Well well well here we are with the market hitting some new all-time highs in September.\u00a0 The market has been a little rocky since reaching it’s new highs in early September but we’re still sitting pretty solid as we close off Q3 2020.\u00a0 Tech stocks are splitting and continuing to dominate the field.\u00a0 US stocks have made up significant ground since their March lows.\u00a0 It will be interesting to see which companies\/sectors, unfortunately, fade out due to COVID-19 and which will survive (and thrive).\u00a0 Are we reaching a new tech bubble?\u00a0 Tech and AI definitely seem to be the way the future is heading, but who knows?<\/p>\n

US elections are coming up and whoa Nelly if the first debate is any indication of what’s to come in the next 4 years let’s just say the US is in for something strange… That was ridiculously embarrassing.\u00a0 Volatility historically has trended higher as elections near and this year is likely to be more pronounced.<\/p>\n

With the Fed’s injection of cash, it seems like bonds don’t really have anywhere to go and thus people are betting on stocks which seem the more favorable route in terms of the good ole stocks vs bonds valuations as interest rates should remain low.<\/p>\n

Maybe COVID-19 vaccines will progress this fall to further boost stocks?\u00a0 Maybe the second wave of COVID-19 will be more painful than anticipated?<\/p>\n

Remember, many “popular” scenarios are already priced into the market.\u00a0 Markets are anticipatory and gaining an edge requires looking beyond the obvious.<\/p>\n

Will we continue to see some market volatility in the near term?\u00a0 Likely.\u00a0 But again, your guess is as good as mine.\u00a0 Was the “V” in the market the end of the quick bear blip and are we headed towards the next bull run?\u00a0 Who knows.\u00a0\u00a0The point, as always, is to ignore the noise<\/span>.\u00a0 Everything mentioned above is short term thinking.\u00a0 In the big scheme of things, none of what pans out above will really matter.\u00a0 Invest for the LONG TERM and do not obsess over the day to day blips.<\/span><\/p>\n

Just like in our previous quarterly updates<\/a>, we are going to break down exactly where our current investments live for our Q3 2020 update.<\/p>\n

How have we done in the past three months? How do we compare to our FIRE number? What changes took place this quarter for us?<\/p>\n

A Look Into Our Liquid Assets<\/h2>\n

As of October 1, 2020 here is a breakdown of our liquid assets (home and car not included as these are illiquid!):<\/p>\n

<\/span><\/span>\u00a0<\/span><\/p>\n

Any Liabilities?<\/h2>\n

We paid off our mortgage on our townhouse but also purchased another home…surprise! Future post on that coming up soon.\u00a0 So rather than the ~$45,000 remaining on our townhouse from last quarter, we’re now back up to a large balance of $316,000.\u00a0 So here\u2019s the total amount of our passive net worth:<\/p>\n

<\/span><\/span><\/p>\n

<\/span><\/span><\/p>\n

WTF Happened To The Cash?<\/h2>\n

As any avid reader knows, we have been holding on to a lot of cash.\u00a0 As in over $200,000 worth of cash.\u00a0 Well, we found a home for a large chunk of it!\u00a0 We put nearly $45,000 towards the remaining mortgage of our townhouse (as we were required to do to obtain financing of our new place) and dropped another $79,000 on a 20% down payment for our new house.\u00a0 Poof, see ya $125,000. Ouch!<\/p>\n

Have no fear, we will be slowly building this back up over the next year or two.<\/p>\n

We now have less than $100,000 sitting in cash – woohoo!?\u00a0 About $24,000 is earmarked to be invested within certain accounts (plus a bit more for 2021 once we get more room in our tax-advantaged accounts) with about $72,000 on the sidelines as our cash buffer as we approach our FIRE date.\u00a0 We will deplete about $25,000 \/ year from our annual expenses.\u00a0 Our current thought\/plan is to get this to the $125,000-150,000 range before pulling the plug on the job.<\/p>\n

Our overall breakdown is:<\/p>\n

<\/span><\/span><\/p>\n

<\/span><\/span><\/p>\n

And just like that, we went from 21.8% cash in Q2 to 10.7% cash now for Q3.\u00a0 It’s all relative really.\u00a0 Rather than have a large cash percentage we decided to put it into housing instead.\u00a0 We still own both properties so our cash is really just tied up in real estate for the short term.<\/p>\n

Remember, 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.<\/p>\n

Research shows that being 100% invested is better than hoarding cash. This\u00a0Seeking Alpha article<\/a>\u00a0breaks down the numbers and shows how that works. Even though the math works (100% invested in the market), psychologically, I feel better having cash available and on hand.<\/p>\n

It helps me sleep better at night since we are so close to our FIRE number and will help protect us against sequence of returns risk once we do FIRE.<\/p>\n

Morgan Housel wrote it quite perfectly in his new book The Psychology of Money<\/a>:<\/p>\n

“Say cash earns 1% and stocks earn 10% a year.\u00a0 That 9% gap will gnaw at you every day.”<\/p>\n

“But if that cash prevents you from having to sell your stocks during a bear market,\u00a0the actual return you earned on that cash is not 1% a year<\/strong> – it could be many multiples of that, because preventing one desperate, ill-timed stock sale can do more for your lifetime returns than picking dozens of big-time winners.”<\/p>\n

This is probably the most eloquent articulation of why you need to have a sufficient cash balance on hand (especially when it comes time to withdrawing and not having any earned income anymore).\u00a0 It may feel like you are leaving money on the table, but the last thing you want is to be forced into a fire sale.<\/p>\n

Our short term play is to be ~60% in stocks and our long term play is to be back at ~90% in stocks like we were for a majority of our wealth accumulation phase.\u00a0 The game plan is to transition via a glide path to a higher stock allocation over the next 5-10 years as we deplete our cash and bonds first during our withdrawal phase.<\/p>\n

At the end of Q2 we were 58.8% in stocks and now we are at 68.3% due to our cash finding a new home (pun intended) and thus less passive income to report.\u00a0 As our cash bucket fills back up, this will likely shift the portfolio back to the 60% range (but could remain above if stocks do well this next year).\u00a0 We are OK if our stock allocation remains above 60% but the goal at this point is to build back up the cash reserve and pay off the new mortgage.\u00a0 I am totally fine if our stock allocation grows to become ~75% of our portfolio by the time we retire.\u00a0 I just want to ensure we have enough cash on hand for the first 4-5 years to weather any early dips in the market.<\/p>\n

What Is The Plan Between Now and FIREing?<\/h2>\n

Our goal is to retire early in approximately a year from now \u2013 we are flexible with the timing as we\u2019ve designed a very happy life living on 50% of 1 part-time income.\u00a0 Ideally, it will match up with hopeful babes 2 arrival at some point in 2021 so that we can utilize Canada\u2019s generous 18-month paid parental leave (we will receive ~$21,000) so that we will be withdrawing a very low amount during our first year and we will still be covered with my employer’s health coverage during that time frame too thus eliminating the need to get supplemental insurance for dental, vision, and prescriptions at the beginning.<\/p>\n

However, my work setup has been going really well and my annual bonus comes out in March of each year.\u00a0 We are having a killer good year, as in a very good chance of a 100% bonus, and likely will for the next few years.\u00a0 So as of now, we are thinking that I will work until March 2022 so I can get two nice bonus checks (March 2021 and March 2022) and then access how the work-life balance is going as a hopeful family of 4.\u00a0 I’d still be able to take some parental time off with this strategy but not the full amount (depending on if\/when baby 2 arrives of course).<\/p>\n

We will be renting out our current townhouse where we will be netting $1,250\/month after all expenses (thanks in part to not having a mortgage on it anymore) which covers 95% of our mortgage at our new place.<\/p>\n

The hopeful goal is to set up a rent-to-own structure with our tenants as we do not intend to be long term landlords.\u00a0 If this doesn’t pan out, we will reassess the market when they move out and either rent it out for another year or two or try to sell.<\/p>\n

Whenever we do sell the townhouse, the proceeds will fund a large majority of the remaining mortgage balance for our new place (at least 95%, if not the whole thing depending on when the sale of the townhouse takes place and for what amount we net).<\/p>\n

What Do We Invest In?<\/h2>\n

To dig even further, here is a breakdown of the different accounts we have our non-cash investments in:<\/p>\n

\n
• Vanguard US Total Stock Market Index Funds: 46.3%\n
  \n
  • This is either in VTSAX in our US accounts or VUN.TO in my Canadian accounts. We are big fans of tracking the overall US stock market.<\/li>\n<\/ul>\n<\/li>\n
  • Vanguard Target 2045 Index Fund: 21.8%\n
    \n
    • VTIVX which is made up of the following: 54% Total US Stock Market, 35% Total 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.<\/li>\n<\/ul>\n<\/li>\n
    • Vanguard US Total Bond Market Index Fund & Vanguard Canadian Aggregate Bond Index: 21.1%\n
      \n
      • We hold VBTLX in our US accounts and a small amount of VAB in our Canadian accounts. Over time, we will likely sell down these investments first when it comes time to withdrawing from our portfolio.<\/li>\n<\/ul>\n<\/li>\n
      • Company Stock: 7.9%\n
        \n
        • I only own one individual company stock and it\u2019s for a renewable energy company I\u2019ve worked at for years. I\u2019m going to leave this broad and not revealing my current and past employer’s names will be the only secret I keep on the blog as I do not want people knowing where I used to work.\u00a0 Maybe I\u2019ll reveal it once we FIRE\u2026<\/li>\n<\/ul>\n<\/li>\n
        • International Funds: BlackRock iShares Core MSCI All Country World Ex Canada & Developed All Cap ex US Index: 1.9%\n
          \n
          • We\u2019ve decided to hold off on XAW since the majority of these holdings are US companies.\u00a0 Instead, future international investments will be via VDU.TO which is 100% international ex-US.\u00a0 Although recently I have been reading about XEF vs VUN for some minor improvement in fees when it comes to US withholding taxes<\/a>.\u00a0 We will have to keep in mind that XEF holds no Canadian companies (similar to XAW) so if we wanted Canadian funds in the mix we’d also have to include something like VCN too.\u00a0 Similar to XEF, we’ve been also looking at VIU too instead of VDU<\/a>.<\/li>\n
          • By breaking the developed international category into these two funds instead of simply VDU, we’d be looking at a lower overall MER when factoring in US withholding taxes.\u00a0 From the US withholding tax side of things, we’d be saving anywhere between 0.16-0.33% depending on which type of account it is in.\u00a0 From the MER side of things, if we dedicated 90% of our developed international section to XEF or VIU (0.22% MER) and 10% to VCN (0.06% MER) we’d be looking at a weighted average of .20% MER vs if it was all in VDU it would be 0.22% so a whopping savings of 0.02%.\u00a0 Clearly, the reasoning here is because of the US withholding taxes, not the MER.<\/li>\n<\/ul>\n<\/li>\n
          • REIT Index Fund: Less than 1%<\/li>\n<\/ul>\n

            That\u2019s it!\u00a0 Some acute FImily followers may realize that we made some changes to our allocation over the last quarter.\u00a0 What did we do?<\/p>\n

            \n
            • I hope it’s obvious by now, but we moved some of our cash out of our checking and savings accounts to pay off our current mortgage and pay for a 20% down payment on our new place.\u00a0 This entailed shifting over some USD from our US checking account to CAD to our Canadian checking account.\u00a0 We did this during September where the USD\/CAD exchange rate hovered anywhere between 1.30-1.33.\u00a0 The house has definitely been our focus this quarter so there really haven’t been many other changes this quarter other than this.<\/li>\n
            • The small purchases we did make this quarter were into more international funds as we are trying to beef up that side of the equation a bit more.<\/li>\n<\/ul>\n

              Here\u2019s a chart with the breakdown:<\/p>\n

              <\/span><\/span><\/p>\n

              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:<\/p>\n

              \n
              • Funds within our US portfolio:\n
                \n
                • Vanguard Total Stock Market Index Fund Admiral Shares our (VTSAX)<\/a>,<\/li>\n
                • Vanguard Total Bond Market Index Fund Admirals Shares (VBTLX)<\/a>,<\/li>\n
                • Vanguard Target Retirement 2045 Fund (VTIVX)<\/a>,<\/li>\n<\/ul>\n<\/li>\n
                • Funds within our Canadian portfolio:\n
                  \n
                  • Vanguard US Total Market Index ETF (VUN)<\/a>,<\/li>\n
                  • Vangaurd Developed All Cap ex US Index ETF (VDU)<\/a><\/li>\n
                  • Vanguard Canadian Aggregate Bond Index (VAB)<\/a><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n

                    For my visual learners, the chart below depicts how heavy we are in US index funds.<\/p>\n

                    A large majority of our investments from stocks or bonds are in either US stock market index funds or US bond market index funds (a majority of the Vanguard Target 2045 fund is in US holdings). As planned, we are making some adjustments this year to get ~10-20% of our portfolio in international funds.\u00a0 Last update we were at 9.6% international and now we are at 10.2% international so I’m pretty happy here.<\/p>\n

                    I was thinking of adding more international exposure via purchases in our Canadian accounts (VIU\/XEF, VCN, VEE) but it may be easier \/ wiser to shift around some investments in our US accounts into VEA (developed markets) and VWO (emerging markets) and continue to dump Canadian investments into VUN. The reason being is the US likes to complicate things and add a US withholding tax to funds that are US wrapped outside of the US.\u00a0 This means extra fees.\u00a0 Rather than try to navigate these complicated rules\/quirks, I’m thinking it likely is easiest to invest in international funds solely within our US accounts by doing some rebalancing there if we decide to add more in the future.<\/p>\n

                    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.<\/p>\n

                    <\/span><\/span><\/p>\n

                    What About Currency?<\/h2>\n

                    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\u00a0previous post outlining our FIRE number<\/a>, we are using currency arbitrage to keep our safe withdrawal rate below 4%.<\/p>\n

                    As of this writing, 76% of our accounts are in USD and 24% are in CAD. If we converted all USD to CAD based on today\u2019s exchange rate of 1.33, we\u2019d be looking at a total of $1,120,000 CAD in our investment accounts.<\/p>\n

                    <\/span><\/span><\/h2>\n

                     <\/p>\n

                    Assuming $35,000 in annual expenses, this puts us at a 3.12% withdrawal rate.\u00a0 If we bumped up our expenses to $40,000 it would be a 3.57% withdrawal rate.<\/p>\n

                    We also have the Canadian Child Benefit (CCB) working in our favor which brings our withdrawal rate down to 2.14% at $35,000 annual spend and 2.59% at $40,000 annual spend.\u00a0 This assumes the CCB supplements our child-related costs while we have kid(s) in the house and then both our income & expenses drop when the kid(s) are out of the house and the associated CCB is gone.<\/p>\n

                    Where Do We Stand?<\/h2>\n

                    For those who have been following along, you know that\u00a0our FIRE number is $875,000<\/a>.<\/p>\n

                    So let\u2019s do some simple math:<\/p>\n

                    $875,000 \u2013 $579,613 = $295,387<\/p>\n

                    Last quarter, we surpassed our FIRE number<\/a> and now we are back on the climb.\u00a0 Of course, this is because we now have our money tied up in two properties.\u00a0 This is a short term “issue” with the idea that we can sell our townhouse in the $300,000 range in a year or two.\u00a0 Once that takes place, the new mortgage will be gone and we will be sitting in good shape.<\/p>\n

                    I\u2019m still very wary of these markets so it will be interesting to see what the remainder of the year has in store for us.\u00a0 Knowing that we are NOT withdrawing from our portfolio at this time and instead saving\/investing 50% of my part-time income<\/a>\u00a0is allowing me to sleep very well at night.<\/p>\n

                    Our Net Worth:<\/h2>\n

                    As for our total net worth, we would then add in the value of our illiquid assets like our home and cars. Our townhouse is valued at roughly $300,000, our new home is valued at around $400,000, and our two cars are valued at around $11,000.\u00a0 Of course, we will not know the true value of these illiquid assets until we actually sell them down the road.<\/p>\n

                    Adding these three figures into our net passive investments of $579,613 above gets us to a total net worth estimate of:<\/p>\n

                    $1,290,613<\/p>\n

                    That’s an overall increase in net worth of $55,968 from last quarter and I can tell you I make nothing close to that quarterly so compound interest and the market are helping to bump up that figure from last quarter.<\/p>\n

                    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\u2019s RESP, any CPP\/SS\/OAS\/GIS potentially coming our way in the future, and our future car fund so for the sake of this exercise we are not including them.<\/p>\n

                    Voila! This was a whacky quarter to report compared to previous ones but hopefully it made sense!\u00a0 Stay tuned to see how our net worth has changed in 3 months when we check back in on this.\u00a0 And as mentioned above, we will be digging more into our new home purchase soon too.<\/p>\n

                    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?\u00a0 If so, how often do you check in on your accounts? As always, thanks for tuning in and comment below\u00a0<\/p>\n

                    Support This Blog<\/h2>\n

                    If you liked this article and want more content like this, please support this blog by sharing it.\u00a0 Not only does it help spread the FIRE, but it lets me know what content you find beneficial.\u00a0 Writing is NOT my strong suit and it honestly takes me hours to write each post so the more encouragement the better!\u00a0 Engaging in the comments below keeps me motivated.\u00a0 You can also support this blog by subscribing to receive emails anytime a new post is published.\u00a0 Thank you FImily!<\/p>\n

                    We believe in stacking up life hacks to keep your enjoyment levels to the max without depleting your bank account.\u00a0 Here are some ways to further educate yourself and save thousands of dollars over your lifetime by making some simple adjustments:<\/p>\n

                    \n
                    • Investing Newbies: Check out our\u00a0free Investing 101 Series.<\/a><\/li>\n
                    • How much are you paying for your phone plan?\u00a0 Canadians,\u00a0learn more about Public Mobile, and see how we are paying $3\/mo for our cell phone plan<\/a>.<\/li>\n
                    • How much are you paying for internet?\u00a0 Canadians,\u00a0learn more about the various Independent Service Providers out there to see who services your area so you can lower your monthly bills<\/a>.<\/li>\n
                    • How much are you paying for home insurance?\u00a0 We were able to reduce our rates by 25% by switching over to Square One Insurance.\u00a0 If you live in BC, AB, SK, MB, and ON, check out Square One for your home insurance, landlord insurance, and\/or tenant insurance<\/a>.\u00a0 Use this link to receive an extra $15 off your quote.\u00a0 (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.)<\/li>\n
                    • How much are you paying for your monthly utility bills?\u00a0 See how you can likely save on this monthly expense<\/a>.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"

                      Well well well here we are with the market hitting some new all-time highs in September.\u00a0 The market has been a little rocky since reaching …<\/p>\n

                      Quarterly Net Worth Update: Q3 2020<\/span> Read More \u00bb<\/a><\/p>\n","protected":false},"author":2,"featured_media":3751,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"site-sidebar-layout":"default","site-content-layout":"default","ast-global-header-display":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","footnotes":""},"categories":[16],"tags":[],"yoast_head":"\n