Retire in progress…

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 🙂

My Net Worth Split by Currencies

Hi RIP readers,

Last months my finances have been dominated by currencies fluctuations more than savings and/or investments earnings (and/or weddings!). I’ve always considered currencies fluctuations a minor factor (and I still do) in wealth management. A factor not worth taking into account, especially when talking about three of the most stable currencies around: the Euro, the U.S. Dollar and the Swiss Franc. They’re pretty solid, aren’t they? None of these will swing by more than 5% in a year compared to any other of them, am I right? We’re not in Zimbabwe!

Well, no. Currencies, even the most stable, have trends and drifts. They’re like giant turtles: they have smaller short term volatility compared to stocks and bonds, but they may go on a straight line for months and accumulate a substantial gap over years.

Before you start screaming: no, I’m not going to invest in Forex or other pure speculative assets anytime soon. Speculating over currencies is a pure bet and you shouldn’t do it for the following reason: while stocks and bonds are expected to grow in the long run, currency pairs are expected to stay neutral. Why? Well, you tell my why not! So you’re facing trade fees for a zero expected return. Even worse: professionals and more informed traders are playing with Forex trading better than you do. Guess who’s going to get the pluses in this zero (almost, due to trade fees) sum game?

So why do I care about currencies?

Diversification.

Yes, the wise investor mantra! Diversifying by currency is another way to avoid betting on a single horse, a way to edge yourself against high inflation in your main currency.

But RIP, being exposed to a single currency is how almost anyone live… Are we all crazy??

No, they are not. But it’s important to know that even though my grandpa is not investing, he actually is. He’s investing all in Euro currency: his pension, his flat and his savings. It’s an accepted risk, maybe. But it’s important to be aware and recognize you’re at risk. A small risk, if your main currency is the one used in the country where you live and where you plan to live for the rest of your life.

Anyway my situation is different – and I assume I’m not alone in this, given the high mobility of my generation: I was born in Italy, I’m living in Switzerland and I’m working for an American company (and planning to comeback to Italy). I need to play with three currencies!

Note: when I say “diversify by currency” I don’t mean the trading currency. I mean the currency of the underlying assets. For example, if you own a S&P 500 ETF traded in CHF it doesn’t mean you are exposed to CHF, you’re still exposed to USD which is the currency of the underlying assets. In case CHF halved compared to USD, you’r fund is going to instantly double its face value in CHF.

Ok, RIP, what are you going to do to edge yourself against currency fluctuations?

Well, I don’t know yet. First step is always awareness: I’ve added a new sheet to my NW spreadsheet to monitor my currency exposure across EUR, CHF and USD.

Second, I’m probably going to try to keep my exposure almost always balanced, eventually slight unbalanced in favor of EUR first, CHF second and USD third – that’s because I plan to retire in Italy. If plans will change, balance changes too. I’m not going to formalize this by adding some rules to my IPS, I’ll just drop an eye on it every once in a while.

Let’s take a look at our currency split over the last 5 years 🙂

Here are absolute values of assets in each currency.

To compare apples with apples everything is converted to EUR. It means the ~290k peak in the green CHF line in January 2016 is actually ~320k CHF (1 CHF = 0.903 EUR in January 2016).

What we can see is that last 5 years can be divided in 3 phases:

First, the “What are other currencies?” phase. From minus infinity to November 2012. Before moving out of Italy I only owned assets in Euro and everything was easy.

Second, the “Holy sheet let’s pile a huge amount of cash in this fancy currency!” phase. From November 2012 to January 2016. I’m so dumb. I’m sooooo dumb. I’ve been saving ~70% of my salary and watching the pile grow in my 0.1% saving account. So ridiculously dumb. Btw, the jump in January 2015 is due to unpegging CHF to EUR. I’m so dumb.

Let’s take a look at S&P500 between November 2012 and January 2016

Out of those 320k CHF, 200k were investable cash (the rest being Pension Pillars 2&3). I just ran the math to quantify my dumbness, i.e. how much it would have become if I had invested month by month during those 3 years. Drums roll… 242k tadaaaa. I left 42k CHF on the table by not investing for those 3 years. Second biggest financial mistake of my life!

Takeaway for you readers: invest as soon as possible.

I’ve always been financially illiterate and scared of market crashes. I just stashed cash, but to reach FI you have to invest your stash. You need your green army to go to work for you!

Third, the “Wait, let’s try to be smart” phase. From February 2016 on. Started investing, differentiated by asset class, markets, currencies…  Did a huge rebalance in November 2016 to expose myself more to EUR than CHF and USD. EUR is so predominant today due to currency fluctuations, maybe I’ll rebalance again in January 2018.

Here’s percent split of our NW:

and here an area chart because… why not?

Final thoughts: even if you’re living your single currency life, please take few minutes to consider whether it’s worth diversifying your assets by currency. This is not a game where passive play is safer than active. You’re always in the game, even if you’re not aware of it.

May-June-July 2017 Financial Update – Yet Another Wedding

Hi RIP voyeurs,

Yes, I’m still alive!

It’s been quite a long time since my last post but I’ve been very busy with organizing my Wedding, enjoying a month long Honeymoon and wrapping life up after such a big break. Blogging has obviously been postponed for a while.

Follow me over this three months financial update, but first listen to this: I don’t know if I’ll be back at an acceptable post frequency. You know why? I don’t have much to say these days. I’ve been wandering around Italy for a month and that has been terrific. We’ve visited a bunch of amazing places with only one thing in common: sheetty internet. I’ve been forced able to disconnect for a while and It’s not been easy. I don’t want to look like “I found time to stare at flowers and butterflies, and the world out there is an amazing place“, I already know that. Fact is that once returned back to normal life I started digging into my feed reader and my Youtube subscriptions to find that… all articles nowadays look the same. It’s the same article loop being repeated to the infinity. kill your debts, invest, save, earn more, 4534534 ways to save money while washing your dishes, 401 ways to improve your 401(k)… I unsubscribed from several feeds and committed to post only content that is originaluseful and personal – in the end this is a blog! It’s my way to track progresses and be “crowd accountable” on my goals.

Another rant.

I’m getting impatient.

Life’s been so amazing while far from work that I can’t really wait so long to build a better life. The FI-nal goal keeps being pushed far in the future due to more safety margins, lower SWR and the need to define a concrete retirement plan that demands answering questions like “where?”, “how?” and “how many people?”. Maybe current FU Number needs to be revisited and consequently the RE date.

Add to this that getting back to work after a month made everything so clear: what I accept as normal in my daily life, such as “spend most of my waking hours at work, then go back home tired to try to decompress”, is so ridiculously wrong. I felt like being the slave who escaped the Plato Cave. First week after the Honeymoon has been one of the worst of my professional life. Not because strange things happened, simply because nothing happened. My wife experienced similar feelings coming back to her job.

Anyway, we’re not going anywhere soon. We just hadn’t had time to sit down and do some self analysis after the storm. We plan to do that next week. Self assessment, goal setting, priorities and a plan.

Fact is that I’m questioning the importance of the final goal (but we all know that FIRE is not the final goal) versus a significant slow-down that improves our lives today.

But RIP, you did slow down! You’re working 80%!

Yes, but that’s not enough! Working 80% had been awesome so far, but it’s a change in degree not a change in kind. I still live in the same place and do the same things. 4 days working and 3 days weekend, which means 9-10 hours alone (on Friday, roughly 8.30am to 5.30pm) plus 2.5 days involved in social activities, is not enough. Needless to say that most of my Fridays went to “The Wedding Project”. Needless to say that it’s been impossible to stick to “wake up early” in last 2 months. Maybe working 60% would be a sensible increase in well being, but right now it’s not feasible. Working 60% would be a nice setup for afterFIRE life.

And it’s not vertical enough! During our Honeymoon I was dreaming about a 66% arrangement: working October to May (8 months) and taking 4 months (June, July, August and September) off, each year. That would be really awesome. 4 months each year to travel and enough freedom to devote contiguous blocks of time to personal projects. A dream. I don’t think my employer would like that proposal though. I would accept a 75% with 3 months off too. Yet another possible setup for afterFIRE life, seasonally hopping from one project/company to another.

Ok, long rantish introduction is over, let’s get back to the main dish!

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

Overview

Thanks to Mr. USD and Mr. CHF nosedive it may seem not a great quarter, with a tree month NW Delta +11,942 EUR. Split by month is May: +6,142, June: +11,458 and July: -5658. Yes, in July our Net Worth measured in EUR went down by more than 5k. Bad investments? Not at all. Spent more than we earned? Nope, we saved almost 55% of our take-home pay.

“RIP, Are you kidding me?”

Nein! Welcome to the land of a multi-currency life! The fact that both CHF and USD dropped a lot compared to EUR combined with the fact that our NW is roughly equally split among EUR (ETF and an apartment), CHF (Pillar 2, 3 and cash) and USD (several ETFs) generated this funny situation where our NW measured in CHF (+52k) or USD (+74k) skyrocketed, but in EUR it sinked.

Truth is, I’m satisfied. A Wedding went by without leaving any dent in our finances. That’s actually ridiculous. I knew it’d be true, since Italians use to give money gifts, roughly paying back their share of the main cost (the restaurant/location) and giving something more. Add to that that close relatives like parents and grand parents – yes, I still have 2 living grand parents – use to give a lot, in the order of thousands of Euros. Essentially our absolutely-non-frugal Wedding went by costing almost zero to us. Not an excuse to indulge in luxury, someone is still paying for it (and your turn is split across a lifetime of other people’s weddings).

Major wins for May-July 2017:

  • Mr. Market still very generous, with Emerging and Pacific performing amazingly, along with Tech US (again!). Anyway, the free ride maybe over soon: CAPE is close to 30.
  • June huge Hooli vesting. Several stocks, roughly 20k USD gross, 12k USD net. June is an amazing month. December will be even richer, unless Hooli stock price dropped or I get fired before.
  • Bonus while at the beach. Don’t check work email they say. Unless you see a subject like “Congrats Mr RIP, here’s a bonus for you: 1000 CHF!“. It was related to a project we launched just before I went on vacation. Nice feeling 🙂
  • Zero Spending for 8 days in a row. Mrs RIP tool June off. She went to Italy on May 31st to babysit The Wedding Project in its final days. I joined her on Thursday June 8th evening. Despite money flowing away from us by the thousands those days, I went hardcore cheapass. I spent ZERO in those 8 days alone. Zero. I ate leftovers, I biked to work. I walked. I avoided any – ANY – expense. It felt great, although financially impactless.
  • Financially Neutral Wedding. Enough said. I won’t dig into details. Honeymoon (4.4k CHF) not included. Expensive Wedding covered by gifts plus an almost frugal Honeymoon on our shoulders.
  • Yet Another Rent Reduction. Referenzzinssatz (reference index) went down and we asked for a rent reduction. Got 28 CHF per month back, starting in October 2017. From 1443 CHF/Mo to 1415 CHF/Mo, including Condo Fees.

Losses of May-July 2017:

  • CHF and USD Nosedive. Both currencies are losing terrain respect EUR. USD lost 11% since the beginning of the year, while CHF lost 6.4%. Enough already said.
  • Too many expenses. Even if you remove the Wedding from the equation, our baseline is too high. Trending higher. We need to return on Earth asap and take control.
  • Indulged in new internet + tv contract with UPC Cablecom. After 4.5 years with the same contract and hardware, I decided to do some upgrades. Moar Internet (200Mbps), moar TV (10+ Italian Channels), bettah Hardware (Verizon HD Recorder vs old Mediabox). 115 CHF/Mo vs 64 CHF/Mo. Wait! Before you start screaming let me add that: (1) new offer include cabling costs of 38 CHF/Mo that I’m currently paying in my condo fees (so I expect them to drop by the same amount) and (2) Hooli is reimbursing 50% of my “internet fee”. Final math says I save some money with the new contract. I still feel somewhat guilty for this upgrade…
  • Mrs RIP took a sabbatical month for our Wedding plus the first week of July as paid vacation. No salary on June for her. It’s a financial loss even though it’s been amazing for her to stay ~40 days without working.

Other financial facts:

  • Heavy investment rebalance. I was hoarding cash for the mid-year investment rebalance. Sent roughly 30k CHF, 10k EUR and 15k USD to Interactive Brokers and rebalanced to meet my IPS. Purchased 30k EUR of Euro Stoxx600 ETF and 15k USD of Small Cap US ETF. Still 8k CHF are sitting on IB, for me to play the “let’s time the market!” game.
  • Finally closed UBS account in early May. Simplify, simplify.
  • Moved my Pillar 3a saving account from PF to UBS and opened a Pillar 3a for Mrs. RIP. Thrown there 6768 CHF for both of us, the maximum allowed. Our 2 Pillar 3a accounts sum up to more than 40k CHF. Still unsure if it’s worth investing the Pillar 3a with PostFinance Funds like Pension75.
  • Closed Mrs RIP Italian expensive bank account and moved her money into our shared EUR account within our PostFinance accounts. I’m keeping my Italian bank account mainly for easy cash access when in Italy and to not have to sell our 12k EUR, 5.5% yield Buoni Postali (CDs). Current setup for EUR expenses: cash withdraws either at Swiss PF ATMs with EUR PF Card or in Italy at Bancoposta ATMs. At shops, use my Italian ATM card. Online… we need to use a CHF card (Cumulus Mastercard) and accept currency conversion spread.

Other Facts:

  • We got Married, again 🙂 This time in Italy, with 130 guests and a church, a cake, rings, dresses and all the stuff. I didn’t expect it to be so extremely amazing. We had a perfect day, surrounded by all the friends and relatives we wanted with us on that special day. Totally worth all the effort (a lot of it) we put on it.

  • We spent a month on Honeymoon. We didn’t do anything very fancy according to standard Maldives/Seychelles honeymoons. We rode Mrs.RIP parents’ car across Italy for 4k Kms, heading south on the East coast (Marche, Abruzzo, Molise, Apulia) and coming back in the north along the West coast (Basilicata, Campania, Lazio, Tuscany). It’s been a relaxing month, spent on italian food, beaches and sea in June and early July when the crowds are not on vacation yet. Heaven!

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  • I just returned from a end of July 3 day hike with 3 friends: Pragelpass Weg. Just to remind myself how awesome is to be in the nature, with friends. 60km in 3 days with backpacks.

  • Blogged Zero in last three months. I still love writing and I want to do more of it. Now that life might ease a little bit I expect to be more active. By “blogged zero” I mean not even interacting with other bloggers, commenting other posts, twits, etc. I didn’t even log into FB for a couple of months (and found few messages I should have replied earlier, sorry friends!).

Numbers & Details

Total Income for the three months was 74,783 CHF (row 40). Income includes Wedding Gifts, salaries, stocks and a spot bonus.

Total Expenses for the three months were 36,265 CHF (row 41), without Wedding&Honeymoon 12,251 CHF (row 46).  More details on my expenses sheet.

Yes, I consider wedding gifts as income and wedding expenses as expenses. Not just for accounting cleanliness, but for long term planning and forecasting I’d like to not consider these one-off events. I’m also keeping track of income/expenses without Wedding/Honeymoon (rows 45 and 46). Expenses without wedding were below 4500 CHF per month.

Expenses highlights:

  • Wedding & Honeymoon. A_LOT CHF, totally worth it :).
  • Housing. More than 760 CHF taxes for the Italian apartment…
  • Utilities. Paid yearly 450 CHF tax on TV in May. Spent 70 CHF in roaming data in Italy during Honeymoon.
  • Groceries below average since we’ve not been at home for a while.
  • Leisure. Purchased Pandemic Legacy to play it with close friends. Mrs. RIP withdrew 500 CHF for her personal expenses. Classified as Other Leisure and accounted at withdraw time (she probably has still most of the 500 CHF in her wallet, but I don’t want and need to know).
  • Travel. 320 CHF for the three day hike on the Pragelpass.
  • Dinners out. Everyone wanted to meet us once we’ve returned to Switzerland, so we indulged a little bit with going out in July (close to 300 CHF spent).

Total savings are 38,518 CHF (row 42).

Saving rate for the three months is 51.5% (row 43), excluding Wedding 75.6% (row 47).

Saving rate for 2017 so far: 60.0% (cell Q43), excluding Wedding 75.3% (cell Q47).

Net worth is 643,444 EUR (cell K17), Delta is +11,942 EUR (row 18).

The progress bar changed from 57.01% to 58.09% , with a step of +1.08% (in three months) toward the big goal.

Forecast for 100% FIRE: 42 months left (+7 months), i.e. forecast Fire Date is January 1st 2021, (cell V10). That’s horrible 🙁 The goal is moving away from me faster than I’m moving toward it. It’s like space expansion caused by dark energy that makes galaxy clusters move away from each other at a faster than light speed… I dread to see what would happen to this very metric when market crashes.

Current Monthly allowance: 1,743 EUR (+33 EUR, cell V13).
Current Daily allowance: 57 EUR (cell V14). Food is paid forever from now on. We won’t starve!
Current Withdrawal Rate – Real:  11.06% (+2.19%, cell V16). A disaster. Current WR is driven by current last 12 months spending, and these include Wedding.
Current Withdrawal Rate – Ideal: 5.59% (-0.11%, cell V17).
Years of Ideal expenses accumulated: 17.9 (cell V20).

Next Steps & Other Updates

  • Thinking about moving to a bigger apartment. I know it seems totally anti-minimalist, but we had an opportunity we declined few weeks ago. Our current apartment is just fine for the two of us, and extremely cheap for where we live. We love it even though it lacks basic comforts like a dishwasher, a washing machine (it’s in the basement, shared with other 10 neighbors), an elevator (we live on the second floor, European second floor i.e. American third floor) and parking space. We’re ok with all the limitations for now. What if we had a baby?
  • Need to face the italian apartment now. It’s costing me. It’s not rented. It’s kind of abandoned. Time to take a decision, probably sell it with a loss. It’s not easy though. I need to go there to talk with agencies and get an evaluation and bla bla bla.

That’s all folks!

ETF 101

Welcome back RIPvestors, time has come to get back to my investment series.

We’re going to cover the very large ETFs world in this post, the preferred mustachians instrument to join the stocks party!

Disclaimer: I’m not an expert on this subject. I’m here to share what I know with you, my novice reader, since I think it’s more than enough to get started with ETFs. I’m here to learn more on ETFs from you, my dear expert reader, so that I can improve my knowledge and act better.

Another Disclaimer: I’ll run a simulation and finally pick an ETF at the end of this post. I’m not affiliate to the financial institution emitting the ETF. I actually own ~100k USD in shares of this ETF, so it’s a product I recommend because I’ve direct experience with it. I’m not here to sell you something!

Intro

Hey RIP, what’s an ETF?

Hello friend, long time no see!

We’ve seen in a previous post what generic investment funds are and the difference between actively and passively managed and how we should aim to invest into passively managed ones.

We’re going to explore here the Fund Structure, i.e. how the fund capitalization is collected, how profits are distributed and how shares of the fund are traded. We’re going to explore 2 different fund structures: ETF and Mutual Funds.

A possible structure is the following: you want to join the fund, decide which amount you want to invest on it, deposit the amount to your fund account and then you own a fraction of it. The total fund capitalization increases when new investors join. This extra money is used by the fund manager (or by the algorithm) to buy new assets according to the fund strategy. If you want to disinvest, the fund manager is forced to buy back the number of shares you want to disinvest at its current market value. The total fund capitalization decreases when investors quit. It means the fund may need to sell assets to pay back the quitting investors. This is the common pattern of Mutual Funds.

Another fund structure that’s getting every year more popular is the Exchange Traded Funds. ETFs capitalization respects the closed-end model, meaning that no money flows in or out of the fund once created – with some exceptions (accumulating funds). So at creation time the fund size is defined and so is the individual share size. Shares are then traded on stock exchanges like regular stocks. Initially all the shares are held by the institution who issued the fund (the trust company).

An ETF can be liquidated, which means:

  • the trust company sells all the assets
  • each shareholder redeems their shares
  • the fund then disappears.

Let’s make an example: I want to create an ETF with 100,000 CHF of capitalization and shares of 10 CHF, an unrealistically small fund. My fund will than have 10,000 shares initially worth 10 CHF. No matter how many investors will come and go, the fund will always have 10,000 shares.

My fund invests on stocks of italian companies that produces Mozzarella. With a capitalization of 100K we buy 1K shares of MammaBuona, 30 CHF each, and 1K shares of PizzaBella, 70 CHF each.

The day after buying the stocks, MammaBuona performed great and their share is now worth 40 while PizzaBella performed poorly and its share is worth 50. Total value of the fund portfolio is not 90K and so each share is now worth 9.

Wait, RIP, what does it mean that ‘a share is worth 9’? Aren’t they traded like regular stocks? So they are not strictly bound to their basket value… they may go crazy due to other factors, like normal supply/demand. is it correct?

Good point. Here things become a little bit obscure to me. You’re technically right, things traded on a stock exchange can go crazy. Let’s say your fund management skills demonstrated you beat the market everytime, then investors may be willing to pay more than the market value of the assets in your basket, since you’ll surely beat the market again. I lack knowledge here. Wikipedia explain that: “The ability to purchase and redeem creation units gives ETFs an arbitrage mechanism intended to minimize the potential deviation between the market price and the net asset value of ETF shares“. So let’s set this problem aside for a while. Well, let’s say for ever, I won’t come back on this.

“Ok, cool, but why do you advice ETFs and not Mutual Funds?”

That’s just personal taste. In US they love MFs slightly more. They have Vanguard, which is the best mutual fund company ever. Accessing Vanguard funds from Europe is more complicated and has financial implications (US Estate Tax, US dividend withholding…)

I personally prefer ETFs over MFs for the following reason: MFs bind you to a specific financial institution, while ETFs don’t. They may change their trading fees, they may go bankrupt, they may do aggressive marketing and force you to open other financial instruments with them (like bank accounts, credit cards…). Every bank has their “awesome funds you should buy” and a cool financial advisor that “works in your best interests“.

ETFs are kind of open source. Once they lift off they require less management (no external cash flow to handle) so it’s easier to make them passively managed, getting in/out is instant and cheap and they usually have lower Total Expense Ratio (TER). You don’t need to join any bank, you just need a broker to access the stock exchange(s) where the ETF is traded. ETFs are rapidly becoming the de facto standard for low cost fund investing, i.e. passively managed index funds.

Some may argue trading ETFs has 2 points of failure instead of one: the broker and the trust company managing the fund. My reply is that both have few (zero?) connections with the fund managed assets. And the closed-end structure cuts off some of the malicious strategies like Ponzi / Madoff schemes.

For the sake of completeness, here‘s a good article about why invest in Mutual Funds instead of ETFs.

Ok, cool, please RIP tell me more about stocks ETFs

Sure. We’ve previously discussed why you want to track Stock Indexes and why you want to differentiate among them. I’ve also disclosed my Asset Allocation so you know which indexes I want to track.

ETFs are tools to make your strategy happen, they are not a substitute for your strategy.

…Or are they?

Ok, let’s digress a little bit on the cost/control spectrum, i.e. how to implement your diversification strategy among the stock component of your portfolio. Usually delegating control (simplifying) comes at a cost. You could:

  • Buy individual stocks, and manually diversify. Total control, low maintenance costs. Well, costs may not be very low since you might end up frequently trading low volume stocks to rebalance your portfolio incurring in high trade fees.
  • Buy N funds that track stock market indexes and keep their value balanced (according to your strategy). You may hold a US S&P 500 Fund, a Europe Stoxx600, an Emerging Market, a Pacific… and rebalance yearly/by-quarterly/quarterly/monthly. Minimal costs, good control.
  • Buy a single World fund that tracks the entire world market, like the MSCI World Index or FTSE RAFI All-World 3000. A fund tracking such indexes keep self balancing to reflect world market capitalization and – in each market – to reflect company capitalization. Can be seen as a “fund of funds”. Given the slightly more complex behavior, usually world ETFs have higher costs (TER), in the order of 0.2 – 0.3 vs <0.1 of funds that track geographic (US, EU…) stock indexes. So, higher costs but less control. You may even buy more World funds to avoid keeping all your eggs into one basket, where the basket is the trust company managing the fund. You may even open more brokerage accounts to hedge against points of failure…
  • Use a Robo-advisor. Robo-advisors are (Wikipedia): “a class of financial adviser that provide financial advice or portfolio management online with minimal human intervention“. Essentially they are bots that keep your assets balanced, buying and selling shares on your behalf, according to a strategy. You throw money on your account and your robo-advisor knows how to allocate it. You want to withdraw from your account and your robo-advisor decides what to sell. This service comes at a price on top of the funds’ TERs. Here‘s a good US-centric article about robo-advisors. Popular robo-advisors are: Betterment, WealthfrontTruewealth (available in Switzerland). We’re not going deep there for now. Check out this MMM post about Betterment, this TSD post about Wealthfront and this JLCollins post about Vanguard for more info. Even higher costs, zero control.

I know people who operates at each level of this spectrum. Personally I adopt the “Buy N funds” approach. Minimal complexity and minimal costs.

Now we can finally dive into the mechanic of a single ETF tracking a single Stock Market index.

Is that all you can do with stocks? I heard about High Frequency Trading, Option Writing, Dividend Growth Investing…

Sure, there are countless opportunities, I know. It’s just that I’m a novice investor and all my limited knowledge is about long term investing on Stock Market Indexes. I don’t care about speculative high risk short term investments, I’m not a daytrader and I don’t wont to become one.

I’m both curious and suspicious about long term optimality of Dividend Growth Investing though. DGI means holding stocks of companies who have a long track record of having emitted constantly growing dividends over time. Here‘s an amazing introductory article on apathyends blog. Other excellent articles here and here. The good of DGI is that it’s a passive revenue stream without you having to touch the principal. The bad is that a company that issues growing dividends over time limits their potential long term growth. It’s not a coincidence that the strongest companies on the market today don’t issue dividends. Anyway, let’s just not waste time here to discuss this.

Wait, why just stocks? Why not go for angel investing, estates, precious metals, cryptocurrencies…

Wait wait wait, let’s step back. First you do your homework by asking yourself the following questions:

Q: What are your financial goals? Why are you investing? Short term? Long term?
(Mr RIP) A: I want to to reach FI and would like to live off of my portfolio profits forever.

Q: When will you need your money back? How much risk and volatility can you handle?
A: Ideally I’ll die at incredibly old age with my money still invested. I still need to be able to periodically withdraw something from my assets (ore use dividends/interests/profits). I can accept high volatility on a portion of my assets, given higher expected returns.

Q: What you feel comfortable investing in?
A: Nice question, thanks for asking 🙂 Well, this requires more space and time to elaborate, take a look at my IPS. Tl;dr: my AA (Asset Allocation) cover all the risk/reward spectrum, from super safe no reward (cash) to low risk low reward (bonds), average risk high reward (stocks) and potentially, in future very high risk high reward (angel investing / startups).

Q: Do you understand your investments?
A: Yes, I know the products I’m investing in, I’m in control of my portfolio. I made my investment choices and I’m ready to adapt them given new evidences. I know the risks. What I don’t know yet is my reaction if (when) things will go south. Will I be able to not panic? Life will tell.

Ok, ok, I got it. But I also heard of Small Cap, Large Cap, Tech, Finance, Banking and a lot of other sectors that have indexes. How am I suppose to pick my indexes? Just by geographic ares?

That’s a very personal question. Each one has their own taste and want to place their bets. My personal opinion is that sector-specific investments are inferior differentiation techniques – but I invest in a US Tech ETF, home biases die hard – while market capitalization categories are good tools to differentiate in risks/reward. Historically small caps have better returns but higher volatility. I differentiate among Large-Mid-Small Europe and Large-Small US.

Ok, let’s get back on track. You know your goals, you control your Asset Allocation and time’s finally come to pick the right ETFs to implement (part of) your strategy.

(continue on next page)

April 2017 Financial Update – Quaranta

Hi RIP voyeurs,

April 2017 is gone and hopefully this new wave of winter is gone too. Before jumping into numbers let me explain why you didn’t hear from me for an entire month. April has probably been one the busiest month of my life so far, so many things happened! I had no bandwidth for writing and blogging and several other activities. My “watch later” list on youtube crossed 200 videos and my “read later” bookmark folder crossed 1000 (!!) links, maybe it’s time to declare a “bookmarks bankrupt”?

Anyway, I’m fine with that (for now). My April 2017 has been filled with so many amazing life experiences and I chose to fully enjoy them with no commitment on blogging except for this monthly financial (and personal) update. I don’t see myself blogging much more for the next 2 months given we’re organizing the Italian Wedding and then going on Honeymoon for 4 weeks. I’d be surprised (and very happy) in case I am wrong on this.

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

Overview

Numbers may not grasp the actual goodness of this month. NW Delta +8,078 EUR may seem not that good but I’m actually very happy!

Major wins for April 2017:

  • Mr Market bullish again, most of my ETFs went up, with the STOXX600 horse (Euro area) running like crazy after France election!
  • Contained expenses. Yes, above 5k CHF this month but more than 1K is extra and one-off (Travel, Wedding, my 40th Birthday party, quaranta anni). We did good after all.

Losses of April 2017:

  • Very strong EUR currency. France elections boosted EUR currency and stocks. I measure my NW in EUR while I own assets in 3 currencies. It means my NW measured in EUR got a bump. Anyway, not a big deal, currencies fluctuate. On the bright side, my NW in USD got a +23.5k, that’s an incentive to retire in US, lol!
  • Naked Hooli salary. No bonuses, no stocks, just my very naked salary this month. Turbo-Sad.

Other Financial Facts

  • I have 13.5K sitting in my brokerage account. That’s my timid attempt to time the market, proven wrong so far. 10K are sitting since a couple of months, 3.5K since the beginning of this month. Market performed well, so wasted opportunity here. Never time the market!
  • We are accumulating cash. Now that both my salary and Mrs’s one are flowing into the shared account, we have a fat cash reserve. This is not an attempt to time the market, it’s more about we should sit together and discuss what to do with money. We have a wedding + honeymoon coming so we’ll need cash. Will think about it in July, after Mrs RIP takes her very deep financial course with an awesome teacher: myself 🙂

Other Facts

  • Theater theater theater! 2 amazing weeks of plays. It’s been a success (for an amateurial company) from every point of view. Attendance satisfied, new friendships built, genuine feelings and whatever else. I found myself biking back home late at night singing and feeling very happy. That’s just the beginning, we’ll soon start planning next show and few summer activities, workshops, etc.
  • Run a relay Marathon. I spent the whole March training for it. I performed way better than expected. I’ve run 12 km in little above 1h. Next step: Half Marathon in September and probably a Marathon next year! Sadly, after the run I had a small calf muscle injury and I’ve not trained much during second half of April, but I’m getting better now and running again 🙂
  • Another Hike Trip, along the Via Francigena with Mrs RIP and a group of 16 people during Easter holidays. It’s my third hike trip in less than 1 year: May 2016 Italy Coast 2 Cost walking alone, October 2016 Via Appia with a dear friend and April 2017 Via Francigena with my wife and a large group. Three totally different experiences. This one was really amazing. From San Miniato to Siena, all in Tuscany. 5 Days walking a total of 100km with backpacks, almost always immerse in nature with no cars in sight. Not a very tough hike but spectacular landscapes and nice group. Made a lot of new friendships and, most important of all, Mrs RIP first hike trip stimulated her. She wants to repeat the experience! Another taste of FI life. Photo gallery at the bottom of this post 😉
  • Visited Rome while Mrs RIP went to Milan. I’m not going to Rome frequently these days. I went after Easter (for 5 days) mainly to give Wedding invitation letters to friends and relatives. Meeting uncles, aunties, cousins and grandparents was fun, but spending a full sunny day hiking in Rome, 28km by foot, covering almost everything a tourist can do in a week was priceless.
  • I turned 40 years old. Since our life is so intense this season I asked Mrs RIP to not do anything spectacular for this special date. No big celebrations. She can’t help, she organised what was supposed to be an informal “apero” at our place and became a 20 people thing with 24 hours of upfront preparation, cooking and organization. But it’s been a very warm and frugal party, I love my wife!
  • Loosing weight took a pause. Intense sport month till Francigena hike, then dropped everything. With an intense life I had trouble keeping up with good habits. Bad weather and a calf muscle problem set me down for a couple of weeks. I allowed myself to overeat and drink a little bit too much during theater nights and travel. Getting back on track in May.
  • blogged ZERO this month. Enough said. I’ll be back.
  • Having hard time keeping up with my waking up early habit. Several late evenings both due to theater and celebrations of various kind. But it’s ok and I’ll be back on track soon.
  • I met MP! Yeah, I physically met the awesome person behind The Mustachian Post blog (and forum)! We met for lunch and we had a 2 hours intense discussion over soooo many interesting topics. We seemed happy like children, like we knew each other since forever. It’s so fulfilling to know you’re understood and you speak the very same language 🙂 I hope we’ll meet again soon, maybe at FIWE?

Numbers & Details

Total Income for the month was 16,770 CHF (cell H40). Base income for both of us. I started putting Mrs. RIP Pillar 2 contributions in our NW and cash flow.

Total Expenses for the month were 5,070 CHF (cell H41). Without Wedding expenses 4,547 CHF (cell H45). More details on my expenses sheet.

Expenses highlights:

  • Wedding. 523 CHF, payments for photo shooting, flowers and make up.
  • Travel. 442 CHF, Francigena expenses like hotel room for the night before starting the trip, in Bologna, and cash expenses for food (and beers) for the 5 days.
  • Groceries. 891 CHF, kind of a lot. We did a bulk grocery purchase in Italy and spent quite a few bucks in groceries for our “frugal” 40 years old Mr. RIP party at home. It’s ok.
  • Transportation. 231 CHF for train tickets, tickets from Siena to Rome (me), Milan (Mrs RIP) and then back to Switzerland for both of us. Probably these should be budgeted to Travel.
  • Dinners out. 102 CHF, essentially we didn’t go out but on the very last day of the month, still on “40 years” celebration mood.
  • Leisure. 547 CHF, Theater, theater tickets I gave to relatives that came to watch me acting, a day in the SPA (40 years old celebration, ok, not so frugal) and Mrs. RIP cash withdraws. We can do better here.

Total savings are 7,953 CHF (cell H42), not too bad after all.

Saving rate for the month is 61.1% (cell H43), excluding Wedding 65.1% (cell H46).

Saving rate for 2017 so far: 69.4% (cell Q43), excluding Wedding 75.1% (cell Q46).

Net worth is 631,502 EUR (cell H17), Delta is +8,078 EUR (cell H18), percent +1.30% (cell H19).

The progress bar changed from 56.28% to 57.01% , with a step of +0.73% toward the big goal.

Forecast for 100% FIRE: 35 months left (+1 months), i.e. forecast Fire Date is March 1st 2020, (cell V10). Uff, the goal is moving faster than us. I knew that since 12 months linear forecast is stil consuming those awesome 2016 months when NW delta were above 20k per month.

Current Monthly allowance: 1,710 EUR (+22 EUR, cell V13).
Current Withdrawal Rate – Real:  8.85% (-0.23%, cell V15).
Current Withdrawal Rate – Ideal: 5.70% (-0.07%, cell V16).
Years of Ideal expenses accumulated: 17.5 (cell V19). If we cash all our assets we can live with 3k EUR per month without the need of any money until end of 2034, assuming no income and no investments. Reassuring, isn’t it? 🙂

Next Steps & Other Updates

  • Prepare myself psychologically for the ~20k Wedding&Honeymoon expenses over the next 3 months
  • Invest these 13.5k I have sitting in my Interactive Brokers account.
  • Keep postponing financial chores (close UBS account, Pillar 3a for Mrs. RIP, Pillar 3a funds instead of saving account for both of us, invest more instead of keeping too much cash)

How was your April? Mine was ridiculously intense!

Enjoy this gallery of Via Francigena’s hike!

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March 2017 Financial Update – Marriage edition

Hi RIP voyeurs,

March 2017 is gone, spring arrived earlier this year in Switzerland. At the time of writing this post it’s 23 degrees and I’m biking to work wearing only shorts and t-shirt!

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

Overview

A very unusual month and hard to compare with others, mainly for a special reason:

♥ We got married ♥

Yes, Miss RIP is now finally Mrs. RIP. Ok, I previously explained that we’re going to celebrate in Italy later this spring with relatives and friends, but we got legally married few days ago in Switzerland! So yeah, I’m getting married twice this spring. Cool. And turning 40 years old. Less cool.

Ok, back to the finances. From a financial standpoint, getting married in Switzerland means life is split in before and after. We keep as individuals, what we had before. We share what we’ll earn after. It means we now have individual economies and a shared economy. Since almost 3 years we were already contributing into a shared account so we’re used to a shared economy. But we did that just to cover for shared expenses, not to accumulate wealth. Contributions were similar to taxes. Each one had to take individual decisions to manage his/her own wealth.

Now every source of income goes directly into the shared account. We’re responsible together for every new purchase, debt, investment. To make this manageable, Mrs. RIP delegated shared wealth management to me – but I demanded we do monthly reviews together and I’ll also offer some basic financial lessons to her. I’m not ok with being alone understanding our finances.

About expenses, we need approval of both for shared expenses above a certain amount (still undefined) and we allow 500 CHF each for monthly individual expenses with no question asked. At the end of each month we send 500 CHF to our individual accounts.

Net Worth. I used to track my net worth plus the shared one. Since we plan to reach FI together and since I just care that we, together, will reach FU Number, I’m going to merge the NWs and track the sum of them. I know, it’s risky for several reasons:

  • Mine is bigger. I mean my NW is an order of magnitude greater than hers. But we’re together and I don’t care. I’d already be FI if I had to cover just for my personal expenses.
  • I lose a bit of control over Saving Rate and NW: every individual Mrs. RIP expense would impact the saving rate and our total NW. But yeah, that’s true anyway 🙂
  • I lose a bit of control over Asset Allocations: Mrs. RIP has some cash, more than what’s reasonable for a normal emergency fund. She’s not into investments and I don’t want to force her. I’m ok to push for aggressively managing our shared wealth, but not her individual one. Summing our NWs would skyrocket the cash component. Not a big deal, I will compensate as much as I can reducing my own cash reserve and the shared one.
  • I lose expenses trackability: I don’t want to (and I totally shouldn’t!) track Mrs. RIP individual expenses, but I’d like to get a sense of total amount. I’ll keep accounting individual expenses I see on our credit card into their own bucket, but her cash payments are not tracked individually. When she withdraws cash, I just consider it as a Leisure expense at withdraw time.

Given all the above, this month we had an obvious nice jump on total NW, with a NW Delta of +45,331 EUR I’d like to fuzzy a bit Mrs. RIP’s NW so I won’t provide many breakdowns.

Anyway, as usual, here are the major wins for March 2017:

  • We got married. It’s a win 🙂
  • Mr Market got a cold mid month but he’s back on track! My Euro Stoxx600 ETF, where I invest ~150K EUR, went up 3%. Both Emerging Markets and Pacific went up 2.5% – 3%. US market ETFs stayed stable overall, with Tech (again!) covering for Small Caps’ losses.
  • I’m the new swordmaster! I did something unprecedented (well, I’m not sure) in Swiss history: I contested a medical bill and got a reduction! Well, not much, just 16 CHF from 354.40 to 338.60 but believe me it’s a great feeling. The story is: understanding Swiss medical bills is impossible, they have hundreds of complex entries. Even though my German is not very good, it’s good enough to understand that they charged me ~40 CHF for a “phone consultation” of three 5-minutes blocks, i.e. 15 minutes. What actually happened is that they call me to tell me “your blood exams are good, let’s meet again end of March, bye bye“. I went thru my call history and I found the call to be 2 minutes and 9 seconds. I walked in their building ready for a fight and I obtained a 5 minute block cut from our “phone consultation”. Plus I canceled the checkup visit.
  • Hooli stocks vesting. Extra money. I sell them automatically as soon as they vest. The proceedings are sent to my IB account ready to be invested. I have vesting events in March, June, September and December. June and December are major vesting events, March and September are minor ones.

Losses of March 2017:

  • Too many expenses. Dangerously close to 7k CHF. Ok, there are one-offs here, like 2170 CHF Wedding related, 830 CHF travel related, the above mentioned 340 CHF for the medical bill, but there will always be one-off expenses every month (hopefully not wedding related after July!).
  • Stronger EUR currency. Since I measure our NW in EUR and we own assets in EUR, CHF and USD, having a strong EUR means our NW performed worse. The USD was losing 3% till few days ago, it eventually recovered most of if.
  • Naked Hooli salary. No bonuses, just my naked salary this month. Sad.
  • Having hard time keeping up with my waking up early habit. Several late evenings both due to theater and celebrations of various kind. But it’s ok and I’ll be back on track soon.

Other Financial Facts

  • Changed Target Safe Withdrawal Rate (SWR) to 3.25% after a very deep dive thru the incredibly amazing Ultimate Guide to Safe Withdrawal Rates, on earlyretirementnow blog. Everyone who’s planning to retire on investments should definitely read all their posts! Previous target SWR was 3.33% so it means we’re playing it safer and we’d require a bigger FU Number.
  • Increased Target monthly allowance to 3000 Euro per month. Another safety margin at play here. Another FU Number increase. I don’t know if it will be the last one, I may play with monthly allowance more in the future. Anyway, these two factors pushed FU Number to slightly more than 1.1M EUR.
  • I’ll Track Saving Rate (SR) with and without Wedding Expenses. Wedding is (hopefuly) one-off. We’ll face wedding expenses till July (Honeymoon) and forecasts are north of 25k EUR, including Honeymoon. My principles say that I should save at least 50% of my take-home pay and I want to measure it against standard expenses, not extraordinary ones.

Other Facts

  • I lost weight. How much? Roughly 5 kg. How? A combination of few things worth a post on his own 🙂 Here’s a teaser trailer: strong motivation (getting married in June in Italy, want nice pictures), accountability (signed up for a half marathon happening in few days, a 5 days hike trip in Italy with Mrs. RIP during Easter and a triathlon in August) affirmation (got inspired by Tim Ferriss Show episode with Scott Adams, anyway, more on this in its own future post), mindfulness eating and tracking. I’m not done. I plan to keep going till end of the year and hope these new habits will stick and become the new normal.
  • Theater Acting Intensified. I’m on stage these days. 2 weeks of plays. We spent most of March doing rehearsals even during the weekends. I love this kind of life. That’s another taste of FI. I remember back in 2002 when I started (ouch, 15 years have been passed, how old am I??) I was close to quit my studies to go all-in with theater acting. Good thing I didn’t, but at the time I wondered “what if…”. Well, reaching FI means I can discover “what if”! I’m really craving for it. I look forward to having more time to play even more intensely. That’s yet another reason not to go out for dinner or spend money on happinessless things.
  • I blogged almost ZERO this month. Too many things on my plate. But I’m way happier thanks to increased physical activity, more outdoor time and theater acting, so I don’t actually care. But yes, I have a new series (and several dozens of new post ideas…) for this blog coming soon. Stay tuned!

Numbers & Details

Total Income for the month was 16,770 CHF (cell G40). High income due to Hooli stock vesting and Mrs. RIP salary. I’m not counting Mrs. RIP Pillar 2 contributions yet.

Total Expenses for the month were 6,932 CHF (cell G41). Without Wedding expenses 4,765 CHF (cell G45).

More details on my expenses sheet.

Expenses highlights:

  • Wedding. 2,167 CHF, some payments for rings, dresses and a luxury lunch with close friends here in Switzerland.
  • Housing. Italian condo fees 120 EUR.
  • Health. 338 CHF for the doctor visit and the phone consultation I mentioned above.
  • Transportation. Good month here. Few trains tickets purchased for Mrs. RIP’s family to come to visit us beginning of April (to see me acting) and no monthly local pass for me. I bike to work with this nice weather!
  • Travel. Paid off our 5 days hiking trip with Mrs. RIP along the Via Francigena during Easter (in a couple of weeks!) and purchased some gears for it, mainly hiking shoes (mine wore out after more than 10 years).
  • Leisure. As I said, Mrs. RIP cash withdraws go here.

Total savings are 9,838 CHF (cell G42), not bad, above the acceptability threshold.

Saving rate for the month is 58.7% (cell G43), excluding Wedding 71.6% (cell G46).

Saving rate for 2017 so far: 71.4% (cell Q43), excluding Wedding 77.4% (cell Q46).

Net worth is 623,424 EUR (cell G17), Delta is +45,331 EUR (cell G18), percent 7.84% (cell G19). As I said, these numbers are kind of meaningless this month since we joined our NWs.

The progress bar changed accordingly, from 57.81% to 56.28%, with a step of -1.53% toward the big goal. This is because we moved the target away.

Forecast for 100% FIRE: 34 months left (+4 months), i.e. forecast Fire Date is January 1st 2020, (cell V10).

Current Monthly allowance: 1,688 EUR (+136 EUR, cell V13).
Current Withdrawal Rate – Real:  9.08% (-0.44%, cell V15).
Current Withdrawal Rate – Ideal: 5.77% (+0.00%, cell V16).
Years of Ideal expenses accumulated: 17.3 (cell V19).

Next Steps & Other Updates

  • Not closed UBS account yet, too busy. Will April be the month?
  • Not made any decision about Pillar 3a investments for both me and Mrs. RIP with PF yet.
  • I have 10K CHF and soon 3.3K USD sitting on my Interactive Brokers account. Need to think what to do with them.
  • Not planning to invest shared money in April, even though our cash reserve is higher than planned. Keeping cash for Wedding & Honeymoon expenses.

How was your March?

Mine was veeeeery intense 🙂