2017 Review and New Goals for 2018!

2017 was another solid 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 2017 increased only slightly compared to 2016, while my savings rate remained well above 90% and dividend income grew significantly. I continued tilting toward lower dividend yield and higher growth to reduce my tax liability given my relatively high income. A summary of all my goals since inception of this blog can be found under my Goals tab.

2017 Goals Revisited
I set 5 goals at the beginning of 2017 to meet by end of the year. The first three are financial and the last two 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 $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.

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

Achieved!

I set this goal based on $883,575.44 net worth at end of 2016 and target of about $130,000 savings based on earnings and saving rate projection, with 0% organic growth (I was somewhat bearish at beginning of the year 2017 as stock valuations seemed high), which would get me to the $1M mark as long as the market at least breakeven. 

As it turned out, 2017 happened to be a stellar year for the stock market, with the S&P500 returning 21.83% on a total return basis. Foreign developed market returned even better at 26.48% and emerging market better yet at 34.31%. Foreign stocks are finally coming back this year, and I regret having gradually shifted away from foreign stocks due to their higher tax burden.

Due to the strong stock market this year, I actually reached $1M net worth goal at half time back in July.

During my Mid-Year Review 6 months ago, I was cautiously optimistic and assigned 80% chance of achieving this goal by year-end, as I was ahead schedule at half time, but could not rule out a market correction in the second half of the year.

My personal rate of return in 2017 was 21%, roughly in line with the US stock market. (I am currently about 81% in US stocks.) This propelled my actual net worth achieved at the end of 2017 to $1,174,539.92. I ended up surpassing my set goal by more than 17%, due to the strong stock market. This was despite my net cash inflow from savings of $119,522.72 falling short of my target by about $10k. 2017 is highly significant in that it marked the first year wherein organic growth (from investment gains) exceeded inorganic growth (from work income) since I started this blog in 2014. I anticipate this to be the harbinger of many more such years to come as my net worth grows and my money start to work harder for me than I work for money. That is the beauty of financial freedom and I am beginning to taste it!

Goal #2:
Receive $17,000 in dividends. 

Failed!

I set this goal based on $691,077.87 portfolio value at the end of 2016 and target of 2.3% dividend yield with $130,000 new cash influx earning a similar 2.3% yield, in line with my expected portfolio dividend yield and projected savings at that time, which would give me $17,390 dividends. I wrote also that given my tilting toward lower yielding stocks, I would round it down to an even $17,000 as my dividend income goal for 2017.

During my Mid-Year Review 6 months ago, I was pessimistic and assigned 30% chance of achieving this goal by year-end, as I was behind schedule at half time.

Actual dividend received in 2016 was $16,086.72. This was about 95% of my goal. Even though I failed to attain this goal, I came pretty close.

My average dividend yield was $16,086.72/average portfolio value = $16,086.72/(($691,077.87+$922,267.18)/2) = 2.0%.

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 1.66. Also, I still have a job and expect to keep it for at least another five 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 BIIB, CERN, FISV, WAT, AZO and low dividend stocks like AAN, DHR, UHS, MCK, V, MA. I will still buy higher yielding stocks if the price is right for diversification.

Goal #3:
Save 90% of my after-tax income.

Achieved!

I set this goal based on my past savings pattern which has exceeded 90% savings rate. Maintaining a 90% savings rate allowed me to become financially independent (FI) in less than 3 years (see table below)! Although I am already FI and could afford to live on my dividend income alone, 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.

During my Mid-Year Review 6 months ago, I was optimistic and assigned 95% chance of achieving this goal by year-end, as I was ahead of schedule at half time.

Actual savings rate: 92.51% (slight decline from 93.74% in 2016, due to a decline in income)

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
0	infinite
5	66
10	51
15	43
20	37
25	32
30	28
35	25
40	22
45	19
50	17
55	14
60	12
65	11
70	9
75	7
80	6
85	4
90	under 3
95	under 2
100	zero

If one saves only 10%, one would not become FI for 51 years, essentially having to work until social security or pension kicks in. Even a 15% savings rate, most commonly advocated by financial planners, would not allow one to retire for 43 years, which is way too long. On the other hand, saving half of one's income would allow one to retire after working for 17 years, much more reasonable. Saving 90%, made possible by a high (100k+) income, can drastically cut the number of working years to under 3! The latter is the path I have taken and it is working wonderfully for me.

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


The dividend line crossed the expenses line sometime in July 2015. I began working in July 2010, so it took me 5 years to reach this breakeven point of financial independence. In my earlier working years, my savings rate were closer to 80% than to 90%, so that table above is pretty accurate. 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 #4:
Read 50 books. 

Achieved!

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

I had failed this goal for 2 years prior to 2017, but 50 books in a year is only one book a week, which is quite reasonable as long as one is committed to achieving it.

During my Mid-Year Review 6 months ago, I was pessimistic and assigned only 20% chance of achieving this goal by year-end, as I was behind schedule at half time.

Actual number of books read in 2017 was 66, which exceeded my goal by 33%!

About 39% of the books I read were related to investing, economics and finance, my main interest. Other books were in fiction (22%), philosophy, language, statistics, health and wellness, games, and self-help.

I achieved this goal by tracking my progress, dedicating time for reading, focusing on my main interests, diversifying with short books (although average page number of all 66 books read was 279, which is still decent), and using audiobooks (this has been a big boost, as I suddenly find myself with a lot more time for "reading" books during my daily commute and exercise routines). I highly recommend audiobooks, and there are many freely available in the public domain recorded by volunteers from librivox.org. Hey, there is even an app for that!

Goal #5:
Read the bible in one year.

Achieved!

This goal helps me to remain spiritually minded, and as a bonus the Bible is written in a superb linguistic style is ideal for improving one's language skills. The Bible is very long though, so to help me stay on track, I relied an app with daily reading plans, which was intrumental to help me stay on track to achieve this goal.

During my Mid-Year Review 6 months ago, I was optimistic and assigned 95% chance of achieving this goal by year-end, as I was on track to keep up with it using the bible reading app.

In fact, I exceeded this goal because the app's bible reading schedule had the New Testament read twice in a year. For the second half of the year, I used another app to read the New Testament in the Vulgate for variety and to help refresh my Latin.

In summary, I managed to achieve 4 of 5 goals I set for 2017, for an overall success rate of 80%. As for the only goal I failed to achieve, I was 95% complete. This is by far the best result I have attained so far. In 2016, I achieved 3/5 goals, for a 60% success rate. 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. There is still room for improvement though as I strive toward 100% success rate!

New Goals for 2018:
1. Reach a net worth of $1,400,000.
2. Beat the S&P500TR.
3. Receive $18,000 in dividends.
4. Save 90% of my after-tax income.
5. Read 60 books.
6. Read the bible in one year.

The first one assumes that I add $130,000 savings to my current net worth of $1,174,539.92, and a 10% return, which would come to $1,421,994. Rounding it down a bit comes to $1.4M. All indications are that the bull market still has room to run, given the tailwind from the huge tax cut and the Fed's intention to raise interest rates only slowly. However, given the market's lofty valuations, even small increases in interest rate may prove too much for it to bear, and some unforeseened exogenous event could trigger a correction or a bear market in 2018. So I am not all too confident in reaching this goal at all. I figure probably 50% chance of achieving it.

The second goal is new this year, though it has always been an implicit goal of mine. The S&P500TR is the benchmark against which every money manager must measure his performance. I have not had much success with this since I started tracking my returns, but I am continuing to learn and improve and hope to eventually achieve this goal. To help achieve this goal, I will try to stay close to 100% stock allocation, add some leverage as appropriate, and buy stocks on dips. I figure perhaps 50% chance of achieving it.

The third goal sets a reasonable target for dividend income. My current taxable account portfolio (excluding retirement accounts) is $844,305.03 with a yield of 2.0%. Of my projected $130,000 savings, $24,000 goes toward retirement accounts, leaving $106,000. If I add $106,000 savings throughout 2018 at a similar 2.0% yield, I shall collect $17,946 dividend income in 2018. That is close enough to $18,000 which I should get there with dividend growth, so rounding my goal up to an even $18,000. This should be feasible and achievable. I figure about 80% chance of achieving it.

The fourth goal is a maintenance of my 90%+ saving rate, which is the key to financial independence. Given that I have achieved this goal consistently since 2014 and I do not foresee any significant change in my income and expense, I figure 99% change of achieving it.

The fifth goal is a step-up from 2017 as I strive to read more to stay current and keep my mind sharp. I figure about 90% chance of achieving it.

The sixth goal is a repeat from 2017 as I find Bible reading quite refreshing. I might read it in Spanish this year for some variety. Now, my Spanish is not nearly as good as my English, so this will probably double the time I need to devote to this goal from 15 minutes to 30 minutes per day, which could potentially make this goal more difficult to achieve. This goal is in addition to my goal #5 above. I figure about 80% chance of achieving this goal.

That's all for 2017. Happy 2018!