Welcome to the Route 2 FI interview series. I’m starting this series to get inside the heads of people that inspires me on my way to Financial Independence.
Today’s guest is The Dividend Story.
He has a net worth of $ 840,000 and in this interview we will get deep under his skin to reveal his ideas and get to know him better, so we can copy this great guy!
For us who are still on our path to becoming FI, it’s important who we get our information from.
I hope you’ll find this interview interesting and might learn some things that you can put into action in your own life.
I am a 33 year old Swedish guy with a strong passion for investing and reaching financial independence.
In August 2011, my wife and I made the decision to do our best to become financially independent. We started the journey with approximately $20 800 with the dream to create our own money machine by investing in dividend stocks. According to our definition, we would reach financial independence the day our passive income (= dividends) exceeded our yearly expenses.
Besides investing and pursuing financial independence, my biggest hobbies and passions are working out and travelling. My ambition is to run approximately 10k (6.2 miles) per day. Besides running, I frequently swim and do strength training at the gym.
From a travel perspective—which may not be the best use of money if you want to reach financial independence as quickly as possible—I enjoy exploring new countries and learning about new cultures. I want to visit as many countries as possible. So far, I have visited 39 countries so there is still a few to go before I have seen them all ?
Personality wise, I would say that I am positive, driven and goal-oriented.
My highest achieved degree of education is a masters in finance. I have always enjoyed studying and the student life in general, especially the flexible hours and managing your own time. Nowadays as a full-time worker in the corporate world, I miss the flexibility that comes with being a student. The flexibility aspect as being a student was an important factor for sparking the financial independence fire in me.
I am currently working at a controlling unit in a mid-sized Swedish company. I have been working in both the private and public sector since graduating from university about a decade ago. I spend 40-50 hours per week at work. Besides the hours spent at work, I don’t dare to count all the hours that relates to work, i.e. commuting, getting ready for work, thinking about work, etc.
All in all, I think my education and work experience will be of use for me when I retire, particularly for analysing companies and getting a better understanding of the companies’ financial situation.
What is your net worth and what does it consist of?
As of August 31 2019, our household net worth amounted to $840 000. Total assets amounted to $1 560 000 and included stocks & mutual funds ($766 000), real estate ($778 000) and money in a savings account ($16 000).
Total debts amounted at the end of August to $720 000, which consists of debts related to stocks & mutual funds ($187 000) and real estate ($533 000).
Could you tell us about your investing strategy. Could you explain why and how you do it? Do you have a long term plan for your investing?
The long term ambition with my investing is to create a money machine that gives my wife and I a constant stream of passive income. As our passive income will come from dividends, my investing strategy is therefore to invest in dividend companies.
I am passionate about analysing stocks, so I therefore enjoy building and managing my own fund rather than investing in one of the many mutual funds provided to the investors on the market. However, for people who lack interest in analysing stocks, buying (affordable) mutual funds is a great option.
During the last ~7.5 years, our portfolio—which mostly contains of Swedish companies—has given a rate of return of 245%. This can be compared to the Swedish stock market (including dividends) that has increased by 163% during the same period.
I think companies with a strong track record of paying dividends many times indicates stability and quality. As our portfolio has now reached a decent size, focus has been put more on reducing the risks in our financial situation. I think dividend companies as a group fit well into this approach.
When analysing a company, I examine the company’s historical business performance, its business model, what I think about their competitiveness going forward, their financial situation, ownership structure as well as establishing an opinion concerning what I think about the current valuation of the stock and the company’s possibilities to maintain (and hopefully increase) the dividends.
When did you purchase your first stocks?
I purchased my first stocks when I was 10 years old.
At that time, I did not have any investment philosophy or a structured way of analysing stocks. Instead, the investment decision was made by using my gut-feeling – and also getting some support from my family.
When did you first start blogging? Was there a specific launching off point or what influenced you to go down that path?
I published my first blog post on February 25, 2019. The reasons for why I started my own blog was because (1) I enjoy writing, (2) I am motivated by inspiring other people and if my blog can help others come one step further in fulfilling their dream, I would be extremely happy and (3) I would like to expose myself to like-minded people to a larger extent.
Despite its rather short time since its inception, the blog has already given me new and terrific connections and friendships. I recently celebrated post number 200, which means that since the blog was launched I have posted on average 1 post per day.
What is the story behind your blog name “The Dividend Story”?
As mentioned earlier, I purchased my first stocks at the age of 10 where I used my “gut-feeling” to decide whether or not to purchase the stock.
As I grew older, I started to read and participate in discussions in online forums. The stocks that I bought back then were more speculative stocks. In hindsight, it is now easy to see that this – not surprisingly – resulted in a larger hit in the dot-com bubble in the early 2000s.
As many other people do after they have lost money in the stock market, I kept away from it for some years. During those years the stock market seemed to have gained momentum again, which once again attracted me to invest in stocks.
This time though, it didn’t take that many years before the world in 2008 got to experience the most severe financial crisis since the Great Depression in the 1920s. Despite that I was invested in more stable companies according to the general (investment) public during this time, the portfolio took another significant hit.
I then started to read investment books. Books such as “One up on Wall Street” by Peter Lynch, “The Intelligent Investor” by Benjamin Graham, “The Snowball – Warren Buffett and the Business of Life” by Alice Schroeder, and “The Black Swan” by Nassim Nicholas Taleb all came to change my way of viewing the stock market.
Warren Buffett, one of the most successful investors in history, quickly became my favourite investor. I was also inspired by several bloggers that were active at this time. One of my favourite blogs was Jason Fieber’s Dividend Mantra. His thought and ideas about pursuing early retirement by investing in dividend stocks partly laid the foundation for my investment strategy.
As stated above, a milestone was reached in August 2011 when my wife and I launched our journey of becoming financially independent through dividend investing. That is how “The Dividend Story” came to be.
Are there specific short-term and long-term goals you’re working towards with The Dividend Story?
I don’t have any specific goals or requirements tied to my blog. I will continue writing as long as I enjoy it and as long as it gives me, as well as hopefully my readers, value. The ambitions with my blog are to continue to interact with my readers and to hopefully meet more fantastic like-minded people.
It makes me very happy when someone tells me that (partly) thanks to my blog he/she has taken the first step to start saving or do something that will make him/her come closer to his/her dream.
My favorite post on your blog is “How My Net Worth Increased With Over $800.000 In 8 Years”. Could you please give a summary of the article where you explain how you did this?
When my wife and I started the journey toward financial independence, we had a net worth of $20 800. We weren’t off to a great start since the net worth in the first month was reduced by $4 100. However, the reason for the reduction in net worth in that first month was because we increased our debts.
After the weak start, the journey began to significantly improve. During the first years, we were living on mostly one income. We had a high focus on keeping the expenses down and saving as much of our income as possible. During the first four years, we managed to save approximately $3 200 per month based on the exchange rate during those years.
After 4 years, we had managed to save more than $150 000 from the household’s disposable income. The vast majority of this amount was immediately transferred to our stock account and invested in dividend stocks.
From the starting point of our journey, it took us 19 months before we could call ourselves millionaires in the Swedish currency SEK (1 000 000 SEK = $104 000). Our net worth doubled, and we gained our second million SEK within less than a year after we had passed the 1 million mark.
The third million was reached at an even faster pace where it took only seven months. For the fourth million, it took only another month. In 3 years and 2 months, our net worth had increased by $415 000. Part of the reason for the strong development from 2 to 4 million SEK was from real estate profit.
When it comes to real estate, the number in our balance sheet is always reported as the purchase price. Supported by a strong market for real estate, we could therefore realize a profit that wasn’t expected if you only looked in our balance sheet. At the moment, I would estimate our home to be worth around $100 000 more than what we bought if for last year.
At this time, our net worth was also strongly supported by a favourable development on the stock market and we reached our fifth million in SEK in February 2018, i.e. four months after we reached the fourth million.
However, due to some unfavourable stock investments, the strong development regarding our net worth plateaued. Unfortunately, those stock investments constituted a significant part of the portfolio. It took therefore 27 months to reach the next million SEK. After this event, I have learnt the importance of diversification. My guideline now is that no holding will represent more than 10% of the total portfolio value.
When the sixth million SEK was achieved, we were already in May 2017. A better momentum was once again established, and it took 11 months to reach the seventh million SEK. Our so far last million SEK was reached when our net worth exceeded 8 million SEK ($840,000) in April 2019.
The graph below shows the development of our net worth (SEK) since August 2011.
The development of our net worth has by far exceeded our expectations. I could never imagine such a fast and strong development. I would say that the most important factors behind the strong development are: high savings ratio and cost awareness, strong development on the stock market supported by additional leverage (gearing) in our portfolio, reinvesting of dividends, realisations of real estate profit and the compounding interest effect working in our favour.
What has been your average annual income up to this point? And what is your average savings rate? How much do you spend annually?
Since I graduated in 2010, my average income before tax have amounted to $55 000 per year. I am a big fan of the compound interest effect. Once I got a job, the objective was therefore to kick-start the journey towards financial independence by initially saving and investing as much as possible. The purpose with this was so that the compound interest effect immediately could start to work in our favour.
During the first 4 years of the FI journey, we cut down the cost base to a minimum. This enabled us to save 77% of the disposable income after tax on average per month.
During this period, every dollar was counted. I used online compound interest calculators to figure out how much a dollar would be worth in 20 years if it was to be invested today and achieve the same average rate of return as Warren Buffett. Don’t interpret incorrectly here, I do not believe I will become the new Warren Buffett. However, it was incredibly motivating to see the future value of each dollar if it was invested for 20 years with the same annual return as Warren Buffett.
Those first years gave the portfolio the kick-start we wanted. The importance of extra contribution from our salaries have gradually decreased as the portfolio value has increased. Nowadays, the savings ratio and cost awareness are more modest and less extreme.
I haven’t followed up the savings ratio on a continuous basis during the last few years, but I would roughly estimate it to be in the range of 45-60% in an average per month. Currently, the annual expenses amount to approximately $25 000 (excluding mortgage payments, which I consider part of our savings).
The current cost level gives us the opportunity to continue to save as well as allow us to spend money on our hobbies, etc.
In one of your posts “Using A High Grade Of Leverage On My Investment Portfolio Has Been Really Risky” you explain how you’ve always geared your investments. Can you explain more about this strategy and how much you have outperformed the market every year?
The leverage that we have used in our portfolio has been a strong contributor for how we have been able to achieve an annual compounded increase of our net worth by nearly 60% since 2011.
The stock market has historically shown a strong performance and I believe that long term investors will continue to be greatly rewarded by the stock market in the future. I see dividend investing as a rather risk adverse investment philosophy. The companies that I invest in usually has a strong track record of making profits and rewarding their shareholders. Dividend companies as a group, in my view, has a lower risk. Therefore, I am comfortable with increasing the risk in the stock portfolio by using leverage.
Our portfolio’s debt-to-value ratio amounted in the end of 2018 to 29.9%. The reason was that I purchased a reasonable amount of stocks in the downturn on the stock market in the fourth quarter last year. I consider a debt ratio of nearly 30% in a stock portfolio to be too high to be considered healthy.
My guiding principle is to have a debt ratio below 20%. In a normal market condition, I consider a 10-15% debt ratio to be a healthy exposure for the portfolio given our current financial situation. It is also important to consider the level of interest rate when you are using leverage. The average interest rate on our current loans that are connected to our stock portfolio is 2.7%, where part of the interest rate is tax deductible.
To summarize, I don’t think using leverage is for everyone. It depends on your overall financial situation and risk attitude as well as local interest levels and regulations. I would therefore never recommend anyone to use leverage as an option to (potentially) increase their rate of return.
Do you think anyone can become a millionaire today?
We have gained 8 million in terms of the Swedish currency SEK, but we are still chasing the milestone of becoming a dollar millionaire. My recommendation is therefore to pick your country carefully if you want to become a millionaire ?
In all seriousness, I know that the prerequisites are different for everyone, but I believe that most people can, if they want to, become a dollar millionaire. But it will require some active measures from you, such as long-term commitment, cost awareness and investing your money on the stock market and allowing the compound interest effect to work in your favour.
For how long would you continue to work? Is there a magic number that will make you reconsider the 9 – 5 and rather do something else?
My public answer to the question when I will retire has always been that I will retire before the age of 40. I don’t however have an exact date when I will quit working. I think it depends on the family situation, etc.
Technically, I could execute retirement today as the dividends currently exceed our annual expenses. Before I push that button, I would prefer to get some more margin of safety and allow a somewhat higher expense level.
So, I don’t have a magic number for when I will submit my resignation at work. The plan is in the near future to take a year off work to see if the strategy works or not and how I enjoy it.
Could you describe a typical day in your life? What do you want to use more time on if you’d retire?
In a typical day in my life, the alarm bell on my phone rings at 6 am. I am a morning person and I therefore leave the bed as soon as the alarm goes off. I put on my running clothes and start the day with a 10 km morning jog.
Back from the morning jog, I shower and make myself ready to go to work. After a relatively short commute, I am usually arriving at the office at around 8.00 am. On my way to work I enjoy listening to various podcasts, where the subjects range from workout, financial independence, dystopic topics and nutrition.
I usually don’t eat any breakfast and let the intermittent fasting combined with the morning exercise keep me alert and focused during the first hours at work. I then usually have an early lunch at around 11 am. In a typical day I most often leave the office for the day at around 5 pm. Sometimes I bring the computer with me home and continue working for some more hours.
I strive to workout two times per day, where the second time is either running, swimming or going to the gym. Finally, I am coming back home at around 7.30 pm, then I usually eat something and spend some time with my wife before it is time to start preparing the blog post for the next day.
The ambition is to go to sleep no later than 10.30 pm each day.
If I didn’t have to spend a significant part of my time at work, I would spend more time on working out. I would especially like to take more time to allow my body to rest between the workouts. I would also of course like to spend more time with family and friends, and have more time for reading, traveling and further developing my blog.
Do you have other life goals than FIRE?
I would like to one day extend the family and hence become a father. I also want my life to be rich in terms of being able to spend a lot of time with family and friends. One day I would like to be able to run a marathon in less than 3 hours and visit all countries in the world ?
Finally, I would also like to help other people and make a difference in their lives, for instance via my blog or via some other projects.
Has taking control of your money and mastering your personal finances always been your mindset as an adult?
Yes, money (and numbers in general) has always been an interest for me. I have always liked to collect money and be responsible for how money is used. During my adult life, it has definitely been my mindset. In the beginning of the journey towards financial independence, I was more or less constantly thinking about money. Every morning, my first thought was “One day less until retirement”. Every Friday evening, I wanted it to become Monday so that the stock market would open again.
This was slightly extreme and I now have a better balance. However, stocks and investing are still some of my biggest hobbies.
Is there an area or area(s) of your own personal finances that you’re still looking to better master and improve?
I believe that personal finance and achieving financial independence in the purest sense is quite simple and shouldn’t be made difficult. From that perspective I think that I, as well as many others, have what it takes to master one’s personal finance and to become financially independent.
Warren Buffett stated that you only need (from a math perspective) addition, subtraction, multiplication and division as well as know how to handle percentages to become a good stock investor. I agree with this statement.
This does NOT mean that I think I know everything there is to know, but I like to keep it simple and efficient.
Which 5 steps do you think is the most important to gain financial independence?
My top 5 recommendations to increase the likelihood of becoming financially independent are:
-Start investing: The most important step by far (according to me) is to frankly just start investing. In this case, the amount you invest or how you invest your money doesn’t matter right now. I have seen many people writing – BEFORE THEY START THEIR JOURNEY – essays about how they will become financial independent and detailed every single step. Although it is always good to have a plan, it is also taking a considerable amount of time to conduct your plan.
By starting your journey by actually investing your money, you are likely to get a head start. If you don’t have a passion for investments, just start to (and continue to) buy cheap index funds. Investing in cheap index funds is in my opinion a great way of pursuing financial independence for people who don’t enjoy the work of creating their own fund by picking their own stocks.
If you have an interest in being a more active investor, i.e. doing your own analysis and selecting your own stocks, your investment strategy will evolve and take form as you go. My recommendation is thereby to just start investing on the stock market and you will learn more and more as you go.
-Put your money in the stock market: From a historical point of view, the stock market has over the long haul been one of the best ways to increase the value of your money. If you want to become financially independent, you need to have a very high salary or very low expenses if you will try to become financially independent by piling money on a savings account with a low interest rate. For most people, especially as the interest rate levels in many countries are at historically low levels, it is necessary to increase the risk in your savings to reach the needed rate of return. In my opinion, the best place to achieve this is on the stock market.
-Time in market & reinvesting dividends: My third recommendation is time in the market and reinvesting dividends. The earlier you begin, the better the compound interest effect will contribute to fulfil your goals over the long haul. By reinvesting your dividends, you will further enhance the effects from compounding.
-Celebrate milestones: If you are not lucky to e.g. win the lottery, to reach the stage of financial independence isn’t something that you can accomplish overnight. It requires a long term commitment. To maintain your inner drive, it is important to celebrate milestones, for example, the day your net worth for the first time exceeds $10 000.
-Find like-minded people: To start living a more economically aware life, where you don’t spend money on things you don’t need just to impress people you don’t care about, that is a lifestyle choice that not always is understood or supported by everyone else. It is then easy to question your chosen path. A recommendation is therefore to find like-minded people that will keep you motivated and with whom you can share and discuss successes and challenges with.
Have questions, comments or suggestions? I would love to help you with your FI-journey.
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