Our 2017 Q3 Personal Finance Checkup

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The third quarter of 2017 is now in the rear view mirror. This is a great time to perform a personal finance checkup. If you run a checkup too often, it tends to cause stress. If you don’t check often enough, you can easily drift from your goals. Quarterly is about right for most people to keep them “in the know” without creating anxiety.

Below are the metrics we regularly track and how we’re doing personally.

The easiest way to do a Personal Finance Check-up

Our 2017 Q3 Personal Finance Update

Net Worth

As we’ve mentioned numerous times, net worth is one of the top metrics to track. This is the true representation of wealth and progress toward your goals.

When you pay off debt, your net worth increases. If you adjust your savings to a higher percentage of income, that also increases your net worth. Earning more money can also create a bump in net worth – assuming you don’t increase your spending inline with the income change.

When you get to the point that you want to retire, your net worth and the balance of your investment accounts will be two key numbers to estimate your success. Don’t wait until retirement to start tracking though – get started on it now! It’s much easier to course-correct earlier in life than scramble to address an issue that’s right around the corner.

Here’s a chart of our net worth through the third quarter of 2017:

2017 Q3 Net Worth Chart

Looks crazy, right?? Before I explain that dip, here’s how we did…

From 7/1/17 to 9/30/17 our net worth increased 2.4%. That’s not a huge percent so it’s hard to see in the chart. But, that is indeed how the numbers work out.

2.4% doesn’t sound impressive, does it? It’s super-fantastic for us though. Since we’ve already achieved early-retirement our target net worth growth is basically anything positive.

Our investments grow, but at the same time we’re living off our investments. So a net change of zero would actually be fine. If that were the case every year we’d NEVER run out of money and would die with the same amount we have today.

That won’t be the case every year though. Some years we’ll spend more than our investments grow. In fact, there will be years that our investment balances fall. Years like 2017 where the market is up higher than normal help balance out the inevitable underperforming years.


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What’s With The Big DIP??

The big dip in net worth was caused by us moving money around in our investment accounts. We simplified our portfolio by moving accounts, and we rolled a SEP IRA into a main IRA account. Even doing a direct transfer, the money leaves one account before it shows up in the other. In fact, it can sometimes take weeks to show up in the new account.

That’s what happened with us. We still owned the stock so our net worth never really dropped, but our tracking tool couldn’t see the money since it didn’t show in either account. Once it showed up again, the numbers got back to normal.

 Our Investments Performance

2017 continues to be a great year for stock market investors. If you aren’t investing, you’re missing out. Why not talk to a financial planner to see if investing makes sense as part of your overall financial life plan?

3rd quarter 2017 investment performance:

2017 Q3 Investments Performance

“You Index” is how your personal investment have performed over the period selected (2017 Q3 in this image). Then you are also shown the S&P 500, Dow, Foreign Markets, and US Bond Market index performances.

An increase of 3.6% for Q3 is fantastic. We lagged the S&P 500 by a little bit, but that’s okay. In fact, it’s expected because earlier this year we added bonds to our portfolio.

By the way, in case you noticed: Yes, our investments increased 3.6% but our net worth only increased 2.4%. That’s because we’re of course spending money each month to live.

Year-to-date 2017 investment performance:

2017 YTD Investment Performance

Like I said, 2017 has been a great year for investors. Our investments are up 10.81% so far this year. That performance trails the S&P 500 by a couple percentage points, which is expected because of the bonds.

Someone still investing for a future retirement could consider skipping bonds and sticking with stocks – if their nerves can handle it. If retirement is still 10+ years away, that ~2% or so difference in returns will really add up. Make sure you understand your risk tolerance though and don’t just invest based on math. Emotions and anxiety are very real factors that need to be considered when making investment decisions.


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Investment Allocation

Our current investment portfolio mix looks like this:

2017 Investment Portfolio Mix

This is similar to the 3-fund portfolio mix mentioned in the 3 Simple DIY Investing Portfolios article from earlier. And in fact, we’re moving closer to that mix. That model allocated 40% to bonds so we’re obviously short. If we sell stocks to adjust the percentages we would have to pay taxes on the gains. To avoid a big tax hit we will make the adjustment slowly over the next couple of years.

Investment Fees

We’re huge fans of paying as little as necessary to maintain an intelligent investment portfolio. For some people that might mean DIY self-managed investing. For others it might mean a low-cost robo-advisor solution, or it could mean using a personal investment advisor. Whatever method you choose, just be sure to understand what you are getting, and what you are paying and why. Then make sure the value makes sense for your specific situation.

Here are the annual fees we are currently paying for our ETF portfolio:

2017 Investment Fees

Sometimes it can be hard to visualize all the fees associated with your funds. What makes it harder is that you hold funds in different percentages. Understanding the total expense across the entire portfolio can take some work (or at least a decent spreadsheet) to figure out manually.

Our .16% annual expenses are very low. Sure, as shown, it works out to a 2% different over a 50 year timeline. But you’ll have a hard time finding a much lower-costing portfolio. Even using a robo-investing solution and adding the .25% would put this portfolio well below the benchmark target.


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Your Investments: Yes, you’re already paying; what are you getting?


Retirement Planner Check-In

The last part of my quarterly check-in was to take a look at my retirement planner results.

If the market was doing worse than expected, our percentage chance of success would drop. Conversely a drastic better-than-expected result would help the chance of success. Of course over- or under-spending would also impact this.

It’s a good idea to check in with the retirement plan every once in a while. Nothing is guaranteed so we all need to be nimble in our planning. If we’re off-track we can make an adjustment. If we’re on-target we can hold steady.

2017 Q3 Retirement Planner Update

As you can see we’re still in good shape. We have a 90% chance our money will last until we reach age 101. Will we live that long? I have no idea. Both of my grandmothers lived to be 100, so better to plan on the higher end of the estimate.


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How much money do you need to retire?
How To Estimate Your Social Security Benefits For Retirement


In Closing

As a financial life planner I can help you clarify your dreams and priorities, then develop an actionable plan to achieve your goals. Having a financial plan for your life includes much more than just investing, but intelligent investing is definitely part of the solution. Reach out and let's talk about how I can help you achieve the life of your dreams.

 

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2 Comments

  1. Tom @ Dividends Diversify October 27, 2017 at 3:13 pm - Reply

    Performing a check up is key aspect for anyone wanting to build wealth or just manage their personal finances better. I certainly do them. I have different daily, monthly and semi annual checks that I perform. Many of the areas you look at are right on from my from perspective. Asset allocation, investment fees and net worth are all important. Being a dividend stock and income investor, I also focus a lot on how much in dividends my investments throw off. Tom

    • Brad Kingsley October 28, 2017 at 12:15 am - Reply

      One thing I wish Personal Capital handled cleaner is reporting on stock income. They seem to make updates regularly so hopefully they’ll improve that in the future. Thanks for sharing your thoughts!

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