Part 3 of my financial education, covering 2004 – 2020.
In early 2004, I decided to change course and shift most of my investments into low-fee index funds and exchange traded funds that followed the S&P 500 or other more specific indexes. Over the course of the year, I skinnied my portfolio down from 47 individual stocks to three. I still had 49 different funds but most of them became variants of low-fee index funds and exchange traded funds.
I decided to hedge my own bets a little by putting a chunk of dollars into George’s last ditch recommendation for a set of actively managed (but lower fee) funds. The collection of about 10 funds, bundled as the Cambridge Asset Allocation Platform (CAAP), would be my control group to see if I could do better than them over a period of years.
Another piece of my financial puzzle fell into place in late 2003 – early 2004 as we decided on getting a new home. It had made sense to pay off our Paddington mortgage in 2001, but I discovered that without the mortgage interest tax deduction I had to pay closer attention to quarterly tax filings and actually needed more cash on hand to make the payments. I also started facing a substantial semiannual property tax bill that I’d never really noticed before since it had been built into my mortgage. It made for an unexpected tax burden in 2002 and especially 2003. Until then, we’d always gotten tax refunds. I didn’t like actually having to make tax payments through the year, even if we had no actual debt.
As I dealt with the inconvenience of taxes, I started to consider how to cover our cash needs over the next 20 years or so until Barb and I could officially tap our retirement accounts. I began to think it would be a good time to take out a new mortgage and use the cash from selling Paddington as a savings/investment cushion for the future. I figured I would only need to make stock market returns greater than 4% annually to come out ahead. I decided that would be a good bet to take, but I wanted to reduce the down-side risk which was another reason I shifted to a passive, index-based approach.
In August 2005 I put together a spreadsheet that projected our needs to get to retirement which I guessed would be in 2023. I used annual growth rates of 8% for most of our stock investments and 6% for the more conservative accounts. I’m pretty pleased and somewhat amazed that — as of 2021 — it turned out to be pretty darn accurate, despite two financial crises and recoveries in the interim. I wasn’t necessarily confident it would all work out every step of the way, but I’m pleased to report that a long-term plan can indeed work out pretty close to projections.
Things went reasonably well for the first several years, even though I had virtually no income from my Planning Coach or Live in Howard County blogging career. We sold the Paddington house for even more than we thought we’d get, we were very comfortably living within our means, Allie’s education was taken care of, and Barb continued working and in fact progressed to the top level of Senior Executive Service within the government in 2008.
In 2007, I became concerned about the tax exposure Allie might face in case of our deaths so we undertook a full Estate Plan with local attorney Michael Davis, reputed to be one of the best in Howard County. We worked through a long (expensive) process and ended up with Trusts for Barb and me, along with a notebook full of updated wills and other legal documents. I didn’t do a very good job in subsequent months of understanding the Trusts nor of putting our assets into the Trusts. Fortunately, neither of us died during the years before we updated the Trusts in 2020.
Things started to turn over the course of 2008 as the 2007-2008 financial crisis that started in obscure subprime mortgages spread through Wall Street and global financial markets. I watched the Dow sink into bear territory (20% drop) by mid-2008 and it kept falling through the summer. The crisis hit very scary territory in September 2008 when the the entire global financial system seemed on the brink of collapse. Markets faced multiple crash days and were down a further 20% or more. The Dow kept falling until March 2009, 54% off its peak 17 months earlier.
My own holdings saw a commensurate slide and though I felt we were in decent shape with regard to cash on hand to ride out the storm, I began to worry about the long-term impact on our retirement. What if the markets didn’t recover or went further down? It became more important for me to have some income to cushion ourselves. I felt we “only” needed $3-4K per month to cover my nominal living expenses so I didn’t feel the need to return to a full-time job or career, and I wanted the independence to still look after Allie as needed.
I started looking into nonprofits in the Howard County vicinity and found a part-time spot with the Association for International Practical Training, or AIPT. That position didn’t pan out terribly well for me; after about six months working 30-hours per week in their office I shifted into a contractor position working part-time from home. Even that was short-lived as the organization contracted and my boss, Shara Darden, was let go. By summer 2009 it became time for me to consider some other income-generating alternative.
Inspired partly by President Obama’s call to national service, which he’d made as a campaign pledge in 2008 and legislation in 2009, I investigated the notion of volunteering for AmeriCorps. This very quickly connected me with FIRST, helping expand STEM opportunities through robotics competitions. My one-year term of service with AmeriCorps morphed into eight more years of robotics with FIRST and then STEMaction, the non-profit I founded. These positions never paid more than $3,000 per month but it was enough to keep us comfortable through the next decade.
To help confirm the status of my retirement plans, I started working with a USAA advisor, John Lander, to review our financial status. We did a full financial plan and retirement analysis in 2011 and a detailed review in 2016. These checkups gave me further confidence we were on sound footing with our long-term plans. I was pleased that USAA offered these services at no additional fee based on the assets we invested with them.
We got one further financial boost in 2014-2015 with distributions of assets from Mom and Dad’s estate. These cash payouts helped cushion the funds I needed for Allie’s education and my own living expenses for the years until I reached my retirement accounts.
Despite the severity of the 2007-2008 financial crisis, the markets actually did recover and started a long sustained run. The Dow crossed back into record territory in early 2013 and kept rising to near 30,000 in 2020, just before the short-lived (so far) COVID-19 crash. Since that 35% crash in March 2020, the Dow shot over 30,000 by the end of 2020.
By the end of 2012, eight years after I adopted the passive investing strategy, the CAAP accounts I was using as a control group had grown 15%. The S&P 500 index fund I chose at the same time grew nearly 30%. I felt vindicated in my strategy, and at that point started drawing down funds from the CAAP account until it was depleted in 2016.
The fateful year of 2020 became a time of reassessment, what with the coronavirus pandemic prompting thoughts of mortality and subsequent stock market crash prompting financial concerns. I connected with the attorneys at Davis, Agnor, Rapaport & Skalny to update our estate plans. Several months and a few thousand dollars later we had a new notebook of documents. This time I did a better job (I hope) of shifting assets into the single joint estate we established, the Fisher-Duncan Family Trust (sounds official, at least), though the effort is ongoing.
I’d gotten out of the habit of doing financial assessments with USAA but felt it was time to get a checkup. USAA happened to divest its investment services to Schwab in 2020, so my new financial advisor, Melissa Rupe, actually became a Schwab employee and we cut our teeth on some new Schwab planning tools. I was pleased that we scored as high as possible on the soundness of our retirement outlook. Melissa also helped guide me through the labyrinth of re-titling our accounts for the new trust and consolidating some other accounts into Schwab. I appreciated having a human being to talk me through these processes.
Such is the state of my affairs and financial education as of late 2020. I am very glad to have arrived at this point in my life (age 62) in financially sound shape and with seemingly solid prospects for a comfortable retirement. It’s really all I was aiming for. I think most of my financial affairs are in order though there’s still some work to be done getting everything titled into the Trust. Time will tell, and I look forward to the opportunity to provide updates as we go.