Annual FI audit

It’s that time of the year when we take stock. Here at FIREvLondon, that means it’s time to do an ‘audit’ of our Finances, and our financial Independence.

Let’s take a look at some of the key questions an audit should consider.

Q1: What state is the balance sheet in?

I review the portfolio performance monthly, and it’s progress against ‘budget’ (i.e. target allocation). As this post highlights, December saw a very strong performance with net assets up almost 23%. An exceptionally strong performance, by historical or future standards, reflecting the 30% gain in the US stockmarket in 2019.

Liabilities remain very much under control too. The margin loan that provides my account with leverage amounts to just over 10% of the value of the assets.

Off balance sheet, the recent move to sell a key residential property and reinvest the money will provide further strengthening of the balance sheet.

Q2: How does the income statement look?

A year ago I borrowed a framework by {indeedably} in which he breaks down his assets and income. He has an unusual way of looking at his state of financial dependence, as shown by his (updated) image below:

Using this framework, 2019 saw me, like 2018, make a clear ‘profit’, or surplus, between total inflows and total outflows. However, from a Financial Independence perspective, i.e. stripping out earned income (and taxes on them), I saw a slight deficit – with outflows exceeding inflows. The chief reason for this was a very high level of expenditure on ‘wants’.

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How to become a millionaire in London on £40k p.a.

I knew I didn’t know much about Imran.

Imran joined the company at about the same time as me, less than 2 years ago, in a fairly junior position. He’s a book-keeper. He’s young – in his twenties. Very much of the millennial generation.

Image result for hipster coffee in office

At my office, we get new joiners to do a dog-and-pony-show to introduce themselves to the whole floor. Imran’s dog-and-pony show was pretty memorable, for the wrong reasons: Imran didn’t know how to present, couldn’t structure his thoughts, and didn’t respect his audience. He did however make it clear he is a very hippy alternative person, a dreamer, somewhat immature, and was not from book-keeping central casting.

Image result for office  meetup london

Since Imran joined I have had very little – too little – to do with him. I’ve been involved with his pay review, he’s made the occasional not very practical suggestion for what other departments should be doing, and that’s about it. He’s clearly a fairly withdrawn, introverted person.

In Imran’s pay review, I learnt that he’s being paid significantly less than the market rate. He is evidently not very money motivated and his motivation for joining my company was for other reasons. In the last 18 months his pay has increased from a little under £40k to a little more than £40k. He could probably find a role elsewhere in London on £50k, though his presentational/ introverted style won’t make this easy for him.

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Why the market’s about to drop – and what I’m doing about it

This time is different.

We’ve been at market highs before. Staring at unprecedented multiples, unhinged presidents, central bankers finally increasing rates, comedians winning elections in G8 economies, the first serious trade wars in decades, and more.

We’ve heard how a big drop is imminent before. We’ve muttered, whispered, tutted, gawped and clicked our tongues.

Yes, as we predicted those times, market corrections often followed soon after (except, just a couple of times, when they didn’t).

But this time really is different.

This time my portfolio is running red hot, at a new high water mark.

Amazon’s just crossed $2000/share. $2000, per solitary share.

Apparently US company earnings are falling, and, not unsurprisingly if so, dividends are heading down. This hasn’t happened before, since, well, just before the last market correction/crash/similar.

In the UK, the (120,000) people have spoken and we have a new Prime Minister. And Brexit no deal/etc looming on Hallowe’en’s day. As if the world economy wasn’t giving us enough to think about.

So, obviously, now is the time to run for the hills.

Image result for hills in london
Head for the hills! If you can get a spot – this is London after all.

Which hill to run to?

Continue reading “Why the market’s about to drop – and what I’m doing about it”