My Net Worth Split by Currencies

Hi RIP readers,

Last months my finances have been dominated by currencies fluctuations more than savings and/or investments earnings (and/or weddings!). I’ve always considered currencies fluctuations a minor factor (and I still do) in wealth management. A factor not worth taking into account, especially when talking about three of the most stable currencies around: the Euro, the U.S. Dollar and the Swiss Franc. They’re pretty solid, aren’t they? None of these will swing by more than 5% in a year compared to any other of them, am I right? We’re not in Zimbabwe!

Well, no. Currencies, even the most stable, have trends and drifts. They’re like giant turtles: they have smaller short term volatility compared to stocks and bonds, but they may go on a straight line for months and accumulate a substantial gap over years.

Before you start screaming: no, I’m not going to invest in Forex or other pure speculative assets anytime soon. Speculating over currencies is a pure bet and you shouldn’t do it for the following reason: while stocks and bonds are expected to grow in the long run, currency pairs are expected to stay neutral. Why? Well, you tell my why not! So you’re facing trade fees for a zero expected return. Even worse: professionals and more informed traders are playing with Forex trading better than you do. Guess who’s going to get the pluses in this zero (almost, due to trade fees) sum game?

So why do I care about currencies?

Diversification.

Yes, the wise investor mantra! Diversifying by currency is another way to avoid betting on a single horse, a way to edge yourself against high inflation in your main currency.

But RIP, being exposed to a single currency is how almost anyone live… Are we all crazy??

No, they are not. But it’s important to know that even though my grandpa is not investing, he actually is. He’s investing all in Euro currency: his pension, his flat and his savings. It’s an accepted risk, maybe. But it’s important to be aware and recognize you’re at risk. A small risk, if your main currency is the one used in the country where you live and where you plan to live for the rest of your life.

Anyway my situation is different – and I assume I’m not alone in this, given the high mobility of my generation: I was born in Italy, I’m living in Switzerland and I’m working for an American company (and planning to comeback to Italy). I need to play with three currencies!

Note: when I say “diversify by currency” I don’t mean the trading currency. I mean the currency of the underlying assets. For example, if you own a S&P 500 ETF traded in CHF it doesn’t mean you are exposed to CHF, you’re still exposed to USD which is the currency of the underlying assets. In case CHF halved compared to USD, you’r fund is going to instantly double its face value in CHF.

Ok, RIP, what are you going to do to edge yourself against currency fluctuations?

Well, I don’t know yet. First step is always awareness: I’ve added a new sheet to my NW spreadsheet to monitor my currency exposure across EUR, CHF and USD.

Second, I’m probably going to try to keep my exposure almost always balanced, eventually slight unbalanced in favor of EUR first, CHF second and USD third – that’s because I plan to retire in Italy. If plans will change, balance changes too. I’m not going to formalize this by adding some rules to my IPS, I’ll just drop an eye on it every once in a while.

Let’s take a look at our currency split over the last 5 years 🙂

Here are absolute values of assets in each currency.

To compare apples with apples everything is converted to EUR. It means the ~290k peak in the green CHF line in January 2016 is actually ~320k CHF (1 CHF = 0.903 EUR in January 2016).

What we can see is that last 5 years can be divided in 3 phases:

First, the “What are other currencies?” phase. From minus infinity to November 2012. Before moving out of Italy I only owned assets in Euro and everything was easy.

Second, the “Holy sheet let’s pile a huge amount of cash in this fancy currency!” phase. From November 2012 to January 2016. I’m so dumb. I’m sooooo dumb. I’ve been saving ~70% of my salary and watching the pile grow in my 0.1% saving account. So ridiculously dumb. Btw, the jump in January 2015 is due to unpegging CHF to EUR. I’m so dumb.

Let’s take a look at S&P500 between November 2012 and January 2016

Out of those 320k CHF, 200k were investable cash (the rest being Pension Pillars 2&3). I just ran the math to quantify my dumbness, i.e. how much it would have become if I had invested month by month during those 3 years. Drums roll… 242k tadaaaa. I left 42k CHF on the table by not investing for those 3 years. Second biggest financial mistake of my life!

Takeaway for you readers: invest as soon as possible.

I’ve always been financially illiterate and scared of market crashes. I just stashed cash, but to reach FI you have to invest your stash. You need your green army to go to work for you!

Third, the “Wait, let’s try to be smart” phase. From February 2016 on. Started investing, differentiated by asset class, markets, currencies…  Did a huge rebalance in November 2016 to expose myself more to EUR than CHF and USD. EUR is so predominant today due to currency fluctuations, maybe I’ll rebalance again in January 2018.

Here’s percent split of our NW:

and here an area chart because… why not?

Final thoughts: even if you’re living your single currency life, please take few minutes to consider whether it’s worth diversifying your assets by currency. This is not a game where passive play is safer than active. You’re always in the game, even if you’re not aware of it.

May-June-July 2017 Financial Update – Yet Another Wedding

Hi RIP voyeurs,

Yes, I’m still alive!

It’s been quite a long time since my last post but I’ve been very busy with organizing my Wedding, enjoying a month long Honeymoon and wrapping life up after such a big break. Blogging has obviously been postponed for a while.

Follow me over this three months financial update, but first listen to this: I don’t know if I’ll be back at an acceptable post frequency. You know why? I don’t have much to say these days. I’ve been wandering around Italy for a month and that has been terrific. We’ve visited a bunch of amazing places with only one thing in common: sheetty internet. I’ve been forced able to disconnect for a while and It’s not been easy. I don’t want to look like “I found time to stare at flowers and butterflies, and the world out there is an amazing place“, I already know that. Fact is that once returned back to normal life I started digging into my feed reader and my Youtube subscriptions to find that… all articles nowadays look the same. It’s the same article loop being repeated to the infinity. kill your debts, invest, save, earn more, 4534534 ways to save money while washing your dishes, 401 ways to improve your 401(k)… I unsubscribed from several feeds and committed to post only content that is originaluseful and personal – in the end this is a blog! It’s my way to track progresses and be “crowd accountable” on my goals.

Another rant.

I’m getting impatient.

Life’s been so amazing while far from work that I can’t really wait so long to build a better life. The FI-nal goal keeps being pushed far in the future due to more safety margins, lower SWR and the need to define a concrete retirement plan that demands answering questions like “where?”, “how?” and “how many people?”. Maybe current FU Number needs to be revisited and consequently the RE date.

Add to this that getting back to work after a month made everything so clear: what I accept as normal in my daily life, such as “spend most of my waking hours at work, then go back home tired to try to decompress”, is so ridiculously wrong. I felt like being the slave who escaped the Plato Cave. First week after the Honeymoon has been one of the worst of my professional life. Not because strange things happened, simply because nothing happened. My wife experienced similar feelings coming back to her job.

Anyway, we’re not going anywhere soon. We just hadn’t had time to sit down and do some self analysis after the storm. We plan to do that next week. Self assessment, goal setting, priorities and a plan.

Fact is that I’m questioning the importance of the final goal (but we all know that FIRE is not the final goal) versus a significant slow-down that improves our lives today.

But RIP, you did slow down! You’re working 80%!

Yes, but that’s not enough! Working 80% had been awesome so far, but it’s a change in degree not a change in kind. I still live in the same place and do the same things. 4 days working and 3 days weekend, which means 9-10 hours alone (on Friday, roughly 8.30am to 5.30pm) plus 2.5 days involved in social activities, is not enough. Needless to say that most of my Fridays went to “The Wedding Project”. Needless to say that it’s been impossible to stick to “wake up early” in last 2 months. Maybe working 60% would be a sensible increase in well being, but right now it’s not feasible. Working 60% would be a nice setup for afterFIRE life.

And it’s not vertical enough! During our Honeymoon I was dreaming about a 66% arrangement: working October to May (8 months) and taking 4 months (June, July, August and September) off, each year. That would be really awesome. 4 months each year to travel and enough freedom to devote contiguous blocks of time to personal projects. A dream. I don’t think my employer would like that proposal though. I would accept a 75% with 3 months off too. Yet another possible setup for afterFIRE life, seasonally hopping from one project/company to another.

Ok, long rantish introduction is over, let’s get back to the main dish!

Welcome back to my monthly update. As usual, the reference doc is my NW spreadsheet.

Overview

Thanks to Mr. USD and Mr. CHF nosedive it may seem not a great quarter, with a tree month NW Delta +11,942 EUR. Split by month is May: +6,142, June: +11,458 and July: -5658. Yes, in July our Net Worth measured in EUR went down by more than 5k. Bad investments? Not at all. Spent more than we earned? Nope, we saved almost 55% of our take-home pay.

“RIP, Are you kidding me?”

Nein! Welcome to the land of a multi-currency life! The fact that both CHF and USD dropped a lot compared to EUR combined with the fact that our NW is roughly equally split among EUR (ETF and an apartment), CHF (Pillar 2, 3 and cash) and USD (several ETFs) generated this funny situation where our NW measured in CHF (+52k) or USD (+74k) skyrocketed, but in EUR it sinked.

Truth is, I’m satisfied. A Wedding went by without leaving any dent in our finances. That’s actually ridiculous. I knew it’d be true, since Italians use to give money gifts, roughly paying back their share of the main cost (the restaurant/location) and giving something more. Add to that that close relatives like parents and grand parents – yes, I still have 2 living grand parents – use to give a lot, in the order of thousands of Euros. Essentially our absolutely-non-frugal Wedding went by costing almost zero to us. Not an excuse to indulge in luxury, someone is still paying for it (and your turn is split across a lifetime of other people’s weddings).

Major wins for May-July 2017:

  • Mr. Market still very generous, with Emerging and Pacific performing amazingly, along with Tech US (again!). Anyway, the free ride maybe over soon: CAPE is close to 30.
  • June huge Hooli vesting. Several stocks, roughly 20k USD gross, 12k USD net. June is an amazing month. December will be even richer, unless Hooli stock price dropped or I get fired before.
  • Bonus while at the beach. Don’t check work email they say. Unless you see a subject like “Congrats Mr RIP, here’s a bonus for you: 1000 CHF!“. It was related to a project we launched just before I went on vacation. Nice feeling 🙂
  • Zero Spending for 8 days in a row. Mrs RIP tool June off. She went to Italy on May 31st to babysit The Wedding Project in its final days. I joined her on Thursday June 8th evening. Despite money flowing away from us by the thousands those days, I went hardcore cheapass. I spent ZERO in those 8 days alone. Zero. I ate leftovers, I biked to work. I walked. I avoided any – ANY – expense. It felt great, although financially impactless.
  • Financially Neutral Wedding. Enough said. I won’t dig into details. Honeymoon (4.4k CHF) not included. Expensive Wedding covered by gifts plus an almost frugal Honeymoon on our shoulders.
  • Yet Another Rent Reduction. Referenzzinssatz (reference index) went down and we asked for a rent reduction. Got 28 CHF per month back, starting in October 2017. From 1443 CHF/Mo to 1415 CHF/Mo, including Condo Fees.

Losses of May-July 2017:

  • CHF and USD Nosedive. Both currencies are losing terrain respect EUR. USD lost 11% since the beginning of the year, while CHF lost 6.4%. Enough already said.
  • Too many expenses. Even if you remove the Wedding from the equation, our baseline is too high. Trending higher. We need to return on Earth asap and take control.
  • Indulged in new internet + tv contract with UPC Cablecom. After 4.5 years with the same contract and hardware, I decided to do some upgrades. Moar Internet (200Mbps), moar TV (10+ Italian Channels), bettah Hardware (Verizon HD Recorder vs old Mediabox). 115 CHF/Mo vs 64 CHF/Mo. Wait! Before you start screaming let me add that: (1) new offer include cabling costs of 38 CHF/Mo that I’m currently paying in my condo fees (so I expect them to drop by the same amount) and (2) Hooli is reimbursing 50% of my “internet fee”. Final math says I save some money with the new contract. I still feel somewhat guilty for this upgrade…
  • Mrs RIP took a sabbatical month for our Wedding plus the first week of July as paid vacation. No salary on June for her. It’s a financial loss even though it’s been amazing for her to stay ~40 days without working.

Other financial facts:

  • Heavy investment rebalance. I was hoarding cash for the mid-year investment rebalance. Sent roughly 30k CHF, 10k EUR and 15k USD to Interactive Brokers and rebalanced to meet my IPS. Purchased 30k EUR of Euro Stoxx600 ETF and 15k USD of Small Cap US ETF. Still 8k CHF are sitting on IB, for me to play the “let’s time the market!” game.
  • Finally closed UBS account in early May. Simplify, simplify.
  • Moved my Pillar 3a saving account from PF to UBS and opened a Pillar 3a for Mrs. RIP. Thrown there 6768 CHF for both of us, the maximum allowed. Our 2 Pillar 3a accounts sum up to more than 40k CHF. Still unsure if it’s worth investing the Pillar 3a with PostFinance Funds like Pension75.
  • Closed Mrs RIP Italian expensive bank account and moved her money into our shared EUR account within our PostFinance accounts. I’m keeping my Italian bank account mainly for easy cash access when in Italy and to not have to sell our 12k EUR, 5.5% yield Buoni Postali (CDs). Current setup for EUR expenses: cash withdraws either at Swiss PF ATMs with EUR PF Card or in Italy at Bancoposta ATMs. At shops, use my Italian ATM card. Online… we need to use a CHF card (Cumulus Mastercard) and accept currency conversion spread.

Other Facts:

  • We got Married, again 🙂 This time in Italy, with 130 guests and a church, a cake, rings, dresses and all the stuff. I didn’t expect it to be so extremely amazing. We had a perfect day, surrounded by all the friends and relatives we wanted with us on that special day. Totally worth all the effort (a lot of it) we put on it.

  • We spent a month on Honeymoon. We didn’t do anything very fancy according to standard Maldives/Seychelles honeymoons. We rode Mrs.RIP parents’ car across Italy for 4k Kms, heading south on the East coast (Marche, Abruzzo, Molise, Apulia) and coming back in the north along the West coast (Basilicata, Campania, Lazio, Tuscany). It’s been a relaxing month, spent on italian food, beaches and sea in June and early July when the crowds are not on vacation yet. Heaven!

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  • I just returned from a end of July 3 day hike with 3 friends: Pragelpass Weg. Just to remind myself how awesome is to be in the nature, with friends. 60km in 3 days with backpacks.

  • Blogged Zero in last three months. I still love writing and I want to do more of it. Now that life might ease a little bit I expect to be more active. By “blogged zero” I mean not even interacting with other bloggers, commenting other posts, twits, etc. I didn’t even log into FB for a couple of months (and found few messages I should have replied earlier, sorry friends!).

Numbers & Details

Total Income for the three months was 74,783 CHF (row 40). Income includes Wedding Gifts, salaries, stocks and a spot bonus.

Total Expenses for the three months were 36,265 CHF (row 41), without Wedding&Honeymoon 12,251 CHF (row 46).  More details on my expenses sheet.

Yes, I consider wedding gifts as income and wedding expenses as expenses. Not just for accounting cleanliness, but for long term planning and forecasting I’d like to not consider these one-off events. I’m also keeping track of income/expenses without Wedding/Honeymoon (rows 45 and 46). Expenses without wedding were below 4500 CHF per month.

Expenses highlights:

  • Wedding & Honeymoon. A_LOT CHF, totally worth it :).
  • Housing. More than 760 CHF taxes for the Italian apartment…
  • Utilities. Paid yearly 450 CHF tax on TV in May. Spent 70 CHF in roaming data in Italy during Honeymoon.
  • Groceries below average since we’ve not been at home for a while.
  • Leisure. Purchased Pandemic Legacy to play it with close friends. Mrs. RIP withdrew 500 CHF for her personal expenses. Classified as Other Leisure and accounted at withdraw time (she probably has still most of the 500 CHF in her wallet, but I don’t want and need to know).
  • Travel. 320 CHF for the three day hike on the Pragelpass.
  • Dinners out. Everyone wanted to meet us once we’ve returned to Switzerland, so we indulged a little bit with going out in July (close to 300 CHF spent).

Total savings are 38,518 CHF (row 42).

Saving rate for the three months is 51.5% (row 43), excluding Wedding 75.6% (row 47).

Saving rate for 2017 so far: 60.0% (cell Q43), excluding Wedding 75.3% (cell Q47).

Net worth is 643,444 EUR (cell K17), Delta is +11,942 EUR (row 18).

The progress bar changed from 57.01% to 58.09% , with a step of +1.08% (in three months) toward the big goal.

Forecast for 100% FIRE: 42 months left (+7 months), i.e. forecast Fire Date is January 1st 2021, (cell V10). That’s horrible 🙁 The goal is moving away from me faster than I’m moving toward it. It’s like space expansion caused by dark energy that makes galaxy clusters move away from each other at a faster than light speed… I dread to see what would happen to this very metric when market crashes.

Current Monthly allowance: 1,743 EUR (+33 EUR, cell V13).
Current Daily allowance: 57 EUR (cell V14). Food is paid forever from now on. We won’t starve!
Current Withdrawal Rate – Real:  11.06% (+2.19%, cell V16). A disaster. Current WR is driven by current last 12 months spending, and these include Wedding.
Current Withdrawal Rate – Ideal: 5.59% (-0.11%, cell V17).
Years of Ideal expenses accumulated: 17.9 (cell V20).

Next Steps & Other Updates

  • Thinking about moving to a bigger apartment. I know it seems totally anti-minimalist, but we had an opportunity we declined few weeks ago. Our current apartment is just fine for the two of us, and extremely cheap for where we live. We love it even though it lacks basic comforts like a dishwasher, a washing machine (it’s in the basement, shared with other 10 neighbors), an elevator (we live on the second floor, European second floor i.e. American third floor) and parking space. We’re ok with all the limitations for now. What if we had a baby?
  • Need to face the italian apartment now. It’s costing me. It’s not rented. It’s kind of abandoned. Time to take a decision, probably sell it with a loss. It’s not easy though. I need to go there to talk with agencies and get an evaluation and bla bla bla.

That’s all folks!