March (and February) 2019 Financial Update – 80% of something

Hi RIP friends,

I think I’ve missed last month update, and I guess I also promised a January “personal” update, while I only shared my financials. In other words, I’m not sharing personal things since the beginning of 2019. Part of it is intentional: I’m in a delicate moment in my career, my blog is becoming popular at Hooli, and my anonymity is almost gone. Anyway, a post on Personal Update (with Curiosity, Midlife
Crisis and Blog) will follow this one. 

I also promised a deep dive into my 2019 Net Worth document, which is becoming self deprecating thanks to time passing.

Let’s get started!

Here is the new Net Worth spreadsheet

---

Financial Metrics

Net Worth

February: 928.8k EUR (+27.4k) / 1.054M CHF (+27.7k) / 1.056M USD (+24.4k)

March: 960.0k EUR (+31.2k) / 1.073M CHF (+19.0k) / 1.079M USD (+22.4k)

Amazing months, all time high in each of my top 3 currencies. Monthly increments close to +30k EUR on average! That’s mainly driven by Market performances, since no major income event happened (just few stocks vested in March) and expenses have been regular on average (high in Feb, low in March).

I can actually see the Million EUR landmark not far from here. If markets just stay quiet, we’ll reach the double commas in EUR by end of June.

Curious: NW delta for the first 3 months of 2019 has been greater than the entire 2018 in both CHF and USD (close enough in EUR).

Income Streams

February: 17.6k CHF gross (expected 14.4k CHF net)

February is a flat month. No special major income event happened. But a lot of minor ones listed in “other income”.

February income breakdown:

• Salaries: 13,807 CHF gross. My base salary, Mrs RIP unemployment benefit. A regular month. 
• My Pension Pillar 2: 2,642 CHF gross. Again, standard.
• Other Income: 140 CHF + 836 EUR +100 USD (I know, it’s complicated).
  
  • PostFinance Bonus: 100 CHF. I suspect this is for investing in Pension75. They gave me 100 CHF last year as an incentive to invest in their funds. I wasn’t expecting another bonus, thanks. But I’m giving it all back to them in less than a couple of years, since they are charging me 5 CHF/Mo starting in March… I knew that new PF charging scheme was coming, but I though I was safe given we have more than 25k invested in their funds. I also called them twice last year to check that and they told me I was fine. But they’re charging me anyway because we have 3 “customer relationships” with them and only 2 are covered… Thinking about moving my money out, but it’s a huge hassle and there are close to zero completely free banking options in Switzerland. 
  • Migros Blue Coupon: 20CHF. I installed both the Coop and Migros apps and got crazy with digital coupons 😀
  • Coop Gift Card: 20 CHF. Similar to Migros, converted 2k Superpunkte to “money”. 
  • RIP Sr’s gift to BabyRIP: 800 EUR. RIP Sr (my father) is in love with his first and only granddaughter, and his way to show love is to give her money. Of course she can’t handle money right now (she’s 11 months) so we must handle it on her behalf. She would try to rip the bills off (yes, my father gave her the gifted amount in 50 EUR bills…) and try to eat the paper. Not a good use of a windfall. Btw, This is the second gift of this size we received for our daughter, and we don’t know how to interpret it. I’d like to open some sort of bank account / brokerage account to invest her money on her behalf and let decades of compounding do their work, but it’s extremely inefficient in Switzerland. You only get constraints for child accounts and not a single benefit. And my parents were more than ok with us handling BabyRIP’s money. So, for now, we’ll keep spreadsheeting things out.
  • Amazon refund: 36 EUR. This is a nice story worth telling 🙂 While in US last January, I purchased the boardgame that is rapidly becoming my all time favorite: Terraforming Mars. It’s an amazing boardgame, really. I’ve played it several times so far with theater friends, Mrs RIP, and a couple of our best friends (and wedding witnesses). Ok, let’s admit it, I’ve also played it ~10 times solo. Yes, it’s an amazing solitaire too, I’m loving it! It paid its price back 100 times so far in terms of fun and mental challenges! But that’s not all. The base game (yes, I also bought all four published expansions so far, and I’m waiting for the fifth one “Turmoil” with a hype that no Game of Thrones, Stranger Things and Black Mirror could keep up. Ok, Black Mirror’s hype is hard to match. Ok, this parenthesis is spawning life of its own, time to close it) came with some defects. What? Ok, recap without parenthesis: the base game came with some defects, i.e. 5 corporation cards were missing. Everything else was fine, just 5 missing cards. I contacted Amazon Support while back in Europe. I just wanted the 5 cards but they refunded me the base game. I got 36 EUR back. I didn’t repurchased the game though, I just found a solution and used white cards as replacement for the missing corporations and here we go. A free boardgame, that paid itself back 101 times! If you want to play it with me and you’re in “German Switzerland”… don’t hesitate, contact me 🙂
  • Blog income: 100 USD. Yeaaaah! This blog is making me rich! This is another InteractiveBrokers referral fee 🙂
• Expected income tax: -3,038 CHF. Based on my 22% effective expected tax rate.
• Expected lump sum tax on Pillar 2: -159 CHF. Based on my 6% lump sum tax assumption.

March: 25.2k CHF gross (expected 20.1k CHF net)

March is a bit more meaty thanks to dividends and some Hooli stocks vesting.

• Salaries: 14,007 CHF. Base salaries. A bit higher this month thanks to an extra working day (for Mrs RIP unemployment insurance) and a minor Hooli educational reimbursement (my Farnam Street learning community subscription). 
• Hooli Stocks: 6,727 USD gross. March is a minor vesting month. The real meat is coming in June: ~30k USD vesting.
• Pension Pillar 2: 2,642 CHF gross. Standard.
• Dividends: 1,920 USD gross. VOO, VYM, VYMI distributed dividends in March. IB withheld 15% of the amount on IRS behalf, i.e. 288 USD that I will get back when filing 2019 Taxes (March-September 2020). For now, I added a row to my net worth document named “Withholding Tax 2019”. Tax situation is getting complicated, 6 rows in my doc…  

• Expected income tax: -4,974 CHF. Based on my 22% effective expected tax rate.
• Expected lump sum tax on Pillar 2: -159 CHF. Based on my 6% lump sum tax assumption.

Btw, I added a new Income sheet to my NW spreadsheet, full of graphs. Enjoy!

Take a sample:

Expenses

February: 5856 CHF. 

It’s a lot, it’s much more than our historical average. February expenses amount have been almost identical to January. Not good, but we have a major excuse: Mrs RIP took a somewhat expensive class to U-turn her career, and that’s something we support as a family. We’re more than happy to spend money this way, on education and learning.

First, have a pie:

February Expenses Breakdown:

• Housing 1787 CHF: rent + condo fees 1385 CHF, cleaning 250 CHF (wait, how many weeks does February have?), TV&Internet 99 CHF, Serafe January Bill 30 CHF (Serafe is the new Billag), Mrs RIp phone bills 23 CHF (a Lycamobile top-up and a Vodafone Italy top up for the Italian phone). Pretty standard.
• Leisure 1711 CHF: That’s where Mrs RIP kind-of-expensive class is classified. Maybe I should add an entry for education, but it’s not something recurring. Total expenses for her Baby Massage course have been 1601 CHF. That includes actual tuition costs, 4 days Airbnb in Lugano, train tickets, Flixbus tickets for her parents who went there to help with BabyRIP, my tickets for the weekend (I went to Lugano to help my wife on Sunday, and because I was missing BabyRIP too much), a baby doll to be used for practice and to drive lessons. Yes, she wants to get back into childcare, building a portfolio of skills, starting with Baby Massage. she’s going to offer lessons/classes starting on May 2019 🙂 – Other leisure expenses have been around boardgames (10 CHF) and Mrs cash withdraw (100 CHF).
• Health 733 CHF: Mutuel insurance premiums 718 CHF, Mrs RIP medicines 15 CHF.
• Groceries 657 CHF: Shops breakdown: 232 CHF Migros, 213 CHF Italy (we went to Rome in February), 175 CHF Coop, 25 CHF Spar, 10 CHF Aldi, 2 CHF Denner.
• Transport 395 CHF: Mrs RIP halbtax 165 CHF, my monthly pass 87 CHF, some local trains to visit friends, some 6x local transport tickets for Mrs RIP (she doesn’t travel every day, we’re better off with her not buying a monthly pass these days), a couple of Uber trips (50 CHF).
• Fees 297 CHF: if you followed my ETF List series, in part one I mentioned how I moved money around selling IE domiciled ETFs and buying US domiciled ones. that generated 178 CHF IB fees, substantially more than usual. That’s not something I plan to do frequently though. Another 118 CHF fee went to my hosting platform for this blog, so it’s a blog expense. The experience was very bad, they didn’t send me any message and just sent my blog offline. I received an email AFTER the shutdown saying that I had a week to update my subscription, or else the domain will be claimed back by them. Horrible experience, In was in Rome and panicked. I paid soon the bill which was higher than my initial one. They lock you in with cheap initial offers, then they do this to you. That’s why I don’t recommend my hosting platform even though they have incredibly high referral fees – and that’s why you see their recommendations everywhere on the internet. No, I won’t even mention them here, sorry. I’m looking for alternatives.
• Baby 138 CHF: 4 mats as BabyRIP’s base for her ground (Montessori) bed and some toys. Very good.
• Eating Out 74 CHF: some bar and take away expense, no restaurants at all. Awesome!
• Gifts 45 CHF: essentially my Valentine’s Day gift for Mrs RIP and few other gifts for babies around.
• Travel 18 CHF: train tickets in Rome (we paid for the flights in January).
• Clothing 0 CHF: we have all we need 🙂

Of course without the Baby Massage course we would have spent a more regular 4.2-4.3k CHF, so I don’t consider February as a total disaster for our economy 🙂 Let’s just try to now have something unexpected each month…

March: 4311 CHF.

A very good month, finally. After 2 close-to-6k months we needed this one. It seems a pattern though, last year March was the cheapest month of the year with a below-4k performance!

First, another pie:

March Expenses Breakdown:

• Housing 1711 CHF: rent + condo fees 1385 CHF, cleaning 115 CHF, TV&Internet 99 CHF, Electricity (which is bimonthly, that’s why you didn’t see it in February) 60 CHF, Furniture 29 CHF, Mrs RIp phone bills 22 CHF. A good month, we saved on cleaning because we traveled and our lady was on vacation. Of course the flat has been a mess for a couple of weeks 😀
• Health 718 CHF: Just Mutuel insurance premiums 718 CHF. Sadly next month will be more expensive, we’ve bills scheduled for payment on mid and end of April.
• Groceries 581 CHF: Shops breakdown: 335 CHF Migros, 167 CHF Coop, 44 CHF Italy, 23 CHF Spar, 13 CHF Denner.
• Travel 535 CHF: ouch, didn’t realize this until I saw it here. We’ve purchased flight tickets for my Mother and my sister, which are coming here for Easter Holidays and 1st BabyRIP Birthday in April (402 CHF). My mother will probably insist to refund us, but I’m not going to accept the money. I kind of feel guilty for living so far, for the fact that they can only see their granddaughter once every few months. 133 CHF have been spent on a quick Mrs & Baby trip to Milan. Living closer, my in laws have more opportunities to meet our daughter compared to my parents.
• Baby 302 CHF: Ok, I told Mrs RIP that this month – finally – expenses have come down to a “normal” regime, and she said “awesome! Let’s celebrate! Let’s buy A LOT of gifts to BabyRIP!”. We spent ~150 CHF during the last few days of March, purchasing (mostly second hand) so many toys (“for the future” she said) that I have no idea where are we going to store them given our small flat! I kind of “gently asked” her to get rid of old toys and baby clothes we don’t need anymore. She’s reacting better than expected: she’ll try to sell unused baby items in the coming months. Not just toys though, we also bought few clothes for our daughter and a baby bike seat. We went biking together a couple of times already and it was amazing 🙂

• Transport 160 CHF: my monthly pass 85 CHF, some local trains for us & local transport tickets for Mrs RIP 51 CHF, a Mobility car-sharing usage 24 CHF.
• Leisure 145 CHF: Finally a normal month. Mrs cash withdraw (100 CHF), a SPA for me (26 CHF) and other minor expenses (19 CHF) connected to Mrs RIP’s Baby Massage activity.
• Eating Out 91 CHF: spring is coming, ice creams are coming, trips to bars and cafes are coming (in moderate quantity). No restaurants. Good.
• Gifts 53 CHF: few birthdays and few babies. Whenever Mrs RIP buys a toy for Baby, she buys another one for a friend’s son/daughter. “This is the right Christmas gift for XYZ’s daughter!“… “But we’re in March, my love!“… “but it was discounted 50%! And Christmas will come, sooner or later“. This is my life with a frugal-but-not-minimalist person 🙂 Because she’s frugal, trust me. She shopped like a crazy and finally found a bike helmet for BabyRIP for free! But her frugality comes with huge space and time costs attached though.
• Fees 15 CHF: 10 CHF two months of PostFinance monthly fee (unfair, I’m going to get my revenge sooner or later), 1 EUR Italian Bancoposta bank account fee, 4 CHF IB fees on forex and a trade (purchased some EIMI shares – Emerging Markets – more on this later).
• Clothing 0 CHF: as I said, we have all we need 🙂

As you can see, March has been an amazing month on almost every category, except those 500+ CHF of Travel expenses.

Jan-Feb-Mar 2019 Expense comparison:

Savings

February

Income: 14.4k CHF, expenses: 5.9k CHF –> savings: 8.6k CHF * (Saving Rate: 59.5%).

February income was “low” compared to the average, while expenses were higher than average. This results in a disappointing saving rate of ~60%. Still not bad.

NW grew by 27.4k EUR though, which is mainly due to Market performances and a weak EUR compared to the two other currencies.

* For the math picky: I know that 14.4 – 5.9 = 8.5 but rounding numbers works this way. Actual numbers are 14442 – 5856 = 8586.

Let’s put expenses and savings in perspective:

March

Income: 20.1k CHF, expenses: 4.3k CHF –> savings: 15.8k CHF (Saving Rate: 78.6%).

March income was higher than normal (take a look at the income sheet) and expenses lower than average. That meant we almost made to 80% saving rate outside of the big three months (June, December, January). Awesome!

NW grew by 31.2k EUR in March, which means the impact of market and a weak EUR is lower this month compared with February.

Another pie:

FI Metrics

As I said in January, FI metrics are becoming meaningless. I have no idea where we will be “retiring”, and every day we mentally move a bit further out of Italy. But also close, in a sense. As I said at the beginning of this post, I’m in a delicate moment of my life and career – and I’m essentially known more for my blog than for my engineering contribution at Hooli these days – so I can’t share more on this topic for now, sorry.

Anyway, in March we hit a round 80% of our target (Italian) FI Number! Something worth celebrating, I guess 🙂

But the target and the strategy are under deep revision, so… we achieved 80% of an imaginary and arbitrary goal that’s probably meaningless in every future scenarios.

Here’s a screenshot of our current FIRE metrics:

Financial Facts, more or less in chronological order

Awesome couple of months!

I’m essentially devoting 50% of my free time to study ETFs and stocks investments in general. I became addicted to A Wealth of Common Sense, The Irrelevant Investor (just discovered that Ben Carlson and Michael Batnick are colleagues at Ritholtz Wealth Management in New York, I would love to join a lunch break with them!), Collaborative Fund, Seeking Alpha and more.

What? Isn’t this the Curiosity paragraph? Oh, sorry 🙂

I’m trying to become an expert in this field, I don’t know yet why. And I’m doing it the wrong way, i.e. not following a formal education, but putting pieces of information together in a chaotic puzzle. I love behavioral economics, the psychology of investing, the history of markets and how to do a financial evaluation/analysis. Maybe I’ll try to step into value investing one day (to not confuse with dividend investing).

I started this journey from the desire to refactor my investments. I’m writing this new ETF List series, which I started as a collaborative effort with friends and colleagues but I’ve been sailing alone so far. Maybe the list is detouring away from original goals, maybe the list is becoming too big to be useful, maybe original goal (find best ETFs) is no more the final goal. I don’t know yet, and “il naufragar m’è dolce in questo mare“.

Writing the list is helping me refactor my portfolio, and is giving me insights about “maybe I should simplify it“. 

Anyway, let’s see what happened during February and March, and what are the plans for the future.

Financial Facts

The month started with few amazing market days and… I found 20 CHF on the street! After an internal fight I decided to not account for them as income 😀

During February I changed my US (not only) stocks tracking ETFs. I documented it in my ETF List Part 1 post, so I’m not going to repeat myself here. Go check that post out if you’re interested.

Made some (minor) changes in ideal asset allocation. This is changing all the time, I won’t report all individual changes here.

• I raised ideal cash to 50k EUR. I want more liquidity, but I’m not selling to get there. I’m just investing only 2.5k CHF per month, plus dividends and proceedings from Hooli stocks sales.
• Increased Emerging Market ideal exposure to 10% of stocks. Again, not accelerating to reach the ideal allocation.
• I lowered ideal REIT to 4%. I want to move REIT under stocks and allocate there maybe 5% of stocks, not 5% of my Net Worth. Btw, I created yet another sheet in my Net Worth spreadsheet named “Net Worth by Asset Class“, tracking my allocation since Jan 2016. Go check it out 🙂 Ok, have a sample here:

My philosophy is the following: I change my mind often, and change my AA often as well. I don’t rebalance immediately, I just wait and invest the monthly amount on the asset who needs more money. I don’t sell to rebalance, unless there’s a 50% drop somewhere and I want to “buy low”.

I had a deep confrontation with a close friend and colleague (and Terraforming Mars best enemy) about the importance of trade fees & buy/sell spread: he says they are irrelevant, I say I’ve rotated all my ETFs in last 3 years, paying 2x fees and spreads in 3 years, so not very irrelevant to me. He opted to stick with IE domiciled ETFs, while I’ve moved my money to US for US stocks. This is to say that once you got the basics right, think twice about micro optimizations. There are trade-offs, and it gets very personal.

At the end of February, the Yield battle took place between Big ERN (with 2 follow-ups) and Millennial Revolution. It’s been a nice time to be financially alive 🙂

Then March came.

I love the smell of Dividends in the morning

– Mr RIP

1st of March, PostFinance charged me with 5 CHF monthly fee. I explained before, so I won’t repeat myself here. 

With the monthly 2.5k CHF automatic transfer to Interactive Brokers, and some cash leftovers I had sitting there, I purchased EIMI shares (Emerging Market): purchased 97 shares at 27.31 USD per share (2649 USD). 

On March 10th I received yet another bad news on my Milan flat. I had accepted a promising offer back in… I don’t even remember, maybe it was October. By promising I mean “by someone who has a greater than zero chance to get a mortgage“. The offer was 70k EUR, much less than I paid for my flat in 2010 (105k EUR), but more than I account for in my Net Worth (61k in March, heading down). This potential buyer (a lady from South America) seemed to be mortgageworthy according to the realtor. After so many months, banks found that she has a 20k personal loan pending, which is enough to block her mortgage request. To afford the mortgage she should prolong her mortgage repayment plan, but she’s 50 and banks don’t want to give mortgages to people above 70, so she can only take a 20 years mortgage. Which means it’s another NO. I can’t get rid of my flat. I’m spending 1.3-1.5k EUR per year in taxes and condo fees for nothing. I’m considering the option to fix it (no more than 5k EUR renovation) and try to rent it out, which is very dangerous in Italy, especially in that neighborhood where I guess 50% of tenants don’t pay their rent. Really bad.

I also received tax payslips for 2019, to make advances. I decided to pay ~14k CHF of taxes, since my doc says I’m already ~18k CHF in debt for 2019.

This tax game is really annoying: I have 4 tax years still open. I didn’t receive the final 2016 tax report (weird), the final 2017 tax report (that’s ok since I filed my 2017 taxes last summer), I didn’t file my 2018 taxes yet, and 2019 tax year is entering its second quarter. I know it’s a peculiarity of my Canton, or maybe even just my municipality, because other Cantons don’t make you wait so long.

Q1 Dividend season opened on March 20th. VOO, VYM, VYMI and VB announced dividends (VB will pay it on April 2nd, so it’s not in this month’s cash flow). I already discussed dividends in the income section.

On March 31st, PostFinance charged 5 CHF fees again. I thought it was April’s fool fee but I discovered this was the February fee. The one charged at the beginning of the month was the January one. So I’ll probably be charged a couple of times in April too. This must not continue. Lesson learned: even after being reassured by two different representatives back in November, don’t trust their lies. They don’t know what they say. That’s true for every call center in the world.

Financial Future

As I said in my ETF List part 2 post, I see myself transitioning from a naive approach to investing to a better, more informed one. But my portfolio doesn’t really reflect that yet.

I’m tuning asset allocation at regional level, but I’m more or less replicating what a world fund has. So why don’t sell everything and only own a single ETF, like VT?

Maybe I just need a world ETF, or a World Excluding US plus a US ETF, but I live in Europe, so maybe I should expose more to Europe (I think country bias is acceptable) so maybe a “ad hoc” solution is ok.

I’m also exposed to high risk for no extra return by chasing High Yields in stocks (VYM, VYMI), bonds (WING, IEML) and REIT (IPRP). And I’m also exposed to small caps (more volatile) maybe more than I’d like to.

But I’m also playing risk averse toward growth and sold all shares of Tech ETF (XLKS) back in 2017, and never invested specifically in tech again.

So, I’m confused.

On one hand I like to think I can beat the market, on the other hand I know that I won’t. On a third hand (lol) I’m scared of a market dominated by complete passivity. So trying to be “smart beta” seems my natural defense.

Concrete actions taken or that I plan to take:

• I Raised ideal cash reserve to 50k EUR. This is the sum of “cash”, “taxes” and “others” on my Net Worth. I’m at 45k right now, but I have 10k sitting on my IB account that I’m going to invest soon. As I said several times: I’m not heading quickly toward my target AA, just tuning small “accelerators” to reach the goals smoothly. In that case, dropping the amount automatically sent to IB from 5k to 3k to (now) 2.5k CHF. A pile of cash should automatically, slowly accumulate on my checking account.
• I need to find a Money Market ETF to keep my cash reserve. Need to study this. I know Money Market accounts pay 2-3% in US (and that’s scary, because yield curve inverted recently), but I know nothing about it in Europe. Should I accept currency risks (exposing myself even more to USD) for a 2% return buying a US Money Market ETF, or a close to zero return in my closer currencies (EUR or CHF)? Need to study more.
• I want to reduce small cap exposure. And maybe just switch to a World Small cap ETF, but found none really worth. VSS only tracks “excluding US” small cap. I found a IE domiciled one from iShares, named WSML, but it’s inferior and expensive.
• I want Canada and Japan! So far I’m not investing in Canada and in Japan, 2 of the 23 developed countries available on this planet. What a shame! My homemade ETFs recipe is lacking a couple of ingredients. That’s another plus when considering the move toward a single world ETF like VT. Anyway, when refactoring my “pacific” exposure, I might buy an ETF that includes Japan instead of my current one (CSPXJ).
• I want Increase bonds allocation to 35% and find “normal” bonds, instead of chasing high yields. Enough said.
• I want to move REITs into stocks, give them 5% of stocks AA, reach 35%/65% bonds/stocks AA. 
• I want to invest monthly amounts into Mrs RIP Pillar 3. She’s no more subject to Pillar 2, so she can invest up to 20% of her salary into Pillar 3. I’d like to do it regularly, each month, on her behalf. I don’t know what happens if then she finds a job before December. Are we allowed to drop another 6.8k CHF if she invested 20% of her unemployment contribution into Pillar 3 during the year? I don’t know.
• Maybe open a VIAC account. VIAC is becoming more mature, I want to move out of PostFinance, 1% TER (PF Pension75) vs ~0.5 VIAC solutions can make a difference at our Pillar 3 combined size of 57k (should reach 70k by end of 2019).

That’s all for now 🙂