So this is it. Tomorrow is Christmas, and only a week later we will already be saying “goodbye” to 2018 and “hello” to 2019. I will be working – a lot – over the next 10 days, so let me write my last words on this blog for 2018 today.
Obviously, since the blog is about personal finance, let’s start with that.
I was not able to hit all my goals and targets for 2018, but some. The most important one is obviously my savings buildup. In 2018, I managed to save / invest 32,3% of my total income. A little bit better than 2017, when I saved 31,16%, but far away from my target of 40%.
Ambitions are good, but if setup too high, it can become frustrating to chase them. So for 2019 I will drop my target slightly and try to reach 35%. This should be manageable, because as of 1st Jan 2019, I will have no more monthly instalments for my car in my budget plan. That’s right. I paid down my car early (within 3 years) with several extra payments along the way. Thus, these payments will disappear from my monthly bills and shifted towards my savings plan.
In 2019 I might also skip vacations in Europe, which are a costly family event. This is not due to my savings plan though, but rather due to an anticipated job-change sometime around the middle of the year. So instead of 4 weeks in Europe, I might just do 2 weeks in Japan or Korea.
Either way, I was promising my wife vacations in Japan basically since the first day we met – 6 years ago, so yes, it might be the right time to get set this record straight.
In terms of stock investments, we have had a negative sentiment in 2018 and in 2019, the markets might very well crash. Therefore, for the first 6 months, I intend to collect cash and to get ready for the stock sell-off. When markets crash, there are usually plenty of great opportunities on hand, and I want to be ready for it. IF markets should drop by 40-50%, it means that I should have at least a quarter or better half of my currently invested amount available in cash – to cost average existing stocks and to add some new ones which will come as great bargains.
Maybe just a word about cost-averaging.… even the most optimistic stock-maniac (such as myself) needs to understand: When a stock drops by 50%, it will need to rise again by 100% just to be back at square 1. So if your stock drops by 50%, it might make sense to double down on it and to purchase the same or even a larger amount of the same stock at half price. This will reduce your average cost per share and your losses in % down to 25%. A loss of 25% can be recovered much faster than 50% and you will end up with higher profits – provided the stock comes back to the point where it was before the crash.
I don’t intend to sell any of my stocks. Most of my positions pay a solid dividend. In 2018, based on received payments and invested total amounts, my dividend income settled at 3,2%. It’s not a great number, but it’s only that low due to the constant additional cash that I poured into my account. For 2019, I expect the dividend income to increase to something around 4-6% and for 2020 to reach a range of anywhere between 5-8% returns. Once I reach double digits will be the point where I stop adding cash to the portfolio.
How is this achievable? Well, among a few other factors, it’s the power of dividend growth and the cost-averaging of some of my positions. Let’s take a look at the European energy giant E.On, which is one of my core holding positions. In 2018, the received dividend came down to only 2,32% after taxes. E.On paid a dividend of 0,30 Eur per share in 2018 and the withholding tax on dividends is roughly 26%. In 2019 however, the dividend will be raised to 0,43 Eur per share and for 2020 the expectation is around 0,60 Eur per share. That’s almost a 43% increase in the first year and a 100% increase over 2 years. Apple (another core position of mine) is expected to raise its dividend by at least 20% year on year, for many more years to come. Royal Dutch Shell returned to me only 2,7% on annual basis, but I purchased the shares just in June, so I missed the first 2 payments in the first half of the year, which I won’t miss in 2019. Thus the income will grow to a minimum of 5,4%, given the company will not cut or increase the dividend and of course provided that I don’t add more capital to it.
I have only 1 company in my portfolio that is not paying a dividend – and it is my biggest loss this year. My VOLTABOX shares are down 53%. However, since I don’t see any valid reason for the sell-off, I will probably add some more shares of this company to cost-average down and see how things play out in 2019.
Maybe another word of advise: During rough times, focusing on dividend paying stocks has proven to be a successful strategy to minimise risks.
I have pretty much reached the first top of my career ladder and don’t expect any significant position-jumps over the next years. My target for 2019 is to switch jobs, to move to a larger hotel (I am a hotel manager) and to negotiate a salary increase of approx. 15-20%. This should be possible, as I am still within the lower salary-range within the standard frame for my profession.
My current hotel was my first assignment as a General Manager and I made a couple of mistakes when negotiating the contract. Obviously, I won’t repeat those mistakes, so the 15-20% salary increase is realistic.
I will continue my side-hustle and keep writing for The Motley Fool Germany. Working with the team there since July 2018 was great fun and I learned a lot. I can actually imagine doing this for many more years to come, even after I retire early (the target is at the age of 45 – in 6,5 years from now).
During the last few months I have sent some money to my parents. We are fixing a small house in the countryside in Poland and are planning to open a small bed & breakfast. Nothing large, just 3-4 rooms, but there is great opportunity to support my parents about their retirement income from that. This is also the main reason why I couldn’t increase my own savings in that amount as I was originally planning to do. However, I believe that in the long-run it can turn out to be a very beneficial move for my entire family – so it’s absolutely worth it.
Merry Xmas and a successful New Year!
That’s it. Writing things down in a blog is my way of taking the time to structure some thoughts and to re-consider my approach for things to come. It’s a great exercise, and while you don’t need a blog for that, I urge and recommend you to do just that. Take some time, think about your goals and dreams, and make a plan out of it.
There is a quote, that might be politically not correct, but it doesn’t make it any less true:
“Nobody ever wrote down a plan to be broke, fat, lazy, or stupid. Those things are what happen when you don’t have a plan.” – by Larry Winget
And one more:
“A goal without a plan is just a wish.” – by Antoine de Saint-Exupéry
Take it as a constructive feedback and keep working on your plan.
It’s the only way to escape the rat race.
Disclaimer: I have all the stocks mentioned in this article.