January 2023 Portfolio Update
Thursday 2nd February 2023
The Impact of Compounding Interest
Five years into my FIRE journey, I have to be honest, I don’t always appreciate the impact of compounding interest. As it is, bar our first investment property, our returns to date have been average to say the least.
Five years of cost averaging into index funds and there is a tiny profit to show for it.
The two properties we purchased last year I am yet to consider an increase in capital value (though I will do later this year).
And lest we forget the investment disasters I had early on.
So it is fair to say that the majority of the heavy lifting has been done by my own contributions to date.
I expect over the next few months to hit a huge milestone in my investing journey. The portfolio is heading towards the €400k mark, and with that comes the next big FI achievement - Flamingo FI. Once one is over halfway in terms of their portfolio, then compounding starts to become so much more noticeable.
Let me give an example based on forecasting. Remember that I am aiming for an FI number of €800k, as per my last update. The table shows how long it would take for me to hit full FI, based on a 5% annual return and a current portfolio value of €359,408.
| Monthly Contribution | Time to FI |
|---|---|
| €10,000 | 3 years |
| €7,500 | 3 years, 9 months |
| €5,000 | 5 years |
| €2,500 | 7 years, 7 months |
| €1,000 | 11 years, 1 month |
| €0 | 16 years, 1 month |
What excites me when I read this, is that the second half of my FI journey is going to give me so much more flexibility. If I decided to keep going how I am now, then I am looking at 3 years to hit full FI. But equally, why not scale back and slow down, I will still get there relatively quickly.
Adopting something like €5,000 a month contributions is still very doable for me long term, with me working considerably less than I am now. Yes, it would take me an extra 2 years, but the work / life balance would be far better than what I have now.
The point is, that I am giving myself options, and it is largely due to the impact of compounding that the second half of my journey will bring.
To think that if I stayed on the current path that I am on now, and that my full FI journey would take me 8 years in total would be incredible, especially when you consider that after two years my portfolio was only valued at around €60k.
As it is, I love the idea of trying to retire within 10 years of my start date. Scaling back my monthly contributions at some point really does make a lot of sense, especially as I look to adopt a better work-life balance in 2023.
Ironically, there is one option that I think is the least favorable - adding no contributions. It is amazing how even adding as little as €1,000 a month to my portfolio compared to adding no contributions reduces my time to full FI by 5 years from here. Don’t get me wrong, I am not against alternative FIRE movements such as Coast FI and Flamingo FI, but mixing these variations with some contributions is definitely far more powerful.
It also shows the importance of simply starting your own FI journey. When I started my journey in 2018 I would never have believed it possible to find a way to save €10k a month. My initial monthly savings was around €3,000 a month in 2018, dropping in 2019 when I started working part-time to around €1,500 per month. It wasn’t until COVID hit in 2020 did new work opportunities come that allowed me to increase our income considerably - which has had a direct impact on our ability to save.
At the same time, our expenses have remained nearly the same, highlighting that this is possible if you are able to keep on top of your expenses and focus on finding ways to increase your income.
Work Update
Work is going well overall and I have started to implement my ‘Working Towards a Better Life’ strategy that I discussed in my last update. I still have a few projects to complete before I can cut back, and while I considered leaving one project early, I decided to stick it out for now and try to see the project through.
It will be a few more months until I can start to implement this strategy fully, largely because my current workload is planned months ahead of schedule, but I do plan to either reduce my income this year, or find better projects that I enjoy more so that at least if I do maintain my current income rate, it is done in a more enjoyable and sustainable way.
10 Years to FIRE
I started my FIRE journey in 2018 and given my current FI target of €800k, I am on track to hit my goal within 10 years. This has largely been an accident - I never really had a plan when I first started, but as my savings rate has increased, my ability to work towards early retirement has become more and more possible.
Trying to forecast is obviously littered with variables - many which are outside of my control, but I always think that forecasting can at least be a bit of fun. The following is what I call my 10 year path to FIRE, based on a 5% annual return and with me aiming to hit an €800k FI number.
The following table shows the results of if I were to take 10 years at a 5% annual return, investing a little over €5,000 per month on average. The forecast shows the portfolio growth based on a constant 5% return at €5,000 per month. My actual results are listed on the right hand column.
| Year | Forecast (5% Return) | Actual Results |
|---|---|---|
| 2018 | €63,236 | €41,252.14 |
| 2019 | €129,707 | €62,544.93 |
| 2020 | €199,580 | €125,549.27 |
| 2021 | €273,027 | €221,789.02 |
| 2022 | €350,231 | €342,734.85 |
| 2023 | €431,386 | |
| 2024 | €516,693 | |
| 2025 | €606,364 | |
| 2026 | €700,622 | |
| 2027 | €800,000 |
As you can see, even though I had a slow start, I am in the process of catching up to where I need to be pretty quickly. Ironically, for me to hit this target would be based on monthly contributions of around €5,000 per month, which is what I plan to cut down to some point in 2023.
Anyway, as mentioned, forecasting is really only a bit of fun because there are so many unknown’s, but it is exciting to see that I am getting closer to the big FI number!
Solar Panel Update
January was a similar performance to December in terms of our Solar Panels. I did some research and Limerick averages 50 hours of sunshine in January, compared to 200 hours in May - so I am looking forward to seeing how the panels perform between now and July.
We consumed 320 KWh of electricity during the month, buying 255 KWh's. Our solar panels covered 20% of our electricity usage, saving us €24.05 before depreciation (based on 37c per kWh). We received a credit back of €1.47 from supplying 7 KWh's to the grid. Our total savings accounting for depreciation was €2.42, giving an annual return after depreciation of 0.30%.
Obviously these numbers are pretty low, but we need to take it in context that this was during the second darkest month of the year.
Here is a breakdown of our solar panel usage since they were installed in July:
| Solar Panel Return - August to January | ||||
|---|---|---|---|---|
| Month | Percentage Covered by Solar | Electricity Saving (after depreciation) | Credit from Supplying the Grid | Annual Return |
| August 2022 | 83% | €29.42 | €34.86 | 7.95% |
| September 2022 | 62% | €28.90 | €7.98 | 4.57% |
| October 2022 | 45% | €22.98 | €4.20 | 3.38% |
| November 2022 | 31% | €12.05 | €2.10 | 1.76% |
| December 2022 | 24% | €1.69 | €1.89 | 0.45% |
| January 2023 | 20% | €0.95 | €1.47 | 0.30% |
| Monthly Average | 44.1% | €16.00 | €8.75 | 3.07% |
January 2023 Portfolio Report
We are all but closed on our third investment property. The funds were drawn down and at time of writing I am just waiting to get the keys. The property does require some repairs before it can be rented out, but hopefully it will be ready to rent by March.
I needed to replace a power shower in our first investment property during January and our second investment property had insurance due, but all was pretty smooth overall. Profit's were down slightly on property due to these expenses.
Stocks were up in January, it was actually lovely to start the year in the black, after such a hard year last year. Definitely not expecting things to hold, but either way, it was nice to finish the month with a portfolio valued just under €360k.
| Portfolio Summary (as at 31st January 2023) | |
|---|---|
| Opening Balance | €342,734.85 |
| New Contributions | €10,000.00 |
| Portfolio Growth | €6,673.15 |
| Closing Balance | €359,408.00 |
Monthly Portfolio Growth Report
| Monthly Portfolio Growth Report | |
|---|---|
| Capital Gain + Dividend Income from Equities | €6,256.01 |
| Real Estate Income & Capital Gain | €417.14 |
| Total Growth | €6,673.15 |
Portfolio Breakdown
The table below shows the breakdown of my portfolio into the various asset classes:
| Portfolio Asset Breakdown (as at 31st January 2023) | ||
|---|---|---|
| Equities | €130,598.10 | 36.34% |
| Real Estate | €227,700.67 | 63.35% |
| Cash | €1,109.23 | 0.31% |
| Total | €359,408.00 | 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 | €52,259.82 |
| Davy Select | €39,021.77 |
| Aviva | €39,316.51 |
| Total | €130,598.10 |
Real Estate Breakdown
I calculate the amount of equity I have in each of my properties, by estimating the market value of the property and subtracting the mortgage balance. My real estate investments can be broken down as follows:
| Investment | Equity |
|---|---|
| Property 1 | €114,867.83 |
| Property 2 | €56,439.82 |
| Property 3 (in progress) | €52,649.02 |
| An Dúlra | €3,744.00 |
| Total | €227,700.67 |
Lifetime Portfolio Returns
Here are my returns since I started in 2018.
| 2018-2023 Growth Report | |
|---|---|
| Opening Balance | €0 |
| Contributions (Money Added) | €266,445.78 |
| Equity Release* | €41,220.21 |
| Real Estate Capital Gains + Rental Income | €46,856.54 |
| Equities Capital Gains + Dividends | €8,750.20 |
| Other** | -€3,864.73 |
| Closing Balance | €359,408.00 |
| Portfolio Return | €51,742.01 |
* 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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