Growing your capital

I’ve had some thoughts about investing and getting to financial independence. Clearly a key part of this is having enough passive income to cover your day-to-day expenses.

To get passive income, I find that dividends from businesses is a great form. One of the easiest for the average guy to access being via dividends from the share market. Business income through owning shares in the private sector are even better, but not easily accessible outside the industry. Listed companies provide great access to dividends and therefore passive income.

Now, what do you really need to get access to dividends?  Money, ie capital. It’s all very well knowing that you got to get dividends, but actually you need capital, meaningful capital to do so. And the best way for me to get capital has been historically?

To earn it.

The quickest way I got increased capital was through earning more. And not spending it all. It was far quicker than growth from my existing investments, or from building a business. It was just earning more. And I did that by, firstly working and billing more hours when I worked effectively as a consultant. Then it was by switching to a career that paid more. Then it was by adding real value and getting share and equity options. These all helped grow my capital the quickest in the beginning, because I had little capital to begin with.

Once I’d built up decent capital over a period of 10 years (like 5x my gross annual salary), it was much easier to compound it, because now a 10% growth rate on the capital base actually made a difference. Prior to having this, I could’ve made a 100% growth and made the same difference as a monthly paycheck.  Now a 10% growth would equate to half a years pay!

Until you get to any decent scale of capital, the best bang for your buck, in my opinion, is to shoot the lights out on active income, ie job/your time for income.  Heavily invest that capital, spend like a business owner (ie low expenses, high margins) and after 5-10 years have a strong base to take yourself to the next level!

 

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April 2017 Net worth 2% (8% ytd)

Starting to feel like an expat now! April has been an interesting month, the currency has been fluctuating quite wildly due to political risk changes, the downgrade of the country from investment to speculative grade and all the volatility that goes with it. Despite this our net worth has still been doing well, mainly because we’ve diversified across geographies now so if currency movements happen we come out ahead in rands and hedged on hard currencies.

More importantly is the effect of all this on the psyche, hence my opening comment on feeling like an expat. Starting to move away from being emotionally attached to a market and rather looking at pure investment fundementals. This has always been an issue with home-bias affecting one’s investments. It is also the reason for not being overexposed to local circumstances as we already have a property, jobs etc here.

In terms of figures, most of the increase in net worth came from increases in share values (non rand shares) and savings.

Monthly expenses compared to 4% safe withdrawal rate looking good – very close to breaching expenses now.

 

 

2016 is done! Reflections…

boats

So my 2016 work-year comes to an end. It has been a great journey and definitely one of my nicest ones in recent years.

In terms of financial (why I keep this blog!) the following happened:

  • Settled all outstanding debt by paying off the house
  • Sold my shares in a private business that accounted for the majority of the boost in net worth (+50%) and re-invested all this cash.
  • Watched the currency strengthen from its horrible lows last December.
  • Consistently saved in excess of 50% this financial year excluding the business share proceeds.

All-in-all a great year and we’ve gotten to the stage that we are so close to the 4% to cover expenses that it’s possibly in the bag by next year.

I’ve learnt a lot over the year, am in a happy place than I was last year. Work is done for the year and so can go away peacefully for the end-of-year festivities.

Happy holidays for those taking time off!

 

November 2016 net worth update (+0.74%) 50.37% ytd

That’s not me kite-surfing, although I wish it were!

 

November’s increase was pretty non-descript. The majority of the increase came through an increase in cash savings getting us up to the R8.7m ($626k) mark in investment assets. Still hope we can push through December and get to the R9m mark.

Savings wise it wasn’t a bad month, we didn’t have any large expenses although as per the graph below you can see we were a bit above our average. Pretty standard month also on the earnings side.

I’m enjoying see the average expenses and 4% Safe Withdrawal rate lines converging steadily, particularly after our big boost earlier in the year.

Perhaps 2017 will be the year of the crossover?

expenses-passive-income-2016-nov

income_expenses-2016-nov

Till next time, 2016 is a wrap!

Financial update August 2016

It has been a while since the last update!

In the interim been through a few changes on the personal front. We’ve had some new beginnings on the earnings front as well as cutting out some long-standing big expenses.

Furthermore, a windfall from the sale of some businesses has resulted in a lump sum of additional capital that needed to be deployed. Together with currency volatility it has made for some interesting investments over the past 10 months.

Where are we now?

Well, in terms of net worth we have killed the home loan debt and no are sitting in the position of no debt on the balance sheet. However, we cannot really invest that capital so from a purely liquid capital point of view we’re sitting at around 21x average annuallised expenses and getting close to the major 25x. My chart as at August 2016 relative to my expenses now looks like this:

expenses-passive-income-2016-aug

passive income of 4% of investments versus monthly expenses

income_expenses-2016-aug

Rolling 12m average of income versus expenses

That purple line tracking my 4% theoretical withdrawal versus expenses is getting very close to my expenses now, and I reckon within 12 months will start to see the monthly red line dipping below it. Once the 12m average line starts to dip below the purple line in the second diagram then I know that it is official in terms of financial independence.

Then I’m definitely crossing that off of the bucket list. I then will make a call as to whether it is to start a new business, carry on and get more of a buffer/increase some expenses, or to just take a break for a while.

May 2015 net worth update (+0.40%) 15.65% ytd

We haven’t done an update for some time, in fact since November 2014, oops!

First of all, 2014 ended up being a reasonably good year with ~24% net worth growth in Rands, about 9.5% in US$. The difference? Rand currency and Dollar strength did not help the cause here.

Anyway, so far 2015 has been a good year, we’re up 15.6% YTD in Rands, ~11% in US$ so it’s been going well.

Onto the actual figures:

Assets: R5.7m (+13% ytd)

Cash: R400k

Property: R1.8m

Retirement annuity: R500k

Shares: R2.9m

Vehicles: R100k

Business investments: (not recorded)

Liabilities: R922k (-1% ytd)

Home loan: R884k

Tax: R38k

Net worth: R4.7m (+15.6% ytd)

On to what the individual accounts represent:

Cash

Primarily just cash sitting in savings accounts for planned expenditure for the house, or vacation. However, a decent chunk of this (bit more than half) is sitting in the share trading accounts as we rand-cost average recent cash received. I haven’t pulled the trigger as I still feel the share market is quite high, but it isn’t enough cash to justify buying a property or business. I will probably invest this over next 2-3 months, depending on what happens with additional cash coming in from side business ventures.

Property

This consists of our investment property (house) and our personal residence. Not much has changed here in ages. I grow these by small amounts each year from their original value, but they’re still tracking over 30% below current market prices, so it feels quite conservative.

Shares

Decent split between international shares and local shares. I’ve been steadily buying shares over past 10 years.

Vehicles

Two cars, 3-4 years old each now. I am writing these down to zero over 5 years.

Business investments

These are not recorded at a value. They may or may not pay off, but we did receive a reasonable amount of cash from them this year so far.

So overall it was a good month of May. Most of the growth this year has come from savings and cash received, growth has been approximately 1/3 from capital growth and 2/3 from savings/dividends.Next few months should be interesting as to whether we get some more cash from the business investments. Still on track to achieve the target of R5m by year end.

Net worth update November 2014 +5.04% (22.23% ytd)

November was a particularly good month in terms of performance as both the share markets recovered from the September and October slump and additional cash came in from the business venture. So overall the net worth target for the year was achieved (R4m), hopefully December continues to play ball from a markets perspective and doesn’t drag us back below the goal. Total net worth now at R4.04m ($365k).

So overall, due to the cash in from the business, savings for the month was at ~80%! and around 55% for the year to date so far of take-home income. So for the monthly increase, bit more than half related to additional savings and the rest from the improvement in the share market. The problem now is that we have a bit too much cash that hasn’t been invested – will look to put a decent amount of cash into local and international shares in the coming weeks before year-end.