And just like that, another year is over. I don’t remember too much about what happened at the beginning of the year without scrolling through my photos. Most of your managers or shareholders don’t either, which is why it’s good to keep a log you can reference in your year-end reviews, especially if you did something positive.
For this year in review 2021, I’d like to go over three main categories: investments, family, and business. Investments are what support my family. Family is what I care about the most. And writing is what I enjoy doing to help others and give me a sense of purpose.
FS Year In Review 2021: Public Investments
Overall, my 14 public investment portfolios with roughly an 85/15 stock/bond weighting are up about 22%. This is a 2% underperformance of the S&P 500 and a 10% outperformance of a 60/40 portfolio.
Two of the largest funds account for the majority of my stock and bond passive income. They are relatively less aggressive given their greater focus on income. My tax-advanced portfolios have outperformed the S&P 500, but they have smaller balances.
The reason why I have 14 portfolios is because I have multiple taxable portfolios, multiple tax-advantaged portfolios (Solo 401(k), SEP IRA, Rollover IRA), two 529 plans, and custodial investment accounts for my children. It is really complicated to manage, which is why it’s nice to use Personal Capital to keep track of everything.
Return Target Post Work
Ever since leaving work in 2012, I’ve had a minimum investment return target equal to 3X the risk-free rate of return and an ideal return target of 10%. For example, with the 10-year bond yield at ~1.5%, my minimum investment return target is 4.5%. However, the bull market has helped my investments surpass these targets.
Below is a chart that shows the S&P 500 annual performance since 2014. 2019, 2020, and 2021 have been phenomenal years. Therefore, I attribute 60% of the return overage due to luck and 40% due to staying disciplined.
You may find that as your investment balances grow, the volatility may become more unsettling. Suddenly, instead of only losing $100,000 on a $500,000 investment portfolio, you might find yourself losing $1 million on a $5 million portfolio.
To increase your chances of making money over the long run, it’s important to follow an appropriate asset allocation, stick with it, and keep investment fees as low as possible. You could try to time the market by getting in and out. However, all the data shows market-timing doesn’t work long term. I’ve tried many times before and failed as well.
Because my investment returns have surpassed my expectations since leaving work, the excess returns don’t seem real. It feels like funny money to me. Therefore, I plan to spend some of the overage to live a more comfortable life. I also plan to give a lot more money away.
FS Year In Review 2021: Real Estate Investments
It has been a fantastic year for real estate investors in 2021. The median home price is up around 18% YoY, which is unprecedented. If you bought real estate 12 months ago with 20% down, your cash-on-cash return is up 90%. Even after subtracting insurance, maintenance, and other expenses, the return on your cash is still up massively.
Check out the Case-Shiller 20-City Composite Home Price Index. Prices began moving higher in June 2020.
Unfortunately for me, most of my real estate holdings are in San Francisco, which the media loves to bash. Apparently, everybody is leaving in droves, causing rent and home price appreciation underperformance. It doesn’t matter that tens of thousands of employees have seen massive equity gains in stocks like Google, Facebook, and Apple. It’s game over for the city by the bay!
Actually, San Francisco real estate did just fine in 2021. From January 2021 through November 2021, single-family home prices supposedly rose 22%, while condo prices supposedly increased 21%. We’re talking about a $325,000 gain for single-family homes and a ~$239,000 gain for condos.
Frankly, I don’t believe the gains have been that great. But below is SF median home price data from the MLS.
The luckiest thing I did in 2020 was buy a home after writing the post, Real Estate Buying Strategies During COVID-19. The post was first written on April 27, 2020. I utilized my strategies and got into contract 45 days later.
I had been eye-balling this home since late-2018 when I began taking my son for neighborhood walks. The home went through extensive remodeling in late-2019 and early 2020. Then, the owners inexplicably decided to put the house on the market a month after lockdowns began. Public open houses closed and it was just me and the listing agent talking about life for hours.
Our larger home has been a panacea for my family during the pandemic. It could very well be our forever home until our kids go off to college. For the home to also appreciate by at least 10% in 2021 feels like winning the lottery. This ability to enjoy your investment is the main reason why I love real estate so much.
Real Estate Crowdfunding
After a dicey 2020, when most distributions were put on pause, distributions continued in 2021. On November 22, 2021, I got a distribution from my main real estate fund for $46,106.09, bringing total distributions for the year to $53,545.69. Not bad based on the ~$400,000 left in this one fund.
The 100% passive nature of real estate crowdfunding is hard to beat. It also feels good to diversify away from expensive San Francisco / Lake Tahoe / Honolulu property. Demographic shifts towards lower cost areas of the country are going to continue.
When you invest in a private real estate deal, make sure you understand the capital stack and where you are on the capital stack. If you plan to invest in equity deals, there needs to be enough equity raised and skin in the game by the sponsor. Otherwise, you may be better off investing in debt.
For most investors, I think it’s better to invest in a diversified fund like the ones offered by Fundrise and a real estate ETF like VNQ. The goal is to gain real estate exposure and hit singles and doubles over the long term with most of your capital.
You can then supplement your real estate exposure with individual deals or real estate stocks you find most interesting if you wish. This is how I invest in equities: ~80% in index funds and ~20% in individual stocks.
FS Year In Review 2021: Alternative Investments
I have investments in venture debt, venture capital, and crypto. These investments make up a total of roughly 10% of my investable assets. I have always tried to allocate around 10% of my capital in highly speculative names ever since my big win in 2000 with VCSY.
The most speculative investment I made in 2021 was in HUT, an ethereum mining company. I mentioned it in my post, How I’d Invest $100,000 Today. I bought at $4 and it went all the way up to $14 before collapsing back down to $8. LTH also did very well the first 30 days after purchased. Then it round-tripped after omicron came out. Sigh.
My investments in venture debt and venture capital are not as speculative since they are funds with multiple positions. My four venture debt funds have returned in the mid-teens. They are steady providers of passive income. These funds also own warrants, which provides further upside.
I invested $200,000 in a new venture capital fund in 4Q2021. The capital will be called over two years or so. This is the operator’s second fund after he had a successful stint as the CFO of a public company for about 13 years. He is a pretty connected guy so I thought it would be nice to get plugged into his network and potentially co-invest in future deals.
In 2019, I invested $140,000 in an oversubscribed venture capital fund. It is one of the gorillas in the VC space. I wanted to invest more but was throttled in the friends and family round.
Below is a snapshot of the paper returns. It has provided zero passive income or distributions as it’s still in the capital-calling stage. It is also a 10-year fund.
FS Year In Review 2021: Family
When I’m feeling unmotivated, I just think about my wife and children. Then my batteries recharge because I will never quit on them.
Although the pandemic stinks for most adults, perhaps it hasn’t stunk for most young children. My wife and I spent so much time with our kids in 2021. We took them to playgrounds, soccer fields, beaches, the zoo, and the science museum every week. We also took them to pick cherries and ride the trains in Sonoma. As far as they’re concerned, 2021 was a blast!
After our daughter was born in December 2019, we decided we wouldn’t travel for the first two years of her life anyway. So in retrospect, if there’s ever a time to have a baby, it’s during a pandemic. She’s hitting all her milestones and we feel really blessed to have her. She will most likely be our last child, so my wife and I are trying to cherish every moment before she goes off to school.
After multiple rejections from various preschools, we found out in 1Q2021 that our son got into his target preschool. He started school on August 25, 2021 and he’s had a blast. You just never know how your kids will adapt to a new school environment. I’m proud of him because he didn’t cry once the first week of school. Instead, he was filled with excitement and nervousness.
Getting into school provides relief because it means our daughter will likely get to attend our son’s school as well. The school goes through the 8th grade, which means we don’t have to worry about the application process in a long while.
However, we applied to another school for 2022 anyway because she can’t start preschool until 2023. The 2022 school is only three hours a day for two days a week, which I think is perfect for a 2.5-3-year-old. We will probably get rejected, but I think it’s always worth trying.
Saw My Parents
After feeling negative symptoms for ~40 hours after getting my booster, I decided if I was going to feel ill, I might as well make the most of it by seeing my parents. Further, I had finally squared away my life insurance needs with a new 20-year term policy. As a result, I felt more at peace leaving my family behind to see my parents.
Thus, after one year and 11 months, I finally flew out to see my parents for six days in December. The trip felt like I was in a time warp because nothing really changed, thank goodness.
I swapped out my dad’s phone battery, which he has been using since early-2017. Uber Eats and Uber were installed on his phone with my credit card. Then I donated five boxes of stuff and mailed a package for my mom, filled up a tank of gas, and removed the weeds in the driveway.
I feel comforted knowing my parents have shelter, food, transportation, and each other. I am bummed we live so far away and COVID kept us apart for so long. It would have been great if they got to spend more time with their grandchildren.
After my visit, now I can say that I saw my parents in 2020 and in 2021. This way, COVID’s negative effect won’t feel as bad when I look back at history.
Year In Review 2021: Financial Samurai
I wrote over 310,000 words and more than 160 posts in 2021. This is slightly more than normal because I spent more time at home. Once the pandemic hit, I decided to be more entrepreneurial to make the most out of a suboptimal situation.
Although 310,000+ words might sound like a lot, remember, I don’t have a day job. But I do have two young children, which meant I needed to consistently wake up by 5:30 AM to write before they started jumping all over me. Thankfully, most things get easier with practice. Here are the best posts on FS for 2021.
My extra focus on entrepreneurship resulted in increased online income. It’s nice to know there is a correlation between effort and reward. I think that’s all any of us really want. Most of the extra income just got reinvested or used to pay down mortgage debt.
Despite increased income, I’m not happier. In fact, I became less happy because I had to spend more time negotiating business deals. This took away from my main joy of writing. To keep up my writing cadence, I spent more time working beyond my ideal 20 hours a week.
Thankfully, I set a two-year deadline for my entrepreneur sprint. On February 1, 2022, that deadline will be reached and I will strictly limit my online activity to no more than 20 hours a week again. It’ll feel like going into semi-retirement as taxes goes up.
Finished 99% Of My Book
Perhaps the thing I’m most proud of is finishing a ~110,000-word book (320+ pages) with Portfolio / Penguin Random House. I spoke to a couple of authors who said that writing their book was all the work they did until it was finished. But I didn’t want the process of writing a book to cannibalize my writing on Financial Samurai. Therefore, the only thing I could do was work more.
No wonder why I feel so beat. But the great thing about hard work is that it’s over. You can enjoy the returns.
My book is in the final production phase. It has gone through more than a dozen revisions with two editors. Now it’s getting polished by a copy editor, who will go through the grammar, formatting, and layout.
I’ll revise it one last time in mid-January 2022. Then my revisions will be reviewed again by two editors in February 2022. Finally, the copy editor will review it one last time. Only then will it be sent off to the printing presses for a June 28, 2022 release date.
Holy moly! Based on how much time I spent writing and editing the book (2 years), I can’t believe hardcover books generally cost under $30. They are the greatest bargains. I feel like I put in at least $400,000 worth of my time.
So if you plan to write a book, please know it may be the hardest thing you will ever do in your professional life. It also likely won’t be a lucrative endeavor. But as writers, we care far more about producing a great read than making money.
Going through the process of writing a traditionally published book has significantly increased my appreciation for books in general. I’m now reading all my unread books at home, taking careful notes on what makes them great.
Once I get through my final revisions in January 2022, I’ll unleash it to the world for pre-orders. Stay tuned.
Overall Grade For 2021: B+
2021 was one of the most challenging years of my life. I constantly felt overwhelmed with fatherhood, Financial Samurai, managing our finances, and writing my book. My sabbatical was an utter failure because I didn’t feel rested afterward at all.
If you work for yourself, there’s always something more you can do. You may be hating your day job at this moment. However, try to appreciate being able to take paid holidays while you let your mind and body decompress. In 2021, I sometimes daydreamed of going back to work to ironically take a break.
Stress can often negatively affect one’s health. And for several months, I did have shortness of breath issues due to elevated stress. My vision also worsened, which is part of the hazards of working from home on a computer for too long. Therefore, 2022 will be the time to take things easier. I can’t wait!
Readers, how was your 2021? Feel free to share how your investments, career, business, and family life did. Was the year as hard for you as it was for me? What were some of your wins and losses?