My FIRE Path: 2018 Progress & 2019 Goals

CAN WE GET OFF THE ROLLER COASTER NOW PLEASE!?!?!?

Investors in 2018 (Probably)

Whew! 2018 was an ‘interesting’ year, to say the least. Although the year was filled with volatility, the majority of the time, the market was moving sideways and even slightly up compared to where we were last year.

That was until October … when it just decides to take a nosedive straight into the pavement.

Well, now’s probably the best time to take stock of what I did in 2018 and how the crazy market movements has affected my portfolio as well as my plans for 2019.

Let’s dive in!

A look back at 2018

Savings and investments

Total investments in 2018: ~S$55,500

Here’s the breakdown on where those 55k in investments went:

Total Portfolio Value Change: +S$45,360

Ouch. The portfolio’s total value only increased by 81.73% of the total investment value… which means I lost money.

Looking at this as a chart it looks like this:

Looks like my portfolio got sick of the US-China trade war and decided to jump off a cliff at the end of 2018 – straight through the floor.

Oh, what’s that bit where my cost dropped by around S$11,000 you ask? That was when I was forced to sell my Facebook shares to pay a deposit for my wedding. I sold at USD $210 per share right before it promptly dove down to around USD $170. Now it’s hovering around USD $140. I’ve been thanking my lucky stars ever since. Thank god I had a wedding, but that also came at its own cost – which I’ll touch on in a bit.

So here’s my total holdings at the end of 2018:

This means I ended 2018 with roughly S$132,000 in investments, around 6.1% of the way towards my FIRE number. Not bad considering I started at S$0 saved in mid 2016 after folding up my failed startup.

Obstacles to FIRE in 2018

One major obstacle to my FIRE plan in 2018 was my wedding. After all expenses and cash gifts were considered, my wife and I ended up spending over S$36,000 on our wedding. Although it was a major setback financially we are definitely happy with how the wedding turned out and wouldn’t have had it any other way. For these types of expenses, only you can decide whether it’s something that you will find worth while to spend your hard-earned dollars on.

There was one great thing financially that came out of the wedding though! As I did not have enough cash to put in for my wedding deposit, I was forced to sell my Facebook shares right before it tanked. (Hooray for being super lucky.)

Reflections: What I did right and what I did wrong

All the good stuff

1. I’m happy we were able to still invest more than S$55,000 in a year where I had to spend on a major expense like a wedding.
2. Putting all of my annual bonus into the stock market right when I got it instead of using dollar cost averaging to slowly put it into the market over time. At that time, SGD to USD exchange rate was at 1.31 SGD per USD, very good given that the exchange rate continued to worsen after that and is currently hovering around 1.35-1.36 SGD per USD.
3. Finally made the first purchase into EIMI to get some exposure to the emerging market. In addition to getting more diversification, this also allows me to rebalance my portfolio between emerging market and the developed markets.

Now to the bad stuff

1. Emotional investing: I allowed my excitement to convince me to overly invest into technology stocks. Last year I added over S$28,000 into QQQ and AAPL which is more than 50% of my total investments into technology sector. Given that 14% of IWDA is also made up of information technology stocks, now over 44% of my portfolio is invested in tech.
2. Overly invested in AAPL. Now … I love Apple and still believe that it has continued long-term potential, but having 14% of my entire portfolio invested in a single company is crazy. Case in point, as such a large portion of my portfolio is made up of AAPL, when its shares took a major dive at the end of 2018 – going from almost USD $230 down to about USD $150 (roughly a 34% drop) – my portfolio dove with it. That’s also why my portfolio looks as bad as it does.
3. Overlapping of exposure. Given that AAPL makes up over 2% of IWDA and 9% of QQQ, I am actually more exposed to AAPL’s price movement than it first appears. This compounds the problem when AAPL’s price moves against me.

It looks like 2018 was the year that I am bitten for not following the core tenant of the FIRE community: invest in broad-based, low-fee index funds. I am over exposed to the tech sector and a single technology company. When the market conditions adversely affects the tech sector and specifically Apple, due to my concentrated exposure, I am much more severely punished.

These are things I am planning to rectify in 2019.

Looking Forward: Plan for 2019

Given all of the above, here’s my investment plan for 2019…

#1 Stay the course & continue investing regularly

This is the most obvious item on the list. Maximize the amount of money that’s saved and invested in 2019. Based on my projection of monthly expenses and income & annual bonus, I am aiming to be able to save and invest at least S$100,000 this year.

“But FPL! Look at the market and the trade situation! You’re crazy if you still want to invest!”

I don’t blame you from feeling that way.

Given all the message of doom and gloom plus major publications calling the end of the bull market, it may be tempting for investors to jump ship now – cut the loss, hide the money in the closet until the bloodbath is over, and only jump back in once the market starts to recover.

However, that’s exactly the wrong thing to do. Selling out now will lock in your losses. You cannot predict the future, the market could go down tomorrow but it could also go back up. If you sell now and the market recovers, you may end up taking a loss and must buy back in at a higher price, a double whammy.

On the other hand, we also know that throughout history the market always recovers and goes up the majority of the time. So instead of cashing out and locking in our losses, we should be taking this as a great opportunity to buy in when the market is cheap.

Note: This only applies to broad-based index funds. Individual companies can go to zero in times of market turmoil but as indexes are made up of thousands of companies and are always adjusted based on the market cap of companies, they have a self-cleansing property. As companies drop in performance, they are replaced by companies which are quickly growing.

Although psychologically it may be hard to stick through with it while the world feels like it’s falling apart, but the data backs it up. So I intend to stay the course and continue investing throughout this market turmoil just I was doing before.

#2 Contribute S$7,000 to my CPF SA

2019 will be my very first year voluntarily contributing to my CPF. There’s a few good reasons why I want to voluntarily contribute to my CPF even though I can’t access it until 55:

1. Income tax deduction: given that my tax bracket is pretty high, I will stand to save quite a bit of tax when I voluntarily contribute.
2. Capture relatively good risk-free returns: since the first S$60,000 in CPF Special Account will receive 4% returns + 1% in bonus interest, I will be locking in a 5% risk-free return.
3. Ensure I can hit the Full Retirement Sum by the time I reach the age of 55. Since us FIRE folks will likely stop working quite early, much earlier than the government plans for us to, we may have a hard time reaching the Full Retirement Sum necessary to receive the full benefits of CPF LIFE. In order to make sure we do have enough in our CPF Retirement Account for CPF LIFE, we better voluntarily contribute as much as we can to our CPF SA.

For more information about the optimal approach to CPF LIFE, you can check out my post on the topic via the link.

#3 Invest all bonus immediately

This one is less obvious. I will be receiving my annual bonus around April and I will be immediately putting all of it into the stock market. If you’re new to investing and the FIRE community, you may want to ask “Wait, isn’t that risky? What if the market tanks right after you put your money in?” You may prefer to use dollar-cost averaging (DCA) to put the money into the market slowly over time, maybe over 12 months.

This is a topic that’s been debated since forever, and I believe JL Collins and Vanguard already does a very good job of explaining by it’s often better to put all your money in at once rather than using DCA:

• Stocks — Part XXVII: Why I Don’t Like Dollar Cost Averaging – by JL Collins
• Dollar-cost averaging just means taking risk later (PDF) – by Vanguard

In short, when you dollar-cost average you are counting on the market going down and if the market goes up you will be losing out. Given that on average the market goes up over time, you are much more likely to outperform when using lump sum investing than using DCA.

Now that’s out of the way, what’s left is what investments I should buy.

#4 Get to a better asset allocation

Since I did a horrible job with asset allocation in 2018, I’ve gotta get my portfolio in proper shape by shooting for a better allocation.

Here’s the asset allocation that I am shooting for:

Why only these three tickers and these allocations specifically? You can refer to my post on building a Bogleheads 3-Fund Portfolio for Singaporeans to find out more.

As for the allocation, here’s my thoughts:

1. IWDA : This gives me exposure to growth of the developed world economy including the US market. In the past 50 years the average inflation-adjusted returns of the S&P 500 is 8% and if I want to capture a part of that growth, it is important to have the majority of my investments in this ETF.
   
   
2. EIMI : Even though the developed market stocks have had amazing growths in the past few decades, there’s no guarantee that this will continue forever. It’s possible that the developed markets don’t have as much room to grow now that they’ve become so mature. That is why I’d want some exposure to the developing markets like China, Brazil and Vietnam which EIMI provides. However, these markets are much less regulated and I personally feel that they carry more risk and uncertainty. I want to make sure I have enough exposure but not so much that a market meltdown would destroy my portfolio. So10% is where I’m comfortable with.
   
   
3. STI ETF (ES3.SI) : – The STI ETF is there to make sure I am hedged against bad currency movements. However, I don’t want too much exposure as the returns of STI – with reinvested dividends – in the past 10 years has only been around 3-6% and less than that once adjusted for inflation. This means if I want higher returns, it’s better to allocate more of my portfolio to IWDA than the STI. This is why I landed on 20%.

#5 Get at least 4% closer to my FIRE goal

I ended 2018 with around 6% of my FIRE number. Given that I’ll be adding around S$100,000 to my portfolio within the next year. This should get me at least 4% (hopefully more) closer to my goal. If I end 2019 with my portfolio at 10% of my goal, I’d count that as a big success.

Conclusion

So there you have it! A look back at how I did in 2018 and what I’m planning for in 2019.

Even though 2018 ended in a massive market pull-back, I’m certain if I stay the course and keep investing into my portfolio based on my planned asset allocation, I will end 2019 in a great position.

What about you? How did you do in 2018 and what’s your personal goal for 2019? Are you going to stick it out and stay the course in 2019? What’s your asset allocation and what stocks do you have in your portfolio?

I’d love to hear from you and compare notes so don’t hesitate to share your own progress down in the comments below or you can also follow & shout at me on twitter if you want to have a conversation by tweeting @firepathlion! I wish us all a successful and prosperous 2019!

Until next time.

FPL