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 significantly. This is exactly what I did, and is why my savings have increased from around €4k a month to €10k a month so quickly.
Sharing My Coast FI Number
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.
I will attempt to define this more next month, but in the meantime, let’s have fun with Coast FI.
Coast FI is a FIRE alternative where you work out how much money you need in retirement and define when you want to retire. From there, you can work backwards to work out how much money you need today to hit your FI number later in life, all while letting compounding do the heavy lifting.
I have calculated our annual expenses in retirement to be €24,000 per year. I will break this down in more detail next month. It should be noted, that our FI number to retire with children is higher, simply because a family of five costs a lot more than a family of two - we plan for our children to no longer be financially dependent on us from age 55.
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:
(24,000 x 25) + 75,000 = 675,000
I have mentioned in the past about using a withdrawal rate of up to 5%. My general feeling on this, is that using the 5% rule makes sense in the short term, but long term I will look to move back to the 4% rule. Therefore, based on this logic, I can apply the 4% rule from age 55, and use the 5% rule for anytime before age 55. This should help me with planning, as my expenses will be higher until my children are no longer financially dependent on us - from around age 55.
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 5% real return as my return on investment number. This accounts for inflation. There is no magic formula with how or why I picked this - I just went with a conservative number. With Coast FI the trick is to adjust accordingly, so as part of being “Coast FI”, you will be required to recheck each year to ensure that you are on track hitting full FI. This might mean adding additional contributions if you fall behind. There is no crystal ball here - but being more conservative is likely a better approach than overestimating your return on investment. 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:
675,000 * (1 +0.05) ^ - 17 = 294,500
And there you have it, I am around €58,500k away from hitting my Coast FI number based on a retirement age of 55 - which means I should hit my Coast FI based on a target retirement age of 55 this year!
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!
I will continue to cover more on this next month.
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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