant move, sold $25k worth of stock to whack some of the principle, and refinanced our mortgage from a 30 yr 4% fixed rate to a 15 yr 3% fixed rate. Our monthly payments stay roughly the same (due to putting in an extra $25k) yet we significantly accelerated our payoff timetable and significantly increased our monthly savings rate ( lower rates mean more money towards home equity). On top of all of this happiness the Zillo.com value has increased by a cool $40k which looks nice on paper and brings peace of mind. Going forward, I never expect to be faced with such an opportunity again as long as we own this place.
“Really good investment opportunities aren’t going to come along too often and won’t last too long, so you’ve got to be ready to act. Have a prepared mind.” Charlie Munger
Tour Guide in Colonial Williamsburg. I finished tour guide training and passed my final exam in March and received my guide license. That was the culmination of nearly three months of training. Things started slow and then the company I work for significantly amped up the number of tours and at times it almost felt like a (very fun) full-time job. Once summer arrived things slowed down but I still have done a couple of tours every month and as we round the bend into 2017 things will ramp up again.
I am hopeful that this gig will last for years.
Area Relocation Specialist Tidewater Virginia. In September I was contacted by a head-hunter looking to hire a part-time “Area Relocation Specialist” to help corporate executives as they relocate to the local area. I’d be a private contractor with a flexible schedule and decent pay which fits my idea of “work” perfectly – I jumped at the chance. So far I’ve done one relocation and it was a lot of fun so I eagerly await some more. The jury is still out on whether this will work out.
Hacking gigs. In this category I include credit card rewards points, filling out surveys for cash, EBates, and cash-back shopping apps like the one Wal Mart provides. For the year we’ve made $905 so it’s not insignificant. That’s enough to pay a significant chunk of a vacation.
So that’s it for 2016. A very very good year indeed and it gives us a lot to look forward to going forward. All the best in 2017!