Year in Review 2020

Year in Review

I have been put off this “Year In Review” post for a while. I have been kicking it around in my head since new year’s. typically, I don’t like writing about things that are not positive or uplift and encouraging to others. There are many rabbit holes I could go down with this post. I have been debating what all I might want convey. 2020 has certainly been a unique year. I don’t even know where to start. So I am just going to begin with no article structure planing.

It goes without saying, this year in review is like no other. I wish I had a positive note to start on like usual but… First, my heart goes out to those dealing with loss, whether that is the loss of a loved one, a friend, health, a job, a business, a relationship, or any other loss. I have heard way too many stories of loss from acquaintances, friends, and even my own family this year.

A Personal Note

This post is far more personal than most. Several friends of mine have lost their jobs as unemployment went from historic lifetime lows of 2% up to 15%, the highest rate since the Great Depression, within just weeks. Other friends’ marriage fractured under the weight of the pandemic coupled with spending an unprecedented amount of time shut in at home with their spouse. My mom’s best friend has been in the hospital for months with Covid complications.

Another event that personally touched me was that my sister had to shut down a juvenile business that she had poured sweat, tears, and money into for the last few years now as she tied to grow it. Her company sold coffee and coffee supplies to small businesses. Her sales plummeted to zero in just two months as her clients shut their doors. I feel partly responsible for her loss because I encouraged her so strongly to step into the world of entrepreneurship just to watch all her effort evaporate into nothing in months.

I know others’ losses are even worse. A pandemic, coupled with government forced business shutdowns, events canceled, cities locked down, riots in the streets, riots minutes from my house where my kids sleep, unbelievably distractions from media, fear-mongering in media, a supper heated political climate and so much more. It has been a year that I never could have predicted. But I guess that just plays into my definition of life: adapting to things that don’t go according to plan.

Running Up Hill

One quote from this year stands above the rest in my head. One keeps replaying over and over in my mind. Going back to last summer, in the steam bath southeast, I was on a run with a girlfriend. She saw me struggling in the heat as we hit the incline of a long hill. I was trying to keep my pace as the incline turned steeper and steeper. She looked over at me and said,

“You Know,” as she took a deep breath.

“Hills tell you a lot about a person.“

“How you take on hills says a lot about how you take on life.”

As those words settled into my mind adrenaline started to flow. My pace quickened. She matched my pace. I sped up even more. She tried to pull ahead of me and before you know it we were in an all-out sprinting race to the top of the hill.

The marathon of life is going to feel uphill at times. Make sure you invite those along for the journey that can turn the dreaded uphills that make you want to give up into a race to the top. Surround yourself with those that challenge you in the best possible way.

If you want to run fast, run alone. If you want to run far run with your tribe.

Ancient African Proverb

Choose Your Tribe

2020 has taught me to carefully select my tribe. Are the people you are running through life with the people you would choose to be in quarantine with for a year or more? If not, you might be running with people that are not your tribe.

2020 has certainly taught me that I need a more robust battle plan to take on the hills of life. It has also reinforced the need for a robust battle plan or investor policy statement for my finances.

Fortunately, my stock investments did a lot better than my social life in 2020. While we did see a 35% correction in the market this year which I will coin the “Covid Crash,” the market rebounded quickly and marched on to higher highs as it is in the habit of doing 69% of the time. In any economic climate, there is always a way to invest that profits. But before we take a look at my 2020 stock numbers, I would like to fame the context of stocks with my greater overall portfolio.

Asset Classes

I have a detailed article coming on this soon so I will just touch on this today. Most personal finance sites espouse that there are only three asset classes. Securities (stocks and bonds), real estate, and entrepreneurship/business ownership. In the past, I have said that there are four since I make so much profit from my alternatives asset class I would be remiss to exclude it. Due to my insatiable study of the affluent, I have recently added a fifth asset class but more on that in a later article. For now, let’s keep this post bound to the securities (stock) asset class since most of my investable wealth lays there.

What is “The Market?”

Note that when I refer to ‘the market’ I am referring to the S&P 500 index which is the combined performance of the largest 500 publicly traded companies in the American stock exchange. I find this to be a better indicator of the market than the Dow Jones Industrial Average which is comprised of only 30 companies, or the NASDAQ Composite which is very heavily weighted in tech stocks. Some sources add dividend performance on top of market appreciation so you may see values of ~18% out there on the inter-webs. The key takeaway is that our 2020 benchmark for the market performance is 15.8% for the sake of picking a reference for comparison for the remainder of this article.

Economics of the Stock Market in 2020

The stock market in 2020 certainly was a roller-coaster ride. We saw our fair share of volatility. The market crashed 35% and quickly recovered to close the year with a 15.8% gain. I have to credit this to the healthiest economy I have seen in my life going into the Covid Crash. Unemployment was at historic lows of 2%, GDP was yielding a handsome 4%, Tax rates saw the largest slashes in recent history and perhaps ever, and most importantly the corporate tax rates were very conducive to job creation and business growth.

The Jobs Act (TCJA) reduced the top corporate income tax rate from 35% to 21% and eliminated the graduated corporate rate schedule and the corporate alternative minimum tax. Now most of us don’t own corporations so that sounds like a win for some else, not us. Most investors don’t realize the magnitude of the positive economic impact this had. Outsourced Jobs were pouring back into the US thanks to the corporate tax cuts and replacing NAFTA with the much more beneficial MUSCA. All this drove the intrinsic fundamental value of the US market up. Suffice it to say, not even the most widespread pandemic of the century could stop an economy that strong.

Traditional IRA

This account is my largest investment account it yielded a gain of 68.65% in 2020. I have some fun positions in this account including my largest position that is up 262%. Admittedly, I need to do a better job of tax gain and loss harvesting and rolling money over to my Roth. I have a large opportunity to optimize that aspect of my investing game. I tell you what I commit to doing that and writing an article to help explain how that is done.

401k

My 401k surpassed my Roth IRA in size this year as the max contribution is much higher, $19,500 in 2020 versus the $6,000 max contribution of the IRA. I always role 401ks into my IRA at separation of service, when I leave a company. This gives me much more control and better investment options for my investments. Even with my limited investment options in my 401k, I was still able to yield a gain of 27.72% this year.

Roth IRA

My Roth IRA is my third largest account and surprisingly for me it under-performed my 401k this year at only 27.6% I will have to give this account more attention in 2021. To some extent, I do expect a typically lower return as I keep my high dividend-yielding REITs in this account for some diversification into the newest officially recognized sector of the stock market, Real Estate Investment Trusts.

HSA Investment Account

I am part of the 4% of people who invent their HSA balance in the market. In fact, I keep the entire balance in stocks. I pay annually medical expenses out of pocket since I intend to cash out those expenses as a large part of my early retirement withdrawal strategy. Since this account is triple tax-advantaged I max out ($7,100 for a family) the contribution every year.

One of my FI goals is to have a six-figure HSA before I retire. This is currently my fifth-largest account so I am well on my way. My 2020 yield was a gain of 18.4%. I have very limited investment options hear because I consolidated all of my HAS accounts under my current employer-paid account to avoid annual fees. I have institutional index funds available in that fidelity account so I was fine doing this and have the option to self-direct this account should I choose to roll it out. But for ease of management, I am happy to keep it all under the fidelity account for now.

After-Tax Brokerage Account

Lastly, the returns on my brokerage account this year were 15.13%. This is no surprise to me as a have a large position in cash at the moment bleeding ROI at the rate of inflation as all cash does. I am typically strongly against large cash positions but I have a couple of sound reasons for cash. Partially because of the uncertainty of 2020 but more because I am planning a large purchase in 2021 and will need secure and liquid funds soon.

Combined 2020 Investment Returns

Considering all of the gains mentioned above, my overall quantity weighted net wealth gain in 2020 was 44.2%. This is not too shabby considering I gave myself 10 years from my starting line to become financially independent when I learned the financial equation to do so. If I can keep this up I could finish ahead of schedule.

Stock Investment Accounts Summary Table	Gains in 2020
S&P 500 Return	15.86%
Traditional IRA	68.65%
401k	27.72%
Roth IRA	27.60%
HSA	18.40%
Brokerage	15.13%
Overall Quantity Weighted Net Wealth	44.2%

So with all of this success and profit in the stock market, I am going to go on contributing bullishly into 2021, right?! Well actually no, I am not. I am changing my investment contributions significantly for 2021. I have identified an even more profitable and lower risk investment. Now, I will still fund the HSA and 401k which are automatically withdrawn from my paycheck but I am ending most of my stock account contributions for 2021. To find out the very strong reason why stay tuned for next week’s article when I reveal the most profound case against stocks that I have seen in the last century of data I considered.

P.S. If you are interested in my investor policy statement or what I invest in or how I get these returns drop a comment below. I have been considering an article on that however it would require me to air out a dirty little secret I have not yet shared because it is so controversial in the FIRE circles.

Keep the FIRE burning my friends.