Thursday, January 3, 2019

Financial Independence change in the Net Worth over the past 6 years analysis


This is how my financial performance looked like over the course of the last 6 years and benchmarking my investment decisions against global stock markets:
Year
2013
2014
2015
2016
2017
2018
End of the Year, $ K USD
298,429
288,608
295,536
387,831
482,266
432,089
Money invested (Do nothing)
298,429
318,105
332,356
413,899
508,617
528,940
Inflation adjusted U.S.*
299,282
322,877
337,740
418,038
519,298
540,048
S&P 500 benchmark**
394,553
470,275
491,211
640,340
895,521
869,044
DAX (Germany)**
374,528
404,848
459,332
578,196
724,056
608,157
FTSE (the UK)**
354,235
376,529
385,699
556,486
729,349
689,698
* If I invested in inflation protected US treasury bills
** Total return (market change and dividends reinvestment)

This is how my networth change last 9 years:
Financial Independence Net Worth




Investment performance on a chart:
Financial Independence Investment decisions benchmarking
As it could be seen from the graph if I would keep all money in cash, I would have $540 K by now or $869 K if all invested in S&P500 (including dividends reinvestment) for the past 6 years.

There are three main reasons for it:
-          As we understood earlier, that my previous focus was on high return low growth stocks with aim of achieving earlier financial independence. This has changed in 2017.
-          My portfolio is balanced among emerging markets, European stock markets and S&P500.  The British and German stock markets are shadowing S&P500 but significantly lagging in performance.
-          I have significant exposure to EUR and used to have some to British pound, over the last 6 years, EUR lost 16% to USD and British pound 23%.

Going forward:
My current net worth is $432 K USD, if I assume that the historical stock market growth is 7% and inflation is about 3%, expenses are 1% this will leave net growth of 3%, a year.
This is an optimistic assumption, as the past decade market has been more volatile mainly due to the power shift and share to the emerging markets. EU specifically allows its luxury of politicking, instead of forging strong unions and focus on economy.
If I leave the money without any additional investment, I should have $904 K in 25 years.   This is approximately $30K a year during retirement.
Currently I am able to save additional $10K a year this will result in additional $364 K, bringing total to $1,268 K in today’s money, or $42K a year.
Our current expenses are about $110 K a year, without mortgage and kids we need around $60K a year or approximately $ 2 million as nest egg.  To have $2 million in retirement I need to save $25 K a year for the next 25 years.  To retire early by 5 years, I need to save $35K a year over the next 20 years. There is a huge incentive to save the additional money towards the retirement.
Every little helps, but as you can see saving $100 a month over 25 years is going to give you $43 K in the next egg, doing the same for 40 years, will result in $90K.

How was your performance last year? Do you do any benchmarking to assess your actions /inactions?

7 comments:

  1. $110k per year? That is way more than in your "Family Budget 2018" post.
    I would look at the expenses. There has to be a way to spend less!

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  2. Hello EurFI,
    Many thanks for stopping by. This is indeed more that the "Family Budget 2018" post. We moved from Chicago to Oxford about 7 years ago. So the family budget is priced in the British Pounds.
    I agree with you that there is a lot of ways to curtail the spending. I just somehow fail to convince my wife about it. However, I also feel that life is about experiences. There is a lot of people who spend more money than we do. I can probably could survive on the simple food and just enjoy the life as is.
    This is easy thing to say, as in the past 20 years I have done over 200 trips and have been to about 40 countries (mainly work related). However I would welcome any suggestions. Every $150 a month will give me 1 year in early retirement.

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    Replies
    1. Mmh, maybe go over each category and check what you can do differently?
      Also, I would list experiences from the last few years by cost. Let's say the 10 most expensive ones. And then you ask around in your family, what experiences they remember and enjoyed most. Maybe there is a correlation to price - but maybe not.
      I steer our vacations to less expensive ones. We have now our Campervan, so vacations are cheaper than hotel etc. But also before I used to book a flat (AirBnb or Center Parcs) and we would cook on our own. Our kids are small(er) and so eating out is not so much fun.
      You probably already looked at subscriptions. Maybe you can change contracts to cheaper variants (if not getting rid of them completely).
      Also, my wife is now taking home cooked meals to work (from time to time). I sell this as health benefit (weight loss) and not as cost saving. I also "sell" some other stuff to her, where she would not be interested in it for my reason (e.g. cost savings).

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    2. 27% is mortgage, 7% - petrol, commute and car insurance, 10% is taxes on the house and bills (water, electricity, gas). I improved insulation in the loft and replaced entrance door. Further 13% on kids education - after school and activity clubs. All together 57% of the total.
      I actually stopped drinking alcohol last year as health trial and saving money. This did not helped much as I bought some better wines for the wife.
      However, there is a challenge to stay below $110K this year and/or save 20% of the income (in addition to the mortgage). At work promotions and bonuses are based pretty much on country of origin, so I do not expect much progress in that area.

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  3. The $110k per year number is when I stopped reading and turned to my husband and shouted at him that we need a better budget in 2019. For god's sakes we are spending a fortune on cable and food. That needs to stop and I'm going to go frugal this year. Let's see if the kids oblige.

    ReplyDelete
    Replies
    1. Hello Jellina. Many thanks for stopping buy. $110K is looks like a high number, but if you look at our finances: http://www.niterainbow.com/search/label/Family%20Budget

      27% is spent on mortgage (3 bedroom or small 4 bedroom), 7.4% - gas, 10% - real estate taxies and bills. So 45% are the basic bills and another 20% on the kids (food, child care, etc..). So 65% are very basic needs - no private education, no house maids, etc... I tried to follow your website but it linked to the currency exchange website...

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  4. Up to the end of 2017 we were in a bull market, so I'm surprised that you would have done better being in cash. I gained 28% from the end of 2013 to the end of 2017 in USD terms.

    ReplyDelete