It seems like a lifetime since my last post.
I had an Xfinity Mobile review post drafted, but it feels entirely trivial to blog about how to save $100/month on cell phone bills when the world seems to be ending. Alas, that post will be released at a future date.
The last few days have been pretty wild:
- We have a scary virus spreading among us.
- U.S. markets are down 9.65% today alone (VTSAX), which is the 5th largest daily drop in US stock market history (#1 was Black Monday in 1987 and the three others were during the great depression).
- Like most universities, they finally made the call to cancel in-class lectures today; all classes are now transitioning to online delivery.
- Most everyone I know has been asked to work from home when possible.
- Human-being facing firms are taking a beating (movie theaters, restaurants, airlines, hotels, etc) due to quarantining efforts.
- People are hoarding toilet paper from Costco so it’s sold out (as well as bottled water?).
- The uncertainty reminds me a lot of 2008. I’ve had colleagues discuss delaying retirement, which is exactly what I heard in 2008.
- Sports are cancelled. No NCAA tournament to keep us entertained while “social distancing.” The Olympics are surely doomed.
- Church is cancelled.
- It seems like our kids’ schools are still set to reopen (post-spring-break) in 4 days?
- It seems counterproductive to quarantine the adults yet let the kids lick each other’s snot.
- I understand that childcare and working parents is a complicated situation.
How’s everyone doing?
(Presumably) Like you, I don’t have much good news to report here from the eye of the storm. On blogs/forums I read of some people being elated at this “great buying opportunity.” Others purport that the media is overreacting. Overreaction or not, it seems that the economic implications of these “social distancing” measures are quite large. To me, I look around and see chaos and destruction.
Amidst this destruction, what’s my game plan?
- Continue to live far below our means.
- It’s amazing what deficiencies (like quarter-million investment losses) a high savings rate can overcome.
- Dollar cost average.
- Continue to dump the majority of my paycheck into investments every month (same as I’ve done for 15 years now).
- I may tax loss harvest.
- Rick Ferri, Boglehead and investing author, had some excellent advice on a recent post / Forbes article (link).
- Tax loss harvesting / Roth conversions could make a lot of sense for some people.
- Rick Ferri, Boglehead and investing author, had some excellent advice on a recent post / Forbes article (link).
- Try to remain employed.
Other thoughts:
- A matter of days ago the yield on a 30Y treasury bond dipped below 1%. Unbelievable. As of today, it’s back to 1.5%.
- Borrowing from the logic of Buffett’s recent CNBC interview, bond investors willing to invest at a 1.5% yield bond is equivalent to an investment opportunity with a P/E ratio of 67. From that (relative) perspective, stocks are cheap.
- In a low interest rate environment, which appears to becoming the new norm, focusing on investing fees (mutual fund + advising) is particularly important.
- In a world where stocks return 5% and inflation is 2%, the real return is 3%. If mutual fund + advising fees are 2%, this erodes 67% of the investor’s real return.
- The VIX, which measures the implied volatility of the market (also known as the fear index), is 75 at the time of this writing which is as high as it reached during the peak of the financial crisis of 2008 (link). Unreal.
- Here are some interesting Bogleheads threads. I never venture into the “investing” side of the forum (I prefer the “personal finance” side), but these past few weeks have been quite entertaining:
Addendum:
- Jonathan at MyMoneyBlog has a good post on the topic here.
- Mankiw writes here.
- I’m a fan of his last bullet point.
Unrelated comment:
- I accidentally erased my blog from the internet for a 24-hour period about a week ago. Sorry for the trauma (and weird RSS issues) that I may have caused you. Surely you lost as much sleep as me through the ordeal.
- My web hosting at Bluehost is up for renewal soon. A trusted tech-savvy friend recommended Namescheap, which seems like a good option. However, on a whim I signed up for a 60-day free trial for DigialOcean. At DigitalOcean, I installed WordPress on a Ubuntu VPS. After loading up a full backup of my blog on DigitialOcean, everything seemed to be going smoothly. I did performance tests and found DigitalOcean to be three times as fast as my current Bluehost + Cloudflare CDN setup. Given the success I was having, I tried porting my domain to DigitalOcean. Then all hell broke loose. I couldn’t log into the wp-admin panel at DigitalOcean. Then I sort-of completely deleted my Bluehost blog for a day. After a frantic IM chat with Bluehost, they walked me through the steps to restore the blog from my backup. Lesson learned: I’m way less technologically minded than I would like to be.
- If anyone has experience with DigitalOcean WordPress hosting, I’d be curious to learn about it. The price seems fantastic ($5/month). The performance was great. An appropriate answer to my question might be “Maintaining a VPS might not be suitable for people who accidentally delete their blogs.”
What advice do you have for me since none of the things you are planning to do apply to my situation?
Living below one’s means is always applicable. In this period of uncertainty, I think it’s quite appropriate to tighten the belt. Doing so will limit the effects of withdrawals following investment declines.
Tax loss harvesting should be applicable so long as you have a taxable brokerage account.
Roth conversions are always applicable if you have a traditional IRA / 401k.
The Ferri post / Forbes article is a good one. I’d reread it to ensure you understand each of the recommendations and how it pertains to your situation.
Our local university extended spring break for two weeks to give instructors time to move course content online “just in case” and students were told to bring all their learning materials home with them in case classes are cancelled. Necessity is the mother of invention, hopefully some good will come out of the forced creativity for instructors.
Some of my colleagues are worried that this is the “shock” where our profession is fundamentally changed to an online model. The concern is that in an online-model, concentration of instruction makes sense. For example, there is little room for a Khan Academy version 2.
I think the concerns are somewhat warranted but am unconvinced that students won’t crave physical interaction with their peers & university.
I guess time will tell who’s right…..
How are you early retiree’s handling this? Are you doing anything different (tax loss harvesting, roth conversions, etc)?
Working in healthcare is good job security right now- as long as I don’t die from the coronavirus… 🙂
I’ve been thinking the same thing Benjamin!
Do you think that these social distancing measures are appropriate or overkill? I know the point of them is to “flatten the curve” and not overwhelm the healthcare system, but I don’t fully understand how long these social distancing measures will have to be in place for us to succeed. Will a couple weeks suffice? If so, what’s to say that another outbreak occurs once we no longer practice social distancing?
On Digital Ocean, the reason why it’s cheap is because it’s a generic server they’re just putting out there for you. When something breaks, you won’t get any support. They do have “images” for WordPress hosting that get the server up. But if you don’t want to learn how to manage a Linux server, I don’t recommend this route.
On the other hand, it’s a frugal hobby to pick up if you do want to learn 🙂
Thanks for the feedback! I had a lot of fun playing around with DigitalOcean but I agree the lack of support is probably a deal-breaker. It’s too bad because the performance is incredible.
Been aggressively paying off my mortgage the last two years (3 months of payments to go) so I don’t personally feel too bad about the drop. Feel terrible for everyone else though, unbelievable how impactful this has been. Currently debating whether I should be content now with a paid off house (~$400k) or do a cash out refi since I’m in my mid 30s to lock in a low rate and take advantage of the market drop. Being conservative I probably won’t but the idea is appealing.
Congrats on paying off the mortgage early!
It’s a frequent source of discussion on the Bogleheads forum and the consensus is that zero people regret paying off their mortgage. Even during a bull market.
If I were you, I wouldn’t do the cash-out refi. It certainly is tempting though…..
I agree that there is a fair amount of chaos and destruction going on right now. But in terms of the economy, I keep wondering how much of this “social distancing” is just delaying spending, not cancelling it…..Once testing is much more widespread/abundant, affected people are identified, and better containment is put in place, the fear/panic that is in the air now will likely subside and I think the spending/economy may snap back very quickly.
I hope you’re right! I can certainly sympathize with your arguments.
Every $1 not spent on an iphone today is probably $1 that will be spent on an iphone a month or two from now. I’m unsure how this concept applies to services (restaurants, travel, etc), however.
I left my full time in November (and the Mrs. in mid-2017). We had a good five years in cash to weather storms like this. We did do some tax loss harvesting a few weeks ago and wil definitely do some more. I have some non-index mutual funds that I have had forever with some decent capital gains, so I have been using TLH over the years to slowly get out of that fund tax free. TLH from his current downward trend should finally get me completely out of that fund.
I did do some part time consulting work this year which will enable me to contribute to a Solo 401(k) and still contribute to IRAs. Initially was planning to find those toward the end of the year, but fast tracked our IRA contributions, and and going to try to get the Solo 401(k) set up sooner rather than later.
Will probably do Roth Conversions at the end of the year when we know what tax bracket we fall into.
We’re not making much income these days, so can’t dollar cost average into the market, but as early retirees there are still plenty of financial moves to keep us busy!
Glad to hear that you’re doing your best to “make lemonade out of lemons”. Sounds like some smart tax planning!