My FIRE Path: Locking down 2020 and looking towards 2021

Well… That was unexpected.

This year has been full of surprises… to say the least. I’m pretty sure everybody is glad to be finally rid of that horrid year. I hope everybody has made it through relatively unscathed. Nothing about the last year had gone according to plan, for better and for worse.

When I wrote my 2019 recap post a year ago, who knew that a global pandemic would be on the horizon and that the entire world would still be reeling from it more than 12 months on.

Now although nobody could have predicted the impact of COVID-19, I count myself extremely lucky to have been able to continue to follow the investment strategy that I’ve set out at the beginning of the year. As a result, despite the turmoil and restrictions on everyday life that the pandemic has caused, 2020 turned out to be – financially – the best year so far for the FIRE-Path Lion household.

I’ll be going through the entire year’s result with you in this post and – as usual – what I am planning for 2021.

If you’d like to read up on the details of what I did during the early days of this pandemic, you can refer to my previous posts on that below:

1. COVID-19: How I’m investing through this uncertainty
2. Investing During a Crash – One Month Later & Survival Tips
3. Crash Canceled!? May 2020 Portfolio Update!

So in order to recap and close off 2020 I’ll be splitting this post into a few sections:

1. Update of major life events during the year
2. Detailed look at my investments and my thought process in 2020
3. Summary of the investment performance
4. First look at my net worth
5. Looking forward to 2021, major milestones, plans and goals for this year
6. Closing thoughts

Update on Major Life Events

First, I guess I should give some updates around what’s been going on in my life this year to give some context for the next sections. It won’t really be investment focused so if you’d like to focus only on the investment stuff, I’d suggest for you to skip to the next section!

Anyway I know I haven’t been posting that often after the middle of the year (even this year-end conclusion and wrap up is late!) although I’ve been writing a few drafts and even some really long posts. However, I’ve just not been able to get them to a place where I’m happy with their quality just yet.

The main reason is that I’ve been way too busy and also maybe a bit burnt out due to switching jobs in the middle of the year.

New Job: Better pay but more stress – worth it?

One of the major life changes this year will have to be leaving my old company where I was working at for about 4 years to a new company. This did come with a nice bump in pay – slightly more than 26%, but also a huge increase in workload, responsibility and stress. There’s no debating that it greatly accelerated my journey towards FIRE, however I’m still unsure whether it was the right choice given the additional stress.

Of course at the time I made my decision to move, it was not possible to know what I know now. The move was not purely motivated by the pay bump as the position and work sounded exciting on paper. Once I joined though, things didn’t turn out exactly as expected. Given the increase in pay, I expected a certain amount of increased responsibility, but what I did not expect was the level of organizational dysfunction that was inherent within the company. I guess that’s why they were willing to pay big bucks!

In light of this, I’ve been thinking long and hard during the December holiday period about what to do. As a person who believes in the importance of work-life balance, choosing sustainable work and that FIRE is a marathon not a race – staying in this position would not be the right choice – even if it does allow me to hit my FIRE goal in 3 years instead of 5.

Given the stress, I am even contemplating to leave the job and take 1 year off to wind down before starting again, due to the level of burnout that I’m experiencing – so we’ll see. Although… the annual bonus (if there’s any) will be paid out in about 2-4 months time, and that could be a significant amount so I might wait until then. The golden handcuff is real even if I don’t necessarily “need” the money!

Just to be sure, it’s important to highlight that this choice is only available to me because I have been working towards FIRE for the last 4.5 years. Due to my journey towards FIRE, I am fortunate to have the financial cushion to make this type of choice – to walk away from a job and not work for a year if I want to. I’m not physically trapped in my job… the only chain now is psychological. Given that many people are struggling this year, willingly giving up a well-paid job just feels crazy financially.

Also, from the perspective of Mrs. FIRE-Path Lion, she is completely supportive of my taking a year off since she sees how stressed and burnt out I am so there’s greenlight there – but she also feels like I should still wait a few months (also there’s CNY in between!)  and at least take the annual bonus first before throwing my letter – since that alone (even though it will be less this year due to COVID) could potentially cover our expenses for 6 months. So that’s probably what I’m going to do. I’ll update you guys on what decision I will have made later.

Moving to a new house, increasing expenses – it’s complicated

Another important event that we’ve been dealing with is the move to our new house. My wife and I are currently staying with her parents and they are happy to have us there. However, as you will recall in my rent vs buy post, the original plan was to buy a resale HDB and move there. However, what I didn’t mention in that post was that I already technically own a private property (condo) here.

The reason why I say “technically” is because the property was purchased by my father as an investment (basically all the money for the downpayment was from him) but he has decided to put the property under both our names – 50/50. The idea was that I will slowly “buy” this property back from my father by paying him back for the down payment on a monthly basis while also servicing the mortgage using my CPF – given that the mortgage is in both our names.

The condo was – until very recently – rented out (by me) and the rental income was used to gradually “pay back” my father for the down payment.

Now the problem is that in order for my wife and I to get a resale HDB, I’d have to sell my share of the condo. The original plan was to sell the condo so that my wife and I can get our very own HDB. Both my wife and I prefer a larger space and we don’t necessarily need the facilities that would come with a condo so the most financially prudent choice would be to get a 4 or 5 room HDB and do some renovations on it. That would still end up being cheaper and possibly nicer than keeping and staying in this condo.

However, given the hassle of selling, the COVID pandemic, the tenant’s lease ending, and the fact that the condo is nearer to my new workplace – we decided to postpone our HDB plan and instead move into the condo and live there for a while instead.

I’ve also made another decision that would actually make keeping this condo quite profitable (more on this in a different future post.)

So we’ve been planning the move and have been dealing with some of the light renovation that the place needs. This means I also have to save up to do the renovations on the place, given there isn’t any proceeds from the sale of a condo to finance the renovation – so some funds were diverted from my regular investments into the renovation.

Now on the “paying back my father” side, since the tenant has moved out, I will be completely responsible for paying both the mortgage using CPF as well as transferring my “rental” to my father to continue to service the remaining portion of the down payment. Based on my calculations, I would have fully “purchased” the condo from my father in the next 5 years – of course, given that he’s an amazing father, he’s doing this all interest-free (aside from the monthly allowance that I also give him, but we won’t count that!) – so it’s an amazing deal.

Though this does mean that my expenses next year will be increasing significantly. At the moment because I stay with my in-laws and their property is already fully paid off, I simply cover 100% of the utilities in the house – which is no more than $250 per month. With this move to stay in the condo, I will be paying my father back $2,600 per month on top of another $2,100 or so in mortgage payments – so a significant difference. Of course, since this condo will eventually belong to me – these monthly payments are going into building the equity in the property (and thus building my net worth) and is not going to waste.

Further down in this post, you’ll see the condo accounted for in my net worth calculation as well, so keep an eye out for that. I’ve made sure to only account for the portion that has been “purchased” from my father based on the percentage of the down payment I’ve paid back.

Eventually we do think that we’ll still sell away the condo and move into HDB – maybe in another 5-6 years or so once we have kids and need more space – but for now, this condo will do for the short term.

Well, that’s that for the important events, let’s take a look at what most of you are likely here for shall we?

Detailed look at my investments in 2020

“Every decade or so, dark clouds will fill the economic skies, and that will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying wash tubs, not teaspoons.”

Warren Buffet

The above Warren Buffet quote rang extremely true for me in 2020. There are several reasons for this.

First and foremost, unless you’ve been living under a rock in the past 12 months, you’d have known that there was a huge pandemic and the market crashed HARD in February of 2020.

At the time, I advised everybody to stay the course and take this as an opportunity to buy into the market at a discount. Which I was able to do in 2 major ways.

The first was that I was lucky enough to have received my annual bonus (for the work done in the previous year – unaffected by COVID) right around the time the market tanked between February and March. I was able to deploy a large amount of capital right when the market sank, buying into the market at a steep discount.

The second was being fortunate to keep my job, continue getting paid and even securing a better paying position as the market proceeded to recover. I was able to continue to put as much of my income as possible into the market and therefore able to better take advantage of the market slump and recovery.

As a result of the above, this is what my capital injection looks like as of the end of 2020:

As you can see, my investments have been very consistent – usually adding to the portfolio once per month, without fail throughout this COVID pandemic no matter if the market was up or down that day.

I missed one contribution around August as that was when I switched jobs and again in December as I started saving up for the renovation on my new home.

You can also see the larger capital injections when I received my annual bonus in the first half of the year. Although, keen observers will notice that there’s a slight difference this year compared to the previous years… so let’s dive in to see what that was.

Attempt at market timing and “advanced” DCA rolled into one

As long-time readers of my blog would know, I’m not a fan of Dollar Cost Averaging (DCA) and that’s because they are more likely to underperform lump sum investing about 66% of the time. This is more likely the longer we spread out the DCA period – 6 months DCA is worse than 3 month DCA statistically. You can read more about my analysis on this in my previous post using the STI ETF as the investment vehicle.

However, astute observers of my portfolio graph above would notice something odd. In the previous years, when I received my annual bonus (indicated by the vertical red line in the first half of the year) I would practice what I preach and dump everything into the market at once and “lump sum” all of my bonus into the market as soon as I received it.

However, this year you can see that this was not the case. Instead of a single vertical line straight up like in 2017, 2018 and 2019, you see a staircase-like pattern where I attempted to add funds bit by bit into the market. Why was this?

You can also see that the capital injection seems to be slightly earlier than in the previous years. As the company pays my annual bonus at the same time every year without fail, why did my capital injection start earlier than when I would normally receive my bonus?

There are 2 big reasons for this behavior.

Reason 1: First attempt at a more “advanced” DCA method

I started the investment earlier than when I normally receive my bonus because of an analysis by Early Retirement Now in his post “How to invest a windfall: Lump Sum or Dollar Cost Averaging.” In the post, he was able to show that DCA would perform as well as or better than Lump Sum, IF we are able to start the DCA before we receive the lump sum amount. This is in contrast to waiting until we receive the lump sum and then start the DCA at that point.

Intuitively this makes sense as “time in the market beats timing the market” so the earlier you can invest the better as the market generally goes up. However, DCA is a risk mitigation tool to allow you to prevent buying in right before a market drop, which generally underperforms due to the same reason – by investing your funds in small parts over a period of time. So therefore, it would make sense that you’d be able to reduce the negative impact of DCA, but starting the DCA earlier – while at the same time enjoy the risk mitigation benefits that DCA provides.

However, this will require that we as an investor, know how much we have for DCA. Often windfalls are not predictable and therefore you cannot start investing until the windfall arrives by surprise. Yet annual bonuses are exactly the type of windfalls that happen on a yearly basis where the timing and amounts are predictable.

You see, the company I work for normally pays out the annual bonus at the end of March – however they would first announce to each employee how much they will receive by around mid February. So with this information I knew exactly how much bonusI would receive and when I would receive it – the perfect condition for attempting this new DCA approach.

So I wanted to give it a try.

Therefore the initial plan was to split my bonus into maybe 3 pieces and deploy the first one 1 month before I receive the bonus, 1 on the day I receive the bonus and the last one 1 month after I receive the bonus. The way to do this was to take the planned funds out of the emergency fund to invest while knowing that it will be replenished when the bonus is paid – effectively borrowing from the future

However that also didn’t quite pan out the way I planned. As you can see, there were about 5 capital injections really close to each other, less than 1 month apart. Quite different from the plan. This brings us to reason number 2.

Reason 2: FOMO due to COVID-19 market crash

Right around the time I was going to execute the new DCA strategy, the market became spooked by the impact of COVID-19 and immediately crashed right at the end of February. This was right before I deployed the first ⅓ of my bonus.

As the market started tanking, I was worried that deploying an entire ⅓ of my expected bonus too soon may mean I will be buying in too high – given that I was expecting that the market could drop further.

I was trying to capture the market bottom and felt that buying in with ⅓ at the time was too much too soon. So instead I ended up splitting the expected amount into 5 parts and decided to shift the strategy to buying in whenever a significant drop happened – which means a drop of around 10% or more.

I thought it would take a few months to completely deploy everything, but the market crash turned out to be the most rapid in history, and I ended up putting in all 5 portions within 1 month… between the end of February and the end of March.

Here are the date and prices at which I bought in, roughly the same amount each time:

The positives was that due to this, I managed to catch the market at almost the bottom twice on the 16th and 18th March. However, this also meant that I also bought in a bit early on the 2nd and 6th of March.

How it went compared to if I had waited

So how did this work out?

If I had waited until the bonus was received in my account before investing, the price of IWDA would have been around $48-49 per share – and it turns out that the average share price across all of the purchases I made above, came to about that exact same price per share on average – about $49.5 per share. So it was pretty much a wash this time around. 

Would I do it again? Probably. Since I was willing to buy IWDA at $65 in February, I should be extremely happy to buy it at $57 even though I did not make all my purchases at the exact bottom.

Now had my bonus arrived in the middle of April instead of the end of March or had I hesitated and did not deploy my funds right away after I received it, IWDA would have gone back up to $53, which is already higher than the average price I paid for them as I averaged down during the drop. Therefore I think “catching a falling knife” makes sense if we are investing in the broad market because the broad market is practically guaranteed to recover. This is not always the case with individual companies – so keep that in mind.

How did the investment turn out?

The results of this decisive and consistent investment approach speaks for itself, here is the portfolio value over time:

And here’s the gains chart:

And the absolute percentage gains and annual returns chart:

Here are a few highlights:

Keep in mind that although the portfolio increase seems large, at more than 88% compared to the previous year’s value, a large part of it was from new capital injection rather than market performance.

Due to the fortunate timing of the annual bonus injection at and during the market drop and the subsequent rapid recovery, this pushed up the overall rate of return of the entire portfolio from 12.79% at the end of 2019 to above 18% at the end of this year – an incredible rate of return over a 4.6 year period.

How did my 2020 investment performance compare to the previous year and the performance of the indices themselves?

Here are the performance of 2017 to 2020 compare to STI ETF and IWDA performance:

The difference in performance between my portfolio and the indices that I hold are likely due to 2 major things:

1. I also hold Apple (AAPL) and Nasdaq 100 (QQQ) shares and they’ve been doing extremely well even though I only hold about 10% of the portfolio in these stocks.
2. I just happen to be lucky with the timing of my investments in the past 5 years whereas the index performance assumes purchasing at the beginning of the year and riding it out until the end of the year. I get to make purchases during the year and having caught the pandemic crash with my bonus was a big win.

This has resulted in a huge significant overperformance compared to the indices themselves.

Likelihood (Distribution) of Returns so far

Out of curiosity, given the increase in the annual rate of return, I wanted to see how my return distribution looks like throughout the past 4.6 years so I took the returns chart above and mapped the annual rate of returns on each particular day into a histogram. This is what that looks like:

From this we can see that on any given day, the majority of the returns are between 10% to 18%, which is pretty incredible. Let’s see what this looks like in terms of probability curve:

This shows that 50% of the time, the returns were above 12% and the other 50% of the time, the returns were below 12%. However, 75% of the time the returns have been 8% or above and 93% of the time the returns are above 0% in the past 4.6 years. Though this does not imply that a similar pattern will continue to hold true going forward, it does give me a sense of comfort to know that my current investment approach has yielded a return distribution with the midpoint sitting at 12%… and currently leaning towards the higher side. This seems to match the expected 12% average long-term nominal returns of the market – pretty cool.

How did you achieve this kind of return? Did you invest in Tesla, ARKK or Bitcoin? – My investment breakdown

Given the impressive returns of over 18% year over year, you might assume that I got in on the TSLA, NIO, PLTR, ARKK or Bitcoin bandwagon this year – or that I must have been a stock-picking and market timing genius. Well, I’m happy to say that really isn’t the case.

My investment approach could not have been more boring and more in line with what I’ve been preaching these past few years in my blog. The investments I’ve made this year have completely been in index funds ETFs, and here is the breakdown:

As you can see, the majority of the investments went into IWDA for the developed world exposure. The remaining are split between EIMI (for the developing markets) and ES3 (the STI ETF.) This has always been my strategy and I was targeting 80% IWDA, 10% EIMI and 10% STI ETF.

As a result, as of the end of 2020, here is what my portfolio allocation looked like at the end of 2020:

Comparing this allocation with what I had last year when I concluded 2019 there are a few things to note:

Large reduction in allocation to ES3.SI

At the end of 2019, I ended the year with around 18% allocation in the STI ETF. However, given that the local investment portion is meant as a safety net to hedge against currency fluctuations and the growth potential for STI is much lower than that of the broader global market, I decided that a lower allocation of just 10% would be sufficient. On the safety net front, I only really need enough to cover 6 months in expenses so I decided to rebalance the portfolio and move funds that were invested in STI ETF into IWDA instead at the beginning of 2020.

As my portfolio size increases, you should continue to see the allocation to ES3.SI shrink relative to other assets in my portfolio in the future. Eventually, it’s likely that as the portfolio size grows, the STI ETF may only constitute 5% of my portfolio.

So for those who believe that STI ETF’s growth potential is not as good as international indices, I agree, and that is why I do not hold a large portion of my portfolio in it. I still believe that it plays a role in risk management though, so that’s why I still keep some on hand.

Apple and QQQ allocation holding, surprisingly, steady

Although I continue to hold Apple and QQQ in my portfolio, similar to 2019, I did not make any additional contributions to their position in 2020. Given that I’ve contributed significantly to IWDA, EIMII and STI this year, you’d expect that the proportions of the portfolio that is allocated to Apple and QQQ would drop. However, that didn’t turn out to be the case.

At the end of 2019 the percentage of my portfolio that was allocated to Apple and QQQ were sitting at 12% and 9% respectively. Now in 2020, the percentage of Apple and QQQ are 11.3% and 7%… not much different from a year ago!

This is due to the strong performance of both of these tickers in 2020. Their price growth during the year basically kept up with my capital injections into the other tickers such that proportionately, their allocation did not change much. These 2 tickers contributed significantly to the total returns that I achieved this year – without them my returns will likely be sitting closer to 14%-15% rather than 18%.

Given that they have been strong performers this year and that I still believe in their future performance, I will definitely continue to hold onto these stocks into 2021. However, given that my portfolio size is now quite sizable, I may consider putting a small – about 5% – of additional allocation into AAPL in this coming year just for fun.

This may seem like I am deviating from my indexing strategy, but don’t worry the remaining 95% of my funds will still be going into IWDA, EIMI and STI ETF this year. Let see how this plays out for me this year.

Passive ETF allocation is close to my target allocation

Ignoring the allocation towards Apple and QQQ, the allocation to IWDA, EIMI and STI ETF are sitting at around 81%, 10.4% and 8.6% respectively. This is quite close to my target allocation of 80/10/10 so I’m quite happy with this.

The plan is to continue adding to the position in this proportion and hopefully it will push down the allocation to Apple and QQQ over time while at the same time pushing the portfolio allocation towards that total allocation in the long term.

High level look at my net worth

Now, ever since I started this blog I’ve only been talking about my investment portfolio but have yet to mention what my net worth currently looks like.

One reason is that I simply didn’t keep track of it until now and I hadn’t spent the time to compile all the sources of information that I have on my net worth. I roughly know how much I hold in each bucket of my assets such as property, investments and CPF but I’ve not put them together in one view to see the overall picture before. However, that has changed this year.

My curiosity got the better of me and I finally put that together. For CPF, I sat down and went through all of my CPF statements since I started working and added that information into my spreadsheet. For property, luckily, because I was the bookkeeper for the condo investment that by dad purchased (and that I will have to pay him back for) I have detailed notes on all the inflows, outflows, mortgage payments, remaining mortgage, as well as the current property valuations on hand..

So this has allowed me to compile a rather accurate picture of my networth throughout the last 5 years, since January 2015.

After compiling everything, this is what the picture looks like:

With the addition of property value (only the portion that belongs to me) and CPF accounts, my net worth is coming up extremely close to S$1,000,000 at the end of 2020 and as of the time of writing, has reached above S$1,000,000 for the first time – a major milestone.

What has been extremely motivating to see is the acceleration of wealth accumulation – mainly due to compound interest as well as increased in pay over the years.

Although I currently do not include CPF into my FIRE number, it is quite encouraging to cross the S$1,000,000 milestone.

As my investment portfolio grows and the net worth grows, the speed at which my net worth accumulates should also increase. It’s very cool to see the beginning of an exponential curve building here. (Of course, any market drops will also hurt especially more – it goes both ways.)

Goals and Game Plan for 2021

This section won’t be super long, by now you would have a good sense for what my strategy would be. Here are the main objectives for this year:

Keep investing into indices at the planned allocation (except maybe 5% into Apple)

This year, as in previous years, I will be targeting 80% into IWDA, 10% into EIMI and 10% into STI, but maybe with 5% into Apple for fun!

This might mean the allocation will look like: 80% IWDA, 10% EIMI, 5% STI and 5% Apple! That should set me up quite well for this year – we shall see.

Cash Out My Condo and Invest the Funds

Update: The post on the cash-out refinancing of my condo to invest is out now so you can read that for more details!

I will dive deeper into my rationale on why I am deciding to do this in a separate post, but in short I am deciding to take an additional loan using the equity of my condo as collateral so that I can invest the funds into the market instead.

The main reason is that the current mortgage rate is extremely low, I am able to get the funds out at around 1% since it is backed by a property. By taking the funds out at 1% and investing into the market at an expected future return at 8% – this is a no brainer for me. Even if the future market returns are as low as 4%, this would be a profitable decision.

I am expecting to be able to withdraw more than S$180,000 out from the condo and invest that into the market. This will increase my debt and thus from a net worth perspective, it won’t increase right away, but it will become a large inflow into my investment portfolio.

I’ll be keeping a detailed record of this exercise to show whether this turns out to be a good financial decision or not in the long run. So stay tuned for a post detailing how I’ve approached this.

This would actually bring my portfolio up above S$750,000 when this happens so…

Target to hit an investment portfolio of at least S$850,000

At the moment my portfolio has hit S$575,000 so S$600,000 should be achieved within a few months time and with the addition of the cash out refinancing of the condo, my portfolio should easily hit S$750,000 extremely quickly. Once I have successfully executed that investment, getting to the S$850,000 milestone by the end of the year should be extremely achievable… that is if I decide to keep my job.

If I do not keep my job, this may be a harder goal to hit, but not impossible. We shall see if I end up reaching it or not.

Closing Thoughts

Well, that was it, 2020 was definitely a crazy year… however at least financially I managed to come out way ahead due to crazy luck in timing and diligently investing. For those of us who managed to keep our jobs and hunker down to save and invest whatever we can, I think you too would have done quite well.

Hopefully this year is not as crazy as the last. With the vaccine now being rolled out and hopefully most of the world being vaccinated by the end of the year, I look forward to when the world returns to normal eventually.

Although I don’t know what’s going to happen this year, I’m sure it’s going to continue being unpredictable just as it always has been. With Biden as the president of the US, an adult is finally running the world’s largest economy again, so I hope that stability and sanity returns to the world. That was enough disasters in 2020 to last a lifetime, honestly.

Regardless of what happens, I’m going to continue investing and staying the course, and I’ll report back to you on how that goes – just as I’ve always done. So stay safe everybody, and remember to stay the course!

Until next time!

FPL