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Bouncing Back

Dennis E. Quillen  |  October 2, 2018

IN SUMMER 2005, my 40-year marriage officially ended. My previous world, with its hopes and dreams, was no more. My life as a single individual became the new reality. Part of the new reality was financial in nature. Previously developed long-term plans became fiction. New plans, by necessity, appeared on the drawing board.

My personal net worth had dropped by roughly 50%. I no longer owned my historic neighborhood condo. I lost two of our three cars, and I lost all or portions of our mutual funds and cash investments. But there were two bright spots: I kept my retirement income annuity and I still had my Social Security benefits.

The costs of the unwanted divorce impacted my financial well-being in other ways. I was facing, for the first time in four decades, many of the costs of simply being single again, notably paying taxes at a single rate rather than a joint rate. I also needed to replace items retained by my ex-spouse, including appliances and furniture.

In addition, I lost the built-in efficiencies that couples enjoy with such things as grocery shopping and restaurant two-for-one deals. Other inefficiencies included hotel rooms—they cost the same for one person as two—and cruise lines, which charge a penalty for single occupancy.

But I slowly began to see opportunities for greater financial security. My net worth was at a modern low. I recognized that my two main income sources—my state retirement benefits and Social Security—were both indexed to the cost-of-living. I was also noticing modest increases in my dividends and capital gains from the investments I retained.

The biggest bright spot: My new expenses were substantially lower than my income. What did I do with the money?

  • I increased my savings. In my initial single years, I saved about 50% of my annual income. Today, it’s still at around 30% to 40%.
  • I moved my Vanguard Group mutual funds into so-called Admiral shares to lower my fund expenses. I moved my brokerage account to benefit from lower trading fees.
  • I moved my mutual fund money into index funds and out of actively managed funds.
  • I limited my number of individual stock holdings. I’m currently at four companies and have never owned more than five. I plan to keep three of the stocks indefinitely; the fourth is on “life support.”
  • I changed my mind twice about my bond allocation. I lowered my percentage in bond holdings at first, which helped my results. More recently, I have increased my bond holdings, though the percentage allocation is still quite low.

I’ve been pleased with the rebirth of my retirement plan over past 13 years. I successfully weathered the Great Recession stock market drop and have benefited from the long-running bull market that followed. Only in one year did my investment net worth show a loss—a drop of 12.1%. My portfolio’s compound annual growth rate for the entire period, reflecting both investment gains and new savings, has been 18.6%. It’s a nice figure, but it’s unrealistic to expect a continuation at this level. Still, if I should live as long as my late Mom, who died at age 99, I may yet see the day when I become that multimillionaire next door.

Dennis E. Quillen is a retired economic geographer and university professor. In addition to blackjack, he loves long-term investing. His previous blogs were Starting Over and Getting Comped.

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