Irish Financial Independence & Personal Finance Podcast

February 2022 Portfolio Update

Wednesday 2nd March 2022

Full Throttle FI

February was a record month in terms of new contributions. We have been looking to put together a deposit for a new investment property in quick time, so I have been working harder than ever before.

How was I able to Increase my income so Quickly?

While there is much to dislike in the post COVID world, such as high inflation, lack of supply etc, one positive thing has been the ability to work remotely. While I have always worked from home, in the post COVID world there are more remote work opportunities than ever before.

In July last year I moved from freelancing with multiple clients, to working for a single day contracting client. This was a fundamental change for me, as it allowed me to focus on one client per day, rather than trying to balance the needs of multiple clients. It also moved me away from hourly billing, into a day rate focus.

In terms of stress levels, my situation immediately improved. Rather than trying to balance 10 clients and putting out fires all day, I could focus exclusively on one client and give my full attention to the needs of that project.

I was less tired, less stressed and felt like I had more time. The work-life balance was a huge improvement.

In November, I then saw an opportunity to go a little further. I figured if I looked to take on another project, I could work on that project during the evenings and do some moonlighting. Yes, this would be longer hours, but given I had my stress levels under control, and I had been used to working for 10 clients, then surely handling two would be manageable. While my hours would be long, the impact on my savings rate was going to be significant. I would earn 2 days income in one day - and given my expenses would be the same, this meant that my monthly contributions would increase three fold. This is exactly what I did, and is why my savings have increased from around €4k a month to €12k a month so quickly.

I have recently been given a new opportunity to work at one of the “Big Tech” companies, so I do plan to scale back my working hours again, especially as I have the deposit I need to buy an investment property nearly saved up. I will definitely be opening to doing this again in the future, especially when I know I am doing it in a short time frame and for a purpose, such as saving for a house deposit.

Planning Early Retirement Around Children

When you have children, trying to define your FI number is nearly impossible. The problem is, raising children is expensive and inflates your yearly expenses considerably.

I have tried to define my FI number in the past, but always struggle as I fail to work out a way to find a balance between my annual expenses today, and making that work for a time when my children will no longer be dependent on me.

It was time I tried to define this.

I recently sat down and worked out what our expenses would be by the time we were aged 55. I calculated this in today’s money. I was able to conclude that if we were mortgage free, we could live very comfortably off €30k per year (this will need to be adjusted for inflation in the future).

What I have discovered recently, is that as I get older, my need to spend money seems to be decreasing. For example, in 2019 I gave up drinking - this has resulted in significant savings from no longer buying alcohol. Since COVID-19, my need to go on an oversea’s holiday several times a year is no longer something I long for - and in fact, one overseas trip a year seems more than sufficient. Therefore, even though inflation is eating into the purchasing power of my planned retirement income, my desire to spend money seems to be decreasing to offset any rise in inflation - at least so far.

It should also be noted that ideally in retirement I am looking to be mortgage free. Paying off our mortgage is far more efficient than trying to save 25x our yearly mortgage payment. I would need an additional €75k to clear off the mortgage balance at age 55. I can therefore calculate my FI number for age 55 as follows:

(30,000 x 25) + 75,000 = 825,000

I have mentioned in the past about using a 5% rule. One of the drawbacks of using any rule higher than 4%, is that under pension rules, I am only able to withdraw 4% per year from my pension. I have come to the conclusion recently that long term I need to use a withdrawal rate of 4%, as I will be depending on my pension as part of my withdrawal strategy. It also makes the need for me to liquidate any assets far less likely, particularly as I will be looking to build a portfolio which is made up of roughly 45% property.

Anyway, I got out my trusty calculator, and looked to work out my Coast FI number based on a retirement age of 55 (17 years from now). I used a 7% real return, which some might say sounds high, but I have leveraged property in my portfolio, so I think it is reasonable to expect that sort of return moving forward. Remember, this is a moving target, so I can always adjust for this as the years go by.

There is a great write up on Coast FI at Money Flamingo and I used the formula there, which is:

Coast FI number = FI number * (1 + Interest Rate) ^ - Number of Years to Retirement

In my case:

825,000 * (1 +0.07) ^ - 17 = 261,173

And there you have it, believe it or not, I am around €25k away from hitting my Coast FI number based on a retirement age of 55 - amazing!

Naturally, I started to think about working towards retiring before age 55. But this is where things start to get more complex, based largely on two factors:

1. The sooner I retire, the higher my mortgage balance will be, so the more I will need to clear the mortgage. Around €9,000 per year gross income is currently used to cover my mortgage.

2. As long as my children are dependent on me, I will need an additional income to support them - and this will likely be higher as they get older!

What I needed to do was put a plan around this additional income. 50 is the soonest age I could access my pension, so lets try for a retirement age of 50.

If I paid off my mortgage at age 50, I would have a mortgage balance of around €100k. I would therefore look to clear this off on retirement.

I would also want to make sure I have enough money to support my children during the 5 years until they are no longer dependent on me. I will assume I will need an additional €10k per year to support them during a 5 year period, so €50k in total.

Therefore, my FI number based on retiring at 50 is as follows:

(30,000 x 25) + 100,000 + 50,000 = 900,000

I find it ironic, as I have attempted to define my FI number a few times, and no matter the scenario it always seems to come in around the €900k mark.

If we go back to looking at Coast FI calculation, based on a 12 year retirement, we get the following:

900,000 * (1 +0.07) ^ - 12 = 399,610

I am still a while away from Coast FI based on retiring in 12 years, but I will continue pushing towards it.

It should be noted, that assuming that I adopted Slow FI from today, I would likely make it by making contributions of €1,700 per month from now until I turned 50 (assuming a 7% yearly return).

At the moment, my preference is to work towards Flamingo FIRE, which will mean I need to try to build my portfolio to €450k over the next two years. I will need to average monthly contributions of around €7k per month over the next two years to hit that milestone. This is doable based on my current income.

At this point, I would then opt to adopt semi-retirement, or push on and look to retire sooner if I had any motivation left - though at this point, semi-retirement in my 40’s sounds pretty great!

Buying the Dip Update

It looks like my calculated buying of the dip last month worked out well, and I saw my investment rise 1.23% in February. Of course, it is still early days, but I have been investing long enough to know that when there is panic in the air, it is usually a good time to buy.

February 2022 Portfolio Report

Portfolio Summary (as at 28th February 2022)
Opening Balance €225,144.57
New Contributions €13,000.00
Portfolio Growth -€1,981.92
Closing Balance €236,162.65

Monthly Portfolio Growth Report

Monthly Portfolio Growth Report
Capital Gain + Dividend Income from Equities -€2,507.97
Real Estate Income €526.05
Total Growth -€1,981.92

Portfolio Breakdown

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

Portfolio Asset Breakdown (as at 28th February 2022)
Equities €116,661.58 49.40%
Real Estate €90,807.23 38.45%
Cash €28,693.84 12.15%
Total €236,162.65 100.00%

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