Sunday, 16 October 2016

9 months into 2016 – The plans they are a-changin’

Cyprus vs The English CountrysideWith the back of 2016 now largely broken this year is fast shaping up as one of the most memorable of my FIRE journey thus far.  Personal finance wise it’s been great.  My wealth passed 7 figures, I became financially independent (FI) and the rate of change in my wealth has been like nothing I’ve ever seen before or could have imagined when I started on this journey.  To put that last point into perspective by the end of quarter 1 I had added £55,000 to my wealth, by the half year mark that had become £142,000 and by the end of quarter 3 it had become an almost unbelievable £220,000.

However, this is not what is making things memorable.  That’s coming from me slowly realising that because my FIRE strategy makes me an outlier it also makes me vulnerable and exposed rather than invincible.  This was nicely demonstrated by the Brexit vote.  As a ‘young’ retiree looking to head to The Mediterranean within a year I’m sure it doesn’t take a genius to guess that I voted Remain in the Brexit referendum.  If everyone else had have been on my trajectory that would have been the result.  Instead my demographic had no influence, as the numbers of people looking to FIRE to The Med are probably not much more than one, so democracy took over and we ended up with Leave for many other reasons.  So far that result has resulted in pound devaluation (which on its own I could have coped with) but also discussions of Hard Brexit which has turned my plans from 95% The Med to 50%.  I’m a minority affected by politics and populism and because I’m not part of a significant demographic my vote just won’t make a difference.  What if the next populist democratic step is to start taxing capital and providing relief to the indebted...  We’re almost there via interest rates anyway but what if it becomes an overt policy...

All of that said I’m not going to grumble or play the victim card as no matter what plays out from here I’m very conscious of the fact that 9 years in to my FIRE journey I still find myself in an incredibly fortunate financial position and still have plenty of options.  Let’s look at the current financial details.


I continue to define Saving Hard differently than most personal finance bloggers.  For me it’s Gross Earnings (ie before taxes, a crucial difference) plus Employee Pension Contributions minus Spending minus Taxes.  Earn more and one is winning.  Spend less or pay less taxes and you’re also winning.  Savings Rate is then Saving Hard divided by Gross Earnings plus Employee Pension Contributions.  To make it a little more conservative Taxes include any taxes on investments but Earnings include no investment returns.  This encourages me to continually look for the most tax efficient investment methods.  I finished the quarter with a Savings Rate of 53.0% against a plan of 55.0%.

RIT Savings Rate
Click to enlarge, RIT Savings Rate

Saving Hard score: Conceeded Pass.  Back below plan however I’m not going to beat myself up about it.  The reason is that if I change Gross Earnings to Net Earnings in the formula, so remove tax and National Insurance both of which I can do little about, that Savings Rate leaps to 91.0%.  That even trumps Jacob’s (of Early Retirement Extreme fame) 75%.


2016 year to date (02 January 16 to 01 October 16) investment return is now a healthy 14.9%.  My investing strategy is now transitioning from one focused on accumulation to one preparing me for drawdown.

Additionally, I’m still trying to build cash and cash like holdings (NS&I Index Linked Savings Certificates predominantly) quickly for a non-mortgaged home purchase.  In the quarter this has gone from £249,000 at the end of half 1 2016 to £260,000 today.  If I want to both stay in the UK and still FIRE mid-2017 that rate is just not good enough.  One option, as I’ve mused about recently, is to extend my time working.  I’d like to think I can be more creative than that though so have some more work to do here.

I’m also trying to ‘ensure’ I can live off dividends alone in FIRE.  2016 total dividends look like being a smidgen over £20,000 against a UK FIRE spend budget of around £21,000.  It’s not actually as bad as that and would be closer to £22,000 if I hadn’t part way through 2016 switched from an OEIC’s that pay dividends annually to ETF’s that pay quarterly which will self correct in 2017.  I’d actually like a bit more hedge than that which would allow some dividend reinvestment during the good times and cover off a fall in dividends during the bad times but I still have at least a few months to FIRE so there is still time to get that sorted.

RIT Annual Dividends
Click to enlarge, RIT Annual Dividends

This is what my asset allocation looks like today.

Current RIT Asset Allocations
Click to enlarge, Current RIT Asset Allocations

I continue to invest as tax efficiently as possible with my tax efficient holdings now consisting of:
  • 44.8% held within Pension Wrappers with the majority being within a Youinvest SIPP and Hargreaves Lansdown Vantage SIPP
  • 9.7%% held within the no longer available NS&I Index Linked Savings Certificates (ILSC’s)
  • 11.5% held within a TD Trading ISA.  
Tax efficiency score: Conceeded Pass.  At the end of 2015 this was 67.0% and it’s now 66.0%.  At this stage of my journey this is now largely what it is and not really able to be influenced.  I’m still planning on maximising my ISA contributions with the full £15,240 planned to go in for tax year 2016/17.  It will also be maximised in 2017/18 when the ISA allowance increases to £20,000.  This is one of the reasons I’m struggling to build cash but for me every annual ISA allowance is seen as a once in a lifetime opportunity that I am not prepared to lose out on.  I’m also still hitting the pension fairly hard but am starting to explore backing this off as I think on balance I nearly have enough there, it’s at a level where Lifetime Allowances are starting to become a consideration and I need more cash if I don’t want a small home mortgage.  More to come on that in the coming months.

Investment expenses also continue to be treated like the enemy.  Going into the quarter they were at 0.276%.  By completing a partial pension transfer and by rearranging investments in a SIPP I’ve been able to reduce that to 0.246%.

Minimise expenses score: Pass.  Some conscious decisions made in the quarter which have yielded good results.  An investment expense saving of 0.03% might not sound like much but for me that’s currently equivalent to £325 per annum which I’d prefer in my pocket than the financial services industries.

If I’m Investing Wisely I should be able to also at least match a benchmark.  My benchmarks are continually challenged by readers but at least for now my Benchmark here remains a simple UK Equity and Bond Portfolio aligned in percentage terms with the building blocks of my own portfolio which is then rebalanced once every year.  Today that benchmark allocation is 66% UK Equities and 34% UK Bonds. The 2 indices I use to replicate that benchmark are the FTSE 100 Total Return (Capital & Income) Index which in H1 returned 14.1% and the iBoxx® Sterling Liquid Corporate Long-Dated Bond Total Return (Capital & Income) Index which has returned 16.9%.  The total return of my benchmark is therefore 15.1%.  In comparison my portfolio has returned 14.9% which is a slight miss against my benchmark.  In my defence I’m now sitting on £157,000 of home purchase cash which will certainly have placed drag on my portfolio in the bull market we have just been through.  Interestingly, if I was to split the UK Equities portion 50% to the FTSE100 and 50% to the FTSE250 that benchmark would become 12.0% resulting in a beat.

Investment return score: Conceeded Pass.  A slight miss compared to my primary benchmark but my portfolio now has a lot of cash and for completeness it’s also important to note that my benchmark doesn’t carry any investment costs where my portfolio sees expenses including fund and wrapper expenses, investment spreads, trading commissions, withholding tax on some investments and deducted at source tax on savings interest.

In the scheme of a lifetime of investing this quarter is still insignificant.  I’m all about time in the market and not timing the market so as always let’s zoom out and look at my performance since I started down this DIY road.  This still looks excellent when compared to my benchmark with the chart below tracking the performance of my portfolio against my Benchmark and inflation (RPI).  Note that the chart assumes a starting sum of £10,000 which is not my portfolio balance at that time but is instead simply a nominal chosen sum to demonstrate performance.

RIT Portfolio Performance vs Benchmark vs Inflation
Click to enlarge, RIT Portfolio Performance vs Benchmark vs Inflation

Since the end of 2007 the benchmark continues to beat inflation with Inflation growing at a Compound Annual Growth Rate (CAGR) of 2.7% compared with the benchmark at 5.4%.  In contrast my portfolio has increased at a CAGR of 6.9% (up from 6.4% at the end of H1 2016 showing nicely why you don’t want to be out of the market as it can make great strides over short periods of time).  In real inflation adjusted terms that’s therefore now 4.2%.  My whole investment strategy since 2007 has been to generate a long term Real Return of 4% and throughout most of my journey I’ve always been well behind but as I now move ahead of plan it seems it might not have been a fetched target after all.

Long term investment return score: Pass.  With my long run real investment return now at 4.2% I’m finally ahead of plan.


I’ve proven that combining Saving Hard and Investing Wisely gives Early Financial Independence and the option of Retiring Early.  I’m now just making some final considerations and possibly being a little greedy but it’s so great to have choices.  This is the contribution I’ve personally seen from each element.

RIT Contributions from Saving Hard and Investing Wisely
Click to enlarge, RIT Contributions from Saving Hard and Investing Wisely

I’ve now been on this journey for 9 years and all that Saving Hard and Investing Wisely adds up.  My progress to FIRE looks like this:

RIT Progress Towards Retirement
Click to enlarge, RIT Progress Towards Retirement

That’s £1,090,000 of wealth that has come from nothing more than hard graft, considered spending and taking some time to focus on some selected investment fundamentals.

As always please do your own research.


  1. Interesting as always. However, the purpose of a benchmark is to measure alpha and tracking error. I'm pretty sure youre not attempting to generate alpha, so no benchmark is appropriate. I think an interesting comparison would be the portfolio of active investments you would have taken versus the benchmark of your Portfolio.

  2. I think you're worrying about the wrong scale of politics. The likelihood is that Hillary will become US Prez and let rip with her warmongering propensity. Looking back you'll view questions such as Brexit, survival of the Eurozone, etc as small beer. But if I'm wrong, no matter; all you have to do is guess which parts of Europe will delay becoming Sharia states for longest, and settle there. So avoid Sweden, I suggest.

    Alternatively, settle in NZ or Chile or wherever, taking all your capital with you.

  3. If you are now worrying that you don't have enough for your plans, and that political change could prevent them, you are no longer Financially Independent. I know you are now considering staying in the UK rather than the Med, but for each scenario you need to define a new FIRE total to work toward, else accumulation will just be a drug, and wealth a means of keeping score.

    (Obviously some political changes, like revolution or nuclear war cannot be handled, but you can impose a confidence level, that you are 90% sure you have enough for Plan A, or 98% for a more frugal plan B)

    John (FIRE + 3 days, as none of my scenarios suggested I needed to continue at my hated job any longer, and if I go down, so does nearly everyone I know)

    1. I believe I am Financially Independent with a definition being "... is generally used to describe the state of having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income that is greater than their expenses." I could leave my job tomorrow and live a very happy life either in the UK or Cyprus. I'm also currently only on average spending 2.0% of my wealth to live the current life I live which includes work costs. So I'm definitely FI.

      What I'm trying to figure out is what FIRE looks like for me given the latest information I have and I do agree with you that each scenario requires a target. If I had have FIRE'd pre the Brexit vote then I would have been just getting on with the Cyprus move. However I'm in a very fortunate position to still be earning good money, to still have time on my side age wise and I now also have some new data. I'm going to use all of those to my advantage.

      How does FIRE feel 3 days in?

    2. My last week at work was clouded by a nasty cold, not helped by a 300 mile round trip for a handover meeting, where I was really miserable. So its a rebound feeling at the moment.

      I've started engaging with all those loose ends, hoping to burn through them with the extra time, but I've got no grand plan.

      Not worrying about work, or worrying about leaving work, is great

    3. FIRE all depends on your RE lifestyle. You might be FI in your work lifestyle, but its easy to imagine a more, not less, expensive retirement one, whether that be a fancier home or spending on travel and golf opportunities that open up. Frugal FI can be very different from Lifestyle FI, and too many other people seem focus on frugality to get their saving rate up such that they can't relax and enjoy their wealth when they get it. I'm certainly a miser, hence stopping earlier to have a longer, cheaper retirement than banking more to afford the fancier lifestyle that I just wouldn't splash out for.

    4. "Not worrying about work, or worrying about leaving work, is great." Many congratulations. Sounds fabulous.

      Frugal FI(RE) vs Lifestyle FI(RE). I like that as a way to think about it. I'm thinking about it similarly but slightly differently. I'm looking for Quality of Life FIRE without slipping into Standard of Living FIRE. I think both the UK and Cyprus plans are both the former and are only months apart while the hybrid plan is fast starting to creep towards the later.

  4. Remember that much of your £220,000 gain is due to the post Brexit devaluation.Maybe you should increase your FI target to strip out the effect of this one off gain (ie 20% roughly) and then work a bit longer. Pull the trigger then when all options are comfortably back on the table.

    1. I'm not sure I have to make it that complicated. I'm thinking 3 scenarios:
      1. I already know what a move to Cyprus will cost and so what capital it will require. I also know the kick in the teeth I've received on the cost of the dream Cyprus home provided Sterling doesn't just recover once Article 50 is triggered or another Med country blows up or ... Even at current rates I can still head off to Cyprus as planned mid 2017 so it's still very much on the table.
      2. I know what it costs to live in the UK. The only thing I need to figure out is what the dream home will cost to build and that will set a FIRE date. I'm working on that now. Some initial models suggest that will add months and certainly less than a year to my current Cyprus plans so hardly arduous.
      3. Try and have the best of both worlds. Spend the minimum amount of time and arrange my affairs in such a way to ensure I stay UK resident meaning healthcare, pension etc is covered. Then spend the rest of my time in Cyprus. This must be more expensive than 1 or 2, will take some compromises and will probably add 1 year to the plan.

      From that it's a matter of choose. It's also important to note that I always planned on FIRE'ing in mid 2017 so I still have a few months to make the final call. Maybe I just shouldn't be airing my dirty laundry on the blog however I've always tried to be transparent so it felt and feels the right thing to do.

    2. Please keep airing the laundry :)

      Have you considered a house in the UK and touring Europe every year in a motorhome?

  5. But isn't the one-off (temporary?) gain actually giving him the extra option that he wants of buying a house in the UK? Theres an argument that he should use these currency gains to buy a house in the UK before sterling strengthens/foreign buyers bid up prices.

    1. Only if it feeds through to long term earnings gains as a minimum but ideally dividend gains. Also it's not quite as simple as that as:
      - a lot of the gains are wrapped within a pension which I can't access until I'm 55.
      - the gains outside tax wrappers would see capital gains which I don't really want to expose myself to.

  6. Yes - there is an argument that now is a particularly good time to buy a UK house. People are demanding brexit price reductions (even though they can't articulate why) so you could bag a bargain. If you're flexible on location you could get a property for the 220k you've just made from the brexit bounce. I.e. its effectively cost you nothing.

    That said - its more important to get the house you want than the house thats cheap. You should still get out and rent in the med for 6+ months, if you don't go, you won't know as they say.

    PS why are you still posting all these savings no.s and pass/fail type metrics? That stuff is irrelevant now, that phase is finished. Bit like running a marathon and then deciding to time how long it takes to walk back home afterwards??

    1. I actually don't see my accumulation phase as finished until I actually FIRE and I'm currently only FI. For me there were all sorts of milestones along the way including £1M and FI.

    2. Yes. I guess the cash is still rolling in right now so you may as well keep accounting. That 220k figure since jan is staggering! Absolutely incredible. Your talking almost a grand a day. Thats quite a money snowball?

    3. I agree. If somebody had have said to me in 2007 that in the first 9 months of 2016 my wealth would increase by £220k I just wouldn't have believed them. TBH if somebody had have also said to me that I'd have nigh on £1.1M at the end of that 9 year period I probably wouldn't have really believed them either.

      This really has been the financial journey of a life time. I know that others have far more than me but given what I had when I graduated, mistakes I made early on in my work life, my family background and how I grew up I honestly couldn't be more proud right now.

      I just wish more could feel and see what I feel and see right now. Armed with that I'd bet some would head towards a similar path.

    4. RIT - you should be absolutely proud and rightfully so. Its an immense achievement to hit that figure, so congratulations firstly! For me, I expect to continue to set these targets and measure them once I get to FI and full FIRE - but thats the way my brain is wired, I want to know how I am tracking, as I think I will have difficulty seeing my "pot" go down...

      As The Rhino says - keep your eyes open you never know what "bargains" there may be in the UK housing market, but make sure its somewhere you want. As you did spending time overseas to find the right place, do the same in the UK!
      London Rob

  7. Interest on savings has been paid gross since 6 April 2016.

    1. Only in the UK. I still have an offshore savings account which has tax deducted and which I count as a cost.

      I off course net that tax off according to the double taxation agreement with the UK.

  8. Another fascinating post. But I don't understand why you of all people would be going for a non mortgaged home purchase when you do buy. You focus incredibly hard on making savings where you can, so why wouldn't you take the free money of cheap debt and more than covering your interest by leaving the rest in divided earning investments?

    You can could keep fixing and shopping around for deals every few years (keeping remortgage costs low) while rates are low, and pay the mortgage off at the end of a fix if rates rise substantially.

    I feel that you have a moral objection to buying on debt. Perhaps evaluate whether this is a rational or irrational view.

    1. Whoops, that sounded more "lectury" than I intended. I just meant it as some advice but also questioning if I've missed something.

  9. well although it could well be a sweet move, it could go wrong and cost you. Just spending less (as long as its not making you miserable) is zero risk.

    The risk I see is the portfolio tanks and then soon after interest rates rise putting you in an awkward spot of potentially being a forced seller.

    like all these sorts of calls - you need a crystal ball really to get it right

    there is an argument that if you can afford it, then you may as well avoid debt as its one less thing to worry about..

  10. I'm impressed by your stoical attitude RIT, and think you should allow yourself a grumble. You've achieved financial independence in nine years and worked like a demon to help get there, and your plans are de-railed by a stupid referendum that was swung by votes that come from a bad place. As the country cedes power to that mob, you're actually (being forced to?) contemplate staying here, rather than escaping them. I think you're allowed to be angry, and you are a victim, albeit one with many options and a pro-active outlook.

  11. If you're impressed then maybe thats the philosophical direction you should move in? Could save you a lot of heartache? We are of course in the middle of stoic week so it seems very apt.. (maybe you are already taking part?)

    1. p.s. But didn't know it was stoic week. Interesting, cheers!

  12. Dear RIT,
    How about looking at the decision wrt your future home this way –

    Hopefully, your greatest asset (way beyond your £1e6) is your immediate family (I know there is at least a Mrs RIT, and maybe you’ve invested in some children too).

    Now, this business of deciding where to live can be usefully viewed as investing this single huge asset.

    On this basis, should you invest it in one single location (in the case of Cyprus, a divided country which in the recent past has suffered war over the division, and is located close[r] to a current conflict zone) or should you diversify?

    If such children as you may have have invested some of their psyche in friends and relations at your present location, would it be right and good to suddenly disrupt their lives by a radical move to another country that may have a radically different moral outlook on life, or be subject to “black swan” events such as Turkey imploding under the stress of ISIS/Kurdish insurgency?

    Obviously, notwithstanding the recent mere 2.73% margin “win” by a mere 37.44% of the electorate on a mere “advisory” vote for a change in our international relationships which, astonishingly, seems to be being acted upon by our low-majority government, the UK (even if it loses Scotland) is likely to be a more stable place in which to invest the lives of your family.

    On this basis, maybe you should weigh the UK as a better investment for your family’s life, with Cyprus being a potentially exiting diversification to mitigate the miserable awfulness of UK winters and marginally nice UK summers, using it as a holiday location during school holidays (while you have a commitment to children) and then as a (much) more well-used holiday location when the children have reduced their reliance upon you.

    If you wished, you could expand this policy of diversification of investment by acquiring outposts in other places– I think you were considering Australia at one time. The island of the Commonwealth Of Dominica in the Caribbean is very nice too.

    Yours with best wishes (and thanks),