Interested in my new e-book? Order it here.
PS! Since you’re a reader of this blog I’ll give you 40% off the price if you use the discount code (limited offer): route2fi2020
A New Start
As I wrote in the last blog post, I’ve got a new job and also a new car.
In many ways, 2020 has been the best year of my life. It was this year I started to level up and really started to believe in myself.
Because of WFH (work-from-home) from March 2020, I got a lot more time to prioritize the things that I enjoy.
I started to spend more time on Twitter, I ended up selling books on Gumroad, started coaching people on Superpeer, and I have regular clients that I build Twitter profiles for (writing tweets, building a following etc.). Obviously, this gives me some extra cash which I’ve invested in the stock market.
But the sunshine-story doesn’t stop there. As you may recall if you’ve been a long-time reader, I’ve switched jobs a couple of times in the last years.
At the start of 2020, my base salary in my 9-5 job was $78,500. In August 2020 I got a new job which had a base salary of $90,000, but since I didn’t enjoy the new job I kept looking for new possibilities.
Two weeks ago I landed a job that had a base salary of $108,000 + $85 for every additional hour after 37.5 hours/week. I also get a free electric car that I can use as much as I want both private and at work.
Compared to American salaries this is probably not that much, but for me, this was a huge victory! It feels unreal that I started out 4.5 years ago at $55,000.
In other words, I’ve almost doubled my salary! From $55K to $108K
If you include my online income it’s way more, but for some reason, I see it still as a side-hustle, even if I should start treating it as something more.
My Stock Portfolio November 2020
It’s been a wild year in the stock market.
Above you can see a screenshot of my portfolio.
4.330.249 NOK = $481,228.
My goal: $500,000.
I’m 100% invested in index funds. If you’re curious about why check out this post.
I started my journey to financial independence with a 15-year plan, but it’s starting to look like I’m reaching FI (my last plan here) in only 3 years (probably before Christmas this year!).
This year my savings rate is approx. 85%, so it’s pretty easy to see that this journey goes faster and faster every month.
From $481K and up to $500K I only need a 4% increase from MR. Market. But since I’m planning on putting in at least $13,000 before 2021, I only need a 1,3% increase before I’m reaching my financial independence goal of $500,000 invested in the market.
Damn, I feel happy about this! When people present that they’re FI on Reddit, people write back: “Go fuck yourself!”, so I guess you can comment this to me now 😉
This post will therefore focus on the next 5 years. So even if I’m not FI yet (96,2% FI), let’s pretend I am.
I Am Financially Independent: My Wealth Building Plan For The Next 5 Years
It’s kind of strange for me to write this because I’d never thought I would continue to work when I was financially independent.
But there’s something inside of me that’s not done with it all yet. I’m 33 years old, and I don’t feel like I’m finished with work. Secondly, I’ve never tried a manager position before, and from the 1st of January 2021, I will be the new boss at my new job. My feelings about it now are that this is something that will be fun, but I don’t know that before I start the job.
However, what I love is that if I end up hating my new job, I can always quit it without anything new lined up at all. This is really important because FI will give me some extra power that I can use to my advantage:
-I can take more risks
-I can value my time more: For example when I’m walking into salary negotiations, I can walk in without being afraid of losing (as a consequence, I can be more offensive and tell them a higher number. If they turn it down I can walk away).
-I can say no to shitty projects I don’t want to do
-I can quit jobs faster and only stick with the ones I truly enjoy
Most people think that once you hit FI, you have to RE (retire early). And this was my opinion too once. But I guess we just have to experience it ourselves to see that this is only 1 out of 100 opportunities.
Most people who reach FI actually continues to do work in some form. Somewhere along the FI journey, they’ve found out that other kinds of work/careers that they truly enjoy and find meaningful.
To use me as an example, along the way to FI I’ve started to create books that I’m selling on Gumroad, and I’m also coaching people to financial independence and helping them build a brand on Twitter. Some will say this it is egoistical to earn money so that I’ll get faster to financial independence but is it? I see this is a win-win. They learn my skills, while I get some money for selling my time (remember I could’ve spent this time reading more books instead).
I absolutely enjoy spending time online teaching and helping others, but I have to say that I’ve spent insanely many hours to get to the point where I am now (34K followers on Twitter). To give you an estimate I have probably spent somewhere from 2-5 hours every single day since November 2018 to enjoy the success I’ve got now. My hourly rate overall hasn’t been good. So if you want to start something similar, know that if you do this without inner motivation, you won’t come far. Seeing money as the only goal for starting something online is a recipe for disaster.
What I’ve figured out on my journey to financial independence is that I truly enjoy working if it is on my terms. My new managerial position will likely give me what I need in terms of flexibility, work-life balance, creative freedom, stimulating work, professional growth, and to be a part of a great team. If it’s not giving me that, I’m ready to walk away within a blink of an eye.
The Next 5 Years – Which Wealth Strategy To Choose?
So, I now have almost $500,000 invested in index funds.
Shall I stick with index funds for the next 5 years? Or shall I withdraw the money and focus on real estate investing instead? Or what about letting the $500K that I’ve already invested in index funds be where they are, but solely focus on real estate from now and for the next 5 years? Should I add Bitcoin? And what if I suddenly find out that I’d like to quit?
Scenario 1 – Index Funds, $6K invested monthly. Starting portfolio: $500K
Never change a winning team. Right?
Why not stick with something that has worked really well so far?
Let’s just assume that I keep investing as I do now.
-$6,000 per month into index funds tracking MSCI World (70% of the $6K goes here) and MSCI Emerging Markets (30% of the money goes here)
-I expect a 10% annual interest rate (not including inflation)
-Starting portfolio: $500K (As of this writing it’s actually $482K, but let’s omit that)
Based on these assumptions you can see the results below.
If I just keep investing in the same tempo as I do now, my portfolio will turn the $500K into $1,287 million!
Out of this $ 1,287 mill, $360K is invested and $427K is interest earned.
Scenario 2 – Index Funds, $0K invested monthly. Starting portfolio: $500K
In this scenario, let’s just assume that I don’t invest another dollar for the next 5 years.
The starting portfolio is $500K and I expect a 10% annual interest rate. Let’s assume no withdrawals in this scenario as well.
Based on these assumptions you can see the results below.
As you can see, the portfolio has increased from $500K to $822K in 5 years only from compounding alone.
In other words, $322K in interest earned.
It’s pretty amazing to see that my stock portfolio would increase by 64% without even lifting a finger. The only thing that’s required is that the money stays invested.
In scenario 1 I would earn a $427K in interest (a $105K more), but then I had to put in an additional $360K as well.
Scenario 2 is more likely if I decide to quit my job completely.
Scenario 3 – Let The $500K In Index Funds Grow, Prioritizing Real Estate
If we just continue with scenario 2, we saw that $500K grew into $822K in 5 years with a 10% annual interest rate.
So what if I just let my index funds stay untouched in the portfolio, while I start prioritizing investing in real estate instead?
I could easily buy an apartment for $400K with only 10% down for a mortgage. That’s a $40K.
If we expect a 5% increase per year, that’s a 27,6% increase over these 5 years.
The apartment would therefore be valued at $400K x 1,276 = $510K
That’s a nice additional $110K gain.
At the same time, I could rent out the apartment which would completely cover the mortgage costs.
So isn’t this something I should do even if I stick with index funds?
The power of leverage/gearing shows how effective it can be to borrow money to invest.
So the money from index funds keeps on growing from $500K to $822K, you get an additional gain from the value increase of the apartment ($110K) and I could still invest the money from my day job as usual. Since I normally invest aprox. $6K per month, what’s stopping me from doing this?
In other words, I could still invest my $6K per month in index funds: $500K to $1,287 mill + $110K in value appreciation from the apartment. In total $1,4 mill.
Scenario 4 – Index Funds, $6K invested monthly. Starting portfolio: $500K + $300K leverage with 3,04% interest rate
In my country, it’s possible to get a 3,9% stock margin loan (3,04% effective because of tax advantages).
So what if I got an additional $300K loan so that my starting portfolio was $800K. And then keep investing $6K every month for 5 years.
The ending stock portfolio is $1,78 mill after these 5 years.
But we have to calculate the costs of rents.
A $300K loan with 3,04% interest rate: 300,000 x 0,0304^5 = $48,458
The actual result is therefore: $1,780,869 – 300,000 – 48,458 = $1,432,411.
That’s a $145K more than in scenario 1. But with leverage, there is increased risk!