In 2008, I decide to gradually escape 9-to-5 over the next 12 years.
To make it work money-wise, two main goals were set:
1) Save and invest at least 12% of our family’s annual salary
2) Obtain a long-term stock portfolio return of 12%.
Saving only 12%?
Only a 12% savings rate may not seem that tough to accomplish. You can easily find much more aggressive examples out there in the blogosphere as savings rate up to 50% are not that rare.
But in our case, 12% seemed like just the right figure for a couple of reasons:
For starters, those additional savings are on top of our already pretty substantial regular pension plans. We still want to realize some major projects, so a lot of traveling and some renovations remain in the books. Yet saving 12% makes our plan viable. Finally, its realistic and attainable nature proposes an easier model for others to follow.
A 12% return, really?
In comparison, the 12% return may look shocking and that much more improbable. Rest assured, the overall plan takes into account a more conservative rate of 8%.
Still, was I thinking straight when I came up with a 12% objective?
Before 2008, as a somewhat naive investor, my understanding was that a 10% return was the norm; an average of 8% from capital gains and 4% from dividends less 2% for fees. So, I taught than reducing fees almost to zero would mean that a 12% return was logical and possible.
With experience, being a bit wiser, I’ll just admit that the 12% return objective was probably on the bold side.
Nevertheless, we are pretty confident about our plan, but only time will tell if our initial assumptions were accurate.
Here’s what happened so far:
1-Family’s Savings Rate (%)
Latest Results: 5.97% as of January 1, 2017 Average 13.35%
2008 15.20% (15.20% average) REACHED Great start!
2009 12.79% (14.00% average) REACHED OK year
2010 13.69% (13.89% average) REACHED Still going!
2011 15.40% (14.27% average) REACHED Very nice!
2012 12.68% (13.95% average) REACHED Slowing down a bit
2013 11.03% (13.47% average) ALMOST So-so year
2014 10.76% (13.08% average) ALMOST Tough year again
2015 22.65% (14.28% average) REACHED Great! Special RRSP Contribution!
2016 5.97% (13.35% average) REACHED over 2 years 2016 contributions advanced to 2015
2-Annualized Stock-Portfolio Return (%)
Latest Results: Average 14.31% as of January 1, 2017 Last full year 16.07%
-32.39% in 2008 -56.05% average OOPS! Financial Crisis!
65.39% in 2009 18.40% average ON TRACK Great recovery!
19.11% in 2010 18.70% average ON TRACK Maintaining pace
2.10% in 2011 13.33% average ON TRACK Slow year, average holding up
9.44% in 2012 12.31% average ON TRACK Correct year, average still above objective
24.13% in 2013 14.63% average ON TRACK Very good year!
16.94% in 2014 15.02% average ON TRACK Another good one!
8.72% in 2015 14.02% average ON TRACK Acceptable year despite tough capital return.
16.07% in 2016 14.31% average ON TRACK Roller-coaster year that ended very well!
January 2016 Note: Charts updated with 2015 figures.
January 2017 Note: Charts updated with 2016 figures.
Surprise! Surprise! After more than 6 years, the 12% return objective is still easily holding up despite a horrible start due to the financial crisis in 2008. Maybe that’s the magic of the 12-Minute Approach operating!
Yet, we know it’s impossible that the actual incredible market run will last forever. And we are prepared to remain patient and confident when the markets stumble.
By the same token, our savings rate results are also somewhat surprising. Everything went relatively smoothly till the start of 2012 and then, our savings rate slowly slipped down afterwards. Why such an apparent easy objective was so tough to reach?
The fact that I was, again, working too much explains a great part of it!
In 2013, I was lure back to work a lot more by interesting projects. Working more means making more money so you have to save more just to keep your savings rate up. Working more often also means spending more because you have less time to avoid wasting your hard-earned money.
Fortunately, it seems like things are getting back on track now in 2015 as I have learned my lesson and reinstated my original plan to escape 9-to-5.
January 2016 Update
Our Savings rate literally went through the roof this year.
We had a good year savings-wise but this exceptionally high figure can be largely explained by our Extra RRSP Contribution triggered by unusual circumstances due to the transition between the conservative and liberal Canadian governments.
Despite a dismal year capital-wise, we still managed an acceptable overall return just under 9%.
As you can see in our Portfolio Updates, our good results were partly produced by a strong US dollar greatly helping our prominent
holdings portfolio. US
Let’s continue to work well and hope things still bounce our way!