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:
End of the Year, $ K USD
Money invested (Do nothing)
Inflation adjusted U.S.*
S&P 500 benchmark**
DAX (Germany)**
FTSE (the UK)**
* 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?


  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!

  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.

    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).

    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.

  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.

    1. Hello Jellina. Many thanks for stopping buy. $110K is looks like a high number, but if you look at our finances:

      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...

  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.

    1. Hello mOOm,

      Thank you for stopping by. I was investing saving and investing a lot of money (relative to my income) but missed the great ride. I was focusing on high dividend stocks, which were paying 5%+. My expectation at the time was that I could keep investing $50K a year and generating 5% on income on the dividends. I thought it was sustainable but had to change my job in 2016.

      At the same time I was pressured by my western european bank to move elsewhere in May 2017 (They were minimising exposure to the USA). Time wise this aligned with the change in my strategy & circumstances from high dividend stocks to the low cost growth stocks.
      This is how I missed the growth market in 2013 - 2017. I still expect to underperform S&P500 in the short term due to the diversification to Western Europe, the UK and Emerging markets (this comes with the additional exposure to EUR and GBP).

  5. I started out trying to pick stocks - and learned that I'm not a genius stock-picker (or extremely lucky - its always hard to tell if performance is due to skill or blind luck)
    Then I tried picking managed funds - and learned that I can't pick genius fund managers from the vast herd of funds that perform was than their benchmark, and charge a large fee.
    Then I decided that just investing in my preferred overall asset allocation via low-cost index funds was a lot simpler and worked quite well.

    I now have the bulk of my investments in a tax-efficient vehicle (superannuation) and low-cost index funds. I just have a smattering of direct investments in individual stocks and funds so I have something to play around with so I'm not tempted to do market timing with the bulk of my investments.

    Of course the first and most critical step is to have a budget, and spend less than you earn so you are adding to your investments each year and letting compound interest do its thing...

    1. Hello Enough Wealth, Many thanks for stopping by. Yes, I experimented with the stock picking too but it was not a very competitive strategy. Same like yourself in 2017 I went all into low cost mutual funds and had no regrets since.