What a year it has been! The first year on our journey to Financial Independence and I’m confident in saying I don’t think we will ever see another year like it.
Let’s dig in…
Beginning in January 2020 we decided we were going to strive for Financial Independence. As you can read in our ‘About Us’, it isn’t the Retire Early (RE) but more so the options that Financial Independence (FI) will bring. We started the year planning to invest $2,500 per month for the first 6 months of the year, then $4,000 in the remaining 6 months of the year into a range of LIC’s (AFI, ARG, BKI, MLT) and the ETF (VAS), this would equal $39,000 for the year. Investing this amount would keep us on track with our 'Progress' spreadsheet and all things being equal, allow us to be Financially Independent by December 2030.
One thing FIRE allows is flexibility; one thing we needed most this year was flexibility. Three months into our journey to FIRE Covid-19 hit and threw markets into chaos. On Monday March 23rd 2020 the ASX was down 38.83% from its all-time high on Thursday February 20th 2020. This included a 9.7% drop on Monday 16th March 2020 which was the biggest daily percentage fall on record. I remember keeping an eye on the markets through this period and all I was thinking about was how perfect this was to be happening during our accumulation phase.
Whilst this was all happening, we were holding a lump sum of cash; unlucky for us this sum of cash was being held for our home deposit, so we were reluctant to part ways with it. Knowing the huge discounts that were on offer we did invest above our $2,500 per month during March, April and May investing a total of $17,500 over these three months which was $10,000 more than originally planned. Looking back, we never worried about the market crash or guessing when the bottom would be, but I do recall plenty of ‘experts’ saying that this ‘crash' would take years to recover. In reality it took the S&P500 (US Market) 5 months to recover and reach new highs, while the Australian ASX200 is still down, but only 5.41% 9 months on.
One option I did consider to get more money into the market during this time was a NAB Equity Builder Loan (you can click here for more info). As there is significant interest in this loan product within the FIRE community, I will write an in-depth blog post about the product in the coming months – you’ll be able to find it by clicking here. The main advantage I saw for the NAB Equity Builder Loan was the ability to lend and invest up to at 3.75% interest with no margin calls. The primary reason we didn’t apply for this loan product was because during this time we owned a block of land and had plans to start building in September 2020. We were cautious about having $100k of debt while applying for our house building loan. I don’t think we would have had an issue, but it wasn’t something we wanted to risk.
A story worthy of its own blog post is why we decided to not build our house and now looking back could not be happier about the decision. When the blog post is ready you’ll be able to find and read it by clicking here. In the end we decided to sell the block of land for $45,000 more than what we purchased it for 6 months prior. The HomeBuilder Grant ($25,000 for new home builds) has created quite a large demand for titled land in our area and this helped us achieve such a great profit in such a short period of time. After all fees etc. our net profit was circa $37,000 not too bad considering we only owned it for 6 months. The only downside to this is we held the house deposit money during the year when we could have invested it while the share market was down 38.83% in March. We still hold this lump sum of cash and have decided to invest $20,000 per month for the first six months of 2021 to Dollar Cost Average (DCA) this into the market.
Over the course of 2020 we were able to invest $59,114.51 into the market. This was in excess of the $39,000.00 we had budgeted for. Our Portfolio ended 2020 with $90,745.96. This is made up of: Capital Profit/Loss: +$6,612.21 (7.86%), Dividends Received: $1,947.19 (2.31%) equalling a Total Profit/Loss: +$8,559.40 (10.17%). Not bad considering we spent majority of 2020 dealing with a pandemic, in and out of lockdown, dividends being cut, businesses closing etc. – just proves you can’t time the market hey!
Thanks for reading,