2013 was a fun, exciting, and interesting year for me. I’ve been enjoying my job and working to grow my career. I’ve been saving and investing tons of money. I even started my very own personal finance blog. Now it’s time to sit down and look back over the year that was 2013 and see what can be learned from my successes and failures.
Yes, I realize that many personal finance bloggers write their year-end reviews in January. That makes me late. Real late. But better late then never. So let’s get this party started.
I met my savings goal for 2013! 50.98% of my net income ($42,924.55) was saved and/or invested. This includes income from my salary, bonus, and other petty income streams (blogging, gifts, reimbursements). I don’t include any of my dividend or option income in this calculation as these have yet to leave my investment account.
Yes, I’ve got an emergency fund. Just like every other personal finance blogger. My original plan was to save up a full year’s worth of living expenses, around $35,000 in cash. I decided to abort that plan and stop at $25,000 for a few reasons.
- Having survived the first year at my new job, I’m confident that my job is stable. At least for a few years.
- $25K is enough money to buy a modest new car – the most expensive emergency expense that I can reasonably expect to face in the next few years.
- Smaller emergency expenses could easily be soaked by temporarily stopping regular transfers to my investment account.
- There is a huge opportunity cost associated with having cash sitting around earning next to nothing. My money should not be lazier than I am.
At the end of 2013, I had $21,787.76 in my savings account and $6,125.02 sitting in my checking account. I am not convinced that having over $20,000 in my savings account earning virtually no interest is the best use of that money. I would love to get it invested. This will require some further thinking on my part.
My dividend growth portfolio kept on increasing. At the end of 2013 my portfolio was worth $156,723.35. The graph below shows the growth of my portfolio since its inception in May 2010.
Overall it appears that I’m doing pretty well. I’m still beating the S&500 by a bit. However, when we break it down by year things look a bit more ambiguous.
Annualized Portfolio Total Returns By Year
Annualized returns are calculated using the XIRR function in Excel. Data presented as (My return / S&P500 return)
- 2010 (From May 1st): 20.47% / 9.34%
- 2011: 15.96% / 2.33%
- 2012: 11.52% / 14.88%
- 2013: 29.23% / 32.09%
- All time (5/1/10 to 12/31/13): 20.13% / 18.22%
Unfortunately, in 2012 and 2013 I underperformed the S&P500. Why? It’s hard to tell for sure, but I have a few ideas.
- My portfolio is less risky than the S&P500. I’ve got a weighted beta of around 0.93 compared to 1 for the S&P500. With less risk usually come lower returns. Most of my dividend growth stocks are stodgy mature blue chip companies that aren’t prone to rapid growth or having their price run up by speculators.
- Many of my holdings are S&P500 members, which makes my portfolio a reasonable representation of the market as a whole. As such, we’re just seeing random fluctuation around the mean. Some years I do better, some years I do worse, but in the end it all averages out to me doing about the same as the S&P500.
- 2013 was a great year to stock up on REITs. Many were trading near their 52-week lows. And I stocked up. However, while REITs are great at producing income, they aren’t known for their rapid price growth.
Dividend income presents a different story. Here, my portfolio is doing substantially better than the S&P500. This is to be expected since the entire purpose of my portfolio is to produce passive income. The chart below shows the quarterly dividend payments from my portfolio compared to those of the S&P500.
Note: I added up all dividends received for each quarter to get the totals used in the chart. As the S&P500, represented by SPY, only pays out quarterly dividends, I felt this was the fairest comparison.
Dividend Payments By Year
Yearly dividends are reported as (My dividends / S&P500 dividends). Estimated dividend income from the S&P500 (as measured by SPY) are provided as a comparison.
- 2010 (From May 1st): $528.00 / $402.41
- 2011: $1,589.59 / $864.06
- 2012: $2,593.82 / $1,589.43
- 2013: $4,268.37 / $2,378.14
2013 was a solid year for options income. I pulled in $2,996.16. No assignments in 2013 either.
Real Estate Ventures
Two of my goals for 2013 were to research both home buying and becoming a landlord.
I decided against buying a home at this time. Some of my main reasons are highlighted below.
- Homes (and condos) here are very expensive. I would have to defer investing for a few years to save up enough money for the down payment.
- I don’t want to deal with maintenance. Whether it’s painting walls or mowing grass, I don’t want to deal with it. I could pay someone else to deal with the maintenance. This would essentially make me a general contractor. I’m not sure I want to deal with that right now either.
- The houses in my area tend to be old and dumpy, which makes expensive maintenance a given. See point above.
- A house would likely wind up being more space than I need or will conceivably need in the near future. If I get married and have kids or otherwise expand my space needs I’ll have to look into getting a bigger place.
- While I like my job, I couldn’t care any less for the area. If I change jobs in the next few years I’d like to be able to move away from this area as easily as possible.
- Owning a home would likely decrease my savings rate as the costs of ownership (mortgage, vacancy, property tax, insurance, and maintenance) associated with a descent house would be substantially more than I’m currently paying for rent.
After considerable research, I decided against becoming a landlord. I’ve outlined some of my reasons below.
- The spread between the average rent and the cost of ownership isn’t big enough to make me feel comfortable investing. There is no real advantage over my current investing plan in terms of cash flow. There is substantial downside risk if I can’t get a tenant.
- Maintenance and management. I don’t have any experience with these. Nor do I have a mentor or a partner who can help me out. If something goes wrong, I’ll be stuck with a lot of responsibility and not much guidance. There is a big potential for significant money loss here.
- The down payment required is huge. I’d have to defer investing for a couple of years to save it up.
- If I leave the area, I’d wind up being a remote landlord. This is not a position I want to be in.
All in all, I’m a bit disappointed. I would like to buy a house eventually, but I just don’t see it working out in the near term. I think buying a house will have to wait until I’m married, if not until I have kids.
Biggest Finance Regrets
Not getting my retirement accounts in order. I’ve been so focused on my dividend growth portfolio in my taxable account that I’ve neglected to consolidate my IRA and my old 401k. There’s really no excuse for this except laziness on my part.
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