Monday 7th June 2021
I recently podcasted about The Coast FI approach (I wrongly referred to it as Barista FIRE on the podcast episode). Being self employed and being able to utilise a Director’s Pensions (where I can put over half my salary into it each year), means that this approach is likely the fastest way for me to become FI in Ireland.
The Coast FI approach is to basically amass a portfolio and let it compound over time, while supplementing your income while your retirement pot grows. Once your investment portfolio grows to a big enough size, you apply the 4% rule and you can then move into full time retirement.
While this is great in principle, there are a couple of considerations I didn’t fully factor in, until I sat down and tried to forecast how that would look in 18 years time.
The first, is that I had been assuming a 7% return after inflation. This is possibly over optimistic, especially given the current inflationary levels and forecast for the next number of years.
It is likely I will need to factor in return rates more likely to be 5% after inflation. This certainly is going to mean that the amount of capital I need to contribute is going to need to be a lot more. I have also decided that I will no longer use the €2,000 a month as a FI number - yes that would cover my basic expenses, but it is hardly living! I recently made a quick budget (in today’s money) for what my ideal monthly budget would be by the year 2038. While many of the kids' expenses that we have now were gone, there were new interests coming in - like money set aside for travel and entertainment - things we just don’t have time or energy now as parents to 3 young kids, but certainly luxuries we would like to do when we are older.
I think to live comfortably in Ireland as a couple with an allowance for international travel, one will need at least €40k per year - so there is no getting around the €1 million investment portfolio we will need to cover that.
If we were to put ourselves in a mortgage free position by the year 2038, then we could likely be OK with an €800k pot - so we need to be targeting a portfolio of at least €800k, but ideally the big €1 million in today’s money (which could be more like €1.2 - €1.4 million by the year 2038). Is it possible? Let’s take a look at our friend the compound interest calculator - here is a link to my favourite one, as it does months as well as years.
I decided to approach the process as follows. I keyed in the following (you can try it to):
Current portfolio: 156,000
Interest Rate: 5%
Compounding Interval: Monthly
Regular Deposit Amount: €4,500
This gave a final number of a little over €500k within the next 5 years. Remember, I have taken into account inflation with this interest rate (so the final number should be higher, but it is inflation adjusted).
Why does this matter? Truthfully, I find myself putting numbers into compounding interest calculators once a week, because it acts as my motivation to continue this completely unbalanced lifestyle I have adapted to try to reach FI. I can’t stress it enough, my lifestyle is unsustainable - I am working harder and longer than ever before to put myself in a position to earn an extra €4,500 per month.
My logic is, that while the work is there and I can keep finding the motivation to do this, I will keep going. It should be noted that I am not against cutting down my work hours and reducing this monthly target if I need to for my own good. For anyone that has read JL Collins, A Simple Path to Wealth, the author went through years of working a lot, and years of time off - so I am open to adjusting my time as I see fit. I think knowing that what I am doing is completely self-inflicted, certainly makes the process easier - but I know that I am making a huge sacrifice - and as are my wife and kids for us to try to do this.
But the numbers tell the full story. If I can do this for 5 years more years, it would give us around €500k, with around 13 years left until I would look to fully retire. This would allow me to move into Coast FI mode - perhaps reducing the number of clients I have as a web developer and moving back to part time hours from that point onwards. This would mean I was somewhat semi-retired by 42 - a pretty good effort for 6 years of burn out! Basically, from a 500k position, I could let that compound at 5% per year, maybe adding €1000 per month to ensure it gets to over €1 million by the time I am 55.
I have mentioned a few times on the podcast that I was holding 1% of my portfolio as Bitcoin. I decided to sell my Bitcoin in early May. I got a little bit lucky, I sold out when Bitcoin was just over $50k, and it since has dropped in value. I made a small loss selling out in May, but I was up overall for the year.
There were several reasons for my decision, but my main reason is that I think fundamentally Bitcoin is a Ponzi-Scheme.
- Stocks and Shares are backed by an entity that produces profit.
- Property is backed by something physical that can produce profit through renting or leasing.
- Even Gold - while it doesn’t do anything - has a value in the Jewellery industry.
The big issue with Bitcoin, is it is purely speculative - and it isn’t backed by anything. Furthermore, Bitcoin is actually losing value everytime a translation takes place. This is because of the miners fees that occur at every transaction.
This, on top of the major environmental concerns - was reason enough for me to happily sell out. I moved the money into paying down the loan on the rental property.
I should thank Ben from the Limerick FI MeetUp group for allowing me to finally see common sense about Bitcoin and letting go of my FOMO feelings about cryptocurrency. This is the article he shared which goes into a LOT of detail about this - far more than I can cover - I would highly recommend you read it if you are thinking about buying cryptocurrency.
A final note here - if you fancy a punt, and you have money spare that you can gamble, then I wouldn’t be against someone buying cryptocurrency for that reason - but I certainly wouldn’t be treating it as an investment, nor assuming there will be any long term gain from holding it. I would challenge people however to say given the climate crisis that is going on at the moment, is it really worth being part of something that produces the same amount of electricity each year as Poland!
I will stick to my long term view and just keep buying into equities and property - yes it is boring - but after some of the bad experiences I have had between Forex Scams, Peer to Peer Lending Scams and others, I welcome the calmness of cost averaging and owning a rental property!
Let’s jump over to the numbers:
|Portfolio Summary (as at 31th May 2021)|
|Portfolio Capital Gain + Income||€291.26|
|Monthly Portfolio Growth Report|
|Capital Gain + Dividend Income from Equities||-€212.05|
|Real Estate Income||€700.10|
|Peer to Peer Lending Income||€4.73|
|Cryptocurrency Capital Gain||-€201.52|
The table below shows the breakdown of my portfolio into the various asset classes:
|Portfolio Asset Breakdown (as at 31st May 2021)|
|Peer to Peer Lending||€1,153.01||0.74%|
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