I recently read The Wealthy Finn's Passive Income Update. In broad terms, his portfolio is 25% real estate, 25% shares and 50% P2P loans and crowdfunding.
For 12 of his investments, The Wealthy Finn (aka Eelis) is seeing returns of between 1% and 32%, with many in the 12% to 18% range. What am I doing wrong with my investments, or is Eelis actually The Riskiest Finn? So I sent Eelis a comment:
His reply showed that he'd thought about his investments, was aware of the risks, and comfortable with them. He has a completely different risk appetite and outlook than I do. Here's what he said:
This small comparison between Eelis's strategy and the strategies that I've used got me thinking.
It reminded me that there isn't a one size fits all approach to investing, or to FIRE as a whole. We do different things for a variety of reasons. Sometimes we are simply at different ages or stages of our life, or it may be that our risk appetite/ability to sleep at night is different.
We probably start saving for our futures at different times. For me, I didn't start making good progress until I was in my mid thirties. That's late by some standards, but I still got to retire early when I was in my forties.
Eventually I was earning very good money from my job. Not everyone can do that, but there are often actions and choices that can be made to boost earning power. I started off as an accounts clerk earning minimum wage, but made choices that completely changed my earnings.
We can change our investment approach as we learn from our own experiences and also the experience and expertise of others. I've changed my approach significantly over the years.
By using the experience of others, we can get an idea of how much money we require to be FI.
Having started thinking about this, I decided to look back over my own investing experiences to see how they have changed, and also to show that even if you don't start as early as some, or make mistakes, you can still get to FI many years before the most of the population.
My investment journey
My investment choices have generally been driven by:
A dislike of debt
A risk averse nature
A lack of investment education/knowledge/awareness
Unfortunately, some bad experiences
Some of these have served me well (a dislike of debt), others are less in my control (risk averse nature), and a few have been detrimental to our financial position (bad experiences and a lack of investment education/knowledge/awareness).
The one that frustrates me is the lack of investment knowledge/awareness. I could have done something about this, although we're not helped by government's failure to ensure personal finance is properly included in school curriculums.
Occasionally, I get asked about my investment strategy, so I thought I'd share it today. It's been a journey, so I'll highlight some of the issues/events that have had an impact on my decisions and brought me to the investments I now hold.
The graph below shows how our net worth has evolved over the years, and also how the composition of our investments has changed.
Here are some highlights, comments and explanations to the graph:
The graph starts in 2005 becuase it's the earliest date I have records for. It also coincides with our relocation to Dubai for work which had a big change in our abiltiy to save and therefore invest. We were paid tax free, arrived just as a boom period commenced (so salaries boomed too), plus Sally started to work.
Even though I was in my mid thirties, our net worth in 2005 was quite low. I had a work pension scheme plus we had some equity in our old family home in the UK.
In Dubai, we were able to save and grow our net worth. There was no grand FIRE plan, instead I was driven by a desire to provide financial security for our family.
In 2006, we bought a house in Dubai to live in, even though the housing market was immature. It was a scary decision. With my dislike of debt, our main investment over the following years was paying extra off the mortgage. As our mortgage reduced, the value of our equity in the house grew.
We had a boost in 2007 when we sold our old UK family home for a profit. We loved the house, but it was too old and the wrong size to get a good rental return, so it had to go. My daughter cried when I told her it was sold.
In 2009, a little after the Global Financial Crisis, I made my first move to invest in the markets. It was a good idea spoiled by a bad financial advisor. It was a catalogue of bad advice, advisor errors, insanely high fees and also something akin to fraud, but we were trapped in the schemes by exhorbitant exit penalties. My previous posts, Investing nightmares - don't do what I did describes the pain.
Those investing nightmares scared us off the markets. The silver lining was that we started to invest in rental properties which have worked well for us. The downside was that we became ultra cautious and distrusting which lead us to hold cash and therefore miss a bunch of market returns.
A gamechanger was selling our home in Dubai in 2014. The housing market had been a rollercoaster ride - we'd seen it double, halve and then go up again. Somehow, we sold at a peak and almost doubled our money. Today's prices are 30% less than we sold for. We used some of the proceeds to continue investing in rental properties, and gingerly dipped our toes back into the financial markets. However, our earlier financial advisor nightmare meant we were still very nervous investors and we held a crazily high cash amount rather than risk it in the markets - a big mistake.
In 2017, I started to follow various FIRE blogs and also attended some SimplyFI.org meetings (they are the UAE chapter of Bogleheads) which introduced me to self investing in low cost index funds. At last I felt confident to put our cash to work.
And that brings us to today. A portfolio which is 46% rental properties, 29% low cost index funds, 15% is the apartment we're living in (not really an investment), and then there is a mixture of cash, an old company pension and a couple of other investments that make up the final 10%.
My plan is to have all the low cost index funds in Vanguard Lifestrategy 70% stock/30% bonds, and I'm going through the transfer process for that now. As the endownment policies and speculative land investments come to an end, I will reinvest those into Vanguard Lifestrategy as well. There are other lower costs products available, but I like that Lifestrategy is well diversified and any rebalancing is taken care of for me.
For our living costs, the property rental provides more than sufficient income to cover our costs. The other investments are therefore accumulating/reinvesting.
Recapping some of what my investment journey has taught me
I've realised that our net worth is more than we require to lead our current early retirement lifestyle. That's nice, but not necessary. Maybe there are other people doing the same thing and unintentially not recognising that they are already at or closer to financial independence than they imagine. In my view, one more year syndrome is not worth foregoing the choices and benefits of recognising you're already FI.
It also reminds me that by my mid thirties, I had barely made a start on investing for my future. But I was entering my maximun earning years, had a good job that paid well, and made some choices that let me earn more. I also lead a balanced life and didn't spend all the extra income. Despite my late start, and some bad investing mistakes, I still retired early at 47 (and given that I draw income from only half our investments, it could have been some years earlier). For sure, it's best to start saving for FIRE early, but this is a reminder that it can still be possible with a later start.
It tells me that I could have done better. I entered investments that I didn't understand which were sold to me by a financial advisor who got paid on commission. It was stupid of me to invest in things I didn't understand and didn't know the fee structures. I wouldn't do this again.
It tells me that being nervous of investments and understanding your risk appetite is fine, but procrastinating on investments and holding large sums because the decision is scary is not OK. Doing nothing is generally a bad option.
Lastly, it tells me that my investment strategy is much different to that of Eelis, The Wealthy Finn. And that's OK. The world is made up of all kinds of different people, and there isn't one right or wrong way to get to or do FIRE, and our differences is one of the things that makes our world fun.