Month: June 2015

My returns since 1/1/2013

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I plan to post my investment portfolio returns on this blog, for others to monitor progress and see how my investment approach pans out in the real world.

I’ve just published my Returns page.  It has monthly returns since January 2013 (when I started tracking my investment portfolio in a consistent way).  I also show how an initial investment of £1m would have grown with these returns.  Over the two and a half year period tracked, my returns are a pleasing double digit number; this is surprisingly high for me, as over a longer time period I expect them to average high single digits.

The eagle eyed will notice I also track my Sharpe ratio and my worst drawdown.  Both of these are measures popularised (?) by hedge funds.  The Sharpe Ratio is essentially a way of normalising for risk; it expresses the return in relation to the volatility.  A higher Sharpe ratio represents more return for a given level of volatility; thus higher is better. The worst drawdown tracks the biggest ever sustained loss; bigger is worse.

 

Lessons from a £1m divorce

FIRE v London3 Comments

The media has reported a divorce with fees of around £1m.  This is for a family with around £6m net worth.  This story sums up a lot of crazy London living to me. Notably:

  • The family has earnings of around £1.5m a year. Let’s call this £800k net of tax. This is very very high – it would put them in the top 5000 or so earners in the UK.
  • At this income level most FIRE eaters would say they would hit financial independence in months, not years. Yet the net worth has been reported at about £6.2m. Into which £1m legal fees carves quite a dent. A net worth of 4x gross income is surprisingly low for such a high earner, reflecting how their cost of living was enormous (and/or how terrible his investment decisions must have been!).
  • The family apparently spent £800k per year. And now the beauty queen wife will receive maintenance of £320k per year. For herself. Gulp. This is luxury living even by their own admission.
  • And by its own admission this family did not save any money.

These guys are those Jones that friends of mine ‘needing income of £500k to live in London‘ are striving to keep up with.

And a lot of the attitudes that drive the sentiment that £500k is a bare minimum were on display in the courtroom as reported by the media:

  • “There’s a limit to how far the wife can reasonably be expected to move from the centre of London”. The husband had proposed Battersea, which is walking distance from the Chelsea/Knightsbridge area they have been living in.  Nope, outrageously too far, was the reaction.
  • Eye-watering sums on bringing the kids up “appropriately”.
  • Eye-watering sums on annual holidays – the wife wanted £75k per year just for this.
  • Extravagance is the new normal.  Can anybody become a beauty queen, if they spend the £60k annually on hairdressers and beauty treatments asked for by the wife, I wonder?

The premise of this blog is that true financial independence entails being able to live where you want to live – central London included – and spend what you are used to spending.  I suppose in theory that means I need to respect the decisions of this couple on what they need to spend.  But they’re about £20m and some good tax planning away from where they need to be on the Save Hard / Invest Wisely front…. good luck to them.

Publishing my Investment Policy Statement

FIRE v London2 Comments

One of the triggers for me creating this blog was an excellent post by LivingAFI about Investment Policy Statements.

For some years now, I have had various unwritten investment approaches that has been slowly evolving in my mind as I have learnt more about investing. But the idea of setting these approaches down in writing as one Investment Policy Statement appeals to me.  The next thing I thought is that I would like some input and help with it.  At which point I realised that the best source of input and help is the FI community that I have been avidly reading for ages.  So, dear readers, please help me critique my IPS – it’s here.

I’m going to set out my thinking behind each section of the IPS in a succession of blog posts.