FIRE-side chat: actively achieved

Long-time Monevator reader and commenter HariSeldon brings an unusual angle to our FIRE1 chat this month, with his early focus on investment trusts and an active approach that’s more unusual these days. A varied employment history tops-off a fascinating – but, be warned, very lengthy – FIRE-side chat. Enjoy!

A place by the FIRE

Hello! How do you feel about taking stock of your financial life today?

I find myself approaching state pension age in a few months and receiving my first guaranteed regular income in over 40 years, in the form of a full state pension. It’s a surprisingly long time to have relied on either self-employment or investment income since going FIRE in 2007!

How old are you? 

I’m 65, and Mrs Hari is 59 and also retired. We’ve been married for 38 years.

Do you have any dependents? 

We have a 37-year-old daughter – a medical professional who has done well, and is a very independent and confident individual who gets things done. 

Whereabouts do you live, and what’s it like there?

We are on the Dorset / Hampshire border and have been there for 13 years. Previously we lived and worked in Cornwall for more than 25 years.

Where we are now is a great area to live in. There’s easy access to the coast, a large city nearby, and beautiful countryside. And for England a pretty good climate.

Whilst Cornwall is a very dramatic and beautiful county, the climate can be rather wet and windy. There were a lot of deprived areas, disquiet at ‘incomers’, and generally a glass-half-empty approach to life. We found Dorset a refreshing change.

When do you consider you achieved financial independence?

I achieved Financial Independence in late 2007, having just turned 49. But I didn’t feel I had reached  Financial Independence immediately before that.

In the summer of 2007, I realised that my work-life balance had slowly and inexorably tipped over into all work. That was unsustainable.

It creeps along very slowly until work dominates life and intrudes into the home, weekends, and holidays.

Running a business where you are responsible for employees’ livelihoods can create a situation where there is no apparent exit because a business sale or wind down appears very difficult to achieve. Financial Independence is always ‘in a few years’. 

Inevitably, when something is unsustainable, it must stop.

An attempt to pull back and delegate responsibility was an abject failure. So after exploring a variety of options, I marketed my business for a quick sale. This resulted in a sale to a customer.

The nature of the industry – precision engineering – meaning its value was low. But the proceeds were enough that I had reached some form of FI. The ‘RE’ part followed almost immediately. 

Planning an exit had seemed almost impossible, despite my giving it much thought for years. Yet it was all done within three months. Difficulties included ensuring the remaining employees had a livelihood, winding down the workload, and disposing of everything accumulated in a large workshop.

Oddly, I had rediscovered the ability to make significant life choices and then do it.

Tell people your decision and take action immediately. Once that is decided, you can handle what appear to be insurmountable problems.

So the retired early part came at the same time?

Yes, I retired immediately. With no income, I worked part-time for the new owners for three months to assist with the handover. It was a surprisingly busy time post-FI, in a good way – a weight had been lifted off my shoulders. Mrs Hari continued to work part-time.

I remained busy until one day, around a year after retiring, I was bored. So I set up a micro property maintenance business, limiting myself to two or three days a week. It was surprisingly satisfying doing odd jobs and meeting people. As an aside, I knew several middle-aged men doing something similar who had been bank managers, GPs, and so on.

My turnover was around £10,000 per year. After expenses and materials it gave useful pocket money.

Having time is an incredible gift to yourself and your family. By removing the pressure to get things done quickly, I also almost accidentally found I’d taken up professional photography. Something I’d liked to have considered as a career as a teenager.

I soon had a mini business that I could move from Cornwall to Dorset in 2011.

Photography sounds competitive! What sort of work were you doing?

Predominantly weddings, and some commercial and property photography. The advent of digital photography changed the industry, and I found the combination of technical, artistic, and people skills required very interesting.

However the economics were not great and with the incredible quality results from mobile phones of recent years it proved a poor business model.

My photography business began to fade in 2016. Covid then ended wedding photography for me. However, I do still do some property photography.

Again, the financial impact is very low. It might well be viewed as a hobby that pays for expensive equipment!

Assets: a seven-figure start to FIRE

Can you give us an idea of your balance sheet when you sold the business?

My liquid investments at the time of FI in late 2007 were £700,000. 

This was invested almost 100% in equities (with a minimal cash float) plus a minority stake in the premises used by my old business that was now leased to the acquirer of the business for seven years (our stake was valued at £80k) and a deferred defined benefits police pension (transfer value £40k).

The plan was to live off the natural yield of the portfolio. I estimated the income at £28,000.

We also owned our home outright (£400k) for a grand total of £1.2m. (In today’s money:  £1.9m)

What came next?

In early 2008, we decided to downsize to a smaller new build home in Truro for around £225,000. 

To help finance the move with minimal disruption, I asked the bank for a loan facility. I had a sale lined up on our present house, but banks seem to struggle to lend to people with assets but without an income.

The ever-so-helpful bank manager suggested I put down the income from my previous company! It was not trading at that point and was scheduled for liquidation a few weeks later. Yet the partial trading year was sufficient to obtain a Homeowner Equity drawdown loan account facility of £225,000 for five years at 0.75% over the base – or 6% at that time.

A quick visit to the development site saw builders laying tiles outside our new home. We then went for a holiday in the Far East to celebrate FIRE.

Now if this were a film, the train would be roaring along the line, coming round a blind bend, the engine driver stoking the fire and not bothering to look out – but the viewer can see a bridge across the canyon has collapsed and disaster is about to happen. 

From August 2007 to April 2008, I’d stopped following the investment world. Then, on the 17 April, returning to the UK from the Far East, I began to notice things again.

Here in the movie, the train driver looks up. He slams on the brakes as he realises he is going too fast, but he’s still unaware of the danger ahead…

Our house sale was apparently proceeding, but the other side had made no enquiries. Sure enough, after an initial denial, the buyer had ‘paused’ the purchase, concerned over house prices.

Meanwhile I visited the site of our new development and found it deserted. The last paving tile we had seen laid was the last. A busy site had been engineered for our benefit.

Yikes – what did you do?

We withdrew from the house sale and the purchase. Both parties to our sale and purchase had breached good faith.

The developer ultimately went under. And while the houses were finished – in 2015 – the quality was reduced. Prices are still below 2008.

With hindsight, today we know the Global Financial Crisis is well underway. Back then I also knew there was a problem. 

Incidentally, in the summer of 2008 we still had that unused Home Equity Loan facility. It seemed foolish not to make use of it.

And thankfully, rather than use as leverage for the portfolio – which would have been catching a falling knife – we used it to provide the same opportunity for our daughter to buy a starter property that I’d had.

This eventually worked out very well for her. We believe in enabling rather than gifting – this way does not destroy her achievements.

What did you do when you realised the GFC was underway in April 2008?

I’m unsure whether the term Sequence of Returns Risk was generally known back then. But I was well aware of the risk of dwindling investment values if I made withdrawals.

So I resolved to make no net sales.

Unfortunately, I had very little in cash or bonds. The tax bills from the sale of the business had taken virtually all our liquid cash.

But I did have the rental income from our share of the factory and some regular cash flows from the deferred sales of the business. This kept us afloat for a further two years.

And your portfolio?

The portfolio was initially a mixture of investment trusts. Some were what I termed ‘distinctively managed’ trusts like Lindsell Train, Caledonia, Finsbury Growth, Lowland, and RIT Capital Partners. The others were equity income trusts.

I’d decided in March 2007 that natural income was a great idea. While I could use income trusts, why not also hold individual shares, inspired by the HYP High Yield Portfolio (HYP) then espoused on the Motley Fool forums?

A bad idea as things turned out. I had a lot of financials in my portfolio of 35-40 shares, and the capital loss was 17% on £214,000 when I unloaded the HYP in April 2008. (Individual returns ranged from -90% to +30%).

So much for the ‘no tinkering’ rule popular in those days…

Out of interest, in 2016 I reviewed what would have happened to my HYP portfolio if instead of selling in April 2008 I’d left it alone until then. I found the original capital value was a mere 8% higher than in 2008, and dividend income in cash terms just 4% up. The portfolio yield was 4.7%.

By comparison, the City of London trust would have been up by 31%, and dividends in cash terms were 31% higher. Its yield was around 4.2% per annum.

My actual portfolio rose by 122% over the period and yielded 3%. In cash terms, this was 33% higher than the HYP.

The lesson? Others may have a better experience, but holding individual company shares was not for me.

But you kept the investment trusts?

Yes, having disposed of the HYP, I still had the original portfolio of UK equity income and global trusts, plus a UK index-tracking ETF and UK Dividend ETF.

Subsequently, I sold the ETFs at NAV to buy deeply discounted investment trusts in 2009.

Throughout I retained a 100% equity portfolio, reinvesting all dividends. By 2010, Vanguard had arrived, and I added a World Index fund plus a Vanguard UK Equity Income Index fund.

Then in 2012 – after 22 years of investing – I finally added a fund exposed to the US! My portfolio was around 50% Index funds by then, but there was still significant exposure to the UK and equity income.

It was still more than 90% in shares.

It seems a challenging start to investing…

My investment portfolio was £700k at the time of FI in late 2007. By the market bottom in March 2009, it had fallen below £400k. That was uncomfortable…but the portfolio recovered to £777k by April 2011. It was ahead in real terms by April 2012.

By 2014, my investment policy defaulted to mainly using index funds.

However occasionally opportunities appear, and my active side still comes into play. In such circumstances, investment trusts provide opportunities to fine-tune a portfolio.

Background reading: family matters

Where did you grow up, and did any family members go the financial independence route?

I grew up in a pleasant small town between Stratford and Birmingham. My father ran a precision engineering company, though neither myself nor my siblings had any exposure to the business.

In 1970, whilst good at maths, I failed the 11 plus and was doomed to the Secondary Modern. However I was ‘saved’ by the threat of comprehensive schools. Parents at the grammar school withdrew children to send them to private schools, and I was promoted in the playoffs.

Around this time my father, 48, was getting tired of running his engineering business and sold it to a customer. So he reached FI in 1972, though he continued working for the newly enlarged business.

So two FIRE tales in one!

My siblings both retired in their 50s, too…

Where did your father put his investments in those days?

My father was initially advised to invest in UK stocks.

Monevator has reported on the 74% stock market crash between 1972 and 1974. It was another time of political turmoil, ultra-high inflation, and severe recessions… Well, my father panicked, sold out, and avoided investing from then on.

My father was a keen yachtsman. While on a summer holiday trip to the Isles of Sicily, bad weather forced us to shelter in Falmouth for several days before returning to the Solent.

That Christmas I was surprised to find we were staying in a rural bungalow that my parents had purchased when bored while we took shelter in Falmouth. Even more so in Easter 1974, when we moved there so he could keep his yacht nearby!

How did this affect you?

It was a shock to the system. This was at the end of year 10 for me. My new local comprehensive school was huge – more pupils in my year than the whole of my grammar school – and more socially diverse. 

That grammar school must have given me a less-than-glowing reference. I found myself in bottom-tier groups, even for maths where I was competent. But my education was to be saved again by the comprehensive school system – and my parents’ abrupt relocation.

So much happens that is pure luck. You can take advantage, but can’t create it.

Before being confirmed for my place in the school diploma or possible CSE exam entry maths class, I was given 30 minutes to attempt a CSE paper. (CSE exams were aimed at the less academic.)

I did well and I was bumped up a set, then another, then another. We had an excellent maths teacher, and I subsequently studied maths at Oxford. 

Then a very influential English teacher, a missionary expelled from Uganda – he assured us it was a personal expulsion by Idi Amin – arrived for our final year of English Literature and Language. With him came the possibility of sitting O-levels!

This teacher provided valuable insights into many fields, including investing. 

At that time, English Literature required the study of numerous novels, Shakespeare, and poetry. You faced a choice of exam questions.

My teacher reduced the field of study to the minimum number of books and plays, eliminating poetry so we would have no choice of questions. Then, just before the exams, he handed out a well-written four-page summary of each book and play on the basis that most of us probably had not read the books but should be able to manage four sides on each, read carefully and repeated.

The result was excellent exam results.

The investing lesson?

That a narrow but deep study of a topic can be very effective! An interesting investment book by Jim Slater, The Zulu Principle, explores this topic.

The second point to ensure success was the realisation that the exam marking process was largely negative. There were far more opportunities to lose marks than gain them.

So keep it very simple, and ensure spelling and grammar are correct.

And yes – another excellent investment book, The Losers Game, by Charles Ellis, explores this principle of minimising mistakes, costs, and friction.

When did you first think about FIRE? 

When I was 17 and before the Oxford entry process, I considered becoming a police detective. Varied work, something exciting and useful, topped off by a ⅔ inflation-linked pension at 50.

At a time of high inflation, most people at 65 had little time or energy left for leisure. So retiring at 50 appealed. And the concept of FIRE had been accepted. 

Mathematics at Oxford was rather boring, though being a student at Oxford was great fun and a proper education. I got a good grounding in programming simply by walking into the computer department as if I belonged.

I was on the wrong course, but it was a good education. You learn confidence and how to mix with people. 

What did you do after that?

The career prospects of being a mathematician then looked dull. I reverted to Plan A and became a police detective in west London. 

I had previously been on a residential course for potential graduate recruits, including a shift with frontline officers in a city area. Coincidentally, I was stationed there a year later on that same shift group.

I avoided the graduate entry route as there was little chance of getting the experience to become a working detective.

What was your attitude to money?

My spending was high, and I was very ‘efficient’ with my balance sheet.

A regular job for life gave me a good credit score. I followed the government’s example, running a deficit, which allowed me to borrow the following year’s income effectively and enjoy life! 

But everything changed one Tuesday in 1983 when I woke up with a good idea: buy a house.

A quick visit to Abbey National showed that having no savings, an overdraft, credit card debts, personal loans, and so on were seemingly the right qualifications for a mortgage. I had been juggling debt for years without default, so I was a good customer for a loan provider.

I visited an estate agent and found houses cost around twice my borrowing capability of £16,000. My salary was around £6,000. The solution was obvious: I needed someone to buy with me. So I viewed the house, took the brochure to a single friend, and explained the grand plan.

Back to the building society, and they provided a 100%+ loan. An insurance policy covered the lack of deposit. They coincidentally would provide this and pop it onto the mortgage – and it only seemed reasonable they should take a chunky commission.

Finding a solicitor was not difficult in our line of work. Take a credit cash advance to pay the fees – job done in one day. 

I thoroughly enjoyed being a police officer. Life in CID was interesting; a mix of The Sweeney and Life on Mars. But the drinking culture was ingrained. I couldn’t see how alcohol dependency, ill-health, and broken relationships could be avoided if I stayed. So it was time to move on, and I resigned, intending to travel to the US to see what opportunities presented. 

Leaving the police just under a year after the house purchase, the house was sold for £39,000. A profit of £3.5k each.

Nice work if you can get it…

Yes, why was it so easy to buy a house then? Well the mortgage insurance indemnity guarantee fell out of favour, meaning large deposits were required. And as for prices…

On a serious note, some may say the ‘boomers’ had it all. Free education and maintenance grants and so on.

But on the other hand, relative wages were very low. We saw stagflation, high unemployment, high interest rates, industries collapsing, and constant strikes. More medical conditions were untreatable. Terrorist bombings were common. Road accidents saw more injuries and death by an order of magnitude. The outlook was grim in the ’70s and early ’80s – people looked back to the ’60s! 

There are advantages to the current era. I would take it over then on balance. It was not better or worse back then, but it was different.

It’s like the outlook for moving overseas. If you focus on one area only, you see clear advantages but ignore the downsides. Judged overall, the comparison is closer. 

What did you do after quitting? 

On leaving the police, I popped down to Cornwall to visit my parents. They had reappeared on the scene, having sailed off when I left school to go to the Caribbean and the USA.

My father had worked in the US for three years as a precision machinist. This qualified him for a US old -age pension, now having a total of ten years of employment in the US.

It proved an excellent investment as he lived to 99. My mother, at 98, is still collecting his pension.

To fill the gap between the ages of 58 and 65, he rented a small unit in Cornwall. He purchased some new machine tools with his remaining capital, and set up as a jobbing toolmaker.

But he had no joy in finding employees. So he suggested I join him for a year or two. Doing so, I’d gain the requisite skills to provide a ready source of well-paid employment anywhere in the US. 

Why not? It was odd that despite him having owned and run a good-sized precision machine engineering company in the Midlands, I’d only been in his factory on a handful of occasions. 

How was your new career in engineering?

I took to it well. The business grew and shrank with the economic climate. We specialised in the most challenging one-offs and high-precision medical, aerospace, and oil industry research – tooling and designing and building special-purpose machines.

But it was not a scalable business. Very few people are trained to a high standard. Modern machine tools are expensive new but relatively cheap for old machines, which encourages high employment and low productivity. We moved between employing two to nine people in the business, and outsourced where possible. High profitability and high turnover were inversely correlated with the business headcount. But it all provided an income to fund investment and FIRE.

In the mid-1990s, I considered buy-to-let, but I didn’t have the time for it. In hindsight, with properties priced from £40,000, we should have used the engineering business to finance BTL and dropped the metal cutting!

What did your wife think about your FIRE hopes?

Mrs Hari came onto the scene in 1985 and played a significant supporting role.

She helped the business, developed new skills after college courses, worked part-time in two different roles, and used her wages to fund a Save As You Earn scheme for many years.

We were both on board with FIRE, avoiding wasteful spending to build a better future. 

The FI Journey: 1990-2007

The first five years of self-employment did not provide much opportunity to accumulate money.

But we did buy a rural cottage in 1984 for £23,500 – using the equity from our previous property as a deposit – and by 1990, we’d saved up £2,000. Equity investment was about to commence. 

Two factors allowed the shift to accumulation.

Firstly, getting out of debt on selling my first house in 1984 changed our spending decision hurdle from “Why not?” to “Why?” When you suddenly have no debt, there is a reluctance to go back.

The second important factor in my investing was my first and ‘best’ investment – an Abbey Life Property Unit fund. I was sold this plan by a very agreeable guy, an ex-policeman, recommended by colleagues. It was £20 per month starting in 1983.

In 1985, I was reading about soaring stock markets and rising property investments, yet my investment was worth less than I’d paid for it. I carefully studied the paperwork, bid / offer spreads, and the investment management fees. And the big one – a substantial part of the first two years’ payments had gone to that ‘nice man’. All these charges would compound.

The lessons learned here were many.

Firstly, to recognise a mistake, be honest with yourself, and stop digging when you are in a hole.

Take a slight loss immediately if you have made a mistake, or the reason for the purchase has changed.  

Charges matter a lot. 

And buy an investment – don’t get sold a product.

You were learning the hard way… 

An education was necessary, but there were very few books then. And financial advisors have very different incentives to their customers.

The weekend editions of The Times and The Daily Telegraph included valuable articles. But there were also many advertisements for unit trusts and articles supporting expensive products. 

The privatisations in the mid-1980s created an interest in equities for me though.

What were your first investments to achieve FIRE?

Investment trusts were the ‘hidden’ secret weapon for the private investor back then. Information from the AIC (the investment trust trade association) and articles from the papers opened the door.

The education process was long-winded – writing requests for details of various trusts and savings schemes. The AIC produced a monthly data booklet (chargeable…) that provided information similar to Trustnet today. The FT Weekend edition was added to the mix, along with investment books. 

By comparison, one cannot overstate the importance of online blogs – and reader comments – with the likes of Monevator that we have now.   

My initial investment was £250 and £25 per month into eight investment trusts, made after the invasion of Kuwait. It seemed like a good time to start, as markets were down.

My original eight were Foreign and Colonial (cost: 71p split-adjusted), TR City of London (96p), Dunedin Income Growth, Drayton Far Eastern, Fleming Universal (European), Govett Oriental, GT Japan, and Murray Smaller Markets. 

Only three survive under the same name. One – the global generalist Foreign and Colonial – is the spiritual predecessor of today’s world index funds. 

I found investing fascinating. Not simply making more money but trying to master something that constantly changes, evolves, and does unexpected things.

What was your investing style in those days?

I developed my style in the early 1990s. I preferred investment trusts to unit trusts/OEICs. UK equity income and global generalist investment trusts were the outstanding performers of that period – right up to my reaching FI in 2007.

As for individual stocks… after mixed results, I extensively studied Company Refs (financial stats available in the late 1990s on a CD). I carefully picked five stocks: FKI, Polypipe, First Bus, Carlton Communications, and Chloride.

The result was 9% over six months, which was acceptable. However, my equity income trusts and Foreign & Colonial returned around 20% over this period!

One of my five stock picks did very well, one did badly, and the three in the middle averaged a slight loss.

My conclusion was: I’m a rubbish stock picker, don’t do it.

The markets have a good idea of a share’s value. Still, enthusiasm and pessimism about a sector, individual share, or region can distort that market valuation.

But you pushed on with investment trusts…

Yes I have owned well over 100 investment trusts and read many annual reports.

In hindsight, I could have just bought Foreign and Colonial, done nothing else, and achieved acceptable results! 

However, my tactical asset allocation trading has added value overall. My calculations suggest I returned 12% p.a. against 10% for Foreign & Colonial. 

I broadly divided the portfolio into two collections of investment trusts: UK equity income, and global and regional investment trusts.

It’s interesting I held no US-orientated investments, outside of global trusts. I felt they were expensive in the 1990s and unattractive in the 2000s. My notes from summer 2000 show that I considered adding US exposure. With hindsight not doing so was correct, as 2000-2010 was negative for the US market.

Along the way, I tried conventional leverage and investment trust ‘warrants’. The results were neither here nor there.

I also tried a star manager or two, which did not end well!

Inevitably, one wonders how hard can stock picking be? The answer is ‘very hard’.

Do you try to take advantage of market conditions?

I’ve made tactical asset allocation moves away from my default portfolio periodically. I will give two examples. 

When the Brexit Vote was announced in February 2016, I believed it would be disruptive in the short-term but things would settle when it was rejected. I thought the pound would come under pressure and the uncertainty would harm UK equities. So I sold all UK equities and reduced exposure to sterling. This worked out very well. It became the default portfolio after Brexit.

An example where you anticipate the problem but get it wrong because of failing to think through the second-order effects came in late 2021.

I believed inflation was coming and interest rates would rise. My solution was to shorten the duration of bond holdings and seek ‘alternative’ investment trusts, including those that provided high income from inflation-protected sources, such as wind power and solar.

However I failed to anticipate how quickly interest rates would rise, the emerging fears these trusts would struggle in the future with refinancing, and that previously relatively high levels of income would become uncompetitive compared to conventional bonds.

I bailed out quickly when I realised I had made a mistake.

Photo by HariSeldon. A home near the seaside fits most picture postcard ideas of retirement.

Investing: walked on the wild side

What kind of investor are you now? 

I default to a passive bond and equity portfolio. But I’m prepared to make significant changes if the market mood is overly optimistic or pessimistic, or if I see an anomaly. 

My equity holdings now default to 80% developed world equity indexes. I allocate the remaining 20% on a discretionary basis to emerging markets, smaller companies, and factor and regional ETFs.

Bonds are far more attractive now than for many years. I prefer government bonds from the UK and the US. Currency exposure is across sterling and unhedged dollars, split between inflation-protected and conventional nominal bonds. The holdings are either in funds or held directly.

Bonds have known characteristics so you can make informed judgements. This appeals to my inner mathematician.

Any other big mistakes on your investing journey?

We find an investing style or approach that works well for a long time, and when things change slowly, we are reluctant to let go and instead assume that it will mean revert.

But sometimes it is different this time.

UK equity income provided fabulous returns in the 1990s and did well overall in the first ten years since the millennium. But it has since faded. There are other examples: value, small caps, and star fund managers are especially prone to this failing.

I was far too slow to appreciate the changes taking place and to let go of prior successes.

Secondly, I took the 100% equity approach because I thought it would likely win in the long term. I anticipated a long investing timescale – but it was still painful immediately after FIRE during the GFC.

Howard Marks once said: “Never forget the six-foot man who drowned crossing the stream that was five-feet deep on average.”

Lately I’ve seen numerous comments about investing 100% in equities, NASDAQ,  S&P500, and so on.

It’s worked great recently. But disappointment could be just around the corner.

What was your best investment?

I’ve shared that my initial investment was a mistake, but it encouraged me to delve deeper into investing.

One of my most satisfying investments was buying an investment trust in the 1990s focused on European privatisations. Themed funds often arrive too late after a profitable opportunity has been popularised. But this trust was being closed and liquidated when it became clear no opportunities were left to exploit. The discount to the underlying assets had increased significantly.

In this case, the market was mistaken. Most of the trust’s assets were government bonds, so the remaining stock assets were priced at a considerable discount.

It all worked out well financially and was very satisfying personally.

What are the biggest lessons you have learnt about investing?

The first is paraphrasing a film quote: “What is it with you investors? You can’t make the right decision until you’ve tried all the wrong ones.”

The most straightforward, least expensive route to achieving financial goals is correct for most investors. But the temptation is to add complexity.

The second is that over time, it becomes challenging to decide whether you have demonstrated a degree of skill or been lucky.

The last is the similarity of Schrodinger’s Cat to the paradox of what the investing past teaches us about the future.

Knowledge of the past gives us insights into the future. Yet things constantly change and evolve. Both statements can be true simultaneously.

What has been your overall return?

Around 12% but lower over the last few years.

In 2017, ten years after FIRE, the portfolio capital was ahead by 7% p.a. in real terms after ten years of living expenses.

The figure for 2024 is 4.5% real growth after living expenses. Inflation and Covid were detrimental to recent performance!

How much have you been able to fill your ISA and pension contributions?

We have both maximised ISA contributions. We had some funds in the earlier PEPs and made modest contributions to SIPPS. 

In 2014, I transferred my deferred police pension to a SIPP. I received a transfer value of £97k instead of a pension of £3,350 p.a. payable in 2018.

My police pension benefited from limited inflation increases, capped at 1.6%, to break even. At the time, it was judged we needed to make a return of 2.2%, and my actual portfolio performance has been 10%

To what extent did tax incentives and shelters influence you?

ISAs were very helpful in the accumulation and de-accumulation stages. Pensions were less valuable for us, as for most of my working life the tax reclaimed would go to the partnership as a whole, yet income from the pension was taxed in later life.

Also at that time there was a lack of flexibility. And when we eventually incorporated, we were still paying tax at the basic rate.

So whilst we made some SIPP contributions, ISAs were preferred.

How often do you check or tweak your investments?

I make strategic moves infrequently, but when I do, they result in substantial trading over a short period.

Two hundred transactions a year would be typical.

Earning: On the case

What is – or was – your annual income?

Our income was drawn from a partnership during the building FI phase, which complicated matters.

Initially, my income was comparable to that of a police constable, rising to that of an inspector over 12 years.

The last couple of years were better and equivalent to a chief superintendent’s – but without their pension contributions!

Today’s tally:  making it count

What is your net worth? 

Our current net worth is more than £3m. Our equity and bond portfolio is around £2.5m. The remainder is our home and industrial property.

Around 95% of our portfolio is tax-sheltered. Predominantly in ISAs, with the remainder in SIPPs.

Our home is very much a home, not an investment. We designed it to suit us, with one bedroom to maximise the living space.

Our previous, larger home had three unused bedrooms and less living space. It made sense to set that house free for someone who needed the bedrooms.

What does your spending look like?

Our annual spending averages around £65,000 but it is very volatile. For example, we travel extensively and prepay holidays. We changed cars and bought several expensive E-bikes over the last few years.

On an annual basis, spending peaked at £140,000 in 2020 but was minus £70,000 in 2022!

We’d bought a new motorhome in 2020 and used this for UK travel when Covid restrictions allowed. We sold it for a £3,000 gain in 2022. Nothing clever by us, just the effect of a 45% price hike in less than two years. A vivid illustration of inflation caused by shortages and unusual demand.

Accounting for spending does raise some questions as to the timing of purchases. If I pay for a holiday in 2025 or 2024, do I account for it in 2024 or 2025? If I buy E-bikes in 2023, do I account for them in 2023 or over a more extended period?

I’ve opted to record the money spent in a particular year, but I keep an eye on spending over a rolling three-year and five-year basis.

If your spending is manageable – in our case, 2% of our net worth – there is no problem.

Over 17 years our spending has risen although the base level of the expenditure is around the same in real terms. We now spend far more on travelling. 

Do you budget or structure your spending?

Our spending is very ad hoc, and with very little regular income we sell assets from our unsheltered portfolio. While this unsheltered portfolio has survived 17 years of spending and funding ISA SIPP contributions, it will likely run out fairly soon.

There are a lot of books, articles, videos and discussions on the Internet on how to determine a spending rate and how to manage the details, natural income versus a fixed percentage, and so on.

It’s a very interesting challenge. By comparison, accumulating money is easy. Do it month in, month out.

De-accumulation is very complex with so many uncertainties. Living Off Your Money by Michael McClung is excellent on this.

I have always documented my investment process in great detail. It’s essential to be honest with yourself about your ability – or lack of it – and to improve the process.

I documented and compared seven investment strategies. But I have not rigidly followed a process regarding spending and de-accumulation strategies.

A lot of people are overly concerned about the minutiae. Many are likely to have more assets and income than they need, and FIRE advocates will naturally be more cautious.

Of course there is a sizeable part of the wider public who are underfunded. For them how to draw an income from a defined contribution pension will be a problem. 

What percentage of your income did you save over the years?

We initially saved surplus income over our living costs – around 25%. But as earnings improved, we raised our living standards by less than the increase in income.

Our savings ratio was enhanced to around 40%, and of course, without excessive lifestyle inflation, the target for FIRE becomes more achievable.

The first 14 years of investing saw an average inflow of £12k per year. It was substantially higher in the last three years.

What’s the secret to saving more money?

We do not define ourselves by the house we live in, the car we drive, the restaurants we go to, or conspicuous spending. We spend freely on what matters to us, travel a lot, and enjoy our E-bikes.

Like Mr Money Mustache we think the Tesla Model Y is great! And we have too many Apple products.

We are very conscious when spending on less important things. For instance, we can cook far better than most restaurants. So why go there other than for social gatherings?  

Do you have any hints about spending less?

Ramit Sethi expresses our style of living as ‘living your rich life’. He has a podcast and book, I Will Teach You to Be Rich, and also on Netflix, ‘How to Get Rich.’ It’s a great place to start.

Spend generously on what matters to you and economise on the rest.

One of the easiest ways to reduce spending is to avoid regular subscriptions and direct debits. [Um, except Monevator membership of course – The Investor]. Only schedule essential regular payments, and control the rest manually. 

Wealth: lasting the distance

Have you changed how you invest as you move to full retirement?

I saw a comment from @ZXSpectrum48K on Monevator that caused me to stop and think about my investing approach: 

“This is something that seems to get lost. In investment, winning most of the time is the default position. It’s understanding how not to fail that is hard.”

This is similar to Warren Buffett’s quote regarding Long Term Capital Management’s massive failure in 1998:

“They are not bad people at all. But to make money they didn’t have and didn’t need, they risked what they did have and did need. That is foolish. That is just plain foolish”

After 17 years, I have a shorter investment timescale than in 2007, but it could still be extended. Now is the right time to secure a future income stream. Government bonds are the appropriate method.

I reject annuities because they remove the possibility of adapting to the unforeseen and are a single point of failure.

In contrast, because of their recent poor performance bonds are now quite attractive. If I focus on how not to fail, then a 30% allocation of my equity/bond portfolio to bonds is around £750,000.

Taking everything into account, these bonds could last me 25 years.

Realistically, the equity portfolio should still provide growth over the longer term. They can refill the bond portfolio as and when.

I could secure higher future income streams by taking more risk now, but will it make a real difference? We could spend more, but why do so? We can do what we wish now and purchase everything we both need and – less importantly – want.

While we have theoretically been de-accumulating for 17 years, in practice, we are still accumulating. That is unlikely to change. Given that the general investment account is now almost empty, we must draw from the ISAs and SIPPs.

I will likely make ad hoc withdrawals from the bond holdings. However, if equities appear ‘expensive,’ I may make a judgment call. 

I am simplifying my investment approach. This encourages me to default to a rules-based approach to the investment and de-accumulation processes. As an aside, the book Noise by Daniel Kahneman provides an insight into our behavioural flaws that jeopardise the decision-making process.

My ad hoc withdrawals to fund my lifestyle worked out well. Still, when I look at them retrospectively, they were a rational method of providing the necessary cash flow and funding every few months. They would coincide with a need to fund ISAs, an opportunity to rebalance portfolios, and so on.

Now I am creating guidelines to continue the process, to make better decisions and efficiently use our funds.

The best part of following your rules is that you can break them when you have to! There will still be occasions when Mr Market offers opportunities.

What would you say to Monevator readers pursuing financial freedom?

Financial freedom is brilliant. It gives you options about using your resources, time, and energy. That is incredibly valuable.

What is your attitude towards charity and inheritance?

We will likely die with significant assets. These will be passed on to our daughter and family after some charitable bequests.

We will not attempt to game inheritance tax. We have been fortunate to spend our retirement in an environment that allows us to live off investments at meagre rates of taxation. The concept of catching up with our liabilities to the broader world when you’re dead is good with me. 

Final thoughts on FIRE

Can you recommend other favourite resources for anyone chasing the FIRE dream? 

Before the widespread adoption of the internet, there were few resources concerning FIRE.

Your Money or Your Life by Vicki Robins and Joe Dominguez was inspirational – a book we came across in the mid 1990s. It was good to know we weren’t alone in our quest for a life not dictated by the need to earn more money.

At that time, ‘downshifting’ was the term used rather than FIRE. Downshifting is perhaps a better objective because it implies seeking a balance between earning money and a simpler lifestyle, with no need for the Retirement Police. It’s your choice.

On the practical / investment side, the internet is the best and worst resource for anyone chasing FIRE. There is so much material out there, and it is probably sensible not to overdose. Work it out in your mind, and then save and invest regularly. We all tend to overthink it.

Finally, I’d recommend The Four Pillars of Investing by William Bernstein. This new edition, published in 2023, is superb – the culmination of experience and wisdom.

This month’s chat really resonated with me, thanks to the early focus on investment trusts, active investing, and his experimental approach to investing. How about you? Questions and reflections welcome, but please remember @HariSeldon is a reader sharing his story, not a battle-hardened blogger like me. Constructive feedback welcome. Personal attacks will be deleted. See our other FIRE studies.

1. Financial Independence Retire Early. [↩]