No, this isn’t an exercise in fuzzy math. In fact, most investors who are in the accumulation phase of their investing journey probably saw similar results. So, let’s see how this investor was able to grow his family’s net worth when Mr. Market dealt him a bad hand.
- Because I run a blog in the Investment genre, I publish our returns on a semi-annual basis. Our 2018 net return was about -3.5%. Mr. Market’s (aka the S&P 500) return was about -4.4%. We hold a very diversified portfolio of worldwide equity funds. To me, in a Market year like 2018, a -3.5% return is satisfying. I’d like to add here that we did not sell a single investment at a loss in 2018. Several of our investment funds were down far more than Mr. Market in 2018, but never once did we consider selling at a loss. This is valuable wisdom for all who want to build a nest egg to retire on. Invest in good index ETFs or mutual funds with good track records; hold them for a very long time; and continue to invest in them regularly, especially during the bad years. And do not sell at a loss! In fact, I will tell you this, our great-grandchildren will inherit our shares before we sell at a loss. You can do this too.
- I am a relief contractor employee in remote parts of Alaska. This means that I am periodically laid-off. Fortunately, I was able to stay employed for most of 2018. We invest approximately 15 to 20% of our family’s income. These slow but steady investments were responsible for about a 4% increase in our net worth. You can do this too.
- The entire state of Alaska is considered a high cost of living (HCL) area. Because of this, we live in an expensive house with an expensive mortgage. During 2018, $14k of our large house payments were used to pay down mortgage principle. Our home also increased in value by about $4k. Zillow shows that the increase in value was $62k, but I prefer to use the more conservative number that I find at USAA. These debt reductions and increases in real estate values were responsible for about a 2.2% increase in our net worth. You can do this too.
- I am a retired U.S. Military veteran. Those 22 years that I served came with a well-known pension package. Some people include pensions in their net worth statement, some don’t. The reason I do include this pension is because my purpose for growing our net worth is to provide income for when we no longer can. Those who do not count pensions do not count them because you cannot bequeath them to your heirs. But, like I said, we are building this nest egg for our use, not our heirs. Don’t worry, the heirs will get some of it; I am certain of that. In January 2019, there was an increase in this pension and one of our monthly allotments from it was terminated. This resulted in about a 7.5% increase in our net worth. Military folks, I recommend you calculate the value of your pension each time you decide to reenlist or re-up for another commission.
- I have been working for a union for about a year and a half now. My employer is contributing to a union pension as part of my compensation package. I won’t be vested in this pension for another 3.5 years; so, I am not yet counting this in our net worth. Union workers, calculate your total-pay-package when making career decisions (healthcare, pension, 401k, etc.).
- Murphy’s law was certainly present in our household in 2018. We cash-flowed a new-to-us car to replace an older vehicle. We sank over $3k into various vehicle repair bills. We cash-flowed several necessary home repairs. We also cash-flowed lots of co-pays for medical and dental expenses. I mention these, not because they increased our net worth, but because they did NOT prevent us from building our net worth. Folks, please hear me loud and clear, build yourself a robust emergency fund and stay out of debt. These 2 key principles are critical to your wealth building process. Several years ago, we decided to follow the Dave Ramsey get-out-of-debt plan and we paid off all our debts and built an emergency fund. Because of these 2 anchors, we were able to weather the blows that Mr. Murphy threw at us without going into debt or hindering our investment plan. You can do this too.
I know, it’s no fun to look at your retirement accounts and see there was a loss of any kind, but it happens. Take heart, this too shall pass. If Mr. Market simply goes back up to where it was just a few months ago, your retirement accounts will probably be up about 13% from where they are today. To build a nest egg that will support you when you get older, you only need to do a few things well. 1. Get out & stay of debt. 2. Build an emergency fund. 3. Get & stay employed or create a business that provides income. 4. Contribute regularly to your investments. 5. Don’t sell investments at a loss. 6. Be patient. This is how you grow your nest egg by 13.7%, while Mr. Market eats 3.5% of it.
Thanks for reading. If you enjoyed this article, please share it with a friend.
Respectfully yours, Micah McDonald, aka the Deep Value ETF Accumulator
Disclosure: I am not a professional investment advisor. Please perform your own due diligence or seek assistance from a Registered Investment Advisor or Certified Financial Planner prior to investing.