August-September 2017 Financial Update

Editorial note:  financial update will become a quarterly event. I’m covering August and September here to align with quarters. Next edition will be Q4 2017 (Oct-Nov-Dec). 

Hi RIP voyeurs,

welcome back to my monthly update. As usual, the reference doc is my NW spreadsheet.

You may find that the doc is out of sync with the screenshots from this post and with the previous ones related to financial updates. Two reasons:

  • I retroactively added pro-rated end-of-year work-related windfalls (13th salary, yearly bonus, huge Hooli stocks vesting event). I’m considering the pro-rated amounts as “credits”, so they figure in my Net Worth under the “All – Other” category. Why? Cause it sucks to see FIRE date forecasts never getting closer! Yes, it’s a matter of keeping myself motivated. Am I cheating? Well, I wouldn’t say so: the windfall events will happen in December/January and there’s almost zero risks of not getting the money.
  • I added few entries in the October column along with a couple of rows for the new Vanguard World Dividend ETF I purchased in October, to keep the investing tab of the spreadsheet working.

I’ll try to keep this update short.  [Update: no way I can keep posts short!]

Overview

NW Delta +34,785 EUR (August +13,151, September +21,634). Very good! Saving rate close to 70% on both months and spending below 4k in August and over 6k in September, but that’s due to few exceptional events.

Thanks to two years of expense tracking (so thanks to this blog, else I wouldn’t have bothered tracking my expenses) I discovered a pattern: it seems August and January are our cheapest months, both this year and last year. We prefer to go on vacation during June-July (and eventually September-October) avoiding August which is when regular people go on vacation in Europe. Better deals, less crowded places and August here in Switzerland is just amazing!

Wins for August-September 2017

1) Surprisingly positive 2016 Tax return!

I had my 2016 tax declaration meeting with a “financial advisor” (just a man that’s skilled in filling the tax form) in mid September and, well, apparently I should get back 10,000 CHF! Why? 6.7k CHF Pillar 3 buy-in, plus 20k CHF Pillar 2 buy-in, plus having raised my contribution to Pillar 2 to the maximum allowed by Hooli Pension Plan helped.

We also discovered that I’ve paid much more Quellensteuer (tax at source) during year 2016. 10k CHF more than 2015, while 10k is also my gain in gross income in 2016. Anyway, I’m only accounting for 9,000k CHF credit in my NW since I expect at least an extra 1k tax on my ETFs.

Here’s the thing: capital gain is not taxed in Switzerland, profits/dividends are. Accumulating ETFs are taxed based on a fake dividend date and a fake dividend amount. Two (out of three) of my ETFs didn’t have a fake dividend amount yet for year 2016 and the ictax site says “The taxable earnings could not yet be identified and will be determined later“.

My tax advisor said “well, if they reported no dividends it means you pay no taxes” which is totally false! Please take a look at my ETF 101 post for more information.

I expect (virtual) profits in the range of 3-4k CHF taxed at my highest marginal bracket which is… I have no idea, but somewhere around 25-30% so at least 1k extra taxes.

That’s why I accounted as a 9k CHF credit on my NW. If you click on the image on the right you can see some detail.

2) Confirmed 2015 +5,435 CHF positive tax return.

Double the gain, double the pleasure!

Few days after the 2016 tax return I received two letters for 2015 tax return: the Federal one and Canton/City one.

The Canton/City one confirmed I should get back 5,435 CHF and I’m waiting instructions on how to get the money back 🙂

3) In target spending (August).

A month below 4k CHF is a good month. 500 of which for an indulging relaxing and romantic weekend in Italy. Well done!

4) Awesome markets returns (September).

Mr. Market got a couple of bumps but ended up recovering almost everything by end of August. Euro ETF (where I have 180k EUR invested) closed negative for the third month in a raw. Nothing to worry about. Things can (and one day it will) go south in more spectacular ways.

In fact in September everything was back to normal. Too much. All time high.

Losses of August-September 2017

1) My Grandma died at age 89 in September.

My Grandpa (his husband, still alive at age 97) is not in great shape too. A big personal loss, even though it didn’t come unexpected. I want to look at the bright side of this, having to care for my living Grandparents in last year kind of put the larger family close together, and that’s a good thing. I’m communicating with my cousins and sister on a daily basis and that’s good. Their legacy is here, they have been amazing grandparents.

My only regret is that they couldn’t come at my wedding in June. Anyway, RIP family took a plane on the day of the event and attended the Funeral. That’s the 800 CHF entry for this urgent trip to Rome.

Other financial facts

1) Neutral currency fluctuations.

CHFEUR has been stable over the whole period. At least the CHF stopped losing terrain compared to EUR. Regarding USDEUR, at one point in August, after North Korea playing with bombs over Japan, the USD dropped below acceptability but ended up recovering pretty much everything.

2) Gave up with a 3k EUR family loan.

I loaned money to one of my family member few years ago and I kept accounting those 3k as credits in my NW. Let’s be realistic, I’m not going to get this money back. I’m sure the person who asked me money will do their best to repay the debt but I’m not expecting this to happen.

Even though it’s a financial loss I didn’t put this item in the “loss” section since I consider that a gift. And a gift is not a loss 🙂 I suggest you approach friends&family loans with the same approach, as wonderfully explained by Trent Hamm here.

3) Sold all the shares of my Tech ETF.

Already discussed in last post.

Other Facts

1) Had a relaxing 3 days vacation in Italy.

We used Mrs. RIP’s family car for a while here in Switzerland and we needed to bring it back to Milano and come back to Switzerland with the train. We stayed 3 days in a WWF Oasis in Parco di Montevecchia, close to Como lake. Relaxing, eating healthy, hiking everyday. Wonderful!

2) Two trips to Innsbruck.

Sadly our best friends here in Switzerland (he’s been my wedding witness on both my weddings this year) moved to Austria. We went visiting them twice in September. First time as a surprise with other Italian friends, second time planned and just me and Mrs RIP. We miss you Mr. DIP!

3) Experimenting Vegetarianism August 2st – September 30th.

Yes, I did it. I didn’t touch meat and fish for two months. It’s been so easy, really. I didn’t miss it at all. Ok, barbecues and social events (and restaurants) are tough, mainly due to lack of alternatives, but I must admit it’s been much easier than I expected.

Vegetarian, not Vegan. I love dairy products. Cheese, milk, butter, ice creams, eggs. I can’t get rid of them, sorry. How do I compensate for lack of meat? Ideally more veggies and legumes. So far it’s been more cheese and desserts… need to fix it.

But RIP… why?”

I don’t know. I was eating way too much meat. I’m experimenting. I don’t know if I want this to be permanent. It’s a mix of ethical and healthy reasons. I love animals and I was living a hypocrite life eating them. I know dairy industry is as evil as meat industry but I’m not here to save the world. If giving up 1% of my pleasures makes me more aligned with my values I’ll do. Giving up with dairy products would be more like 50% of my pleasures 🙂

Anyway, I’m omnivorous again in October. It’s been an experiment, I wrote an analysis doc (in Italian, intended for friends only, not going to translate)

4) We didn’t go to FIWE 2017.

I felt disconnected from the community and I needed time and space for myself and my family. Plus I need to focus more on my job for a while. I’m sure if I’d go to FIWE I’d quit my job the day after. I’m sorry friend, we’ll have more opportunities to meet in future.

5) I ran a Half Marathon!

Goal was to do it below 2 hours, I failed for just 34 seconds but I’m so happy anyway! Wanna keep up and run a full Marathon “one day”.

6) Back to 100% at Work.

Yes, starting October 1st I’m back full time after 9 amazing months working 80%. It’s not been an easy decision but I made it. Why? Was working 80% a failure? Absolutely not! It’s been amazing, really. I loved my Fridays alone. I loved that feeling on Wednesday afternoons of “the workweek is almost gone…“. So why did I come back full time?

  • I loved so much personal time alone that this motivated me to retire as early as possible. 80% looks like still working. If I were condemned to work my entire life I’d aim to 80% or even 60%. I think 60% is the perfect work-life balance, if work must be part of the balance. Even Keynes, father of modern capitalism, predicted a future made of 15-20 hours workweeks. Anyway, more money helps reaching my perfect work-life balance, which is 100% Life. Each extra day I go to work pays for 10 days of Life (uninvested). Let’s rush these last miles!
  • Hooli is a highly competitive workplace and even though part time working is totally accepted, it’s hard to get promoted. At my level of tenure it’s expected to grow, so I better get my sheet together and push on the pedal. Get promoted, get more money, and then maybe unplug a little bit. Eventually I might switch back to 80% after a promotion, will see. It may take one or two years to reach next level.

Numbers & Details

Don’t want to go deep here, if you care about that take a look at my NW sheet and the tabs with expenses, investing,…

Expenses highlights

Trips to Montevecchia, Rome and Austria (1843 CHF)

Yearly public transport pass for Mrs RIP (807 CHF). We’re trying Mobility for car sharing, added 25 CHF on top of the yearly pass price to have a Mobility account.

Eating out too much, above 300 hundreds per month since July. We have a lot of friends. When we came back from honeymoon everybody wanted to have a dinner with us to get updates. We love to spend time with friends, but weekends are not enough to satisfy all our social needs. Did I tell you Mrs RIP is a social beast? Well, I’m the one who pushes for having dinners at home with friends (the famous RIPPizza!) but it’s not practical during the weekdays. So we went dining out more than expected. I guess this is going back to normal in October.

New running shoes for just 50 CHF!

Wait, I gotta tell you the whole story 🙂

I’ve ran my half marathon with shoes I felt ashamed of. Here in Switzerland everybody is visibly rich. Very rich.

They spend tons of money on everything. Sports make no difference. And it’s not that reasonable thing like “I’m getting good at Squash, let’s upgrade my entry level racket to an outrageously expensive and professional one!“. No, they go directly with cutting edge equipment.

It means that at the race everybody was wearing shiny new 500 Francs shoes and I had a pair of broken old Adidas, close to cutting themselves apart. Yes, you can see them in the picture. Probably you can’t see the not matching socks though, let me help you with another pic.

The shoes were falling apart but I’ve been running with them for last 3 years and I didn’t feel comfortable getting new ones just before the race. I decided to run this race and them let them go (with a bit of sadness).

Early on the following week I went shopping for shoes, a thing I hate hate hate. I set up a budget of 100 CHF and… wtf… after having visited few stores I discovered that here in the rich Switzerland you can’t buy decent running shoes for less than 150 CHF. I was close to give up when I found a dusty box on a shop with “on sale” on it.

Last pair left, size 12 (my size) US, Nike Zoom Pegasus 33 Shield. Price Tag: 60 CHF. I googled it and checked the suggested price was roughly 120-140 CHF, trending down since they just launched the Nike Zoom Pegasus Whatever 34. I didn’t care about the new model, I tried the shoes, I loved them (they’re also good for a heavyweight like me, with extra softness on the heels), I decided to buy them.

Not fully satisfied, I googled for Hooli discounts and discovered that we, Hooli employees, have 10% off for purchases on that shop. Would it work on top of the 50% sale? Yes it did! The clerk at the shop: “ok… 60 CHF… minus 10%… ok, give me 50 CHF“. Yes, final price was 50 CHF for my new shiny running shoes. I feel so good when I find such bargains 🙂

Income: 32,369 CHF – Expenses: 10,105 CHF – Savings: 22,264
Saving rate for the two months is 68.8%
Saving rate for 2017 so far: 61.6%. Excluding Wedding: 73.9%
Net worth is 687,399 EURDelta for the two months is +34,785 EUR
FI% jumped to 62.06% (delta is not meaningful since I backfilled)

100% FI Forecast: 34 months left.
FI Date Forecast: July 2020.
Current Allowance: Year 22,340 EUR – Month 1,862 EUR – Day 61 EUR
Current Withdrawal Rate: Real: 10.44% – Ideal: 5.24%
Years of Ideal expenses accumulated: 19.1

That’s all folks!

RIP… you promised this time it would have been shorter…

screw you 🙂

The hardest part about your asset allocation strategy is to stick with it

Editorial note: I’ve been not much motivated to write on this blog recently but do not worry, I’m not giving up. I have a lot of ideas and blog posts I want to throw out! It just seems to me that writing a decent post takes so much time that I’m always behind schedule and frustrated by that. I’m trying new things, like switching to smaller but more frequent posts.

Hi RIP friends,

I’m having a conversation with my future self and he’s mocking me hard. I can not stand it 🙁

He says “you can’t understand” and that really pisses me off. What the hell are you talking about?

He says “you’re giving ‘advices’ on something you have no idea and no experience with, like investments“. Well, ok, I agree I don’t have decades of recorded history with investing, and I consider that my biggest financial mistake (a close call with buying a sheetty flat that lost 30-50% of its 2010 price and that it’s not rented out and costs taxes and condo fees) but it’s unfair to tell I know nothing!

Listen:

  • I studied a lot in last 5 years, I’m leveraging the experience, knowledge and mistakes of hundreds of wise people I follow.
  • I already made mistakes and learned from them: I got burned in 2000-2002 market crash and lost money (peanuts today, 50% of my savings at that time) selling at market low after 2 years of seeing my investments sink.
  • I’m investing steadily since beginning of 2016, I defined my strategy, my asset allocation and I’m sticking with it (well, more on this later…)
  • I made money so far! Ok, I know it’s not a valid point, I just wanted to show off 😀

What?

What does it mean “Kid, you’re playing with action figures, you didn’t start the real war yet“?

What do you want?

Ok, let me tell you this: so far everything was good and easy. You’re trying to optimize asset allocation, rebalancing strategy, stocks/bonds split cause you think that’s what’s important. Sure it is, but you know what is way more important than that? Sticking with it no matter what. And I don’t mean sticking with the original plan you write down in your 20s when you’re 70. It obviously will change according to your tastes, opportunities, luck, risk aversion, political and economic conditions… Maybe you’ll buy a Mars ETF in 50 years or maybe ETFs will disappear and everybody will use roboadvisors, I don’t know. Well, actually I do know – I’m from the future – but the time machine guys told me I can’t tell you much, sorry. What I mean with ‘sticking with it’ is to learn how avoid panicking when the market crashes. And be sure it will (hey robots… ahem ‘machine guys’, that’s no spoiler c’mon!). So now you should stop looking daily at your current balance and stop feeling happy for a gain a sad for a loss. You have no idea. One day you’ll see your numbers cut in half and your heart will miss a beat or two. Learn how to cope with that but stay put. Do mental training, do whatever, but stick with it. Bye. Ciao. Sayonara. And learn Chinese and Arabic languages. Byeeeeeee. And in season 25 John Snow becomes a white walker and teleports himself in The Walking Dead. tschüß!

No, wait, what about Bitcoins?? Should I… he’s gone 🙁

Maybe he’s right, I’m a kid playing with action figures, but it’s really hard – no matter how hard you try – to understand something you didn’t experience. This is a well known problem, known as Mary’s Room or Knowledge Argument.

Thank you “big brother” for your help, now I need to figure out what to do. One good thing you pointed out is to do some sort of mental and behavioural training. Here some hints:

  • Avoid checking your balance multiple times a day. Try to stay one day or one week without knowing how your investments are doing. Nothing will happen, relax. My score 1 to 10: 3. It’s really rare I don’t look at my investments each day. They’re one click away, it’s so tempting and easy to access them. It’s getting better though, I don’t check my balance in the morning and some days I forget to do it entirely.
  • Detach from small term wins and losses. Play the long game. investments are going up? It’s not necessary good, it means your money will buy less shares when you invest tomorrow’s savings. My score 1 to 10: 5. I’m no more enthusiast when I see daily gains in the four digits but I feel shivering along the back when things go south. More concerned about currency fluctuations than stocks price though. Currency fluctuations is a zero sum game, so when my reference currency (EUR) gets stronger compared with my income and other investments currencies (CHF and USD) I’m not ok.
  • Avoid trying to beat the market. That’s rule 0. You’re neither smarter nor more informed than wall street sharks. If you’re eager of greater returns you may deep dive into leveraged investing, individual stock picking, exotic/trending investing (lithium, cryptocurrencies, art pieces, quinoa farms). This is a road to failure. Yes, you may get 50% this year, so why not double your investments next year? Booom. My score 1 to 10: 7. I’m well fond here. I’m totally ok with a single digit long term average returns. I know that this last 2 years at double digits are exceptions. But… but it’s addictive! I started, just ‘by curiosity’ to investigate other investments. Good thing I’m old and ‘wise’ enough to keep myself calm and safe.
  • Avoid market timing. Another rule 0. Enough said. My score 1 to 10: 6. I can do better here. I’m scared we’re at all time high and I’m reluctant to put more money in. I’ve actually sold some investments (what?!?!? More on this later). I’ve let ~90k cash sitting on our accounts and lost opportunities because “the market is high now”. Don’t do like me. Listen my “big brother from future”, please.
  • Keep fees low. One aspect you can optimize with almost no downsides is costs and their compound effect over years. Keep fees low. Fees and taxes. My score 1 to 10: 9. I only invest in automated index funds, with low TERs. All ETFs. I invest thru a very low cost broker, with no monthly fee (if you have more than 100k USD invested) and very very low trade fees: interactivebrokers.
  • Keep activity low. The more you buy and sell things, the more you spend. Every time you change strategy, it costs you trade fees. Minimize your activity. Rebalance without selling. My score 1 to 10: 8. I’m ok but I’ve been moving something around and changing my strategy a little bit recently. I’m actually investigating changing ETF for my S&P500 fund. Switching from the IShares one I currently own to a Vanguard one to minimize taxes on dividends and fees. The cost of the switch is approx 160 USD (80 to sell 100k of shares at 0.08% trade fee and 80 to buy new shares of the new ETF at the same trade fee). Is it worth? Probably yes, but what if tomorrow a new ETF comes out that is more convenient? Hard to tell what to do.
  • Keep asset allocation changes under control. As I said, your AA will naturally change over time, it’s  a natural and healthy process. What’s unhealthy for your finances is changing it drastically and frequently. My score 1 to 10: 6. It’s not been yet 2 years of personal investments history and I’ve already changed AA several times: I sold all my Tech ETF shares (more on this later), I changed Stocks/Bond/RealEstate split, I increased from 30k to 50k our cash emergency fund, added emerging markets and pacific ETFs and recently started dividend investing (more on this later). I’ve done too much.
  • Keep saving and investing. Nothing is more important than the basics of personal finance. Don’t explode your lifestyle, keep spending less than you earn. My score 1 to 10: 9. We’re doing great, still saving two third of our take home pay.

Details about my recent investment-related actions

I sold all my Tech ETF in August. Why? Several reasons:

  • Diversification. I knew I was too much exposed to tech: S&P 500 is dominated by tech, I work in a Tech company, I had more than 15% invested in Tech ETF at one point (May-July 2016).
  • integrity. I joined Hooli in 2012 as a techie enthusiast but I’m growing up skeptical and a bit disenchanted by it. Take a look at South Park season 19. Take a look at the thousands TED Talks about “how our smartphone is ruining our lives”. I feel a little bit addicted to distractions, I see my ability to focus degrading. I want to detach and disconnect a little bit, and I honestly hope for a simpler future where we get back our life and our attention and we become users again, not just targets for ads targeting Machine Learning algorithms. Computers should be machines that perform tasks we ask them to do, not fancy assistants that suggest us what we should be entertained with. Am I biased? Of course! Is it good to be biased? No it’s not. So why do I do it? Well, I’m still investing in tech (S&P 500 and US Small Cap) so I’m still getting the benefits, but I think it’s important to put your money where your mouth is. I want to bet on a future I like more.
  • Loss Aversion. Look at the CAPE ratios of all tech companies. Look at price/earning ratios. They’re driven by hype and high expectations, like startups. It’s very high risk investing. Microsoft, Amazon, Google, Facebook, Apple, Tesla, Hooli stocks are all time high not because of their profits, because everyone expects them to grow drastically. Too much risky in my opinion.

Anyway, here’s a summary of my experience with the Tech ETF XLKS:

At peak I invested ~85k USD on it. I bought the shares below 100 USD per share. I sold them over time at 116-140 USD. Total profit in ~20 months: 23,658 USD. Let’s celebrate! Thanks XLKS! Yes, I’d be better off still owning the ETF since share value today is 145 USD, but who cares? Well, had I sold the final block yesterday instead of a month ago I’d have earned 1k USD more. I just sold the ETF and kept money on my brokerage account uninvested. It pissed me off to see that I did something stupid and that “a man in coma” would have performed better than me. Anyway, these are the kind of thoughts you should not be obsessed about! Reread the hints above! That’s why the “big brother” came visiting us! Shut up and celebrate the 23.6k USD profit 🙂

I invested in World High Yield Dividend stocks

I’ve always been fascinated by dividend growth investing and I wanted to try. I like the idea of an “income from stocks ownership“. After selling my Tech ETF I felt like I’m well balanced in Markets exposure (US, Europe, EM, Pacific), so I didn’t have a market in mind. Let’s go for the World. I investigated a bit on justetf and there are not that many ETFs available. I considered for a fraction of a second the option of buying and holding individual stocks but it’s a job on its own and I didn’t want to do that.

I invested 38.5k USD in the Vanguard FTSE All-World High Dividend Yield UCITS ETF, ISIN: IE00B8GKDB10, Ticker: VHYD, traded on LSE (London Stock Exchange). Finally, I’m part of the Vanguard family too!

RIP, how is this ETF? What’s its TER? Is it tax efficient?

Good questions! I see you read my ETF 101 post, well done!

Well, I’m experimenting with it, I want to see how it goes. First time owning a distributing ETF (distributing quarterly!). What I know is:

  • TER is  0.29, not very low. Index tracking ETFs usually have lower fees, single basis points digit. I guess it’s because of being “world”. It’s algorithmically harder and bureaucratically less efficient to handle the World market, so come higher costs.
  • Dividend issuing companies are expected on average to produce less total revenue (stocks growth plus dividend issued) over time than companies who don’t distribute profits. Why? Well, from a company point of view keeping profits and reinvesting them instead of giving them away should be better.
  • It’s not tax efficient for two reasons. First: in Switzerland profits are taxed while capital gains are not. Second: the fund is domiciled in Ireland, so dividend withholds from various governments cannot be redeemed with a DA-1 form.

On the plus side we have:

  • Companies with a strong history of growing dividends weren’t impacted much by last 2 toughest market crashes of this millennia (2000-2002 and 2008). I consider this an edge against inevitable market crashes. Kind of a less riskier stocks investment, since bonds are dead nowadays. Yes, it may be a double edged sword, since a company who’s giving growing dividends may fall dramatically if they stop following this pattern (which could be an option in time of recession). I know it may all be a Ponzi scheme and I’m on the last ride, but I feel confident. Coca Cola is not going anywhere in next 50 years.

So, let’s see how it works 🙂

Last year the fund issued 4 dividends for a total of 1.572 CHF of imposable profits (according with the Swiss tax authority), which is a yield of 3.07%. This year, so far, 3 dividends for a total of 1.369 CHF (projected to 1.825 at end of year) with a yield of 3.27%. Plus the fund share grew by 11% during 2017. Not bad, I’m all in 🙂

Final notes about my Net Work doc and my Monthly updates

I updated my doc a bit, like I retroactively added pro-rated expected bonus and thirteen salary to boost my motivation (and chances of not getting both of them today are close to zero). Progress toward the big goal: 62.06%. progress bar on the logo needs to be updated.

More details on the next financial update, which will probably become a quarterly post instead of a monthly one.

That’s all folks!

RIP, you told us that this would have been a shorter post… I count  more than 2300 words…

Cmon, shut the f*ck up, I’m back 🙂