Showing posts with label musings. Show all posts
Showing posts with label musings. Show all posts

Saturday 11 March 2017

Holding pattern musings

2017 so far is starting to feel like I’m in a bit of a holding pattern.  We’re starting to feel excited about the new adventures we are going to face in FIRE, I feel like a small part of me has already left my workplace yet I don’t want to go any further until my 2016 bonus is paid and a longer term incentive also appears.  Not long now.

While in that holding pattern I’ve just continued with my saving hard and investing wisely strategy which has my wealth this year already up £36,000 to £1,155,000.  More than enough to live the lives we want to live in FIRE.  There’s also been a few events and learnings over the period.  Let’s look at a few in brief.


Philip Hammond delivered his Spring Budget statement, which for people like myself, was just another chance to increase taxes.  Previously, from 06 April 2016 the dividend tax credit was abolished and a new tax free £5,000 dividend allowance was introduced to partially compensate.  Hammond has decided he wants some of that so from the 06 April 2018 will reduce the allowance to £2,000 ‘to address unfairness’.  Dividends above this level will be taxed at 7.5% if you’re on the basic rate, 32.5% if you’re on the higher rate and 38.1% if you’re on the additional rate.

If I stayed in my current grafting up state Hammond would have grabbed another £1,143 from my pocket.  But alas times are a changing.  We’ll be in the Med by late summer with that more and more looking like being Cyprus.  There I’ll use the Cyprus and UK Double Taxation Convention, the Cyprus non-domicile rules and the Cyprus tax laws to pay precisely £0 in tax.  Sorry Mr Hammond not on my watch...

Saturday 29 October 2016

Herefordshire or bust?

In recent times some focus in the RIT household has now switched from A Place in the Sun to what about Herefordshire?  As with any of our crazy ideas our approach is always plenty of desk research and then boots on the ground.  All I can say is that Herefordshire is everything we remember from previous visits.  An absolutely beautiful part of the world but then again at this time of year in the UK, with the leaves yellow to red and starting to fall, ugly parts are probably the exception so some care is needed.

Click to enlarge, Kingsland, Herefordshire (source)

Of course our trips have not been all about roaming around country paths, lanes and villages  although we’ve done some of that.  They’ve also initially focused on looking at the possibility of building a modest warm home.  Don’t get me wrong, we love an old historic grade II listed home like the next man or woman, but as a FIRE’ee we don’t very much like the energy performance or maintenance costs that go with them.

Saturday 8 October 2016

Post financial independence, post Brexit, what next

FIRE in Cyprus?
There are now literally hundreds of personal finance bloggers out there in cyberspace with many of them blogging about trying to reach financial independence.  Some are more extreme than others but I have now started to see a distinct pattern that separates them into at least two categories.  The first are those where reaching financial independence in just a few short years was a doddle and where life since early retirement has been a bed of roses with low spending, plenty of international travel, new cars, new homes and nothing ever going wrong.  Then there are those where stuff, including negative stuff, happens.  The journey to FIRE maybe takes determination, maybe their company gets bought out with redundancy coming relatively soon after, maybe their company simply doesn’t agree with their lifestyle choices causing a rethink or just maybe early retirement was not for them so they have returned to work.

I’ve started to call the first the blogs that are selling a life and the second the blogs that are living a life.  I’ve also pretty much stopped reading the former as they no longer resonate with me as my journey has and continues to be much more like the second type.  If you however prefer the first type then I’d suggest you move onto your next piece of Saturday reading as this post will likely disappoint.

I’m now coming up on 3 months of financial independence (FI) and the one thing I’ve been trying to leave via FIRE (financially independent retired early), work, has already become a very different place.  My workplace and the career I chose is one that is very focused on the financial top and bottom lines.  This means that it’s no secret that as soon as my job can be done by somebody else cheaper or more efficiently in the world then I won’t have a job.  It’s also one where if you perform well you can do well financially, and I have, but also one where even average performance will result in you quickly finding yourself without a job.  For me this has helped with my rapid progress to FI (of course it’s taken a number of other choices as well) but it’s come with the sword of Damocles always in full view.  3 months ago that sword was taken away and it’s made a big difference.  It’s firstly just simply removed a weight from my shoulders as out sourcing or average performance will now just result in a nice pay off, which I negotiated some time ago when I seriously looked to move on but was still a golden child, which will further bolster my wealth nicely and result in me simply sailing off into the FIRE sunshine.  Additionally, to ensure continuous success one technique I’ve used over the years is to work very hard which gives me extra time to drive the risk out of every decision I make.  The ramifications of this are pretty long days but it did help with surety of tenure.  Since FI I’ve started to take now take more risk as there are now no downsides personally.  So far this has me back to peak performance, having dipped for a few months following extra work load, but I’m also working slightly less hours and that 0.5 – 1 hour less work per day has put a spring back in my step.  It’s still not the place I’d choose to be Monday to Friday and FIRE is still very much in view but it’s a lot better post FI then pre.

Saturday 13 August 2016

Naive, a victim or just plain irresponsible

Naive (adjective) – (Of a person or action) showing a lack of experience, wisdom, or judgement. Source
Irresponsible (adjective) - not thinking enough or not worrying about the possible results of what you do.  Source

My work day generally does not afford me a lunch break.  It’s generally scoff a sandwich, but not fast enough to give indigestion, between tasks.  A couple of weeks ago after a particularly rough morning I did however break away and joined the ranks of those at the ‘lunch table’ for a few minutes.  This is normally a place of general chit-chat, of what gadgets people are buying, of the latest sports news, of what people are doing on the weekend, but today in the wake of the BHS pension scandal the topic switched to investments, pensions and retirement plans.

When it comes to saving, investing and retirement planning I am very transparent on this blog but in the office I am the definition of a grey man.  After all an environment where your employer knows you have a decent FU stash or are only a few months from FIRE is hardly one where you are going to be able to ramp earnings at a rapid rate.  So I switched on my spidey sense but didn’t dive in with ‘my view’.

Saturday 2 July 2016

2 Commas = £1,000,000

Today, as I have done pretty much every Saturday morning since October 2007, I again sat down and updated my wealth and progress to FIRE (financially independent retired early).  This morning was however a little different as when I usually look at the wealth column of my spreadsheet after entering the data I see 6 figures and a single comma.  Today, for the first time, I saw a second comma indicating that my wealth had passed the £1,000,000 mark.

Wealth spreadsheet snapshot
Click to enlarge, Wealth spreadsheet snapshot

This number means I am now 98.9% of the way to FIRE.

RIT path trodden to Financial Independence
Click to enlarge, RIT path trodden to Financial Independence

Saturday 25 June 2016

Brexit vs FIRE to the Med

So the UK has voted, Article 50 of the 2009 Lisbon Treaty will soon be invoked and over the next couple of years we’ll negotiate (hopefully sensibly) our way out of the European Union.  Of course I have no idea what those negotiations are going to result in but I also don’t really want to hang around and wait.  After all I’m trying to become financially independent in less than 6 months from here and retire early to the Med in less than 12 months.

It therefore seems worthwhile to get my initial thoughts down on paper which can then be modified as I learn what is happening and being negotiated.

Wealth to FIRE

Post referendum there was plenty of economic doom and gloom around however there was also plenty of exuberance in the days prior.  Priced in £’s my portfolio actually ended the week 1.9% higher than my position at the end of last week and priced in Euro’s I’m down 1.2%.  Hardly FIRE destroying leaving me very much still on for financial independence in less than 6 months.

My path trodden to financial independence
Click to enlarge, My path trodden to financial independence

As a person positioned as a UK investor right now I’m also stress testing my portfolio against a £ to Euro exchange rate of 1.123.  It’s currently 1.2307 so this is still also looking good.

Getting in the door

One of the founding principles of the European Union was the free movement of its people across its countries borders.  The RIT family were planning on taking advantage of this to enable the move to the Med.  I would say there is a definite risk now, that with us Brexiting, this right will be taken away for UK passport holders not already resident in their new EU country.

Saturday 19 March 2016

Errors everywhere but I did get one thing right

My early personal finance records are sparse at best; however I was undertaking a bit of (pre)spring cleaning this week and came across an early retirement planning spreadsheet that was last updated in November 2007.  That’s just a month or so after I started on my FIRE journey.  It made for some interesting reading given my current FIRE position, so much so, that I thought it worth sharing particularly in view of some of the comments here.

On my FIRE journey so far I've found that Saving (Earning minus Spending) has been one of the most powerful accelerators towards FIRE.  To demonstrate to the end of February 2016 68% of my wealth creation has come from Saving while only 32% has come from Investment Return.  Looking at the 2007 spreadsheet I thought I could save £16,000 per annum and I wasn't planning on it increasing through my journey.  To contrast that assumption in 2015 I saved nearly £100,000.  Errors included thinking my Earnings had peaked and that I wouldn't be able to spend less than I was at the time.

I thought my investment expenses would run to 0.75% per annum.  Now ‘way back then’ Vanguard in the UK didn't exist but even so in 2015 they were down to 0.27%.  I also I thought my investments could achieve a real annualised 4.3% after expenses over the long term.  So far I've only achieved 3.4%.

I thought that in Early Retirement a safe withdrawal rate would be the 4% Rule – 4% of my wealth on retirement day increasing with inflation annually.  Today I think 2.5% is more appropriate.  That is a big error.  For a person wanting to FIRE on £20,000 it represents an extra £300,000 of wealth that needs to be accrued which is a big chunk of change.

I thought that the UK would be home and that I would need £28,000 of earnings per annum to live well in FIRE.  Today I think I’ll need closer to EUR25,000 and we’re now 99.9% Continental Europe bound.

Crashing all those numbers above together plus putting some home considerations into the mix made me think I’d need a little over £700,000 to FIRE which included some mortgage payments.  Today I think I’ll need £1,000,000 which includes paying cash for a home early into FIRE.

Saturday 5 March 2016

Another pension’s consultation begins just as the last consultation ends

There were plenty of articles in the mainstream media this week musing about the potential changes that were coming to private pension’s in this month’s budget.  Would Osborne introduce a pension’s ISA, would he introduce flat relief on pension contributions, would he abolish salary sacrifice or would he just cut allowances?  As is so often the case with budget’s these days it looks like we don’t have to wait until budget day for the answer.  Osborne has apparently decided that “There won’t be any changes to tax relief at all in the Budget” (free FT link or Google Osborne scraps pension tax relief shake-up).  So it looks like for now I can just continue with Plan A which predicted no pension tax changes for ‘high earners’ in the 2016/17 tax year.

While all these articles were getting attention it was actually this article (free FT link or Google State pension review begins with John Cridland as head) that has had me more concerned.  This was the announcement that another review of state pension ages has kicked off, from which recommendations will be made in May 2017.  ‘Experts’ are predicting that millennials joining the workforce today might be waiting until their mid-70’s before they can retire.

Now for me it’s not the potential state pension age change itself that worries me, as all my FIRE (financially independent retired early) planning never includes the state pension.  This is because I never wanted to be held to retirement age gun-point by our ever tinkering government with any state pension I might (I actually believe I may never receive any as for example it will end up means tested) receive being an insurance policy only.

Saturday 30 January 2016

Orders of Magnitude

When it comes to spending I sweat the small stuff.

I’ll never buy a National Lottery ticket, even the £2 minimum, as I know that the probabilities say that I’m more likely to win significantly more by investing it rather than buying the ticket.  Even if there is a ‘£20.9M Rollover plus a guaranteed raffle millionaire’ tonight.  During the FIRE (financially independent retired early) accrual phase investing that £2 a week turns into nigh on £1,300 after 10 years (assuming a real 4% annualised return).  During the drawdown phase not feeding a weekly lottery habit, even a £2 a week one, means one needs £4,160 less (assuming a 2.5% withdrawal rate) wealth before FIRE becomes a possibility.  I know how hard I have to work to save £4,160.

Unlike many of my colleagues I also don’t pay to participate in a daily morning caffeine fix.  I was travelling on the company dime recently and purchased a coffee at one of these new fangled remote Costa stations.  Cost £2.10.  To feed a workday daily habit like that one is going to be spending £568 per year.  Take the free work supplied coffee; invest the money saved and all of a sudden you’re £6,800 closer to FIRE after 10 years.  Keep the habit up in FIRE and you’d need additional wealth of £21,840 (less a small amount of wealth to make one at home) before calling oneself FIRE’d.  I value earlier FIRE rather than an expensive cup of daily brown but I of course appreciate others might be different as they value it where I don’t.  Having different values is after all one thing that makes the world interesting after all.

I also sweat the small stuff when it comes to investing expenses.

Saturday 9 January 2016

An Interesting Week

Blowing bubbles
Source: wikipedia
Rather than a particular focus this week my brain has been a little all over the place.  Maybe it’s the after effects of too much Christmas and New Year cheer...  What it means though is that instead of a detailed focused post today what you get is a smattering of random thoughts.  If that’s not your thing then you might want to move onto your next piece of Saturday reading.

Stock Market Fun

The big boys and girls seem to have come back from their Christmas vacations and (started to?) put the markets back in their place.  On the week:
  • China’s Shanghai Composite Index is down 10.0%;
  • The US’s S&P500 is down 6.0%;
  • Japan’s Nikkei 225 is down 7.0%;
  • Our FTSE100 is down 5.3%; and
  • Our FTSE250 is down 4.0%

It’s only a week of market action but I thought it might be interesting to compare that action to a diversified portfolio that has different asset classes across multiple countries.  I hope I have one of those so comparing to my portfolio I’m down 2.3% on the week.  I’m not yet at FIRE but even now in pounds, shillings and pence that is a fall of £19,320 which is more than a year’s worth of post FIRE post home purchase living expenses.

London Housing

It’s all too rare that The Investor over at the excellent Monevator has a good rant but there was some good value this week with the post they don’t tax free time.  Like The Investor I've watched the London property market go insane so this comment

“But with London prices having moved from extreme to insane to “oh, so this is what my grandmother meant when she said flinched at 50p for a bag of chips that used to cost a ha’penny”...”

was particularly amusing.  Now every year I try and assess the house value of all the counties ofEngland and Wales so I already knew it was insane and really no longer a place for anyone who isn't an oligarch or money launderer.  Hell even the bankers can’t afford it any more.  In light of this throwing this chart together this week did make me smile:

London first time buyer gross house price to earnings ratios
Click to enlarge, London first time buyer gross house price to earnings ratios

Does this make my first picture today relevant?

Saturday 31 October 2015

FIRE takes Determination

So that’s October 2015 pretty much done.  Another month where spending has been kept firmly in check with spending excluding rent and work costs weighing in at a hefty £529.

RIT October 2015 Spending
Click to enlarge, RIT October 2015 Spending

This week has been a killer work wise.  One where I'm not even brave enough to add up the hours worked and energy expended for fear of even embarrassing myself.  This week has also reminded me of one of the key unspoken elements required to FIRE (financially independence retired early) – DETERMINATION.  Let me explain.  Most of the themes that I'm using to FIRE are quite formulistic – Earn more, Live below your means to spend less, Invest tax efficiently, Minimise investment expenses, A diversified investment portfolio, Rebalance etc.  The one formula that I'm not using is that of an easy get rich quick scheme.  Instead my path requires commitment and dedication every day, every week, every month and every year until FIRE is reached.  For me that’s likely to be a bit less than 10 years.  For others it could of course be more or less time but still a relatively short time compared to those who intend to retire at State Pension Age.

Sunday 13 September 2015

Has Technology Reached Peak Usefulness

Film Canister
A couple of events this month have really had me asking myself if we are at peak technology usefulness.  Now before you start accusing me of being one step away from off grid living (which I do respect people for pursuing but for which I'm probably a little lazy), hair shirt weaving and/or tin foil hat wearing let me first clarify that I do think technology is incredibly useful and has certainly helped me get ahead.  I'm just questioning if all the newer stuff provides any real benefit to the user.

Firstly, let me give a couple of examples of the good stuff.  I've certainly benefited from the ability to achieve rapid price discovery.  For one I don’t believe I’d be sitting on an investment portfolio, all tied up in wrappers, with total expenses of 0.27%, with all the benefits that brings, without the ability to trawl the offerings from many providers in a matter of minutes.  Would I even know them all let alone know the cost to start with?  The ability to talk to and see someone across the globe in real time for ‘free’ has also helped me hugely.  The thing is that these possibilities are nothing new; the technology to provide them has been around for many years now and importantly is relatively unchanged.  My rapid learning on how to be a successful investor has certainly been helped by fantastic sites like Monevator but here I would have also been more than ok with excellent books like Smarter Investing which requires no technology.  I would have also been well educated on finance and investing with excellent books like When Money Dies: The Nightmare of the Weimar Hyperinflation and The Millionaire Next Door instead of the great internet.

Let me now jump forward to more recent times and see if new technology is helping me.  This week our friends at Apple released some new products.  Now I’m not an Apple fan boy/girl so if I have it wrong then please do correct me in the Comments below but all that I see is things that are bigger/smaller, slightly faster with more mega pixels.  An iPad Air 2 with decent storage and Wi-Fi ‘only’ costs £559.  Who knows what an iPad Pro is going to set one back but I’d bet it will be more expensive.  Is this new bit of tech about to obsolete my Nexus 7 Tablet which today can be had for £141.11?  In my case it certainly isn't as what I have today does everything (and more) than I currently need.  What about a new ‘tasty’ iWatch which from what I can see tells the time unless you have it tethered to an expensive iPhone?  Then as if by magic it does things that your phone can do...  I think I’ll stick with my mechanical watch which I guarantee will still be running long after the latest iWatches are consigned to the scrap heap.  I’d actually nearly bet that my watch will actually still be running and telling the time as well as any future iWatch technology long after I've popped my clogs.

Saturday 5 September 2015

Will I want seclusion in FIRE

I don’t learn quickly.  My successes so far have very much come from a mindset that life is 1% inspiration and 99% perspiration.  This meant that during university and my early career (I'm still deciding if a career is a job where you don’t get paid for overtime) I spent a lot of time staring into a multitude of texts and tomes learning stuff.  During this period I also used to enjoy spending a lot of time socialising with friends and family in my spare time.  At work I was psychometrically profiled and discovered as part of this that apparently I'm an extrovert.  What I'm now starting to wonder is am I really an extrovert or was that just a response to life at that time?  That is the compulsory element of my life was a need to learn fast at an individual level and in response I craved company when spare time allowed.

Today my work day starts early and finishes late.  During those long days at work my day is broken down into not much more than 15 minute intervals.  Everyone wants/needs a piece of me and I’m constantly making decisions.  I no longer need to learn at such a great rate (I do need to stay current so some learning still occurs) with my ‘unique selling point’ now being my domain knowledge and leadership.  In return for that I'm paid well as those decisions are (currently at least) rarely wrong and my leadership skills are seen as a positive.  This probably sounds like the behaviour of an extrovert however now for the problem.

On weekends and the couple of spare hours I get during the week I now no longer crave company.  I certainly don’t enjoy spending time with wider family and friends who continue to consume like the best of them.  Their talk of how much their house has gone up in value or what new car they are going to buy now just bores me.  Instead I now chase quiet time with close friends/family while also coveting some seclusion and time to self reflect.  This blog is a great outlet for me now as it gives me quiet time to learn; self reflect and write about what’s important for me.  The question then becomes is my personal life a response to try and balance my compulsory extroverted work element, combined with consumerism no longer being important to me, or is it because I'm not actually not a natural extrovert?

Saturday 22 August 2015

Is it unrelenting or just obsessive?

A few things combined have had me trying to answer a question or two over the past day or so.  Why do I think I can FIRE (become financially independent and retire early) in less than 10 years, with £1 million, when the vast majority of people won’t ever even think about it, will dream about it and think it’s impossible or will simply fail trying?  What right do I have to even consider this when I'm not from money and will certainly have no inheritance to help me on my way?

The question becomes even more relevant when I take a step back and think about the strategies I’m employing to get me there – earn more, spend less, minimise investment expenses, minimise taxes and invest in a balanced portfolio of different asset classes that are rebalanced both actively and passively.  The strategies are simple and there is certainly no secret sauce in there.

A couple of comments in recent weeks have started to give me an idea:
  • A reader last week made the comment that they were resigned to the fact that they couldn't FIRE.  This reader is already earning “£2200 a month” after NI/taxes, saving/investing “£750 per month” of it at age 28 but then saying that “I accept that early retirement is not possible”.  In comparison I didn't wake up and smell the roses until I was 34, even in real inflation adjusted terms wasn't earning anything like that at 28 and certainly wasn't saving/investing to that level at that age.  Yet here I sit today at age 42 with £820,000 worth of investments and a possible retirement age of 44 or so.  Just what right did/do I have to think I could/can FIRE at an early age when somebody who is already saving more than me at a younger age doesn't?
  • The comment on the Exchange Rate Conundrum post - “all this endless planning, it's exhausting“ -  has been on my mind also.  Particularly when what I was doing, trying to minimise risk by thorough planning, didn't seem strange to me at all.
So just what is so special about my approach?  Why are the principles so simple but the desired result considered so difficult by many?  Why did I think I could FIRE when someone saving more than me at the same age of life and who is younger than me when I started my FIRE journey think they can’t?  Why is my planning so exhausting for others?  Some thinking has identified one natural trait I have in general life which could explain this – I have a natural ability to set a few long term very difficult goals which I don’t know how to achieve when I set them, can plan directionally towards them and can then go at them, even if it takes years, like a Rottweiler until they are achieved.

Let me try and demonstrate with an example from one of my strategies – Earn More.  My real (adjusted for inflation) taxable earnings as a multiple of my first graduate salary are shown in the chart below.  My records are a little poor pre the 2001/2002 tax year and so here I've just used my basic salary as I know I was saving very little into a pension and certainly wasn't achieving bonuses.  Right of the orange line is the period where I have been actively on my FIRE journey.  The boxed numbers identify my age in that year.

RIT’s Increase in Taxable Earnings after Inflation
Click to enlarge, RIT’s Increase in Taxable Earnings after Inflation

Saturday 16 May 2015

Life’s Great Saving Hard and Investing Wisely for Early Retirement

This week as I was thumping up and down the motorway on my lengthy daily commutes I couldn’t help but take some glimpses of the current and potential future life that this journey to Early Financial Independence is providing.  There are of course negatives but the positives really did override my thoughts.  Let me share a few random musings.

Saving Hard

In a post back in March I shared a little about my personal life which included my ‘9 to 5’.  Today is my 397th post on Retirement Investing Today and that post is right up there when it came to Comments at 51 to date.  Some of them pointed to a punishing work life which prompted me to look around at my colleagues and I do agree that I work much harder than most but this is a little by design as I always want to stay in the top 10% of my peer group.  The rub is that what seems a negative to some is now just normal and on autopilot to me plus on the whole my health and wellbeing is as good as it has ever been.  The positive though is that this approach allows things like earnings increases of 44% in a year and I can already see a door potentially opening that may allow another step change in earnings.  So while I admit to being tired come Friday night I also think my colleagues probably are as well.  The difference is that I have an extra chunk of cash which I can save to power me towards Financial Independence Retire Early (FIRE) which means I’ll be done in the not too distant future and they’ll retire when the government lets them.

On the spending front I've also realised that Living Well Below My Means is now just an autopilot activity.  I no longer crave stuff and get zero satisfaction from consumerism.  I do still track spending religiously just in case I need to correct course but I no longer have any sort of budget and certainly don’t have a £0 one.

These two mind sets currently allow me to save 54% of gross earnings.  Sure it’s not at my target of 55% but do you know what – I really am starting to not care anymore.

Gross Savings Rate
Click to enlarge, Gross Savings Rate

Investing Wisely

My investment portfolio which is largely just a set of diversified tracker funds is running pretty close to plan through nothing more than passive portfolio rebalancing and to the end of April 2015 has grown by a Real (after inflation) Compound Annual Growth Rate after expenses of 4% since inception.  It’s also now pretty close to being an autopilot activity.

Performance of £10,000 within RIT Portfolio and Benchmark vs Inflation
Click to enlarge, Performance of £10,000 within RIT Portfolio and Benchmark vs Inflation

One active element with my investment portfolio is of course my High Yield Portfolio (HYP).  Trailing dividend yield is a healthy 5.0% when compared to the FTSE100 at 3.5%.  Capital Gain since inception is also a healthy 38% vs 31% for the FTSE100.  Over the shorter term it’s not so rosy with Capital Gain year to date at 3.5% vs 6.0% for the FTSE100.  So this non passive piece is not quite on autopilot but the strategy is well defined and I'm still happy with the results.  The question I'm starting to ask myself though is can I really be bothered with it.  I'm going to watch it for a year or two more but if results do start to converge toward the index I may just go passive.

Saturday 25 April 2015

The £0 Budget

A lot of my posts in more recent times have been focused on how to earn more and spend less.  I acknowledge they’re pretty dry topics, quite personal and certainly nowhere near as exciting as deciding should I buy the Vanguard FTSE Emerging Markets UCITS ETF or the iShares Core MSCI Emerging Markets IMI UCITS ETF for the Emerging Markets portion of my portfolio.  So why do I keep coming back to the non-exciting topic of earn more and spend less?  Simply because my personal journey has shown me thus far that saving has a much bigger impact on reaching Early Financial Independence or even Early Retirement than investment return.  While investment Compound Interest is for sure a very important concept, particularly over the long term, and is certainly making a contribution it’s just not making as big a contribution as my saving.  This is not what I expected when I started on my journey.

Let’s have a look at my journey data thus far in the chart below.  This chart shows for each year (2015 is only until end of March and so shows as 2014.25) the percentage contribution made to my change in wealth each year from both Saving Hard and Investing Wisely.  Therefore the percentage for each year that shows as greater than 50% has been the greatest wealth contributor for that year.  So in 2008, 2009, 2010, 2011, 2013 and 2014 the honour of most wealth growth contributor has gone to Saving.  In contrast 2012 and 2015 year to date has gone to Investment Return.  So even in year 7 of my Financial Independence Retirement Early (FIRE) journey Saving is still out in front.

Wealth Growth Year on Year
Click to Enlarge, Wealth Growth Year on Year

Of course regular readers will know my Savings Rate is quite high and I’m trying to reach FIRE quickly but I'm not going to make apologies for that.  As savings rate decreases journey time to the goal, whether it’s FIRE or some other objective, should increase with an average wind which should mean that Saving will make less of a contribution and Investment return a greater one.  So maybe I'm just an anomaly given I'm trying to reach Financial Independence in less than 10 years.

Sunday 5 April 2015

Safe Withdrawal Rate (SWR) Thoughts

Many of us in the Early Financial Independence, Early Retirement, community are chasing an amount of wealth which when achieved will allow us to as a minimum call ourselves financially independent and as a maximum allow us to head into full early retirement.  To calculate that target wealth number it’s likely (I know I have) we've ascertained how much we intend to spend per annum and then divided that number by a Safe Withdrawal Rate (SWR) we’re happy with.

The 4% Rule is a SWR that is bandied about freely as a rule of thumb.  Personally it’s too bullish for me and so as I type this I'm planning on an SWR of 2.5% plus 0.25% to allow for investment expenses for a total withdrawal rate of 2.75%.

When we choose a SWR we’re likely trying to calculate the maximum real inflation adjusted annual income we can take while ensuring we don’t run out of wealth before we run out of life.  In doing so what we are really doing is trying to protect ourselves from worst case sequence of returns risk.  In trying to protect ourselves from this sequence of returns risk (and assuming history repeats which we all know is not guaranteed) we actually end up with a scenario where in the vast majority of cases we end up with a lot more wealth than we started with at check out time.

Let me demonstrate with an example.  To do this I'm going to teleport myself to the US and use the excellent cFIREsim calculator as we’re pretty starved of decent free tools here in the UK.  I'm going to assume I retire with one million dollars ($1 Million), give myself a 60% US Equities : 40% US Bonds asset allocation, spend at an inflation adjusted $25,000 per annum (a 2.5% SWR), assume annual expenses of 0.25% and assume I need that level of spending for 40 years.  The output of that simulation is shown below:

cFIREsim output
Click to enlarge, cFIREsim output

Saturday 21 March 2015

Am I Making a Mistake?

Security of employment is not what it was once.  Changes including globalisation, technology, automation and lean (lean is basically doing more with less through the elimination of waste), amongst others, have sent it well on its way.  We see lack of security of employment manifest itself in many ways with one of the more recent ones making headlines in the mainstream media being zero hours contracts.

The problem with this change is that without security of employment there is always the risk of starving to death (maybe an extreme example given the UK’s welfare state status, but certainly not in some countries and hopefully you get my drift).  According to Maslow’s Hierarchy of Needs inability to correct for this deficiency need (or d-need) then prevents one from ever reaching Self-Actualisation which is essentially the realisation of your full potential.

Maslow's Hierarchy of Needs
Click to enlarge, Source:

Personally, in my current career I’m also under no illusion of having any sort of security of employment.  I know that my current security is linked to nothing more than my last performance review or (not and) nobody anywhere else in the world being able to offer the equivalent service for a lower cost.  Part of this is within my control, but mistakes do happen, and part of this is outside my control.

With time I’ve come to realise that my solution to this problem in the short term has been to keep my skills current (the 1% inspiration) and then work hard (the 99% inspiration).  So far this is working with a recent notification that I’ll be receiving a salary increase of 4% and a bonus that exceeds my notional amount in recognition of my performance last year.  I never thought too much of this work hard approach, including was it too extreme, but when readers last week made comments like;

“I appreciate this is the path you've chosen, and for well thought out reasons, but your hours of work sound awful“;


“Holy s**t - good job you have an escape plan as that is a brutal life you currently have carved out for yourself - 16 hour days!  You must be tough as nails!”;

it really did make me take a step back and think.

Saturday 14 March 2015

My Non-Financial Life

This blog is focused on charting my progress to Financial Independence and optional Early Retirement.  By having to continually to write about it I am forced to stay the course because I’m continually held accountable.  You the reader get to see my journey, warts and all, which also includes most of the financial research I do behind the scenes.  It stays very unemotional and fact based as that’s what personal finance in my opinion should be.

Behind all this though is a living breathing human being and also my family who are personally affected daily by what I publish here.  I rarely write about this side for a few reasons:

All of that said it is of course relevant for anyone considering, but not currently on, a similar journey to my own.  Some 7 and a bit years on it’s now just the life my family and I live but thinking back our personal lives have changed a lot.  This was reinforced this weekwith a reader making the following comment:

“Have you previously posted on what you get up to in your daily life? I have a lot of respect for what you're achieving and would enjoy hearing how you enjoy daily living while being frugal. When last did you go on holiday? What do you do for entertainment? Etc. Does that make sense? Just trying to get a feel for the types of adjustments I'd have to make.”

So without further ado let me give some insights into how I live my personal life.