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

This is worth a bit more investigation.  It certainly wasn’t because of Gross Earnings.  They were up a healthy 36.4%.  So what about the Spending Side?  Yep there was a blow out with spending increasing by 7.6% but still well less than my earnings increase.

RIT Spending
Click to enlarge, RIT Spending 

Looking at the data that spending increase is all about the holidays / FIRE location research with international trips to Cyprus, Spain and to visit family / friends.  Net those off and spending actually fell 2.5%.  Given where we are in our journey and thinking about what we trying to do early in FIRE I think I’m actually ok with this.

Taxes is where the problem really lies.  They increased by 42.1% which is more than the earnings increase.  This is where it was all lost.  It blew out for 2 reasons:
  • Increased earnings from my day job, combined with the UK supposedly being a progressive taxation country, sees every extra pound I earn lose 47% immediately.
  • Additionally, my savings calculation includes all taxes from investments but doesn’t include earnings from investments.  As I near the end of a FIRE journey that has occurred quite quickly I’ve struggled to tax shelter my investments and that piper is now firmly starting to be paid.

Saving Hard score: Conceeded Pass.  A big miss against the target but plenty of excuses for why.  I’ll further justify it further by saying that my savings rate was 86% under the more traditional financial bloggers measure which nets of taxes and even beats Jacob of Early Retirement Extreme’s 75% fame.


2017 (07 January 2017 to 06 January 2018) investment return closed at 8.0%.  Compared to many bloggers I’d suggest this is probably going to be one of the lowest out there.  Certainly US based bloggers who are heavily invested in US stock markets are miles above this.  I guess that’s not surprising when the S&P 500 Total Return for 2017 was 21.1%.  I’m also well below a well known UK based Slow and Steady Passive Portfolio which returned 9.0%.

Of course I have an excuse lined up here as well.  Right now 17.3% of my portfolio is sitting in cash earning derisory interest and I’m just not prepared to put that into the market as that’s our home purchase.  In a year like 2017, where the markets went all racy, I look like a plonker but if they had have gone the other way I’d be looking pretty clever right about now.

Investment wise I continued to morph the portfolio from one focused on accumulation to one preparing me for drawdown in FIRE.  This means:
  • Cash and cash like holdings (NS&I Index Linked Savings Certificates predominantly) for the non-mortgaged home purchase but also to give me a few years of cash buffer as I enter FIRE continued to improve.  At the close of 2016 that stash was sitting at £267,000 and is £334,000 today.
  • I’m also trying to ‘ensure’ I can live off dividends alone in FIRE.  2017 total dividends were £27,384.  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 2017 dividends EUR30,770.  In contrast my latest proliferate Med FIRE spending, a budget where 46% of spend is for fun, is expected to run to EUR28,216 giving me spending cover of 1.09.  Given how much I can wind back spending in a severe bear market this is looking very healthy and with a fair wind it will improve further before we FIRE in the middle of 2018.  
RIT Annual Dividends
Click to enlarge, RIT Annual Dividends

For completeness 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:
  • 44.7% held within Pension Wrappers with the majority being within a Youinvest SIPP and Hargreaves Lansdown Vantage SIPP
  • 8.4% held within the no longer available NS&I Index Linked Savings Certificates (ILSC’s)
  • 13.2% held within a TD Trading ISA.  
Tax efficiency score: Pass.  At the end of 2016 this was 65.8% and one year on it’s now 66.3%.  Even though in absolute terms my non-tax sheltered wealth has continued to grow, which means an absolute tax increase which hurts Savings Rate, when measured in percentage terms improvement is being seen.  This is helped by all new money that can’t be tax sheltered now being passed directly to the now FIRE’d Mrs RIT for investing in her fun money portfolio.

Investment expenses also continue to be treated like the enemy.  A reasonable year in 2017 with expenses being reduced from 0.25% to 0.23%.

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 £262 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 7.1% which is a real (using RPI) return of 4.2%.  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%.  4.2% is above that but in the back of my mind I’m also asking just how much longer can this stock market bull run.  Like in 2016 I’ll forget that and take another 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 10 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

2017 saw me sneak over the £1.3M in wealth mark with it today sitting at £1,309,000.  That’s 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 now with proliferate spending in the FIRE calculation that’s a starting withdrawal rate of 2.4% against a planned 2.5%.

A year that’s a little ugly, particularly on the investment return front, but one where I personally am still pretty satisfied.  The question is am I being a victim here?

How was 2017 for you?

As always please do your own research.


  1. The question is am I being a victim here?

    Interesting - what exactly are you getting at ?

    A victim of your own success maybe?

    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.
    I suggest that this IS actually very important for you to understand more clearly.

    Are you being too hard on yourself ? You are entitled to change your mind as often as you like. You owe nothing to your blog readers - no-one realistically will have anything but respect for your openness, expertise and attention to detail.

    What you are planning to do is momentous : giving up work, purchasing your first property , purchasing your first property abroad, leaving UK, moving to another country with a different language, different culture , different characteristics of their citizens ,different currency , different laws , your children moving school and having to cope with most of the above + getting used to a new school having left their current friends behind - and then your wife's situation and changes to her life .

    I am pretty sure that you are the sort of person who beats youself up when things go wrong - you can feel that this was your fault - or at least that you should have seen it coming and put plans in place for that eventuality - or even been able to do something to prevent the " calamity " ever happening in the first place . Unless you are absolutely convinced that what you are planning to do is the right thing for everyone concerned - there is a danger you may feel something like " if only we had not moved this would never have happened " You need to have the certainty and strength of conviction to ensure that you won't dwell on that sort of response to a calamity .

    Take 5 more years ! - or have a change of personalty . 5 more years is easier !

    1. As always thanks for your thoughts stringvest. The way I have 'succeeded at life' so far is to set a target and then move the earth to make that happen. What I've never done is set a target, miss it and then say ah it's ok I've missed the target but I did a good job so it's ok. Now that I'm past FI it feels a bit like I'm backing away from the targets. In this instance I'm doing it because I can and because of that I think it's ok.

      I agree the next year is momentous. I believe we now have the conviction for the move and this is where Brexit also now helps rather than hinders. We 'must' go mid 2018 or we won't get the valuable EU rights that the negotiations still leave in front of us.

  2. Could you afford to buy the Med property with the intention of using it at first for holidays? Then if you decided that you like either the house or the place less than you'd hoped, you'd still have a large income flow coming in to let you repair a bad decision. Of course that might mean OMY. OMY Gad, as Americans might say.

    The hell with it; gather ye rosebuds while ye may.

    1. I like your to hell with it comment dearieme. In life the RIT family have always been an all or nothing family. We're a bit like the famous Yoda line - Do. Or do not. There is no try. We're therefore off 100%.

  3. In the 80s I was making some big life changes and came across the book by Susan Jeffers 'Feel The Fear...' so if you have not read it I recommend. It's natural to fear a big step into the unknown but pushing through can be liberating. I hope you manage to find your way through RIT.

    1. Thanks for the recommendation John. I'll firstly see if I can get it through the library. If I can't I might just dust off the old credit card.

  4. If it's any consolation, I currently hold a much greater proportion of cash and cash equivalents than you do, and so my total return for 2017 was only 4.3%. I'd call it steady rather than ugly - as you say, no-one knew at the start of the year where the markets were going.

    1. Thanks for sharing DM. Can I ask why you're holding so much cash and cash equivalent?

    2. I'm a little older than you, and already FI, so protecting the assets I have is just as important as trying to run them up higher. There's a few equities and funds in my watch list which I'll buy with some of the cash if the price is right, but everything just seems too expensive to me right now ...

    3. It sounds like you are trying to time the market. What data are you using to make your asset type allocation decisions from?

      Full disclosure: I previously tried timing the market and I was rubbish at it. These days my mantra is 'the market can remain irrational longer than I can remain solvent' and 'time in the market, not timing the market'. That means set allocations then simply buy, hold and rebalance as needed.

  5. I wonder if the reason you have not done the RE bit of FIRE is that deep down you know that the impressive wealth accrued to date is potentially not enough. Its not what you can quantify which you have thoroughly got a handle on but the unknonwn unknowns.

    Once you get off the merry go round its much harder to get back on as its moving and your not.

    I have been wrestling with the decision as when to quit but continue to turn up whilst they pay me! The only reason I have not quit is to help (in a measured and limited way) my 3 children who are all now at university.
    If you have children yourslef do not underestimate how much they will cost you in the future!

    If my employer was going to give me a hard time, I would quit but since I became comfortably FI and had FU money and developed a FU attitude at work all of the stress evaporated. If you still give value in some measure they will put up with a lot, I only go in 2 or 3 days a week and they still pay me for 5.

    Regarding tax mitigation, if you are going to work for a little longer then consider a good spread of vcts assuming you have filled your SIPP.

    1. I genuinely don't think it's the wealth amount. I actually think that on that front I'm getting to the point of stamp collecting. I live in one of the most expensive regions of the world for work and we live well yet my dividends are now pretty much at parity with what we even spend here. It's also not like we're saying what about if we want to come back to this area as the only reason we are now currently here is to maximise savings. Close friends and family were either never here or are now long gone.

      I think I'm also in a different position work wise than your good self. My company gives me a hard time continuously but they have always done that it's now just much worse (maybe it hasn't changed rather I have because of the FU money). That combined with objectives that are off the charts makes it a pretty difficult environment right now. I can't complain about it though as the results mean I can earn good £'s which is what my Earn More philosophy was about. Given where I now find myself though (ie FI) if I wasn't FIRE'ing I'd probably soon be moving anyway as the job was never a forever job given the stresses and strains it carries. I've written in the past my work philosophy has always been sustainable for a work to FIRE plan and not a work to 65 plan.

  6. I'd say that was a very good year overall, RIT - and you should in no way feel obliged to RE on any kind of schedule.

    I passed my FI point in late 2016, and am now up over another £100K or so (most of that in my company pension).

    Like you, I'm still working because I was waiting to see how things shake out at work. Unfortunately, I have not yet gone part-time (still hoping to and have got agreement from boss), but am enjoying work again.

    Assuming, I go part-time this year - I hope and expect to reduce my savings rate and shift more into fun. That will likely look like an overseas trip, and doing at least one course/lessons/theatre trip per month.

    1. Good luck with the transition Anon. I hope it gives you what you are looking for.

  7. Great position to be in, and well done.

    I am somewhat behind you but my preoccupation presently is being wiped out by an oncoming financial tsunami. That, coupled with significant future inflation makes the future a very different place from today, notwithstanding higher rates which will eventually restore normality to the cost of money - but not after a great unwinding and asset deflation.

    I wonder, what are your hedges for this?

    1. These days I accept my crystal ball is very very broken.

      I also know the standard financial services warning "past performance is not a guide to future performance" but that's exactly what my strategy is effectively based on. I'm looking back through history and provided that future sequence of returns are no worse than historic (which of course included World Wars, inflationary periods, bankers crisis, GFC's, dot com busts) I'm golden.

      Under historic sequence of returns I end up with a lot of wealth even in the worst case. If it does get much worse then I'm potentially in trouble and would need to take action. I suspect if it does get that bad that we might all be looking for guns, ammo, bunkers, beans and fresh water rather than alternate financial products though.

    2. I suppose "on average it will be OK" is a passive and stress free way of viewing the future.

      I think we are pretty near the end of this cycle and it is difficult to see what will replace it as a growth area.

      However you have a fair point. At the very worst the funds allow for procurement of guns and ammo!

  8. I'm curious to know how much of your 17.3% cash is in Peer to Peer lending - maybe in one of the Rolling accounts that some P2P lenders (e.g Ratesetter ) offer. Could you let us know what your thoughts are?

    1. Sure happy to share. My total cash is £227k. Of that £48k is with RateSetter and a few hundred £'s is with LendingWorks.

      On the RateSetter front up until a couple of years ago it was all in the 3 Year market. I then started to move it to the 1 Year market as it matured. Soon I'll then start moving it from P2P to instant savings accounts in readiness for the home purchase.

      LendingWorks was a sponsorship where they asked me to publically share my experience with the platform. Thus the small amount.

      No complaints with either P2P provider since I've been with them. I also have referral codes for both - let me know if they could be of use to you.

    2. I've ended up ditching all but ratesetter after forays with zopa and funding circle. I like the simplicity and liquidity of their monthly rolling account.

      Bizarrely though, the monthly rate is often better than the 1 year rate, I've even seen it better than the 5 year rate. And the volatility in the rates is large. It regularly moves about by 2% or so, which is about 100%.

  9. This is a pretty inspiring summary, it's been an awesome 10 years for you! I'm at the very start of my journey and will certainly be reading up and gathering tips where I can.
    I like how your Saving Hard formula factors in tax efficiency, but I'd be interested to hear your thoughts on balancing between ISAs and SIPPs when looking to retire early given the inaccessibility of a SIPP, the tax efficiency speaks for itself but I've often found myself conflicted due to the uncertainty of when it's available and the fact it's not liquid.

  10. Thanks for the round-up, RIT - it's been a great year for you (a great 10 years!) and as mentioned before, you will pull the trigger when you and your family are good and ready and not before. Your OMY has not only added to your wealth significantly (plus peace of mind) but given you more time to consider and verify your options.

    Your annual dividends graph is interesting - I've probably not really noticed it before but I think I need to split out my ISA and SIPP dividends, firstly so I can see the split and secondly so I know which pot to invest in. By the time I get to FI, I'll likely be old enough to be able to withdraw from my SIPP but I want ISA flexibility to keep under the tax threshold for as long as I can.

    All the best for 2018, I look forward to seeing how it all pans out for you!

  11. Thanks for sharing your journey RIT – always interesting to read and looks like a great position. The £27k dividends is impressive - I could live comfortably off of that (no kids!). But if some of these dividends are in your SIPPs, can you access them all when you want to FIRE?

    I had a great 2017 - I have a similar size portfolio so it is interesting to compare. I have a similar amount of tax sheltering but I am nowhere near as organised as you. One of my group pensions from work is sitting in default funds untouched but has increased about 13% in 2017. I need to sort it out this year - I was hoping for a Vanguard SIPP then I would put it in VLS. I am not sure how much of the inflation in this pension account is Brexit effect with the sterling shifting. I don’t have such detailed tracking but my total portfolio size seems to have increased about 2x my gross pay which says something (I should hit the FIRE button perhaps…). I too have a large cash position with a lot of unsheltered (from tax) cash. It is losing to inflation but good to have the buffer. My intention is to burn some of this when I FIRE myself instead of removing from tax wrappers until I have about 5 years spending in cash. I can also fund ISAs each year with some of it. I seem to have reached FIRE by accident without really knowing it was a thing until I discovered blogs like yours. I just worked hard, got paid decent but not insane money, didn’t inflate my lifestyle and had my pensions , ISAs and cash savings set on auto. So this year may be the one I FIRE myself – have sort of been in a OMY position with my job but seem to be waiting for an end game with it through various acquisitions and demergers.

  12. The 'fear of Corbyn' might get you moving. :) ....sterling turning into a worthless currency that won't buy a baguette, let alone a gite.