Note: I actually wrote this back in December to post in January, but there was never a suitable gap in the travelogue to put up something non-trip-related. However, now that the dreaded tax season is upon us, I figured: better late than never.
Once a year, I like to look back on the financial decisions I’ve made and think about any changes I anticipate making in the year ahead. I believe it’s a useful practice, taking stock of the past while looking towards the future. It forces me to be honest with myself, and it acts as a data point that I can look back on, charting my financial growth. Money accrues very slowly, and these yearly posts are a reminder to check the status and adjust the heading of a ship that I can barely see moving. I find most financial advice to be far too one-size-fits-all. Learning how to save is a progression and everyone exists at a different point on that line. This is my way of showing how I’m approaching a long term problem stepwise.
Of course I chose my blog as the venue to record these ruminations because I like that it outs an often taboo subject. People tend to keep money and decisions about money close to their chest. Part of that’s cultural (Americans tend to conflate self-worth with net-worth), but I think a big part of that is pride. Most people are pretty bad with money and afraid of exposing their ignorance. Maybe that’s because open, frank discussion about money is so rare?
All that said, last year I wrote about a change I made that I wasn’t completely forthcoming about (on purpose):
Why did I do this? So I could save for the trip that I’m currently on! I just couldn’t disclose that at the time. I wasn’t even sure if the trip would happen. But I knew I needed to bolster my cash savings (which were stagnating at “emergency fund” level) if it were to ever happen. By June of 2010 I also stopped contributing to my Roth 401(k) to turbocharge my trip savings before leaving my job in early August.
Having worked at Federated Media for 4 years meant that my initial grant of stock options had all vested. I’d exercised them periodically as they vested early on, but it had been over two years since I’d exercised any more. So I took a hit exercising the rest of them, and I’ll take another hit on my taxes (grrr AMT!). It’s all a bet that one day they might actually be worth something.
So at age 31 I find myself on a fixed income. Or as I said after our final paychecks: “Now we’re spenders.” Or as my parents jokingly call us: “Unemployed and homeless”. Luckily we planned for this. We have the savings to travel for a year or so, and we have some backup savings earmarked to help us transition out of our “early retirement”.
Looking forward, there are a few things on my plate for 2011. I’d like to roll the Roth 401(k) I had with FM over to the Roth IRA I have with Schwab. I’m assuming this is possible, and this year would be the best time to do it since I won’t have a full year’s salary (assuming I find a new job in 2011). I would also like to get away from using managed retirement target funds in my IRA and instead mirror the same index fund portfolio I have for my non-IRA investments (partly due to their lower expense ratio). And finally I’d like to update how I’ve allocated those assets based on something that resonated with me from the article, A Dying Banker’s Last Instructions:
Keep in mind that putting anything less than about half of your stock money in foreign securities is a bet in and of itself, given that American stocks’ share of the overall global equities market keeps falling.
Since mid-2008 I’ve had the money invested in three index funds at Schwab, representing an asset allocation of 60% large cap (based on the S&P 500), 20% international, 20% bonds. What I’d like to move to is: 40% large cap, 40% international, 20% bonds. With this I’ll continue to have the same 80/20 stocks/bonds split (a little more risk-tolerant than Scott Adams’ 70/30 rule), but I’ll increase my foreign exposure from a quarter of the money I have invested in stocks to a half. Let’s just hope the rest of the world doesn’t fall off the map (I’m looking at you, eurozone).