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