Quarterly Net Worth Update: Q1 2020

I think you’d be living under a rock if we said Q1 2020 was a bit volatile for the markets and you didn’t know what we were referring to.  Dips will happen.  They are expected.  We were a part of the longest bull run in the history of the stock market.  The market was over valued and due for a correction.  I don’t think anyone would have guessed the drop would have been due to a pandemic virus that has spread globally.

Is the worse still to come for 2020?  Are we back on the upward climb?  Who knows.  No one.  No one knows what’s going to happen and when it will happen.

But that’s the point behind this all.  The market is volatile.  We can’t predict the future, all we can do is invest in our future knowing that over time, the market will go back up.  All we know if that if you ignore the noise, take out the emotions, continue to earn more than you spend, and consistently invest the difference, your portfolio will go up over time.

Just like in our previous quarterly updates, we are going to break down exactly where our current investments live for our Q1 2020 update.

How have we done in the past three months? How do we compare to our FIRE number? Did we make up that $45 gap from last quarter and reach our FIRE number?  Spoiler alert… ummm NOPE!

A Look Into Our Liquid Assets

As of April 3, 2020 here is a breakdown of our liquid assets (home and car not included as these are illiquid!):

 

Any Liabilities?

We also still have a mortgage in place that will be murdered by the time we retire (see below for more info regarding our mortgage plans). Currently there is $49,934 remaining here. So here’s the total amount of our passive net worth:

Hold The Phone.  We Have How Much Cash?

Since we are so close to our FIRE date, we are holding quite a bit more in cash than we normally would.  Do you guys NOW get why we are SO conservative and want all this cash on hand?! Sequence of returns risk is something you should be taking into account as you approach your FIRE date!  Our overall breakdown is:

25.4% in cash, what?! During our wealth building phase we were NOT this heavy in cash. We are not financial advisors in any sense, but we would not recommend holding this much cash during your wealth accumulation phase unless you have a large purchase coming up such as a down payment for a home.  Now that we are approaching our FIRE number, we are being SUPER cautious and do not want to be heavy in stocks.  I’m only thinking this way because we are so close to withdrawing from our portfolio once we retire early and I do not want to fall victim to sequence of returns risk – ahem, coronavirus. We are SO thankful to be in this conservative situation given the current market conditions.

Our short term play is to be ~60% in stocks and our long term play is to be back at 90-100% in stocks like we were for a majority of our wealth accumulation phase.  Seeing that we are now only 52.6% in stocks is a sign that I need to rebalance even more into stocks over the next few months.  The game plan is to transition via a glide path to that higher stock allocation over the next 5-10 years.

What Are We Planning To Do With All Of This Cash?

Our goal is to retire early in approximately a year from now – it may be longer at this point, and that’s totally ok as we’ve designed a very happy life living on 50% of 1 part time income.  Ideally, it will be April 2021 as I receive my annual bonus in March each year (if one even comes for 2020) but the end goal is for it to match up with hopeful babes 2 arrival so that we can utilize Canada’s generous 18 month paid parental leave (we will net ~$25,000 after taxes) so that we will not have to withdraw anything during our first year and we will still be covered with my employers health coverage during that time frame too thus eliminating the need to get supplemental insurance for dental, vision, and prescriptions at the beginning.

Many people are joking these days about a baby boom that will be happening in 9-10 months from now with everyone stuck at home.  However, for those of us who need fertility treatment to conceive we are in the exact opposite situation.  Our plans to try to conceive baby 2 have been put on hold at this time until the fertility clinic doors open up again.  So it’s likely that babes 2 will not be arriving before April 2021 at this point in time which will push out our ideal FIRE timeline, (as will our portfolio performance likely will too).

Over the next year $49,934 of the cash will be going towards killing our mortgage. We also use credit cards for everything which are set up on auto pay to come out of our US checking account each month. We are currently averaging an annual spend of ~$25,000/year so there’s another $25,000 out of the checking account. So with the $210,385 we have in cash now we can expect to have ~$135,451 in cash remaining ($210,385-$49,934-$25,000) when we FIRE. The majority of this cash sits in our Motive Savvy Saver high interest savings account earning 2.2% interest and will provide us with more than enough of a cash cushion in our first few years of early retirement. So our cash portfolio isn’t necessarily doing nothing for us this whole time. This is still too much cash than what we want on hand so the plan is to throw extra into the markets over the course of the year to take advantage of this buying opportunity we are seeing.  So far, we’ve sent about $10,000 in cash into stock index funds and another $15,000 of bonds over to stock index funds and it looks like there’s still more rebalancing to come to get us to our ~60% stocks figure.

What Do We Invest In?

To dig even further, here is a breakdown of the different accounts we have our non-cash investments in:

• Vanguard US Total Stock Market Index Funds: 42.9%
  • This is either in VTSAX in my US accounts or VUN.TO in my Canadian accounts. We are big fans of tracking the overall US stock market. As we transition into more and more equities over time, it will be into these accounts as well as international indexes.
• Vanguard US Total Bond Market Index Fund: 25.9%
  • We hold VBTLX in my US accounts. This is the highest amount of bond index we have held in a long time. Over time, we will likely sell down these investments first when it comes time to withdrawing from our portfolio.
• Vanguard Target 2045 Index Fund: 20.7%
  • VTIVX which is made up of the following: 54% VTSAX, 35% International Stock Index, 7% Total Bond Index, 3% Total International Bond Index. We like target date funds even though it has a slightly higher expense ratio (0.15% vs 0.04%) because it provides us with some international funds and this index rebalances itself over time.
• Company Stock: 8.1%
  • I only own one individual company stock and it’s for a renewable energy company I’ve worked at for years. I’m going to leave this broad and not revealing my current and past employers names will be the only secret I keep on the blog as I do not want people knowing where I used to work.  Maybe I’ll reveal it once we FIRE…
• International Funds: BlackRock iShares Core MSCI All Country World Ex Canada & Developed All Cap ex US Index: 0.5%
  • Slow and steady wins the race…? Dipping into international funds this year in addition to the target date index via XAW which is essentially 57% US companies and 43% companies from other countries around the world.  We are also dipping our toes into Vangaurd’s Developed All Cap ex US Index ETF (VDU) as it seems silly to me to invest in US funds via XAW with a higher MER than simply through VUN.TO (0.22% vs 0.16%) and VDU has the same 0.22% MER as XAW yet it’s 100% international ex US.  Stay tuned for next quarter’s update to see which route we decide to go in the future, very likely it’s VDU.

That’s it!  Some acute FImily followers may realize that we made some changes to our allocation over the last quarter.  What did we do?

• Towards the beginning of the year, we threw a nice chunk of change to the mortgage to bring it down from $77,370 to it’s now $49,934.
• We recently decided to pause our super aggressive plans on paying off the mortgage – we are continuing the extra 15% monthly payments but stopped the double up monthly payments.  Instead, this ~$1300/month will be rerouted into the market at this time.  Depending on how long we decide to deploy this tactic, we likely will still end up paying off our mortgage in 2021, it might be shifted into 2022. Our 5 year rate of 2.59% is up in May 2021 which is why we have our payoff date aligned with 2021 but with interest rates being so low these days, I’m not worried about ending up with a higher interest rate if we decide to wait to pay it off post May 2021.
• We threw $10,000 into Nic’s TFSA.  The goal this year is to get this account fully funded to it’s max contribution room.  The majority is still in cash and we will be dollar cost averaging (DCA) this into VUN.TO and XAW.TO/VDU.TO over the year.
• We threw $8,517 into Court’s RRSP before the 2019 cutoff date (March 2, 2020) to max out her 2019 contributions since that will likely be her highest earning year in a long time (ever).  Again, some of this is still in cash and we will be DCA into VUN.TO and XAW.TO/VDU.TO over the year.
• We threw $2,500 into Finn’s RESP for 2020.  We’re received our beautiful $500 government match from our December 2019 contributions along with another $500 match for this year’s 2020 contribution we made in February (we do not include this account as part of our passive income).
• We purchased our 3rd car (see stock photo of the same Subaru we purchased) in January and sold the Chevy Equinox in March.  We opened up a separate “car fund” within Questrade in which we put $10,000 to fund our future car purchases.  Note that this car fund account will not be part of our passive income portfolio since it’s purpose is for 1-time events that will likely take place every 7-10 years. You can read more about our car thoughts here, which I’m realizing is now outdated and needs an update.  We decided to hold on to the Corolla while Court is employed and is in an office 73 days out of the year.  As we approach our FIRE date, we will assess if we are still comfortable to transition to a 1 car family.
• Our Motive high interest savings account went from 2.8% to 2.2%.  Still can’t complain given the economy at this time.
• We’re also keeping an eye on the USD/CAD exchange rate and in the process of moving some ($5,000 to start) of our USD over to CAD as we haven’t seen the exchange rate this high in the last 5 years since we moved to Canada.

Here’s a chart with the breakdown:

We are big fans of Vanguard, index funds, and low fees. If you are interested in learning more about any of the funds we invest in, click on the links below:

• Funds within our US portfolio:
  • Vanguard Total Stock Market Index Fund Admiral Shares our (VTSAX),
  • Vanguard Total Bond Market Index Fund Admirals Shares (VBTLX),
  • Vanguard Target Retirement 2045 Fund (VTIVX),
• Funds within our Canadian portfolio:
  • Vanguard US Total Market Index ETF (VUN),
  • BlackRock iShares Core MSCI All Country World ex Canada Index ETF (XAW)
  • Vangaurd’s Developed All Cap ex US Index ETF (VDU)

For my visual learners, the chart below depicts how heavy we are in US index funds. A large majority of our investments from stocks or bonds are in either a US stock market index funds or US bond market index funds (a majority of the Vanguard Target 2045 fund is in US holdings and about 57% of XAW tracks the S&P 500). As planned, we are making some adjustments this year to get ~10-20% of our portfolio in international funds.  Last update we were 8.36% international and now we are actually down at 7.35% international.  It can be argued that many of the companies in the US stock index have a significant amount of business taking place abroad. Again, we are not here to argue or tell you what to do, we are simply showing you our story and methodology.

What About Currency?

Note that for the sake of this exercise, we are keeping all currencies as is in their current currency denomination, but as we mentioned in a previous post outlining our FIRE number, we are using currency arbitrage to keep our safe withdrawal rate below 4%.

As of this writing, 75% of our accounts are in USD and 25% are in CAD. If we converted all USD to CAD based off today’s exchange rate of 1.40 (WOO!), we’d be looking at a total of $1,010,406 CAD in our investment accounts.

Assuming $35,000 in annual expenses, this puts us at a 2.38% withdrawal rate.  If we bumped up our expenses to $37,000 it would be a 2.57% withdrawal rate.

We also have the Canadian Child Benefit working in our favor which brings our withdrawal rate to the low 2% range.

Where Do We Stand?

For those who have been following along, you know that our FIRE number is $875,000.

So let’s do some simple math:
$875,000 – $777,666 = $97,334

Last quarter, we were $45 away from our $875,000 goal.  Now, we are back on the climb – which I was anticipating for 2020 hence why I didn’t jump ship once we crossed our FIRE number earlier in the year.  We’re actually quite close to our Q3 2019 figure.  While some may see this as a depressing stat, I’m actually REALLY happy this dip/bear market/recession is taking place while I am still working.  Knowing that we are NOT withdrawing from our portfolio at this time and instead saving/investing 50% of my income is allowing me to sleep very well at night.  The conservative Clancy in me may decide to wait to pull the plug until we see a rebound in sight (which we’re actually seeing this month but I’m still quite weary).  However, Nic will likely not let that happen as she has a much more positive outlook on our portfolio.  Time of course will tell, so who really knows what’s in store for us. I’m very happy to be working part time at this time as I already feel like I’m living the retired life.

Our Net Worth:

As for our total net worth, we would then add in the value of our illiquid assets like our home and cars we well. Our townhouse is valued at roughly $315,000 and our two cars are valued around $12,000 (with the $10,000 in our car fund not being counted). Of course we will not know the true value of these illiquid assets until we actually sell them down the road.

Adding these two figures into our net passive investments of $777,666 above gets us to a total net worth of:
$1,104,666

Those following along know we have a few other items in our portfolio that we like to hide behind the scenes as our true emergency fund such as my Health Savings Account (HSA), my pension from my previous employer, our child’s RESP, any CPP/SS/OAS/GIS potentially coming our way in the future, and our car fund so for the sake of this exercise we are not including them.

Voila! Stay tuned to see how our net worth has changed in 3 months when we check back in on this.

What is your asset allocation and where are you at on your journey (i.e. paying off debt, wealth accumulation, retired early, etc.)? Do you calculate your net worth?  If so, how often do you check in on your accounts? As always, thanks for tuning in and comment below 

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We believe in stacking up life hacks to keep your enjoyment levels to the max without depleting your bank account.  Here are some ways to further educate yourself and save thousands of dollars over your lifetime by making some simple adjustments:

• Investing Newbies: Check out our free Investing 101 Series.
• How much are you paying for your phone plan?  Canadians, learn more about Public Mobile, and see how we are paying $3/mo for our cell phone plan.
• How much are you paying for internet?  Canadians, learn more about the various Independent Service Providers out there to see who services your area so you can lower your monthly bills.
• How much are you paying for home insurance?  We were able to reduce our rates by 25% by switching over to Square One Insurance.  If you live in BC, AB, SK, MB, and ON, check out Square One for your home insurance, landlord insurance, and/or tenant insurance.  Use this link to receive an extra $15 off your quote.  (Note that you must use this link to start the process to get the $15 off even if you prefer to pay over the phone.)
• How much are you paying for your monthly utility bills?  See how you can likely save on this monthly expense.

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