Posts by: Dan Montgomery

Net Worth Report: Quarter 2, 2019

Posted by on 21 July 2019 in Net Worth Reports

It’s been a long time between drinks (again)! Here’s the second Net Worth Report since we changed from a monthly to a quarterly format.

This quarter couldn’t have been more different than last. In fact, for the first time, my net worth actually reduced in one month!

Although this wasn’t entirely under my control, this quarter has been a big kick in the butt and a reminder to be more mindful with my spending.

Continue reading…

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Safe Withdrawal Rates for Aussies — Part 9: The Ordinary Dollar SWR Calculator

Posted by on 2 July 2019 in Tools & Calculators

Astute observers of this website may have noticed that we’ve been promising an online safe withdrawal rate calculator for a while now. And it’s finally here!

The problem with safe withdrawal rate research is that it’s generally focused on calculating the safe withdrawal rate for a pre-defined set of criteria. For example, a portfolio of 80% stocks and 20% bonds over thirty year retirement length. This has made it difficult to determine what safe withdrawal rate applies specifically to an individual.

The calculator was designed to solve this problem. It allows anybody to input information that reflects their own circumstances, so they can calculate their own personal safe withdrawal rate.

You can access the safe withdrawal rate calculator here. And the calculator is still in beta testing, so please leave any feedback in the comments section of this post. Continue reading…

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An Analysis of the Thornhill Method — Part 2: The LIC Trade-Off

Posted by on 4 June 2019 in Investing & Asset Allocation

Welcome to the next instalment of our analysis of the Thornhill Method. In the last post, we looked at dividends and showed that there is no difference between selling shares for income and living off a dividend stream. This is because any benefit of dividends is immediately arbitraged away in an efficient market.

But some readers correctly pointed out that, although we looked at high yield shares, we didn’t specifically look at listed investment companies. So in this article we’ll take a closer look at LICs.

In this article, we’ll break down how LICs were able to maintain strong dividends during the GFC. And then we’ll take a more philosophical look at “what you must believe” in order to advocate for LICs, and whether that actually makes sense.

I’m conscious that we still haven’t modelled out the performance of a pure LIC strategy (i.e. ignoring capital gains and focusing on dividend income) and a pure ETF strategy during the GFC. We’ll do that in the next post.

Continue reading…

Investment Growth

An Analysis of the Thornhill Method — Part 1: The Dividend Delusion

Posted by on 5 May 2019 in Investing & Asset Allocation

If you’ve been hanging around financial independence forums, you might have noticed two competing approaches to financial independence.

The first advocates accumulative a large portfolio of shares and sell those shares as income during retirement. And the second — known as the Thornhill Method — advocates accumulating a growing dividend stream and living off dividend income during retirement.

You may have noticed that there is a growing number of people advocating the Thornhill Method. It makes sense. The approach is quite intuitive and easy to understand, and seemingly overcomes challenges with the original approach to financial independence (e.g. sequence of returns risk).

However, there hasn’t really been a serious, objective analysis of the Thornhill Method and its implications for retirement. It’s a big topic, so in this first post we’ll take a deep dive into dividends to compare dividend income and selling shares for retirement income.

Continue reading…

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Net Worth Report: Quarter 1, 2019

Posted by on 10 April 2019 in Net Worth Reports

It’s been a long time between drinks! Here’s the first Net Worth Report since we changed from a monthly to a quarterly format.

It was a very successful quarter, with the share market returning well and some unexpected income. And I took the opportunity to refinance my mortgage to a more reasonable rate!

And in the background I’ve been working on something that I think you’ll all like. A new online calculator. The first of it’s kind. I’ll tell you all about it later in the post!

Continue reading…

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Emergency Funds Revisted: Real World Simulations

Posted by on 22 March 2019 in Investing & Asset Allocation

In our last post on emergency funds, we looked at emergency funds at a very high level. We found that over the period 2003-2018 an emergency fund in the market returned more than an emergency fund in an offset account. But after tax, the offset account did better.

But a fair criticism of this type of analysis is that it looks at a single cohort. That is, one cohort that invested their funds at the beginning of 2003.

An improved approach would be to simulate how an emergency fund might work in the real world for a bunch of different cohorts. Then we can compare the performance of those cohorts and look for broad trends.

So in the post we take a closer look at emergency funds to understand when they’re better off in the market and when they’re better off in an offset account.

Continue reading…

Emergency funds belong in your offset account (or the stock market)

Posted by on 28 February 2019 in Investing & Asset Allocation

If you follow big name financial independence bloggers, you’ll notice that there’s a growing trend advocating we put our emergency fund in the stock market.

The theory is that an emergency fund is for people who don’t have the foresight to manage their money properly. But we’re financial independence enthusiasts, we know what we’re doing.

Although this is correct for most people, we Australians have a unique product that has both the liquidity of a savings accounts and the return of the stock market. It’s the mortgage offset account.

But where’s the best place for our emergency fund? Does the offset account trump the market? And if we don’t have an offset account, can we feel comfortable putting all our money in the stock market?

Continue reading…

Safe Withdrawal Rates for Aussies — Part 8: Summary (So Far)

Posted by on 11 February 2019 in Safe Withdrawal Rate Series

Many of us in the financial independence community like to consider ourselves non-conformists. While the masses are deep in consumer debt and locking themselves into years of work, the rest of us are being smarter with our money and setting ourselves up for a long life of leisure.

But at the same time, we all praise the 4% Rule like it’s gospel without questioning whether it applies to early retirees, particularly us way over here in Australia.

Over the last few months we’ve been deep in safe withdrawal rate analysis to test whether the 4% Rule actually works for us Aussies — or whether it’s not quite as ‘safe’ as we think.

This article stitches all that analysis together and introduces a simple tool for us to determine the exact safe withdrawal rate that applies to our individual circumstances and risk tolerance.

Continue reading…

Investment Growth

2018 Net Worth Report: Year in Review

Posted by on 5 February 2019 in Net Worth Reports

I think it’s good to take some time every six to twelve months to evaluate the progress of our journey to financial independence. Not only is it motivating to recognise our progress, but we can also identify areas where we are falling short and develop ways to improve.

With that in mind, here is my year in review for 2018. I review my Profit and Loss statement and Balance Sheet for my entire financial independence journey, describe how my money flows between accounts, and share my successes and  failures.

Plus there are a few little announcements at the end!

Continue reading…

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Safe Withdrawal Rates for Aussies — Part 7: Sequence of Returns Risk

Posted by on 14 January 2019 in Safe Withdrawal Rate Series

Over the last couple of months we’ve spoken a lot about how varying portfolio factors, such as asset allocation and retirement length, affects safe withdrawal rate. And now we have a clearer view of  how much we can withdraw from our portfolio without running our of money during retirement.

But we haven’t actually spoken about what market conditions determine safe withdrawal rates. Why are some periods associated with low safe withdrawal rates and others not?

So in this article we deep dive into the mathematics behind safe withdrawal rates to figure out what you want to stock market to be doing while you’re saving money and while you’re withdrawing money in retirement.

Continue reading…