Phew! We made it! What a year 2020 has been. I'm absolutely exhausted from taking care of my two young kids, experiencing so much uncertainty, and writing so much.
Unfortunately, the first half of 2021 likely won't be much different. Many cities and counties will still be under shelter-in-place. Most of us still won't get vaccinated. And the fear of the virus will remain. Yay.
All the same, I'm looking forward to better times in 2021. But first, here's my 2020 year in review.
2020 Financial Samurai Year In Review
For this review, I thought I'd highlight some wins and losses that first come to mind. Then I'll go through Finances and Family in more detail.
The thing I'm most proud of in 2020 was not giving up. Whenever life gets more difficult, my tendency has always been to try harder. I'm stubborn in that I refuse to let bad things get me down.
- I did not give up on Financial Samurai. Instead, I continued to publish three times a week and write one newsletter a week on average all year. I also modernized a lot of old posts from years ago. To maintain my writing schedule, I got up by 5 am on average every morning to write.
- I did not give up on my children. Instead of flying off to a tropical island to drink Mai-Tais on the beach all day, I committed to 4-5 hours every day of childcare all year. The days were long as hell. But I made it.
- I did not give up on my body. Instead of eating myself into a stupor every day, I ate in moderation. Yes, I admit I ate more lemon meringue pie during the first half. But I also regularly played tennis and softball three times a week. Therefore, I was able to stay the same weight.
- I kept my family safe. Life would have been much easier had we sent our son back to preschool in July, but we gutted things out at home. We would have felt bad if he got the virus from school when both of us don't have day jobs. I drove my kids to every doctor's appointment, we loaded up on PPE, and didn't do anything to put our kids in danger.
- We didn't put our fellow Americans in danger by gathering with others or flying or cruising anywhere. We respected the mask and distance guidelines.
- No major injuries. Still no gray hairs at 43. Perhaps I wasn't as stressed as I thought I was. My gray hairs started sprouting at 33 because I hated my job and wanted out. Then they went away six months after I left.
- I lost my aunt. May she rest in peace. I'm so sad to have not seen her more recently. If it wasn't for the pandemic, I would have probably seen her during the summer or Thanksgiving 2020. Not seeing family and loved ones is what negatively affected us the most about this pandemic.
- I lost my temper three times. I've always prided myself on being calm and collected, no matter how stressful the situation. But due to the constant exhaustion and having two young kids at home 24/7, I became less patient and more irritable. To put things in perspective, before we had kids, I never lost my temper at home.
- I wasn't able to spend more time with my parents. The main reason why I want to relocate to Hawaii is to take care of them. I want to bring them food, help set up their electronics, do some gardening, and keep them company when they are lonely. This pandemic screwed up my plan to visit them. If I had gone to Hawaii, I would have had to quarantine for 14 days away from them. 14 days is too long to be away from my family.
- My vision got worse by at least 0.15 diopeters. This was probably due to too much indoor screen time and not enough outdoor activity. I don't plan to see an optometrist until there is herd immunity. The same thing goes for getting my teeth cleaned. I've got my own dental tools at home.
Financial Performance (4.5/5)
Oddly, 2020 was one of the best financial years ever. From an absolute dollar standpoint, it was the largest gain.
After 2019's gains, I said I no longer hesitated ordering a $4 Filet-o-Fish sandwich. In the past, I would just stick with the $1 menu.
After 2020's gains, I no longer have hesitation ordering a couple pieces of toro sashimi! In the past, I would just order hamachi.
Stock / Bond Portfolio (~30% of net worth)
Overall, I'm tracking 12 investment portfolios. It's getting out of hand because I opened up two Roth IRAs for my kids, two 529 plans, and two custodial investment accounts as well.
I'm also glad I super-funded my son's 529 plan in 2017 and my daughter's 529 plan in 2020. They have grown to be relatively significant amounts. I should have opened up my kids' Roth IRAs and custodial investment accounts sooner. Developing a strong worth ethic early is important!
If I focus on my core six portfolios, consisting of three taxable portfolios, a rollover IRA, Solo 401(k), and a SEP-IRA, the overall performance is up a surprising 40%.
I'm thankful to use Personal Capital's free investment tools to keep track of them all. I can easily check the performance of each portfolio and come up with an aggregate as I've done below.
Stock Outperformance Due To Luck
The main reason for the outperformance is due to my tech holdings. I've owned companies such as Apple, Netflix, Tesla, Google, and Amazon for years. They benefitted most from the pandemic. Therefore, the outperformance was mainly due to luck. If there was no pandemic, big tech wouldn't have had such dominant gains.
Being able to lose less during the meltdown and make more during the meltup is always the investor's dream scenario. I've tried to achieve this goal by going with a barbell approach: buying individual AA-rated municipal bonds and tech growth stocks. However, it wasn't until 2020 when the strategy really took off.
I did invest about $300,000 in stocks during March after writing my post: How To Predict A Stock Market Bottom Like Nostradamus. When the S&P 500 was down about 25% from the peak, I made a call that it wouldn't go down by more than 35% from the peak.
In retrospect, I wish I had bought even more stocks and held on even longer. However, some of the positions really started to dominate my portfolio (e.g. Tesla), hence the trimming.
My worst trade, besides selling a lot of Tesla too soon, was selling my entire California municipal bond fund (CMF). My municipal bond fund was supposed to be a defensive position for times like these.
However, it ended up selling off about 20% in March! When it rebounded back to 80% of its original value, I sold it all. I was upset that my municipal bond fund didn't do what I thought it was supposed to do. If I had held on, I would have been up about 8%.
Real Estate (~40% of net worth)
Real estate had a bipolar year for me. Because I own single family homes on the less dense west side of San Francisco, they have all benefitted from a fanning out of residents.
Essentially, people started moving away from the more dense east side (downtown) to the cheaper west side. Instead of trying to geoarbitrage to a different city or state, most rational people decided to first geoarbitrage within their existing city.
Back in 2014, I moved three miles west and was able to save 40% on housing expenses. It finally took a pandemic for some folks to realize how much great value there is in other parts of their city.
Due to the demographic shifts, I will conservatively estimate that my single family properties appreciated by 5% versus the national average of 8-9%.
Below is an example of a west side home that sold for $705,000 over asking in November 2020. The home is nicely remodeled, but has no views. This home would indicate my single family homes gained closer to 8%.
There are so many examples of strong single family home sales on the west side of SF in 2020. I've been keeping track every month.
On the negative side, I own a 2/2 condo that has probably experienced a 10% decline in value. Condo buying declined simply because people want more of their own space. Studios obviously got hit the worst. Meanwhile, as usual, there was more inventory in the downtown area where there is a lot of new construction.
The positive of the condo is that it has continued to receive steady rent. It also has a balcony and is right across from a fantastic park. The condo has no mortgage and my goal is to own it forever.
Overall, I'm estimating that my physical real estate portfolio increased in value by about 3% – 4%. However, I'm expecting a rebound in 2H2021+ as people flock back to big cities.
Real Estate Crowdfunding
I own a fund that invested in 17 commercial real estate projects across the country. Four are done, 13 properties remain. Supposedly, four are underperforming their projections and nine are performing inline.
It's really hard to tell how the fund's performance will do until all the capital is returned. However, I did get a sizable amount of distributions in 2020, which was way beyond my estimate ($226K vs. $70K).
I'm guessing the fund is providing anywhere from an 8% – 11% annual return since 2016 inception. My hope is that the economy opens up by 2H2021 and much of the world gets back to normal. If so, the fund should do better and continue to return capital.
Real estate, real estate crowdfunding, and venture debt are my main new investment focuses for 2021. It's too hard for me to invest more than maxing out my tax-advantageous accounts in the stock market at these levels.
The S&P 500 is valued at roughly 25X expected earnings, the top end of the range. There's much better value to be had in real estate, which has lagged the stock market, and generates valuable cash flow. Never forget that cash flow is what it's all about if you want financial freedom.
One of my favorite ways to generate potential cash flow, 100% passively and with less voliatility is with Fundrise or CrowdStreet.
Fundrise, for non-accredited investors has created diversified eREITs and eFunds for exposure. CrowdStreet, for accredited investors, focuses on individual real estate deals in 18-hour cities for accredited investors. Both are free to sign up and explore.
Venture Debt And Venture Capital
I invested in a venture capital fund, which has a 10-year time horizon. Therefore, I have no idea how it will perform until the far future.
The two venture debt funds I've invested in are returning about 15% net of fees. Therefore, I decided to invest in their third fund for 2021.
Revenue squeaked out a record number. Meanwhile, online business valuations are at new highs. With the NASDAQ up 42%, interest rates way down, and online businesses generating cash flow throughout the entire pandemic, the demand for owning online businesses is way up.
I've had more people inquire to purchase Financial Samurai in 2020 than at any time since its founding in 2009. It's been eye-opening talking to various suitors. But at the end of the day, I'm not interested enough because I'm still having fun. The supplemental retirement income is great. Further, I hope to one day teach my kids about online media.
Based on my conversations, online business valuations are up anywhere from 20% – 50% in 2020 alone. For example, I had one offer in 2020 for 114% more than a tempting offer in 2018. I felt a little foolish not aggressively pursuing the new offer. However, when you own 100% of something you enjoy doing, it's hard to put a price on it. Everything feels like gravy.
Every year that I don't sell Financial Samurai is a win. It would be almost impossible for me or others to recreate the content on this site. Everything I've written is based off of firsthand experience.
On the other hand, if most of the content was written by freelance writers writing generic content, then it would be much easier to replicate. The site would also be much easier to offload.
Overall Net Worth Growth
It is hard to calculate my true net worth growth since the majority of my net worth is not in highly liquid assets like stocks and bonds. My net worth gain is anywhere between 18% – 50% for the year. The realistic number is probably around 25%. But in the books, I'm keeping the figure at 15%.
Whatever the net worth figure truly is, I'm happy with the result. Since leaving my day job in 2012, my goal has been to grow net worth by 10% a year into perpetuity. So far, so good every year.
The power of compounding really becomes apparent after a while. Please continue to save and invest aggressively. Before you know it, you may start making more from you investments than your day job. In my case, that's easy because I have no job.
My main focus is to build enough steady passive income to take care of my family. Passive income is what buys me the most precious asset: time. Below is my latest estimated passive income streams for 2021.
Family Review (4/5)
My #1 goal this year was to protect and provide for my family. The beginning of the pandemic felt like having White Walkers at The Wall (Game of Thrones reference).
It was mainly due to the pandemic and the desire to protect my family that pushed me into redline exhaustion all the time. In March, April, and May, I was regularly waking up between 2:30 am – 4 am because of all the uncertainty. My mind kept on trying to think about ways to do more.
But I'm happy to say both of our kids are fine. Further, starting in the second half of the year, I started waking up more regularly at 5 am.
Neither of our kids will likely remember the pandemic or understand what mom and dad had to go through to keep them safe. Maybe they'll read my 2020 monthly review posts when they are older and appreciate us more. Fingers crossed!
What's good about taking care of a baby in 2020 is that we wouldn't have traveled anyway. Therefore, we didn't feel like we missed out on travel.
Looking back, we are glad to have spent so much more time with both kids all year. It feels great to nurture and impart wisdom.
We may not end up sending our son back to school after there is herd immunity. Instead, we may decide to homeschool for the next 10 years to provide for better accommodations. We shall see.
Overall, my daughter and son have been hitting their milestones. They are healthy and happy. That's all a parent can really ask for.
Boldest Move In 2020
Investing several hundred thousand dollars into stocks in March 2020 was not my boldest financial move. There was a move that took much more effort and a lot more capital.
After pulling our son from preschool in March, we had to come up with a homeschool plan. That was when when our house started feeling a little tighter. The ground floor was still going through a remodel with no certain deadline.
A month into shelter in place, inexplicably, a fantastic house went up for sale. I couldn't believe the seller wanted to list the home in April, during the height of uncertainty.
I smelled an opportunity.
On Redfin, the home initially appeared as a “Hot Home.” Despite thinking I had no shot at buying the home, I decided to spend some time getting to know the listing agent over multiple visits. It was just he and I talking for hours about life given open houses were shut down. It was nice to have someone to talk to besides my family members.
We created a bond and in the end, I was able to buy the house for 7% below asking. All my paperwork was in order because I got preapproved for a mortgage earlier.
It's one thing to find a great house and envision the possibilities. It's another thing to negotiate a good deal and risk a lot of money during the most fearful time. But I believed in my thesis that real estate outperforms during stock market corrections.
Thankfully, like everything else, prices have rebounded from their April-June lows. I'm confident the home would sell for 2-3% over its original asking today because a close comp just closed at such a price. The home I bought is larger and nicer than the mega-overbid in the example above.
Taking Action Felt Good
One of the most annoying things about the pandemic was the feeling of helplessness at times. We didn't know exactly how the virus spread. Further, there was so much misinformation about how to protect ourselves. As a result, most of us just shut down for the first month.
Taking action to materially improve our living standards in a crap year felt great. We moved into the house a week after closing. Then, I ended up renting out our previous home a month after moving out.
All of this took time, effort, courage, and luck. But I'm pleased that I didn't let the pandemic stop us from trying to live our best lives. As the main provider of the family, this was my duty.
I don't care if I end up making any money or not on our current house. I'm just thrilled everybody is enjoying it while we wait for potential herd immunity.
As a parent, when you see your kids running and crawling around with joy and your oldest telling you how much he loves the house, all the effort feels worth it. Once you have kids, you appreciate owning a home even more. It's not about the money. It's about how much you can provide.
Ever since I started Financial Samurai in 2009, I've always done my best to do what I say and invest in what I believe in. 2020 was no different. Without taking action, writing is just jibber jabber.
Spent Money On A Better Life
Before 2020, one of my concerns was never being able to fully spend my hard-earned money on a better life. I've been so frugal since I was a kid thanks to my parents. You've got to be super frugal to achieve financial independence before the traditional retirement age.
Recent examples of frugality include driving an old car I bought for $8,000 for 10 years, downgrading to a 40% cheaper home in 2014, and walking around Naples, Italy in 90 degree heat because I didn't want to spend $50 on a hop-on hop-off bus.
However, I decided 2020 was finally the year I would use my money to counteract a bad situation. It was a breakthrough after suffering from frugality disease for so long.
Here are some of the things we spent money on:
- Grocery delivery and food delivery from our favorite restaurants.
- Got a bigger size iPad so my son could see details better.
- Changed my two front tires before hitting the tread bar for $820 without guilt. Safety first!
- Spent whatever we needed for our daughter without hesitation. We plan to give everything away to families who cannot afford books and toys.
- Paid for four months of night doula help instead of just one or two months.
- Bought three new Toto Washlets for our new house. The Washlets were the only thing missing.
- Picked out nice fixtures and materials for a big rental property remodel.
- Bought a sweet new house.
- Donated money more freely.
After 20 years of saving 50% or more of my after-tax income, you would think I'd feel terrible no longer doing so. However, I don't regret a single dollar I spent in 2020.
If there's one thing the pandemic has made me realize even more is that our lives are not guaranteed. Time is precious.
Dying with too much money is a terrible ending. It means we worked too much, stressed too much, and wasted too much time.
Overall Rating For 2020: 3.25/5
Our lives did not change much in 2020 because we survived. We haven't had day jobs for years. Since 2012, I've also been mostly writing from home. Further, we weren't going to travel anyway with a new baby for the next three years.
However, what obviously got us down was all the uncertainty. Every sniffle, sneeze, ache, and cough made us wonder whether we had caught the virus. Every time we went out in public, we were wary of getting too close to anybody.
It's unfortunate not to be able to go places and feel at ease. Right before the lockdowns began, a bunch of us were going to fly down to Palm Springs to watch our favorite Indian Wells tennis tournament. We missed the event by one week.
As an extrovert, I miss hanging out with friends, going to events, eating at restaurants, and drinking at bars. All the random meetups in San Francisco were something I looked forward to every week. I would also love to once again bring my boy to the playground and feel at peace.
2020 made us think more about what we are doing with our lives. Are we doing meaningful work? Are we doing what we want? What can we do to be happier? Hopefully, all of us will take more action to improve our lives going forward.
2020 has also created more empathy for others. When most of us are stuck in a suboptimal situation, we tend to be more understanding and forgiving.
Finally, 2020 brought us greater awareness about the importance of hygiene and the prevalence of systemic racism. As a result, I'm hopeful there will be less sickness and more racial harmony going forward.
Here's to a better 2021!
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Readers, how would you rate your 2020? What were your highlights and lowlights? Thanks to everyone who read and shared Financial Samurai all year. Your support and wisdom are greatly appreciated! You can sign up for my weekly newsletter or get my posts via e-mail here.