2019 Review and New Goals for 2020!

2019 was overall a good year for me in terms of meeting the goals under my control, as well as my net worth goal easily in a strong bull market year, but I failed to meet my performance goal relative to the market, as well as my dividend income goal which was actually a blessing in disguise (more on that later).

A summary of all my goals since inception of this blog can be found under my Goals tab.

2019 Goals Revisited
I set 6 goals at the beginning of 2019 to meet by end of the year. The first four 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 $1,600,000.
2. Beat the S&P500TR.
3. Receive $19,000 in dividends.
4. Save 95% of my after-tax income.
5. Read 50 books.
6. Read the bible in one year.

Goal #1:
Reach a net worth of $1,600,000.

Achieved!



I set this goal based on $1,292,823.80 net worth at end of 2018 and target of about $175,000 savings based on earnings and saving rate projection, with 10% organic growth (I had no idea what the stock market would do in 2019 and used the average historical return as a rough target), which would get me to $1.6M.

As it turned out, 2019 happened to be a bonanza year for the stock market, with the S&P500 returning 31.50% on a total return basis, the highest return since 2013.

During my Mid-Year Review 6 months ago, I assigned 90% chance of achieving this goal by year-end given that I was almost at goal at half time. 

My personal rate of return in 2019 was 29.97%, roughly in line with the US stock market. (My portfolio is currently about 85% in US stocks.)

My actual 2019 year end net worth of $1,843,840.69 exceeded my goal by 15%. This was despite my net cash inflow from savings of $163,563.43 falling somewhat short of expectation. Going forward, organic growth will play an increasingly important role in determining whether I meet my net worth goals.

Goal #2:
Beat the S&P500TR. 

Failed!

I set this goal as the S&P500 is the benchmark against which every money manager is measured. I had figured a 50% chance of meeting this goal (basically a crapshoot). 

My actual return of 29.97% failed to beat the S&P500TR's 31.50% by 153 basis points. This marks my third consecutive year of underperformance and the worst year in relative performance since 2015. 

Obviously, I am unhappy with this. Asset allocation explained the result. My portfolio contains about 15% in foreign stocks and 13% in small cap stocks. Both of these asset classes significantly underperformed the S&P500 index. 

I suspect that many money managers will also find 2019 a tough year to beat the market's strong 31.5% return. More money will shift away from active managers into passive investing.

My hope is that reversion to the mean will help me outperform the index later.

Goal #3:
Receive $19,000 in dividends. 

Failed!

I set this goal based on $967,335.59 taxable portfolio value at the end of 2018 and target of 1.9% dividend yield with $150,000 new cash influx earning a lower 1.0% yield, to tilt toward lower dividend payers to reduce my tax liabilities, which would give me $19,129 dividends, which is close to $19,000.

I wrote that success for this goal will be defined as within 5% of goal up or down, so between $18,050 and $19,950. Failure on the downside means too many dividend cuts or turnover. Failure on the upside means too much dividend income tax liability. I figured about 80% chance of achieving it.

During my Mid-Year Review 6 months ago, I was behind schedule and assigned 5% chance of achieving this goal by year-end.

Actual dividend received in 2019 was $15,795.49. This was 83% of my goal, falling short on the downside as expected.

I did not receive as much dividends as expected due to an aggressive move to replace higher yielding stocks with low or no yielding ones to cut down my taxes. The volatility of the stock market early in 2019 enabled me to make the move.

My average dividend yield was $15,795.49/average portfolio value = $18,472.77/(($967,335.59+$1,399,905.88)/2) = 1.56%.

This is moderately below the market yield of 1.8%.

Goal #4:
Save 95% of my after-tax income.

Achieved!

I had upped the ante increasing my savings goal from 90 to 95 percent based on my past savings pattern which has exceeded 95% 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. A 95% savings rate would help build wealth even faster.

During my Mid-Year Review 6 months ago, I was confident and assigned 99% chance of achieving this goal by year-end, as I was well ahead of schedule at half time.

Actual savings rate: 98.4% (all-time high as my expenses came way down since I significantly lowered my housing expenses since March 2018)

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 over time.

The red dividend line crossed the blue 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.

I will continue to maintain a high savings rate because it is my lifestyle to live simply, and I want to build upon rather than forsake all the progress I have made so far.

Goal #5:
Read 50 books. 

Achieved!

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

This was a step-down from 2018 but in-line with previous years. I figured about 40% chance of achieving it, assuming I wouldn't have time for fast audiobooks and had always struggled to meet this goal based on print books.

During my Mid-Year Review 6 months ago, I was ahead of schedule at 64% of goal and figured 99% chance of success.

Actual number of books read in 2019 was 106, which exceeded my goal by 112%!

Okay, a confession: 48 of these books were audio books, without which I would have read only 58 books but still met my goal.

As detailed in a separate post, about 93% of the books I read were non-fiction, mostly related to business and money.

Average pages per book was 266 and average rating on Amazon was 4.2 stars.

Looking ahead to 2020, I will likely use audiobooks to even greater extent, which warrants increasing the goalpost.

Goal #6:
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 on an app with daily reading plans, which was instrumental in helping me stay on track to achieve this goal.

During my Mid-Year Review 6 months ago, I was optimistic and assigned 99% chance of achieving this goal by year-end, as I was on track to keep up with it using the bible reading app.

In summary, I managed to achieve 4 of 6 goals I set for 2019, for an overall success rate of 67%, the same success rate as last year.

Not meeting Goal #2 was a disappointment, though achieving almost 30% return despite allocation to underperforming assets like small cap and foreign stocks provides some consolation.

Not meeting Goal #3 was a blessing in disguise, because less dividends means less taxes for me, which will help increase my total return.

In 2017, I achieved 4/5 goals, for a 80% success rate, an all-time high. 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, an all-time low. In 2014, I achieved 2/5 goals, for a 40% success rate. I like to set challenging goals and allow for room for improvement as I strive toward 100% success rate!

New Goals for 2020:
1. Reach a net worth of $2,200,000.
2. Beat the S&P500TR.
3. Achieve total portfolio dividend yield at least 50 basis points below the S&P500.
4. Save 95% of my after-tax income.
5. Read 100 books.
6. Read the bible in one year.

The first one assumes that I add $160,000 savings to my current net worth of $1,843,840.69, and a 10% return, which would come to $2,188,224. Rounding it up comes to $2.2M. I have no idea what the stock market will do in 2020. 10% is simply the long term average stock return. So I am not all too confident in reaching this goal at all. I have reasons to be optimistic though, as 2020 is an election year and Trump is expected to do everything he can to keep the economy going strong, at least until he secures reelection. Markets are fickle, so I figure 50% chance of achieving this.

The second goal is the same as last year's. The S&P500TR is the benchmark against which every money manager must measure his performance. I have had mixed results 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 is new! The idea of achieving a low portfolio dividend yield is tax optimisation. As I have explained above, I now receive much more dividends than I need to live on. That is tax inefficient because I have to pay 15% on the dividends and then reinvest them at higher prevailing market prices, which hurts my performance. I can't set an absolute dividend yield target, such as 1%, because the stock market fluctuates, so much so that 1% could be obscenely high if market prices are abnormally high, or ridiculously low if market prices are abnormally low. Since S&P500 is the benchmark for investors, my goal is to achieve a dividend yield at least 50 basis point below the index. 50 basis points is an arbitrary figure. I want to shoot for 100 basis points below, but that would be unrealistically ambitious to achieve in just one year. Currently, as of Jan 3, 2020, the S&P500 yields 1.77%. That means my portfolio would need to yield 1.27% or less to meet this goal. I am failing right now given that my current projected yield is 1.32%, so I got some work to do, namely, by increasing my allocation to lower yielding stocks. I want to replace higher yielding stocks with lower yielding one in a market swoon, in order to minimize taxes on capital gains. A 2020 bear market would be a blow to my Goal #1, but a gift to my Goal #3. I figure probably 50% chance of achieving this goal.

The fourth goal maintains the same 95% saving rate target, as in 2019. Given that I have achieved this goal in 2019 and I do not foresee any significant change in my income and expense, I figure 95% chance of achieving it, not quite 100%, as unexpected expenses could come up.

The fifth goal is an ambitious one, doubling the goal set in 2019. I think it is realistic though, given that I plan to use audiobooks regularly. Audiobooks are much faster. While some might consider it cheating, I get as much if not more out of listening to an audiobook as reading an equivalent print version. They achieve the same result of keeping my mind sharp and increasing my knowledge. I figure 80% chance of achieving this goal.

The sixth goal is a repeat from years past as I find Bible reading quite refreshing. I plan to use my favourite KJV daily bible reading app to keep track. This goal takes me about 10 min each day, and is in addition to my goal #5 above. I figure about 95% chance of achieving this goal.

That's all for 2019. Happy 2020!