Today, I’m sharing our 2023 mid-year financial results.
Here in the Rich Frugal Life household, we typically perform a deep dive into our finances at least twice a year.
During this review, we compare our year-to-date spending to the budget, analyze our investment portfolio allocation and targets, and assess how we’re tracking towards our annual goals.
Mid-year financial review process
We typically perform many of the same tasks during our mid-year financial review as we do for the year-end review.
By reviewing our budget and investments during the year, we can make corrections or changes if we are veering too far off track in any one area.
Sometimes that means creating an action plan to rein in spending if we’ve gone over budget, or reallocating investments. Other times, we may decide to just adjust the targets themselves.
Financial planning should be an iterative process. Rigidly sticking to a budget or target you set under different circumstances or using assumptions that are no longer viable can lead to unwanted stress or feelings of deprivation.
Here’s a look into our 2023 mid-year financial review.
Our Current & Target Investment Portfolio Allocation
During our mid-year financial review, we compare our current portfolio allocation to our target allocation to assess how we’re tracking. We also discuss and update our investing strategy, if needed.
As shown in the table below, our current portfolio allocation falls roughly in line with our targets.
Our exposure to international stock and REITs is still slightly below target, with the offset going to domestic stock. We made another small rebalancing adjustment in July but have decided that as long as our allocation is within 5% of the target, we won’t make any major rebalancing adjustments.
Since we’re already maxing out our retirement vehicles, most new investments are going into our taxable accounts, which are not great vehicles for international stock or REITs due to the tax implications. Because of this, we may need to accept a higher domestic stock allocation while we’re still in the wealth accumulation phase.
Overall, our investment allocation is not too far off from where it was 6 months ago (see our 2022 year-end review).
Investment allocation of our Financial Independence portfolio, as well our current targets, for major asset classes:
| Jun-23 | Dec-22 | Target % | |
| Domestic Stock | 70% | 67% | 65% |
| Non-US Stock | 8% | 7% | 10% |
| REITs | 3% | 3% | 5% |
| Total Equity | 81% | 77% | 80% |
| Bonds & Fixed Income | 18% | 17% | 18% |
| Cash | 1% | 6% | 2% |
| Total Fixed-Income | 19% | 23% | 20% |
| Total | 100% | 100% |
Overall, we continue to feel comfortable with our target allocation, based on our age, risk level, and time to retirement. You’ll have to make sure your investment allocation is right for you.
Here’s a bit more about what we invest in for each category above.
Cash
Our cash balances are primarily invested in high-yield savings accounts. We’ve finally gotten this amount down to a reasonable number.
Maintaining a 2% cash balance, which represents approximately six months of expenses, feels about right given the current economic climate and where we are on our journey.
Bonds & Fixed Income
The majority of our bond and fixed income investments are held in Total Bond Market and Total Corporate Bond (or similar) Index Funds.
As of mid-year, we have $36,000 locked up in Mr. RFL’s deferred compensation plan (fixed income, with 100% match).
We have approximately $65,000 invested in I-bonds. While I-bonds haven’t historically played a significant role in our portfolio, they are something we’ve added over the last three years to take advantage of the higher rates. They offer diversification and inflation protection. However, now that interest rates have risen above inflation rates, we can get better returns elsewhere. As such, we’re planning to liquidate and convert most of these into CDs over the coming months once the payout rates are readjusted.
We also hold a small percentage of our bond investments in high yield bond funds, also known as junk bonds, as well as some tax-exempt municipal bonds (both investment grade and junk).
Real Estate
Although we’re interested in many forms of real estate investing, our exposure remains limited at this point in our lives. Currently, we have money invested in our live-in fixer-upper (which is not included in our investment balances), publicly traded REITs, and Fundrise.
Traded REITS are technically stocks. However, since they are tied to physical real estate, rather than corporate valuations, REITs sometimes behave differently than the rest of the stock market.
We invested $5,000 in Fundrise in May of 2021 to dip our toes in real estate crowdfunding. The investment was going so well that we invested another $3,800 in April 2022.
While our Fundrise returns have lagged the stock market this year, we’re still better off overall than if we had put that same money into the total stock market fund. With the total stock market, we would have barely broken even with gains of 1.4% vs. the 13.2% increase we experienced in our Fundrise portfolio. Real estate can add meaningful diversification to your portfolio, and we like diversification.
Note: The Fundrise links herein are referral links. You’ll receive $50 in Fundrise shares when you sign up for an account using this link (no $$ investment required)! If you choose to invest, you can get started with as little as $100 and don’t need to be an accredited investor. For full transparency, if you sign up for an account, I’ll also receive $50 in Fundrise shares, so thank you for your support!
Stock
Currently, around 11% of our investments are in individual stocks. The majority of this (10%) represents vested stock and options Mr. RFL received from his current employer. Our current exposure to company stock is higher than I would like, but the timing of Mr. RFL’s blackout periods and market swings haven’t provided us with a great time to exercise. We’re hoping to get this down to 5 or 6% by year end.
Overall, we prefer to have greater diversification so try to keep the percent we have invested in individual stocks low.
Most of our equity investments are in broad-based market index funds, with the largest holdings mimicking the total stock market. Approximately 8% of our investments are in non-US International Stock Funds.
Approximately 8% of our investments seek high dividend yields. While we don’t plan to live only off the income of our portfolio when we retire, it is nice to have an income stream that doesn’t require us to sell shares.
High dividend paying stocks are generally more mature companies with lower growth rates, so we don’t want to put too much in this basket. Fortunately, even the total stock market index funds pay a small dividend.
Current Investment Portfolio Allocation (Detailed)
Mid-year investment income update
It’s been really fun to watch our dividend and interest income grow over the past few years. We’ve been aggressively adding to our investment portfolio since beginning our FIRE journey. As our investment portfolio grows, so does the passive income we earn just from holding these investments.
During the first six months of 2023, we earned $13,413 in dividends and interest!
That is a 44% increase over last year’s earnings and almost 4 times the $3,630 we earned year-to-date in 2019… just four years ago.
What’s more exciting is that the amount we earned during the first half of this year was enough to cover 43% of our actual (after-tax) expenses incurred over that same time period!
Approximately 75-80% of the dividends and interest we’re earning come from outside of our formal retirement accounts, so we’ll have immediate access to that income in early retirement. For now, we continue to reinvest our earnings.
I’m expecting our total dividends and interest for the year to come in between $24,000 – $25,000, but this number will continue to grow as we invest more.
Year-to-date Dividend and Interest Comparison for 2022 vs. 2023
| Month | 2022 | 2023 | Change |
| January | $1,949 | $694 | -64% |
| February | $453 | $2,211 | 388% |
| March | $2,580 | $4,211 | 63% |
| April | $455 | $865 | 90% |
| May | $534 | $956 | 79% |
| June | $3,329 | $4,476 | 34% |
| YTD Total | $9,300 | $13,413 | 44% |
Net Worth Update
After finishing out 2022 with a relatively flat net worth, it’s nice to see things moving in a positive direction this year as the stock market has finally recovered its losses from last year.
We’re still aggressively adding to our investment portfolio while Mr. RFL is working. The bigger our investment portfolio gets, the greater the proportion of our net worth is that’s directly tied to the stock market. This is great when the markets are booming, but not so pretty when they are down. As a result, our net worth is much more volatile now.
Fortunately, the stock market is doing well so far this year, and so is our net worth.
Current break-out of our net worth:
Mid-Year Budget Review
As you may know from our monthly expense reports, I track and review our actual spending every month.
Despite my obsession with tracking our spending, we don’t worry much about how that spending compares to our budget. Why? Because we already reached financial independence last year. We’ve also historically saved between 50 – 80% of our income.
Yet, budgeting is still an important part of our financial strategy because it outlines our spending plan, which is based on our values and goals for the year. Having a budget and tracking our expenses keeps us aware of where our money is going and ensures that we don’t veer too far off track. But it’s flexible.
I perform a full year-to-date comparison of budget twice a year, during our mid-year and year-end financial review.
Our 6-month YTD budget to actual comparison:
| ACTUAL | BUDGET | -Over/ +Under | |
| FIXED COSTS | |||
| Housing (Interest, Insurance, Tax, HOA) | $4,772 | $4,765 | ($7) |
| Auto Insurance | $534 | $534 | $0 |
| Health Insurance | $2,160 | $2,160 | $0 |
| Other Insurance | $981 | $1,140 | $159 |
| NEEDS (CAN BE MANAGED A BIT) | |||
| Groceries | $3,466 | $3,450 | ($16) |
| Household consumables | $615 | $510 | ($105) |
| Utilities | $1,270 | $1,476 | $206 |
| Internet | $330 | $360 | $30 |
| Cell phone | $162 | $168 | $6 |
| Home Maintenance | $890 | $1,740 | $850 |
| Vehicle Maintenance | ($57) | $470 | $527 |
| Fuel | $330 | $650 | $320 |
| Medical | $538 | $810 | $272 |
| WANTS | |||
| Restaurants | $1,659 | $1,225 | ($434) |
| Alcohol | $248 | $1,225 | $977 |
| TV & Family Entertainment | $207 | $500 | $293 |
| Travel | $9,147 | $7,000 | ($2,147) |
| Childcare | $952 | $690 | ($262) |
| Child Activities & Supplies | $1,263 | $1,595 | $332 |
| Self-care | $220 | $1,140 | $920 |
| Clothes | $612 | $360 | ($252) |
| Furniture, Tools & Other Home Purchases | $1,488 | $1,482 | ($6) |
| Gifts (Excluding Charity) | $112 | $250 | $138 |
| Other / One-time Costs | $321 | $2,517 | $2,196 |
| Less: Cash Back Rewards | ($761) | ($480) | $281 |
| Total Spending | $31,459 | $35,737 | $4,278 |
Budget Review
Although I try to budget month by month, I don’t always get the timing right. There are always some variances.
Fortunately, we weren’t significantly over in any one category during the first half of this year, with the exception of the Travel category, which is mostly due to the timing of these expenses.
I expect us to be at or below our overall budget by year-end.
If you’re interested in more details of our spending or what we include in each of the categories above, you’ll find that and more in our monthly financial updates.
That’s it for Rich Frugal Life’s mid-year financial review. Stay tuned to see how the rest of our year goes…
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