1 Year Post-Finale Follow Up

Last updated: May, 2020
Net Worth: $1,229,251
Change from May, 2019: +$202,172

I did not expect to be writing another blog post, but I felt an update would be in order, given all that has gone on recently.

It is mid-May, almost one year exactly after I wrote what I thought would be my final post. A lot has happened since then. COVID-19 struck, killing and infecting thousands and also decimating the stock market and causing unemployment to skyrocket. My wife and I have been lucky in that neither of us has been laid off, although we suspect some sort of temporary furlough may be in my wife's future. Both of us have been working from home for the past month and a half and my daughter's school has switched to online classes, so she is home full time as well.

This new arrangement has taken some getting used to, to say the least.

This is not pretty - but it's not the end of the world either.

As the above chart shows, our stock accounts have declined in value about $150,000 on paper. This actually represents a rebound from the all-time low of mid-March, which was a decline of close to $300,000. Surprisingly, our net worth has manged to remain above $1,000,000, even with this huge decline.

I'm actually eager to buy more shares of index funds, as I think this downturn is a great buying opportunity. I'm torn between building up a cash reserve in case either I or my wife gets furloughed and investing that cash now to buy while the market is low.

What I Learned From The Coronavirus

I am very grateful I had an emergency fund established. It has provided me with a measure of relief, knowing that we have some funds available should our situation really turn south. However, the stock market crash has made me realize I need to adjust my emergency fund philosophy a bit.

Back in 2 B.C. (before COVID-19), my emergency fund consisted of $2,000 cash and the remainder (about $18,000) invested in low cost index mutual funds and a handful of dividend king stocks. Some people say that investing your emergency funds in the stock market is crazy. However, not investing it in the stock market incurs a huge opportunity cost - you will lose out on all the stock market growth for the (hopefully) rare case when you will need cash someday. The concept of opportunity cost has been written about very nicely over at the Early Retirement Now blog in this post. (Also be sure to read the three other posts he links to at the start of that post.)

So what has happened over the past two months is exactly what many people feared - a stock market crash has really cut into the value of my emergency fund. I'll admit I was worried. The market tanked and my first thought was "Shit! Those goes my emergency fund right when I need it the most!"

But when I stopped to think about it, I realized it wasn't so bad. Yes, if I needed more than $2,000 cash, I would be forced to sell some stock at really low prices. Thankfully, I haven't had to do that so far. But did I actually lose money in my emergency fund with this downturn? Here's a screenshot of my emergency fund stock holdings:

As you can see, my cost basis, the amount of money I paid for these stocks ($18,822.26), is still lower than their current market value ($19,346,74). Even after the huge market losses of the past month, I'm still ahead. Even if I had to sell stocks to raise cash after the market crashed, I still would not have lost money.

However, I'm not completely immune to the emotional ups and downs of huge market swings, so I have decided to adjust my emergency fund strategy a bit. Rather than keeping $2,000 in cash, I'm going to keep an amount of cash equal to two month's mortgage payments, because my mortgage is really the biggest monthly expense that I am worried about covering in an emergency. I'm going to go ahead and accept the opportunity cost of keeping about $5,000 in cash. It's a small price to pay for some peace of mind during the next market crash.

And Speaking of Mortgages...

Right before the coronavirus crisis hit, I had started to refinance my mortgage. Interest rates had dropped a fair amount and my back-of-the-envelope calculations showed I could save a couple hundred dollars a month.

I had a 30 year mortgage at 4.125% and decided to refinance to a 5/5 ARM at 2.75% with no points. It's an adjustable rate mortgage, but the rate stays the same for the first five years. My daughter will be going off to college in 2 or 3 years and there's a high probability we will move shortly thereafter, so I'm OK with just a five-year adjustable rate.

The refi process took longer than normal. Banks are swamped with people wanting to lock in lower rates and then, on top of that, the virus hit, slowing everything down more and causing havoc as people were laid off or furloughed. I was asked about three times during the refinancing process to verify my and my wife's employment status. 😀 Anyway, that all wrapped up a couple days ago and now my monthly mortgage is just over $400 less a month than it was. Part of that savings will be going to paying down my car loan and the rest will be invested in the stock market.

One Tesla Is Paid Off!

This month also featured another milestone! We've paid off my wife's Model 3! We managed to pay it off in just about 1 year - we took delivery in March, 2019 and it was paid off in May, 2020! This was well ahead of the four years I had planned.

Because we paid it off so fast, we actually ended up coming out much further ahead than I had hoped we would. We received a $3,750 federal tax credit (which I collected when I filed our taxes last month). At the time of purchase, I figured we would pay about $3,552 in interest on the loan over four years and we ended up only paying $1,084.37 over the life of the loan, which was one year. That means the purchase price of the car was effectively reduced by $2,665.63 (the $3,750 tax credit minus the $1,084.37 interest charges). To put it another way, we were paid $2,665.63 to take out the car loan!

Now, I am going to concentrate on paying off my Model S by redirecting the money we were sending to my wife's car loan to mine. I estimate we should have our final car loan paid off in about 1.25 years.

Net Worth

May 2019	May 2020

Despite the poor stock market performance of the last two months, our net worth still increased over the year since my last blog post.

The gain came from the usual sources you would expect when you are looking over a full year -  a combination of constantly investing some money each paycheck, paying down our outstanding car loans and mortgage, and property appreciation. Slow and steady wins the race.

Back Into Hiding

That's all for now. I'll likely do one really final update in a year or so when my Model S is paid off. Check back then!