Into the Howling Dark – A look back at the first 6 months of 2020

Happy new financial year everyone!  Seeing as we are now halfway through the calendar year it’s time for a review of how we’ve gone with our spending so far, as well as an update on our portfolio and things in general.

The last 6 months seem to have lasted a lot longer due to working at home for much of the time because of the Coronavirus, and not going out a whole lot either for the same reason.  We’re very fortunate that I’m in a job where it’s relatively easy to work from home for most things and there hasn’t been much of a hit to my employment income.

Having said that it’s certainly had some challenges. In particular for my wife who had to deal with helping with the schooling of our eldest child while I was doing my work as well as trying to keep our youngest from running riot all without the help she would normally get from family members. We’ve gotten by though and we certainly have it a lot better than most which we’re very thankful for.

The impact on our expenses

It’s been interesting to look at the effect of the lockdowns on our spending, because unlike a lot of people it really hasn’t changed all that much for us. 

As I’ve talked about before a lot of our costs are fairly fixed like rates, house insurance, personal insurance, health insurance, car insurance and registration etc.  None of these costs have changed by much if at all, so there hasn’t been any real impact there.

We do still have a lot of variable expenses, but because we try to keep these costs down as much as possible anyway we haven’t seen as much change as a lot of other people seem to.  There have of course been some changes to these expenses though, both up and down. 

Unsurprisingly our food and grocery bill went up, this was about 7% more than our target.  This is due to a combination of Coles and Woolies having a lot less discounts on their food, as well as a lot less bonus points available, plus eating a little bit more at home than we would have otherwise.  Also the kids are getting older and eating more which is another factor.  We also spent a bit more than budgeted for on medical expenses.

Happily though our reduced spending in other areas meant that we will spent less money than we would have expected based on our previous spending.  As you would expect we spent a decent amount of money less than we normally would on eating out and takeaway food which more than made up for our increased food and grocery bill.

We also spent a lot less on swimming lessons for our eldest due to those being cancelled, and unlike apparently everyone else we didn’t spend a small fortune at Bunnings on any home improvement or maintenance stuff and actually spent less than we normally would there.  There was also less money spent on petrol due to not driving as much for most of the last 6 months, plus when we did have to top up petrol prices were a lot lower.

The only other changes of any note were for work travel which came in a fair bit under budget as you would expect, and entertainment.  We were still spending money on this in January and early February before everything went pear shaped, but haven’t spent anything since. 

I’ve got no idea if the T20 Cricket World Cup will still be going ahead, similarly with Hello Mega (Fall Out Boy, Green Day and Weezer), and I know that the Marianas Trench gig I was going to go to in April didn’t happen.  Maybe we’ll get some money back, maybe we won’t, I guess we’ll wait and see.

We also spent zero dollars on holidays this year.  Our plan is normally to do an overseas trip every couple of years and we did one last year to see family in the UK so we weren’t really planning on anything big anyway but on top of this we assume that we’ll go on at least one domestic holiday each year.  So we ordinarily would have probably looked at a trip to somewhere in Australia that’s warm while it was cold down here in Victoria, alas that’s not on the cards at the moment.

All up we spent a bit less than we would have expected based on our previous spending, but the savings are in the low thousands simply because we already spend a lot less than most people seem to and a lot of our costs are fixed anyway.

The impact on our portfolio

It’s fair to say that it was great for the first month and a half or so with record highs being hit, and then after that it stopped being fun.  At one stage our portfolio was down about two years worth of my salary (gross in more ways than one) which given we have roughly a 50% savings rate would have required more than 4 years worth of contributions to get back to the previous high.

Whilst my wife and I remained pretty calm about the portfolio falling that much in value, it’s obviously not a lot of fun.  When you’ve spent as much time thinking and crunching the numbers and writing about sequencing risk as I have you obviously know that at a bunch of points along your journey you’re going to be down six figures, but it’s still not a lot of fun.

I’ve experienced much bigger drops in trading books back when I was working in investment banking, but that’s not my money so it doesn’t feel the same, although it’s still not a great feeling. 

And this was definitely a first for my wife, but thankfully she was fairly relaxed about it and apart from a few “Are you ok?  Yep, are you ok?” conversations about the portfolio we didn’t really worry too much about it.  Seeing a big drop in your net wealth can be testing for your commitment to investing, and I’m really happy that she’s on board with it all and trusts the process.

We did put some more money into the market through our regular investments, and the portfolio has recovered quite a bit but we’re still down on where we were at the start of the year.  I’ve written a fair bit about sequencing risk not only after hitting your FIRE number but before doing so as well, so I understand that this sort of thing is to be expected from time to time, but it’s still not a whole lot of fun.

It also looks like distributions are going to be down a fair bit on our various ETFs this year which will have an effect on how much we can invest, we will see how that all pans out later this month. I’m hopeful that we will still manage to hit our 52.5% savings rate goal despite the lower amount of income received from distributions, I guess we’ll have to see how that goes. 

As I talked about a while ago in this post about goal setting I don’t set goals for my net worth as I really don’t have much control over that due to market movements potentially having far more of an impact than on what additional investments we can make into the market.  Which has definitely been the case this year so far!

How has the first half of 2020 gone for you?  If you enjoyed this post and would like to read more like it then please subscribe!