Mid-year review

One the last few months an escalation of the "trade war" between the US and its trading partners has pushed equity prices down, rising interest rates have cut the value of bonds and the rising USD has knocked the HKD value of non-USD/HKD investments. YTD we are down 1.08% on our mark to market investments and would be ahead if the current values of our investment properties were taken into account.

Like most investors, I find it painful to watch the value of my investments decline and have to remind myself that it is the income stream from my investments that matters – not the day to day fluctuations in value and, as long as I am accumulating assets, lower prices are actually good for me.

Although it is not entirely an apples-to-apples comparison because (i) I have reformatted the way I calculate my gross and net income streams and (ii) some dividends which were paid in July 2017 have been paid in June this year, my net income from investments is considerably higher than for the same six month YTD period last year. After adjusting for the timing differences and for loss of income from some shares which were sold, I expect my total net income for 2018 to be at least 5% higher than last year. If I back out the small amount on consulting income I received last year (this year zero), the increase in income from investments should be more like 8%.

Looking ahead, I can see increased costs from 2019 onwards as my younger daughter moves from a heavily subsidised public school in Hong Kong to join her elder sibling in boarding school. This should be partially offset by the completion of my university studies in mid-2019. Looking a bit further ahead, we have two mortgages which will be paid off in early 2020 and mid-2021 which will make a huge difference to our cash flows. The maturity dates for our remaining mortgages are much further out.

Which brings me back to the present where the HSI is down YTD and some shares are starting to look more attractively priced. With that in mind, I have taken out a new small twenty year mortgage on one of our apartments and will look to reinvest the proceeds for (hopefully) yields higher than the interest rate I am paying on the loan. Total household gearing will still be below 10%.

Short version: as I approach the 5th anniversary of my retirement, our finances are in good shape.