Friday, January 01, 2010

Financial Review 2009 - As good as it gets

As good as it gets, pretty much sums up 2009 from a financial perspective. Just about every thing that could go right did go very right.

To recap:

1. I started the year with a meaningful amount of cash which I had begun deploying into the markets in late 2008. I also received the first of two lump sums from exiting my previous job in January and the second in June. With markets at depressed levels (and knowing that the money was coming), I made a decision to go to zero cash;

2. I looked at buying a property early in the year, but thought that prices had further to fall. I was wrong, which turned out to be a good thing as it meant I purchased more equities than I would otherwise have been able to do;

3. In June, I elected to borrow against my home equity to put capital into my employer's business rather than reduce the amount of money invested in equities. So far this has proven to be a good decision;

4. I maintained full occupancy on my property portfolio with only one short vacancy and very little impact on rental levels. Interest rates continue to remain low (below 1%);

5. I started buying individual equities (instead of index ETFs) in May. Apart from a small unsuccessful attempt at day trading (which produced trivial losses), my direct equities have performed well. There is a strong value tilt to the individual equity portfolio (low gearing, positive cash flow etc);

6. I eventually purchased a property later in the year. The renovation has been completed and I am looking for a tenant (which may take a few weeks given the holiday season);

7. The job shift effectively meant that I received about a year and a half of income in 2009. My savings rate (ignoring the one off effects of the pay outs from my old job) was around 50%.

The markets pretty much all worked in my favour this year:

A. Equity markets rose strongly, with emerging markets leading the way;

B. Hong Kong residential property prices rose 28%. They are close to regaining their pre-crisis levels (although still well short of 1997 peak levels);

C. Currency movements were in my favour - a weak US$ benefits the privateportfolio;

D. Interest rates remain low - I pay less than 1% on my mortgages;

E. The Hong Kong tax regime remains moderate - there is no reason to expect the adoption of higher tax rates.

My net worth increased every month in 2009. My investments generated positive returns in 11 out of 12 months (February was the only exception). By year end my net worth had increased by 75.3%. It is difficult to imagine a better result.

The net effect is that I am still on track to hit my retirement number by the end of 2011. At that stage (and assuming I do hit my number), the current plan is to spend two more years working on a reduced hours basis while living off our investments as I transition to retirement.

No comments: