I sold all my stocks!

Okay. This isn’t entirely true. We still owe equities in my wife’s Roth IRA and within my 401k. However, circumstances “forced” me to sell all the stocks in my taxable brokerage account. Here’s the story below:

One of my tenets of investing is that any money that you may need in the next 5 years should not be invested in stocks. The reason for this is that the stock market can be quite volatile (such as with the last few months of the COVID-19 pandemic or the Global Financial Crisis). While it historically has gone up in the long run, there have been periods where it has taken around 5 years to get back to even.

One thing that you don’t want to do is be forced to sell during one of these downturns because you need the money. That may turn out to be the wrong time to sell.

I have always considered myself someone that would have the largest portion of his portfolio devoted to buying and holding stocks for the long run. That mindset hasn’t changed, but the timing of it has.

My wife and I are in the midst of designing and building our home. This will require a fairly substantial downpayment. Unfortunately, the drop in the market combined with a slowdown in my business, has forced my hand. Expected assets at this time of the year have dropped by nearly $200k when the market losses are combined with lost business revenue.

Building up assets in the stock market is supposed to be used for this exact thing, right? The purpose of money is not to have money for money’s sake. Rather, you should have it to serve a purpose…to be spent on things that support your family, better yourself, for enjoyment, or to help others through charitable causes.

While I’m envisioning business eventually picking back up, the timeframe for the house building is within months. My philosophy with money is that as little as possible should be in cash since all the research shows that the best thing to do is have your money working in the market for as long as you can. It is time in the market that matters, not timing the market per se.

One of my “budgeting” spreadsheets is actually called “Funds Available to Invest.” It is just a simple spreadsheet where I tabulate expenses (housing, insurance, credit cards, 529 contributions) that are coming due before the next paycheck and literally subtract that from the amount of money that I have in checking.

When I was single, I would literally keep as little as $100 remaining in checking each month. The rest would go to stocks. Since I am married, I have bumped that up quite a bit and now usually strive to have at least $2000 available. While this probably should be higher, my philosophy has always been that my steady job provides an emergency fund and I’ll just charge things to cards until they are paid off at the end of the month.

If it comes to it, I could sell stocks for extreme needs of money. Even with the decreased salary due to the virus, I am fortune enough to still be able to rely on a decent salary that covers day-to-day expenses, mortgage, credit card bills, etc. However, the distributions that I was anticipating around this quarter were not dispersed and, hence, a good chunk of the money that I was expecting to use for the new house was not available.

Because of this, I was forced to sell my entire taxable brokerage account and move it into cash. I won’t lie. This felt very strange and wrong to do. In retrospect, if I held on a bit longer, I probably could have participated a bit in some of the gains of the last few weeks.

This, of course, is all in hindsight.

Just as easily, the market could have dropped again substantially on economic worries relating to the longterm impact of COVID-19. Since this is money that we’ll need in the next few months, I couldn’t take the chance of it dropping any further.

I didn’t do this move lightly. I have documented some of my first purchases on this blog since starting at zero dollars in 2011 as I was just starting internship. And, as weird as it may sound, I have grown attached to some of the stocks. Visa, especially, has been a terrific compounder. It is one that pays a paltry dividend but the internal compounding leading to capital gains on the stock has been among my best from a percent gained standpoint. I hope to own it again in the future.

My wife’s Roth IRA remains invested in equities via an aggressive allocation at Betterment. My Roth IRA has actually been transitioned to private equities/ ventures. So, we are no longer in stocks there either. I will be talking about this transition soon. My 401k, however, remains invested in equities. I will continue to contribute the maximum of $19,500 per year for 2020 and my profit sharing 401k will also contribute the maximum, bringing the total contribution to $57,000 per year.

While we haven’t entirely gone away from equity investment or dividend investing, my expected annual dividend has taken a huge cut. The dividends that the 401k brings in are around $2822 per year. My wife’s Roth IRA was a little more than $500 last year. This is down substantially from the over $11,000 per year that my accounts were bringing prior to selling.

Moving forward, I will continue to invest in stocks that pay dividends, but the purpose of the account will be wealth growth and accumulation versus a focus on dividend income.

I’ve entitled my monthly income updates just as that, for example, “April 2020 Income.” I historically have counted option income and dividend income into that mix. In the future I will also be including income from other assets like real estate and farmland. I haven’t received the first distribution from those ventures yet, but it should $2-3,000 per year at the minimum. I will be talking about this as well in a future post.

My wife and I are young. I’m 36 (soon to be 37 in July…dang I am getting old!) and she is soon to be 32. We are on the cusp of starting a family. While selling all the taxable brokerage account was difficult, the money will be put to good use. And, I’m envisioning getting the account value back up to what it was plus more in the next couple years.

In another upcoming post I am excited to showcase my take on the standard net worth spreadsheet as well as an updated asset allocation.

Thanks for reading! I hope that everyone is staying healthy and safe on Memorial Day Weekend as well as during the time of COVID-19.

11 Responses

  1. Two Investing –

    I couldn’t imagine how hard it was to make this decision. However, it was a decision you made to better your family – and that is priceless, should pay many “dividends” of happiness for you.

    Cheers to you getting that account back to where it was and beyond!

    -Lanny

    • scott says:

      Lanny,

      Thanks for the comment! Yep, it was a hard decision, but one that will allow us to build our dream home and raise a family in.

      That’s one of the points of money in the first place, right? It isn’t there just to keep accumulating but to spend it.

      Scott

  2. DivHut says:

    Hindsight is always 20/20. You have to do what you have to do in the moment. Clearly, you didn’t’ sell just for the sake of selling or in panic mode. Your funds will be put towards another asset that will appreciate over time and can provide another utility… a roof over your head. I always say invest “risk capital” which means it’s money you can afford to lose and thus should always ride out the highs and lows. Maybe going forward you allocate less towards a stock portfolio knowing that the funds there are “untouchable.” Thanks for sharing.
    DivHut recently posted…Recent Stock Purchase May 2020My Profile

    • scott says:

      DivHut,

      Thanks for the comment. I will be talking about an updated asset allocation moving forward. One of the ways I’ll divide the net worth will be into buckets of income generating and non-income generating. I’ve been going back and forth on whether to include our primary home in that calculation. It definitely has utility but it is not one that we can really tap into short of getting a HELOC loan or something similar to that. However, if we were to sell the house and then rent, then the majority of the cash would be able to be invested in stocks or other income generating things.

      Once the construction loan for this house is obtained, then I can go back to investing with “untouchable” funds.

      Thanks for sharing your thoughts!

      • Alexander Gregory says:

        Would love to see the growth stocks you are looking at ! Congrats and hope you keep on writing !

  3. Just checking in as it looks like there’s not been an update in a while!

    Sad to hear you ran into some issues requiring a bit of liquidation, but it sounds like it was for a reasonable purpose. I hope that’s turned out well and you’re still staying safe with COVID.

    The dividends will recover. Sometimes you’ve got to use the money for what it’s there for!
    [email protected] recently posted…Net Worth Revealed! Our July 2020 Income & Expenses.My Profile

  4. Rudi Pittman says:

    The spreadsheet seems to assume when you get a dividend you are automatically reinvesting in the stock that issued it. I’m using m1finance and any dividends can be either manually chosen as to the stock to use or has an “automatic” mode that does it’s best to keep you to your target allocations. I’m not finding a good way to handle this short of just listing the dividend, the stock it purchased and then in notes saying “Dividend from XXX”…..of course in all the pages it’s showing the stock purchased for the div. Is there a better way to handle this? I’ve updated the spreadsheet for 2020 and up….if there is any interest I’d be happy to provide the “updated” version.

  5. Rudi Pittman says:

    I changed the Divcalender Sheet to populates stock name and symbol from the b and c column of portfolio so that info only has to be entered ONCE. Am I missing a reason this should not have been done? Everything appears to be working fine.

  6. Jason Cortez says:

    I’m having a difficult time populating the spreadsheet. Under transactions tab, if I use “buy” under column B, then divcalendar and summary tabs are empty, but the portfolio tab is accurate. If i use “div” under column B (vice buy), then the divcalendar and summary tabs are accurate but the portfolio tab is inaccurate. Please help.
    Jason Cortez recently posted…Why Long-Term Investors Should Consider Dividend Stocks – Guest PostMy Profile

  7. TPM says:

    It sounds like it was the correct move. I do not like my short term money invested in stocks either.

    During the start of the pandemic, I adjusted my automatic contributions to our brokerages way down. I never like doing this, but I wanted a buffer. Maybe I am overly conservative, but at 40 with 2 kids and down to a single income. I upped the emergency fund from 5 months to 10. Its a lot of cash earning near nothing and probably foolish.

    I too hold Visa and have for years. Hopefully never sell that one. I only wish I bought a lot more when I did.
    TPM recently posted…Can You Really Stomach Buying Individual Stocks?My Profile

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