Investing… After An Election

What an unpleasant election cycle, right? I used to be a political junkie, with a special affection for local government issues. These days, I try to avoid consuming too much political news– it’s depressing for a free market deficit hawk like me! Unsurprisingly, this civil libertarian wasn’t a fan of the options in this election, and I’m disappointed with the outcome. 

But… I’m grateful we have free and fair elections, and hopefully we’ll see some better candidates come along in the years ahead. Rather than getting too bummed out, I’m staying focused on my goals for my family. I’m fortunate to have a good job and our household spending is intentionally low, so we’re able to give and save every month. Will my strategy change depending on who’s in the White House?

Nope. I expect we’ll see some market volatility over the next few years (and, you know, most of the years after that, too). Trump is famously unpredictable, but the stock market is pretty resilient. I’m not going to try to pick individual stocks or time the market, and I’m certainly not going to panic and cash out.  

But maybe this is a good time to take a look at our family’s asset allocation and make sure everything is in balance. It’s not a good time to make drastic changes, but we’re getting towards the end of the year, which means doing a quick review of our net worth and making sure we’re on target for our goals. 

So, for the very first time, I’m going to crack open the door and give you all a peek into our family’s current asset allocation. For privacy, I’ve included some percentages but not any dollar figures. Keeping a little mystery alive, at least for now! Prepare to be surprised, because this is probably not what you’ve seen from other FIRE writers. 

Allow me to walk you through these percentages and explain how we got here and what we plan to do moving forward. You’ll note that more than half of the pie chart– the whole right side, plus a little more, are traditional investments– almost all stock, minimal bonds. Our taxable brokerage account is the money we’re building up to cover our early retirement years. It mostly consists of VTI, plus a smattering of VXUS and a few individual stocks Mr. Sense and I bought before we’d ever heard of FIRE. My 401(k) is mostly in target date retirement funds, geared towards a traditional mid-sixties retirement date. When choosing amongst the available options through my employer’s plan, my main priority was finding the funds with the lowest fees. 

I contribute 12% of my income to my 401(k) each month, and also receive a 4% employer match. My income is variable and hard to predict, so this isn’t a set amount and won’t hit the maximum contribution limit (currently $23,500) unless my income expands faster than I anticipate. Our Schwab taxable brokerage account is where the bulk of our savings goes, and I expect this account to make up a larger share of our net worth over time, experiencing ups and downs with the market. When we started on our FIRE journey around three years ago, this was the smallest of the asset categories, and now it’s roughly tied for the largest. 

The other large segment is home equity. This number is mostly irrelevant to our FIRE journey, since we don’t have any plans to move. Our home has appreciated since we bought it in 2020 and we put 20% to avoid paying for mortgage insurance, but we have little interest or control over how this segment fluctuates. We won’t be prepaying the mortgage because interest rates were historically low when we bought the place (2.81% in our case), and we feel confident the stock market average will far exceed that over the next 26 years. While we plan to stay put, we’re not so rigid that we wouldn’t consider downsizing or renting if the financial incentives were too good to pass up. 

So now let’s talk about the elephant in the room– cryptocurrency?!? Before you pass out, please be aware that we certainly didn’t set out to have 12% of our net worth in bitcoin and ethereum. Here’s what happened: Mr. Sense bought some bitcoin in his early twenties on the advice of a friend, not really understanding what it even was (I do NOT recommend this). Many of my coworkers got into bitcoin six years ago or so, and we bought a little more, just for fun. We never considered this a serious investment vehicle, just a fun little bet, like a lottery ticket (obviously, I’d never buy an actual lottery ticket). We lucked out, and we’ve sold some along the way to pay for home renovations and other expensive stuff, but somehow the balance has kept growing.

Mr. Sense would be the first to admit our crypto journey has been entirely good luck, not investment savvy. Crypto enthusiasts will be aware that bitcoin hit an all time high today. It could be a good time to cash out, but the incoming administration seems likely to usher in worse inflation, and bitcoin is a reasonable hedge. We’re not counting on this money for anything and paying capital gains tax on it would be a bummer. Plus, my contrarian sensibilities like decentralized assets like this. I can’t complain; we’ve taken way more money out than we’ve ever put in, so even a drop to zero today would still have paid off overall. To sum up: We have bitcoin. We’re not buying more. Should you buy some? I have no idea, but if you do, make sure you’re prepared to feel alright about it if it swings in either direction. 

Now onto the final category– cash. Some FIRE writers are against keeping hardly any money in cash when it could be working for you in the market. I’d probably feel the same way if my income was steady and Mr. Sense and I weren’t parenting. We put aside a lot of this cash in preparation for Kid Sense going to college, but were overjoyed when she qualified for some fantastic scholarships, leaving us with relatively minor costs. I imagine there will be things we want to help with over the next few years, and having a cash cushion roughly equivalent to a year’s worth of regular spending does provide a certain peace of mind, especially since our investments are all pretty aggressive. Plus, our house was built in the 1800s and there are a few jobs we’re not prepared to take on ourselves… yet. Of course, this money is in a high yield savings account (many are paying around 5% these days), not languishing in a checking account making .000001%. 

A quick note about what’s not in this chart: our other stuff. Some people like to include estimates of the value of their cars/jewelry/collectibles when calculating their net worth (assets minus liabilities). I didn’t bother, because I’m not planning to sell those things and I won’t be relying on them for income unless things take a shocking turn (God sometimes has surprising plans for people; I’d like to imagine we’d navigate such a situation with grace, but hopefully it doesn’t come up). 

Over the next few years, I anticipate the taxable brokerage segment to grow as a percentage of our assets, and all the other segments to decline (as a percentage of the total, not in dollars). I’ll go out on a limb and project that at my FIRE date, the brokerage account and retirement accounts will be around three quarters of the chart. Any serious craziness in the real estate or cryptocurrency markets could change this, but huge increases would probably incentivize Mr. Sense and me to sell some of the newly high valued house/crypto and buy more regular index funds, since we’re motivated by long term lifestyle sustainability rather than extreme wealth. 

It’s true that elections have consequences and who’s running the government can make a difference in investment returns. Undoubtedly, the recent spike in bitcoin value is due to people thinking the incoming administration will be more crypto-friendly. But financial independence is a long term proposition, and emotion-driven undulations in the markets are best ignored. There are two reasons I feel so confident in the value of our investment accounts rising. First, we’re going to continue living frugally and investing aggressively. And second, we believe that the market will continue to grow over time, ensuring that the vast majority of diversified investors who avoid overpriced advisors will see their material wealth expand.