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My FI Journey » Uncategorized » 2013 Year-End Review

2013 Year-End Review

2013 was a fun, exciting, and interesting year for me.  I’ve been enjoying my job and working to grow my career.  I’ve been saving and investing tons of money.  I even started my very own personal finance blog.  Now it’s time to sit down and look back over the year that was 2013 and see what can be learned from my successes and failures.

 Yes, I realize that many personal finance bloggers write their year-end reviews in January.  That makes me late.  Real late.  But better late then never.  So let’s get this party started.

Savings Rate

I met my savings goal for 2013!  50.98% of my net income ($42,924.55) was saved and/or invested.  This includes income from my salary, bonus, and other petty income streams (blogging, gifts, reimbursements).  I don’t include any of my dividend or option income in this calculation as these have yet to leave my investment account.

Cash Pile

Yes, I’ve got an emergency fund.  Just like every other personal finance blogger.   My original plan was to save up a full year’s worth of living expenses, around $35,000 in cash.  I decided to abort that plan and stop at $25,000 for a few reasons.

  • Having survived the first year at my new job, I’m confident that my job is stable.  At least for a few years.
  • $25K is enough money to buy a modest new car – the most expensive emergency expense that I can reasonably expect to face in the next few years.
  • Smaller emergency expenses could easily be soaked by temporarily stopping regular transfers to my investment account.
  • There is a huge opportunity cost associated with having cash sitting around earning next to nothing.  My money should not be lazier than I am.

At the end of 2013, I had $21,787.76 in my savings account and $6,125.02 sitting in my checking account.  I am not convinced that having over $20,000 in my savings account earning virtually no interest is the best use of that money.  I would love to get it invested.  This will require some further thinking on my part.

Dividend Portfolio

My dividend growth portfolio kept on increasing.  At the end of 2013 my portfolio was worth $156,723.35.  The graph below shows the growth of my portfolio since its inception in May 2010.

Overall it appears that I’m doing pretty well.  I’m still beating the S&500 by a bit.  However, when we break it down by year things look a bit more ambiguous.

2013 Gaines

Annualized Portfolio Total Returns By Year

Annualized returns are calculated using the XIRR function in Excel.  Data presented as (My return / S&P500 return)

  • 2010 (From May 1st): 20.47% / 9.34%
  • 2011: 15.96% / 2.33%
  • 2012: 11.52% / 14.88%
  • 2013: 29.23% / 32.09%
  • All time (5/1/10 to 12/31/13): 20.13% / 18.22%

Unfortunately, in 2012 and 2013 I underperformed the S&P500.  Why?  It’s hard to tell for sure, but I have a few ideas.

  • My portfolio is less risky than the S&P500.  I’ve got a weighted beta of around 0.93 compared to 1 for the S&P500.  With less risk usually come lower returns.  Most of my dividend growth stocks are stodgy mature blue chip companies that aren’t prone to rapid growth or having their price run up by speculators.
  • Many of my holdings are S&P500 members, which makes my portfolio a reasonable representation of the market as a whole.  As such, we’re just seeing random fluctuation around the mean.  Some years I do better, some years I do worse, but in the end it all averages out to me doing about the same as the S&P500.
  • 2013 was a great year to stock up on REITs.  Many were trading near their 52-week lows.  And I stocked up.  However, while REITs are great at producing income, they aren’t known for their rapid price growth.

Dividend Income

Dividend income presents a different story.  Here, my portfolio is doing substantially better than the S&P500.  This is to be expected since the entire purpose of my portfolio is to produce passive income.  The chart below shows the quarterly dividend payments from my portfolio compared to those of the S&P500.

2013 dividend summary

Note:  I added up all dividends received for each quarter to get the totals used in the chart.  As the S&P500, represented by SPY, only pays out quarterly dividends, I felt this was the fairest comparison.

Dividend Payments By Year

Yearly dividends are reported as (My dividends / S&P500 dividends).  Estimated dividend income from the S&P500 (as measured by SPY) are provided as a comparison.

  • 2010 (From May 1st): $528.00 / $402.41
  • 2011: $1,589.59 / $864.06
  • 2012: $2,593.82 / $1,589.43
  • 2013: $4,268.37 / $2,378.14 

Options Income

2013 was a solid year for options income.  I pulled in $2,996.16.  No assignments in 2013 either.

Real Estate Ventures

Two of my goals for 2013 were to research both home buying and becoming a landlord.

I decided against buying a home at this time.  Some of my main reasons are highlighted below.

  • Homes (and condos) here are very expensive.  I would have to defer investing for a few years to save up enough money for the down payment.
  • I don’t want to deal with maintenance.  Whether it’s painting walls or mowing grass, I don’t want to deal with it.   I could pay someone else to deal with the maintenance.  This would essentially make me a general contractor.  I’m not sure I want to deal with that right now either.
  • The houses in my area tend to be old and dumpy, which makes expensive maintenance a given.  See point above.
  • A house would likely wind up being more space than I need or will conceivably need in the near future.  If I get married and have kids or otherwise expand my space needs I’ll have to look into getting a bigger place.
  • While I like my job, I couldn’t care any less for the area.  If I change jobs in the next few years I’d like to be able to move away from this area as easily as possible.
  • Owning a home would likely decrease my savings rate as the costs of ownership (mortgage, vacancy, property tax, insurance, and maintenance) associated with a descent house would be substantially more than I’m currently paying for rent.

After considerable research, I decided against becoming a landlord.  I’ve outlined some of my reasons below.

  • The spread between the average rent and the cost of ownership isn’t big enough to make me feel comfortable investing.  There is no real advantage over my current investing plan in terms of cash flow.  There is substantial downside risk if I can’t get a tenant.
  • Maintenance and management.  I don’t have any experience with these.  Nor do I have a mentor or a partner who can help me out.  If something goes wrong, I’ll be stuck with a lot of responsibility and not much guidance.  There is a big potential for significant money loss here.
  • The down payment required is huge.  I’d have to defer investing for a couple of years to save it up.
  • If I leave the area, I’d wind up being a remote landlord.  This is not a position I want to be in.

All in all, I’m a bit disappointed.  I would like to buy a house eventually, but I just don’t see it working out in the near term.  I think buying a house will have to wait until I’m married, if not until I have kids.

Biggest Finance Regrets

Not getting my retirement accounts in order.   I’ve been so focused on my dividend growth portfolio in my taxable account that I’ve neglected to consolidate my IRA and my old 401k.  There’s really no excuse for this except laziness on my part.

 

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15 Responses to "2013 Year-End Review"

  1. Looks like a pretty solid year. I was thinking of building up my emergency fund to at least one year of expenses as well but then came to the same realization as you. The opportunity cost is just way too big to justify earning so little.

    I can’t remember, whereabouts do you live? I’m looking into buying a rental property myself because the numbers look pretty good and there’s still a decent amount of opportunities. I know some areas have had big price appreciation sucking most of the value/cash flow out of the markets.

    1. MFIJ says:

      The emergence fund also made more sense when I was still thinking of buying a house. It could always become a downpayment. I live up in the needlessly expensive northeast (at least there are jobs here). We’ve got the price appreciation problem in full swing. We’re basically a suburb of a major metro area and prices just keep on moving up. Might be a good market to buy and flip, but that’s not something that I want to get involved with.

  2. ILG says:

    Hey! Sounds like 2013 was a fun year for you! I too have been wrestling with the demons of buying a house myself. One of my concerns being that I won’t be able to invest as much, well see if that ends up being the case!

    Good luck with 2014! Looks like you are on the right track.

    1. MFIJ says:

      It all depends on the mortgage cost. If houses are cheap relative to renting, you’re monthly housing costs will probably break even or maybe even be lower if you buy. Some places I lived in the South and Midwest had great markets. Where I live now, in the northeast, has terribly expensive houses. Given how cheap my rent it, my housing costs would invariably go up if I bought anything bigger than a 1 or 2 bedroom condo.

      1. ILG says:

        Your absolutely correct. The area I am going to be living is in a market that has had a good economy even during 2008-2009. My monthly payment will go up, but my rent is going up faster each year (8+%). Lots of people moving into town has made them go up faster :|

        Aside from the monthly payment, I’ll be able to ride to work and get a dog (which would probably add 200-300 a month in an apartment). A few intangibles that you can’t really put a value on!

        1. MFIJ says:

          As a pet lover myself, I agree entirely.

  3. Francois says:

    Just out of curiosity, since your strategy is to have blue chip with high dividend, have you given any though to comparing your returns to an Aristocrat Dividend Index or something like that?

  4. Marvin says:

    I wouldn’t beat yourself up too much for not beating the S&P 500. It sounds like your goals are a lot different and don’t necessarily coincide with the goals of the S&P. Like me I am looking specifically for income, that is it. While of course I care about the value of my shares I’m more concerned with the cash flow from my shares than the overall share price. As you know the share price will vary over the years but increasing dividends and stable businesses are what you look for.

  5. Great year! Saving almost 51% is impressive. At that rate, progress toward FI continue nicely. Take it from me, wait as long as you can to buy a house becuase it will greatly impact your savings rate. But if you wait and build income while saving more for a down payment, your house can be a blessing rather than a burden. Good luck this year with your continued path to FI. :)

  6. Evan says:

    I go back and forth on real estate investing for the exact same reasons you mentioned.

    50% Savings rate…WWOWOWOW!

  7. Dan Mac says:

    Looks like you had a heck of a good year in 2014! Your savings rate is spectacular. Keep that up and you’ll be sitting very pretty in just a few short years!

    I love your charts and enjoy seeing how you compared to the S&P 500 in both returns and in dividend income. Always good to see you are beating your benchmark!

    Like you, I’ve been debating about what to do with my emergency fund. We currently keep around $25k in a savings account earning nearly next to nothing. Part of me wonders if I wouldn’t be better off putting that money (or at least some of that money) to better use in some solid blue chip dividend growth companies. However, I constantly remind myself that the purpose of that money is security. That money is there for when/if times get bad. While I may be tempted to invest it, I know I would absolutely hate having to turn around to sell those investments if I get strapped and need the cash. I’m still going back and forth with myself on this one.

    1. I believe once you have covered 8 months of living expenses saved, that the difference in the savings account above that should be invested. Why becasue you can build it back up with new money, and the invested dividend money (if not reinvested). You can continue doing this as long as you have an income and you can safely find value investments that are worth it.

  8. Congrats. You have done much better than I did last year, particularly in terms of return on invested capital.

  9. Great savings rate, and income. What do you expect the 2014 dividend income to be for you with all the annual increases? Do you invest during these high market times?

  10. Don’t give up on becoming a landlord. Just give up on traditional methods of becoming a landlord. There are lots of ways to invest, and you cannot just purchase a great rental by gong to the MLS.

    There are lots of ways to get a terrific cash flowing rental, if you look.

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