So overall networth has been growing well. This was driven by a combination of strong equity market growth, savings and improving political situation in our country.
In terms of overall NW we’re sitting at R11.2m of liquid net worth or $950k with 80% in listed equities.
The focus has now shifted from maximising networth to optimising income. The focus is to get as much tax benefit through optimally placing the investments into the correct taxable vehicles. So my waterfall looks as follows:
1. Max out interest allocation, thats R23.8k per person and at 7-10% interest rate is about R240k-R340K of interest instruments. Ours are fixed deposits, loans and bonds here. DONE
2. Max out Tax free saving account (TFSA) a small r33k per annum allocation that attracts no tax on after tax income. We invest these into high income instruments like property and bonds. DONE
3. Max out retirement annuity, tax free savings but hesitant since a growing balance means more money stuck in SA till we’re 50+ age and big slant towards SA and the income tax rates start to exceed other tax rates once the balance is higher than R1m which it is. Anyway whilst I’m working its better than marginal tax at 40-45%
4. Pref shares, I like these since can get dividends at high rates but am able to get them at 0%-20% tax depending on vehicles
5. Global property – decent returns at 3.5% yields but am avoiding SA property for the foreseeable future post the expropriation discussions that started in December.
So there you have it. Increase income, probably not with more local or global equities for a while until all expenses get covered by passive. Plans had to change because local property is no longer an attractive option so will instead generate it from preferred shares, fixed income and global property REITS.
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!
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.
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!
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?
Till next time, 2016 is a wrap!
Having recently watched Annie, the musical, it struck me as to how out of one’s control life can be. Those made destitute by the Great Depression despite being skilled workers resonated. It would seem this shouldn’t happen and with the best of intentions cannot get back to normality.
It seems it situations like that, there is very little that can be done. Perhaps nowadays it would be easier to move to another country, but a global crisis would limit even this possibility. It just feels like it’s a wake-up call for everyone to do more of what they want, live your life now as things are not in your control and not to work to the exclusion of all else.
I’ve bumped into a number of people lately that say you cannot have time to spend time with their kids due to work committments. Things like making costumes, or attending children’s plays etc are not possible when working and also you have no alternative to working and getting them into private schools. I wonder if people assume they need to work in order to have nice things – there is a mismatch between wants and needs and this causes us to believe you have to work more. I’m pro gender equality, but I think children get a better upbringing with parents that are present. I want to be able to spend time with kids rather than being an ATM. If that requires less consumerism, so be it. Better than financial slavery tied to a desk.
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:
passive income of 4% of investments versus monthly expenses
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.