Second FIRE Anniversary – Financial Tracking Update

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I got an email from a friend from high school recently asking how our early retirement financials are holding up since it has been two years since our FIRE escape.  He wanted to know if we were trending over or under our projections.  Stated another way, he said “I want to know if I can retire!”  🙂

After reading his note, I realized that I hadn’t yet provided an update on our investment & spending plans since hitting our two year FIRE Anniversary last month, so I thought I would share that now.  The headline is that while we had been tracking AHEAD of our plan, we’ve now started to track a little BEHIND.

This is a very new turn for the worse.  Unlike the general market trends, both MegaCorps I have worked for are having a tough run on Wall Street lately, declining 28% and 16% since the start of the year.  They were both riding high when I first retired, but both of these two solid blue-chip companies have hit a tough patch.  The MegaCorp I’m an official retiree from (and invested the most in) was actually the worst performing stock in the S&P 500 in the first quarter of the year.  Yikes!

When we met with our financial planner earlier this month his comment was that “the damage is done” when it comes to MegaCorp’s impact on our portfolio.  When we started meeting more than 10 years ago, MegaCorp stock options & grants represented about 70% of our total retirement nest egg. Now that number is down to a small 6%.  That’s mostly through us selling grants & options – but also because its value has now sunk so low.

Here’s the impact it has had on our retirement savings versus our original FIRE Plan:

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We were way ahead of our plan (more than 2 years spending) when MegaCorp stock was flying high, but we are now a full year’s spending behind.   ‘Easy come, easy go’ they say.

Even though it’s down to 6%, the value of our MegaCorp stock options is still the part of our portfolio I look the most at.  But, given the now small proportion of it to our other investments, it really has little downside at this point.  Especially considering that their P/E ratio has fallen from a irrational 26 to an incredibly low 11.

(I should note that this is despite MegaCorp returning to top line growth and posting still-record profitability.  The fact is that Wall Street has lost confidence in the company’s growth prospects for now, they have new management in place, and they just made a very expensive acquisition.  They will need to put up some good numbers to get back in the analysts good graces – or be acquired.)

The rest of our portfolio has (thankfully) performed pretty well over the last year.  That has cushioned some of the blow from MegaCorp’s share declines. As I’ve noted before, we have been riding with 3 years of cash as a cushion against market timing,  While the “damage is done” from MegaCorp in our current tracking, we could still benefit from a turn of fortunes over the next 12-48 months as our options hit the close of their exercise windows.

I should note that our spending has played out right on track over this period.  Health insurance was more than we initially budgeted for, but we’ve spent less in other areas than we expected.  We don’t have any big additions/remodeling to focus on at our house this year, so that should keep our spending in check this year as well.  I’ll provide a full update on our spending later this year, but there isn’t anything I’m worried about on that front right now.

How are your FIRE nest egg /  investments tracking so far in 2018?

 

Image Credit: Pixabay

10 thoughts on “Second FIRE Anniversary – Financial Tracking Update

  1. Well, Chief, as our former commander-in-Chief, Dwight D. Eisenhower said: “I have always found that plans are useless but planning is indispensable.” I think you will find over time, in event horizon planning, after options are retired, things will smooth out in a highly diversified portfolio. You have all foundations set. Steady as she goes!

    Liked by 1 person

    • Yes, ‘steady as she goes’ is the direction that we are heading. Our FIREcalc Monte Carlo analysis is still even with where we started our FIRE journey.

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  2. I’m watching as a bystander to see how you are doing and reacting and so far you seem very calm about things, which is great. It’s something that I think I might worry about once I hit FI, so it’s reassuring to see people like you coping well.

    Liked by 1 person

    • I find that I think a lot LESS about financial matters since I FIRE’d. At work, it was easy to focus on savings rates & investment returns because that’s why you were there. Now, there are too many fun things to keep me busy!

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  3. I think when you first retired, MegaCorp was around 30% of your assets. I’d be interested in knowing the process you went through to diversify down to 6%. Were taxes an issue at all for you during the diversification process?How did you decide on a schedule? I am also impressed that you didn’t seem concerned about having a concentrated position at the time you retired.

    Over the years, I’ve sold 99% of my concentrated holding, but it still accounts for 30% of my assets due to crazy appreciation. I paid taxes at a 38% rate on those sales. In hindsight, diversifying was a terrible move in my particular case. The taxes are so onerous I am considering to pass the remaining capital gains to the next generation.

    Liked by 1 person

    • Our MegaCorp position is all stock options – we sold all of the outright grants we had 5 years ago. They hit their exercise windows each summer between 2012-2022.

      The average price we’ve sold for thru 2018 is about 40% higher than the current share price. Exercising the options accounts for about half of the diversification. The other half is just the loss of value/leverage as MegaCorp stock has declined.

      We’re not underwater by any means, but “the damage is done” for sure. And yes, taxes have been severe each year. They are fully taxed as ordinary income at the maximum tax rate. 😦

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  4. You still have outstanding unvested options that you have to wait to exercise? I think when I left my company, all unvested options were cancelled immediately. You have some great terms!

    Considering the ordinary income tax rate and the decline in value, you’re looking good with only a -1.0 year spending!

    Liked by 1 person

    • Yes – I was a ‘Rule of 70’ retiree at age 46 with 24 years of service so I was able to hang onto all of of my options. I think typically folks have to exercise them within 60-90 days.

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  5. So cool, i don’t know why i hadn’t found you earlier. My personality typically leans towar freaking out about things of this nature. Your even keel approach seems reassuring, i definitley will stay tuned for future updates!

    Cheers!

    Liked by 1 person

    • Glad you found us! Like I said in the post, easy come – easy go. I’ve learned that early retirement is about so much more than money. Time, not stuff, is the ultimate luxury.

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