Review of 2016 Financial Activities and Accomplishment

2016 is coming to an end, it’s time to write another end of the year review on major financial decision and accomplishments for 2016.  For previous year reviews, see 2015 review and 2014 review.

I have broken the post into four major categories,

  • Stock/Bond Investment – stocks, mutual funds, stock options, restricted stock units, etc
  • Financial Protection – life insurance, living trust
  • Real estate – deal with all things related to our primary residence, investment properties etc.
  • Major purchase – big ticket items

For each item, I try to give an objective rating on how we did in standard letter grade scale.

Stock/Bond Investments

Our investments is spread over stock/mutual fund, rental properties and company stock options and restricted stocks units (RSU).  I’ll discuss each subcategory below.

Stock/mutual fund portfolio (B)

My general principle here is buy index fund and hold for a long time, this year with the automatic investments all setup, I didn’t have to do much, everything operated as expected.  To remind folks, my allocations is the following

At the highest level 80% stock / 20% bonds.

  • Within the 80% stock allocations, I breakdown the allocations further into 60% US index fund, 30% rest of the world stock fund and 10% REIT index funds
  • Within the 20% bond allocation, I breakdown the allocations further into 70% intermediate bond index fund and 30% TIPS fund.
  • And that’s it, five funds and everything on automatic investing,

From return perspective,  the annual return is just shy of the S&P 500, not bad for very little work and good amount of risk control.  All in all, in the stock investment category, I did pretty well and met all the goals I had set out in the beginning of the year.

Stock option and restricted stock units (A)

My basic philosophy is to diversify and liquidate quickly after stock options or Restricted Stocks Unit (RSU) are vested.   It’s not that I’m not confident about the company I’m working for, I am.  it’s about diversification.  Think about it, we already have so much invested in the company we work for, salary, bonus, benefits, 401k etc. are all tied in with the company.  Definitely overweigh in the investment allocation.  I don’t worry much about tax consequences, I’m sure there are people who will disagree with me.   In personal experience, the ups and downs of stock market could easily wipe out any tax saving.  I haven’t been very good about sticking with this practice and worse after I liquidate I have just left the money in the account in cash.

This year I have been very good about liquidating as soon as those RSUs are granted to me.

After tax 401k plan

My company started to offer After tax 401k plan in 2016, I’ll write up a separate post with more details on this later.  In short, this essentially gives folks who don’t quality for Roth IRA contribution a backdoor to Roth IRA, and the amount is large.  For 2016, the limit is $53,000.  I maxed out on the traditional IRA first at $18,000 to get the deduction now.  For the remaining, I have maxed out the after tax contribution.  Then at the end of the year, I converted all the after tax 401k contribution to Roth IRA, so they would incur no further tax deduction from here on out.

Deferred compensation plan

My company also started to offer executive deferred compensation plan this year, another bonus for high income people to get some tax benefit.  I will write a separate post on this later.  In short, this essentially allows executives to defer a much larger portion of their compensation, and to defer taxes on the money until the deferral is paid.  There are a number of restrictions on this, but after I went through this in more details, it’s still well worth the effort for me.   Both of the after tax 401k plan and the deferred compensation plan gave me another way to reduce the taxes, and I’m definitely taking full advantage of it.

Financial Protection

No major change here.

Living Trust (A)

Setup two years ago, over the course of last couple of years, I have moved all our investment account to trust accounts, and moved most of the investment properties into the living trust as well.  All good here.

Umbrella insurance (A)

No major change here, both personal and investment properties are covered by the umbrella insurance.

Real Estate 

Investment properties (B)

I purchased a duplex in California earlier in the year.  It’s a century old Victorian in surprisingly good condition.  I hired a property manager to take care of the property.  He is early in his career, hungry but not necessarily the most experienced.   I chose him over someone else who was more experienced but not very hungry for business.   I have generally been pretty happy with him.  The property needed some fixing and updates, he was able to get reasonably priced contractors to get them done.  Now to both units are rented out, hopefully smooth sailing from here on out.

I initially made the purchase by leverage the HELOC I have on the primary property as the market was very competitive, this allowed me to put in a cash offer.  Since then I have refinanced for an investment loan for 7 years.

Primary residence (N/a)

No change to our primary residence, still love it.  With our super low 2.125% 5/1 loan coming to an end, I did refinance as a 7 year ARM at 2.577%, still a great deal.

In addition, thanks to the California booming housing market, our property went up in value quite a bit.  I took out a HELOC last year and with the rising prices, took out a bigger HELOC this year, still through DCU (see DCU review xxxx).  It’s a nice rainy fund and fund for additional investment properties.

Major Purchases

Seems like we have most big ticket items we need, and didn’t make many major purchases other than some furniture to update the home now that the kids are older this year.

Closing thoughts and Next Year

Over the course of last few years, I have been making conscious effort to put our financial matters in order, and get a good return on our nest egg.  I’m happy to say, all these efforts are paying off nicely.  I don’t spent much time on these matters, most items on autopilot.

Next year, it’s about maintaining.  On the stock investment side, it’s mostly on auto-piloting, I spend just a couple of hours a month reviewing the statements and allocation.  On the real estate investment side, depends on how the market goes, it could be another slow year.


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