2018 in retrospect

So this is it. Tomorrow is Christmas, and only a week later we will already be saying “goodbye” to 2018 and “hello” to 2019. I will be working – a lot – over the next 10 days, so let me write my last words on this blog for 2018 today.

Obviously, since the blog is about personal finance, let’s start with that.

Personal Finance

I was not able to hit all my goals and targets for 2018, but some. The most important one is obviously my savings buildup. In 2018, I managed to save / invest 32,3% of my total income. A little bit better than 2017, when I saved 31,16%, but far away from my target of 40%.

Ambitions are good, but if setup too high, it can become frustrating to chase them. So for 2019 I will drop my target slightly and try to reach 35%. This should be manageable, because as of 1st Jan 2019, I will have no more monthly instalments for my car in my budget plan. That’s right. I paid down my car early (within 3 years) with several extra payments along the way. Thus, these payments will disappear from my monthly bills and shifted towards my savings plan.

In 2019 I might also skip vacations in Europe, which are a costly family event. This is not due to my savings plan though, but rather due to an anticipated job-change sometime around the middle of the year. So instead of 4 weeks in Europe, I might just do 2 weeks in Japan or Korea.

Either way, I was promising my wife vacations in Japan basically since the first day we met – 6 years ago, so yes, it might be the right time to get set this record straight.

In terms of stock investments, we have had a negative sentiment in 2018 and in 2019, the markets might very well crash. Therefore, for the first 6 months, I intend to collect cash and to get ready for the stock sell-off. When markets crash, there are usually plenty of great opportunities on hand, and I want to be ready for it. IF markets should drop by 40-50%, it means that I should have at least a quarter or better half of my currently invested amount available in cash – to cost average existing stocks and to add some new ones which will come as great bargains.

Maybe just a word about cost-averaging.… even the most optimistic stock-maniac (such as myself) needs to understand: When a stock drops by 50%, it will need to rise again by 100% just to be back at square 1. So if your stock drops by 50%, it might make sense to double down on it and to purchase the same or even a larger amount of the same stock at half price. This will reduce your average cost per share and your losses in % down to 25%. A loss of 25% can be recovered much faster than 50% and you will end up with higher profits – provided the stock comes back to the point where it was before the crash.

I don’t intend to sell any of my stocks. Most of my positions pay a solid dividend. In 2018, based on received payments and invested total amounts, my dividend income settled at 3,2%. It’s not a great number, but it’s only that low due to the constant additional cash that I poured into my account. For 2019, I expect the dividend income to increase to something around 4-6% and for 2020 to reach a range of anywhere between 5-8% returns. Once I reach double digits will be the point where I stop adding cash to the portfolio.

How is this achievable? Well, among a few other factors, it’s the power of dividend growth and the cost-averaging of some of my positions. Let’s take a look at the European energy giant E.On, which is one of my core holding positions. In 2018, the received dividend came down to only 2,32% after taxes. E.On paid a dividend of 0,30 Eur per share in 2018 and the withholding tax on dividends is roughly 26%. In 2019 however, the dividend will be raised to 0,43 Eur per share and for 2020 the expectation is around 0,60 Eur per share. That’s almost a 43% increase in the first year and a 100% increase over 2 years. Apple (another core position of mine) is expected to raise its dividend by at least 20% year on year, for many more years to come. Royal Dutch Shell returned to me only 2,7% on annual basis, but I purchased the shares just in June, so I missed the first 2 payments in the first half of the year, which I won’t miss in 2019. Thus the income will grow to a minimum of 5,4%, given the company will not cut or increase the dividend and of course provided that I don’t add more capital to it.

I have only 1 company in my portfolio that is not paying a dividend – and it is my biggest loss this year. My VOLTABOX shares are down 53%. However, since I don’t see any valid reason for the sell-off, I will probably add some more shares of this company to cost-average down and see how things play out in 2019.

Maybe another word of advise: During rough times, focusing on dividend paying stocks has proven to be a successful strategy to minimise risks.

Career

I have pretty much reached the first top of my career ladder and don’t expect any significant position-jumps over the next years. My target for 2019 is to switch jobs, to move to a larger hotel (I am a hotel manager) and to negotiate a salary increase of approx. 15-20%. This should be possible, as I am still within the lower salary-range within the standard frame for my profession.

My current hotel was my first assignment as a General Manager and I made a couple of mistakes when negotiating the contract. Obviously, I won’t repeat those mistakes, so the 15-20% salary increase is realistic.

Other

I will continue my side-hustle and keep writing for The Motley Fool Germany. Working with the team there since July 2018 was great fun and I learned a lot. I can actually imagine doing this for many more years to come, even after I retire early (the target is at the age of 45 – in 6,5 years from now).

During the last few months I have sent some money to my parents. We are fixing a small house in the countryside in Poland and are planning to open a small bed & breakfast. Nothing large, just 3-4 rooms, but there is great opportunity to support my parents about their retirement income from that. This is also the main reason why I couldn’t increase my own savings in that amount as I was originally planning to do. However, I believe that in the long-run it can turn out to be a very beneficial move for my entire family – so it’s absolutely worth it.

Merry Xmas and a successful New Year!

That’s it. Writing things down in a blog is my way of taking the time to structure some thoughts and to re-consider my approach for things to come. It’s a great exercise, and while you don’t need a blog for that, I urge and recommend you to do just that. Take some time, think about your goals and dreams, and make a plan out of it.

There is a quote, that might be politically not correct, but it doesn’t make it any less true:

“Nobody ever wrote down a plan to be broke, fat, lazy, or stupid. Those things are what happen when you don’t have a plan.” – by Larry Winget

And one more:

“A goal without a plan is just a wish.” – by Antoine de Saint-Exupéry

Take it as a constructive feedback and keep working on your plan.
It’s the only way to escape the rat race.

 

Disclaimer: I have all the stocks mentioned in this article.

Make yourself a great Christmas gift! Invest!

Christmas is just a few days away, and while over the years in the past this time was blessed with rising stock markets, 2018 doesn’t look much promising. The almost traditional year-end-rally is very unlikely this year. And that’s not bad news.

A lot of stocks have suffered in 2018. Some, deserved a correction. Some are just cursed by uncertainty about their future. And others have just been dragged down with the rest. I believe, it’s a great time to take a closer look at some of these “others” and to spill a few Euros into your investment account.

I usually don’t recommend any specific stock and the following stocks are not meant to be a recommendation in any way. Every investor needs to do his own due diligence and invest according to his or her own sound judgment. Having said that, here are my favourite stocks to take a closer look at. They all have the potential not only to help you create an additional income through great dividends, but also have in my humble opinion, the potential to find back to earlier glory in the next months and years to come.

Apple

There is no need to explain much about this company. It’s one of the richest, most profitable and most innovative companies on earth. You might think that Samsung, Huawei or LG got great products, but just consider this: While Apple certainly doesn’t have the largest market share on mobile phones, it’s cashing over 90% of worldwide mobile phone profits. This is considering ALL mobile phone brands combined. Sounds ridiculous? Well, it is. But they charge you 1000$ a phone and they get them sold. On top of that, their phone revenues are still a major factor, but revenues from the App store, cloud business, computing, wearables and equipment are becoming stronger every year. The stock went down significantly over the last weeks on worries from analysts that iPhone sales might end up below expectations. I am pretty confident though, that in a few weeks from now, Apple will release its Q4 earnings and will once again crush all estimates. The dividend yield is not very high for now at only 1,71%. But please consider that Apple is increasing its yield every year by double digits and while the stock price keeps rising, the yield will probably always look low. Therefore, buying the stock now is probably not a bad move, and while profits and dividends will keep rising, so will the price per share. In 10-15 years from now, I believe that chances are great to have double-digit dividend yield on cost. There is also no need to go all-in. The market might drag Apple further down, so initiating a smaller position and adding more shares later might be not a wrong tactic as well.

AT&T

Communications might be super risky, but AT&T is now at a point that is hard to ignore. This stock is one of the most reliable dividend payers out there and it offers currently 6,6% yield. Just yesterday the company announced another dividend increase, as it does every single year, like clock-work. Investors willing to ignore market fluctuations and seasonal challenges might be happy about getting on board now and start cashing in this juicy and sweet dividend being paid out every quarter. Also, since the share lost lot’s of value over the recent years, there is a good chance for a turn-around story in 2019 or 2020. Management finally acknowledged that it’s time to stop using their credit cards and time to pay-back debt. Once this starts, more trust should return to the company and I do expect it to recover.

GlaxoSmithKline

Follow smart people who do smart investments. GlaxoSmithKline is one of the major players in the medical industry and as Bill Gates put it: They can do things that no one else can do. This stock is very stable passing currently through market fluctuations like an ice-breaker in the arctic sea. Reliable, quarterly payments, a great yield of 5,29% and showing no signs of weakness whatsoever. On top, no matter where you are located, consider this: The company is headquartered in the UK and doesn’t charge any withholding tax on dividends.

Royal Dutch Shell

Normally I stay away from oil. I don’t like oil and I don’t really want to support them in any way. But we have to be frank: Without oil, the world as we know it wouldn’t exist. Sure, the by-products are destroying our world, but we all know that we wouldn’t be where we are without having reaped the benefits of it. So, while I am still not a fan of oil, I appreciate companies that are steadily transitioning into the new energy era, and Shell is one of those companies. Their investments into renewables are remarkable and I believe that this company will transition just in time, to weather any future storm that will start shaking big oil sooner or later. On top of that, they still do make amazing profits and pay a dividend with 6,27% yield. Paid out quarterly and without any withholding tax, Shell is in my opinion a great investment.

If you want to stay away from individual stocks, it might be not a bad idea to take a look at an index-ETF. Here, my preference right now is on the German mid-cap sector, the MDAX. It’s one of the most successful index in the world and while it may be volatile, over time it always not only recovered, but also produced great returns for patient investors.

So here you go.

Don’t waste your money on some shiny boxes with sweatshirts that no one wants to wear or toys that will start collecting dust after a month. You most probably don’t need a new phone or a new laptop and there is also a high chance that your car or motorbike can take you on for another year. Grab that cash and invest. Chances are, this might turn out to be a much more valuable and rewarding gift for yourself and for your family, for many more years to come.

DISCLOSURE: I owe all the stocks mentioned in this article.

What FIRE really means

Retiring Early and being financially independent may be a dream for many. But before you put too much romance into that thought, let me tell you something: It becomes a dream once it happens. But before that, it can get really tough.

Savings target

My plan is to retire with 45. That’s 6,5 years from now. A long time? Not at all. Let’s do some basic math:

6,5 years => 52 x 6,5 => 338 weeks.

IF you would look at your current situation right now, how much money could you save up every week? 20 Euros? 30? 50? 100? Even if you would save 100 Euros a week, after 338 weeks this would equal only 33,800 Euros. Hardly enough to retire on.

So my target is actually significantly higher, with a goal of saving approx. 500-700 Euros a week. For most people this may sound hard to manage or even to be complete madness. But yes, it CAN be pulled off. It’s just really, really hard.

Focus on your career

I work as a hotel manager and have a decent salary which contributes mainly to reach my target. However, becoming a hotel manager at the age of 36 while having started in the industry only when I was 29, was a pretty tough call. In order to get quick promotions and collect the necessary knowledge and experience, I managed during this short time-frame to work in Korea, Japan, China, Scotland, Germany and Thailand. When I took on a role, I learned as much as I could, and as soon as I noticed that there is something in my way of moving up the career ladder, I simply moved on. I didn’t care about where I go, what my initial salaries were and I had almost no personal life whatsoever.

To be exact, the hotel was my life. I didn’t celebrate my birthday with any of my friends back home for several years. I didn’t celebrate Christmas or New Years back at home, because this is mostly a super busy time in any hotel around the world and you just don’t get off for that. I had no time for a family and even regular relationships were mostly annoying because they would just slow me down and require me to compromise on my career choices. My luggage was (and mostly still is) a 7 kg carry-on plus my laptop bag and a couple of suits. I hate to check-in luggage. My point here is: You got to really push yourself to get this career that will help you in building up your savings and investments.

Save a lot and use your savings to invest – aggressively

In the last 3 years I started to invest in stocks on a larger scale. Basically, when I got salary, I would send 50-60% of it to my stock account right away, and leave just enough on my cash account to get through the month. While I have a high position and a high salary by now, I really hate spending money for things that simply don’t matter. And believe me, from my point of view, there are not many things that would matter.

I don’t collect stuff, I don’t believe in buying presents or gifts. I get headaches when I enter a shopping mall and stay there for longer than 20 minutes and most of my clothes are being worn until they literally fall apart. I upgrade my phone and my laptop once every 5 years (yes, it should be Apple products, other brands just won’t survive long enough), I don’t sign any contracts that would involve monthly payments. Netflix is currently the only exception.

Don’t compromise your savings, get a side-hustle if you need more cash

But most and of all, I focus on work. When I get short on cash, I don’t withdraw any money from my stock account. I go to http://www.upwork.com and find a quick side-hustle to earn a few quick Euros to cover the expenses that suddenly came up. If I can’t collect the money quickly enough, I will put it on my credit card, collect the points and pay it off immediately as soon as I can collect my side-hustle reward.

Credit cards can be tricky but also useful. Living now in Thailand for a while, I can honestly say that during the last 3 years I never paid for a movie ticket. I got enough credit card points to go in every week (if I wanted to) without spending a dime. This is mainly, because I put almost any of the necessary expenses that I have on my card – and pay it back as soon as my points come in. Avoid delays, because credit card interest can seriously jeopardise your finances, but collecting credit card points is a great way to improve the value of your spendings.

For the last 6 months, I have filled my weekends (and some nights) with writing articles for The Motley Fool GmbH (German subsidiary). Regular writing on the side helps me a lot to keep up with my goal and additionally, it helps me to stay up to date on financial topics and stock research for any future investments.

It can get really tough

Sure, my wife complains sometimes about not having enough time for the family. My hotel job covers me for 6 days a week (yes, only 1 day off per week) and I usually spend roughly 60 hours in the hotel – every week. Researching stocks and writing about them adds at least another 20 hours on top of it. So I am now at roughly 80 hours per week. Hell, that’s a lot. Seriously, it is.

BUT the way I see it, in 6,5 years from now I will have plenty of time for everything – until I die. That may be shorter than I think. Or significantly longer. Who knows. But I don’t buy the “living for the moment” mantra when it comes to finance. Yes, I may die a year after reaching my goal, but the much higher probability is that I will be around for another 40-50 years after that.

Isn’t it a better choice to be optimistic about your life expectation and to look forward to it, with the confidence of being financially independent? I think so. I believe so. And that’s why FIRE is for me.

If you can’t motivate yourself to INVEST your time, and to dedicate your attitude and career approach to this goal, then FIRE will be seriously hard to pull off. And probably remain just a dream.