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.