The other day I neglected to enter my bathroom with either my smartphone or the Tools of Titans. So there I was, on the bowl, with nothing to occupy my fertile mind.
In a desperate attempt to do something productive, I found myself looking at a part of my bathroom I rarely gazed upon—the bottom guide of the shower door where it met the wall opposite the toilet. A stopper of some sort was there and it was gummed up with lime stains and mucky hair. Not a pretty sight.
After I made a mental note to really hit the shower door hardware the next time I cleaned my bathroom, I got off the bowl and went to the sink to wash my hands. Then, when I was done washing my hands, I turned to my left to grab a hand towel and I noticed that the curvy part of the “R” hanging on the wall was covered with dust. Yes, at the time of my bathroom remodel I was binging on Fixer Upper and Joanna inspired me to adorn one of the walls with the word “RELAX.” The only problem was now every horizontal surface on every letter was covered with a healthy layer of dust. Yuck.
Crestfallen, I left my bathroom and made another mental note: make sure to dust all pictures and letters adorning my bathroom walls whenever I cleaned my bathroom. I then decided to go downstairs and inform Mrs. Groovy of my shocking discoveries. And as I was bounding down the stairs, I happened to glimpse at the transom window above our front door. Holy crap! The sun was at just the right angle to expose all the filth clinging to the transom window’s outside surface.
The Nooks and Crannies of Our Financial House
Mrs. Groovy and I are not messy people. We have a daily cleaning schedule that requires 30-45 minutes of modest effort from each of us. But clearly our daily cleaning schedule hasn’t been enough. It takes care of the obvious parts of our house, but it neglects the parts that we don’t look at or notice very often.
I’m telling you about our less than stellar cleaning regiment because I think it has a financial angle. Like a house, getting your financial house to the point of perpetual tidiness is rather easy. Any well-manicured ape can spend less than he earns, automate his retirement contributions, and invest in a low-cost target-date fund. Getting your financial house to the point of perpetual spotlessness, however, is an entirely different matter.
Mrs. Groovy and I have a very tidy financial house. And it’s been like that for over a decade now. But our financial house is far from spotless. There are still remote parts that need a good dusting.
Here, then, is a review of our financial home’s more important nooks and crannies.
1. Last Will and Testament
A will has one overriding purpose. It informs all interested parties how you want your estate to be disposed of after your demise. Neither your surviving relatives nor the state will have to divine your wishes. This legal document, providing it’s done right, will make everything clear.
Up until a couple of years ago, we ignored this financial nook and cranny. But as we approached retirement, and as the increasing feebleness of our bodies brought our inevitable mortality into stark relief, we made a point of getting a will. Yes, it was a bit of a pain. And, yes, it made us $1,200 poorer. But it was a financial nook and cranny that needed to be addressed. We’re happy. Our parents and siblings are happy. And the Fab Five, the beneficiaries of whatever wealth we leave behind, are very happy.
Status: No dust here.
2. Death Instruction Manual
I think my sister has a copy of our will. I think my brother-in-law has one too. And I think both of them have copies of our house keys. But here are two things I know they don’t have. They don’t have a comprehensive list of all our accounts and passwords. And they don’t have a death instruction manual explaining how to access those accounts and passwords and shut down every last vestige of our online existence.
A few years ago, I began writing our death instruction manual. That Word document is somewhere on my laptop. Do you think it’s time to revisit that financial nook and cranny?
Status: Lot of dust here. This is the messy garage of our financial house. One good weekend of toil and everything will be presentable.
3. Record Keeping
Appliance manuals, furniture receipts, insurance policies, tax records, Social Security statements, medical records, birth certificates, passports—the amount of paperwork that the typical American adult should have or needs to have handy is staggering. Mrs. Groovy and I have all the aforementioned paperwork and then some. And it’s all over the place in file cabinets, drawers, shelves, and boxes. This is one financial nook and cranny of ours that needs a serious going over.
Status: Beyond dusty. This is the bathroom drain of our financial house—there’s so much hair-laden sludge here I’m afraid to look.
4. Diversification and Asset Allocation Across All Investment Accounts
Back in 2012, our portfolio was a hot mess. We had cash, several individual stocks, and a dozen or so mutual funds spread across two workplace retirement accounts, two Roth IRAs, one brokerage account, one health savings account, one regular savings account, and one checking account. If you asked me back then what asset classes we were invested in, I wouldn’t have been able tell you. If you asked me how our portfolio was allocated between stocks and bonds, I wouldn’t have had a clue. I had only a faint understanding of diversification and asset allocation. And the notion that our eight financial accounts should work together as one cohesive unit was utterly alien to me.
Today, however, that’s all changed. We have three asset classes. A total stock market fund, a total bond market fund, and cash. Our current allocation is 35% stocks, 52% bonds, and 13% cash. Every one of our financial accounts is bounded by these constraints. Not one has an asset class beyond the three mentioned above. And not one distorts our desired asset allocation. All of our financial accounts act as one unit.
Status: No dust here.
5. Risk Tolerance
I like to fancy myself as a financial tough guy. But to tell the truth, I don’t know if I really am. Back during the Dot.com bust, Mrs. Groovy and I had nothing in the market. When the 2008 crash came, we had maybe $100K in the market and the mistaken notion that we were nearly two decades away from retirement. So it was easy for us to be cavalier during the last two market corrections. We had relatively little to lose.
But what about now? Our portfolio is substantial. And we like this retirement thingy. It’s great being able to do what we want when we want. The last thing we need right now is a stock market crash that obliterates our portfolio.
To protect our portfolio, and guard against the possibility of us ever having to return to cubicle hell, Mrs. Groovy and I are being overly defensive. Right now, our portfolio is 35% stocks and 65% bonds/cash. By the end of 2017, our portfolio will be 30% stocks and 70% bonds/cash.
Now suppose for a moment that the economy craters next year and the S&P 500 is down 50%. If that happens, because we only have modest exposure to stocks, our portfolio will take a 15% hit. That’s something we can handle. If fact, if such a doomsday scenario were to unfold, our game plan is to take advantage of the “blood in the streets” and bump our stock allocation up to 40 or 50%.
How about you? Take the stock percentage of your portfolio and halve it. That’s the percentage hit your portfolio will take during a 50% market correction. If your portfolio is 70% stocks, your portfolio’s value will shrink by 35%. One million dollars will become $650K. Can you handle that? If you can, great. If you can’t, and there’s a strong possibility that you’ll lock in your losses by selling stocks, reduce your stock exposure now. At a minimum drop your stock allocation by 10%. If you’re currently at 70%, go to 60%. If you’re at 60%, go to 50%. And if you really doubt your ability to maintain your composure during a monster correction—the Brexit baby correction had you reaching for the Xanax, after all—drop your stock allocation by at least 20%.
Remember: If Mike Tyson had been a financial guru rather than a boxing stud he would have famously quipped, “We’re all financial tough guys until we get punched in the face.” Few people really know how they’ll react when Wall Street “punches them in the face.” My advice is to assume that you’ll not react fearlessly. Err on the side of less stock exposure now.
Status: No dust here.
Okay, groovy freedomists, that’s all I got. What say you? Is your financial house tidy or spotless? And if it’s merely tidy, what are the nooks and crannies that need a good cleaning? Let me know when you get a chance. I’d love to hear how you’re doing.
Finally, I didn’t publish another episode of Talking Trash this past Friday because I ran into an unavoidable but welcomed production issue. JW from The Green Swan stopped by Crooked Creek Park and picked up litter with me. And we had a blast talking about blogging, residential solar power, the FIRE Prowess Score, and the financial romance between he and his wife Lucy. The only problem was that after taping the episode, JW and I went out for breakfast, and then when I got home, life got in the way, and I didn’t have time to upload the episode to YouTube. Sigh. No one ever said being a budding YouTube sensation was going to be easy. Anyway, the episode of Talking Trash that should have come out on Friday is now available. Enjoy.