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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.
Final Thoughts
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.
I really enjoy reading your blog, especially the ones where you try to solve some of our government’s problems. I do the same thing!
Anyway, I am the oldest child and am the executor of my parents (divorced so two sets of wills), siblings and even agreed to care for some friend’s children if something were to happen to them. When I am asked to do this, I send them a love letter to fill out and return such as this one: http://hammernikassoc.com/wp-content/uploads/2016/04/Love-Letter-To-My-Family.pdf There are many others on the internet and this may be dated, but it is a great tool to fill out for your loved ones if you were gone. Also I made sure to fill this out myself-and update it every few years-for our executor so they know how to handle things when my husband and I are gone. It can be hard to bring this topic up to others, but it gives me peace of mind that I can accurately follow their wishes. Thank you!
Thank you, MJ. Your kind words really mean a lot. And your link isn’t to shabby either. A “love letter” is a great way to make sure your loved ones have an easy time of following your wishes.
Yeah, we’ve got a couple of dust bunnies in our financial life. Real dust bunnies? Hmm, I just got down from a ladder after noting that all of our door heads are thick with it! The funny thing is I’m probably more enthusiastic about cleaning those than making an appointment with a lawyer.
Unfortunately our wills need updating since baby #1 came along, but now that baby #2 is on the way I’m holding off to revise them since I want to add their name to it as well. Apparently it’s better to list children by name than just stating ‘all future children’ as you never know who might turn up on your doorstep. Well, I’d remember the 5 hours or so of labor, but I can’t speak for my other half. So it’s going to be a tense 4 months waiting to get on top of that one 😉
I’ve never heard of a Death Instruction Manual and I’m curious about it. One concern that comes to mind though is writing down all your passwords next to account details etc. Do you think that’s a security risk? Is there another way around it? Or is it more aimed at email accounts and the like?
Hey, Eliza. I hear you about making that appointment with a lawyer. Mrs. Groovy and I put it off for five years–and we didn’t have new arrivals complicating the picture. And excellent point about passwords. We have a password manager saved to a thumb drive. All our family would need is the password to that manager and they’d be set. So our death manual will include the thumb drive and the password. Thanks for stopping by, Eliza. I really appreciate it. And best of luck with baby #2.
P.S. You got a wonderful website. I loved your Money Mindset section.
Awww thank you for the kind words! I really appreciate it. A password manager is another of my dust bunnies and I’ve always wondered what would happen with my online life when I’m no longer around, so yours is a very elegant solution. Thank you. Now I just have to get dusting 🙂
It sur looks that some dust cleaning is needed on our house as well.
Giving it the right priority is difficult.
Agreed, AT. We talked about doing our Wills for about five years before we actually got it done. To procrastinate is human. Thanks for stopping by, my friend. And good luck with your dusting.
Thanks, Mr. G, you’ve reminded me how much dusting I need to do. 🙂
I was so glad to see there was a talking trash episode after all! Bonus that you had JW.
Hey, Amy. Yeah, I got thrown off schedule a little bit. My goal is to continue with one episode a week. At some point, I’d like to bump it up to two. Good luck with the dusting. Just sneak one more item on John’s honey-do list every now and then. Haha. I’m sure he won’t notice.
We’ve got most of that in order, even the death manual. Ours not only covers finance and impersonal stuff like that, but also the sentimental things. For me that would be the dulcimer my grandma had made for my grandpa’s b-day gift, his ’47 Gibson guitar, and a banjo that has sentimentality to me becase of how I got it with my dad. We tried to cover that stuff too since the kids aren’t old enough – or weren’t at the time to know hear any of those stories or remember them or care, lol.
Just something to think about if you have sentimental things and other people may or may not know about them. In case you don’t want them just trashed or donated. 🙂
Very cool, Mr. SSC. Including sentimental things in one’s death package/manual is a wonderful idea. Mrs. G and I are also kicking around the idea of including a death video or two. Thanks for stopping by, my friend. I love the way your mind works.
Great. Our actual house is a disaster with the five kids and me back to work. But we also need to work on our financial house too?!?
At least we’ve made some progress on tidying up our finances over the past couple of years. We just need to take one thing at a time and pace ourselves. Thanks for the road map to get us going 🙂
Haha! I think you get a well-deserved dispensation for having five kids. Laundry must be so much fun. But you got the right attitude. “One thing at a time and pace [yourselves],” is the way to go. Thanks for stopping by, Harmony. You’re one of my heroes.
We’ve updated our Will right away with the birth of our second son which I give myself kudos for! However, I still haven’t had those dang things signed yet…yikes. Thanks for the reminder to get on top of things again.
I love the new Talking Trash episode…best one yet and a much better guest (me…) than your prior one with Fritz from Retirement Manifesto… 🙂
You’re the best, JW. And thank you once again for helping me pick up trash. The only problem I had is that I couldn’t add the final track of our trash talking because YouTube’s video editor wouldn’t allow my combined video to be more than 15 minutes. Meh. I downloaded an open source video editor last night and will get your complete guest picker appearance out this weekend. Sorry for the mishap. Have a great weekend, my friend. And give Lucy my regards. Cheers.
Wow – when we were getting ready to sell our house, it felt like crud was growing everywhere! I’m so glad we sold it and didn’t have to keep it “white glove clean” day after day for showings! We are aligned with you on #1 and 3 (good and bad!) Wills, etc. in order but the receipts/paperwork for this year is stuffed in a box…waiting for a quiet, fall – rainy day. It’ll come so I’m not stressing it – yet! Hoping we get to talk trash with you someday too 🙂
I know the feeling well. It’s amazing how much crud builds up in a house. I was doing a plank the other day in my bedroom, and when I turned my head to the right and peered under my bed, I noticed that all the bottoms of the legs to my bed were covered with dust. It never ends! And when we move next year, I’m sure I’ll run across even more crud. No one ever said homeownership was going to be easy. Thanks for stopping by, Vicki. And, yes, one day, whether in Western New York, Florida, or North Carolina, we will be picking up trash together. I can’t wait. Cheers.
Loved this post. I think the reason our financial nooks and crannies are stuffed with dust bunnies and other random crap is “cognitive tunnelling”. I just read about this concept from Eliza over at Money Meet Mind. After 7 months of procrastination I’ve finally decided to start tidying our life insurance situation only to discover that while I’ve kept every single monthly renewal notice for over a decade, I can’t find the darn policy itself! You know, the only piece of paper that’s actually important. Sigh.
That’s too funny. All receipts and no policy. I’ve been there too, Mrs. ETT. Thank you for sharing. And thank you for the link on “cognitive tunnelling.” I just post Eliza’s post on today’s reading list.
Great post, however as a fellow compulsive perfectionist who then turns procrastinator, I have to note that you said ” vertical surface” when you meant “horizontal” 🙂
One minor item I never keep track of is the rewards points on cards. I fail to use them and also fail to remember which card to use for what category of purchase to get max points in a given month.
Cheers,
Frank from http://www.FiClub.org
I love it, Frank. Great catch on “vertical.” Oddly enough, in the sentence’s original construction, I did have horizontal in there. But that sentence was very clunky, and when Mrs. Groovy and I worked on revising it, somehow horizontal was replaced with vertical. Damn, no one ever said blogging was going to be easy. Thanks for stopping by, Frank. And thanks for reminding me about award points. I’m very lax in that regard as well.
Our Financial House is spidy – somewhere between spotless and tidy.
Our investments are well-diversified and our allocations are aligned to our risk tolerance, but we’ll probably tweak one last time before we take the leap.
We have digitized the majority of our important documents; just need to be sure that they’re well-organized.
We have wills and need to review/update.
Our one hairball is the Death Instruction Manual. We don’t have one and it’s definitely a great kindness to leave your grieving family with this important information.
Thanks for the great post – love the house cleaning imagery!
Hey, Mrs. G. I love that description–spidy. Very clever. And I love the idea of digitizing your important documents. Commenter Miguel mentioned that as well. It seems to me that digitized documents would be a lot easier to maintain and transport. I think that’s the route I have to travel. Thanks for stopping by, Mrs. G. It’s always great hearing from people who are just a few small steps away from having a spotless financial house. Cheers.
Wow. 70% bonds is heavy. Is this more of a “because we don’t need any better return than that” decision for you? And/or do you use Monte Carlo or other simulators to determine the best mix for the highest chance of drawdown success?
Not judging. Genuinely curious.
We’re going through the exercise ourselves right now. We’ve been 100% stocks for the past 25+ years. But now the sequence-of-returns risk (since we’re early retired) has become more of a concern and lending credibility to a portion of our portfolio in bonds.
Hey, Brad. Good questions. We’re very lucky. I have a mini pension that brings in $20K annually. Our annual expenses are around $36K. And that includes $5-6K for vacations. So if we drawdown a mere $20K from our portfolio, we’re able to live large. To date, even though our portfolio is 35% equities and 65% bonds/cash, our portfolio is up around $80K. Right now we’re not being penalized by being overweighted in bonds. And we know that inflation can ravage a portfolio over time. Our goal then is to gradually increase our equity exposure over time until we get to a 60/40 allocation. We’re thinking about increasing our equity allocation 2% starting next year. But if we come across another 2008-like correction, we’ll bump up our equity exposure right away, either to 50/50 or 60/40. So that’s the game plan. Be overly cautious during the first five years of retirement. Gradually increase our equity exposure. And really take advantage of a major stock market correction if one materializes in the next couple of years. Thanks for stopping by, Brad. I really appreciated your questions. They made me think.
Yep, my financial house (and my actual house) need some tidying. We’re especially delinquent on #2 and #3. We know we need to get them done, but they never seem to make it to the top of the to-do list. Posts like this help to remind us that we can’t postpone them forever.
I hear ya, Gary. Numbers 2 and 3 have been haunting us for a while as well. For me, I think these are chores I have to attack in the morning. Perhaps I’ll add them to my miracle morning. Once the day unfolds, I’m either busy with something else or too mentally fatigued to bother with them. Sigh.
Funny that you mention it, since just this past weekend, Team Waffles was discussing “The Manual” where Mr. Wow has compiled all our information. Alas, he can’t remember where he put it, thus there is significant dust on that. Always important to keep an eye on the nooks and crannies.
Loved all the trash talk! Keep up the good work!
Haha! Been there and done that. Don’t be too hard on Mr. WOW. Guys are great starters and horrible finishers. For a while, Mrs. Groovy used to call me 90%. Whenever I started something, I get the bulk of it finished in no time. Then it would take me weeks to finally complete it. Meh. Thanks for stopping by, Mrs. WOW. And thank you for your very kind words.
For number 3 (record keeping), I’ve found that the easiest way is to scan everything of any importance and keep it in a cloud folder (I use Dropbox), and an external hard drive for backup. It’s the only way that’s ever been effective for me.
As to investments, I always hesitate with bond funds because of interest rate risk. My plan so far is to liquidate my stock holdings at some point close to retirement and invest the money in a bond ladder, with tax-free munis from fiscally responsible localities.
Nice, Miguel! I like that idea of scanning everything important. Paper is just too cumbersome. And I hear you about interest rate risk. Our total bond fund is categorized as having an intermediate duration. From what I’ve read, an intermediate bond fund holds up reasonably well in a rising interest rate environment. We’ll see. I’m not very confident on that score. My brother-in-law is into bond ladders as well. I guess I have some homework to do. Thanks for stopping by, my friend. And thank you for the very helpful guidance.
Very important an easily forgotten stuff. Thanks for the reminder. We need to update will still but covers on the rest.
Excellent, FTF. We’re about two-thirds into our home’s nooks and crannies. I was hoping to take care of our record keeping this weekend, but my cousin just invited me to his Mayweather/McGregor fight. Sigh. Thanks for stopping by, my friend.
This stuff is so important, particularly if there is a kid involved in the relationship. I wrote “a letter to my widow” to outline not only these things but also what to do with the insurance money when it comes in. Seeing as I focus more on the finances then she does I thought it would be pertinent.
We did a living trust through legal zoom. Since we are not that complicated financially it worked well and only cost about $250 to complete.
Excellent, DDD. I like that idea of writing “a letter to my widow.” Very ingenious.
Yeeeeees. These are the less-fun and less-exciting aspects of personal finance that everybody puts off. I’m proud to say I at least took care of my life insurance, but I’ve yet to set up a will and a death folder. My current excuse is that I’m waiting to do that until we have kids, but I really do need to get my butt in gear. You hope you won’t need a will or insurance, but if/when the time comes, you’ll be glad it’s there.
Haha! What, you don’t find Wills, death folders, and asset allocation sexy? But, hey, at least these things are on your radar. Thanks for stopping by, Mrs. PP. It’s always great hearing from you.
Great post! It is a great reminder of what I’ve been neglecting, particularly getting a Will taken care of. That has been on my yearly goals list for the past couple of years and I somehow find a way to avoid doing it. I gotta start taking care of the nooks and crannies. Thanks for the inspiration!
A Will is the big one. Mrs. Groovy and I put it off for so long. Part of the problem was that no one in our social circle other than our parents had a Will. And my parents’ attorney was out of state. So we had to spend of good chunk of time researching local estate attorneys. Happily, we found a good one. Thanks for stopping by, MSF. And good luck with the nooks and crannies of your financial house.
Hello Mr. Groovy,
Estate planning is something that seems to be perpetually on my to do it 🙂
I have never thought about “a death instruction manual” the way you are describing it, it makes perfect sense. I am adding it to my to do list.
While we are on the subject – do you have the following?
(a) Living Will
If you are on the deathbed, a Living Will would declare your desire to be or not to be on any life prolonging measures should there be no hope for recovery. With a Living Will, you choose someone you trust to make certain medical choices on your behalf.
(b) Healthcare Powers of Attorney
While the Living Will is limited to deathbed medical decisions, a healthcare power of attorney is meant for all healthcare / medical decisions to be made on your behalf as long as you are unable to make them yourself.
(c) Financial Powers of Attorney
Many states have as a form for providing financial power of attorney. Many banks and financial institutions have their own forms for financial power of attorney. You may need to sign before a notary public and also may need witnesses.
I haven’t done any of these things yet 🙂 Just have them on my to do list. Did the $1200 cover all these things in addition to the Will?
Now on to investing:
Typically, a market crash recovers within 18 to 36 months. With that assumption that history will repeat itself, if you have three years worth of cash reserve, you would not put a dent on your investment portfolio.
My last thought on asset allocation:
Please see slide 5 – Yale University course on finance: http://oyc.yale.edu/sites/default/files/Lect04DiversifyS.pdf
The chart plots standard deviation of annual return vs. expected annual return across different asset allocations of stocks / bonds.
According to this chart, 50/50 stock/bond mix has the same risk (standard deviation) as the 100% bond investment.
Key thing to note is that 50/50 return is higher than 100% bond return. The risk is the same for both allocations.
Something to think through.
–Michael
Thanks for all this good information, Michael. We’ll check out the Yale slide tomorrow. And it’s nice seeing you again!
I believe the lawyer’s bill was closer to $1,000 for both of us which included a meeting and several email exchanges, and a second meeting for signing documents. There’s no Living Will in NC but we each have the following:
– Will
– Power of Attorney
– Healthcare Power of Attorney/Advanced
Directive
– Authorization and Disclosure of Protected Health
Information.
Each document was notarized at the lawyer’s office.
Regarding asset allocation, we’re buying into the “Sequence of Risk Return” theory (Wade Pfau has written the best articles on this, as far as I’m concerned). Since we’re in the draw down stage, and no longer making contributions, we’re being extremely conservative in the first five years of retirement. The theory is that if you have substantial losses during those first few years, there’s more risk of running out of money.
Excellent, Mrs. Groovy! It looks like you have all your ducks in a row.
Hey, Michael. First, Mrs. Groovy beat me to the punch. We’re guarding against sequence of return risk during our first five years of retirement. Our plan is to gradually increase our equity exposure over time. But if we get a 2008-like correction in the next few years, we’ll bump our allocation up to 50 or 60% right away. Second, WELCOME BACK! It’s so good to hear from you again, my friend.
Thank you, Mr. Groovy! It feels good to be back.
Put your death instruction manual with your will, and then let your executor know where it is. That’s something my mom did for me, and it made things so much easier when she passed. Jon and I have done that too (and usually put our net worth statement in there every quarter).
Jon and I need to work on our paperwork, though (and our housework in general.)
Wow! Never thought of that. Nice, simple solution. Thank you, Emily. I love the way your mind works.