Happy New Year everyone!
I know the last few years have been a series of “What a Year” years, but I think 2023 is another crazy year in the list of crazy years in the 2020s.
If you want a great example of why nobody can predict the market, 2023 would be it. So before we get to what I did this year and how my portfolio has done, let’s take a minute to review how the market did this past year shall we?
Nobody expected 2023 performance
Before the year began and throughout the entire year, various investors, financial institutions, and financial influencers were expecting doom and gloom. Many were expecting a recession, some even a depression, and plenty of people preferred to stay safe in the high-interest environment by investing their hard-earned money in T-Bills, SSBs, Term Deposits, and High Yield Savings Accounts.
What was very certain was that nobody expected the market to rebound over 20% (depending on which index you look at.) So don’t worry, it was not just you. I also did not expect such a strong recovery – and neither did the “professionals.”
@personalfinanceclub on Instagram had a great illustration (he’s great and I’ll use a few to help convey several points):
There’s always a reason not to invest
What was extremely clear to me was that there will always be a reason why NOT to invest and why you should get OUT of the market. Especially in the age we live in today, with various financial media outlets as well as financial influencers trying to get your attention every day of the week – we’re always being fed information that are designed to keep us on the edge of our seats… which is HORRIBLE for keeping us level-headed and staying invested.
This is a good reminder that there’s going to always be reasons why we shouldn’t invest… but as I described in my post on “why index investing works” the market will always go up over the long term:
Market: Short Term = Voting Machine, Long Term = Weighing Machine
The only thing we all need to keep in mind to help us stay the course (and not panic) is that the market will NOT move in a straight smooth line. The market goes up over time, yes, but it will be punctuated by periods of panic and instability that, if you’re not prepared, will freak you out. If we let that affect us (and convince us to start jumping in and out to try to time the market), we could really get burnt.
“The stock market is a device for transferring money from the impatient to the patient.”Warren Buffet
So always keep in mind that it’s normal for the market to behave erratically and irrationally in the short term, but over time the trend is up. So stay invested, keep buying, and when in doubt, zoom out.
It has always helped me to keep reminding myself of these points when I find myself in doubt, and it has helped me stay calm and stay the course.
Important Note: This advice only applies to broad-based index investing.
Now that we’ve gotten 2023 stock market performance out of the way, let’s review what I did and how things went for me in 2023.
How I invested in 2023
In order to break down my investments in 2023, I think it’s best to start with this chart of all my investments broken down:
This year, I’ve only focused on purchasing indexes. This is true both for the portions within SRS and CPF as well as the portions in my normal portfolio.
Here are the way the source of funds break down:
SRS & CPF
I’ve invested the maximum allowed amount of S$15,300 in my SRS as well as the proceeds I received in my CPF-OA from the sale of my first home (as mentioned in my previous post.)
Both the SRS and CPF were invested via Endowus using their Fund Smart option to purchase the Amundi Index MSCI World Fund due to it being the lowest fee option (0.3% Platform Fee + 0.1% Fund Fee) with the broadest global exposure (as far as I can tell.)
This portion came to about S$196,000 in total.
The cash portion of the investment came both from work (salary & annual bonus) and the sale of my first home (less the amount used to buy the 2nd home.)
This amount was used to buy both IWDA as well as VWRA. Since my time horizon is extremely long term, I am just going to keep buying.
As for why IWDA and VWRA when there’s quite a bit of overlap (VWRA holds both Emerging Markets and Developed Markets, while IWDA holds only Developed Markets) is because I needed to buy the shares off one of my family members as they wish to access cash.
While this does mean I will be more over-weight on the Developed Markets, I don’t mind it and I take it as a bigger allocation to America and the S&P500, which I am fine with.
This portion came to about S$370,000 in total.
This portion is quite significant this year. The leverage portion this year amounts to roughly S$460,000.
Disclaimer: Before I proceed, I must reiterate that this a high risk strategy and is NOT recommended for those who don’t fully understand it. So don’t take this section as any form of advice or recommendation for you to do the same.
For those who wish to read the background on my leverage investing (why I started, the thought process behind it, and some updates on how it’s going) you can read these sections on my previous posts:
- The Risky Investment Experiment – Leverage & Lifecycle Investing Strategy
- H12023 Update – Lifecycle Investing Update
While there are more in-depth details on how to execute on the lifecycle investment strategy (and I highly recommend the book to anyone looking to even consider this approach) I will say that the leverage ratio that I am targeting is 150% (or 1:1.5) which is much more conservative compared to the maximum leverage ratio of 200% (or 1:2) suggested by the book.
I am oversimplifying here, but my current leverage approach will only trigger a margin call only if the market crashes by more than 60% from here. So in that light, I am still quite safe.
Having said that, I still would not recommend this strategy for those reading this. If not carefully executed and managed, you can and will potentially make huge losses.
I’ll go into how this portion as performed once we’ve looked at the overall portfolio performance.
So without further ado, let’s take a look!
How the Portfolio Performed in 2023
Alright! This is likely the section most of you guys are here to see. So let’s go through my overall portfolio performance piece by piece – up till my overall net worth.
Overall Investment Portfolio Value vs Capital Injection (Cost)
So here’s the play-by-play description of the chart this year:
- The portfolio started the year at around S$840,000 and ended the year at roughly S$1,760,000.
- This is an increase of roughly S$920,000 over the year, representing an increase of about 110% over the previous year.
- The S$920,000 increase is made up of about S$565,000 in capital injection (not including leverage) and S$355,000 in Market Gain.
- The large capital injection near the end of the year (roughly S$420,000) was from the sale of my first home – so this was part CPF and part Cash.
- As I believe in the mantra “time in the market beats timing the market” and that lump-sum beats Dollar Cost Average (DCA) 66% of the time, I invested all S$420,000 in sales proceeds from the home and buying into the market all at once right away. This is after taking the portion I needed for buying our second home.
Here’s what the split between capital injection and market gains look like since the start of my investment journey:
Here’s the data in table form:
While the amount of capital added each year (blue) follows an increasing trend (more each year than the year before it) I don’t expect this to continue as this year was mainly due to the sale of our home. This will not repeat next year, so I am counting on the market gain to do the majority of the heavy lifting in 2024.
Let’s just focus on the gains
Given that the above chart includes the large capital injection from the sale of my home, it’s hard to see the market gains. Here’s the chart of just the total value minus the cost, so you can see just the market gains only:
Here you can see:
- We started the year with a gain of just S$70,000, a huge drop from thee start of 2022, which was at about S$340,000.
- However by the end of 2023, the market has retraced it’s previous highs and because I’ve continued to add funds throughout the year, our gain now sits at roughly S$425,000, an increase of S$355,000 within just the year.
Internal Rate of Return
However, seeing the gains this way is misleading since large dollar amount swings could be due to the large portfolio value that I’ve now accumulated… a S$100,000 gain for a S$2million portfolio is only 5% after all. The better measure of performance is Internal Rate of Returns – basically what the annual compounded rate of returns for the portfolio has been since the start. Let’s take a look:
Once we start looking at the percentage gain and XIRR, we see:
- We started the year, after a terrible 2022, at an XIRR of 3.24% p.a. compounded returns, but now at the end of 2023, the XIRR has recovered to roughly 11.90% p.a. compounded returns over the 7.7 years I’ve been invested.
- The average XIRR throughout this time is 12.19% – this just means that throughout these 7.7 years of investing, on any given day, the average annual rate of return has been hovering around 12% p.a.
- This is due to the fact that the effective XIRR for 2023 alone for my portfolio is over 37% for the year. This is a massive difference from the -24.2% for 2022.
A better way of understanding #2 is this distribution chart:
This chart shows the distribution of the compounded rate of returns on any given day for the last 7.7 years. As you can see, while the returns can vary wildly between as low. as -10% to as high as 33%, those are extremely unlikely. The majority of the returns that I experienced leaned positive and are clustered around the 12% mark on average.
The 25th percentile lands around 8%, 50th percentile lands around 12%, 75th percentile lands around 17%, and 90th percentile lands around 21%.
This helps me get a sense of whether the current rate of return is on the high or low side of the norm. Currently, since we sit right near 12%, my sense is that we’re relatively neutral or still have some upside potential (since this also includes returns from my leverage as well, whereas my wife’s portfolio which is purely VWRA and IWDA is currently hovering at around 7.5% p.a.)
So how does leverage play into this?
So all of the charts that you’ve seen so far is NET of leverage, which means that I’ve already deducted the loan amounts off of the portfolio value so I’m not counting any amounts that I still owe to the bank.
If I were to not remove the loaned amounts, or basically add in the parts that are backed by loans, the investment chart will look like this:
Here’s what this chart shows:
- As you can see the leverage use started in early 2022 as markets started to drop.
- If we add leverage in, the total investment value is hovering above S$2,620,000 with a total leverage of S$870,000 – about 34.5% of the overall value is leverage.
- So hypothetically if I needed to pay back the leverage (the yellow line) I can liquidate the shares to pay back the loan – which is why in the above charts, I’ve already deducted the loan value off. That just makes it cleaner because I can assume that the amount, net leverage, are mine.
Given the recovery that we saw in 2023, the shares that was invested in using leverage has now – after paying for interest rate on the loan, has now achieved about 3.8% p.a. return. Not bad.
Now let’s take a look at net worth.
My net worth at the end of 2023
The chart below shows my net worth broken down by its components. The main difference between this chart and the previous net worth charts is that I’ve added a new home (Property 2) into the chart as I’ve sold my previous home (Property 1.)
Here are some notes on net worth:
- Net worth started at about S$1,590,000 at the beginning of the year and ended the year at around S$2,240,000, an increase of roughly S$650,000 or 40% YOY.
- As I mentioned in my mid-year review, quite a significant chunk of the increase in my net worth this year came from the sudden and unexpected increase in my home value due to the COVID-driven real estate boom. About S$300,000 of the S$650,000 in net worth growth was from the increase in property value.
- This has been converted from a paper gain to a realized gain through the sale of the home in Q3 this year. I don’t expect nor do I count on this to repeat – which is also why I am investing as much of the proceeds as possible into the stock market.
- While we sold our previous home for a significant gain, we also made use of some of those gains to buy a new (and larger) home at a similarly high price per sqft. Since the entire real estate market was highly elevated at the same time, what we made on our first property was then put into the new property – so overall I believe this was a wash. You can read in more detail about this transaction in my previous post on the sale.
- You can see the swap of the old property (yellow) into the new property (green) on the chart. Property 2 only starts showing up at the end of the year. Since my wife is also paying for part of the new home (previous one was only paid for by me) I don’t need to use the entirety of the yellow portion to pay for green, so that’s why you see the green portion is much smaller.
- The sale of the home also means the end of the cash-out refinance investments (red). I didn’t sell the investments, but they won’t be tracked separately from my normal investment portfolio since it’s no longer backed by a loan (the loan was closed after the sale of the home by using the sale proceed to cover the loan.) Now the investments that were purchased using the loaned funds are just combined with my normal portfolio (dark blue.)
- The Investment Portfolio (dark blue) portion shot up at the end of the year because of the combination of:
- Bringing in the cash-out refinancing portion (red).
- Bringing in the home sale proceeds (yellow) to invest.
How am I tracking to my FIRE plan?
All this is well and good, but how does this track towards my FIRE number?
Well, let’s revisit my planning chart.
It’s ok if you don’t fully understand this chart as I’m going to write the highlights below. However, if you want to understand how to read this chart, you can read about that here in my 2021 review post.
- This is looking purely at my investment portfolio value, including CPF-IS and SRS, but excluding CPF OA, CPF SA, CPF MA, and Property.
- You will see that the “Current Amount” line (yellow) is only about S$100,000 away from the “FIRE Amount” line (green) which indicates that I am just S$100,000 away from my FIRE Goal.
- According to the chart, if you look at the red dotted line, it would only take 1-2 more month (assuming I receive my annual bonus) in order to get from the yellow line to green. This is projecting that I should be able to reach my FIRE goal within the next month or 2, roughly 4.5 years ahead of the plan (horizontal gap between the dark purple line [Real Value] and the red dotted line [Projected Value].)
So for all intents and purposes, this shows that I’m super close to my original FIRE Goal! Certainly a huuuuuuge milestone – and 4.5 years early at that!
So… is this the time to celebrate?!
Wellllllll not really. This is the time to update you guys on another aspect of my FIRE plan…
Changing of My FIRE Number & The Dreaded Lifestyle Creep
Who knew raising children in Singapore could be so expensive?!
Haha… I’m only half joking, but basically the short of it is that I have decided to change my FIRE number. Not necessarily that I cannot FIRE with my original number, but that I am making a conscious decision to increase it to accommodate a better FIRE lifestyle for my family.
Breaking it down, here are the key things that are increasing and why:
- Children. Our original plan was to budget S$1,000 per child per month. Split between my wife and I, my share would be S$500 per month per child. This is too low for a mixture of reasons and we’re going to increase this to S$2,000 per child per month or S$1,000 per child per month for myself. Since we’re looking to have 2 kids, we’re looking at S$2,000 per month just for myself. This increase is because everything around raising children is getting more expensive:
- Child care costs are high and is still increasing.
- Formula and diapers are also quite expensive.
- This increase should allow us to provide the above to our children.
- Domestic Helper. I did not initially planned for having a domestic helper, but after thinking through whether we would rather spend our free time to do household chores or spend quality time with our children, I decided that having a domestic helper – or at the very least regular cleaners that come in to help clean our place will be money well-spent. Even now, between just my wife and I, before having children, having a regular cleaner come in twice a month to help keep our home clean has helped reduce arguments between my wife and I related to household chores tremendously. I think this is money well-spent.
- Parents Support. As my parents grow older, I believe medical costs, insurance costs, and care-taking costs will increase. I will be incorporating that likely increased cost into my FIRE number.
- Travel & Leisure. As we’ve gotten older and as we are able to earn more, we would like our travels and vacations to be more comfortable and more convenient. Instead of staying in more budget locations or budget accommodations, we would like to be able to prioritize comfort and convenience, which is usually more expensive. I’m budgeting about S$1,000 per person per month for this – which should cover the annual cost of traveling in relative comfort maybe once or twice a year.
- Larger Home. My original number assumed that we would stay in an HDB which is much more affordable. However, since we are very fortunate to be able to afford to live in a condo, the better plan would be to incorporate the cost of the home we’d like to live in into the budget. In this case, after upgrading our home this year and the higher interest rate, this will require at least S$3,000 per month per person.
- Buffer. Some other buffer for any other potential expenses that comes up so that we have space in our budget to absorb any random shocks.
Taking all the above into consideration, I am estimating the shift of my monthly income from initially about S$5,000 per month to about S$10,000 per month – broken down and tracked against my current portfolio’s withdrawal rate below:
This basically represents a doubling of my original FIRE number from somewhere near S$2,000,000 up to closer to S$4,000,000.
While this is a sizable increase, my thoughts are this:
- Build the life you want, then save for it. This new FIRE number represents what it would cost to live the life that we’d like to live in Singapore – and still be able to comfortably provide the kind of life we’d want for our kids. We love living in Singapore, but Singapore is expensive, so if we want to live comfortably here (based on our definition) then we should budget and save diligently for it.
- Make hay when the sun shines. My wife and I are in a fortunate position to be able to make very high income today, so we have an opportunity to really stack away a sizable sum. We should capitalize on this opportunity now and save up a larger sum while our careers are at our peak to set us and our family up for long term comfort.
- I am way ahead of the original schedule. When I first started this blog, my target. was to be FIRE’d by 45. Never in a million years would I have predicted that I would reach my original goal at 38, seven years early! So given that I’ve arrived at my original goal 7 years ahead of schedule, why not spend a few more years – which were already part of the original plan – to work towards a more comfortable number? Any additional savings we can add can be viewed as a bonus according to the original plan.
Of course, all this is to say, I have certainly fallen into the lifestyle creep and the “one more year syndrome”, lol, but consciously!
So that’s it. While I am near my original goal, I do not feel like I can quite celebrate yet as I’m still heads down with my eyes set on a new goal – my new FIRE number.
What does this mean for 2024?
So to close out this wrap-up of 2023, here is my brief thoughts and plans for 2024. For those who have been reading for a while, this won’t be ground breaking:
- Invest as much as possible as soon as possible.
- I have already topped up S$8,000 into CPF MA and SA for tax deduction and to capture the higher interest rate as soon as possible.
- I will be putting as much of my paycheck into the market as soon as I receive it.
- I will also be putting as much of my annual bonus into the portfolio as soon as I receive it.
- Deposit and Invest SRS – this one is some time before the end of the year since it’s less liquid compare to investing outside SRS. But SRS is good for tax deduction.
- Keep the leverage where it is and just pay down the interest. Let the investment compound, but don’t let the leverage compound. That should also continue to ensure that the leverage play have the highest chance of paying off.
- I am expecting the Fed interest rate to start being reduced some time next year (maybe not as soon as most people are hoping) and this should have a positive impact on stock price as well as lowering the interest rate of my leverage loan – a double positive.
- However, I could also be wrong, and if I am, I should still be able to maintain my position safely as long as is required.
That should cover everything that I can think of doing from an investment standpoint. What you can be sure about is that I will be staying the course and report back on how this is going in another 6 months time.
So what about you? What’s your plans for 2024? Let me know your thoughts and any questions if you have any!
So with that, I hope you guys have a wonderful and prosperous 2024, and see if all again in my next post!
Until next time,