Wednesday, December 4, 2019

November 2019 update ($549,775 +$20,465 or +%3.9)

Emerging Markets Stock Index Fund is up by $1,187 or +1.0%
Eurozone Stock Index Fund is up by $3,173 or +2.7%
US 500 Stock Index Fund is up by $4,662 or +3.6%
Global Small Cap Index is up by $3,716 or +3.2%
Additional cash to invest $7,727 under my pension plan.
Grand total additions: $20,465
Financial independence updated - November 2019


Observations:
It took two weeks to sell my funds with previous pension provider and transfer money to the new one.  Incredibly slow.
With the new provider I also took decision to put some additional money as I expect to move jobs. In the new job I will not be able to contribute any more to the fund.
As the result I expect to have one more small contribution and some tax return on my pension contribution between now and end of January.  They combined will not exceed $2,000.
With new pension money holder, the money is invested in Growth fund. The fund is wild combination of the USA, UK and BRICS stocks.
I manage to meet my annual savings goal ($17K vs $10K planned).
I expect that the market will sink slightly in December, but hope that overall value of the nest egg will remain about $525 K (This is does not really matter, as I will not be able to achieve financial independence for the next 25 years at the current contribution rate. This is what 10%  and  humble market performance savings rate will do to you).

How many years does it take to achieve financial independence vs. percent of income saved?

% of annual income saved
Years to replace 100% of income at inflation adjusted return
3%
4%
5%
6%
10
81
61
50
41
20
61
46
37
30
30
49
37
30
25
40
42
32
26
21
50
37*
25*
23
19

* The trick there if you lived for a long time at 50% income, perhaps you do no need 100% of it, after all.  To replace 50% will take 22 years (18 years at 4% inflation adjusted return).   You can observe that the time here is more important than percentage. The message is: do not try so hard towards your financial independence. Enjoy the life but keep saving.

Many prospects stating that historical stock market performance was 7%. This is absolute (not inflation adjusted) return. Inflation adjusted is between 2-4%.  

My personal base line is to save $15K a year, at 3% return I will have $1,600K in 25 years, which will generate $50K before taxes.  It should be enough to cover the expenses. Assumptions: the house is mortgage free and the kids are out of the house.   Two hypothetical scenario:

- Increase savings to $25K (which will deprive family from many fun things) I will achieve the same in 20 years;
- No additional contributions. Will have $33K a year in 25 years. 

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