When I started looking after my own money and began to invest things moved very slowly. There were no FIRE blogs, or even FIRE books that I was aware of. I didn’t know that FIRE meant financial independence retire early. My inclination was to save and invest as I began to earn money, but I had no long-term plan or target. With no internet back in the 1980’s my research was limited to the money sections of the newspapers. Looking back on things now I can see that it took me the first six years to accumulate the first 1% of the portfolio I had after the full thirty years of my working life.
My progress to date since I began investing in equities is illustrated in the graph on the top right of the sidebar, i.e., 1985 to 2020. Beginning a couple of years earlier the table and graph below shows some key points in the progress of my portfolio as I reached 1%, 5%, 10%, 25%, 50% and 100% of the endpoint in 2013.
(Portfolio % is the portfolio value at year 6, etc, as a percentage of the portfolio value at 31 December 2013.)
In that same six years I earned nearly 6% of my total career work earnings after-tax and spent nearly 9% of my work years spend. I saved less than 2% of what I would save and had benefited from less than 1% of my eventual investment growth.
|Year||Portfolio %||Earnings %||Spending %||Savings %||Growth %|
(Earnings %, Spending %, Savings % and Growth % are the cumulative values at year 1, etc, as a percentage of the cumulative values as at 31 December 2013.)
The thirty years included six years when the portfolio value went down, and twenty-four when it went up. Those first six years included five of the seven years showing the lowest increases in value. Incremental gains in those individual years were all less than 0.43% of that endpoint in 2013. Not knowing of the advances to be made later I was not disheartened at my then progress. I had the most I had ever had, at that point in time.
I maintained a modest and cautious lifestyle for the most part in those years. In many ways it was quite a boring time for me. In earlier years as a student, I had learned to live within the limits of my student grant and had graduated with no debts. In these early years of working, I continued to live within my means and never incurred consumer debt. Credit cards could be used but were paid off in full each month. I maintained cash book records of my financial position so I knew where I stood. Spending less than I earned was my key target here. These were useful habits to see me through the full thirty years and beyond. I was less cautious when it came to buying my own home. In the first year I plunged into the property market and bought a new build studio flat. This is reflected in the portfolio falling in year one as cash was spent and being static in year two as I was unable to save much. I was fortunate to have had help from my parents who provided some of my deposit money. I could and would have gone ahead without that but would have had to borrow more.
This graph shows my starting point and my savings in each of the next six years. The first year sees me spending about half of my savings as I buy my flat. I am able to save something in each of the following five years. I had only 1.72% of my eventual savings at this point.
In the third year I was beginning to save money more easily and began to invest in equities (company shares) using unit trusts that were advertised in the money sections of the newspapers. I invested just in time to make some gains ahead of the 1987 stock market crash when I lost one third of the value of my investments in two days. This was just a few days before I was due to move from my studio flat to a bigger two-bedroom flat. Fortunately, I had recently sold some investments to help cover some of the expenses involved in a property move. I didn’t need to raise any more cash so I could hold onto my investments until they recovered. I ended 1987 having made a small gain on my shares. It was useful to learn about investing from my own experiences and without too much skin in the game. As yet I had insufficient money invested to either enjoy big gains or incur big losses in £ amounts.
During these years I was trying to establish my career and make some progress in my work and my earnings. It seemed like there was slow progress at first. The first year has only a half year of working. In my first three years I earned less than 1% of my career earnings in each year and less than 2% in total. Then my earnings rose from this low base by over 20% in each of the next three years as my qualifications, experience and responsibilities increased. After six years I had more than doubled my earnings and was hopeful of continued progression. Earning close to average earnings in my first job but being able to double that in my twenties gave me a good opportunity to save and invest more. I had only 5.88% of my total career work earnings after-tax at this point.
I think now that those first six years taken to get to the first 1% laid the foundations for what was to follow. I had enjoyed rising earnings and had maintained cautious spending habits. I had no consumer debt, a reasonable level of mortgage debt, and was building up equity in my flat. Property price gains over five years at that time would have given me a 50% stake in my flat (although that was about to change for the worse). I was building up my investments in unit trusts and also held some of the privatisation share issues. I felt that as my income rose, I would spend more, but I would also be able to save and invest more. I was shortly to begin to think of having enough investments and savings to be able to live for a year without earning or to pay off a part of the mortgage. I wasn’t anywhere near thinking about financial independence or retiring early. I was still in my twenties and those ideas were unknown to me back then.
I like to think that my story is relevant to others. If you have only a small amount in your portfolio, that could still be a good starting point, if it can be a foundation that you can build on, especially if you have time and future prospects on your side. If your earnings rise more than your spending does and you invest your savings in equities, accepting the risks, then your portfolio can begin to enjoy compound growth. You may also have built up a foundation of habits connected to earning, spending, saving and investing that will equip you well for the journey ahead.