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Bless me father for I have sinned, it's been over 1 month since my last confession...................
Life, Health & Early Retirement - 36 Months Since Retirement
Firstly, apologies to anyone who was eagerly awaiting the March update, I do have an excuse and it wasn't that I'm just an all around lazy and feckless work-shy fop.
Its a pretty major milestone on Tribal Fi in that it is exactly 3 years since I got off the corporate wheel and rode away on the hamster. 3 years, 36 months, 156 weeks, 1,095 days of glorious freedom from the shackles of the corporate grind and I can honestly say, I haven't looked back.
I'm happier, healthier, wealthier and more fulfilled than when I started and that was the only objective. Life is simply better than it was and while it would be a lie to say I don't work because I still do...a bit. But I have time to follow my passions, learn new skills and hobbies that I've always wated to. On the whole, I choose to do what I want on any given day and I'm not answerable to anyone. Well, we all know that isn't exactly true, Mrs H still has a certain influence!
3 years was a big milestone for me as that was the psychological point where I felt I could evaluate this whole FIRE thing, our financial position, wellbeing and just generally the whole idea that you can retire decades earlier than you're "supposed" to with an attainable amount of savings and actually make it all work.
Well fortunately the answer so far is yes, you bloody can! Who knew?
It's also significant because I said I would quit my "golden parachute" which was my consulting side hustle at 3 years. More about that later on.
Its also a good time to reflect on the master plan and why I didn't do some of the things I had planned and what the plan is now. There's been a couple of big ticket items that haven't materialised, namely the selling of the house and the big travel plans. I think that came from a mixture of a lack of motivation and the reality that when you have a pet like Winston the wonder puppy, big time travel is actually a bit more complicated and I guess that means it's not quite the right time, yet. South Africa is a pretty cool place to live but it's really, really far from anywhere other than South Africa so every foreign trip is a pretty big one.
I'm still committed to the idea of seeing more of the world but I guess it will keep until the apple of my eye and faithful companion isn't around any more. And until that time comes, selling the house is sort of a bit less critical and we do enjoy all the space and being able to put our own stamp on the place which won't be possible in a rental really. Mrs H still wants to live on the beach for a least a while so it isn't off the agenda, just sort of on hold until it rises in priority.
Before I get into the numbers, I should explain I've also taken this 3 year milestone as an opportunity to completely re-work all of my finances and simplify everything but also take a slightly different view of the world so if you're big on the numbers, this one is going to take a little bit more following!
So let's get on with it.
Net Worth
This Month Net Worth (New Calculation): R14,018,896/ $778,827 / £637,222
Last Month Net Worth (New Calculation): R13,818,291 / $767,682 / £628,104
Last Month Net Worth (Old Calculation): R18,539,592 / $1,059,405/ £862,307
Change: 1.5% (Previous Month +0.0%)
Now you're probably wondering where R5m / $280k / £225k has gone form my net worth. right?
The answer my friend is risk, Risk is everywhere and it's real!
Let me try and explain in a way that won't bore the pants off you. In the last 3 years I've always measured our net worth in VALUE which was defined as all of our investments (excluding our home) on what they are worth on the day you are looking at them. This is very easy when you look at something like stocks and shares which have a value that they're worth if you sell them at that moment and take the cash. Where it gets a bit more complicated is when you get to alternative assets and I'm going to use a simple example using my cattle investment. If I buy a cow for R20,000, I pretty much know I'm going to sell it in 1 year for about R23,000 so in my net worth calculation, my cattle is worth 20,000 and when I sell the cow next year, it will increase to R23,000 and when I reinvest in another cow I'll show the value as R23,000 until I sell it and I'll have R26,500. Pretty simple huh? I count the amount I have invested and then I add the profit as it comes in.
Weeeeelll, that works fine if you're in a nice regulated bank investment where there is insurance and insolvency funds and all those lovely protections, but a large part of our net worth is in alternative investments which are not protected and indeed, you can't sell them on the day, and as we've all seen since Covid, shit literally does happen.
So I've now decided to measure my net worth based on RISK. in that I only count the money invested that is either protected in some way or can be accessed immediately by selling the asset or cancelling the agreement etc. Another good example of why this is needed are my solar investments. I have invested about R5m of our hard earned in solar panels which sit on roofs and turn sun into energy and then the person who uses that energy pays me for it. Weeeeellll they don't always pay and sometimes they don't pay to the point that I'm up the proverbial creek without the proverbial paddle and the reality is that I can't cancel that investment, I can't sell it and I can't do much other than try and sell the energy to somebody else which is also logistically complicated.
So I used to include all of my cows and my solar panel investments in my net worth, which is pretty normal, but if I'm really realistic, they're only really worth the payments that they generate so we're kind of fooling ourselves because if civil war broke out in South Africa tomorrow (hopefully, that's a pretty far fetched notion), we'd probably lose those cattle and solar panels and I would have nothing to show for it.
This might all sound a bit dark and depressing but it's really not. It's actually the right way to calculate it and whilst the risks are relatively small that we won't get returns from those investments, they are still there and if we take the worst case scenario, there should be no surprises.
Hopefully that all makes sense if you are one of the people that analyses our net worth and spending. What I am working on is a way to separate normal investment growth e.g. ETFs and Pensions from the income we generate from alternative investments, like Cattle, Digital farming and Solar as that is actually a side hustle if you think about it.
It will all become clearer for you hopefully when it does for me!
Investment Performance
Monthly Investment Return: R156,852 / $8,714 / £7,129
Investment Return Percentage: +1.1% (+0.3% Last Month)
I've been working on simplifying our whole investing landscape for some time now and I'm finally making some good progress.
In simple terms, all of our investments in our personal names are moving into Capital based investments. If you don't know the difference between Capital and Income investments, let me explain it as simply as I can based on SA rules. Quite simply, if you buy an asset e.g. an ETF and keep it for at least one year and then sell it, any profit is Capital in nature and you pay capital gains tax on it (currently 18% in SA). If you buy it and sell it in less than 1 year, any profit is treated as Income and you pay income tax on it (The top rate of income tax in SA is 45%) so if you're a top rate tax payer, it makes more sense to hold Capital investments rather than Income investments unless the profit is so much greater that it offsets the extra tax. For us, capital investments are essentially stocks and shares we plan to hold long term and cattle because they only get sold yearly.
On the converse, the investments I make through my business using my side hustle profits are mostly Income in nature and are mostly Solar, Project Financing, Digital Farming and ETFs that I may not hold for 1 year. The logic here is that profits generated by the business are taxed at 28% (business tax) so the gap between Capital Gains and Income Tax is a bit less relevant. That's not to say we don't have income investments in our personal names and capital investments in the business its just that we try and invest in a tax efficient manner. In reality when we get paid from the business, we pay income tax anyway so only relevant because we can control when to incur tax which for a retiree is a big deal.
April was pretty good considering the levels of doom and gloom and whilst I've been saying for months now I think the bad news is mostly priced in, I'm becoming a fairly lonely voice on that view and even Warren Buffet, who is the common sense king of investing, is warning that stormy waters are ahead so there is a teeny weeny chance that I might be wrong.
Luckily I've galvanised the investments so we don't have to touch our stocks and shares and can draw income from the alternative investments that shouldn't be affected by an economic downturn quite as much. So I'm calling it, I'm riding this thing out, I'm staying in the markets and what will be will be.
I'm rubbish at knowing when to get out and more importantly when to get back in which I think is true of 99% of investors world wide so the chances of me diving out now, waiting for a bit and buying back in at a huge profit is more fantasy than reality so I've decided that If the market drops, I'll keep buying on the way down using my side hustle and alternative investment income and then enjoy some early profits when the tide turns, which it will. There has been 13 major recessions in the US (which I'm heavily exposed to) and 13 recoveries, so why would this time be any different?
Solar rental payments are moving to weekly from monthly so that is going to give me income every week to potentially reinvest or indeed live on so I've picked a list of stocks I want to pick up if the market drops and there's a sale on. They're pretty obvious as a group but they're also relatively safe bets in my opinion over the long term. So my shopping list is:
Berkshire Hathaway
Vanguard S&P 500
MSCI World
Apple
Meta
Vanguard Mega Growth
Microsoft
Vanguard Total Stock Market
Alphabet
Tesla
Told you they'd be pretty obvious. I'll be buying and selling them at 3-5% increments over the next two years so fingers crossed that should cover any period of economic turmoil and they'll all still be standing on the other side.
Time will tell
Budget & Spending
This months expenses: R82,509 / $4,583 / £3,750
Budget : R75,000 / $4,150/ £3,500
Whilst we're having a new approach to the net worth and investing, I wanted to share a bit of a change to the way I'm planning our living expenses. I've spent the last year working with my financial adviser on a model which takes into consideration every single facet of our investments, the state of the markets, future projections for inflation, economics, lifestyle changes, the whole shebang. And version 1.0 is close to completion.
What this model will do is constantly update to reflect the latest picture for Mr & Mrs H.inc in real time and then let us plug in different scenarios e.g. "I want a new car every 3 years" or "I want to buy a holiday home" etc. etc. and it will reflect how that will affect the long term finances. We're programming the thing with the most important scenario which is "I'm going to die on my 100th birthday and I want to die with zero in the bank". Which might sound a bit bleak but we've made provisions for the offspring to be taken care of so jumping off the mortal coil with any money left over is a waste of life as well as money.
Soooooo, the good news is I've programmed in a period of, lets say, "exuberance" for when I turn 55 and Mrs H is 60. We've got about 15 years where we're going to increase the living expenses to more than double what we spend today so we can go and do all the travel and things that we've waited our whole lives for. And guess what, there's still money left over. Whoop whoop!
Now obviously all of this is subject to all the forecasts etc. being correct and it also means we do at some point have to go back to living a bit more frugally in our twilight years but what is really giving me comfort is that we've excluded any side-hustle income from those plans so as was always my intention, any side hustle cash can be used for fun money or as it is used today, to boot strap that plan and make it a reality.
Once we have the plan finalised, I'll be getting an updated view every quarter so I think I'll write a post on it as it becomes available so readers can see how that actually works in reality....or not!
Side-Hustle
Which brings me to arguably the most important change that caused me to be a month late with this update. I've made the decision to keep my promise to myself and ramp down the consulting side hustle in order to devote time to my passion projects and generally to being a proper retiree.
I've actually already started to tell some of my consulting clients and partners and it feels good. I always said I would quit after three years and whilst I have a pretty good business, I wouldn't say it's my idea of a good time and I can see I'm losing the heart for it and that will eventually give way to standards dropping and that's not me, I give my all to my clients and I'm proud of my reputation so anything less than 100% is not good enough.
I'm not going to turn down work if it comes looking for me but I'm not going to be marketing my services and I'm not going to be looking for work so any future income is likely to only come from my existing customers who I've worked with for a while now and I actually like working with so that won't feel like a chore.
So I'm slowly starting to spend less time at my desk and more time in the workshop at the HQ / Lair I rented with my friend a few months back. I'm already working on a couple of products and spending a lot of my spare time working on building my skills. Its hard to describe what the new side hustle is actually going to be yet but it is definitely about designing and making actual products. Mostly using technology. Think 3D printing, lasers, woodworking, CNC machines and all that good stuff. I'm hoping to get my first products on sale in the next 3 months so it's a hive of activity.
I have to say, I'm really enthused working on the new hustle and whilst I know it will take a lot of effort to make the kind of money I've enjoyed from the consulting, I'm finding myself getting up earlier and staying later at the lair because I'm enjoying being creative and using my brain for new things. The money will be a bi-product of doing something I enjoy and I guess that was the plan so I'm really excited about the next year of my journey. Having the confirmation from the financial plans that we don't NEED the side hustle income anymore is a pretty good place to be.
Stock Picking Completion 2023
The one good thing about skipping a monthly update is that we'll get some meaningful data on the latest positions as we're now well into the competition for this year.
So lets take a look:
An early lead taken by Ross with his tech play on Snowflake, with Lawrence biting at his heels with 4sight holdings making the two of them the only contenders with any cash in the bank.
There may be a little lesson in here. I have some insider knowledge of Lawrence's pick and it would be fair to say it was somewhat of a rush job and just happens to be the first listing on the JSE. Now I would never accuse him of random selection (he's bigger than me) but it wouldn't be unfair to say there was not an immense amount of research done. But gold darn it it's only working!
In the lower ranks, its looking pretty dire with some frankly awful performances, but as we know from previous years, two months does not maketh a competition and it's all to play for.