Q3 20 Financial Scorecard: Heading Towards the New Normal
Another quarter of pandemic life is behind us, but life’s certainly not back to normal. New cases of COVID-19 are climbing around the country, and it seems like the dreaded “second wave” could emerge over the coming months. We’re also just weeks away from the U.S. presidential election. Regardless of whether President Donald Trump or Joe Biden wins, the result will ultimately have an impact on our personal finances and pursuit of FIRE.
I’ve been working from home for seven months now, with a lone trip into the office a few weeks ago to resolve some issues with my laptop. I’ve enjoyed not spending over an hour a day commuting, but the four walls of my home office/guest bedroom do feel as if they are closing in on me at times. Even though I’ve been working from home, I’ve been putting in more hours than normal. The financial markets have been volatile, and its been too easy for me to jump on the computer seconds after waking up or let the evening hours get away from me while trying to finish up one more thing.
That said, I’m still a fan of working from home. I don’t anticipate my employer requiring me to head back into the office any time soon. But when that day eventually comes, whatever the “new normal” looks like will be another pivot point during our quest for financial independence. I have no desire to spend another five or ten years trudging into the office five days a week. If the new normal looks like the old normal, that may accelerate plans for a change. If the new normal contains a significant component of working from home, that could encourage me to remain gainfully employed for longer than currently anticipated.
You may remember we revised our net worth and 529 funding goals higher last quarter, while lowering our passive income target to something more realistic and pushing our potential early retirement date out by a year. Despite everything going on in the world, I’m happy to report we made progress on two of our three revised financial goals during the third quarter!
I. Net Worth: 93.3% of Goal (+2.6% during Q3 20)
The U.S. stock market had another great quarter during Q3, with the S&P 500 hitting a record high before Labor Day and climbing 8.5% for the quarter. Our financial performance was more muted, with our net worth increasing 2.8%, pushing us 260 basis points closer to our long-term target.
The market has meandered a bit thus far in October, but is still higher today than it was when the month started. Even though we’re in the midst of earnings season right now, I think the real volatility will emerge as we get closer to the U.S. election.
National polls show Biden with a significant lead over Trump right now, but four years ago polling showed Hillary Clinton defeating Trump, and we all know how that turned out. It’s plausible neither candidate will have conceded by the time we wake up on Wednesday, November 4th, and with more ballots than ever not being cast in person, there’s potential for courts around the country to end up involved before all is said and done. Whatever the ultimate result, I expect our net worth will be volatile from day to day as the financial markets process progress towards resolution.
Our previous short-term net worth goal was to get to 92% of our long-term target by the end of this year, which we hit a quarter early! I think markets are likely to remain volatile in this time of pandemic, social change, economic hardship, and political uncertainty, but I still hope we make steady progress, so our new short-term net worth goal is to get to 95% of our long-term target by the end of Q1 21. If we can hit that goal, it probably means potential worst case scenarios over the next six months around COVID-19 and the election don’t come to pass, which would be positive for everyone, regardless of how we each plan to vote!
II. 529 Account Funding: 70.5% of Goal (+6.0% during Q3 20)
We made better progress on the funding levels of our children’s educational accounts in Q3 than we did with our net worth. The value of our 529 accounts climbed by more than 9% over the past three months, moving us 6% closer to our target since the beginning of July.
That result makes sense, as these accounts have a larger exposure to stocks right now than our overall investment portfolio, and we also made additional contributions to the 529 plans each month. The strong performance allowed us to hit our short-term goal of getting two-thirds of the way to our long-term target by the end of September!
Our new short-term 529 account funding goal is pretty ambitious. We’d like to be 75% of the way to our long-term target by the end of the year. As with our net worth goal, we’ll need supportive financial markets for this to become a reality over the next three months. We’ll undoubtedly also need to make some additional contributions into these educational accounts to hit this target.
III. Passive Income: 68.8% of Goal (-1.1% during Q3 20)
Our passive income goal has always been the most challenging one for us to execute on. While we were initially just way too ambitious, we’re still struggling to make progress towards the more modest target we outlined three months ago.
Our expected annual passive income dropped by 1.7% during Q3, moving us 110 basis points further away from our long-term target. It marked the second consecutive quarter our passive income declined. While our net worth and 529 account funding have been moving in the right direction as equity markets have rebounded, lower interest rates continue to negatively impact how much we’re earning when CDs come up for renewal. Moreover, several stocks we own have eliminated or cut their dividends.
Our previous short-term passive income goal was to get to 75% of our long-term target by the end of this year. That’s not going to happen. Right now, I’m just hoping to get things moving back in the right direction, so our new short-term passive income goal is to get to 70% of our long-term target by December 31st.
IV. Target FIRE Date: Friday, July 1, 2022
As outlined above, there’s a lot of uncertainty in the world today. If we’re in a much better place with COVID-19 around the world a year from today than we are right now, I’ll feel better we can hit all three of our financial goals by the summer of 2022.
How have your finances evolved over the past three months?