It is my favorite time of the year to update spreadsheets, I started keeping a snapshot of each year end as a reminder of the process we’re making. I wish I had done this from the beginning, but here is our Net Worth progression since 2011, all of these figures are at year-end:
The acceleration from both progression in the career higher income and compound interest really shows through.
Now on to the update!
2017’s final year-end update is $1,519,000.
Q4 was a great quarter to top off a great overall year for the markets. The final quarter was likely fueled by the somewhat surprising passing of a tax package in the US. The S&P 500 Index had a 30% effective tax rate in 2016 and this is expected to drop to 21% or below under the recently passed legislation and equity prices reflected this increase. 2017 was actually a unicorn of a year in total, there wasn’t a single down month for the S&P 500.
Our portfolio will end up trailing the S&P 500s return by 3-4% for the year. The majority of our holdings are in index funds, but we do have a handful of individual stocks with low cost basis, REITs, and a bond allocation held inside Vanguard’s two flagship actively managed funds, the Wellington and Wellesley Income fund. Since we’ve essentially hit our FI number, we’re willing to accept a slightly lower return for lower volatility with the Bond/REIT allocation. I’ve been playing particularly close attention to Big ERN’s Equity Glidepath to attempt to reduce sequence of return risk over the first five to ten years of early retirement.
Our largest individual stock holding is Costco, which the markets had declared dead in June after Amazon purchased Whole Foods, but reality returned and Costco’s stock came roaring back in the 4th quarter. I was also happy we added the small cap/mid-cap index fund ETFs to our holdings (VO, VB, IJR, IJH), these funds moved up faster than the Total Stock Market Index in the second half of the year.
Breakdown by Account Type:
Regular Brokerage Account: 17%
Deferred Comp: 11%
Home Equity: 12%
Even though I stopped savings HSA receipts, the account is still well funded and we will keep contributing the maximum to this. The Other category jumped this year due prepaid taxes / escrow / income tax refund. I rushed to prepay our property taxes in 2018 (since we live in Texas, the majority of our tax burden is in property taxes), then the IRS released the ruling that it will not be deductible after I sent the check via overnight UPS while on vacation. There is also an escrow balance with our mortgage company we’ll receive once we cancel escrow and income taxes. The biggest surprise to me is we’re due an income tax refund, which is a far cry from the years we’ve paid an over-withholding penalty. Its better than the surprise of owing, but I’ll need to pay more attention to this in 2018.
It was a great savings quarter, we put away over $20,000 for the quarter without having any oversize expenses. I have not calculated the savings rate for the year, but I expect it will come in at around 50%. Our vacation travel was lower this year but we did incur over five figures in medical expenses by incurring our out of pocket maximum on our insurance plan plus incurring medical travel expenses that were not covered by insurance.
Year-end tax planning took focus as we added another small contribution to our Donor Advised Fund and prepaid our mortgage. We will be on the edge itemizing deductions going forward.
Our deferral percentage ratchets up in 2018 and I expect a rocky first few months transferring money around while everything shakes out (higher deferrals, FICA makes its annual reappearance, bonus/restricted stock season gives us one thing to look forward to in the winter, and then an unfortunately large tax refund. We’re also planning to take at least two vacation trips in early 2018 and may or may not save our points from travel hacking. It’ll all shake out for a nice increase in Q1, but it’s always lumpy.
Its also been interesting to examine the psychology of meeting a goal vs the excitement of setting the goal. We crossed that $1,500,000 mark this quarter. It felt about as underwhelming as the $1,000,000, we didn’t go out and celebrate with a bottle of Dom Perigon or a Rolex like I imagined in college. I always remember compounding interest saying “I will be a millionaire by 40”. Well, we crossed that at 33 jointly and are well on our way to doubling it before 40 if I were to work a few more years. Setting the goal may have more excitement than reaching the goal, especially since reaching the goal was received in many little bites.