Table of Contents
Hi RIP readers,
Welcome to the hardest-to-write quarterly financial (and personal) update so far.
It’s not been a great quarter from almost any point of view. But that’s what public accountability is for: to take responsibility and walk the shame walk anyway, with your shoulder straight.
It’s also the end-of-year update. 2019 review ended up being 16k words long, a kind of a small book.
I’ll do my best to keep 2020 Q4 review manageable.
…Nope, I’m at 7k words and more or less halfway thru my update!
I decided to split it in 3 parts. This is part 1, about the financial aspects. Part 2 will be a deep dive on my investments (with an associated Q&A: Part 2-BIS, and a mail exchange with Julianek: Part 2-TER), and Part 3 will be about personal and blog update.
Let’s get started.
Here’s “RIP Net Worth” Spreadsheet embedded. As you can see, 2021 (Net Worth and Expenses) Sheets are already there. The 2020 tabs, which are relevant for today update, are a bit far on the right of the lower tab navigation bar.
More about my spreadsheets here.
Total Net Worth on December 31th, 2020: 1.277M EUR (or 1.387M CHF, or 1.544M USD).
Net Worth Delta (Q4 2020): +29k EUR (or +41k CHF, or +82k USD).
“Haha RIP, I knew you were joking when you said you feel ashamed! I thought you lost 100k or something like that 🙂 ”
I’m not joking. I do feel ashamed and we’ll see why soon.
Currencies play a huge role in my Net Worth. I’ve almost sold all of my stocks in Q3 2020, and as you might have noticed, the market is recording new all-time high every other day.
“Ah ok, so it’s an Investment FOMO issue, right?”
Yes, but not only. More on this later, in the investment analysis section.
Bonds are bad, currency fluctuations when holding foreign bonds are bad, stocks performed amazingly… yeah you get it.
2020 Net Worth Delta: +107k EUR (or +118k CHF, or +232k USD).
It’s one of the worse Yearly NW Delta since coming to Switzerland 🙁
- 2020: +107k
- 2019: +317k (best one so far)
- 2018: +116k (and it’s been a crappy market year!)
- 2017: +183k
- 2016: +176k
- 2015: +133k (I wasn’t even investing yet!)
- 2014: +93k (almost “entry level” salary at Hooli)
- 2013: +83k (“entry level” salary at Hooli)
And this year 6 digits NW Delta is probably pumped up by a GOOGLEFINANCE glitch around new year’s evening. When I froze currency pairs the USD seemed to be up by something like 2%, kind of saving the otherwise “negative NW Delta month”, in both EUR and CHF.
But it was a glitch I guess. On Yahoo Finance there’s no spike around 31/12, and on the first trading day of 2021 (Monday January 4th) the USD triple sucked, more than usual, and my expected NW Delta for January 2021 is already negative, even including future salaries…
Which means the real (glitch free) NW delta for 2020 is probably below +100k.
“Yes, RIP, but what were the expectations? Which was your financial goal for 2020? If I remember correctly you were planning for the worse, i.e. no income… how did it go?”
Better than expected 🙂
Cash Flow – Income
You know how I track my cash flow (actually this is an income statement, not exactly matching cash flow), right? No? Go check my Spreadsheet series out 😉
Total estimated Net Income (after tax and Pillar 1 contribution) for 2020 Q4 is: 57.6k CHF.
Yes, I use CHF as reference currency for Income, and EUR as reference currency for NW. Don’t ask.
Estimated Net Income (after tax) by month:
- October: 17.6k CHF. Mr. 15.4k gross (before tax) salary, Mrs. 2.7k unemployment benefits (prolonged until February 2021 due to Covid), 1.9k Pillar 2 contributions (1.4k as extra interests from Hooli!), 1.1k USD dividends, and something extra as blog donations (thank you guys!) and Migros Blue coupons. Minus 3.5k expected taxes.
- November: 17.5k CHF. Mr. 13.5k gross salary, lower than the previous months because I’ve retroactively paid more Pillar 2 contributions into my new job pension plan. I’ve explained it here (and here in the MP Forum), 2.6k Mrs. unemployment benefits, 3.6k Pillar 2 contributions, 1.2k USD dividends, and a few blog donations. Minus 3.3k expected taxes.
- December: 22.6k CHF. Mr. 15.2k gross salary, Mr. 1.8k gross salary from Hooli (yeah, I don’t know why they paid me this extra amount, but I won’t complain!), Mrs. 2.8k unemployment benefits, 4.4k USD dividends (best dividend months on record!), 2k Pillar 2 contribution, 800 USD InteractiveBrokers referral fees (wow, amazing! But you guys are trading too much!), 300 EUR grandparents gifts to BabyRIP (I haven’t decided how to account for them yet), and… a single donation blog donation 🙁 . Minus 4.3k expected taxes.
Not a bad quarter after all. Of course I’m missing the huge stock vesting events (and bonus and thirteen monthly payments) at Hooli, but it doesn’t look like I can complain 🙂
Last 2 years quarterly net incomes:
- 2020 Q4: 57.6k
- 2020 Q3: 42.6k
- 2020 Q2: 33.1k
- 2020 Q1: 76.7k
- 2019 Q4: 79.1k
- 2019 Q3: 36.2k
- 2019 Q2: 65.6k
- 2019 Q1: 73.8k
Month by month breakdown since 2016:
2020 total estimated Net Income (after taxes): 208.4k CHF
Compared with previous years:
- 2020: 208.4k CHF
- 2019: 254.6k CHF
- 2018: 242.2k CHF
- 2017: 250.1k CHF (excluding wedding gifts – that compensated wedding expenses: 227.6k CHF)
- 2016: 191.2k CHF
Of course 2020 happened to be worse than the previous 3 Hooli years, but definitely not bad!
2021 will necessary be much worse. More on this later.
You can see a full income source breakdown in the Income sheet of my Net Worth Spreadsheet.
Incomes above are all converted in CHF, minus expected income tax, but without considering expected wealth tax… so the totals in the last row don’t match with what you see on the NW sheet. Live with that. Ok, maybe I need better accounting.
Anyway, few highlights for the year:
- Salary: I didn’t miss a single month of salary/unemployment. This is unexpected. I’ve been working 7 out of 12 months this year. This was also unexpected. I didn’t plan to take a new job only 5 months after having quit Hooli. But that’s how my 2020 unrolled, dominated by fear.
- Dividends: 14.3k CHF net (18113 USD + 389 EUR gross). Not enough to live off dividends, but still best year on record, with 2 months (June and December) above 3k gross 🙂
- Blog: RIP earned more than 1k this year! Woo woo!
Cash Flow – Expenses
Total Expenses in Q4: 21.0k CHF (6.5k in October, 6.8k in November, 7.7k in December).
It’s exactly 7k CHF per month.
Here‘s a link to our expenses sheet.
And here follows a visual comparison of the three months that compose Q4, compared with the average monthly expenses in 2020 (green bars):
An average 2020 quarter, with a couple of “cheap” months and a more expensive December.
Housing (rent, common charges, utilities, furniture) expenses have finally been under control.
We moved into our current apartment in December 2019. Average housing expenses in Q4 have been lower than 2020 average, mostly because we’re finally settled, with little relocation-related expenses remaining. Well, we still haven’t finished furnishing Baby’s room though.
Health expenses skyrocketed in December due to delayed bills for several hospital visits for Mrs. RIP.
Mrs. RIP had a miscarriage in late September, during her second month of pregnancy 🙁
First ultrasound showed two amniotic sacs, one of which with a heartbeat. The gynecologist told my wife to come back in two weeks to check if “it’s 1 or 2” (it was too early to tell). Expected delivery date: my 2021 Birthday (which is a week away from BabyRIP’s Birthday, in late April). We’ve fantasized for two weeks about having twins, 3 years after BabyRIP, and about end of April becoming a continuous family Birthday party. I was genuinely happy with the idea. Like my life value suddenly got multiplied by 3, even though that would have meant “Fuck You, FIRE”. That’s how life laughs at my plans, and I was ready to laugh back.
But life has always the last word.
Sadly, two weeks later, during the control visit, we discovered it was neither 1 nor 2. It was zero.
We both cried. I wasn’t even allowed to be physically present during the ultrasound, it’s been a very sad day.
I know, it’s not a huge deal. It’s actually pretty normal. We talked with so many friends after that, and discovered that more than half of the mothers we talked with had a miscarriage at one point in their life as well.
But it’s the twins hypothesis that I miss the most. Even though my life as I knew it would have been over for a decade, i.e. forever. We’ll try again, sure, we’re already trying. Maybe we’ll make it, or maybe not. But I see it very unlikely we’ll get a “twins” card again. And there’s not much time left (I’m almost 44, Mrs RIP 41.5) for having 2 more kids.
Anyway, the “expulsion” procedure turned out to be more complicated than normal. It required 5 or 6 visits to the hospital, and a final bill in the 3k CHF range. Insult added after the injury. Consumed the entire 2.5k deductible for Mrs. RIP, and landed into co-pay zone for the second year in a row.
We lowered Mrs. RIP’s health insurance deductible down to 300 CHF for 2021. I hope she won’t need it, but at least we won’t have to experience bills this size after an eventual bad news again.
The bills arrived very late in the year. After a few appetizer bills in October, the two main course ~1k+ bills arrived on November (paid on December 31st), and December (to be paid on January 31st, 2021). That’s what made our Health expenses look bad in December.
Since bills showed up months later (we received a 300 CHF co-pay 10% bill for BabyRIP’s June Covid Test in December, not paid yet!), and due to my accounting rule on medical bills, I will account for them on payment date. That means January 2021 will be polluted by 1k+ CHF medical expenses from 2020.
Before January even started, there were already 6288 CHF expenses on our calendar… I don’t see the light, guys 🙁
Groceries also went up in December. I thought that a weird Christmas, far from our families, would at least be “cheaper”. Nope! We hosted friends (in a Covid respectful way) on the 24th, 26th, and 31st December (while being hosted on the 25th), and we splurged a bit.
Transport expenses are pretty low. The 165 CHF spent in November was just a single entry: my Half-Fare Card mistakenly auto renewed. I forgot to cancel the auto-renewal a month before. It makes no sense to pay for it these days, where we’re not taking trains, and close to zero public transportation. 80% of transport expenses in October, and 100% of December ones are car sharing expenses with Mobility.
ZERO Travel for 3 months is unprecedented in my adult age… no wait, I didn’t have to go that far to find that between March and May 2020 I’ve also spent zero in travel. Guess why?
I classify Take-away food as Eating Out. We indulged in a couple of Kaimug boxes in November and December. October expenses still include “real restaurants with friends”, and few more things that reminded us of a normal life.
Baby expenses are projected to become the second largest expense entry in 2021, getting dangerously close to Housing. We’ve increased BabyRIP child care frequency from 2 to 3 times per week since October 2020. The bill increased from 924 to 1386 CHF/Month. Since January 2021 our KinderKrippe raised the rates: from 1386 to 1512 CHF/month. Expected 18k CHF “Baby” baseline in 2021…
Leisure: we indulged in few Amazon purchases (mostly books and boardgames).
Gifts: You know… it’s Christmas time…
Clothing: we enjoyed Zalando and its generous return policy. Given that Mrs. RIP has some problem with the Paradox of Choice, we had boxes around the house all the time. I think our return rate was somewhere around 90%… They must hate us 🙂
Anyway I also bought a couple of clothing pieces and I must admit I like online apparel shopping more than I thought. I’ve always classified it as “cold” and financially unsustainable (shipping all the time being inefficient). How can they keep prices low with such a high return rate and charging no shipping fees? Well, it turns out that saving on physical shops and clerks is a big deal, especially in Switzerland. I’ll surely buy apparel online more frequently.
I forgot to mention that the return procedure is straightforward, and costs nothing to the customer.
Of course a similar model is hard to replicate in other countries (cough cough… Italy… cough).
The high OtherExpenses November expense is Mrs. RIP Italian Passport renovation.
Total Yearly Expenses in 2020: 82k CHF.
It’s 6.8k CHF per month, on average.
We succeeded in keeping expenses below 7k per month, but it’s a Pyrrhic victory. If it wasn’t for Covid we’d surely be above 90k. More Travel, more Transport, more Baby (we got 1.5 months of child care fees reimbursed in March-April due to Covid)…
It’s a bloodbath, and it makes me feel very uncomfortable. Plus there’s 1k health expenses coming in January that should be attributed to 2020 as well.
I know 2021 will be our peak expenses year (BabyRIP’s child care will disappear in May-June 2022) and I’m so uncomfortably unprepared for it.
Yearly Expenses highlights
- Housing: 34.9k. It’s almost 3k per month! Holy crap.
- Health: 11.7k. For the second year in a row at least one of our 2500 CHF deductibles has been fully consumed (in 2019 we consumed both).
- Baby: 11.4k. Expected to fly between 18-20k in 2021.
- Groceries: 10k. This surprised me the most. It’s 835 CHF/Month. We used to lie between 500-600 CHF/Month, but in 2020 we ate out way less, I’ve been Working from home” most of the time (I miss Hooli free food!), and BabyRIP started eating like an adult. The raise in grocery spending makes sense.
- Travel: 4.2k. We’ve essentially enjoyed 2 days at the sea in July, and a week biking along the Deutsche Donau in August. How the hell did we manage to spend more than 4k, like during our entire 4 weeks Honeymoon in 2017?
- Leisure: 3.1k. Pandemic indulged Amazon, and Zalando shopping.
- Eating Out: 2.1k. Under control. And under lockdown…
- Transport: 1.4k. Americans say it’s one of the “big three” expenses. Not in our family.
- Gifts: 0.8k. In line with expectations.
- Fees: 0.75k. 230 CHF for tax declaration, 150 CHF for my last BrownHost RIP hosting fee, 250 CHF IB trading fees (I’ve been trading quite too much), and other peanuts.
- OtherExpenses: 0.25k. Mrs. RIP C Permit, Mrs. RIP Italian Passport, and peanuts.
Let’s take a look at the comparison with the previous two years:
Here a bit more “visual”. I’ve also added 2017, that required some extra work because 2017 expenses categorization was different:
As expected, Housing and Baby expenses exploded, Health and Groceries went up, Transport, Travel, and Eating Out went down (well, Travel is a weird beast), and the others stayed mostly flat.
That’s our life transitioning from DINK to UIWK, i.e. Unstable Income With Kids. Also before and after age 40… I spare you a lot of philosophical considerations 🙂
What about estimated taxes?
I’ve shown you how I handle and account for taxes in a previous post. Being a Swiss C Permit holder I have to pay taxes on my own, and the real tax amount will be finalized 2-3 years in the future. I know, it’s really annoying. In my 2021 Net Worth Sheet I have 5 tax years (2017-2021) open…
Anyway, my recent tax returns (my tax advisor’s best guess at taxes due) tell me that I’m getting pretty good at tax estimation.
I’m running the 2020 tax analysis below based on my tax estimation.
I expect to have to pay 38.8k of income taxes (“Federal” tax plus “Cantonal & City” tax), based on my estimated taxable income and average tax bracket. My model doesn’t take into account deductions, but it tries to best guess the final average tax bracket taking them into account.
For example, child care is tax deductible, and I haven’t accounted for that in particular. I reduced my expected average income tax rate from 20% in 2019 to 17% in 2020, because I quit Hooli and its large Total Compensation (in fact our estimated pre-tax income decreased from ~300k to ~250k).
Maybe I’ve been too optimistic, and it would compensate not having taken into account predictable tax deductions. It’s always better to be prepared for the worse and be surprised by reality than the opposite.
Starting in 2020 I’m modeling Wealth Tax separately from income tax. I expect 1.7k CHF of wealth tax, based on my 0.17% wealth tax bracket.
Luckily my wealth didn’t grow much this year 🙁
So my total expected tax bill for 2020 is 40.5k CHF.
My 2019 total tax bill, according to my 2019 tax declaration (so still a guess, but a better one than my spreadsheet formulas) should be 54.5k CHF. Am I being too optimistic in 2020? Well, 50k less taxable income, and probably more deductions (2 jackpot Pillar 3A contributions, a 12k Pillar 2 buy-in, 11k child care) should justify the 14k tax saving this year.
I’ve only paid 2 out of 3 suggested tax advances of ~14k during 2020, for a total of 28255 CHF. The advances were based on 2019 salary, and I knew I would have earned less this year. Plus only Cantonal&City tax can be paid in advance. Given that my historical split between Federal and Cantonal&City is 30/70, I can only advance 70% of my total expected income taxes (plus 100% of wealth tax, which is a Cantonal&City tax), which I expect to be ~30k CHF (70% of 40.5k, plus 1.7k wealth tax). I expect my advances to cover almost all my expected total Cantonal&City income and wealth tax.
I expect a final 2020 tax bill (real due taxes minus my advances) of ~12k CHF coming in… 2023?
Plus, my US domiciled ETFs distributed quite a lot of dividends, so my total 15% Withholding tax has been 2302 USD. I will file a DA-1 form to get this amount back. I’ve already filed a DA-1 in my 2019 tax return (which happened in September 2020), but I haven’t heard anything back yet. I’m acting optimistically here.
Cash Flow – Savings
Total Savings in Q4: 36.7k CHF (11.2k in October, 10.7k in November, 14.8k in December).
Saving Rate in Q4: 63.6% (63.3% in July, 61.2% in August, 65.7% in September).
Definitely not bad.
Compared to Hooli time, where income had ups an downs due to stocks and bonuses, the situation is now stable at ~60% Saving Rate.
Total Savings in 2020: 126.3k CHF. Good.
Saving Rate in 2020: 60.6%. Cool, we ended above 60% 🙂
Now, we saved 126.3k CHF, but our NW Delta (in CHF) has only been +117.6k. What does it mean?
It means that if I sold all our assets on January 1st 2020, and kept all cash at the bank (in CHF, assuming non-negative interest rate, or just ‘stash the money under the mattress), we’d be richer today. This would be normal for a heavily invested person after a market crash year, but I’m not heavily invested, and the S&P500 total return for 2020 has been 18.40%!
Plus, without the GOOGLEFINANCE currency glitch of Dec 31st I think we’d be at ~100k CHF savings, highlighting the wealth destruction even more 🙁
And I’ve been selling high and buying low with stocks this year!
Anyway, enjoy this Sankey Diagram of full 2020 CashFlow for the RIP Family 🙂
Even though the markets reached all time high last quarter, in the middle of a pandemic, in Q4 we’ve seen another rally that is impossible to try to understand. November in particular has seen double digits gain for all the indexes.
Meanwhile, my US bonds have been flat (but distributing 1.5-2.0% dividends), and the USD descended into darkness.
I gave up trying to understand the market at this point. In my opinion, nothing makes sense. Lending money (bonds) to entities full of debts earns you nothing. Holding cash brings negative interest rate. Stocks are priced on average 34x their 10 years average earnings, with growth stocks way above that. Tesla keeps climbing despite its fundamentals, Bitcoin breaks new records despite not being a thing.
If that’s not a bubble I don’t know what a bubble is.
But I agree that one should not “time the market” and if you invest for the long term you shouldn’t care about current prices because even Bob became millionaire!
I’ve learned few things:
- When governments are not caring about each other (no tariff war, no South Korea, no oil threats) the market flourishes.
- When risk-free rate drops to zero, yield hungry institutional and retail investors drop money on anything. Like Morgan Housel said: “When interest rates are zero stories about what the future could be are more important than what the present actually is“.
- Even if the real economy is destroyed, entire sectors cancelled, millions of people unemployed, and 90% of family owned businesses closed for good, the stock market can go up. The fundamentals of (and the sentiment around) few mega companies drive the index. In this case the stock market, instead of being ahead of the economy by reacting on future expectations, might fall behind by failing to anticipate a lack of demand from consumers who lost their jobs (and sooner or later will lose government support). Unless…
- Printing money and lowering interest rates is an easy short term solution that Politicians – short term people by the nature of their incentives – are exploiting everywhere. The mid-long term consequences of this apparently easy “Panacea” solution are yet to be understood. What’s next, cash bills with an expiration date?
Investments – Analysis, Actions, and Plans
This section exploded into a 5k words long rant, and it will be published as Part 2 in a few days 🙂
This section is deprecated, and will be discontinued in 2021 Financial Updates, but I’ll keep it in my spreadsheet since some of you found it useful.
The reason is that, as I said several times, these metrics are meaningless for us for several reasons, some objective, and some subjective:
- FIRE is Dead: “constant dollar” withdrawal method (the SWR, the 4% Rule) is popular for its simplicity, but it’s inefficient.
- My formula for the ideal (in Italy) FIRE model doesn’t take into account real expenses, but an estimation of the desired ones. Plus I don’t take into account taxes and future pension streams. I just pretended to model everything in the “pi” SWR.
- My formula for current (in Switzerland) FIRE model doesn’t take into account mandatory pension contributions, income tax on investments, maybe income tax on capital gains (if that will become my main/only income), wealth tax, future pension streams, future expected expenses.
- I don’t know (yet) if we’re going to stay in Switzerland or not.
We started 2020 just 3 years away from Swiss FIRE, we ended the year 126 months (10.5 years) away.
Slow NW growth, and increasing expenses.
Other Financial Facts
Mr. Pillar 2
It took almost 4 months to finalize my Pillar 2 contract with my current employer, but it’s finally done.
Right before I quit. The new Pillar 2 provider is the same one that was managing my Pillar 2 at Hooli. Friends and former colleagues told me that the provider announced a 3% interest rate on the extra mandatory portion, but I only got 1%. Apparently, since I moved my money “out” on October 1st, I only get the guaranteed 1%. This sucks, considering my money is still in the same place (same Pillar 2 provider). I called them, yelled at them, but they’re “respecting the contract”. I’ve left 6k on the table of future beneficiaries of the pension system (or as a bonus to pension salesman and lawyers).
I assume they’re going to announce a similar return on the new employer pension fund (it’s the same as Hooli), so I expect to get the 3% interest rate on the 3 months my money has officially been with the new pension fund. I don’t account for it on my spreadsheet, let’s see if I can get pleasantly surprised in early 2021 by the 2020 pension fund performance announcement.
In the meantime, I’ve also purchased 12k CHF additional Pillar 2 benefits (a Pillar 2 buy-in) to lower 2020 taxes.
Mrs. Vested Benefits Account moved from PostFinance to VIAC
My wife opened a VIAC account in December to put her small Pillar 2 (less than 4k) at work in the stock market.
Her money was previously being parked at PostFinance. PF doesn’t have a vested benefits foundations, they use Rendita as a service provider. Rendita sucks. She was paying 9 CHF per quarter, and getting a return in the 0.000something neighborhood.
Even though it’s peanuts, we wanted to experiment with modern VBA providers, mostly as a test drive for my larger Second Pillar, when time will come.
While the difference in performances between their 3A solutions is non negligible, the same is not true for VBAs. VIAC all-in fee (0-0.54%, proportionate to the percentage of stocks in the strategy) is pretty close to Valuepension fee (0.51%, including the 0.02% funds TERs).
VIAC forces us to invest only up to 80% of the fund in stocks for the mandatory Pillar 2 part, and we’re ok with that. Mrs.’s small Second Pillar is almost entirely mandatory.
But the main reason why we chose VIAC is to test it before I decide how to move my Second Pillar once I won’t have an employer.
I will write a post about VIAC for Vested Benefits Accounts, even maybe a Valuepension vs VIAC comparison (I plan to split my Second Pillar in 2 when I’ll quit my new job).
In the meantime, read this very good The Poor Swiss post about the topic.
All our Pillar 3A accounts moved from PostFinance to Finpension
Mrs. RIP deposited the maximum tax deductible amount of 6826 CHF into her Pillar 3A in October, then we both opened accounts with Finpension and moved our Pillar 3As there.
Sadly we missed November returns 🙁
I’ve covered it in a previous post, I won’t repeat myself here.
Many of you asked me a follow up to the post I’ve written about IB and Brexit.
I don’t have much to say. I’m still allowed to stay on IBUK. Apparently it’s not because I’m an accredited investor with them, but that’s because Swiss residents are not impacted by Brexit according to IB. Good for me, good for us Swiss residents.
I’m sorry for those of you who had been forced to move their account to the European branches of IB, and lost a larger investor protection and access to US domiciled ETFs.
I still think IB is the best option for most of you, given the large availability of products, low fees, and efficient currency handling.
Even though “it sucks”, mind that the protection of 20k-100k-250k only works for the cash portion of your portfolio – and you shouldn’t hold large cash positions on your brokerage account anyway – and that IE and LU domiciled funds are almost as good as the US domiciled ones.
Let’s explore my physical and mental health, my new job, my blog, my projects, my goals, my yearly theme and more.
This section will be published as Part 3 probably next week, stay tuned!
That’s all for today!