2017 in Charts and Graphs

2017 was a great year for equities, CAPE ratios are raising all around. Great but that might suggest future performance will be expected to be poor given the popular theory of reversal to the mean CAPE. Or will momentum play a bigger role for the next year leading to further highs?

I doubt anyone has a crystal ball of that sort that could predict the future or where the next crisis will arrive but our best bet is to focus and be steadfast on the simple and enduring values and principles that will hold true help us steady the ship and sail along despite the storms. Come what may!

Portfolio

FP Portfolio

Towards the end of Dec 2016, my unitized portfolio Unit value was at 113.11. This grew to 137.75 per unit on 4th Jan 2018. A growth of 21.78%! I must say I am pleasantly surprised but cautiously suspicious of the reasons for this performance. I must admit I am no genius or brilliant in my methods just following the passive route to wealth building.

A lot of this performance I gather is due to the weakening pound/dollar currency exchange in 2017. At this stage of wealth accumulation with a long way off decumulation, this volatility shouldn’t be too much of an issue but it is a good lesson to note how currency fluctuations can affect your portfolio and note how currency hedging can help wealth preservation in the latter stage of life.

FTSE WORLD INDEX

Part of the reason I tracked my returns in a unitized fashion was so I could capture data of some resemblance to standardized methods and therefore I can compare to various funds or indexes. Looking at the FTSE World Index:

Between 30th Dec 2016 and 31st Oct 2017:

FTSE World Index (Net Tax) grew from 2531.6 to 3026.9 (19.56% increase)

FIREplant portfolio grew from 113.11 to 133.09 (17.66% increase)

The lack of up to date data on the FTSE Russell website means I could only compare to Oct 2017. Losing by 1.9% to the FTSE index will probably a reflection of the allocation of my portfolio. I am content with that. Perhaps in another year, the FP portfolio will outperform but we know average is good enough.

Dividends

Dividend Chart

Dividends has been steady growing as expected. 1st year of breaking the 1K Dividend barrier. Hurray! Time will tell whether this chart will become exponential and if the laws of mathematics will hold true.

Cash

Cash Worth

I only just met my savings target for the 2017 semi-motivated by the thread on MSE forum. Saving is such a lonely journey sometimes, people tend to be quite protective about their financial situation perhaps quite rightly. However, it is quite liberating to chat and talk to people about how you are doing in terms of your monthly savings and your failures and successes. It helps us introduce a reflective practice and accountability to our choices and actions and also learn from the mistakes and failures of others.

To be successful, learn not to commit the mistakes of others.

Savings Rate

Savings Rate 2017

In the end, my total savings rate sat at a dismal 46.5%. Not hellish but could be a lot be better. I think it tells a lot about how much more potential I have to streamline and smooth out the edges in terms of spending and practice active minimalism. Let’s hope I can improve on this in 2018.

Enjoy a photo I took in Château de Versailles in 2017:

And Yet Here We Stand

FIREplanter

Of Decisions and Outcomes

Many a times we arrive at a metaphorical fork in the road, having to make a decision which way to go. Which dish to pick? which colour to choose for that bag? Which girl to choose? Which stock to buy? When to buy?

Fork in Road

For most people it comes naturally, decision making process learnt through parental influence, informed by knowledge through education, reading, friends etc. Do we choose the decision that feels right for us or do we choose the logically, rational decision. And then do we fear the decisions we make or potential outcomes that may come out from it that would paralyse our decision making process.

The classic analogy of how making decisions can be so overwhelming is an anecdote from the film, The Legend of 1900, think Forest Grump type of biopic lifestory about a musical piano genius who was born, grew up and died on an oceanliner.

Take piano: keys begin, keys end. You know there are 88 of them. Nobody can tell you any different. They are not infinite. You’re infinite…. And on those keys, the music that you can make… is infinite. I like that. That I can live by….

You rolled out in front of me a keyboard of millions of keys, millions and billions of keys that never end. And that’s the truth Max, that they never end. That keyboard is infinite… and if that keyboard is infinite, then on that keyboard there is no music you can play. You’re sitting on the wrong bench…. That is God’s piano.

Christ, did you… did you see the streets, just the streets? There were thousands of them! Then how you do it down there, how do you choose just one… one woman, one house, one piece of land to call your own, one landscape to look at, one way to die…?

Land? Land is a ship too big for me, it’s a woman too beautiful, it’s a voyage too long, perfume too strong…. It’s music I don’t know how to make. I can never get off this ship.

-Danny Boodman T.D. Lemon 1900

Danny Boodman T.D. Lemon never set a foot out of the ship, never existed out on land before, never knew what other wonders of the world, never know what love was or wasn’t out there because of the choices and decisions that he saw faced him and it overwhelmed him in the end.

You can never make the right decision

Faced with the idea of investing, it is equally a minefield of decision making process. What to buy? When to buy? How to buy? Are FANG stocks overvalued? Is the S&P overvalued? Is value investing going to provide better returns?

The thing is we will never know until after the event has happened and when we look back in retrospect, which is not very useful. And what every responsible mutual fund would have on their prospectus is the warning that past performance is not indicative of future results. What is useful though is evaluating the reasons why things played out the way it did. History tends to repeat itself after all.

What has been shown to affect performance of a portfolio are:

  • Expense Ratios
  • Trading Costs
  • Management Charges
  • Tax

Therefore, sticking to low cost index funds with a passive approach in a tax efficient strategy sounds like you might do pretty good enough in the long run.

Being Average is good enough

I used to have a friend who told me that if he had average grades, had an average girlfriend and lived an average life, he would be content enough in life. Thinking back, I thought how sensible this idea was.

The issue with chasing returns in investing through active investing is that it is a Zero Sum game. When someone in the system makes a profit, someone else has to be making a loss. (with the middle man taking his cut via the transaction costs). It is difficult to be make the right decisions again and again year after year. In fact there is evidence that over 10 years 83 percent of US active managers fail to match their benchmarks and perhaps only around 5% of managers do outperform the market for 3 consecutive years.

Perhaps for the average person investing for the long term, average is good enough after all.

Outcomes

Martin Lewis always had the knack of simplifying complex financial jargon and principles into bits that are easily digestible.

The Coin Bet

Say I offered you a bet on heads or tails of a coin flip.
If I win, I get £1 from you.
If you win, you get £100 from me.
50/50 Odds

We flip the coin and you lost! You lose £1 to me.

Was it a good decision (to take the bet)? Yes because there was a great potential upside to it.

But you lost £1 pound!

The crux here is that it was a good decision but the outcome was bad. The two are actually quite distinct really and we shouldn’t let the potential of a bad outcome affect our ability to make a good decision. Think of some of the decisions we make all the time that perhaps may not have had the desired outcome. Not neccessary on financial decisions, but perhaps in relationships, in choosing our habits etc. It might give us a idea of how closely related a decision is related to an outcome.

 

You can see the whole video of Martin’s lecture on Martin Lewis: How to teach your kids about debt here

Hope 2018 would be as kind as 2017.

FIREplanter

Book Review: the art of thinking clearly

Hello folks!

This is part of my attempt at trying to meet my goals for 2017 and pursuit for self-improvement and learning how to think a bit clearer in investing, in dealing with my own thoughts and with people.

I came across the art of thinking clearly by Rolf Dobelli recommended by theescapeartist for sometime and has been interested given the clarity of thought and simplicity of ideas that TEA communicates in his posts. Life is simple as we make it out to be.

the art of thinking clearly
rolf dobelli

The purpose of the book is to illustrate various different fallacies in human thinking in the hope that it can help us avoid these mind traps. The book is laid out in short chapters (99 chapters in total), each of 400-500 hundred words to illustrate an idea with relevant examples and evidence. A very easy read given how information is given out in short chunks and you can immediately apply it to your thinking straight away.

So I saw the piece on the Guardian: There’s a disaster much worse than Texas. But no one talks about it. Which following on from reading the book by Dobelli, you learn that large media corporations display traits of cherry picking: choosing stories that matter to them most (Storm in Texas) and selling it as news and disregarding other disasters that may have a much larger magnitude of impact (floods in South Asia). Hardly surprising if you can imagine if you are a American writing the article, the story about the storm and deaths on your side of the land is more personal and right in your backyard and may have immediate impact on your life rather then the floods in Asia.

And then there’s potentially the best advice from the book: The News Illusion: Why you shouldn’t read the News. One, most news hardly matter. Two, news is a waste of time. Three and lastly, our brains react to news; stimulated by shocking ones (Brexit; Twin Towers; Charlies Gard) and sedated by complex information (Ads, Changes to Tax rules). Together, Rolf suggests that living a news-free world would help us build a clearer mind based on seeing what’s actually around us, listening to others and reading books and articles with more thought to it.

And there are some good mindfulness for the investor’s philosophy:

  • Decision Fatigue: Making decisions is mentally exhausting; Keeping investing simple and eliminate as many decisions that you have to make as much as possible
  • Survival Bias: We tend to overestimate success as we only hear stories of people who succeed. Perhaps we should try to look for the failures before the success and not disregard the people who failed for they have a certain courage to try anyway.
  • Cognitive Dissonance: Our minds reinterpret the situation in hindsight of a failure to convince ourselves otherwise. A sweet lie we tell ourselves.
  • Outcome Bias: We should never judge a decision by its result. A bad result does not necessary indicate a bad decision and vice versa.
  • The paradox of choice: More choices does not necessarily lead to better decisions. In choosing a life partner or perhaps in choosing which stock to buy. Good enough is good enough.

I think it will take me some more time to restudy this book and recognize the meanings behind each fallacy to the point where I can point it out in daily life.

In fact, I have been guilty of the Confirmation Biaswhen my boss told me I have been trying to fit in the test results of a patient with a particular diagnosis I had in mind. Ah well, human minds how complex.

Perhaps reading less news from now on will help.

-FIREplanter

 

 

Dividends Series Q2 2017

Here’s my dividend report for Q2 2017.

A grand total of £490.20 bringing the cumulative total for this year to £787.61. In fact, it is already more than the grand total for the last 3 quarters for 2016. Something must be going right.

chart

I am looking forward towards the end of the year where I can sit down and crunch some numbers to calculate dividend yield and all that. See where how my portfolio is doing compared to various indices.

Meanwhile on the monthly savings front, decent but not great.

Monthly saving July

Again missing out on doing accounts for month of April.

June and July was a month of spending on trips abroad and attending functions which were enjoyable and also useful to catch up with other old friends.

I am missing out on writing regularly which is a bit of a shame. A combination of interest in other subjects, non financially related and travel and learning about life in general. Sometimes feeling that my writing is not up to scratch. All in all, basically less motivated to write. I might try to write some articles of these non-financial stuff if only to consolidate my thoughts and ideas least I forget them.

As FiL’s post on What he learnt from blogging puts it, perhaps I am not prepared enough and underestimated the effort required. I must say though, getting some feedback from others writing and having similar goals helps with the motivation.

Godspeed!

-FIREplanter

 

Dividend Series 2017 Q1

So a quick review of the first quarterly dividends of the year! Hurray I made it to the 1 year mark of my first post. The thing with writing and saving and many things we do in life is you need to be committed. If you want to get good at it, you need to be committed and be prepared to put in the hard yards. Many Ideas, Loads of Imagination but not so much production. I think I need to try harder. I think the key is to keep going at it relentlessly. No one said it was easy.

Similar number of units in the portfolio from the last quarter, according to my accounts department. The snowball is marginally gathering momentum I hope.

On another note, it was tough getting the site sorted past month with hosting my own domain and getting all the site content transferred across. I still have no clue how I did it myself. Too much confusing information and guides out there on the world wide web (more like the ‘wild wild west’) The theme is still not my ideal theme but I will have to make do with it for now. I hope to get a more professional looking interface that is easy on the eye when I have the luxury of thinking about it more. Life is a bitch when you are stuck in Prison Camp.

-FIREplanter

Brexit is Upon Us All. Life goes fucking on.

Life’s a relentless bitch so far for most of us. Just some quick thoughts for this month whilst I can get a break.

So we all heard, Article 50 for exiting the European Union has been triggered. Britain is going to be out of EU, loads of debate and negotiations going on about the terms and conditions of the exit. And then I start receiving emails about 50 opportunites in the Post Brexit World. As I mentioned above, I don’t have time nor energy for all these. If I were to start thinking about whether Brexit is going to affect me and worry about things like this, how would I be able to live my life?? (I should be worrying shouldn’t I)

I am starting to appreciate theescapeartist’s point on ‘No News is Good News‘ in the sense that not actively gobbling up the news or all information or reports out there like a news junkie is actually ‘good’ for your mental health, wealth and general happiness.

The idea of passive investing helps too, giving the market free rein to go where ever it wants. Let capitalism takes its course. We do our bit by focusing on ourselves, having tight finances and good cash flow and asking ourselves what we really need to be happy and really how much do we really need to be content.

The best things in life are the simple things.

I have also read a great article last weekend: The Greatest asset is YOU postulating that basically what we ourselves are our greatest asset. And with time we are in fact transmuting our human capital  into other forms of value, ie Financial capital, social capital, etc. It is up to us to make the transmution process be more efficient and maximise its potential, piling up the right kinds of assets rather than liabilities.

Fireflies-in-trees-by-Yu-Hashimoto
Fireflies in Trees by Yu Hashimoto

Some day I swear. I am going to see it with my own eyes.

Sony World Photography Awards Exhibition at Somerset House 21 April – 7 May 2017. Might be worth having a look. Photos are captured dreams after all.

-Fireplanter

 

Photos of the Week: Life in 1950s Seoul

Sometimes looking at a photo or artwork or listening to music, you can simply appreciate and grasp snippets of pure joy. Perhaps that’s what they call self-actualization. Best things in life are sometimes the simple things and you don’t need financial independence to start enjoying it.

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Photos taken by Han Young-soo of life in Seoul in the 1950s after the war.

‘The war had taken away many things,’ Youngsoo wrote. ‘Not only had it mercilessly trampled down on our beloved families and neighbours, but also their happiness, hope, and furthermore humanity itself. As if that wasn’t enough, by the end it had utterly destroyed everything on the face of the earth leaving behind ruins, despair, famine and sorrow’

Wars are indeed bad. I never been through one and I count myself extremely fortunate. Hope it stays that way.

Check out his other photos here.

Current exhibition at International Centre of Photography in Jersey City, New York till June 2017.

-FIREplanter

How to Be Your Own Independent Financial Advisor

–The Series of Questions you have to ask yourself to assess your own financial health and plan for your financial goals!!–

I frequently trawl through the excellent forum over at MSE to read through other people’s experience and circumstances and questions that they face on a daily basis. Very often, various questions of the nature ‘What should I do with my money’ will come up which I feel that everyone who has a reasonable income will ask at some point or another…

Where to invest £500 per month

Savings for rainy day / retirement / happiness

Where To Save £30k

Here is how I might approach this question..

  1. What are your life goals?
    • Habit 2# of the 7 Habits by Stephen Covey: Begin with the end in mind. To be effective with your money, you need to know what you want to achieve in life. Is it to retire at 65/60/55? Do you want to live in a bungalow/terrence/mansion? Do you want to drive a ferrari/BMW or a nifty Fiesta? How many kids are you going to have, how many holidays are you going to have in a year etc… You get the picture.
    • You need to have a vision of what is going to happen in your future to know how to effectively manage your money and not put your money in inapproprate risky investments that might not provide a reliable return.
    • A different version to this question is ‘What do you need in your life to make yourself happy?‘ because the only logical pursuit in life is happiness.
  2. What is your cashflow like on a monthly basis/yearly basis?
    • Monthly Earnings (Income) vs Expenses (Outgoings)
    • There are various ways to monitor this; ie. budgeting, spreadsheets, tracking all spending on one card
    • I do this very simplistically by tracking my monthly ‘Cash Worth‘ and tracking on Net increase/decrease of Cash Worth on a monthly basis. I can also figure out my savings rate from this.
  3. How much in an ‘Emergency’ Cash fund do you have?
    • The Emergency cash fund should be vital to everyone’s financial planning. The general rule is to have 6 months – 1 years of expenses in cash, preferably in highly accessible top interest paying savings/current accounts.
    • This cash buffer will allow you some leeway to take some more significant risks in investing and more importantly provide some mental relief that if things in life go south for you (eg losing your job, getting ill/accidents), there is some form of temporary self-insurance that buy you time to sort things out.
    • Imagine the alternative of not having a emergency fund and you get redundant. Most people will get into credit card debts/loans to pay for rent, utility bills and Debts are costly to maintain. Or if you don’t have access to those facilities, the cold flat or cold streets might just be your new reality.
  4. How much risk are you willing to take in investing?
    • Now how long is a piece of string? My own take on this is you wouldn’t know the answer to this question until you have taken on the risk yourself and learn the experience of holding a risky investment before learning about your own risk-tolerance. This is where the experience of an Independent Financial Adviser might come in useful or some input from an experienced investor.
    • Firstly, read and educate yourself about the various asset classes and their risk profiles and what role they play in various market cycles and various portfolio setups.
    • Start investing by regular drip feeding into a tax-advantaged account and choosing diversified passive funds or globally diversified multi-asset funds. You learn more about your attitudes to investing as you go along and you can make more informed choices later on when you have some experience. Life is a process.
    • Read this investing ultimate collection by Jacob from Poweroverlife for an introduction to investing.
  5. What are the Tax-advantaged accounts available to you?
    • If you pay 20% tax,
      • Every £100 you make, the Big G takes £20 OR
      • For every 5 day working week, you are working your ass off for the Big G 1 day per week, ie You are working for someone else.
    • If you pay 40% tax,
      • Every £100 you make, the Big G takes £40 OR
      • For every 5 day working week, you are working your ass off for the Big G 2 days per week
    • As noted above, what are you waiting for??? Start using all legally available tax shelters!
    • Have you subscribed to the yearly ISA limits for Stocks & Shares? (Cash ISAs are not too worthwhile at present of writing this article)
    • If you are going to be a first time buyer in the future, have you signed up for the Help to Buy ISA or plan for the new Lifetime ISA come april?
    • Are you paying into a pension scheme? What are the rules of the pension scheme? What benefits do you get from the scheme?
    • If you are in other countries, learn what are your local legislation, laws regarding this. I believe US has IRA, Roth IRAs, 401Ks etc. Basically educate yourself of how the system you are in works.
  6. Mortgages, Loans, Credit Cards, Mobile/Broadband contracts, etc

Okay this is an endless questionaire that most questions you probably would not have the answer to immediately. That is fine. But we need to start asking ourselves the hard questions to make ourselves being accountable to our future. Only then can we focus on the 20% of important decisions that will result in 80% of the results according to Pareto’s principle.

I have never met with a IFA, but I believe the above is what a good IFA should do for a client. In reality, I doubt that’s what will happen. I think IFAs still have a role to play especially to work round a increasing complicated system of financial/tax/pensions bureaucracy and also gearing your investments appropriately  to your goals and risk tolerance. How does your IFA help you in your personal finance and what other tough questions you had to ask yourself in your personal finance journey??

Start asking the tough questions and start learning about yourself as you try to answer them. Baby steps.

Good Luck!

-Fireplanter

Dividends Series 2016 Q4

Time to harvest the fruits of the FIREplant. The beauty of a plant is that you it grows independently as long as there is a fertile and conducive environment for it to grow. Light, water, nitrates, CO2… You can look at it day to day and it will look practically the same. However see it in a monthly, yearly basis and you may see the flowers developing, fruits riping, writhing of the flowers, leaves and then the warmth returns and there’s growth yet again in another season. Patience, my friend is virtue.

Q4 2016 Dividends hasn’t been great, even with the addition of just about 87 arbitrary units into my portfolio in Nov 16. The overall trend is that of decreasing absolute value of dividends over each subsequent quarter over the year. This may be general nature of the portfolio I have built or perhaps due to the marcoeconomic effects of Brexit etc. It probably doesn’t really matter much.

Overall Dividend Yield is about 2.0% in 2016 on the amount invested. (Note that this is with only 3 quarters of Dividend). It would be interesting to get several years of data on this. However I am too lazy to do retrospective studies, so I shall just do a prospective study as I go along.

quarterly-dividends

As I stated in Lighthouse for the Cruising Ship, I am looking for some growth of the Dividends in 2017. That is important for the momentum for Compound effect to build up.

Even the dung beetle takes time to roll up a ball of dung.

-FIREplanter

AD 2017. Lighthouse for the Cruising Ship.

Living is nothing but consuming time until you die.

-Tehching Hsieh

I came across this performance art piece by Tehching Hsieh, a Taiwanese where he explored the meaning of time and living. Within a year from April 11, 1980 to April 11, 1981, he challenged himself to punch a time clock EVERY hour on the hour. In his ‘Timeclock’ piece, he recorded his progress every hour by taking a single film exposure. And then he compressed into a 6 mins video of art.

As crazy as it sounds, 24 punches per day for 356 days equals 8760 hours that he has to be awake to punch the time clock on the hour. I think he only managed to get 8627 mugshots, which meant that he missed 133 punches. All basic societal routine is thrown out, in terms of sleeping, eating, being free to roam about and this brings his interaction to time as close as it can be.  This is in essence watching a deliberate human interaction with time and his reflection on his experience shows how we can reinterpret living and time.

Notes:

  1. Notice how he wears a prisoner-esque clothing, perhaps to reflect the ‘Life Sentence’.
  2. Missing 133 time records in his piece either due to human failure or mechanical failure. Very reflective of how life experience is.
  3. Doesn’t this remind you of everyone around us, punching timeclocks as our daily routine? We are a slave to this then. There are some freedoms we cannot attain.

I punch time for every hour; its repetition but another way to see it, its is not repetition because it’s a new hour

In life we are in a process

 And here I am punching my time clock. If life is as bleak and simple as he breaks it down to be, I think it is up to ourselves to fill in all the bits in between punching the time clock to make it what it meaningful to ourselves and to have to freedom to fill it up with what we value and find important.

Lighthouse for 2017!

There are certain goals I would like to set out to try to get myself going a little. I don’t want to be too focused on attaining too far-fetched goals but hopeful this can be a guide to give me direction when I get lost in my journey (too often this has happened in the past). This are some financial ones I have set out in a forum I am part of:

1) Save £15 000 in 2017
2) See Dividend in 2017 increase compared to 2016
3) Keep outgoings at a similar level compared to 2016
4) Complete a full years worth of accounts, including Savings Rates, Outgoings
5) Read at least 5 Books
6) Join Park Run and get it going.

Others I want to include to keep exploring myself and help me grow as a person:

7) Produce a short film (A simple one will do)
8) Travel more – Crazy idea to plan a hike from Chamonix-Zermatt (Hey if you are not going to do it when you are in your 20s, when are you going to do it?)
9) Write more. Poems, Prose, anything.
10) Spend time with people I love (more than anything, it helps you learn about yourself)

I think like FI, many other things in life needs that bit of planning and visualizing and working towards before you arrive there. For some, it might come naturally or society has pre-programmed it into most, but for others it will take some exploration and deliberation. No one said it was easy.

I am curious what else I will encounter in 2017. And you?

-FIREplanter