Saturday, 13 January 2018

2017 In Review, A Year of 2 Halves

This annual review is usually a very quantitative personal finance review and for those readers looking for that please bear with me I’ll get there I promise.  I’m firstly going to go off piste a little because for me (and really for the first time on this journey) the FIRE challenges of 2017 weren’t about quantitative finances but more about qualitative mental FIRE readiness.  You only have to look back at some of my 2017 posts to see the difficulties I’ve had:
  • I came into 2017 ready to FIRE.
  • Towards the end of the first quarter excitement was starting to build in the RIT household.
  • But then early in the third quarter the decision was made to do One More Year.  I blamed Brexit primarily and then secondly further justified it by suggesting it would give us further fun money.  Looking back I honestly can’t tell you if that was the real reason.  I still tell myself it was but I also know that running against the herd and pulling the FIRE pin at age 44 when all those around you will work for many years more is a little scary.  Was that the real reason?  For me Early Retirement has always been defined as work becoming optional rather than I won’t ever work again.  That’s easy to say but right now I’ve also manoeuvred myself into a position where I can build wealth quite quickly and it would take a lot of effort to do that again if I decided that FIRE wasn’t for me in 5 years time.  Was that the real reason? ...
  • Whatever the real reason for holding back, I guess it’s not so important in the grand scheme of things as by the end of the third quarter frustration at my faffing was clearly creeping in.
  • Then phase 1 of the Brexit negotiations closed out and we again called FIRE readiness.  This time given my thinking around lasts I really do hope it was just a Brexit thing and we really are ready this time.
In contrast to that emotional roller coaster ride the quantitative financial side was a breeze with annual wealth growing by £184,000.  My second best year yet but interestingly at the same time one where performance when compared to other financial bloggers and targets I set myself a long time ago will look a little average.  I’ll make excuses for it but I’d love your views.  After all, it’s one of the reasons I stay at this blogging lark – to hold myself accountable to my plans.  Let’s look at the 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 Employer 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 42.3% against a plan of 55.0%.

RIT Savings Rate
Click to enlarge, RIT Savings Rate

Saturday, 6 January 2018

2017 HYP Review

Back in late 2011 I started building what is known as a UK High Yield Portfolio (HYP).  It was a much talked about strategy back in the Motley Fool forum days and is still being discussed on the more recent Lemon Fool forums.  One of the aims of a HYP was as a substitute for an annuity in retirement.  This meant that the dividends spun off by the HYP needed to increase at a rate which is equal to or greater than inflation if it was to be called a successful investment strategy.  I unitised my HYP a long time ago so I know in 2017 that goal was easily achieved with dividends increasing by 20.1% which is well above the current inflation rate (RPI) of 3.9%.

The dividend increase was largely helped by the only ad-hoc event to occur in 2017 which was National Grid’s (NG.) special dividend and share consolidation.  If I net that special dividend off as many would argue that was really a return of capital it’s still done its job with a 6.7% dividend increase.

There were no buys (or sells) in 2017 as my overall investment strategy has now moved on to be a mechanically diversified collection of low expense, physical (as opposed to synthetic), income based (as opposed to accumulation) ETFs tracking enough indices to give me diversification across asset classes and countries held within low expense SIPP/ISA/Trading Account wrappers.  This means that the HYP now only forms 5.2% of my wealth but interestingly it still delivers 14.3% of my total dividends.  This is very useful for 2 reasons:
  • Along the lines of replacing an annuity its original aim was to help me live off dividends only in FIRE and in that regard it’s still punching above its weight.  In 2017 it spun off £3,929 in dividends.
  • When we come to register in our new Med country as self sufficient, unlike the UK and one of the reasons we ended up with the disaster that is Brexit IMHO, we’re going to need to demonstrate sufficient income and/or capital to prove we’re not a potential burden on the state.  Those dividends are a good chunk of income to help with that.