Irish Financial Independence & Personal Finance Podcast

July 2022 Portfolio Update

Tuesday 2nd August 2022

Solar Baby!

We ordered Solar Panels back in March and they were finally installed during July. We purchased nine 400 watt panels and a 5KWh battery. It has been a dream so far, and in fact due to long summer days in July, nearly all of our electricity was powered by the panels.

Is Solar a good investment? It really depends which way you look at it. It wasn’t just a financial decision for us, but there were some other factors:

1. We wanted to do something that would have a positive environmental impact - or at least a feeling that we were making a slight difference.
2. I love the thought of generating our own power and living “off the grid”.
3. It was a hedge against rising energy prices.
4. There is a great sense of freedom that we can now take longer showers, bathe the kids more often or not worry so much about an appliance that is left on by mistake. Even the fact that any excess electricity went into heating our hot water is a real bonus.

It will be interesting to see how the panels go during the winter months, but so far, it's been a dream come true.

From an investment point of view, we made the following calculations when we considered if Solar was the right choice for us:

Net Cost of System (after Grant): €8,148.02
Lifespan: 35 Years
Annual Depreciation Rate: €232.80

I was able to estimate that the panel’s should save us around €600 per year. We calculated this assuming a 25c kwh rate, based on the panels covering 60% of our electricity usage and hopefully getting a small credit back once suppliers allow us to receive credit for charging the grid. We will get more accurate savings figures as time goes on, but this seems like a reasonable estimate.

Based on our expected savings, we can expect our first year ROI to be as follows:

Electricity Saving: €600
Depreciation: €232.80
Total Saving: €367.20

This represents a return on investment in year 1 of 4.51% (€367.2 / €8,148.02).

This is all fine, however there is one thing I should mention that might surprise you. When it came to purchasing the panels, we had two options:
1. Draw additional funds down from our company and pay 50% tax.
2. Take out a personal loan and look to pay the loan off with the income which I pay myself from my web development company (which is taxed at around 17%).

This might just show how much I despise 50% tax rates, but I actually made the decision to take a 5 year personal loan at 6% interest rate instead of paying 50% tax to pay for the panels.

So how does this work out when the interest is taken into account. The loan was subject to interest of €1,303.42 for the period of the loan. So, adding this cost to the investment, we get the following:

Net Cost of System (after Grant): €8,148.02
Interest: €1,303.42
Total Cost: €9,451.44
Lifespan: 35 Years
Annual Depreciation Rate: €270.04

So what is our first year return? To calculate this, we need to think about money a little differently. Most of the time, when factoring interest, we consider it as an expense. In this case, I didn’t see the interest this way. I knew that the prices of Solar Panels were on the rise, and that I didn’t have the luxury of time to save for the panels - as I felt that by the time I had saved, not only would they be more expensive, but I would have been paying more for my electricity while saving up for them!

So for me, I considered the interest simply part of the cost of purchasing the panels - no different to how stamp duty is capitised when purchasing property. The loan would allow me to purchase the panels now, at a lower price than what I could buy in the future, and allow me to start saving electricity from today.

It also meant that I had 5 years to pay for the panels - the payment of the panels was effectively my monthly loan repayments - this felt like I was gaining leverage by taking a loan.

Therefore, my real cost of the panels can be described as follows:

Total Cost (Panels + Interest): €9,451.44
Paid over 5 Years
Cost per Year: €1,890.29

Therefore, when you consider a €600 a year saving, the actual year on year return can be shown as follows. Please note, after year one, I have accounted for the depreciation cost from the Total Capital by reducing the capital value by €270.04 per year.

Year Amount Invested Net Savings (after depreciation) ROI
1 €1,890.29 €329.96 17.46%
2 €3,510.54 €329.96 9.40%
3 €5,130.79 €329.96 6.43%
4 €6,751.04 €329.96 4.89%
5 €8,371.29 €329.96 3.94%
6 €8,101.25 €329.96 4.07%
7 €7,831.21 €329.96 4.21%
8 €7,561.17 €329.96 4.36%

I want to finish by saying that an investment in Solar is very much a hedge against rising electricity prices. I think it is likely we will see electricity prices rise in the future, and so these returns will get better over time. Either way - even if prices remain the same, a 4% long term guaranteed tax free return is pretty decent.

The Great Life Insurance Hedge

I have been thinking about doing this for a while, but in July I finally decided it was time. I managed to get a good quote for a 10 year Life Insurance product through Zurich. The Life Insurance was for €500k and would be paid out in the event of my death. I took a 10 year, non convertible plan, costing around €28 per month. I didn’t plan to need the life insurance after 10 years, as my investment portfolio will be my life insurance after that point!

I wanted to find a way to ensure that my family was going to be fine no matter what the outcome. Either I grinded away for the next year or so and built our assets up to €500k and beyond, or if the unthinkable happens and I die before that time - either way, my family is going to be financially in a strong position.

I do also have an Income Protection policy in place in the event that I have an accident and I am unable to work. I am currently looking to increase the level of protection on this policy as an additional hedge.

Contracts Signed on Second Investment Property

We finally signed contracts on our Second Investment Property in July and are due to receive the keys in August.

The deposit has now been transferred to the solicitor.

I have now updated my portfolio to reflect the transfer of cash to the new investment property. I will provide more of a breakdown in the Portfolio Report below on how my portfolio is broken up between the various assets.

July 2022 Portfolio Report

We added another €10k to our portfolio in July. Equities bounced back nicely in July and recovered the loss from June. I am starting to get close to the €300k mark, which is exciting.

As mentioned above, we finally were able to transfer our deposit for our second investment property to our solicitor and expect to close in August.

My primary goal is to try to build a portfolio of €500k by March 2024 (a month before I turn 40). This would allow me to move into a semi-retired phase of my FIRE journey. Assuming I continue to contribute €10k a month and assuming a 5% annual return from this point, I am currently on track to hit this goal by Feburary 2024. I have estimated that I have 355 work days left before I hit semi- retirement!

Portfolio Summary (as at 31st July 2022)
Opening Balance €266,671.62
New Contributions €10,000.00
Portfolio Growth €10,332.52
Closing Balance €287,004.14

Monthly Portfolio Growth Report

Monthly Portfolio Growth Report
Capital Gain + Dividend Income from Equities €9,623.08
Real Estate Income & Capital Gain €709.44
Total Growth €10,332.52

Portfolio Breakdown

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

Portfolio Asset Breakdown (as at 31st July 2022)
Equities €128,119.52 44.64%
Real Estate €148,011.37 51.57%
Cash €10,873.25 3.79%
Total €287,004.14 100.00%

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 Total Invested
Irish Life €50,344.12
Davy Select €39,948.23
Aviva €37,827.17
Total €128,119.52

Real Estate Breakdown

My real estate investments can be broken down as follows:

Investment Total Invested
Investment Property 1 €91,615.68
Investment Property 2 €52,651.69
Investment in An Dúlra €3,744.00
Total €148,011.37

Year to Date & 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 Year to Date Growth Report
Opening Balance €221,789.02
New Contributions €70,000.00
Real Estate Capital Gains + Rental Income €6,036.38
Equities Capital Gains + Dividends -€10,821.26
Closing Balance €287,004.14
Portfolio Return -€4,784.88
Annualised % Return -1.64%
2018-2022 Growth Report
Opening Balance €0
Contributions (Money Added) €206,445.78
Equity Release* €41,220.21
Real Estate Capital Gains + Rental Income €28,667.43
Equities Capital Gains + Dividends €14,535.45
Other** -€3,864.73
Closing Balance €287,004.14
Portfolio Return €38,768.25

* 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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