Irish Financial Independence & Personal Finance Podcast

December 2022 Portfolio Update

Tuesday 3rd January 2023

The Good and Bad of 2022

2022 was my fifth year pursuing FIRE and in terms of financials, was my best FI year to date. We added €120k to our portfolio and saw our portfolio rise from around €220k at the start of the year to €343k by the end of the year.

While the numbers look great, I have been reflecting in December over my work-life balance in general.

Back in mid 2020, I covered a podcast episode on the four pillars. This was a really powerful episode that explained the four pillars of success:

1. Health
2. Weath
3. Relationships
4. Fulfillment

It has become obvious to me that while I have been pushing myself as hard as possible on the weath side, this has come at the expense of the other three pillars.

Working Towards a Better Life in 2023

Everyone’s FIRE journey is unique, however on every journey some key decisions will need to be made along the way.

For the better part of two years, I have been working as hard as I could, especially in the last 12 months. Along the way, I have forgotten one important aspect - that reaching FI wasn’t why I started down the FIRE journey in the first place. I started my FIRE journey as I wanted to create a better life.

Somewhere along the way, my FI obsession has gotten in the way of my better life. I have sacrificed too much - and now feel that I am missing out on too much. For example:

  • I have struggled to keep my weight down and stay at the same level of fitness that I was. I simply don’t have enough time for exercise.
  • I feel guilty about not being able to spend time with my kids after school.
  • I constantly feel I am missing time with my family and wife because I am working late or caught in a meeting.
  • I didn’t get to play as much golf as I would have liked.
  • I have little to no job satisfaction - I have been working for the money and have been factoring in little else.

When I start to look at the opportunity cost of working primarily for the money, it is clear to see that what I have done, while OK in the short term, was never going to be a long term solution.

I certainly don’t regret those last two years. The last 12 months in particular has been the hardest part, but in terms of our portfolio, buying two investment properties in 2022 and adding €120k to our portfolio has been a game changer for our FIRE journey.

However, it is time I look to turn my journey from a sprint to a mathathon - it was fine for me to do what I did for a short term, but it is the right time for an adjustment. The reality is, there comes a stage where one’s portfolio gets large enough to let compounding to the heavy lifting, and I feel I have built a portfolio large enough to be able to push the foot off the accelerator a little.

I’m not against earning good income - and actually, the income side isn’t so much the issue - it is more about how I am earning it.

When earning money comes with a huge opportunity cost, then this is where other options need to be considered.

Putting job satisfaction ahead of money needs to be the first change that I make. Rather than taking the highest paid job, I need to start to factor in other things into the equation. Things like:

  • How stressful is the job?
  • How much flexibility is given?
  • What is the organisation culture like?
  • Am I well suited for the work, or is there a high degree of learning?
  • Do I get on well with the manager and other team members?
  • Would I actually be interested in this job if I didn’t need the money?

Moving from a money first approach to a lifestyle first approach is going to be the first thing I look to change in 2023 I figure that finding a job that I would actually want to do even if I was retired, is a far better attitude to have, than slaving away at a job I don’t enjoy just for the money.

The ironic thing is, I started my FIRE journey in the first place because I wasn’t satisfied with working, but the real answer was never to work harder doing work I didn’t like to save and retire early - the real answer was to find a way to actually enjoy the work I was doing.

If I can find a way to enjoy working and save on top of that, then I actually am in a position where I can work towards FI in a much more sustainable way than trying to rush because I am trying to escape something I don’t like.

To conclude, you can expect me in 2023 to start working towards putting my lifestyle ahead of racing to FI. I feel I have built up a portfolio to a stage where I can start to pivot and slow down a little.

The truth is, I would rather find work that I enjoy and feel that I wasn’t in a rush to retire because I enjoyed my work-life balance, than feeling that work is something I need to escape from.

I look forward to covering more about this in the next few updates.

Property Strategy Update

I mentioned on a recent podcast episode about my property strategy that I am looking to buy another two investment properties in 2023. I just wanted to mention that I am going to be flexible on this and not put myself under too much pressure. Property prices in Limerick increased by another 2% in the last quarter of 2022, so I am finding that deals that were available a few months ago are not coming up as easily at the moment. So I will go in with an open mind and be patient to find the right deal. If one doesn’t come along, so be it, I can either keep cash in case a deal presents itself or pay down an existing mortgage on one of our existing investment properties.

Does your FI Number Really Matter?

I discussed in the last update the concept of a Shadow Budget for us, which is a clever approach for retiring in our early 50’s when our children are older. I had a lot of feedback that I am forgetting to factor in other things such as The State Pension and an Inheritance and that as a result, I should be more aggressive with my withdrawal rate.

I have taken this on board, and have come to the conclusion recently, that if I were to build a portfolio of €800k, this would give me enough of a number to be able to withdraw 5% in the early years while I am still raising my children, and then cutting down to a 4% withdrawal rate in my 50’s once my children are no longer dependent on us financially.

As it is, withdrawing likely won’t be such an issue anyway. Most people who actually achieve FI don’t end up withdrawing initially from their portfolio and simply find work they love which happens to bring in enough income to cover their expenses (I will be covering more about this in a future podcast episode due out in soon).

For example, in one particular post on the Money Flamingo Blog, Tina talks about the fact that early retirement is largely a lie, or a myth. She mentioned that most people who “retire” in their 30’s or 40’s don’t really retire and end up working in some capacity and don’t withdraw from their portfolios anyway.

She has a really funny post which describes the typical early retiree working life, which I will share here:

“Hmm… Turns out, I don’t want to lie on the beach for the rest of my life after all. And the fun projects I’ve started working on actually earn me some money. Looks like I won’t need to tap into this massive nest egg I accumulated any time soon. Who would have thought?” (credit Money Flamingo)

It certainly gives food for thought and I will credit the Money Flamingo Blog as being a massive influence on my decision to look to build a more sustainable life around the FIRE movement. I suspect that as my portfolio grows, I will continue to cut back on work and look to cruise to a semi-retired lifestyle in the long run.

Where am I on the FIRE Spectrum?

In one particular article on the Money Flamingo Blog, Tina talks about The FIRE Spectrum. I thought this was very clever. I thought it might be nice to show my own progress based on an FI Number of €800k and a current portfolio value of €343k.

FIRE Milestone € Amount Percentage Completed
FU Money * €100,000 100%
Coast FI ** €194,357 100%
Flamingo FI €400,000 86%
Lean FI *** €600,000 57%
FIRE €800,000 43%

* I figure anyone with €100k with a good chunk of cash is going to feel in a good place from an FU Money point of view. Even with my own cash being low right now due to buying an investment property recently, I will build it up again and having three rental properties is a great way to feel like you have options and could take a few months off work if I really needed to.

** My Coast FI number is based on my current age of 38, retiring at 67 and a 5% inflation-adjusted annual return.

*** I have simply assumed spending at 75% of our full FI number to calculate our Lean FI number. We could certainly survive with this amount - not sure if it would be called living however!

Solar Panels - Monthly Return

December is the darkest month of the year, so I didn’t have high hopes for our solar panels in December, but actually they still held up OK. I expect the performance of the panels to start to improve each month from here and I will look to report on the panel performance to July 2023 to cover a full year’s usage of the panels.

We consumed 281 KWh of electricity during the month, buying 214 KWh's (same as November ironically). Our solar panels covered 24% of our electricity usage, saving us €24.79 before depreciation (based on 37c per kWh). We received a credit back of €1.89 from supplying 9 KWh's to the grid. Our total savings accounting for depreciation was €3.58, giving an annual return after depreciation of 0.45%. Our panels did better than break (accounting for inflation) even during the darkest month of the year.

Here is a breakdown of our solar panel usage since they were installed in July:

Solar Panel Return - Year to Date
Month Percentage Covered by Solar Electricity Saving (after depreciation) Credit from Supplying the Grid Annual Return
August 83% €29.42 €34.86 7.95%
September 62% €28.90 €7.98 4.57%
October 45% €22.98 €4.20 3.38%
November 31% €12.05 €2.10 1.76%
December 24% €1.69 €1.89 0.45%
Monthly Average 48.9% €19.01 €10.21 3.62%

December 2022 Portfolio Report

The interest rate on our first investment property jumped from 3.95% to 5.95% recently. I called the lender to see what options I had to reduce the rate and they mentioned that if I got the property revalued, I might be able to reduce the interest rate as our equity would be greater.

So I paid €184.50 to have the property revalued, and the new valuation came in much higher than I had expected. The property is in an estate and three properties had sold recently, with the lowest being €260,000. Up until now, I had the property valued at €245,000. As it was, the property was valued at €260,000, so we have seen a nice increase in the value of the property this year.

This was a nice surprise, not only was the interest rate on the mortgage slightly decreased to 5.75%, but I have updated the new property value in the portfolio - thus the large increase in the property side of the portfolio report for December.

Limerick property increased by 2% in the last quarter of the year, so no doubt our other two properties also saw an increase in value, however given that they are both new properties I will hold off looking to estimate the value of these properties until mid 2023, especially as one of the properties still requires further improvements (new carpets, new boiler) and the other is still waiting to close (hopefully I will get the keys in January). I typically look to update my portfolio by using estimated values every 6 months - it is as much an art as a science. While paying for a proper valuation in this case was nice to have, I certainly won’t typically be doing this.

To work out the market price of a property, I usually look at what other properties have sold for in the area, as well as factor in recent property reports. I then subtract the current mortgage value from the estimated property value to work out the total equity I have in the property. This isn’t perfect, but it is the best I can do to calculate the equity on each property to report it in my portfolio, short of paying for actual valuations. Certainly whenever I do get a paid valuation done, I will use it.

My stocks fell again in December - but the less said about this the better maybe! In the end, my stock portfolio was down 15.5% for the year. It will be interesting to see if 2023 is any better for stocks - for now, it is like being on a runaway freight train - just sticking it out!

Property was the big winner for me in 2022 and ironically 95% of the gains in my portfolio since the start of 2021 have come from our first investment property. Not selling our house in 2020 when we moved appears to have been the right decision - property in the area has continued to increase and the area is in high demand and is a desirable place to live. When we did the deal in 2020, the property was valued at €220k. Today it is valued at €260k - we have made €40k from the unrealised capital appreciation on the property in two years. We originally paid €105k for the property in 2013 - it has been an amazing investment for us and has given us massive leverage on our FI journey.

Portfolio Summary (as at 31st December 2022)
Opening Balance €325,877.58
New Contributions €10,000.00
Portfolio Growth €6,857.27
Closing Balance €342,734.85

Monthly Portfolio Growth Report

Monthly Portfolio Growth Report
Capital Gain + Dividend Income from Equities -€8,690.02
Real Estate Income & Capital Gain €15,547.29
Total Growth €6,857.27

Portfolio Breakdown

The table below shows the breakdown of my portfolio into the various asset classes:

Portfolio Asset Breakdown (as at 31st December 2022)
Equities €123,321.02 35.98%
Real Estate €218,056.64 63.62%
Cash €1,357.19 0.40%
Total €342,734.85 100.00%

Equities Breakdown

I currently have three different brokers that I use for buying Equities. At the moment, 100% of my equities are within a pension, though this might change in the future. The breakdown for equities is as follows:

Broker Name Value
Irish Life €49,063.93
Davy Select €37,020.58
Aviva €37,236.51
Total €123,321.02

Real Estate Breakdown

My real estate investments can be broken down as follows:

Investment Equity
Property 1 €114,612.00
Property 2 €56,490.87
Property 3 (in progress) €43,209.77
An Dúlra €3,744.00
Total €218,056.64

2022 Yearly Returns & Lifetime Portfolio Returns

I thought it might be nice to show my portfolio growth on a year to date basis, as well as the portfolio returns since I started in 2018.

2022 Yearly Returns Growth Report
Opening Balance €221,789.02
New Contributions €120,000.00
Real Estate Capital Gains + Rental Income €23,808.35
Equities Capital Gains + Dividends -€22,862.52
Closing Balance €342,734.85
Portfolio Return €945.83
Annualised % Return 0.28%
2018-2022 Growth Report
Opening Balance €0
Contributions (Money Added) €256,445.78
Equity Release* €41,220.21
Real Estate Capital Gains + Rental Income €46,439.40
Equities Capital Gains + Dividends €2,494.19
Other** -€3,864.73
Closing Balance €342,734.85
Portfolio Return €45,068.86

* In 2020, some of the new contributions came in the form of an equity release, as we turned our primary residence into a buy to let and purchased a new home to live.

** In 2018 & 2019 I made several bad investments in peer to peer lending, forex trading and unregulated investments, which resulted in losses overall.

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