New YouTube Channel!

Just wanted to take a quick moment to let anyone reading know that I’ve started a YouTube channel for Figuring Out Finances! My first video is an intro on a new project where I am going to invest $5 every day for a year, and report my progress along with what I learn along the way. I plan to cover a variety of personal finance topics on the channel. If you’d like to check out the video, you can find it here:

2022 Recap: A Year to Forget?

This past year has been all over the place. So many moving pieces it seems and as I sit here at my kitchen table looking back, it can be challenging to recall all of the events we’ve experienced in that time.

Stocks took huge losses this year. Some articles I am skimming over claim nearly 20% losses as a whole, the worst year on record since 2008. Some of you will remember that 2008 was… not a great year. One of the worst in the last century, in some ways. It was strange this year continuing to contribute to both of our Roth IRA accounts and watching them fall faster than we could contribute. Not a great feeling when you are trying to make progress toward financial success!

There are upsides to enduring a year like the one we have just concluded, especially for those of us relatively early in our career and retirement-saving stages. With stocks getting beat up so much this year, any stocks that were purchased this year (and held!) will more than likely regain their “lost” value and then some in the coming years. Buying stocks in a down year for the market is kind of like getting a great deal at a yard sale. It can be difficult to have this mindset, however, especially if you keep a close eye on your investments.

I spend too much time on Reddit these days, and I read a recent post from someone who watched their retirement account too closely and got scared by the decline of their assets therewithin. It is scary, watching the number next to the dollar sign dwindle down from former record highs. This individual was so fearful that they sold off a large portion of their stocks and “cashed out” by moving their retirement savings from stocks to cash. While this might sound like a good idea to stop the bleeding of a declining market, the real tragedy is that this person fully realized the losses that we have been observing this year in the market, and now their chance of entering back into the market at the right time is slim, and will almost certainly come at the wrong time. Although it takes grit, and confidence in your plan, the only thing to do through a year like this is to hold what you’ve got and trust that there are better days to come. Of course, this advice hinges on an understanding that you have your investments properly diversified and you haven’t gone out and picked individual stocks.

I have taken closer notice of interest rates this year. It is intriguing to see the rising rates the Fed has introduced impact different parts of the economy. With the rates going higher and higher all the time, I’ve noticed that houses for sale in our area (and even our neighborhood) are beginning to hang out on the market longer than in months past. There have even been price decreases on some of these properties that have grown relatively stale and need a nudge to move them closer to a sale. Housing prices in many parts of the country are out of control. The moves the Fed have made to continue increasing their rate have at least dampened the appetite for new mortgages on some of these houses. It is pretty staggering to see how an interest rate hike can change what a monthly mortgage looks like on a property.

Out of curiosity, I just crunched some of my own numbers on our house. I can take absolutely no credit at all for the timing of how things worked out when we got into our house, but the timing looking back is nothing short of miraculous in my mind. It is by God’s grace that we have what we have. We got into our house in early January 2020, right before the pandemic. Our 30-year fixed rate was 3.65%, a historic bargain. Hardly believable now, the rate actually continued to fall for a while after that. If you would like to follow along or are at all curious, feel free to have a look at this awesome graph of historical data on mortgage rates in the US:

I kept an eye on rates during that first year in our home as mortgages were a new thing to me in general. In disbelief, I watched as the 30-year fixed rates continued their downward plunge to historic lows. It dropped so much, that one day I checked in January 2021 – a year into being in our house – and couldn’t believe the rate we could refinance at: 2.65% on a 30-year fixed. Unreal. There were closing costs that made the refinance expensive at the moment, but I knew we would be in the house for the next few years so I pulled the trigger on it. Looking back at the graph I shared above, that might be the only time in my life when I make the right financial move at the exact right time.

Circling back to the discussion on rising rates and their impact on purchasing a home, if we took out a mortgage today at 7% versus the 2.65% rate we have now (which might not seem like a huge difference), the loan part of our mortgage not including taxes and insurance, would be 65% more expensive each month. This is assuming the same mortgage principal size. That is an incredible increase in cost. Mortgage rates are so interesting in that just a couple of percentage points can make such a drastic difference in a monthly mortgage payment. I think this difference makes sense when we think about the fact that for most of us, a home will be the biggest purchase of our lives.

For the first time ever, my wife and I were both ablet to max out our Roth IRA contributions for the year. That was such a good feeling to make one final contribution in December and see that both accounts were topped up. Very rewarding when the diligence pays off in small ways like that.

I am not sure where 2023 is going to lead us all financially, but I am excited to continue Figuring Out Finances and I will do my best to check in and share what I do learn along the way. Thank you for reading!