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.