Sunday, January 1, 2017

2016 Goals Review and New Goals for 2017!

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2016 was a pretty good year for me in terms of attaining most of my financial goals, helped by a strong stock market performance and a good income. My total expenses in 2016 stayed about the same compared to 2015, while income and savings were moderately higher. I also began to shift my investment strategy toward lower dividend yield and higher growth.

2016 Goals Revisited
I set 5 goals for 2016 to meet by end of the year. The first four are financial and the last is to help me stay current and maintain a sharp mind. All of these goals are specific, measurable, achievable, realistic, and time-based (SMART).

1. Reach a net worth of $800,000.
2. Reach total portfolio value of $600,000.
3. Receive $16,000 in dividends.
4. Save 90% of my after tax income.
5. Read 50 books.

Goal #1:
Reach a net worth of $800,000.


I set this goal based on $643,161.31 net worth at end of 2015 and target of 5% organic growth (I expected an anemic stock market performance) and about $125,000 savings (roughly in line with surplus in 2015), which would get me to $809,576. I rounded it down to $800,000 for a nice round number.

Actual net worth achieved at end of 2016 was $883,575.44. I ended up surpassing my set goal by more than 10%, due to favorable variances in both of my targets.

First, the stock market performed much stronger than I anticipated. My portfolio ended up gaining 15%, which even outperformed the S&P 500 TR of 12%. I attribute most of my outperformance to a value tilt in my portfolio, which returned to favor in 2016 after several years of underperformance.

Second, higher than expected income combined with stable expenses increased my savings to $144k.

Goal #2:
Reach total portfolio value of $600,000. 


I set this goal based on $457,571.38 portfolio value at the end of 2015 and target of 5% organic growth (I expected an anemic stock market performance) and about $125,000 savings (roughly in line with surplus in 2015), which would get me to $599,150. I rounded it up to $600,000 for a nice round number.

Actual total portfolio value attained at end of 2016 was $691,077.87, excluding cash held in brokerage accounts, illiquid bonds, and assets in my tax-deferred retirement account. This far exceeded my goal, by about 15%, due to stronger stock market performance and higher savings than expected.

Goal #3:
Receive $16,000 in dividends. 


I set this goal based on $457,571.38 portfolio value at the end of 2015 and target of 3.5% dividend yield, in line with my portfolio dividend yield at that time.

Actual dividend received in 2016 was $13,391.84. This was about 84% of my goal.

My average dividend yield was $13,391.41/average portfolio value = $13,391.84/(($457,571.38+$703,820.00)/2) = 2.3%.

I am not too disappointed to fail this goal, actually. The current amount of dividends I get is more than enough to meet my living expenses in 2016, with a dividend to expense coverage ratio of 1.4. Also, I still have a job and expect to keep it for at least another six years, thus higher dividend now will serve to increase my tax liability and reduce my net worth.

The main reason I failed this goal was that I began a transition to lower yield or even zero yield stocks with higher growth, in an attempt to reduce my tax liabilities from excess dividends. I now favor no dividend stocks like BRK.B, AZO, FISV, FOSL, DLTR, HSIC, AN, SRCL and low dividend stocks like AAN, DHR, UHS. I will still buy higher yielding stocks if the price is right for diversification.

Goal #4:
Save 90% of my after-tax income.


I set this goal based on my past savings pattern which has exceeded 90% savings rate. Maintaining a 90% savings rate would allow me to become financially independent (FI) in less than 3 years! Technically, I am already FI and could afford to live on my dividend income alone, but I plan to keep working a bit longer to help build a bigger asset base for a greater margin of safety against higher than expected expenses and discretionary spending.

Actual savings rate: 93.74% (improved over 93.05% in 2015)

A high savings rate is the key to financial independence/ early retirement. See the graph below from

The table below shows the number of years it takes to be able to retire as a function of savings rate.

Savings Rate (Percent)Working Years Until Retirement
90under 3
95under 2

If one saves only 10%, one would not become FI for 51 years, essentially having to work until social security or pension kicks in. Saving half of one's income would allow one to retire after working for 17 years. Saving 90% could drastically cut the number of working years to under 3!

The graph below shows my trailing twelve month dividend income versus expenses.

The dividend line crossed the expenses line sometime in July 2015. Now I am working on building the buffer. It is comforting to know that I do not have to rely on income from my job to cover my living expenses.

Goal #5:
Read 50 books. 


I set this goal based on my love for learning and desire to stay current and keep my mind sharp.

50 books in a year is about one book a week, which seemed reasonable to me.

Actual number of books read was 39, about 78% of goal.

About half of the books I read were related to investing and finance, my main interest. Other books were in fiction, philosophy, economics, statistics, health, and self-help.

I failed this goal because I did not spend enough time reading.

In summary, I managed to achieve 3 of 5 goals I set for 2016, for an overall success rate of 60%. While this may not seem too impressive, it is actually the best result I have attained so far. In 2015, I only achieved 1/6 goals, for a 17% success rate. In 2014, I achieved 2/5 goals, for a 40% success rate. So 2016 was a good year for me.

New Goals for 2017:
1. Reach a net worth of $1,000,000.
2. Receive $17,000 in dividends.
3. Save 90% of my after-tax income.
4. Read 50 books.
5. Read the bible in one year.

The first one will set a significant milestone for me. One million dollars net worth is finally within reach now, from zero net worth about 7 years ago. I expect to add $130,000 savings to my current net worth of $883,575.44, which would become $1.01 million, allowing me to reach this goal if the stock market would at least break even in 2017. Given that the current bull market has been running for almost 8 years, the currently sky-high valuations withal, I expect the bear is just around the corner. I figure a 40% chance year 2017 will turn out to be a losing year for stocks, potentially even downright -20% bear market territory. In that case, I will fail to meet my goal, but will be better positioned to meet or exceed it the year after that. That leaves 60% chance the stock market will continue higher or at least break even, allowing me to reach the $1 million mark in 2017. Either way, I win.

I don't have a goal for portfolio value for 2017, because it is highly correlated with net worth, and net worth is a better gauge of my financial status.

The second goal sets a less aggressive target for dividend income. My current portfolio is $691,077.87 with a yield of 2.3%. If I add $130,000 savings throughout 2017 at a similar 2.3% yield, I shall collect $17,390 dividend income in 2017. I target a bit less in favor of lower yielding stocks for my new cash flows, so rounding my goal down to an even $17,000. This would be feasible and achievable.

The third goal is a maintenance of my 90%+ saving rate, which is the key to financial independence.

The fourth goal is another attempt after failing to reach it for the past two years. My goal is to read a book a week. I will target books about 100-300 pages each.

The fifth goal is new. It has been about 10 years since I read the bible. I need to refresh my memory and read it again. To help me stay on track, I download an app to read the bible in a year. You can download this free app here. It will take 10 to 25 minutes a day, which is realistic.

I can think of three ways I can count this last goal for my fourth goal. To be conservative, I would count the bible as only one book, which means I would have to read 49 other books in 2017 to reach goal #4. To be liberal, I would count the bible as 66 books contained therein in the Old and New Testament combined. That way I would exceed my goal #4 if I meet goal #5. Finally, there is the compromise of considering 200 pages as a "book", in which case the bible being slightly over 1200 pages is equivalent to 6 books, which leaves 44 more books to read to reach goal #4. I have not yet decided which approach to take. I'll keep you in suspense.

That's all for 2016. Happy 2017!

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