Looking back on 2018, I can’t help but to thank God for such an amazing year. So many incredible memories, travels, relationships, changes and experiences packed into the past 365 days. While I am certainly grateful for financial blessing, God has blessed me in so many greater ways. Psalm 69:30 - “I will praise the name of God with a song; I will magnify him with thanksgiving.” Thank You, Jesus :)
Now onto the 2018 stats:
Net investment loss: $154
After-tax savings rate: 47.4%
401(k) contribution: $18,500
I began the year still thinking that I could outperform the market using some of my own investing strategy. Welp, I was mostly wrong. I may still look to opportunistically enter certain positions, but being overweight the technology sector hurt my portfolio considerably. During the second half of 2018, I focused primarily on just earning a market neutral rate through total market ETFs and dividend ETFs, which also saw some significant losses. Despite eating some losses and exiting some losing tech positions, I’m actually pretty happy with my portfolio rebalancing. Total market ETFs and dividend ETFs now represent 75% of my portfolio, and I’m looking to continue pushing forward to maybe 90% (with the remaining 10% in either cash or bond positions that can be used opportunistically). Overall, my total portfolio has done surprisingly well, with a net loss of only $154, considering I entered many positions during the peak (summer) and have been mostly dollar cost averaging my way down since then. In actuality, the total investment losses would be several thousand dollars worse, but I have the added benefit of restricted stock units (RSUs) that vested net of tax, and employer 401(k) match. More on that later.
Looking forward to 2019, I will be in a stronger position by having more shares of mostly ITOT, PGX, and PFF, and continuing to earn dividends on those shares. Some people might be tentative or nervous about investing moving forward, given fears of an upcoming recession. However, I intend to continue buying using the same strategy as now, especially with the market as depressed as it has been in recent months. I have no real fear of “losing everything”, because the ETFs are well diversified and largely represent the entire US economy. Even in the event of full blown recession, I am fairly confident that the market will rebound and reach new highs in a matter of time. So I intend to remain mostly invested in equities, and will continue buying investments into 2019. However, for those who are further along in their careers or have intentions to retire in the relatively near future, it may be wise to have a more defensive stance with larger bond positions.
In my overall financial performance, I am proudest of my savings results. I certainly could have been a bit more frugal or wiser in some of my spending (especially on eating out and drinking boba/coffee), but I still managed an after-tax savings rate of 47.4% (which doesn’t include 401(k) contribution). This was possible for a few reasons:
1. Living below my means
I am not a true minimalist, but I do value a rather simple lifestyle. I don’t have much, and could comfortably fit everything I own in my $6,000 used car that I bought in 2016 with cash. I live with roommates even though I can afford to live on my own. My personal laptop is a late 2010 Macbook Air (still works!). This honestly isn’t meant as a boast, but simply to say that we really don’t need much. There are undoubtedly much more extreme examples of minimalism than this. Most people in the world don’t even have the option to live in the kind of extravagance that most of us do in the US, and I am grateful for the comforts that I have. Choosing to be a little more “uncomfortable” isn’t much of a sacrifice in my eyes, and the tradeoff in savings is worth it for me.
2. Setting goals
We often need some inspiration in order to accomplish anything. With saving, it’s not always enough to simply know that it’s a wise and prudent thing to do. There needs to be a greater purpose to strive for. Having specific goals has helped to motivate me and keep me on track in investing, especially as I prepare the funds necessary to potentially buy a house in late 2019 or 2020.
3. Not buying useless stuff
While this is strongly correlated to the first point, it’s still worth mentioning on its own: Do not buy stuff you don’t need. Do you need to upgrade your laptop or phone each time a new one comes out? Do you need to buy those new clothes when the stuff you currently have is just fine? Of course, don’t skimp out on things that are important to you. Even though some coffee and boba are ridiculously priced, I’ll buy it regardless. But do exercise self-control and prudence, particularly with the bigger ticket items.
First of all, employer match is a wonderful thing. If your employer offers to match a certain percentage or dollar limit, you should take advantage of it. Before any other investments, it would probably be best to take advantage of the full employer match if possible. It’s literally free money.
Next, if financially feasible, it’s good to contribute the maximum amount possible. It’s essentially an automatic savings plan. Even if you think Jesus will return before you retire, it’s good to contribute to your 401(k), especially since you can still use the money in case of emergency, or take out a loan against it. Plus, there are tax advantages. For tax purposes, I am a single adult working in California. By contributing the maximum amount, I am saving nearly $6,300 in tax. I will be taxed on it in retirement, but I highly doubt I’ll be taxed nearly 34% as I am now.
As for my 401(k) performance, I’ve opted to invest entirely in an S&P500 index fund. Again, this is based on my current timeline. I am still in my 20s, so I plan to continue investing primarily in equities for the foreseeable future.
Finally, remember that the maximum contribution is increasing by $500 to a total of $19,000 in 2019. Happy saving!
All things said, I’m thankful for how this year panned out. Not an easy year for investing, but the key is to remain disciplined and to stick with a strategy that will work in the long run. I’m excited for 2019, and anticipating a lot more changes both personally and in the market. Onward to 2019!