Obfuscation

I’m not sure if it’s the COVID-19 lockdown affecting me, or whether this is really a thing, but over the past month or so I’ve started to really notice companies stretching their take on integrity.  Maybe I was just in a bubble before but for me if you don’t have integrity I don’t want to be anywhere near you.  Let’s look at a few examples that I’ve personally come across.

BT this week published their 4th quarter and year end results.  Within that were these pearls of wisdom - "In order to deal with the potential consequences of Covid-19, allow us to invest in FTTP and 5G, and to fund the major 5-year modernisation programme, we have also taken the difficult decision to suspend the dividend until 2022 and re-base thereafter.”

Now I know that lots of businesses are currently doing it tough but I just cannot see how BT can be worse off because of COVID-19 given we are currently in a world where the majority of communication can only be done via telephone or electronic data transfer.  My view, without having any knowledge of BT, is that the COVID-19 situation is just obfuscation from the fact that the board can’t figure out how to set pricing and manage their cost base to enable investment to stay competitive and give some cash back to the owners of the business.

I also take issue with term “re-base”.  It’s cut or reduce.  I’ve never heard anybody say I’m going to “re-base” my grocery bill.

Fortunately, other than in my FTSE100 tracker, I don’t own BT.

RateSetter is another.  When I first started investing with them they had products called 3 Year, 1 Year and Monthly.  Since then they’ve moved away from that model and amongst a few new products introduced a product called “Access”.

Given the current climate it’s no secret that P2P lenders are doing it tough.  I can accept that it’s so tough that lenders like me might start taking capital losses or even lose the majority of it.  After all with peer-to-peer it’s always stated that “capital is at risk”.

Rebalancing vs taxes vs expenses vs life

With us now being only a single working week away from the new UK financial year and the investment world still feeling the impacts of the COVID-19 situation I thought it might be worthwhile sharing a little about how my portfolio and life is changing given where we currently find ourselves.

Let's start with what my investing strategy, something I first shared way back in 2009 but wasn’t really finalised until 2012, tells me to do.  For this post there are three important pillars:

• If any of my assets, diversified by country and by asset class, gets more than 25% away from the plan then I will either sell or buy as appropriate to move that asset class back to plan
• Minimise taxes meaning I keep more of my wealth for myself
• Minimise investment expenses also meaning I keep more of my wealth for myself

It’s also worth sharing some other information that helped inform my recent decisions:

• My gold had become 25% overweight
• My bonds while not 25% overweight were well overweight
• The UK 2019/20 capital gains tax annual exempt amount is £12,000.  It’s also worth adding that I believe if you sell assets worth more than £48,000 or have gains before taking off losses of £12,000 then you will also have to complete the tax return capital gains summary pages.  Not a financial negative but a time waste worth avoiding if it sensibly can be.
• Once this COVID-19 problem passes it’s looking more and more likely that we’ll be Asian bound for the next part of our FIRE journey.  We’ve still not finalised plans, as we’ve learnt we have no need to rush these types of decisions, but we’re confident enough to start (continue?) shifting our asset allocation over the coming 6 to 12 months.  That involves moving our equity investment bias (may be controversial for some but it’s always been part of my strategy so I’m not changing it) from the UK (HYP, VUKE, VMID) to Asia mainly in the form of the Vanguard FTSE Developed Asia Pacific ex Japan UCITS ETF (VAPX).
• VAPX only went ex dividend/distribution on Thursday with all my Vanguard equity dividends/distributions being paid on the 08 April 2020.
• Within my portfolio I have pensions (all SIPP’s), an ISA, NS&I Index Linked Savings Certificates (ILSCs) and plenty of non-tax efficient investments. 

Lenses

A chart of the monthly FTSE 100 price looks something like this:

Click to enlarge, Monthly FTSE 100 Price

This is the chart that you’ll see on all the mainstream media channels and it shows that the FTSE 100 still has about 32% to fall if it’s going to match the worst of the global financial crisis (GFC).  This sounds like a long way until one thinks about a big failing with this type of chart.  It’s unit of measurement…  The FTSE 100 is priced in £’s and they’re constantly being devalued via inflation.  So, let’s take out a different lens and try and look at the chart in real, inflation adjusted, terms.

Firstly, let’s correct for the consumer price index (CPI):

Click to enlarge, Real (CPI) Monthly FTSE 100 Price

That shows that instead of falls of 32% being needed it’s actually closer to falls of 16% for parity with the worst of the GFC.

Perspective

If you were a trader on the financial markets, I’d think that you’ve probably had quite an interesting week.  After all the S&P500 is down 11.5% (an official correction without even going back into the declines of the previous week), our FTSE100 is down 11.1%, the Nikkei225 is down a more modest 9.6% while the ASX200 is down 9.8%.

Word on the street is that this has been caused by fear of what coronavirus, or to use its catchier name, COVID-19, could do to global financial performance, including the more than 1,000 companies contained within just those four faceless indices I’ve mentioned.  Years ago I proved I was a useless trader so with that in mind I’d also still suggest that some of the moves are caused by the coronavirus being a good excuse to have a market pullback given markets like the S&P500’s current hefty valuation.

Down market moves like this then give those of us who are paid to sell drama a great opportunity to come up with headlines like “Coronavirus meltdown: Airlines plunge as global stock markets suffer their worst week since the 2008 financial crisis” (I won’t link to the source of that one but if you’re interested Google is your friend) through to something a little more data driven like “Shares drop in worst week since financial crisis”

If you didn’t take personal finance seriously, articles like those might even be enough to cause you to panic (whether or not the first $100 billion trading day for the ETF SPY (an S&P500 tracker) was panic is of course debatable) with your own wealth or even not get started on the road to financial independence in the first place.

Insanity and 2019 in review

“Insanity is doing the same thing over and over and expecting different results” – not Albert Einstein as I always thought but actually Rita Mae Brown 

2019 represented my first full year of FIRE, albeit with a slip-up back to FI during the year, which was then later corrected.  Despite a lot of my pre-FIRE posts being financial in nature finances actually occupied very little of my mind through 2019.  Having my wealth increase by £148,000 and my spending, albeit profligate, significantly less than this certainly helped here.

What did occupy a lot of my mind, as regular readers will be well aware, was the psychological, emotive and decompression elements of FIRE.  So let’s start here first and take a snap shot of where I find myself.

Nearly 14 months into my decompression I would have to say that while the days are getting easier I am still very much deep in the decompression mud.  There are still many unanswered questions and much soul searching (or is that naval gazing) going on.  To help with that I’ve tried to continue with the human being while changing only one thing at a time theme I started mid-year.  One conclusion I’ve come to, and started to accept, is that it’s unlikely that I have a “silver bullet” single purpose in me and I’m really ok with that.  My purpose doesn’t have to occupy 60 hours per week, like my previous job, so why I was thinking that is beyond me.  Instead I’m starting to take great joy in many small “successes” that without FIRE I wouldn’t have been able to do.  That extra 3 miles of hiking into the forest, seeing something new, because I have the time...  That 3 hour lunch with a loved one that builds a stronger bond because I have the time...

The one change I have made is that an old friend asked me to help with a very short term very temporary job.  I never expected it to be purposeful (so it’s a job and not work) but I did think it would be interesting so took it on.  I just hope that is helping with my decompression and not clouding it.

2019 HYP Review

It’s now a little over 8 years ago that I started to build my UK High Yield Portfolio (HYP).  It was a much talked about strategy back in the Motley Fool forum days and today still gets plenty of attention on the Lemon Fool forums today.  I built the portfolio between November 2011 and July 2015 by which time I’d amassed 17 shares across multiple sectors.  That included a token amount of Royal Mail Group (ticker: RMG) during the initial public offering in 2013 and the spin-off of S32 by BHP in 2015.

Today the portfolio is down to 16 shares because of the forced Amlin sale in 2016.  It was set up to be close to a low tinker portfolio with only a few mechanical rules that would trigger a sale if there were big changes to a share.  For example if the actual value of a holding became 50% larger than the median share holding I would sell 25% (I’m looking at you Astra Zeneca, ticker: AZN, who is now 2.4 times the median) or if the actual dividend yield dropped below 50% of the FTSE All Share.

As it’s turned out to date I’ve done precisely zero tinkering unless forced by corporate events.  This means in 2019 there were again no buys or sells.  The complete HYP and the respective values of each share are shown in the chart below.  The purchasing rule that I followed while building the HYP was the amount of the next purchase was the median share value of the current portfolio (with the exception of RMG and S32).

Click to enlarge, Retirement Investing Today High Yield Portfolio

Real life portfolio returns

I was recently reading a FIRE blog post, from a couple who are still very much deep in the swim phase of the FIRE triathlon, where the post was exploring who in society has the opportunity to FIRE if they so choose.  Of course as many of us FIRE bloggers love a good spreadsheet, the weapon of choice for exploring this was an Excel model and a whole pile of assumptions.  Two of these assumptions were that we were living in a hypothetical world where there is no inflation and where the expected annualised investment portfolio return was 7%.  So to my reading a critical assumption in their Excel model was a real (ie after inflation) portfolio return of 7%!

I’m much further on the FIRE journey than these good folks being in the triathlon bike phase having now been FIRE’d for a little over a year and having been on my FIRE journey for around twelve years.  At one end this means I have more experience and data than these folks but it also means I’m more grey, grizzled and cynical.  With that warning out of the way to me that real 7% return assumption just seems way to bullish!  So I then asked myself why are they using such high returns in their model as not for a second do I think they are trying to deceive?  The simple answer I came up with is that the vast majority of FIRE blogs are from people who are pre-FIRE with many never having witnessed a bear market so they have no real life data, only published financial data.  Then from those that are FIRE’d I am yet to see transparent long term portfolio returns shared.  So today’s post aims to do just that.  Put a stake into the ground where hopefully your comments and other bloggers posts will tear my investing performance apart showing me to be either a poor, average or good investor.  With time that might help us all fine tune the expected returns we can all plug into our much loved spreadsheets.

1 year and 10 year FIRE anniversaries

November 2019 marks a couple of significant anniversaries for me.  The first anniversary is that it’s now 10 years since I started this blog with this first very amateurish post.  As far as the FIRE movement goes, particularly when we compare it with the number of FIRE blogs today, these were very quiet days.  Notably Early Retirement Extreme wasn’t quite 2 years old while Mr Money Mustache was still more than a year away from making his first appearance.

The second anniversary is that it’s now 1 year since I pulled the FIRE’ing pin and for me at least I think that term is a good analogy.  It really was like a hand grenade going off in my world.

Looking back over those 10 years I’ve learnt quite a few things and I thought it might be useful to jot a few of them down in no particular order of importance:

1. FIRE is both solving a quantitative and a qualitative problem.  I also now believe in the early days of a FIRE journey it’s mostly quantitative problem solving but with time the problems become more qualitative in nature.   For example if you want to FIRE you need to quickly learn how to earn more, spend less (which when combined is save hard) and invest wisely, then choose which of those options you’re going to go for.  In parallel to this you’re probably tracking progress.  These are all quantitative problems to solve.  Looking back I was guilty of focusing on these topics for almost the first 9 years of my blogging which in hindsight was a mistake.  What I should have been doing is in parallel being qualitative which is why most of my learnings today are qualitative in nature.  Also where I sit today I know my FIRE problems left to solve are 100% qualitative.  Are you focusing on both the quantitative and qualitative weighted appropriately depending on where you are in your FIRE journey?

Vanguard lowers expenses

If you’re a UK based investor who’s interested in keeping investment expenses low then it’s highly likely that you’re using Vanguard index and exchange traded funds (ETFs).  If that’s you then on Wednesday there was some good news with Vanguard lowering many of the annual expenses associated with these funds.  Full details are here which contains a list of the OCF reductions.

Human being and a 2019 Q3 review

At the end of June I concluded that a potentially positive step forward on my FIRE journey was to focus on being a ‘human being’ rather than a ‘human doing’ for a while.  No action plans, no agendas, no need to be busy...  During this time I woke when my body was ready, enjoyed a non-time limited breakfast, took advantage of the British summer by spending as much time outdoors exercising as possible, read and even just spent time reflecting.  No contribution was made to the world but at the same time nobody was harmed in the making of this drama.  I just was.  At the start I admit it was incredibly difficult but amazingly as time went on my body and mind really started to accept what was happening and even change for the better.  Importantly I’ve also now started to hear and see things about the world I’ve never really noticed before.  In a good way.

As summer then started to fade bags were packed and time was spent in a far flung land.  It sounds so easy and not so different from what many do in the summer, which is take a summer holiday, but this time it was different as it was for a month which not that long ago it would have been impossible for me to do given my job.  Time was spent with some long lost potentially meaningful friends and family which was surreal, educational and importantly thoroughly enjoyable.  At one end of the spectrum an old friend had cried enough and is in the process of rapidly downshifting his life.  He’s already sold his mortgaged detached home and bought a townhouse, got rid of the car loan and instead has gone for something 10 years old, retrained into a career that pays about a quarter of what he was earning and amongst all this I’ve never seen anyone more happy and positive.

At the other end of the spectrum time was spent with a family member who is frantically trying to climb the greasy career pole and doing everything a good consumerist should be doing.  He has the massive mortgage, 2 smart executive lease cars, every branded item you can imagine, amazingly every TV/music streaming option I know about plus one I didn’t and a willingness to drive 10 minutes out of the way for a coffee at his favourite place rather than making a fantastic one at home with his posh coffee machine.  Oh and to go with that his job (work?) has just been put at risk.  I’ve never seen anyone looking so haggard and tired.

The parallels between the two were so surreal as to be quite disturbing and they certainly helped me further cement what’s important going forwards.  It also made me truly thankful for what I have done as that family member could so easily have been me if I hadn’t pursued FIRE.

Within an hour or so of that meaningful friend we have also identified a possible FIRE location where we could build ourselves a dream home so some time was spent understanding land prices and getting some building quotes.  The good news is that we have plenty of wealth to move this idea forward.

Click to enlarge, Not sure my finger would be as green as this potential neighbour

reFIRE and a 2019 Half 1 review

A few months after returning to my industry, albeit in a different role in the pursuit of meaningful work, I’ve left the company and am back to FIRE.  Soon after joining it became very obvious that while there were some pieces of meaningful work (where I define work as something you do for purpose) the vast majority of what I was going to be doing was just a job (which I define as something you do because you need the money) and right now I don’t need a job.  The excellent tool over at Engaging Data clearly shows that provided history rhymes my biggest risk now isn’t running out of money but running out of life.

Click to enlarge, Is the risk running out of money or running out of life

Reflecting on this I think a few themes are emerging...

Firstly, some people can learn by brainstorming or thinking while some people learn by trystorming or doing.  I now see that I learn the best when I can do the second.  So going forwards I need to always find ways of experimenting before going all in.

Secondly, I deliberately went back to a similar role that I had done a number of years previously which at the time I felt was the highest level of meaningful work I had ever experienced.  Living it again enabled me to see that the role, my industry and my own needs had changed beyond recognition and at some point, much like the boiled frog, my meaningful work / career had actually predominantly become just a job with me just not noticing.

Reflecting on this change... I originally pursued FIRE as back in 2007 I saw some changes starting to occur that made me think my job at the time would eventually be outsourced to a low cost country.  Faced with no job I came up with the choices of FIRE or retrain into a new career.  I took on FIRE.  Looking now at what had forced many of the changes to my industry, making me also now incompatible, it was largely driven by what I initially saw.  That is globalisation requiring extreme cost reduction and reduced quality achieved by investment reduction, partly achieved by outsourcing, while at the same time ramping expectations far faster than answers could be found.  So while the changes occurring didn’t directly take my job directly by the time I FIREd they certainly helped reduce the level of meaningful work.

Sobering retirement income drawdown demonstrations – 12.5 years in

Another year has passed for our UK early retiree.  A year ago I wrote that in the worlds biggest economy, the United States, Donald Trump was starting trade wars and the S&P500 cyclically adjusted price earnings (CAPE) ratio was sitting at 32.0 against a long run average of 16.9.  A year on it’s almost déjà vu with the trade war with China still rumbling along and the S&P500 still on a high 30.4.  Closer to home I wrote that we had a Brexit shambles playing out in slow motion that might just ruin the economy for a long time.  A year on and the whole Brexit situation has moved on to become a joke with politicians continuing to promise unicorns while the FTSE100 has fallen 2.8% in nominal terms.  Of course dividends continued to be paid which will have dampened that fall.

Against this environment it’s unlikely a UK early retiree who has opted for a higher withdrawal rate will be dancing for joy but let’s take a look.

This update of the drawdown demonstrations now has our retiree some 12.5 years in to retirement.  It assumes our retiree is not one of the lucky ones sitting on a defined benefit pension (although it’s likely they’d need some other income source in the early years if they’re going to FIRE), isn’t intending to buy an annuity (again, not likely for the early years of FIRE) and isn’t planning on living off the State Pension (although 12.5 years in to retirement our UK retiree might just be starting to get to an age where there might be some predictability in what they might receive here so they might want to start baking a portion into their models).

We are now fast approaching the half way mark that the 4% rule is based upon and this simulation assumes retirement was taken on the 31 December 2006.  If this date sounds convenient then you’re right.  The date was deliberately chosen as it is the year prior to the commencement of the global financial crisis and so hopefully represents a modern worst case.  Someday it may even go down in history as one of the time periods which saw a poor sequence of returns however of course that will only become clear when we are firmly looking in the rear view mirror many years hence.

PF101

Personal Finance is a major hobby of mine.  I’ve now been absorbing everything I can about saving, investing and financial independence since late 2007.  In November this year I will have also been blogging about it for 10 years!  When I go on holidays I’m also the one reading Wall Street Revalued  and not that latest John Grisham novel

In my last post I mentioned the Ikigai model and if I apply that to personal finance I get the following...

Click to enlarge, Source

What you LOVE:

• Sad I know, but I never have to force myself to read a personal finance book, read the latest post from great blogs like Monevator or fire up Excel on my steam driven laptop.  In fact it’s the opposite for me.  I gravitate to this stuff so yes I’d say I love it.
• If I think about my previous (and even current to some extent) work/job I also used to love enabling others with training, coaching, process improvement and then with light touch sitting back watching them succeed.  I always took little satisfaction out of my own success but I took a huge amount of satisfaction out of watching my team succeed over and over.  I think this is why I’ve also stayed blogging for so long.

What you are GOOD AT:

• I am reasonably good at maths and now have more than 10 years of personal finance knowledge under my belt.  Sure, I’ve made mistakes and I’m sure will continue to do so but on the whole I think I’ve managed to get more things right than wrong.  I don’t think I would have achieved financial independence in 8.7 years if that wasn’t the case.  So yes, I’d say I’m good at it.
• In my previous day job I was also pretty good at teaching and developing others to succeed.  In some of my later roles it would have been impossible for me to do my job well if that wasn’t the case.
• While not being a fantastic motivational speaker I am pretty confident in smaller training / workshop environments where on many occasions I’ve been successful in getting the message across.

Back to powerful FI

6 months after taking the FIRE (financially independent retired early) leap I can confirm that (for now) I’ve reverted back to FI (financially independent) mode.  That’s right, we’ve left Cyprus, are back in the UK and I’m working and/or have a job.  More on that in a minute.

It’s been a long time between posts and a lot has happened so to try and get the story out in a succinct manner I’ll post some questions to myself.  I’ll then likely follow up with more detail in subsequent posts if people are interested.  So here goes...

Did Cyprus not agree with you and Mrs RIT?

We didn’t leave Cyprus because of Cyprus.  In fact quite the opposite.  Cyprus was absolutely brilliant and we saw it at its worst as we were there during one of the wettest / coldest winters on record.

There was so much relatively unspoilt nature with the picture above hopefully being a nice example of linking human occupation with nature.  Just around the corner from there is where turtles actually nest.  It was a walkers / hikers / cyclists paradise.  So much so that I managed to lose 10kg in relatively quick time.

The people and the way of doing things were also incredible.  On various forums I’d heard the term for Cyprus being siga siga which means slowly slowly.  I didn’t find that at all.  What I found was that things were done differently but in a good way.  For example to buy car insurance I went to the insurance company and sat across from the person who was going to sell it to me.  Over a good coffee and with no pressure the forms were duly completed and a quote was generated.  Hands were shaken, the forms were signed and I was done.  All over in about 30 minutes.  Give me that over automated menus that can’t understand me and a call centre if I press the right buttons correctly any day.

Managing Retirement Drawdown

As a 46 year old now in Early Retirement it seems worthwhile to now share more detail on how I have as tax efficiently as possible tried to build my wealth so that I run out of life before I run out of wealth.  For some time now at a high level I’ve used the following approach, which of shared on a number of occasions, to know when to pull the trigger.  Track my spending religiously then adjust that spending to add new expected retirement spends while subtracting non-retirement spends such as costs associated with work.  With my retirement spending defined at £24,000 per annum I then retired when that spending was the lesser of 85% of dividends received from the portfolio or a safe withdrawal rate of 2.5%.

This sounds relatively simple but it’s actually a more complicated problem than that as I actually have my wealth and earnings sitting in four buckets which have differing rules, including the age with which I can gain access.  These are:

• £225,000 sitting in savings accounts ready for a home purchase.  This is accessible now.
• £521,000 sitting in savings accounts, NS&I index linked savings certificates (ILSC’s) as well as bonds, gold, listed property and equities within trading account and ISA wrappers.  This is also accessible now.
• £578,000 sitting in bonds, gold, listed property and equities within pension wrappers.  This currently cannot be accessed until age 55.
• A State Pension promise according to my latest forecast of £5,353 per annum.  The current government promise is this is accessible at age 67.

So all in that’s wealth £1,324,000 and a government ‘promise’ of £5,353 annually at some point in the future.  Let’s look at each of these in turn.

£225,000 Home Purchase

We are currently renting but intend to buy and the money sitting in savings accounts ready for the purchase has no access restrictions.  The risk I carry here is if house prices rise at a rate greater than the interest after tax I can earn then I’m losing housing opportunity.  If my interest after tax is greater then I’m winning.  I see this approach as a less risk than if I invested this wealth into bonds, listed property or equities as the likely erosion should be gradual when compared to what bond and equity markets can do over a relatively short period.  That said I don’t want to wait too long.  From where I sit today there are no negatives to buying as if house prices fall we still have the home where if they rise we are losing quality of life that will come from our dream home.  We’ll therefore be buying as soon as we find a region to call home.  That might be Cyprus but we won’t know that for a few more months.

So far so good.  I have enough wealth to buy a home.

2018 In Review, Let Decompression Commence

The fourth quarter of 2018 contained the pivotal moment of my FIRE journey so far – FIRE day.  Financially it represented the transition from rapid wealth accumulation to hopefully well managed wealth decumulation or drawdown.  As I write this though more importantly it also represented the start of what seems to be called the decompression phase of retirement and I’ll freely admit I’m finding this really difficult.  Prior to FIRE I had 60 – 70 hours a week either commuting or in the workplace where I would be seeing new data that would require action every 15 to 30 minutes.  I would then be paid reasonably well for this effort on a monthly basis with some being spent to live well while the majority was saved.

Now we get to do what we want when we want and there is no need for urgency but also if we want to eat I now need to withdraw from my wealth that will only be renewed passively.  I can’t speed it up without taking more investment risk.  So what emotions have I been experiencing?  Initially, mainly a lot of stress caused by giving a good work handover and pushing too hard on our relocation plans to Cyprus.  That has now subsided with us now having been here for about 6 weeks.  After the stress left I experienced euphoria!  I’d done it, I can now do whatever I want and am free to be where I want when I want.  That also has now subsided.

So what am I experiencing right now?  That’s have we done the right thing and should we persist.  There is certainly some fear in there as well.  Fear of running out of wealth, fear of not having enough wealth to meet our quality of life ambitions for the next 40 or so years, fear of my skills quickly becoming stale and not being able to re-enter my career when that occurs...  At one point I even thought about asking my employer if they’d take me back and I have also looked briefly at what jobs are out there.  Thankfully, I’ve bitten my tongue and moved on for now.

2018 HYP Review

A little over 7 years ago (late 2011) I started to build a UK High Yield Portfolio (HYP).  It was a much talked about strategy back in the Motley Fool forum days and today still gets plenty of attention on the Lemon Fool forums.  I continued building the portfolio until July 2015 by which time I’d amassed 17 shares across multiple sectors.  That included a token amount of Royal Mail Group (ticker: RMG) during the initial public offering in 2013 and the spin-off of S32 by BHP in 2015.

Today the portfolio is down to 16 shares because of the forced Amlin sale in 2016.  It was set up to be close to a low tinker portfolio with only a few mechanical rules that would be triggered if there were big changes to a share.  For example if the actual value of a holding became 50% larger than the median share holding I would sell 25% or if the actual dividend yield dropped below 50% of the FTSE All Share (I’m looking at you Pearson, ticker: PSON, although I didn’t follow my own rules when they cut the dividend in late 2017 and the share price is up 27% since making me think my rules might actually be rubbish).

There were no buys (or sells) in 2018 (making the maths pretty easy this year).  The complete HYP and the respective values of each share are shown in the chart below.  The purchasing rule that I followed was the amount of the next purchase was the median share value of the current portfolio (with the exception of RMG and S32).

Click to enlarge, Retirement Investing Today High Yield Portfolio

Merry Christmas

The organisation I up until recently worked for closes its year at the end of December.  With shutdowns between Christmas and New Year it meant that the run in to the Christmas bank holidays were always absolutely manic.  It meant long hours and little time to soak up the Christmas spirit until the physical bank holidays were upon us.

Christmas 2018 is my first FIRE Christmas and things have changed somewhat.  We’re already reasonably settled in the Med with our rental home for the next 6-12 months.  All our possessions have now arrived so there was only one thing for it.  We put up the Christmas tree and spent a couple of hours decorating it.  Then I felt inspired...

In years gone past we’ve always bought a Christmas Cake and / or Christmas Pudding from the supermarket.  Not so this year.  I attempted to make a Christmas fruit cake from scratch.

Click to enlarge, One dodgy looking fruit cake

Moving to Cyprus from the UK (Part 1)

It hasn't been all bureaucracy

It’s been 3 weeks since I FIRE’d (financially independent and retired early) and we are now logistically pretty much settled in Cyprus.  I thought it might be worthwhile to capture some learnings for those that might want to someday follow in our footsteps as well as showing a little of how it’s all fitting into the principles that I’ve been espousing on this site over the years.

Prior to moving we made a few preparations. About a year prior I joined a number of Cyprus forums, initially just lurked and then started to participate as our move date approached.  There are some really helpful people on these (you very quickly learn who) and they certainly helped simplify the process we have just been through.  Two notable ones were Paphos Life which is relevant for the Paphos side of the island and the Cyprus Eastern Forum which is relevant for the Famagusta side of the island.  There are some common themes so both were worthwhile pursuits.

I also started the process of gaining us private medical cover.  The company we went with were thorough in the screening process but I’m told by those that have made claims that they don’t quibble when you need care.  It included questionnaires as well as physical check-ups which had to be done in Cyprus for those aged over 40.  This was not a quick process taking us a little over 3 weeks from advising we’d like to proceed to being fully insured.  I’m therefore glad that I did as much as possible from the UK as it minimised our non-cover period in Cyprus.

From the UK we also booked ourselves 2 weeks in a serviced apartment as well as a hire car for the same period.  In hindsight we probably put ourselves under stress that we really didn’t need to by doing this for such a short time.  The removal company shipping time turned out to be 3 weeks which means we actually did the move in two shipments effectively camping in our UK flat for a week so that our belongings would arrive in a timely fashion.  It also meant we had to find somewhere to live quickly.  Having done plenty of online rental research I thought this would be easy but once on the ground it became apparent that a lot of the online inventory was already rented / ‘didn’t exist’, had been taken by very good photographers or were ‘winter lets’ which I guess are then put on Airbnb (or similar) over the summer.  Finding a place therefore took some time and caused some short term stress.  While costing a little more, if I had my time over I would have booked temporary accommodation for at least 3 weeks and probably 4 weeks as this was the main problem area for us so far.

Is the visible FIRE movement changing for the worse

When I started my journey to FIRE (financially independent, retired early) in late 2007 there wasn’t much on the topic in the public domain.  To my knowledge at that time the term FIRE hadn’t even been coined and the US based Jacob at Early Retirement Extreme was just getting going with his blog.

When I started this blog in late 2009, which was predominantly aimed at holding me accountable, learning from others and sharing my journey to early retirement in the small hope it might help some others, even Mr Money Mustache hadn’t yet arrived on the scene.  To my knowledge that didn’t occur until 2011.

Even at that point the UK FIRE blogger scene was still pretty quiet.  Of course the great Monevator was running full steam ahead but at that time my feeling was that his site was more investing focused for which I must once again tip my hat and say a massive thanks for everything he has taught me.  To my knowledge the UK FIRE blogs didn’t really start to ramp until around 2013 after which blogs like The FIRE Starter and Quietly Saving appeared who each continue to put their own unique and interesting spin on things.  This has continued to the present day with new unique blogs like Young FI Guy, Ms Ziyou, Gentleman’s Family Finances and Fire v London all sharing something new regularly.

FIRE day!

“Retirement is the withdrawal from one's position or occupation or from one's active working life. ...  Retirement is generally considered to be "early" if it occurs before the age (or tenure) needed for eligibility for support and funds from government or employer-provided sources. Early retirees typically rely on their own savings and investments to be self-supporting, either indefinitely or until they begin receiving external support.” Source

It’s an exciting time in the RIT household as I’m now calling myself FIRE, Financial Independence Retire Early.  I’ve worked my notice period, completed a professional handover of responsibilities, was given a fabulous send off by the company I worked for, surrendered my identification card and then walked out the door.

I guess that confirms I’m now jobless but am I really FIRE?  Do I really have enough savings and investments to be self supporting ‘indefinitely’?  Let’s start with the level of wealth that I go into the next stage of my life with:

Click to enlarge, RIT progress towards FIRE

That’s just a whisker over £1.3 million.

NS&I loses some lustre

In recent weeks there appeared to be a glimmer of hope appearing that I might be able to get a little more interest on my cash and cash-like (NS&I Index Linked Savings Certificates) holdings.  This was of interest to me as I currently have in excess of £300,000 in these products in readiness for a home purchase and to help me live off dividends only in my soon to be early retirement.

It started with Goldman Sachs entering the UK savings account market with their Marcus account paying an annualised 1.5%.  Nothing to get excited about given, that after I pay my additional rate tax of 45%, that reduces to 0.83% meaning in inflation adjusted terms I’m still going backwards at a rate of knots with the RPI currently sitting at 3.3%.  Even for those with a basic rate tax of 20% this account still sees you going backwards in real terms, both before or after you've used your £1,000 basic rate tax free personal savings allowance, as you’ll only end up with 1.5% (within the tax free personal savings allowance) or 1.2%  (post the tax free savings allowance) in your pocket.  Still better than a poke in the eye with a pointy stick as it puts an extra £222 into my pocket annually when compared to the savings product I ditched.

Then Charter Savings Bank popped in with a slightly lower annualised 1.4%.  Again, nothing to write home about, but better than what I did have meaning an extra £153 in my pocket annually.

2018 Quarter 3 Review, Readying for FIRE

Latchi, Cyprus at dusk

With my work notice period now nearing completion I’m actually a little surprised at the calm in the RIT household.  Hopefully this means we believe we are reasonably well prepared and probably more importantly means that we still believe we are doing the right thing.

At work we’re just completing 2019 plans and I’m not excited by any of it which is a new feeling for me.  I’ve put this down to a couple of things.  One of the main objectives is something I’ve personally done on a larger scale twice previously so I would expect few challenges if I was leading the activity.  This might be a contributor but I suspect the real reason is that FIRE now just feels 100% like the right next step combined with feeling well prepared for what we’re walking into.  Not even Mr Market taking £72,000 from my wealth since its peak in mid-August and £58,000 in the last 3 weeks has made my think twice.  I guess that means I’m ready.

Our readiness for our Med move is also calmly progressing.  We have the removal company booked with them moving us in 2 stages for only an additional 5% cost.  This was our suggestion and I was surprised at the small delta cost meaning it was the lowest total move cost option we came up with.  The rationale is that the shipping time to Cyprus is about 4 weeks so what we’ll do is split our stuff in half meaning we’ll be able to stay in our current UK rental flat right up until the night before our flight and then in Cyprus we’ll only book a short term rental for 2 weeks which should be time enough to find a long term rental.

On the financial side we’ve also taken some precautions like opening additional current accounts with new banks as that will be almost impossible to do once we’re non-resident and banks have form of closing non-resident accounts when they decide it’s best for them.  For example Barclays has form with residents of Cyprus being specifically targeted for closures.  We’ve also opened up new UK savings accounts for a fresh 12 months bonus interest by which time we should hopefully be putting those cash funds to work on a home purchase.  The best I came up with here was the new Goldman Sachs Marcus account which is giving me 1.5% annualised.

We’re also starting to think about what we’re going to need to purchase in Cyprus for our new lives and making sure we can get access to that cash quickly.  We’ve therefore opened up a competitive international currency transfer account as well.  One of the things I’ve decided I’ll ‘need’ very early on is a new road bike.  Requirements are a relatively good price vs weight bang for buck, suitable for plenty of miles in the saddle, suitable for hill/mountain ascending/descending plus the flats and good enough that when I get dropped on club rides it’s because I’m a ‘fat unfit b*stard’ not because I’m riding something that weights 30kg.  The best I’ve come up with is this:

Click to enlarge, Canyon Endurace CF SL Disc 7.0

Do any readers have any better road bike ideas?

With the move now just weeks away this makes this quarterly update the last that shows how I’ve accumulated my wealth.  The next update will switch to how I’m managing drawdown.  Accumulated wealth is quite a loose term in this case given since the start of the year my wealth has actually reduced by £14,000 or -1.1%.  Let’s look at the details.

The Wealthsimple Experiment

It’s no secret that Personal Finance is a hobby of mine (498 blog posts help reinforce that) and within that hobby I’ve done a reasonable job of DIY investing myself to FIRE using the knowledge I’ve gained to focus on a few mechanical principles.  I would suggest that this has also been helped by having a “head vs heart” approach to life, a reasonable grasp of maths, gaining a sense of achievement by reading personal finance books/blogs and an enjoyment of spreadsheets.

Mrs RIT on the other hand is the very opposite of me which makes our non-financial relationship great as we balance each other well.  She would never take on personal finance as a hobby, is more “heart vs head”, is more arts than maths and most definitely doesn’t enjoy spreadsheets.  She does however very much see the benefits of wealth creation and FIRE having been a willing participant in the journey to FIRE.

With this in mind, over a reasonable period now, I’ve been teaching Mrs RIT DIY investing.  The reason I’m not just doing this 100% for her is that someday there is of course a risk that I won’t be able to for a number of reasons.  We therefore want her to be able to stand on her own investment feet.  We are making progress but I’m still answering plenty of questions.  Then a couple of weeks ago it went a little pear shaped.  Mrs RIT was about to buy an investment with some new money.  The night before we agreed what the ETF purchase should be to move her current asset allocation closer to plan and she was to then buy the ETF the next morning.  That afternoon I asked how the purchase went and would she like me to answer any questions.  The response was “Oh I didn’t buy the one we agreed because when I logged on to buy I saw that it had been going down so I bought this other one which has been going up”.  This started me thinking about whether DIY investing is for her and what other options we might have as a risk mitigation to me being unable to help with her (and maybe inherited from me) investments in the future.

One-way flights booked to Aphrodite’s birthplace

Even if you’re not into your Greek mythology then you’ve probably heard of Aphrodite, the Ancient Greek Goddess of love and beauty.  The legend goes that she was born from the sea foam here:

Click to enlarge, Happy snap of Petra tou Romiou

Aphrodite apparently rose from the waves and was escorted on a shell to this beach.  That beach and those rock formations are in the Paphos district of Cyprus – our soon to be new home.  In the end our choice of new homes came down to Spain vs Cyprus and specifically the Costa del Sol vs Paphos.  Now not for a second am I saying that we couldn’t have found somewhere more suitable in Spain or Cyprus or elsewhere for that matter but what I am saying is that eventually it gets to the point where you have to make a decision with the data you have and strap yourself in for the ride.  We did that this week as we made our first irreversible commitment – we’ve booked our one-way flights.

So how did we arrive at Paphos (Pafos), Cyprus?  The process was:

• We firstly scoured the internet, which included numerous forums, to shortlist possible locations.  
• With that information we tried to build a ‘head’ matrix where we scored many topics including ease of visiting friends/family, ease of travel, cost of living, financials including taxes, economic stability, language, demographics, desired lifestyle compatibility, crime, security, noise, weather and healthcare (short term and long term) to name a few.
• If that showed promise we then visited the location and if we liked it we tried to visit again in the opposite season.  During our visit we then tuned up the ‘head matrix’ for comparison against other locations.  For a location to qualify we had to have visited it at least once for more than a holiday.

The secondary benefits of minimalism

During the week I was asked by a family member how much we’re paying for our contents insurance annually.  I replied that we don’t have contents insurance to which I was asked but what would you do if you were robbed or the house burnt down.  I replied with as you know we don’t have much stuff so I’d just buy replacements.  I was looked at like I had two heads and the topic of conversation was moved on.

Afterwards though I thought about this a little more.  As a family we don’t live out of suitcases but at the same time of all the people I know I’d say we have the least amount of possessions.  This hasn’t really been planned but is more the output of our intentional focus on quality of life which has led us more to a life based on security (one of the drivers behind FIRE), experiences and relationships.  So in our case the primary benefit of not coveting stuff is that it has accelerated our quality of life journey.

The insurance question did however make me think of a number of secondary benefits.  Firstly, to the insurance question itself.  As a collective group those that take out insurance have to lose out financially when compared to those that don’t.  This is because insurance companies need to pay wages, other operating costs and satisfy shareholders meaning what is paid out in claims must be less than what is taken in via premiums.  As an individual though you could win or lose.  Don’t take out home insurance for 40 years and never make a claim and you’re ahead.  Have your home burn down in year 2 under the same scenario and you’re definitely a loser which might include ending up under a railway arch in a worst case scenario.

Sobering retirement income drawdown demonstrations – 11.5 years in

As I write this post the S&P500 cyclically adjusted price earnings ratio sits at 32.0 against a long run average of 16.9, Donald Trump is starting trade wars, the US market has been in a bull cycle for well over 9 years and closer to home we have a Brexit shambles playing out in slow motion that might just ruin the economy for a long time.  Then on a personal front I’m just about to ride off into the FIRE sunset.

S&P500 cyclically adjusted price earnings ratio, click to enlarge

Against this backdrop it feels right to reinvigorate and update the UK retirement income drawdown series, which I last posted about 2 years ago, to see how things are playing out.  I hope it’s not relevant to my situation but you just never know.

Unless you’re one of the lucky ones sitting on a defined benefit pension (although it’s likely you’ll also need some other income source in the early years if you’re going to FIRE) or you intend to buy an annuity (again, not likely for the early years of FIRE) or you’re just planning on living off the State Pension then income drawdown in FIRE (or even just plain old retirement) is relevant.

This update of the drawdown demonstrations now has our retiree some 11.5 years in to retirement.  We are now just over one third of the way through the period that the 4% rule is based upon and this simulation assumes retirement was taken on the 31 December 2006.  If this date sounds convenient then you’re right.  The date was deliberately chosen as it is the year prior to the commencement of the global financial crisis and so hopefully represents a modern worst case.  Someday it may even go down in history as one of the time periods which saw a poor sequence of returns however of course that will only become clear when we are firmly looking in the rear view mirror many years hence.

2018 Half 1 Review, The penultimate accumulation post

A little over ten and a half years ago I started to accumulate wealth with a vague notion of work becoming optional in a relatively short time.  At the time I was calling this Early Retirement.  It was a time when the more famous sites like Mr Money Mustache or Early Retirement Extreme didn’t even exist.  It was also a time when terms like FIRE also didn’t exist.  It was a time of self discovery vs being able to learn from those that had walked the path.

With my resignation now in and FIRE now just over the horizon this post series about accumulating wealth is fast drawing to a close.  This is the penultimate one.  The second last post where I ramble on about how I’m try to accrue wealth quickly.  It will soon become all about managing drawdown to protect my wealth.  I’m looking forward to it.

To stay on the subject of accumulation, in the first half of 2018 wealth growth was a modest 2.8% or £36,000.  If I was at the start of my journey the word modest would not be one I would be using to describe wealth growth of £36,000 in 6 months but as someone looking back at a journey that has managed annualised wealth growth of 21.4% it is modest.  Let’s look at the details.

SAVE HARD

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 Employer 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%.

Click to enlarge, RIT Savings Rate

Resignation in

Recently I’ve been having doubts about taking early retirement.  What I’ve found particularly interesting is that since becoming financially independent back in July 2016 I just haven’t had the same level of hunger for it.  In the past few weeks I’ve been really trying to figure out why.  I definitely knew there was an element of institutionalisation in there but it was more than that.  There was also fear and plenty of it.

Fear of leaving a career that has plenty of negatives but also plenty of positives.  Fear of the unknown.  Fear of losing purpose.  Fear we’re making a mistake.  Fear of not having enough.  Fear of our move to the Mediterranean being a mistake and us returning with our tail between our legs.  Fear of...