Missing Targets – 2019 Full-Year Forecast

2019 has only a few more weeks to go and unfortunately, my budget is telling me that I am going to miss some of my personal financial goals and targets this year.

Since I had a one month gap in between jobs (which was a goal for 2019 to have) and missed one salary payment, my total annual income will, unfortunately, go do down slightly from last year, despite having negotiated a roughly 10% salary increase in my new job. I would have hit the target if my negotiation skills would have been better, but that’s how it turned out.

This also affected the savings rate which comes down compared from last year by almost 10%. This one was however more due to some personal expenses: More travel, and as my daughter is growing older I have now a few additional expenses on that front.

Still, I am on track to have saved/invested roughly 32% of my total annual income. That’s not bad, but below my 40+ target. However, on a good side, my dividend income will turn out to increase more than 30% compared to last year. Some of this is due to dividend increases. Some are due to additional stock purchases. But the overall result is satisfactory.

My goal to improve my time management and the new job made one sacrifice necessary: I had to time-out on my side-hustle. As some of my readers know, I am opening a new hotel in Thailand and while the job itself is already very time consuming, the only way to maintain a somehow healthy work-private-life relation was to stop.

I also didn’t really prepare for a market crash by saving cash in an equivalent amount of 50% of my depot volume. I invested every single penny this year. However, a large portion of that money didn’t go into the stock market. Instead, I have started a project with my dad to build a small guesthouse in Poland. We are modernizing one building on our land and will prepare 4-5 rooms for rent. This is mostly to the benefit of my parents, as their social security pension will turn out way too low to support them after retirement next year. In the long-run, however, this should also be of benefit to my brother, sister and myself. If not by running the business on our own later on, then at least through value appreciation for this beautiful piece of land.

Last but not least, my exercise routine has improved further as the place where I live right now has an amazing gym. My daughter is joining me occasionally, but her attention span is still too low to focus on one thing for longer than 20 seconds… I am ok with that.

With less than 10 weeks to go, the result is becoming already obvious and predictable. Having a personal budget in place makes it easy to see where my strengths and weakness this year are or have been, and what I will need to work on along the finishing line.

To sum it up, I will win some, I will lose some. But 2019 will not end as a bad year at all.

3 Things you should know about FIRE

The dream of financial independence and early retirement has gained a lot of steam in recent months. But despite the popularity of the movement, there are some important points that need to be understood and which I would like to point out.

It’s easy – and it’s not

Frugal living, saving as much as possible, investing. The concept is simple and easy to understand, easy to copy. In theory. Putting in practice, there is a lot of sacrifice along the way and even after all the hard work, chances are that you won’t be living like a king, but will need to maintain a frugal mindset for the rest of your life.

Here is some overview on how to get started: Let’s say you purchase stocks or ETFs that will generate a yield of 5% annually after tax. You might do better. You might do worse. But from my investing experience so far it’s a pretty realistic expectation to have.

Let’s do the math then, which means that for every 1000 Euro invested, a 5% annual return will generate 50 Euros each year. Let’s put that in lines:

  • 1.000 Euros invested = 50 Euros / year
  • 10.000 Euros invested = 500 Euros / year
  • 100.000 Euros invested = 5.000 Euros / year
  • 200.000 Euros invested = 10.000 Euros / year
  • 500.000 Euros invested = 25.000 Euros / year
  • 1.000.000 Euros invested = 50.000 Euros / year

You can play around with the numbers, the %, and your saving targets, but I think this pretty much explains the whole challenge: You need to save and invest a lot to get to a point that you could seriously relax. And even if you get to the point that you have a Million Euros on your account, a return of 50.000 per year is hardly an amount to live on to consider oneself rich. Comfortable? Yes. Rich? No.

If your target is really to completely retire early, not only would you need to save up a lot, but you would also need to maintain a frugal and simple lifestyle to make sure your income and your wealth don’t get drained too early on. The last thing you would want is to turn 70 and see how others retire on their hard-earned social security while you start to worry about your funds and income. Because if you retire at 35 or 40 and didn’t pay much into the system, then it would be blatantly wrong to expect the system to cover for you later on.

Most who achieve FIRE keep working

Given the staggering amount of money required to really and fully retire early, most people don’t go all the way. Because it’s too hard and it takes a too long time. BUT what many do is to turn to their passions and their actual idea of looking for a purpose once they reach a point of feeling secure enough to do so without going broke.

Say you have saved and invested 200.000 Euros and receive a 5% annual return after tax, 10.000 Euros a year. That’s not enough to retire. But living in the right place, it may be enough to pay your rent. Having “shelter” secured, you might not feel the pressure anymore to chase for a high paying job that would be required to protect you and your family. You could choose another profession or challenge that may suit your personal goals much better, and even if you would bring only another 25.000 Euros a year back home, that could be already enough for a decent living with the good feeling of doing something that you actually really appreciate.

I am also not sure if the actual goal of a “real” retirement would fit with the character of any FIRE aspirant. Because to get to the point that you could actually retire on your savings and investments is really hard work. It requires dedication, patience, and real commitment. Something that you see mostly in career and goal-oriented personalities. Now they might not be always the corporate types, but considering how much work and effort they put into reaching their goal, it’s hard to imagine that they would be able to stay idle right after hitting their target. There are simply too many exciting and interesting things to do in the world to waste time on doing nothing.

It’s really about time and independence

In reality, investing and generating passive income, escaping the rat race… it’s a mind game. Because with every step along the way, with every additional income you create for yourself and with every day you get closer to become financially independent, you are reducing the burden on your shoulders. The burden and the responsibility to yourself, to your loved ones, to society.

Financial independence empowers you to make conscious and responsible decisions, without the seductive element of money attached to it. When you live frugally and have a minimalistic mindset, when you know that you have “enough” and don’t need to compromise your values, your convictions and your personal goals for profits and gains, then you can act true to yourself at all times.

You can also take the time to think things through. To consult with people who matter and you will have more opportunities to do “the right thing”, which more than often goes not well along with the profit and benefit-oriented thinking of many corporations and individuals out there.

I am not sure how many other people out there see it this way. For me, this should be the ultimate outcome. I intend to keep working until I die, but not in the traditional sense and not on other people’s terms. I don’t want to deal with CRAP any longer than necessary and this is why I follow the FIRE movement.

Having said all that one thing should also be very clear: Without those companies which are striving for profits, without all those people who prefer to have a regular working life and who actually appreciate going to an office every single day, FIRE wouldn’t be a thing at all. Otherwise, how would we expect a 5% annual return after tax on our investments?

It’s the final countdown

It’s the end of the 41st week. Only 11 weeks left until the end of the year, and it couldn’t get more exciting. We got the final countdown for the Brexit. The president of the United States is facing a trial of impeachment. Hong Kong turned within a few weeks from an investor’s paradise to the most public and persistent resistance in China. A little girl is speaking up to leaders worldwide and shaming them into their negligence to the climate crisis.

There are so many things happening everywhere, it’s hard to imagine the world could get even more complicated. We got everything. We got hope. We got threats. We got fights. Dramas. Politics. The whole package.

The stock market reflects investors expectations on the future

I was once told that the stock market was mostly a reflection of our economy. I am not the only one anymore who doesn’t believe that this is accurate. Rather I believe that the stock market reflects the expectations of investors. It’s not a real-time reflection of the world economy as it is. It is what investors, people, believe a company (or many companies hence the market) to be and/or to become.

Therefore, when stock markets start to go down and speakers on the news start talking about a recession, it doesn’t mean that things are bad. It means however that people believe things to be or to get bad. They can be right. They can be wrong. As it’s often the case, things tend to happen if only enough people believe in something. And investors play a crucial role here. Because since they are the ones who put money in the markets and control those huge cashflows, they clearly have the power to steer things into certain directions.

In the long-run, however, the truth will out. Because no matter how much anyone would try to trash-talk a company or even an entire market, once the annual earning reports are published and numbers are confirmed, then there is not much left to dispute. This also works the other way round. You can talk-up a company as much as you want. If the numbers disappoint year after year, then the share price will react to this sooner or later.

After rain there is sunshine

So where do we go from here? The world is in tumult and any day now could cause havoc in the markets. We have very high volatility, which means that stocks seem to act not rational and very sensitive to either good or bad news. But looking at the long game, I don’t see reasons to worry just yet. In fact, I am pretty confident that unless something really crazy happens, this year will end so much better than 2018 did.

Stocks from my portfolio that I expect to outperform are Apple (AAPL), The Trade Desk (TTD), AbbVie (ABBV), GlaxoSmithKline (GSK), Imperial Brands (IMBBF), HSBC and Vodafone (VOD).

The US stocks from the mentioned above will present good numbers and solid growth. But the UK stock prices will simply benefit from a rising Pound. As the Brexit saga is coming to an end, the British currency is set to thrive no matter the outcome. Because while people might be scared about what will happen, the only thing investors really worry about is uncertainty. Once we know what’s going on, we will know how we have to position ourselves.

I feel good times are coming.

Disclosure: I own all stocks mentioned in this article.