2021 Year in Review

I always find the end of the year a good time for reflection, on the past year and the upcoming one. It’s a bit of a transition time for many of us – I certainly had a bit of a mad rush to the end of the year at work (which happens every year, and yet none of us have learnt how to prevent it!), and am feeling a bit of a relaxed “sighhhhh” as I sit here on Christmas Eve. So without further ado, some of my highlights of 2021 and thoughts for 2022:

Another year of not quite normal

I won’t dwell on COVID, but certainly this has not been a normal year for any of us. Starting the year in a prolonged, tapered lockdown with kids not going to school wasn’t anybody’s idea of fun, but we got through it. I started a new position at the same employer that’s permanently 100% working from home aside from (eventually) some travel, so this “temporary normal” really is becoming my “new normal,” at least from a work perspective. I’m very fortunate to have half of a summer house as my office, making it relatively easy to separate work and home, even if my commute is just a few steps out the back door and across the garden. The flexibility and lack of commute is certainly nice, although the dark side, especially in a global role, is that I have done a lot of early mornings and late nights to work with colleagues in Asia and the US. Better than hopping on a 12 hour flight just to spend a week in a conference room, at least.

I did do two quick business trips to the continent before Omicron put a stop to that. It was a strange experience actually seeing colleagues in person, including some people I’ve been working with for years but never physically met. It was nice to get out, and I am looking forward to a bit more travel next year – there’s a happy balance to be struck, I think.

On the family front, having two young kids certainly fills our days! The girls are wonderful, albeit challenging at times. The older one has adapted to COVID school life, and having a full, uninterrupted autumn term has been good for her. COVID pre-school is all the younger one has ever known, which is a bit sad but they have a good system. I wish we saw our extended family a bit more – some of that is hazards of the expat/immigrant lifestyle, but we’ve missed out on trips that would have happened otherwise, and at this point my dad hasn’t seen our younger daughter since she was about a month old, more than 3 years ago. Hopefully in 2022!

I started this blog

Some of you know that I’ve been pretty active on Reddit and Facebook groups related to investing, FIRE, Americans in the UK, and so on, and this blog grew out of an idea for an investing flowchart for Americans in the UK, due to all the special challenges we face. I couldn’t really find a place to host it, so I started with a Google Doc that eventually became the foundation of this blog, the flowchart and all the account descriptions.

I’m enjoying this medium as somewhere I can go more in depth – maybe in ways that are a bit self-indulgent, if I just get interested in something and want to explore it. But it’s my blog and I get to do what I want 🙂 That said, I appreciate all of you reading this, and very much welcome suggestions on what I should explore next, beyond the suggestions some of you already provided. I won’t guarantee I’ll get to all of them – some things I just don’t feel qualified to cover in much detail where I have no direct experience and they’re particularly complex, stuff like buy-to-lets, defined contribution pensions, estate planning beyond the basics, etc. But I’m mostly up for learning!

I did initially include some ads on here, figured I’d at least try to cover the hosting costs. But the ads I saw were all very low quality, and I made a total of 6 cents before I stopped them. I might revisit that in the future, but for the moment I’m happy to count this as an inexpensive hobby, rather than having rubbish ads cluttering up the space.

Next year, I do want to spend some time making the blog look and function a bit better. Nothing too extreme, just make it a nice experience, easy to find things, that sort of stuff. If anybody happens to know a good resource for learning how to do that, I’d appreciate the recommendation, or I’m sure I can figure it out with Google and YouTube.

Staying the course (mostly)

I’ve done LOTS of thinking about investing this year, especially on asset allocations and eventual withdrawal plans. End result is something not all that different from where I started, just with better clarity and a few small tweaks:

  • Decided that I will consider bonds & cash as a single asset category, starting at 21% and going up 1% a year. Adjusted my asset allocation to match, which meant a slight move into US and UK government bonds (TSP G fund and a gilt fund in my UK pension, plus pre-existing series EE bonds and cash, largely in Premium Bonds).
  • Within equities, I am essentially purely global market cap with a modest UK home bias. That home bias is largely driven by the ease/cheapness of having only UK stocks in my ISA. So my equity allocation winds up being market cap across all my investments except my ISA, and then some extra UK in the ISA. That feels about right – a little home bias makes some sense, and it’s practically more feasible than trying to match a global index with individual stocks

Aside from asset allocation, I’ve done my usual contributions plus started my ISAs:

  • Matched the maximum employer match in my UK pension (8% from them, 8% from me). This feels like the right balance for tax efficiency and ability to bridge from early retirement to pension access age. I may bump up those contributions a little next year, depending how year-end bonuses look, to try to stay out of the 63.25% tax rate, which is just horrifying!
  • Maxed out Roth IRAs for me and my wife
  • Maxed out ISAs for me and my wife, as part of the ISA experiment. A good chunk of this was a move from cash/mortgage debt, not out of income. I’ll post a separate end of year update on my ISA experiment.
  • Some small taxable investments, just fleshing out asset allocations to make best use of cash, bonds, & equities. Some of this was in a new Interactive Brokers account, which has also been a small, successful experiment (with more to come with a Roth IRA in UCITS ETFs early in 2022).

I also continue to allow myself up to 5% of fun money, for individual stocks, crypto, whatever. I unashamedly put a small amount into meme stocks like Gamestop and Blackberry – they’ve bounced all over the place, some are up and some down as of today. Takes care of FOMO without risking significant money. I dabble slightly with some biotech stocks too, since I’m in the industry – these have done better than the meme stocks, though nothing life-changing. All together, while I “allow” myself 5%, these add up to just under 1% today, and that’s fine. I haven’t done any crypto yet, but haven’t ruled it out, either, as part of that fun money.

Financial performance

In harder numbers, 2021 was good – topline net worth is up 15%, of which about 10% is new contributions from income and 90% is investment growth, for a 13.5% investment growth. That’s not entirely suitable for investment comparisons, because just under 1/3 of our net worth is tied up in the house, and I’ve only assumed a very conservative 5% increase in our house value since purchase 2.5 years ago. I tend to be conservative with house equity, especially given transaction costs and the challenges in valuing a one-off asset. But given where we are, in the countryside but commutable to London, it’s easy to imagine a much higher appreciation.

So for better comparison, if I exclude home equity and only look at equities and bonds+cash, I get:

Personal Performance17.7%
All World Equity Tracker (VWRP)19.3%
FTSE 100 (CUKX)15.7%
S&P 500 (VUSA)24.4%
LifeStrategy 80%14.6%
All using accumulation funds to include reinvested dividends

That all sounds pretty consistent – VWRP beat me due to being 100% equities compared to my 79/21 split, but I’m a bit higher than LifeStrategy 80 because I don’t have as large a UK bias as they do, and the UK underperformed the US. Obviously this year would have been a great year to be 100% US large cap growth (up 30%+), but hindsight is 20/20 🙂

I do see a lot of people advocating stuff like that: 100% equities, all in the S&P 500 or Nasdaq, maybe with some margin, options, tilts to tech, and so on. That scares me a bit, and makes me worry we may finally be nearing the top of this long bull market, but I could also see it running for a few more years.

  • My Boglehead side says “stay the course” and “buy the haystack”
  • My Buffet/value investing side says “be fearful when others are greedy” and “only when the tide goes out do you discover who’s been swimming naked”
  • I’m sticking with my mostly market cap based approach, but buying more modestly priced UK equities in my ISA doesn’t feel bad, either, and keeping my strong 40%ish ex-US position is also comforting. And if things do go down and equities fall under their rebalancing thresholds, I’ve got plenty in bonds+cash to rebalance into cheaper equities.

How close is FIRE?

That growth and ongoing contributions puts us at about 64% to our FIRE number – that’s paying off our current house and 25x annual expenses (4% safe withdrawal rate). I do track our spending vs a general budget – there’s not really active work to stay within a specific budget at this point, more to observe and have confidence that our FIRE spending plan is realistic. We’re within £1,000 of our annual expected spending, depending how this last week of the year works out, so that still feels right, but will definitely keep an eye on our spending given the recent inflation numbers.

At the beginning of the year, we were 55% to FI, so 8% improvement is very good! If we could keep up 8% closer every year, we’d hit our FIRE number by 2026, well ahead of plan (more conservative projections show 2032, and my real goal is financially FIRE-ready by 2036 when the younger one turns 18). If we were to actually hit our number a decade earlier, that’d obviously be great and we would need to rethink some things (in a good way!), but I will also be pretty surprised if we don’t have some kind of a bear market in the next 5 years, or even just flat for a while.

Looking back, we were at 45% to our current FI number when we moved to the UK in 2018. I was worried how the significant pay cut would impact our FIRE path, but the pretty tremendous performance by the markets has more than offset that, and a few lucky opportunities at work have pushed our savings rate to be not too far off where it was in the US. And the impact on quality of life has been very positive, so definitely a net win.

I set up the projection below back in August 2020, using a 5% real growth rate along with my then-current pension contribution rate. It’s not showing % to FI, but % to my liquid net worth goal – as if I paid off my mortgage today, how much more would I need to hit my FIRE number. While the pension contribution rate has gone up slightly, the big difference between the plan and the actual has been investment growth:

Linear doesn’t actually make any sense for growth, but the exponential feels wildly optimistic…

Net worth isn’t quite so dramatic, since it goes back so much further, but telling the same story:

“Accounts” is cash net of credit cards, “Loans” is just my mortgage, “Invest” is what it says on the tin. Top of the graph is my FIRE number.

Goals for 2022

A few things I’d like to do for 2022:

  1. Financially, stay the course. Keep going on pension contributions, max out ISAs and IRAs again, and maybe some small taxable investments. The approach has worked very well so far (the last 14 years or so), and there’s no reason to change. Even knowing how highly valued the stock market is today, especially in the US, I have faith in my diversified allocation over the long term.
  2. Personally, I want to keep working on my work/life balance. This year has been a bit of extremes – when I first started the new role, I had plenty of “life” time. But the second half of the year really ramped up, and “work” took up too much. There’s a happy middle there, and I’d like to spend more time in that middle. I am starting another new position next year, taking over from somebody who is retiring. He’s a bit of a workaholic, so that’s something I want to change for myself and for the people in my new team.
  3. And I’d like to make sure to take time and attention to my own fitness. I’m heavier than I’d like to be and don’t get the exercise I should. It’s just a matter of making time for it and being a bit more attentive – not looking to make a drastic lifestyle change, but nudges in the right direction that work over time – just like in investing.
  4. Aside from cleaning up the design and layout, I don’t have any major goals for this blog. I write because I enjoy it and want to help other people in similar situation. I’m happy to reach as many people as I can, but realistically, there’s something in the neighborhood of 200,000 Americans in the UK, and only some fraction of them are going to be interested in this stuff, plus a chunk more interested in moving here. Optimistically, that’s maybe a few thousand interested readers – I appreciate all of you, but I’m also not going to be turning this into a business, so I’ll do what is fun for me 🙂

How has your 2021 been? Where do you want to focus in 2022?

And of course, thank you for reading this year, and I wish you all a happy Christmas and a brilliant New Year! I hope you all enjoy some time with your families and have a chance for some relaxation and reflection.

3 thoughts on “2021 Year in Review

  1. Thank you again for an excellent blog. The topic hits the nail squarely on the head – namely how on earth does a “normal person” save and invest sensibly if their financial life has ever touched both sides of the pond. Like you, I’ve followed various sources of information about FIRE and/or US/UK tax issues over the years and, if anything, life has got worse for us, not better. The exact things that people should be doing to save efficiently are those that can land people in serious hot water – through no fault of their own. It’s disturbing how many people I see that are only just discovering the problems. Whilst it might seem to be a niche issue, I think we are only seeing the tip of the iceberg. And yet, I can’t see the issue ever being properly addressed on either side of the pond by politicians or even discussed except in passing by mainstream press.

    Personally, the year 2021 has been pretty momentous, as my wife and I have achieved “FIRE” and officially pulled the plug on the world of traditional work. I feel like a bit of a fraud using the term FIRE, because for most of my career I thought it was just common sense to save into a pension. I didn’t realise I was doing anything too radical until I gradually started ramping up my ISA savings and transferred old pensions into a SIPP with ETFs to reduce fees. By always living well within our means and luckily never having to seriously tap our medium-term savings, we’ve found ourselves with more savings than most of the population. So we didn’t get where we are via huge salaries, extreme frugality or buy-to-let leverage. I think of it as the “loneliness of the long-term investor”. It’s not terribly exciting, but I guess the technical detail of it all has been appealing to an engineering mindset.

    These are the things all be focusing on in 2022:

    1. Updating and seriously over-hauling my “financial information document”. This is mainly for my wife who has never really been interested in the technical detail of family finances, knowing that I had it all (mostly) in hand. So she’d be kind of lost if I passed away or for whatever reason had to handle things on her own. I’ve gradually been trying to simplify things as much as possible and document them, but it is still difficult to keep things up to date.

    2. My father (also a US/UK dual citizen) has Alzheimer’s and it’s getting worse. I have power of attorney and handle all his finances. He may need to go into a care home soon, so this will require some serious work. So whilst a lot of people are focusing on the early years of FIRE, I’ve always got very long term planning issues at the top of my mind.

    3. I created a new “cash-flow planning” spreadsheet that I will start putting real-life figures into as it gradually changes from forecast to reality.

    4. I’ve been trying to help my two brothers with their finances, without being too interfering. However, I realise there’s a limit to how involved I can get. One brother doesn’t seem to have the same innate fear of the IRS as I do! The other doesn’t really have the FIRE mindset, but is certainly picking up aspects of it. I think everyone needs to get to it in there own way and at their own speed.

    5. At some point, hopefully soon, we will actually realise that we’ve retired! The answer to the question “Do we have enough?” in our case should be “hopefully, yes”. We need to learn to feel less guilty about spending and that actually it’s just delayed earnings and we’ve earned the right to spend it. At the moment, we are kind of holding our breath, building up a slightly larger emergency fund, before letting out a gradual sign of relief.

    Well, happy new year to everyone!

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    1. Happy New Year to you as well, and congratulations on FIRE! As usual, I agree with you. I think people like us are the very small fringe/Venn intersection of people who are 1) financially savvy – even if not aiming for FIRE, doing prudent long-term investing 2) care enough about the IRS to try to be compliant 3) in this US/UK taxpayer boat to begin with. I do think there are probably a ton of people in bucket 3 who have no clue. If they’re lucky, they’re just on auto-enrollment in their workplace pension which actually works out reasonably ok (as long as the default investment is decent). But if they’ve heard from somebody that they should open an ISA, they almost certainly have PFICs, and no idea that it’s a concern. I see these people on Reddit and Facebook all the time. Some of them want to learn, some can’t believe it, some just want to stick their head in the sand.

      In fairness, it’s a ton to learn and there’s not an easy way to learn “some” of it without running into trouble. My flowchart is decent generic guidance, I think, but there’s so much nuance, and every time you think you have it figured out, there’s another layer of uncertainty or complexity.

      The “financial information document” is a good one. I’ve got an “in case of emergency” letter sitting next to our wills, which would make sure my wife could keep things stable for at least a few months while figuring it out, but it won’t teach her the fundamentals. My Investor Policy Statement is probably too rambling and full of notes to myself to be much use to her. Somewhere in the back of my mind is figuring out how to put as much on autopilot as possible – pension contributions are, but ISA, rebalancing, etc. are all fairly manual. Of course, all the automation will need to change in withdrawal phase anyway, so that’s probably a shortly-before-RE project.

      Sorry to hear your father continues to get worse – that certainly brings new challenges, and of course not just financial. My parents’ generation in our family is starting to get to the point where health concerns are a significant part of their life. My sister is a nurse and lives close to my parents, so I expect she’ll wind up a lot more involved on the care side, but not sure yet how I’ll get involved financially. I’m a bit afraid of what I’ll find – I know my parents have done well for themselves, but their investments sound like they’re a bit of a mess. My dad is good at keeping records, at least (he was an accountant before retiring), so I’m sure it can be figured out. I’ve helped my sister with investing a few times. Agree there’s a limit to how involved you want to get. Got her into a nice index portfolio in her 403(b), now talking about backdoor Roths, but that’s about it. At least she doesn’t have any UK ties, so she really has a simple situation.

      I’ll be interested to hear how your “cash-flow planning” spreadsheet goes and how reality matches planning (or doesn’t!). Our spending has been pretty stable for years, but kids are the big unknown as they get older, and then eventually leave the house. So far so good, but we’ll see. Plenty of wiggle room in our FIRE plans, anyway.

      Hoping you realize you’re retired sooner rather than later and enjoy it! I can imagine this is an uncertain time to retire – feels like markets, especially the US, are overpriced, but no telling when the next downturn will come. I keep looking at my asset allocation and thinking “do I really want THAT MUCH in the S&P 500?” – but just staying the course and matching market cap.

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    2. Oh, and I forgot to say my “FIRE” career is similar. I started investing from an early age – my mom was a bit of an enthusiast, had a small investing club in the 90s, and I invested a small inheritance while I was in college (since the Navy paid instead of using the inheritance for college as intended). When I graduated, I went straight into the military Thrift Savings Plan (401k-ish). No option except broad index investing there, and I was young, single, without many expenses (and it’s hard to spend money underwater…). So after I got out and started properly learning about investing, I realized that I was in an extremely good position – looking at it now, I was CoastFIRE at 29, although I didn’t know the term or concept yet.

      And that was just through “common sense” of strongly contributing to TSP and then 401k, and maxing out a Roth IRA every year, and living well within our means. I don’t feel like we’ve sacrificed a lot for FIRE, just lived a comfortable middle/upper middle class lifestyle without any conspicuous consumption, and gotten lucky on not having many big one-off expenses – the biggest one probably being the move to the UK, where a lot of money went quickly on shipping, cars, rentals, etc. To me, that’s a great example of the freedom of FI even before RE, being able to leave a good paying job for a less well paying one halfway across the world, in exchange for a significantly better quality of life. Nothing fancy, just long term investing and a thrifty lifestyle.

      Like

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