It’s starting to get Interesting

Time since my One More Year call has passed by incredibly quickly.  In fact so quickly that if I’m to stick strictly to it resignation day is now just a few a short weeks away.  At the time of my last post this was looking to be an incredibly 100% easy call with Brexit being just over a year away as well as an employer who had apparently decided I was now Mr Average.

Enter 2 events that have shifted that to 20% work on a bit longer to 80% FIRE to the Med in 2018.

The first is the draft Brexit Withdrawal Agreement which was published on the 19 March 2018.  As somebody moving to the Med keeping my EU rights is a very important consideration.  With that in mind, if I’m reading the Agreement correctly, I now gain no advantage by being in the Med by Brexit day, the 29 March 2019, when compared with setting up my new home during the Transition Period, which is now agreed by both the UK and EU as ending on the 31 December 2020.  Brexit pressure off.

When the Stars Align

It’s not always sunny on The Med

The past few months have seen me pass through my annual work performance review, my annual salary review and a new HR initiative which seems to have been designed to suppress salaries (read suppress the salaries of the highest performers).  The results of all that for me were that despite my strong work ethic (first into the office, last out of the office and 60-70 hour work weeks) and strong results (but which fell short of very ambitious/impossible? objectives) I managed to receive the worst performance review since I entered the world of work which nicely dove tailed into an annual salary increase well below inflation.

This most definitely doesn’t fit into my Saving Hard by Earning More strategy, which in the past has resulted in healthy earnings increases.  I’m not sure what objective the company were trying to achieve but my interpretation is that it’s now time to move on.  Normally, that would have been a new job in a new company for more reward but this time around that’s not necessary as I now have another option – FIRE.  The stars really are aligning nicely.

Click to enlarge, RIT earnings improvement since saving hard by earning more

On the topic of FIRE my One More Year, after a slow and frustrating start that now seems to be passing quickly and without a worry in the world.  Financial plans between now and a summer FIRE are also synchronising nicely:

• collect one more bonus;
• maximise my pension contributions to just below the tapered annual allowance for 2018/19;
• which if my annualised returns continue as they have since starting on this journey should see me nicely just on the underside of the Pension Lifetime Allowance (LTA) by age 55; and
• then use that bonus (plus some salary) to fill my and Mrs RIT’s 2018/19 ISA allowances of £20,000.

Snakes and Ladders

Well it looks like asset prices don’t always go up.  Of course I’m not surprised by this revelation but the mainstream media did seem surprised with headlines such as “Dow loses 7 million points in the session” and “Worst market performance since dinosaurs roamed the earth” but then of course they need sensationalism as they’re attention seeking.  The market action even meant that it made the first news item on the radio for a couple of days.  It could almost be 2008 again.  It would be enough to scare people off investing if they did nothing more than listen to news sound bites.

What has really happened thus far?  I say thus far because the market can of course continue to fall...  Or it might flat line...  Or it might go up again...  By my calculations this week the S&P500 has fallen 5.2%, last week it fell 3.9% and the week before that it actually gained 2.2%.  In contrast the FTSE100 this week fell 4.7%, last week fell 3.9% and the week before that fell 0.8%.

This is what has happened to a couple of single indices and makes for great news items but how has this impacted a long term investor who buys, holds and rebalances a variety of global asset classes.  I like to think I’m one of those so let’s use my real world portfolio as a comparator.  This week my wealth has decreased by 2.3%, last week it decreased by 1.5% and the week before that it decreased by 0.4%.

2017 In Review, A Year of 2 Halves

This annual review is usually a very quantitative personal finance review and for those readers looking for that please bear with me I’ll get there I promise.  I’m firstly going to go off piste a little because for me (and really for the first time on this journey) the FIRE challenges of 2017 weren’t about quantitative finances but more about qualitative mental FIRE readiness.  You only have to look back at some of my 2017 posts to see the difficulties I’ve had:

• I came into 2017 ready to FIRE.
• Towards the end of the first quarter excitement was starting to build in the RIT household.
• But then early in the third quarter the decision was made to do One More Year.  I blamed Brexit primarily and then secondly further justified it by suggesting it would give us further fun money.  Looking back I honestly can’t tell you if that was the real reason.  I still tell myself it was but I also know that running against the herd and pulling the FIRE pin at age 44 when all those around you will work for many years more is a little scary.  Was that the real reason?  For me Early Retirement has always been defined as work becoming optional rather than I won’t ever work again.  That’s easy to say but right now I’ve also manoeuvred myself into a position where I can build wealth quite quickly and it would take a lot of effort to do that again if I decided that FIRE wasn’t for me in 5 years time.  Was that the real reason? ...
• Whatever the real reason for holding back, I guess it’s not so important in the grand scheme of things as by the end of the third quarter frustration at my faffing was clearly creeping in.
• Then phase 1 of the Brexit negotiations closed out and we again called FIRE readiness.  This time given my thinking around lasts I really do hope it was just a Brexit thing and we really are ready this time.

In contrast to that emotional roller coaster ride the quantitative financial side was a breeze with annual wealth growing by £184,000.  My second best year yet but interestingly at the same time one where performance when compared to other financial bloggers and targets I set myself a long time ago will look a little average.  I’ll make excuses for it but I’d love your views.  After all, it’s one of the reasons I stay at this blogging lark – to hold myself accountable to my plans.  Let’s look at the details.

SAVE HARD

I unapologetically continue to define Saving Hard differently than most personal finance bloggers.  For me it’s Gross Earnings (ie before taxes, a crucial difference) plus Employer Pension Contributions minus Spending minus Taxes.  Earn more and one is winning.  Spend less or pay less taxes and you’re also winning.  Savings Rate is then Saving Hard divided by Gross Earnings plus Employee Pension Contributions.  To make it a little more conservative Taxes include any taxes on investments but Earnings include no investment returns.  This encourages me to continually look for the most tax efficient investment methods.  I finished the quarter with an uninspiring Savings Rate of 42.3% against a plan of 55.0%.

Click to enlarge, RIT Savings Rate

2017 HYP Review

Back in late 2011 I started building what is known as a UK High Yield Portfolio (HYP).  It was a much talked about strategy back in the Motley Fool forum days and is still being discussed on the more recent Lemon Fool forums.  One of the aims of a HYP was as a substitute for an annuity in retirement.  This meant that the dividends spun off by the HYP needed to increase at a rate which is equal to or greater than inflation if it was to be called a successful investment strategy.  I unitised my HYP a long time ago so I know in 2017 that goal was easily achieved with dividends increasing by 20.1% which is well above the current inflation rate (RPI) of 3.9%.

The dividend increase was largely helped by the only ad-hoc event to occur in 2017 which was National Grid’s (NG.) special dividend and share consolidation.  If I net that special dividend off as many would argue that was really a return of capital it’s still done its job with a 6.7% dividend increase.

There were no buys (or sells) in 2017 as my overall investment strategy has now moved on to be a mechanically diversified collection of low expense, physical (as opposed to synthetic), income based (as opposed to accumulation) ETFs tracking enough indices to give me diversification across asset classes and countries held within low expense SIPP/ISA/Trading Account wrappers.  This means that the HYP now only forms 5.2% of my wealth but interestingly it still delivers 14.3% of my total dividends.  This is very useful for 2 reasons:

• Along the lines of replacing an annuity its original aim was to help me live off dividends only in FIRE and in that regard it’s still punching above its weight.  In 2017 it spun off £3,929 in dividends.
• When we come to register in our new Med country as self sufficient, unlike the UK and one of the reasons we ended up with the disaster that is Brexit IMHO, we’re going to need to demonstrate sufficient income and/or capital to prove we’re not a potential burden on the state.  Those dividends are a good chunk of income to help with that.