A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.
But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
When we sold our condo last October, I invested 100% of the proceeds in Schwab’s S&P 500 index fund (SWPPX). It was pretty exhilarating to watch it climb in value practically every day, all the way through January 26th, at which point it had increased by 12.3% in only 3 short months. Since then, it’s been no less exhilarating to watch it drop precipitously in value, essentially retreating back from whence it came, in only 2 short weeks. This seemed like the perfect opportunity to contrast the volatility of value against the stability of ownership. Though the market has risen and fallen dramatically over the last 4 months, I still own the same number shares—in fact I actually own almost 2% more than I started with, because I reinvested the dividends and capital gains that were paid out in mid-December.
Percent Change of S&P 500 Index Fund Value vs. Shares
I’ve been writing these annual reports for 11 years, starting in 2006. But if you only looked at a graph of my investment contributions over the same time period, you might assume that I’ve only been really serious about saving during the last 4 years. And there might be some truth to that.
Investment contributions from income by account, 2006–2017
The trigger for the change, counterintuitive as it may seem, was Stephanie quitting her job in 2014. My reaction to this voluntary reduction of our collective income, coupled with an indeterminate timeline (at first we thought 8 months—but if Stephanie completes her graduate program as planned, it will end up being 8 years!), was to impose a savings-based austerity program on my income. I increased my 401(k) contributions, funded both of our Roth IRAs (through “the backdoor”), and invested “The Rest” (essentially an arbitrary round number that I pulled out of a hat) in my brokerage account—starting in 2014 and continuing every year since.
Wednesday – We left San Francisco at 6am—before sunrise—and arrived in Joshua Tree National Park at 5pm—after sunset. We had expected the trip to take 9 hours, but with stops along the way and some traffic, it took 11. So we didn’t hold out much hope for one of Cottonwood’s first-come, first-served campsites—and yet, several were unclaimed as we circled the campground in the dark. We settled on one (#A9) that we later discovered had wide, sweeping views of the desert valley to the south. Unlike several recent cold desert-Thanksgivings, (all of which were inspired by our first trip to Joshua Tree in 2008) the weather was in the 70s during the day and the 50s at night all week—we never put the fly on our tent. For dinner we grilled sausages over a wood fire.
The first time we discussed selling our condo with any seriousness was in the middle of our eleven hour flight from Paris to San Francisco. That was Friday, August 18th. I remember feeling nauseous the next day—as we reunited with our home of almost six years after several weeks away—questioning why we would choose to forsake its many comforts, not to mention the dining nook renovations we’d only recently completed. On Sunday, jetlagged and up before sunrise, I wrote down the pros and cons of selling, trying to make sense of my conflicting thoughts.
The list in favor was overwhelming. The tidied up version now appears self-evident; corralling so many disparate emotions to get to this point was anything but:
Liquidating the equity in our condo should give us the money to pay for Stephanie’s grad school tuition (circa 2019–2022).
Renting should reduce our cost-of-living in the interim, allowing us to further bolster our savings while also making it easier to relocate if Stephanie attends a school outside of San Francisco.
Both of the above greatly reduce our dependence on my single source of income, should that change in the interim, or as a result of relocating.
Having lived in our condo in the Mission for almost six years, we were getting a little bored; in retrospect, while all the reasons above were cold, calculated, and driven by economics, this one we feel on a day-to-day basis. It wasn’t until after we moved that we realized how much we needed a change of scenery and routine.
