October saw my net worth increase by 3%, with increases in investments, pensions, property & positive (although lower than average) savings.
The value of my investment portfolio was up over 3% with strong increases in developed market equities in particular. New purchases for the month include more units of a Global High Dividend ETF (VHYL.L) and a new HK listed RMB Bond ETF (3139.HK). Both new investments have been increasing since purchase.
My pension fund unit values increased by over 2% as global equities markets generally had a good month.
My property was occupied with the new higher rent coming in on schedule from the new tenant. I also increased the value i hold the property at in my records following continued increases in the local market. This is the second increase this year, but the value i'm using is still at the conservative end of the local range. I'm expecting a number of maintenance costs to come through in November to resolve a few issues highlighted by the new tenant, which will make a big dent in next month's rental income.
Cash balances reduced due to a couple of new investments in the month. Income was good but expenses were higher than average following a holiday and a few treats in the month. My expenses are running quite a bit above my original plan now, but i'll do some more work to understand the reasons before taking any action.
Year to date net worth growth: 37.8%
Year to date savings rate: 71%
Thursday, 31 October 2013
Wednesday, 30 October 2013
Asset allocation update
One of my first posts back in November 2012 contained a breakdown of my asset allocation between property, pension funds, cash and directly held investments. As we're about a year on from this i thought i'd share an update.
Property 40% (was 52% in Nov 2012)
Whilst the value of my property has actually increased over the last year, its proportion of my overall asset base has decreased mainly as a result of good income, a strong savings rate and a few one off gains. Going forward this will probably continue to decline unless i make any new property purchases.
Pensions 15% (was 15%)
The value of my pension funds have grown steadily and in line with my overall net worth growth, due to regular monthly contributions by myself and my employer. This proportion is likely to stay fairly stable going forward unless there are any major market rallies or falls.
Direct Investments 10% (was 4%)
I've significantly increased the size of my investment portfolio over the last year, primarily in high dividend ETFs. I'm expecting to continue to steadily grow this proportion going forward.
Cash 35% (was 29%)
Despite growing my investment portfolio throughout the year, cash balances have continued to rise due to high income and savings. Whilst i'd like to manage this percentage down, it is likely to be a slow and steady change unless any individually large investment opportunities (eg property) arise.
Property 40% (was 52% in Nov 2012)
Whilst the value of my property has actually increased over the last year, its proportion of my overall asset base has decreased mainly as a result of good income, a strong savings rate and a few one off gains. Going forward this will probably continue to decline unless i make any new property purchases.
Pensions 15% (was 15%)
The value of my pension funds have grown steadily and in line with my overall net worth growth, due to regular monthly contributions by myself and my employer. This proportion is likely to stay fairly stable going forward unless there are any major market rallies or falls.
Direct Investments 10% (was 4%)
I've significantly increased the size of my investment portfolio over the last year, primarily in high dividend ETFs. I'm expecting to continue to steadily grow this proportion going forward.
Cash 35% (was 29%)
Despite growing my investment portfolio throughout the year, cash balances have continued to rise due to high income and savings. Whilst i'd like to manage this percentage down, it is likely to be a slow and steady change unless any individually large investment opportunities (eg property) arise.
Beginners advice - part 1
A friend of mine recently mentioned they were not very familiar with the world of managing personal finances & investments. It got me thinking as to what i would recommend as a few simple steps for someone looking to start out from the beginning in building their knowledge & skills in this area.
This is what i've come up with so far, and i'll look to develop this over a series of posts:
Step 1) Understand your starting point.
I think an important first step is to assess your current financial position. This can be done by having one central record (be it an excel spreadsheet, online tool, or paper & pen!) that logs & tracks the value of all assets & liabilities. Assets should include all bank accounts, investments, pension schemes, property. It can also include personal possessions, but i would only recommend including the latter if they add up to a big number and could/would be easily sold. Liabilities should include any debt such as loans, mortgages & credit cards. If based in HK you can also go a step further and estimate how much salaries tax you are likely to owe and include this as a liability.
Step 2) Understand your income & expenses
For most people on a regular salary, it is relatively easy to understand income as it is usually consistent & predictable. Expenses tend to be harder as they are often less consistent & depend on a lot of different factors (eg one-off treats, holidays). It may be easiest to focus first on necessary expenses (such as rent & bills) and then look back over a few months to work out an average for discretionary expenses.
Step 3) Pull this all together
Once you build an understanding of your typical income & expenses, the next logical step is to bring these together in a simple budget or plan. This will give an idea of how much (hopefully!) spare cash you have left over each month and how regular or consistent this is likely to be.
These first 3 steps give a solid platform to then start planning ahead, understanding your goals & objectives, and managing your finances. More to follow....
This is what i've come up with so far, and i'll look to develop this over a series of posts:
Step 1) Understand your starting point.
I think an important first step is to assess your current financial position. This can be done by having one central record (be it an excel spreadsheet, online tool, or paper & pen!) that logs & tracks the value of all assets & liabilities. Assets should include all bank accounts, investments, pension schemes, property. It can also include personal possessions, but i would only recommend including the latter if they add up to a big number and could/would be easily sold. Liabilities should include any debt such as loans, mortgages & credit cards. If based in HK you can also go a step further and estimate how much salaries tax you are likely to owe and include this as a liability.
Step 2) Understand your income & expenses
For most people on a regular salary, it is relatively easy to understand income as it is usually consistent & predictable. Expenses tend to be harder as they are often less consistent & depend on a lot of different factors (eg one-off treats, holidays). It may be easiest to focus first on necessary expenses (such as rent & bills) and then look back over a few months to work out an average for discretionary expenses.
Step 3) Pull this all together
Once you build an understanding of your typical income & expenses, the next logical step is to bring these together in a simple budget or plan. This will give an idea of how much (hopefully!) spare cash you have left over each month and how regular or consistent this is likely to be.
These first 3 steps give a solid platform to then start planning ahead, understanding your goals & objectives, and managing your finances. More to follow....
Tuesday, 22 October 2013
Developments in the HK Exchange Traded Fund market
Following my recent discovery of a newly listed RMB Bond ETF (3139.HK), i decided to see if i could find any other new additions to the market.
As background, whilst the USA (and to a lesser extent the UK) have a wide range of exchange traded funds offering low cost pre-packaged investment portfolios (generally tracking an index), Hong Kong has traditionally had much less choice. Apart from the excellent 'Tracker Fund of Kong Kong' (2800.HK) which offers an ultra low cost (0.15%) dividend paying tracker of the HSI index, and a handful of China & Asia focused ETFs, there has been limited other options to gain wider global / asset class diversity at a similar low cost.
I was therefore particularly pleased to discover another newcomer to the market, being the Vanguard FTSE Asia ex Japan ETF (2805.HK). Launched in May 2013, this ETF offers wider emerging Asia exposure, with a weighting biased towards China, South Korea, HK, Taiwan & India.
Whilst i haven't dived straight in for a purchase at this stage (still mulling over country risks, current valuations & lower yields), i am pleased to see this mainly because of its issuer, Vanguard.
Vanguard have a strong reputation in the USA for providing low cost investment options in particular for privately managed pension schemes. The total expense ratios (TER) or costs to the investor tend to be much lower than most UK & HK listed ETFs i've seen, which i suspect is a consequence of a more mature & competitive ETF market in the USA.
Vanguard have recently launched a basic range of ETFs in the UK, including my personal favourite Global High Dividend ETF (VHYL.L), which looks to have shaken up the market by offering lower cost products compared to some of the more established players. More recently i've noticed Ishares UK have reduced a number of the TERs on their much larger UK range - this may well be in response to the new competition.
It is for this reason i'm pleased to see Vanguard launch their first HK listed ETF. Whilst this appears to be an initial market tester, it looks to have had reasonable take up since launch. With a TER of 0.38%, it also looks to be cheaper than other multi-country emerging markets ETFs (the similar ishares hk emerging asia ETF 2802.HK has a TER of 0.59%).
I'll be keeping a close eye on the major HK ETF issuer websites going forward. It may even be worth purchasing this new ETF just to encourage them to stick with & help to further develop the HK market!
As background, whilst the USA (and to a lesser extent the UK) have a wide range of exchange traded funds offering low cost pre-packaged investment portfolios (generally tracking an index), Hong Kong has traditionally had much less choice. Apart from the excellent 'Tracker Fund of Kong Kong' (2800.HK) which offers an ultra low cost (0.15%) dividend paying tracker of the HSI index, and a handful of China & Asia focused ETFs, there has been limited other options to gain wider global / asset class diversity at a similar low cost.
I was therefore particularly pleased to discover another newcomer to the market, being the Vanguard FTSE Asia ex Japan ETF (2805.HK). Launched in May 2013, this ETF offers wider emerging Asia exposure, with a weighting biased towards China, South Korea, HK, Taiwan & India.
Whilst i haven't dived straight in for a purchase at this stage (still mulling over country risks, current valuations & lower yields), i am pleased to see this mainly because of its issuer, Vanguard.
Vanguard have a strong reputation in the USA for providing low cost investment options in particular for privately managed pension schemes. The total expense ratios (TER) or costs to the investor tend to be much lower than most UK & HK listed ETFs i've seen, which i suspect is a consequence of a more mature & competitive ETF market in the USA.
Vanguard have recently launched a basic range of ETFs in the UK, including my personal favourite Global High Dividend ETF (VHYL.L), which looks to have shaken up the market by offering lower cost products compared to some of the more established players. More recently i've noticed Ishares UK have reduced a number of the TERs on their much larger UK range - this may well be in response to the new competition.
It is for this reason i'm pleased to see Vanguard launch their first HK listed ETF. Whilst this appears to be an initial market tester, it looks to have had reasonable take up since launch. With a TER of 0.38%, it also looks to be cheaper than other multi-country emerging markets ETFs (the similar ishares hk emerging asia ETF 2802.HK has a TER of 0.59%).
I'll be keeping a close eye on the major HK ETF issuer websites going forward. It may even be worth purchasing this new ETF just to encourage them to stick with & help to further develop the HK market!
Thursday, 17 October 2013
Managing assets in multiple currencies
One of the challenges many expats face in managing personal finances is having assets denominated in different currencies. This adds both complexity to monitoring, and risk to managing the assets.
If we take monitoring first, i'll summarise some of the challenges i've encountered and my approach to dealing with these.
The first choice i faced was which currency to monitor assets in, ie. whether to translate everything to a preferred/primary currency, monitor everything in its own currency, or monitor all assets in multiple currencies (or a combination of these). My approach is to track each asset in its underlying currency, and then translate the total to my primary currency, but also to then track this total in the other major currencies used. I track the total in multiple currencies mainly because i'm not sure yet where i'll be based later in life.
A second issue encountered was which fx rates to use, and how frequently to update these. This is perhaps a sign of my limitations in microsoft excel, but i have found changing fx rates adds a lot of complexity to the monitoring of assets in multiple currencies, with current income being effected, along with the need to re-translate the existing asset base. My preferred approach is therefore to minimise changes in fx rates by taking a 'benchmark' or recent historical average rate, and sticking with this as long as possible ignoring short term fluctuations. I then only change fx rates when they break out of a recent range and move away from my benchmark rates. Whilst this doesn't remove the complexities, it does reduce the frequency of facing these complexities! In order to minimise error, i've tried to build in checks to make sure everything still adds up after a change, and to also include fields to isolate the impact of fx changes, which helps in understanding & managing the risk.
In terms of fx risk management, whilst i don't have a clearly defined strategy, my approach over the last couple of years has been to translate as much as possible into my original home currency. This is partly as i have so far assumed there is a good chance i'll live there again in the future, and partly because my original home currency has been closer towards its historic weak point against other major currencies, making it cheap & attractive to buy. I have also found a greater choice & easier access to assets in this currency to invest in, to manage my finances.
However, recently i have begun thinking that there is less certainty where i will be based in the long term. It would therefore be prudent to have a greater balance to the currency mix of my assets, giving greater flexibility for the future and helping to hedge fx risk through diversification. This is likely to result in a gradual re-balancing of my currency exposure going forward, which may also have knock on implications for my overall asset allocation.
If there are any significant fx movements going forward, i may look to opportunistically take advantage of these, but this is only likely to be between currencies that i currently have or am likely to use. I'm not particularly interested in speculating in a wider range of currencies, and my focus is more on risk management rather than seeing currencies themselves as an investment tool.
If we take monitoring first, i'll summarise some of the challenges i've encountered and my approach to dealing with these.
The first choice i faced was which currency to monitor assets in, ie. whether to translate everything to a preferred/primary currency, monitor everything in its own currency, or monitor all assets in multiple currencies (or a combination of these). My approach is to track each asset in its underlying currency, and then translate the total to my primary currency, but also to then track this total in the other major currencies used. I track the total in multiple currencies mainly because i'm not sure yet where i'll be based later in life.
A second issue encountered was which fx rates to use, and how frequently to update these. This is perhaps a sign of my limitations in microsoft excel, but i have found changing fx rates adds a lot of complexity to the monitoring of assets in multiple currencies, with current income being effected, along with the need to re-translate the existing asset base. My preferred approach is therefore to minimise changes in fx rates by taking a 'benchmark' or recent historical average rate, and sticking with this as long as possible ignoring short term fluctuations. I then only change fx rates when they break out of a recent range and move away from my benchmark rates. Whilst this doesn't remove the complexities, it does reduce the frequency of facing these complexities! In order to minimise error, i've tried to build in checks to make sure everything still adds up after a change, and to also include fields to isolate the impact of fx changes, which helps in understanding & managing the risk.
In terms of fx risk management, whilst i don't have a clearly defined strategy, my approach over the last couple of years has been to translate as much as possible into my original home currency. This is partly as i have so far assumed there is a good chance i'll live there again in the future, and partly because my original home currency has been closer towards its historic weak point against other major currencies, making it cheap & attractive to buy. I have also found a greater choice & easier access to assets in this currency to invest in, to manage my finances.
However, recently i have begun thinking that there is less certainty where i will be based in the long term. It would therefore be prudent to have a greater balance to the currency mix of my assets, giving greater flexibility for the future and helping to hedge fx risk through diversification. This is likely to result in a gradual re-balancing of my currency exposure going forward, which may also have knock on implications for my overall asset allocation.
If there are any significant fx movements going forward, i may look to opportunistically take advantage of these, but this is only likely to be between currencies that i currently have or am likely to use. I'm not particularly interested in speculating in a wider range of currencies, and my focus is more on risk management rather than seeing currencies themselves as an investment tool.
Tuesday, 15 October 2013
3139.HK Purchased
I've recently stumbled across this newly launched HK listed ETF from ishares. It invests in RMB denominated bonds, which are mostly issued by either the China Government or other affiliated issuers, along with a few corporate debt issuances.
There are currently around 80 components with an average life of around 3 years and a current yield to maturity of around 4.3%.
I like this ETF for a few reasons. Firstly, it offers a good yield, which is above most RMB savings account rates. It should also be relatively safe, with diversification across a number of issuances and predominantly being sovereign risk.
Two areas of uncertainty are (a) whether RMB will continue to appreciate against the USD (& HKD), and (b) how the unit values may be impacted by changes in interest rates.
Regarding the former, my personal view is that whilst there may be temporary moves up and down, over the long term i expect RMB to continue to appreciate as the chinese economy continues to grow at a healthy rate.
Regarding interest rate movements, part of the attraction of this ETF is that i don't think it will necessarily follow the widely expected decline in values anticipated in USD bonds. Given USD interest rates are effectively zero, they can only really go up, which should in theory reduce bond valuations. However, RMB interest rates are at more normalised levels, and may well go down if growth rates slow, increasing bond valuations.
Overall i'm comfortable with the risks and see this as a good addition to my income focused investment portfolio.
The unit purchase price was around HKD43.5
There are currently around 80 components with an average life of around 3 years and a current yield to maturity of around 4.3%.
I like this ETF for a few reasons. Firstly, it offers a good yield, which is above most RMB savings account rates. It should also be relatively safe, with diversification across a number of issuances and predominantly being sovereign risk.
Two areas of uncertainty are (a) whether RMB will continue to appreciate against the USD (& HKD), and (b) how the unit values may be impacted by changes in interest rates.
Regarding the former, my personal view is that whilst there may be temporary moves up and down, over the long term i expect RMB to continue to appreciate as the chinese economy continues to grow at a healthy rate.
Regarding interest rate movements, part of the attraction of this ETF is that i don't think it will necessarily follow the widely expected decline in values anticipated in USD bonds. Given USD interest rates are effectively zero, they can only really go up, which should in theory reduce bond valuations. However, RMB interest rates are at more normalised levels, and may well go down if growth rates slow, increasing bond valuations.
Overall i'm comfortable with the risks and see this as a good addition to my income focused investment portfolio.
The unit purchase price was around HKD43.5
Sunday, 13 October 2013
The HKD peg
I have a general interest in economics and financial markets, so every now & then i'll share my views on a few topics, starting with the Hong Kong Dollar currency peg.
Hong Kong has had a long history of pegging its currency. In the early 20th century it was pegged to Silver, following this it was pegged to GBP. After this, there was around a decade of free floating in the 1970s, and for the past 30 years it has been pegged to the USD.
In general i think the current peg has served HK well, bringing relative economic stability through a wide range of local & global events. Using USD as a peg also makes a lot of sense for an economy so focused on international trade, given the dominance of USD in trade settlement. I also think the HK Monetary Authority has done a good job in maintaining the peg, based on the USD backing of the currency and through passive intervention under the currency board mechanism. This strong monetary & economic management is vital in giving confidence to the financial markets & mitigating speculative pressures on the currency.
There are a couple of scenarios we have seen recently in HK that a pegged system does find challenging.
Firstly, when the economic cycles of the 2 economies are out of line, the prevailing monetary policy may not always be best suited to both parties. For example, the last few years have seen the US operate a policy of monetary easing, keeping interest rates low to stimulate growth. However, with the HK economy performing relatively better, the combination of low rates and growth have led to local inflationary pressures which become more difficult to manage without monetary flexibility.
Secondly, a currency board system would typically be self correcting, with a central bank selling the pegged currency as demand for that currency increases, in order to ease pressure on the peg. This should drive down local interest rates, reducing the original demand for the pegged currency and restoring a relative balance in value. However, when all interest rates are already close to zero, unless rates turn negative, it may not be possible to remove demand from the pegged currency in this way, resulting in excess liquidity.
I think we may have seen this in HK, which could to some extent be a contributing factor for the increases in real asset prices such as the local stock market and property, as this surplus liquidity is invested. It is unclear at this stage if, when and to what extent such valuations and fund flows may reverse, although the government's property cooling measures do seem to be slowing the market.
Whilst these consequences may at times be uncomfortable for the local economy, i generally believe the advantages of maintaining the status quo in HK would outweigh any challenges at this stage.
We'll have to see what the longer term future holds, which may to some extent be influenced by the internationalisation of RMB, and its impact on the local and wider economy.
Hong Kong has had a long history of pegging its currency. In the early 20th century it was pegged to Silver, following this it was pegged to GBP. After this, there was around a decade of free floating in the 1970s, and for the past 30 years it has been pegged to the USD.
In general i think the current peg has served HK well, bringing relative economic stability through a wide range of local & global events. Using USD as a peg also makes a lot of sense for an economy so focused on international trade, given the dominance of USD in trade settlement. I also think the HK Monetary Authority has done a good job in maintaining the peg, based on the USD backing of the currency and through passive intervention under the currency board mechanism. This strong monetary & economic management is vital in giving confidence to the financial markets & mitigating speculative pressures on the currency.
There are a couple of scenarios we have seen recently in HK that a pegged system does find challenging.
Firstly, when the economic cycles of the 2 economies are out of line, the prevailing monetary policy may not always be best suited to both parties. For example, the last few years have seen the US operate a policy of monetary easing, keeping interest rates low to stimulate growth. However, with the HK economy performing relatively better, the combination of low rates and growth have led to local inflationary pressures which become more difficult to manage without monetary flexibility.
Secondly, a currency board system would typically be self correcting, with a central bank selling the pegged currency as demand for that currency increases, in order to ease pressure on the peg. This should drive down local interest rates, reducing the original demand for the pegged currency and restoring a relative balance in value. However, when all interest rates are already close to zero, unless rates turn negative, it may not be possible to remove demand from the pegged currency in this way, resulting in excess liquidity.
I think we may have seen this in HK, which could to some extent be a contributing factor for the increases in real asset prices such as the local stock market and property, as this surplus liquidity is invested. It is unclear at this stage if, when and to what extent such valuations and fund flows may reverse, although the government's property cooling measures do seem to be slowing the market.
Whilst these consequences may at times be uncomfortable for the local economy, i generally believe the advantages of maintaining the status quo in HK would outweigh any challenges at this stage.
We'll have to see what the longer term future holds, which may to some extent be influenced by the internationalisation of RMB, and its impact on the local and wider economy.
Saturday, 12 October 2013
Investment Portfolio Update - 1 year on
It is around a year since i set up my personal investment portfolio. I've been steadily building it up over the last year, with a combination of initial core holdings, regular purchases & the occasional more opportunistic investment.
Here's the current position:
Overall the core high yield ETFs have performed very well, especially the developed markets (UK, Eurozone & Global High dividend). The emerging market ETFs have seen more volatility, with some also being adversely affected by depreciating currencies.
As expected, Gold & Silver have been very poor, although these were purchased partly to hedge against any potential crises that may have impacted equities performance. These are also a relatively small part of the portfolio at around 8% combined.
Looking forward, i'll probably look to build the portfolio primarily by adding to core holdings either with regular purchases or on market dips if possible. I don't want to add too many new holdings unless they clearly meet my basic investment criteria (adding to diversification, yield and being good value), however, i will keep my options open.
Here's the current position:
| Description | CAGR | % Portfolio | |
| UK listed ETFs | |||
| SEDY | EM High dividend | 3.8% | 8.1% |
| IASP | Asia Pacific property | 6.5% | 8.5% |
| SHYU | High yield corporate debt | 5.2% | 8.5% |
| IUKD | UK High dividend | 26.2% | 9.8% |
| IDVY | Eurozone High dividend | 30.1% | 5.9% |
| IAPD | Asia Pacific High dividend | 1.4% | 7.9% |
| VHYL | Global High Dividend | 25.2% | 15.4% |
| INFR | Global Infrastructure | -4.6% | 7.1% |
| HK listed ETFs | |||
| 2800 | HK Index tracker | 12.6% | 6.8% |
| 3049 | CSI 300 China tracker | -1.0% | 3.6% |
| Other Equities | |||
| AV.B | Aviva Pref Shares | -3.8% | 7.7% |
| AAPL | Apple | 11.3% | 2.5% |
| Metals | |||
| GOLD | Gold (paper) | -25.1% | 6.2% |
| SSLN | Silver (ETF) | -42.4% | 1.9% |
| Total weighted CAGR | 7.8% | 100% |
Overall the core high yield ETFs have performed very well, especially the developed markets (UK, Eurozone & Global High dividend). The emerging market ETFs have seen more volatility, with some also being adversely affected by depreciating currencies.
As expected, Gold & Silver have been very poor, although these were purchased partly to hedge against any potential crises that may have impacted equities performance. These are also a relatively small part of the portfolio at around 8% combined.
Looking forward, i'll probably look to build the portfolio primarily by adding to core holdings either with regular purchases or on market dips if possible. I don't want to add too many new holdings unless they clearly meet my basic investment criteria (adding to diversification, yield and being good value), however, i will keep my options open.
Thursday, 3 October 2013
2014 Financial Planning
As we have entered the 4th quarter i've done a quick first draft of my 2014 financial plan.
Whilst i already have a very high level forecast for the next 15 or so years, i always try to refine the closest year to better plan and manage cash flows, expenses and investments. It also helps to set objectives & targets, focusing the mind on short term financial discipline to reach a longer term goal.
I'm expecting to finish 2013 with an approximate annual net worth growth of around 35% and a savings rate around 70%, which is well above what i planned for, but also includes a couple of one-off gains that won't recur. For reference my 2013 plan had net worth growth of 21% and a savings rate of 63%.
For 2014 i'm assuming flat regular income without the one-offs. This is fairly conservative but that's how i prefer to plan. I'm assuming higher expenses based on experience from this year to date, which are running around 10% ahead of plan. This is partly a timing issue of when HK income tax payments are due, but also higher underlying expenses, in particular entertainment, eating out etc which are areas i've decided to allow some more luxury into my lifestyle! There are no large one off expenses expected next year.
The initial 2014 plan indicates net worth growth of around 15% with a savings rate of around 60%. I think this is fairly realistic, and i would be happy to achieve these figures. Net worth growth as a percentage should continue to decline as the base grows each year, and a key long term financial goal is to maintain a savings rate above 50%. My approach to calculating a savings rate is to include tax in expenses and compare total expenses to gross income. The percentage would be higher if tax was netted against income first.
I'll probably give this some more thought over the next few months and make some refinements, but the first cut looks good so far!
Whilst i already have a very high level forecast for the next 15 or so years, i always try to refine the closest year to better plan and manage cash flows, expenses and investments. It also helps to set objectives & targets, focusing the mind on short term financial discipline to reach a longer term goal.
I'm expecting to finish 2013 with an approximate annual net worth growth of around 35% and a savings rate around 70%, which is well above what i planned for, but also includes a couple of one-off gains that won't recur. For reference my 2013 plan had net worth growth of 21% and a savings rate of 63%.
For 2014 i'm assuming flat regular income without the one-offs. This is fairly conservative but that's how i prefer to plan. I'm assuming higher expenses based on experience from this year to date, which are running around 10% ahead of plan. This is partly a timing issue of when HK income tax payments are due, but also higher underlying expenses, in particular entertainment, eating out etc which are areas i've decided to allow some more luxury into my lifestyle! There are no large one off expenses expected next year.
The initial 2014 plan indicates net worth growth of around 15% with a savings rate of around 60%. I think this is fairly realistic, and i would be happy to achieve these figures. Net worth growth as a percentage should continue to decline as the base grows each year, and a key long term financial goal is to maintain a savings rate above 50%. My approach to calculating a savings rate is to include tax in expenses and compare total expenses to gross income. The percentage would be higher if tax was netted against income first.
I'll probably give this some more thought over the next few months and make some refinements, but the first cut looks good so far!
Tuesday, 1 October 2013
New tenant update
My new tenant moved in towards the end of September. As the outgoing tenant asked to leave before the end of the lease, they agreed to pay rent up to the new tenant moving in - in the end there was only a couple of days gap so this wasn't a big issue.
On the plus side, the new tenant is paying around 6% higher rent. On the downside, there were a number of costs associated with the start of a new lease.
One thing noticeable this time is that wear & tear on the furnishings is becoming much more apparent. I think i'll have to budget for some repairs & replacements at the end of this new tenancy in order to maintain a rental income towards the top end of the market range.
On the plus side, the new tenant is paying around 6% higher rent. On the downside, there were a number of costs associated with the start of a new lease.
One thing noticeable this time is that wear & tear on the furnishings is becoming much more apparent. I think i'll have to budget for some repairs & replacements at the end of this new tenancy in order to maintain a rental income towards the top end of the market range.
VHYL.L Purchased (again)
I've taken advantage of a slight market pull back to purchase some additional shares in my new favourite ETF.
This is a relatively new Vanguard ETF listed in the UK investing in global high dividend shares, with a heavy weighting to the USA & Europe. Whilst it technically covers developed & emerging markets, in practice it is very much focused on developed markets.
Many equities have fallen recently with the latest round of US political brinkmanship and more political uncertainty in Italy. This ETF has fallen around 3% in the last month, to a more palatable level for me to buy again.
With a dividend yield of around 4%, around a 1000 components, low management costs and a reasonable PE valuation, this fits my investment strategy particularly well and is now the largest individual holding in my investment portfolio.
I paid around GBP30.95 for the additional shares
This is a relatively new Vanguard ETF listed in the UK investing in global high dividend shares, with a heavy weighting to the USA & Europe. Whilst it technically covers developed & emerging markets, in practice it is very much focused on developed markets.
Many equities have fallen recently with the latest round of US political brinkmanship and more political uncertainty in Italy. This ETF has fallen around 3% in the last month, to a more palatable level for me to buy again.
With a dividend yield of around 4%, around a 1000 components, low management costs and a reasonable PE valuation, this fits my investment strategy particularly well and is now the largest individual holding in my investment portfolio.
I paid around GBP30.95 for the additional shares
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