Wednesday, January 6, 2021

2020 Review and New Goals for 2021!

2020 was overall a mixed year for me in terms of meeting my goals, as I shall explain.

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

2020 Goals Revisited
I set 6 goals at the beginning of 2020 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 $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.

Goal #1:
Reach a net worth of $2,200,000.

Achieved!

I set this goal based on $1,843,840.69 net worth at end of 2019 and target of about $160,000 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 around $2.2M.

As it turned out, I retired halfway in 2020, and saved only $99,719.84, but the strong stock market performance buoyed my net worth organic growth to exceed my goal regardless.

My personal rate of return in 2020 was 18.68%, roughly in line with the US stock market. (My portfolio is currently about 94% in US stocks.)

My actual 2020 year end net worth of $2,288,160.79 exceeded my goal by 4%, despite my savings goal falling well short due to reduced earned income. Going forward, organic growth will play an increasingly important role in determining whether I meet my net worth goals, as I will have little or no earned income as a retiree.

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 crap-shoot). 

My actual return of 18.69% was basically the same as the S&P500TR's 18.40%, since 29 basis points are within round errors. I define beating the market as at least 100 basis points.

Obviously, I am dissatisfied with this. Although my heavy US stock allocation helped my keep up with the market, I was nevertheless hurt by my value tilt and foreign stock holdings which continued to underperform.

Going forward, I can increase my chances at beating the market by increasing leverage, though this must be done cautiously as leverage is a double-edged sword that can really hurt in market downturns.

Goal #3:
Achieve total portfolio dividend yield at least 50 basis points below the S&P500.

Achieved!

This third goal was new! The idea of achieving a low portfolio dividend yield is tax optimisation. As I have explained in my monthly net worth updates, 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. I figure probably 50% chance of achieving this goal.

At year-end 2020, the S&P500 yielded 1.57%. My taxable dividend yield is 0.49%, which is 108 basis points below the market. This is a huge win for tax efficiency.

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

Achieved!

I had a high six-figure income and live frugally, so I figured a 95% chance of achieving this goal. Achieving 95% saving rate goes a long way to accelerating my net worth goal above.

Actual savings rate: 97.4%. This was despite my retirement in July 2020. Keeping expenses low in the $3000 per year range was the decisive factor in achieving this goal.

Goal #5:
Read 100 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 big step-up from 2019, as I anticipated the usage of audiobooks to accelerate my reading rate. I figured about 80% chance of achieving it, barring distractions and competing priorities.

Actual number of books read in 2020 was 139, which exceeded even my ambitious goal by 39%! That is a book read every 2.6 days.

Audiobooks, which accounted for 86% of the total, was the main contributor to success.

Average pages per book was 330 and average rating on Amazon was 4.4 stars.

Looking ahead to 2021, I will likely continue to use audiobooks extensively.

Goal #6:
Read the bible in one year.

Failed!

I set this goal to help me remain spiritually minded, and as a bonus the Bible is written in a superb linguistic style is ideal for improving one's language skills. 

About half-way through the year, I lost interest in this goal as I have read the Bible so many times that it became too monotonous and predictable. Language learning has become a higher priority for me.

Summary
In summary, I managed to achieve 4 of 6 goals I set for 2020, for an overall success rate of 67%, the same success rate as last year.

Not meeting Goal #2 was a disappointment. While I did not beat the market, I take solace that at least I did not underperform.

Not meeting Goal #6 was okay by me. It has ceased to be a priority for me. It is more important for me to keep learning new things everyday, and reading the same familiar passages does little to maintain and improve an active mind.

New Goals for 2021:
1. Reach a net worth of $2,500,000.
2. Beat the S&P500TR.
3. Achieve total portfolio dividend yield at least 100 basis points below the S&P500.
4. Read 100 books.
5. Read two Latin textbooks and two Greek textbooks.
6. Complete Duolingo Languages courses in Japanese and German.
7. Complete Mango Languages courses in Latin, Ancient Greek and German.

The first one assumes negligible new money as a retiree and a 10% return, which would come to around $2.5M. I have no idea what the stock market will do in 2021. 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 a new bull market just begun less than a year ago on 23 March 2020. 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 a step-up from last year. I have already achieved this in 2020, thanks to the COVID-19 bear market which I took advantage of by selling high yielding stocks and reinvesting in no and low yielding ones when prices where low to minimize realised capital gains. I just need to stay the course to meet this goal again in 2021.

Since I have already retired with little or no anticipated earned income, saving goal is now pretty much meaningless. I will continued to keep my expenses low and let my net worth grow.

The fourth goal is the same as in 2020. It is ambitious but realistic, given that I plan to use audiobooks regularly. Audiobooks are much faster than print versions. 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 90% chance of achieving this goal.

The fifth, sixth and seventh goals are new! These are my language learning goals that are measurable. Learning new languages is the best way to maintain a sharp mind. I will focus on learning the classics, i.e. Latin and Greek. Duolingo and Mango Language courses are pretty basic, but repetition is important for memorization. The Mango Language lessons in Latin and Greek are very short and are a cinch to accomplish but the German and Japanese courses are pretty extensive and demand a lot of time. There are about 200 lessons in the Mango German course, so I need to be consistent doing a daily lesson to achieve this. I figure about 60% chance of achieving any of these goals.

That's all for 2020. Happy 2021!

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