Irish Financial Independence & Personal Finance Podcast

June 2022 Portfolio Update

Sunday 3rd July 2022

389 Work Days Left - and Counting!

June marked 7 months of me working overtime. It is tough - long days, with weekends being tired and simply trying to recover.

As tough as working overtime is, it is for one simple reason - to build up my portfolio! I spoke last year about considering Slow FIRE - slowing down my contributions and letting compounding do the heavy lifting. As it is, 2022 has been sobering - a falling share market, interest rates that will be going up and massive inflation, has pretty much ruled Slow FIRE out in the short term.

So what is my plan? I know that working overtime isn’t sustainable long term, so why am I doing this? My goal to date has been to just try to keep going as long as possible, but in more recent times, it has been about putting myself in a great position to move to semi-retirement.

Semi-retirement would mean no longer having to make contributions to our portfolio and letting it simply compound overtime. Ideally, it would be not withdrawing from it at least initially, but rather simply working part time to cover our annual expenses while the portfolio grows in the background.

Given our current savings rate is well over 75%, I can’t stress enough that to move to a situation where I only need to cover our annual expenses would be amazing and feel effortless compared to what I am doing now. I would likely look to work only three days a week, or simply casual hours as a freelancer or work seasonally (six months on, six months off).

Either way, the thought of the semi-retirement stage is exciting.

In order for me to do this, I need to build my portfolio up to a really big number! Something big enough to grow at a decent rate without me adding any further contributions.

I’ve spoken in the past about looking to build a portfolio of €750k to be able to fully retire. In truth, I’m not that bothered about the number that I finally decide to retire. FIRE is ultimately a lifestyle design movement, and work can definitely be part of my perfect lifestyle - I would just like to change the way I view work.

At the moment, I work for money. I don’t pretend to work for anything else. I work on a contract basis, I am hired to do a job. I don’t get emotional, I don’t lose sleep about the work. I get up, and do what is asked of me, and deliver. In return, I get paid for my work - and I use most of that money to build my investment portfolio - with the other little bit covering our expenses.

FIRE and building my portfolio is the only thing that keeps me motivated - and in truth, it isn’t a sustainable reason to keep getting up in the morning to go to work.

I would love to work on projects that I was passionate about not because of the money, but because I actually liked the work. This will be one of the major things I wish to change in semi retirement.

So what sort of number am I thinking I need to be able to move to semi retirement? I would love to hit a portfolio of €500k to feel I had built a portfolio with enough critical mass to compound without any further contributions.

In April this year, I turned 38. Assuming I keep contributing €10k a month and assuming a 5% annual return from this point on, I can in theory hit the €500k mark by April 2024 - in theory, I can hit semi-retirement before I turn 40!

If markets don’t perform at 5%, I can always adjust as needed - but it is a motivating goal to try to hit.

I even sat down and worked out how many work days would be left assuming I can reach my goal in March 2024 - I have 389 work days remaining!

I will look to report this target in future portfolio updates to give the number of days left and if I am on target for my goal!

The Fun Money Conundrum

My wife and I got into an argument during June due to spending €47 on a birthday cake for our oldest son. It just seemed an excessive amount to be spending on a cake. In truth, it probably is, but it was the cake that he wanted - it was going to make his day.

Back in May, we went and saw Ed Sheran at Thomand Park. We had a great night, and probably spent a little more than we should have by the time we added everything up.

We also went to a wedding in May, that set us back considerably when factoring in all the preparation for the wedding and costs on the night.

All of these things do get in the way of FI goals. It is obvious that “fun money” doesn’t move us towards FI faster, but a life without “fun money” isn’t really a life worth living.

My son was so happy when he saw his cake. Seeing Ed Sheran live was a once in a lifetime opportunity (is it likely he will tour in Limerick again?), and weddings are hard to keep costs down even in the best of times (and spending money on things like hotels can really make the experience a lot better, rather than leaving early to drive home that night!)

Is it worth getting upset over spending “fun money”. I think the rule of thumb has to be - not if it makes you happy.

Life is for living after all.

When I consider our monthly budget, I often focus on the boring day to day expenses - the living costs, that are largely unavoidable. Grosercies, bills, transport - all those regular daily costs that we have pretty much zero control over.

But should the price of diesel going up mean that our 11 year old doesn't deserve the cake of his dreams? Should we live our life around reducing our optional costs expenses to zero, or should we have some fun along the way?

The answer became obvious to me after my argument with my wife about the cake. In recent times, I have become a little less strict over our spending - largely because we just don’t spend money like we used to, so the need to “micro manage” our money isn’t required. We still budget, and we still track expenses, but we don’t categorise our expenses like we used to.

Instead, we just allocate money into a “living budget” and make sure all our families expenses are covered within that.

But, this has been the wrong approach. It is clear that expenses need to be broken down into two core categories:

1. Living Costs
2. Fun Money

“Living Costs” is for that stuff we can’t avoid. In FI turns, it would be “lean FIRE” - where one’s portfolio covers one’s cost of living. This is the bills, the mortgage payment, the back to school costs, medical expenses, the weekly diesel fill up and groceries. All the costs that just allow us to live each day - keep warm and dry and fed. Those boring costs that go out each day and we don’t really get any joy from it, except knowing that we are all safe and well.

Then there are the optional costs. The golf trips, the coffee shop visits with friends, the nights in the pub (drinking Guiness 0.0), the weekends away, the overseas holidays and the concerts. These truly are optional - but when we look back on years gone by, are certainly the things we likely remember the most.

Who are we to sacrifice these costs if they bring us real happiness? While these costs don’t get us any closer to FI, they certainly make the journey along the way easier.

My wife did look at me strangely when the argument about a cake allowed me to see for the first time a major flaw in our budgeting and our FI journey in general. FI should be about covering our cost of living as a first priority, but fun money - we shouldn’t feel limited by that when it comes to the crunch.

For example, is doing a little bit of overtime - say 10 hours - worth a night out to see Ed Sheran in Thomond Park. I can remember all the concerts I have been to in the last 20 years - I don’t really remember the work days - they have all merged into one! Clearly the time exchange is worth it.

Working 10 hours to fill up the car, pay for the weekly groceries and pay the bills isn’t fun. Working 10 hours to do something fun - well, that makes sense - that's a fair exchange of time - provided of course, the fun activity brings real happiness.

Lean FI encourages us to focus on building a portfolio to cover our cost of living - and it seems to make a lot of sense. Beyond Coast FI, Lean FI is really the next big goal. Once we cover those living costs, then working solely for “fun money” suddenly doesn’t feel like such a bad exchange of one’s time.

The whole concept challenges the concept of early retirement. Do we really want to retire with little to no “fun money”. Or should we be embracing the FI side of FI, so that we can continue to work if we want to, but doing so on terms that we dictate, knowing that any work we do is solely for the purchases of a time exchange - one hour of work, for the full purpose of fun later.

It has been said that early retirement is like a lifetime of Saturday’s. I guess how we plan for FI will determine if we spent early retirement like a rainy Saturday inside doing the laundry, or a Saturday when we go away for the day to the beach. I know the beach would be my preference, and if that means working here and there in retirement to ensure that we can live a better retirement, then so be it.

In truth, trying to build a portfolio to hit either lean FIRE (enough to cover our day to day expenses) is hard enough - especially with inflation doing its thing. Trying to plan for early retirement with living costs + fun costs, well, goodluck with that - how many more years of your life will one need to give up in order to get themselves into a FAT FIRE position - probably too many to make it worthwhile for most.

Let’s not be so hard on ourselves on the early retirement side. In truth, so many of the FIRE bloggers who share their story don’t even end up withdrawing from their portfolios - they simply find a more fun way of earning money.

The point of all of this? It comes back to the journey ahead of the destination. FIRE is really about living your best life, with the future in mind. Yes, there are going to be periods of long, hard work, but there needs to be equally times of fun. Balance is the key here.

And when it comes to defying your FI number, don’t be afraid to exclude the fun money and focus on lean FIRE first. Chances are, you will still work a little in retirement anyway to cover the costs of any of the fun stuff!

June 2022 Portfolio Report

We added another €10k to our portfolio in June. Equities are now down three months in a row - another brutal month for equities. It doesn’t make for pretty reading, in fact I am now only up by a couple of hundred euro in equities since January 2021 - all gains in 2021 have pretty much been wiped out.

Investing in equities is a bit of a ride - and I have learned to take the good and the bad.

Contracts have finally come through for our second investment property that we went ‘sale agreed’ on back in April. Hopefully signing in July!

While equities have been down the last six months, being the end of June I revalued the value of our first investment property. I typically revalue every six months. I used Daft to get an indication on the property price, based on similar properties in the area and the Daft Report. Prices were definitely up since the end of last year and I conservatively added an increase on the property price of €2,000, to give an overall value of €245,000.

My goal is to try to build a portfolio of €500k by March 2024 (a month before I turn 40). I am currently on track to make this goal assuming I contribute at a rate of €10k a month and my portfolio returns 5% per year from here. I have estimated that I have 389 work days left before I hit semi retirement!

Portfolio Summary (as at 30th June 2022)
Opening Balance €262,003.88
New Contributions €10,000.00
Portfolio Growth -€5,332.26
Closing Balance €266,671.62

Monthly Portfolio Growth Report

Monthly Portfolio Growth Report
Capital Gain + Dividend Income from Equities -€8,024.31
Real Estate Income & Capital Gain €2,692.05
Total Growth -€5,332.26

Portfolio Breakdown

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

Portfolio Asset Breakdown (as at 30th June 2022)
Equities €116,500.38 43.69%
Real Estate €94,770.42 35.54%
Cash €55,400.82 20.77%
Total €266,671.62 100.00%

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 €60,000.00
Real Estate Capital Gains + Rental Income €5,326.94
Equities Capital Gains + Dividends -€20,444.34
Closing Balance €266,671.62
Portfolio Return -€15,117.40
Annualised % Return -5.36%
2018-2022 Growth Report
Opening Balance €0
Contributions (Money Added) €196,445.78
Equity Release* €41,220.21
Real Estate Capital Gains + Rental Income €27,957.99
Equities Capital Gains + Dividends €4,912.37
Other** -€3,864.73
Closing Balance €266,671.62
Portfolio Return €29,005.63

* 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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