My Networth caught a Virus – Q1 2020

February and March 2020 were really spectacular months if you were invested in the stock market. Investors stormed for the exits as COVID19 ravaged societies around the world. To add fuel to the fire, OPEC and Russia decided to unleash a full blown price war in the oil market.

Naturally, my portfolio took a hit as well. Here’s how it looks like graphically.

I outperformed the S&P index. Or did I?

From 1st January to 30th March, my networth dropped by SG$27,000.

On first inspection, that seems like a small decrease. The S&P500 index dropped 20% from 3250 to 2580 over the same time period. My portfolio looks it dropped less than 10%. Hooray! I outperformed the S&P500!

Before you get all excited and think that you’ve discovered an investing guru’s blog, let’s take a pause and think clearly why I seemed to have “outperformed” the index.

Every month, I mark down a liability by $8,000. For old readers, you will know that I have a scholarship liability on my books. The liability fell by $24,000 (which should increase my networth by $24K). For new readers not sure what I am talking about, you can refer to an old post.

On top of that, I took home a total cash compensation package of $22,000 over this period. This includes bonuses and base salary.

If I had not been investing at all, I would have been roughly $70,000 richer! I lost slightly more than 20% of my networth, doing just a tad better than the S&P500 because the USD shot up. It is not a very meaningful difference if you ask me.

To really check whether you are doing better or worse than the index, you need a tool called XIRR to quantify it exactly. Read this old post if you don’t understand what I mean.

Out-performance or not, I lost money and my journey towards retirement got pushed back by 1 year.

What My “Out-Performance” Means For the Non-Investor

This walk through my Q1 2020 portfolio performance has an important lesson for young adults who are still sitting on the sidelines or just started investing a small portion of their networth in stocks.

I just experienced the biggest market crash in the last past decade, yet in the grand scheme of things, my wealth journey merely backtracked by 1 year. The only reason why this is possible is because my wealth is small compared to my income. Therefore, no matter what bombastic news headlines you see about the stocks tanking, market swings don’t hurt me as much.

To put numbers in perspective, I have roughly $75K to $85K a year of cash income versus a networth of $330K. Even if I imagined a 2008 style financial meltdown, where two thirds of stock market value gets wiped out, my journey towards retirement would only be set back by 2 years at most.

Now, imagine a 60-year-old who was planning to retire next year. He earns an annual cash income of $120K a year, versus a networth of $3M. A 2008 style meltdown would cost him $1.5M or 12 years of income. He would have to say goodbye to retirement.

In short, it is important to be aggressive in investing at a young age, but it would be financial suicide to stick to the same strategy near retirement!

Of course, I am simplifying it a little too much. If you are young, have very little wealth compared to your salary, BUT your income is strongly correlated to the stock market, you should not follow an aggressive strategy. If you work in sales, a production line, or some customer facing job, you probably fall into this category. I suggest you call up a certified independent financial advisor to walk through your finances and plan for doomsday scenarios.

Wrapping Up

For readers who have yet to take the plunge, this crisis is another typical once in a decade financial crisis that helps people build wealth. I hope you find the courage to pull the trigger after doing your research.

As for readers who are already invested and lost money, I feel for you. I lost $100K on stocks from the peak to trough in this period, so I know first hand how it feels. However, I will have to remind you that we are quite lucky in comparison. Remember that in a financial crisis, there are people literally fighting to save their homes and lives. I count myself lucky that I get to sleep at night.

Please stay healthy. And remember to get rich along the way.

Summary of Moves In Q1 2020

• I “traded” Xilinx stock. Read about it here.
• I bought more Visa at US$201.
• I bought more DBS stock at $25 and $21.
• I re-entered Las Vegas Sands at an average price of US$44.40.
• I re-entered Frasers Centerpoint Trust at $1.86.
• I sold some Great Eastern at an average price of $18.50 to partly fund the DBS / Frasers purchases.

Shareholdings on 1st April 2020