Tuesday, January 03, 2012

Review 2011 - a disappointing year

Like the proverbial curate's egg, 2011 was good in parts.  Unfortunately, it was also bad in parts.  Very bad.  In summary, it would have been a good year all round if I had not lost so much money in the equity markets.

Financial matters

In so far as investments were concerned, 2011 provided a painful and expensive lesson in the benefits of diversification, asset allocation, risk management and behavioural investing. 

As a summary, equities incurred significant losses as I not only failed to take money off the table at various times but as I continually added to my positions on the basis of value (or, at least, perceived value) while the markets continued  to slide downwards.  Commodities also produced negative returns, but the amounts involved were much smaller. In contrast, real estate values ended the year at higher valuations than 12 months previously and also produced positive cash flows, bonds produced positive returns and currency movements were favourable as the USD weakened against the AUD, NZD and RMB.

As a snapshot, my personal balance sheet (which records real estate at gross cost) grew by a meagre 5.68% during the year while the household balance sheet (which includes Mrs Traineeinvestor's assets and also marks real estate to current market value) increased by 10.3%.  While this is a disappointing result, the fact that we ended 2011 with a higher net worth than we started in rather difficult economic times is a positive.

While I will have to wait a couple of weeks to finalise the spending numbers, the annual savings rate will be above 50% once again.  This is in spite of inflationary cost increases - especially in food, transport, holidays and government charges.  Higher income and a reduction in some discretionary items helped.
The big issue on the table (in some respects, the only one that matters) is whether or not to retire in 2012.  Even though the numbers still add up, the financial set back of 2011has dented my confidence to the point were I am seriously considering working for "just one more year".  I will not be making a decision on this until after I come off contract early this year.

Review of 2011 objectives

Going through the items identified in my January 2011 post on moving forward:

1. savings rate: as mentioned above, the savings rate was excellent (above 50%)

2. asset allocation: this was partially achieved as cash/near cash increased to close to three years of living expenses.  However, the quest for greater diversification failed and the reduced availability of low cost ETFs will hamper progress on this issue going forward

3. investment focus: this was an abject failure.  As far as equities and commodities were concerned, I got it completely wrong and lost a lot of money as a result

4. decision on home mortgage: undecided.  If I am working for another year (to be decided in late Jan or Feb), then this decision can be deferred for another year

5. expense management:  while it was not possible to avoid the impact of inflation, expenses were reasonably well managed.  I underspent on several discretionary items this year

6. get a medical done: not done and no excuse

7. tech skills: getting better but still not my forte.  At least I managed to migrate everything onto my new computer without assistance or losing anything

8. home renovation project: postponed for 12-24 months.  It's not urgent and can wait.  Current thinking is that we will move into one of our rentals for 3-4 months while the project is being done. This will be cheaper than using a serviced apartment

9. sporting activities: I managed to complete both the Hong Kong marathon and the more challenging Hong Kong Trailwalker without injury problems.  The pace may be very slow, but I'm happy just to be able to get around and enjoy the experience

10. novel: fail - not really much progress this year

11. diversify social network: fail and I don't feel too bothered by it

Other matters

Apart from the above, I managed to get in a reasonable amount of travel during 2011 and actually managed to use all my holiday allowance.  I also managed to do some volunteering work which I found extremely satisfying.

In spite of the financial mess, 2011 was actually quite an enjoyable year.

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