Saturday 21 January 2017

2016 In Review, Back to Plan A

My self assessment tax bill has been paid and the final dividend laggards have paid up meaning I can now financially close out 2016.  This will hopefully be the third last quarterly summary after which the format will switch from an accrual of wealth format to one focused on wealth preservation as I start to drawdown in FIRE.

If you had have offered me 2016 on the 01st January 2016 I just wouldn’t have believed you.  When both savings and investment returns are summed I’ve increased my wealth by £263,000.  Quite a staggering number and a result which enabled me to both become a millionaire and to become financially independent (FI).

2016 was also of course the year of the Brexit vote which has resulted in Sterling weakening against many currencies.  Measured in Euro’s, which I need for my Plan A, it’s a more subdued EUR134,000 increase however I’m certainly not going to turn it down.

Given that I’m also now emotionally ready to FIRE I’m going to change the structure of these quarterly reviews a little to start to focus on what’s important to me going into FIRE.

Let’s look at the gory details.


I unapologetically 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 an uninspiring Savings Rate of 44.9% against a plan of 55.0%.  Don’t worry it wasn’t a Christmas blow out but the result of PAYE tax on my earnings (as always) combined with the added bonus of a self assessment tax bill.  Over the year my physical spending remained well in control with spending being only 8% of Gross Earnings plus Employee Pension Contributions.

RIT Savings Rate
Click to enlarge, RIT Savings Rate

Saving Hard score: Conceeded Pass.  I can’t give myself a pass as I’ve missed the target but given my savings rate is 92% under the traditional financial bloggers measure, which even trumps (no pun intended given yesterdays ceremony) Jacob of Early Retirement Extreme’s 75%, I’m not going to beat myself up about it.


2016 (02 January 16 to 07 January 17) investment return closed at 16.8%.  Now before any haters (since publishing my book a few of these seem to have appeared) jump in and say that a Slow and Steady Passive portfolio returned 25% so you’re sh*t (one hater has a bit of a toilet paper obsession) it’s important to note that my investing strategy is now transitioning from one focused on accumulation to one preparing me for drawdown in FIRE which is resulting in some portfolio performance drag.

The biggest drag is my continuing to build cash and cash like holdings (NS&I Index Linked Savings Certificates predominantly) quickly for a non-mortgaged home purchase and to give me a few years of cash buffer as I enter FIRE.  At the close of 2015 that stash was sitting at £203,000 and is £267,000 today.  At today’s exchange rates I now have enough for the Mediterranean home purchase (Yay!) and in the run into FIRE it’s now all about building a few years of cash buffer which is tight but doable.

I’m also trying to ‘ensure’ I can live off dividends alone in FIRE.  2016 total dividends were £20,131.  For a while now I’ve been working with a forever assumed Euro exchange rate of 1.123 (which of course may prove to be a mistake) which would make my 2016 dividends EUR22,607.  In contrast my Med FIRE spending is expected to run to EUR21,439 giving me spending cover of only 1.05.  Even with the cash buffer mentioned above I’d like more to ride out the inevitable corrections or crashes and there’s still time.

Part way through 2016 I switched from OEIC’s that pay dividends annually to ETF’s that pay quarterly which will self correct in 2017.  Additionally, I’ve been buying equities and bonds all through 2016 by both filling my Stocks & Shares ISA and completing a partial transfer from my expensive work pension which doesn’t pay dividends into a SIPP.  All of these changes will spin off additional dividends throughout 2017.  I haven’t given it to much thought but I wouldn’t be surprised to see dividends exceed £22,000 in 2016 which would increase that cover to 1.15.  Of course I’d like more than that but I’m also conscious that you’re a long time dead.

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:
  • 45.0% held within SIPP's
  • 9.6% held within the no longer available NS&I Index Linked Savings Certificates (ILSC’s)
  • 11.2% held within a Stocks and Shares ISA.  

Tax efficiency score: Conceeded Pass.  At the end of 2015 this was 67.0% and one year on it’s now 65.8%.  At this stage of my journey this is now largely what it is and not really able to be influenced.  Before I FIRE to the Med I’ll make sure my and Mrs RIT’s £20,000 2017/18 ISA allowances are used.  Other than that post FIRE I’ll close down my employer’s pension and transfer that to a SIPP to save on expenses but that won’t help tax efficiency.  Once I’m FIRE’d and if it’s Cyprus I’ll first spend down my non-tax efficiently invested wealth assuming UK residency (in Cyprus I’ll pay little/no tax) which will allow the ISA to compound up.  This will be easy as they have no capital gains tax on equity/bond gains.  Spain, if we go that way, does so it would need a more thoughtful approach.  This would likely include spending the dividends that are coming from the wealth within my ISA to ease the tax burden somewhat.  This is all about staying as UK tax efficiently invested as possible for the first few years just in case we decide to return to Blighty.

Investment expenses also continue to be treated like the enemy.  A so so year in 2016 with expenses being reduced from 0.27% to 0.25%.

Minimise expenses score: Pass.  A reduction by taking some conscious actions throughout the year.  0.02% doesn’t sound like much but given my current wealth that’s £222 a year staying in my pocket.  I’ll take that.

In the scheme of a lifetime of investing this year is insignificant.  I’m all about time in the market and not timing the market so let’s zoom out and look at my performance since I started down this DIY road.  I’m happy with my long run nominal 6.9% which is a real (using RPI) return of 4.3%.  The chart below tells the story.  Note that the chart assumes a starting sum of £10,000 which was 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

Long term investment return score: Pass.  My whole investment strategy since 2007 has been about generating a long term real return of 4%.  4.3% is nicely above that but in the back of my mind I’m also starting to wonder if this bull market is becoming a bit long in the tooth.  For now I’ll take the glory and do the victory lap.


I’ve proven that combining Saving Hard and Investing Wisely gives Early Financial Independence and the option of Retiring Early.  Both the theory and my personal experience says that if you want FIRE it’s the first of those that is the priority.  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 a little over 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 £1,113,000 of wealth that has come from nothing more than hard graft, considered spending and taking some time to focus on some selected investment fundamentals.  Netting off the home purchase, converting to Euro’s and with considered spending in FIRE continuing that’s a starting withdrawal rate of 2.2% against a planned 2.5%.  The battle and war look well and truly won.  Thanks 2016.

How was 2016 for you?

As always please do your own research.


  1. I hope you continue to post over the next few years as I enjoy watching your progress. I am eager to see how life now pans out for you.

    Looking forward to reading your book shortly too.

    1. I'd like to continue posting post FIRE. There should be no reason why I won't given I should have more time. The only thing that might stop me is if the haters continue to ramp up. It's not very pleasant but for now the negatives are still out weighed by the positives this blog brings to all.

      I hope the book brings you some value. Please do leave your thoughts either here, via email or on Amazon via a review. I'm keeping feedback as post FIRE I'll likely update it with any new learnings.

    2. Of course we'd like to know how are things post-FIRE!!!

  2. Hi RIT,

    Congratulations on an amazing year - a huge number increase in your net worth, and something that will inspire many of us out here!

    Transferring into Dividend Paying for your retirement looks like a very sensible move and seems like you will easily be able to cover your desired lifestyle, regardless of where you end up!

    Good luck, and as Anon above says, please do keep posting post FIRE - this is as important as getting to FIRE IMO (and as you mention in the mental part of being ready!)


    1. Thanks for the wishes FiL. It was indeed an incredible year when you consider my net worth increase was circa 10x the average UK salary.

  3. Congratulations on a good year and reaching your goal RIT...truely inspirational and a good model for those who wish to achieve earlier retirement.

    I am looking forward with interest to see how the post retirement plans work out and would be interested to hear more on your investing strategy as it moves from build phase to preservation of capital..maybe a future post?

    All best wishes with the transition over the coming months.

    1. Many thanks John. I really do hope that it brings some benefit and inspiration to those who are thinking of starting out or are indeed on the journey to FI or FIRE. It's certainly been one of the best decisions I've ever made.

      Will certainly post on the change in how I track my financial progress. Probably pretty easy to guess the important metrics already with one of them certainly being sequence of returns.

  4. Well done RIT. I FIRE'd at the end of 2016 and am in the process of consolidating various accounts and nailing down expenses. The one area I find it difficult to cut back on is grocery/food costs. I'm wondering how you manage in this area? E.g., I'm not a big fan of Lidl, Aldi stuff on the whole. As Sainsbury's like to say, I can taste the difference...

    1. Congratulations on FIRE GHi. I and I'm sure other readers Would love to know more about your story?

      In 2016 our food (and drink) spend averaged £171 per month. I mainly use Tesco's as I have one in walking distance but no close Also/Lidl meaning I save on petrol and time. To get to this level I used a technique that I call the lowest priced grocery shop. At your next shop buy the lowest priced per unit of measure you need of every item. I can almost guarantee you that some of it will be awful but some of it will actually be quite good. At your next shop buy the acceptable items again but buy the next highest priced per unit item of the remainder. Rinse and repeat for a few weeks by which time you’ll have food that is suitable for your tastes but also will give you the lowest price shop each week.

    2. Thanks for the info. I have a similar monthly grocery spend, although I feel it could be lower. As for my story, there's not much to tell really. I basically worked non-stop from leaving school to where I am now (46) and just spent less than I earned and avoided debt like the plague. I'm sure if I'd been more focused/smart or known about FIRE sooner I could have quit much earlier. I certainly would have done a few things differently. As it is, I have a mix of passive funds, a BTL, company pension and a modest flat, paid off. I don't feel rich to be honest but I don't want to trade any more of my time/energy working for the man.

  5. Hi - I think you have a minor typo under invest wisely -(02 January 16 to 07 January 16)- or have I miss understood?

    1. If I had have increased my wealth by £263k in 5 days I would have been truly impressed :-) Thanks for pointing out Phil. Duly corrected.

    2. No worries - least I could do after the inspiration I've had from you posts here and on hpc

  6. +1 positive from a long time reader. Haters gonna hate unfortunately!

  7. Long term lurker finally posting.
    Thank you for all the knowledge and information freely given. Please ignore the haters.

    I haven't started investing because I am looking to clear existing debt before starting. Reading the blog posts in the emails you send is an inspiration.

    Excellent work.

  8. Ignore the haters RIT. Instead of taking inspiration from you're hard work and success, as I and many of you're readers have done they just feel bitterness and jealousy - their loss, not yours.

    Thanks to you, I myself will FIRE in 10 weeks and my wife in 6 months. Couldn't have done it without you.

    1. @Borderer
      Many congratulations on the upcoming FIRE! Would love to hear your story?

      @David, @Sid, @Borderer
      Many thanks for the hat-tips. People like your good selves are exactly why I keep posting. I understand haters are gonna hate but when you've had a rough day and then receive it your head can dip for a second. I have a pretty strong constitution so I can't see it being a problem.

  9. RIT,

    A question. At what stage of your life did the burning desire to retire early grow on you ? Was your decision affected by the type of work that you do ? or the people and organisation that you worked with ? If you had ended up do a completely different type of work would you have been as driven to FIRE as you undoubtedly have been ? You are clearly very capable, determined and dedicated - and there must have been numerous other routes that you could have taken. Do you have any regrets about this ?
    Maybe these aspects are covered in your book ?

    1. Interesting questions stringvest. I do share more about myself in my book and hopefully this quote taken from it explains my situation in late 2007 (age 35) - "So there I was in a share house in east London, with a small amount of wealth, seeing globalisation up close and personal, starting to think that globalisation would also have my job within 10 years but also thinking if I gave my money away to the financial experts instead of helping me they were going to enrich themselves."

      I actually count that point in life as the start of my FIRE journey as my response was to start figuring out how to save and invest. I count it because that's when I started accruing wealth rapidly but mentally early retirement was not the only option at that point partly because I didn't know what was really possible or where I was going in life.

      By late 2009 I must have been on the FIRE journey though as that's when I started this blog. So I'd say the 'burning desire' occurred somewhere between 35 and 37 years of age.

      Interesting question about what affected my decisions:
      - If I had have not over analysed the housing market and just looked at 'affordability'/personal 'value' rather than financial 'value' plus lied a bit I may still be in a small London terrace living the good life as Mr Average. Not doing that caused me to think about other options.
      - If I hadn't have worked in an industry that has been 'decimated' by globalisation I also might have been living happily ever after as Mr Average. I really saw this up close and personal. I was actually required to participate in it to keep my own job and it affects you as a person. I genuinely thought my job would disappear from the UK and when I FIRE I think my current one will.
      - I don't go into it to much but I've had a pretty rough personal family life, including extended, in the last 20 years or so. This means that the ties that come from living in Street A in Village B are pretty weak. This combined with the job I've had to do make me think globally rather than regionally.

      So to answer your question I think that FIRE is definitely a by-product of where I've been and a number of events with different outcomes may not have led me to discover it.

      All of that said with what I know now I am very happy with the road I've travelled and if I was offered it again I'd do it in a second. I am in a great place emotionally, family wise and financially. Life really couldn't be much better. I don't know if I will work again but I will say if it's something I'd enjoy I can myself doing it.

      Hope that goes some way to answering your questions?

  10. Congratulations on an amazing year, RIT - well done!

    I hope you can ignore the haters, or at least have a laugh at them! That review definitely came from someone suffering from green-eyed monster syndrome. I'd love to read his/her blog to see what they would do differently from you to achieve success but of course, haters prefer to hide behind their anonymity, glass houses and all that.

    As per above, I hope you will continue to write.

  11. BTW, what blogging platform do you use? I'm rather envious of the "Sites I Read" sidebar with its date sorted list of other blogs. Firestarter used to have one, but its stopped working.

    1. I miss that on Firestarter's blog too - chances are that he's finally updated his Wordpress and the blogroll plugin which he was using (which I once used) is no longer supported by the new version so it doesn't work any more.

    2. Hi vicarage
      I use Blogger. The Sites I Read is just a free plug-in.

  12. Hi RIT,

    Thank you for your response - you have been very honest ( well- I assume you have ! ) and revealed a lot . I wanted to respond by revealing more about my own position and wrote a reply - but could not bring myself to send it due to my concern about the security of your site . Basically - I did not want to reveal too much about my own financial position . Am I worrying unnecessarily?

    1. Unless your real name is 'Mr Stringvest', I shouldn't think you'll have anything to worry about! Just don't actually name the company you work for!

    2. Hi stringvest

      There seem to be 2 main blogging platforms out there - WordPress and Blogger. I use Blogger which is owned by Google.

      How secure is my site? I honestly don't know but to my knowledge since starting the site in 2009 I haven't been hacked. In a world where corporations with large IT teams can be hacked I guess if somebody really wanted to they might be able to hack me.

      As a non-security expert... If they did the question is then what would be the value? I don't sell anything so don't collect credit card details so that's out. Maybe names, addresses and dates of birth but that could be only captured if somebody offered up the information freely and then it would be available for all to see. As you know I don't but some bloggers/readers freely do. Email addresses? I do collect those (optionally, top of sidebar link to give) as some readers want a notification of a new post. What's the value of one of those though to a hacker though?

  13. Hi, I'd like to chime in with what others have said that, essentially screw the haters and please keep posting on post-FIRE life as it is an inspiration to those of us still striving, not to mention an education in practical aspects.

    I am still pondering whether to start my own blog with my own strategy and lessons learned so far, but cannot hope to put in anything like the effort shown here. My own decade long journey from my "peak debt" in 2006 to the end of 2016 has seen great progress. The elusive £1 million in net worth is still a long way off, but I'm comfortably over half way there.
    And this is from having virtually zero net worth up to my early 30s.

  14. Well done! Ignore the haters and keep us posted!

  15. Hi RIT, I am in a position not too dissimilar from yours and plan to RE in September.

    I am particularly curious about your decision to live off dividends.

    I can see big psychological advantages to it (no need to sell shares, so your income generating machine stays nominally intact).

    I guess there are also fiscal/frictional advantages to it - is this behind your preference too?

    1. Hi Federico
      I don't think there are fiscal advantages as my strategy is all about a Safe Withdrawal Rate and whether that comes from capital or dividends in theory shouldn't matter. The fact that I've chosen a withdrawal rate of 2.5% (vs the often quoted 4% rule) certainly makes living off just the dividends a possibility though.

  16. I would ignore that two star review on amazon. Your blog and book is interesting to those on the same or a similar path.

    I'm interested in your investment returns, which based on your graph and your stated compound growth rate of 6.9% appear to be:

    2008 -16.40
    2009 25.00
    2010 15.00
    2011 2.50
    2012 13.50
    2013 5.00
    2014 5.40
    2015 0.90
    2016 16.80

    Have I got those returns about right?
    Overall you're about 1.3% ahead of the FTSE All Share which is better than many funds. D

    1. 2008 -13.6%
      2009 22.2%
      2010 14.1%
      2011 2.6%
      2012 12.6%
      2013 5.3%
      2014 5.4%
      2015 0.9%
      2016 16.8%

      There are bloggers out there who have done better and some who have achieved it with leverage. My journey only ever required average returns of a real 4% which meant I could run a balanced reasonably conservative portfolio. It was largely about wealth preservation as my high savings rate meant I just didn't need to knock it out of the park investment return wise.

  17. Thanks for the returns details. With compound growth about 1.3% per annum ahead of the FTSE All Share, and at a standard deviation (volatility) of nearly half of that index, I think you succeeded. D

  18. Congratulations! Good work.

    I do wonder about your residency. You seem to assume that you can chose where you reside (and hence, will be paying taxes on most of your worldwide income), but I'm not so sure that's the case? For instance, Spain will consider anyone as resident as soon as you live in the country at lease 6 months + 1 day per year.

    Assuming that Cyprus will do the same, how will you avoid having to pay taxes in Cyprus, without limiting you stay in Cyprus to max 6 months per year?

    1. Hi Peter
      I'm not going to avoid paying taxes in Cyprus or Spain. I intend to become resident in my country of choice, integrate and pay my fair share. Cyprus will yield lower taxes than Spain and that's one of the many pro's/con's that need to be worked through before the final decision.

    2. And a tough decision that will be.

      I am under the impression that the UK is rather investor-friendly, with the first X amount of dividends not even being taxed, and tax-exempt investment accounts, etc. Neither Cyprus nor Spain have any of that I think, so my guess is that one would be paying more tax overall.

      Where do you go to work out the tax implications of your candidate-next-countries? Any good sites around?

      One would be spending less as well, I'm sure.

  19. Dear RIT,
    would just like to endorse all of the positive comments above. As a passive weekend follower of this FIRE site plus a few others, your articles provide much interest, invaluable information, and reassurance to myself, and i suspect to many other relatively 'silent' followers as well.
    Hopefully your journey has a way to go, and you will continue to capture and share it via this site. Please keep up the good work.

  20. What was your average & top income to reach £1m though? :o

  21. Amazing progress over the years well done... I hope I'll have the same debate with myself in 5 years: whether I'm mentally prepared or not.

    It's a good "problem" to have! Given that Mediterranean prices will bring early retirement earlier than expected, I also need to start considering exchange rates, buying abroad (Greece) etc. How hard was it for you to estimate the cost of living at a different country?

    I also started blogging about it, have read many articles and books so far and want to share my point of view as I go through the journey.

    Awesome stuff. If you're too in London I'd definitely want to meet.