Q3 21 Financial Scorecard: The Path Forward Slows
After five consecutive quarters making material progress on two of our primary FIRE goals, we were probably well overdue for some difficulties in the third quarter. While total returns for the S&P 500 were slightly positive in Q3 21, the Dow Jones Industrial Average and Nasdaq were both down for the quarter. Moreover, things got more challenging as the cooler weather arrived in September, which delivered the worst monthly stock market returns since the COVID-19 pandemic kicked into high gear around the world in March 2020.
The more challenging financial markets had a negative impact on our portfolio, and our expenses were also higher than normal. Some of those expenses were under our control, as we took our first family vacation in two years in August, enjoying several days in Maine while COVID cases were much lower than they are today. Unfortunately, the rampaging inflation the Biden administration has only reluctantly started to acknowledge took a big bite out of our wallet, as the townhouse we have rented several times over the years cost 60% more a night than it did in 2019! We also completed the HVAC project I mentioned last quarter, which was a much larger expense than our trip, but it will be nice to have reliable heating for the entire house as we head into what will almost certainly be another cold winter.
I. Net Worth: 114.9% of Goal (-1.0% during Q3 21)
Elevated expenses and weaker financial markets resulted in a small hit to our net worth during Q3. While we remained well above our long-term FIRE target, it’s always frustrating to take a step backwards. Fortunately, quarters like the last one have been relatively rare, as our net worth has fallen just three times in the 17 quarters since we started tracking our progress towards early retirement and financial independence here.
Although we moved in the wrong direction in Q3, our expenses should be lower during the fourth quarter, and despite COVID-madness, for the time being I’m still earning a regular paycheck. With the stock market back to setting new records, we have a chance at achieving our short-term net worth goal, which remains finishing the year at 118% of our long-term target.
II. 529 Account Funding: 98.2% of Goal (+1.1% during Q3 21)
The good news is that we made a little progress on the funding levels of our children’s educational accounts in Q3. The bad news is that we didn’t achieve our short-term goal of getting to 100% of our long-term target by the end of the quarter. Although we made additional contributions to the 529 accounts each month during Q3, and briefly topped our long-term goal, the market downturn in September kept us from finishing up where we wanted to be.
While we just missed on our short-term 529 account funding goal last quarter, we’re going to keep the same target in place as we head towards the end of 2021. Our new short-term goal is to reach our long-term goal by the end of December. Thus far in Q4, the financial markets have been cooperative, so barring a big downturn, I’m confident we’ll end 2021 with this FIRE objective met.
III. Passive Income: 64.3% of Goal (-1.9% during Q3 21)
Our passive income goal remains our biggest challenge. After making a tiny amount of progress for the first time in over a year during Q2, we slipped back in the third quarter, falling 190 bps further away from our long-term goal. The low interest rate environment continues to be a major headwind, as every time a certificate of deposit comes up for renewal, the interest rate we earn drops by 50-75%. I’m slowly moving cash into dividend paying stocks in an effort to potentially generate more income, but with equity markets near record levels, I’m trying to dollar cost average into stocks over time rather than doing it all at once.
Last quarter we established a short-term passive income goal of 70% of our long-term target by the end of the year. While we haven’t officially missed on this goal yet, the chance of us achieving it by the end of December is remote. We’ll continue trying to fight the tide on this one, but until we can move a more significant portion of our net worth from cash into equities or fixed income, our passive income aspirations will remain a challenge.
IV. Target FIRE Date: Friday, July 1, 2022
We’re less than nine months away from our target FIRE date, and the only question now is whether I’ll actually wait that long before saying goodbye to the daily grind! Once we hit our 529 account funding target, there’s really nothing else to achieve, as I know we won’t be able to reach our passive income goal. My employer is also pushing us to spend more and more time back in the office, which is an increasingly unattractive option to me after 20 months working mostly at home and with COVID-19 cases again at record levels in our area.
I’m increasingly concerned inflation will be higher in the coming years than we’ve experienced for most of my lifetime, so I could try to talk myself into working longer to build a larger financial buffer, but that’s the type of thinking that could keep me chasing more money for another decade or longer. At some point, it will be time to trust the numbers I’ve been refining for the past several years, with the knowledge I’ll probably find a way to earn some money in early retirement doing something that interests me more than continuing to grind away for someone else. Moreover, after working in corporate America for three decades, I’m confident I can find a more traditional job with a steady paycheck at some point in the future if I need to. So while the race is not yet over, and the path was a bit choppy in Q3, the finish line remains in sight!
How are you dealing with rising inflation?