Progress Update Q1 2019

First ever post on progress update! Since I have only kind of get the blog going in 2019, I will kick it off with an update on my progress towards FI in quarter one of this year.

Target Savings Rate: c. 70% of disposable income
Target Increase in Capital: +$18,000

Assumptions:

  • Expenses are recognised as it is incurred
  • Change in capital figure includes disposable income components (i.e. salary, interests, dividends and side incomes) and gain(loss) in capital from investing activities

Savings Rate Update

Quarter 1 2019 Savings

Good start to 2019 so far! However, I am expecting a pick up in spending in quarter two given a planned trip overseas in May. Flight ticket has been recorded as expense in previous quarter, when booking was made, which should help mitigate noticeable drop in savings rate.

I do not actually run a rigid budget where I allocate a fixed number on the amount of money I can spend. Rather, I track my spending loosely against my targeted savings rate. This degree of flexibility will allow me to validate, over the long term, whether my targeted disposable income based on SWR (Safe Withdrawal Rate) I have in mind, is sustainable to live the lifestyle I wanted to life once I am FIREd.

Net Worth Update

Markets has bounced back strongly in Q1 2019, following global sell-off in risk assets in Q4 2018. The findings of the Royal Commission into the financial sector has been received well the markets which have helped the recovery in bank stocks/debt that I am currently holding in my portfolio. Coupled with numerous stocks paying dividends during the quarter, they have helped the capital grow in a healthy way, exceeding target set. The capital has grown by +$22,368.62 in Q1 2019.

Quarter 1 2019 Asset Allocations Profile

Closing Remarks

I have been quite satisfied with how everything is going for this quarter. Managed to squeeze solid saving rates throughout the quarter while the equity portfolio has been recovering satisfactorily following a dismal Q4 2018 performance. I realised that I should have deployed more cash early in the quarter given how strong the markets had rallied. Hindsight is always 20-20 thou!

At current valuations, many of the developed markets looked fully valued as plenty of indices are getting closer to their all-time highs. Inverted yield-curve has always been a concern, but given we are living in an era of unprecedented Quantitative Easing, you would start to question the predictive power of the Yield Curve given past recessions predicted by the yield curve was not happening during time of easy/cheap money.

In the meantime, given the correction in the property market, running an overweight position in direct Mortgage Loan, which returns 7%+ p.a. might not be a bad idea in trying to achieve acceptable risk-adjusted returns, with lower property valuation allowing investors to cherry pick loan with reasonable LVR and sound collateral. I think I might write about this in my next post actually! As this is an option that not many people know that existed to retail investors.

2 Comments

  1. Great work on the savings rate! A 75+% savings rate is nothing to be sneezed at.

    I don’t really understand what you’re trying to say in the last paragraph though – are you referring to a way to obtain lower rates on an investment loan, or a way to increase investment yield?

    Reply
    1. lunchpenny
      May 12, 2019

      Hi Ms Fire Mum, thank you for passing by and sorry for the late reply! Things have been very busy on the personal front.

      I think I will write about this in more details in my next post. However, Direct Mortgage Loan is a form of alternative investment where you become the banker.

      Typically what happen is a borrower/investor would go to a non-bank lender (such as La Trobe Financial) to get financing. In a normal circumstances, the non-bank lender will then write a loan and fund it from their balance sheet or most likely via a mortgage warehousing facility with one of the big 4 banks/big international investment banks.

      Now, as an alternative source of funding, La Trobe Financial actually then sell some of these loans directly to investors. They will then just take a management fees out of it. For example, John Doe borrowed at 9% from La Trobe Financial for a quick bridging loan, La Trobe then will sell this loan to investors at 7.75% (as an example, taking the 1.25% difference as management fee). This is an alternative form of investments which is totally unrelated to the share market and with the correct amount of weighting, this will reduce the volatility of returns in your portfolio (as they are fixed payment).

      Please let me know if you have more questions. Hopefully the above is not too confusing. But I promise I’ll come up with an article about this.

      Reply

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