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

Click to enlarge, But I would hope green enough to attract these (hint: may need to zoom in to see)

Click to enlarge, Plenty of spaces nearby for exercise and reflection

While it was all very exciting we have now learnt not to rush into things.  We’re just letting it all wash over us for a while but watch this space.

As my time in FIRE progresses the financial side of things seems to be less and less important but I’m not quite on auto pilot yet so let’s now take a look at the numbers.

SPEND SENSIBLY

Spending calmed down in Q3 averaging £2,700 per month (now £3,229 per month year to date) with the chart below showing that the elephant in the room is still rent in our high cost of living location.  Until we buy / build our dream home we probably won’t better this by much but it’s a cost we’re prepared to take given our unwillingness to rush our next FIRE step.

Measured against our FIRE plans there is no hiding from it still being a big overspend though as that required spending to be more like £2,000 per month (£24,000 per annum).  ( )  It’s in the back of my mind but given my wealth since retiring, even after spending, is currently up £100,000 there is clearly no need to rush.

Click to enlarge, RIT Spending 

Spending Sensibly score: Fail.  It’s a rent rent rent story.  As soon as that’s solved 10 months of FIRE is showing our spending will easily support our dreams.

INVEST WISELY

2019 (05 January 2019 to 04 October 2019) investment return has been +10.2% (was +10.3% at the end of Q2) so Mr Market has neither given nor taken away in the last quarter.

Investment wise the portfolio is now nearly positioned for FIRE drawdown.  The only exception is my cash and cash like holdings (NS&I Index Linked Savings Certificates predominantly) for a non-mortgaged home purchase and to give me a few years of cash buffer as I enter FIRE now sit at £317,000 (was £320,000 at the end of Q2 2019).  That’s now about as low as I am prepared to go on this front given our much improved knowledge of what a home will cost us within the next 12 months or so.  Otherwise the asset allocation is now pretty much where I want it to be.

Living off just the dividends remains an important part of my plan reinforced by some recent experience which I’ll write about separately.  My drawdown plan was based on spending the lesser of a ‘safe’ withdrawal rate (SWR) of 2.5% or 85% of the dividends received.  2018 total dividends were £28,704 which drove a £24,000 annual spending plan.  In contrast the 2.5% SWR would have allowed £30,000.  Positively, dividends in 2019 are now shaping up to be closer to £33,000 meaning under the 85% dividend rule I can now be spending closer to £28,000.  That’s £2,337 per month meaning we’re now over spending by about 15% which still includes a that massive £1,400 in monthly rent.  That’s starting to feel very good knowing we have so much margin after rent costs are removed and expected home ownership costs are added.

Click to enlarge, RIT Annual Dividends

For completeness this is what my asset allocation looks like today.

Click to enlarge, Current RIT Asset Allocations

I continue to invest as tax efficiently as possible with my tax efficient holdings from a UK perspective now consisting of:

• 45.0% (was 43.5% at end 2018) held within low expense SIPP Wrappers
• 8.3% (was 8.7% at end 2018) held within the no longer available NS&I Index Linked Savings Certificates (ILSC’s)
• 16.6% (was 14.6% at end 2018) held within a low expense Stocks and Shares ISA.  

Tax efficiency score: Pass.  Nothing more to do here but watch what my current providers do with expenses while keeping an eye out for any new products both of which might drive some action.  If nothing happens here no further improvement will be made until next year’s ISA allowance.  That’s if we’re still in the UK at that point...

Investment expenses also continue to be considered the enemy.  2018 finished with expenses at 0.22% and not unsurprisingly given I’ve done nothing they are very slightly lower at 0.21%.

Minimise expenses score: Pass.  It’s now pretty close to an autopilot story unless a current provider moves unfavourably or a new product appears on the market.

In the scheme of a lifetime of investing this year is insignificant.  I’m all about time in the market and not timing the market so let’s zoom out and look at my performance since I started down this DIY road.  My long run nominal is 6.5% which is a real (using RPI) return of 3.7%.  The chart below tells the story.  Note that the chart assumes a starting sum of £10,000 which was not my portfolio balance at that time but is instead simply a nominal chosen sum to demonstrate performance.

Click to enlarge, RIT Portfolio Performance vs Benchmark vs Inflation

Long term investment return score: Pass.  My whole investment strategy since 2007 has been about generating a long term annualised real return of 4%.  A real 3.7% is undershooting but not by a significant amount when my 2.5% drawdown floor is considered.  The big question now is will this sustain given current macro events that continue to play out like slow motion car crashes including but not limited to Donald Trump and his tariffs, Boris Johnson and his Brexit, bond yields inverting and global GDP numbers not looking rosy at all.  Only time will tell and I’m certainly taking no action because of this noise.

RETIRE EARLY

While Mr Market has been flat I am now living off this wealth so that is not unsurprisingly down a little.  Wealth as I write this sits at £1,403,000 which is down a little from Q3’s £1,409,000 but still up a long way from the £1,304,000 when I first FIRE’d in November of 2018.  My complete journey is shown in the chart below.

Click to enlarge, RIT Progress Towards Retirement and In Retirement

Piecing everything together and we end up with the drawdown tracker below.  The spending explosion of quarter 4 2018 and quarter 1 2019 is still clearly evident but that will now soon start to fall out of the numbers.  Even with this annual drawdown is still only around 3.2% (plus investment expenses) of current wealth, which is still less than the much talked about 4% Rule, with plenty of reduction still to come in due course.

Click to enlarge, RIT’s Drawdown Tracker

The last 3 months of FIRE has been a completely different experience to what came before.  So far my advice to anyone coming after me is to take it slow, remember that decompression might just be brutal and if it is the right answer is to hurry up and take it even slower.

The days are now starting to close in and my plan for the next 3 months is to continue with this ‘human being’ lark then as Christmas approaches we might just start to think about what those New Year resolutions just might be.

So far it’s definitely been an adventure and it looks like it’s not going to stop for the foreseeable future.  That puts a smile on my face.

As always please do your own research.