Portfolio Goals For The Next Decade

Ok, I know, I know. Systems are all the rage these days and goals are so passe. Not to mention that investment returns are largely out of our control. In a bull market, it’s really hard for a portfolio to turn red and in a bear market, the reverse holds even truer.

But I still feel that there is some value to be had from establishing some sort of a yearly target to aim at. Perhaps if I put it out there, the universe will align itself and help us to attain it?

More likely, with a target/goal, we will at least subconsciously push ourselves towards achieving it. For example, when I can envision the finish line, it almost always makes it easier for me to continue running.

So really, no harm establishing one for our portfolio.

Assumptions

Annual Portfolio Return: 6% on average

• The entire portfolio stands at $400,000 as at April 2017 and consists of 4 broad categories.
• The Permanent Portfolio portion should get us 5% a year easily and I would be disappointed if my Personal Picks don’t get me 7% in the long run. I am also expecting the DWI portion to exceed 8% of returns a year on average. The above should help to reduce the drag that cash in the Warchest exerts on the entire portfolio.

Annual Portfolio Injection: $30,000

• We are likely to slow down the pace towards Financial Independence and saving 35% of our income is the new target.
• If there are new family additions, we would either have to reduce some discretionary expenses to manage the increase in expenses or just have to spend more time on our freelance work to earn more.

So this is the schedule of numbers based on the parameters above:

Important Milestones

$700,000 on April 2022

• I will be completely honest here. At this stage, with $400,000, it does provide a big dose of security to us. But it is also definitely not enough for us to contemplate semi-retirement and move into a 15 hour work week together if we want to.
• However, $700,000 would be whole different ball game to us. If we allow for a generous 5% withdrawal rate, that’s $35,000 of income to play with. Even at 4%, $28,000 should easily be able to cover half of our expenses
• This amount will open up more choices, allow us to take even more risks and pursue some “luxuries” like putting everything down and staying in another country or city for half a year.

$1,100,000 on April 2027

• Theoretically, based on the 4% withdrawal rate, we would need 25 times our annual expenditure (estimated at $50,000) before we can declare ourselves Financially Independent (FI). That’s a cool $1.25 million.
• But at $1.1 million, I would reckon that we are really really close. And since I am confident that we would still prefer to perform at least a little bit of part-time work in our early forties, the world really becomes our oyster.

Main Benefit Of This Exercise

• If history is a good predictor of the future, we should be able to exceed the above targets easily. After all, 10 years ago, or even 5 years ago, we would not expect ourselves to be sitting on $400,000 in April 2017. Our work ethic and abilities give us confidence to pull things off.
• So basically, if we were able to hit those targets comfortably, it allows us much more room to be more generous to ourselves.
• Perhaps travelling two to three times a year instead of one, or giving ourselves an extra couple of days off during the week (even though we already will be having weekday mornings off). Maybe even me getting that 0.7 carat diamond ring that the Mrs has been clamouring for. =p

So yes, I will be doing an update every year on April to see how far ahead (or behind) we are with these goals and targets.