19 May, 2024
A year ago, I published a blog post titled “We Sold Some Investments: Putting our version of the 4% Rule to the test!” To cut to the chase, we’ve done it again.
Having read about The 4% Rule for years and met many people who had retired early and were using it, back in 2023, we decided that we were not yet ready to retire, but pulling some income off our investments would improve our lives at that time. Finding more available cash without working more hours would allow us to do more of the things we wanted to do.
Reading Die With Zero by Bill Perkins and listening to podcasts like Madfientist cemented our view that life is for living. We didn’t want to put things off until retirement when it was within our control to find the money and the time to do them today. Again, I strongly encourage you to read this book as I’m yet to meet a person who has not been changed by it.
For those new to my blog, I’ll quickly fill you in:
Jonny and I are now 50 and 51, and we have a 16-year-old daughter. For the last decade, more or less, we have been systematically stuffing money into ETF investments and our KiwiSaver and basically managing our money well. We both work part-time PAYE jobs and work on The Happy Saver, so we have a lot of unpaid free time and use it well. I can’t say I’ve ever been bored; there is simply too much to do, try, think about, and enjoy.
Via my blog and podcast, and because I’m generally curious, I’m always finding out what other people do with their time and pūtea and what advice they have for me. Those who have bought back their time, giving them the freedom to work less and enjoy life more, really stand out to me. Those people are happy. So, Jonny and I are on a path to financial independence and the ability to retire from all paid work in our early 50s, and we intend to pull income off our investments to allow us to do this.
Since I wrote “We Sold Some Investments: Putting our version of the 4% Rule to the test!” a year ago, we have continued to focus on the things we know are highly effective in getting ahead financially:
Track your net worth monthly to see if you are going forward or backward.
Live on less than you earn; if you can’t do that, spend less or earn more. Budget.
Have money set aside for when trouble strikes (which it absolutely will).
Get out of debt and stay out of debt because it simplifies life.
Continually invest a portion of your income in ETF/Index fund/Retirement fund.
Look after your health. There is little fun to be had being wealthy yet unwell.
Never stop learning.
Over the last 12 months, our household income has been trending up, and after-tax, we earn roughly $1,600 a week (it varies quite a lot). But it’s not what we make. It's what we do with it that counts. Despite some decent outgoings and the general rise in costs, we have continued to adjust for these changes, live on much less than we make, and invest the difference, typically about 30% of our take-home pay. We continue to invest in each of our high-growth, low-fee KiwiSaver funds and ETF funds (US 500 and, to a lesser degree, the NZ Top 50).
We have continued to use Sinking Funds to save up for known costs, and these bank accounts have proved their worth over the last 12 months as the cost of everything continues to increase. But, much like last year, saving up takes time, and having a cash injection to fast-forward our goals is a good idea.
Therefore, here we go again. We have once again sold a tiny sliver of our investments. When you hear talk of “passive income,” this is it—the ability to simply sell a portion of your investment with the click of a mouse.
May 1st 2023
Last May, we took the bold and somewhat unusual move, given that we are still working, of selling off a portion of our investments to fund our lifestyle. This is commonly referred to as The 4% Rule. The Trinity Study found that you can ‘safely’ sell off 4% of your total ETF investments once each year, and they ‘should’ last the next 30 years before you run out. I’ve now met dozens of people applying their version of this rule to their pūtea, which gives me the confidence to do the same.
On May 1st last year, the total value of our investments was $422,000. 4% would have been $16,880. We felt we didn’t need that much, so we sold just $12,000 (2.84%) worth of our US 500 ETF. So, we didn’t ‘quite’ apply the 4% Rule.
What did we do with the money?
We added it to our Travel Sinking Fund and then started booking trips! This bank account had already been receiving $100 a week, or $5,200 a year, as part of our everyday budgeting, meaning that with this lump sum injection of cash, we now had $17,200 to spend. And we almost did spend it all. In the last 12 months (May to April), we have had a brilliant lap around half of Te Waipounamu, the South Island. We had a trip to Ōtepoti Dunedin and an extended stay in Singapore. We also had many side trips to local places where, instead of dithering over the cost of something, we just booked it and enjoyed it. Plus, we put some deposits down on future trips. At the end of April 2024, $1,200 remained in that account.
A remarkable thing happened.
Despite taking money out of our investments and because we still made monthly deposits of about $2,000 into them, the balance has continued to grow. As of May 1, 2024, the combined balance of our US 500 and NZ 50 ETF funds, our KiwiSaver High Growth funds, and the little bit of gold we have left, the value of our investments is now $500,000.
Did you catch that?
One year down the track, despite us selling a small portion, our investments have grown by $78,000.
So this year, we are going for the entire 4% withdrawal.
In early May, I sold $20,000 of our investments and deposited the money back into our bank account, which we can now use however we want.
What did I sell this time?
This year, I decided to sell the final two ounces of gold we bought in about 2016. We bought gold for a bit of fun and before I understood the ease and performance of ETF investing, thanks largely to JL Collins, author of The Simple Path to Wealth. We purchased it for about $1,900 oz.
I sold two ounces for $3,700 oz each in early May. This means that we have made $1,800 per ounce over nine years. Would I invest in gold again? It was fun to own, but no. It’s never paid a dividend that I can reinvest, and it’s been a long wait for the value of it to increase. Plus, the difference between the price you pay to buy vs sell is significant, meaning you lose money on the transaction. But, on the upside, gold is easy to liquidate. By chance, the gold buyer passed through Alexandra right when I wanted to sell, so we met up and made the transaction.
The rest of the $20,000 came from selling some of our Smartshares US 500 (USF) ETF.
The money arrived in our bank account within two days of selling each asset.
Now that the money is in the bank, what’s next?
Given that our daughter is still in school, travel is still a little difficult because we are restricted to holiday dates. The fact that we didn’t actually manage to spend all of the Holiday Fund money last year means that we have set a total of $16,000 aside for travel and fun in the next 12 months.
We plan two trips; one is New Zealand-based, and the other is out of Australia (a cruise). We are full of different ideas that are still taking shape. The remaining $4,000 has been put into another sinking fund bank account and marked with a question mark. We are still determining what to use it for, but we are percolating a few ideas. Plus, with a lot of financial uncertainty nationwide, it's comforting to know that we have a little extra up our sleeve. I’ve long tried to ‘government proof’ our finances, and this will help make any decision any government chooses to make have little impact on us.
Thank goodness I don’t own an investment property!
I can’t help comparing ETF investing with property investment. I’d be foolish not to consider all options regarding growing our net worth. But as the years slowly tick by, I’m more grateful than ever that we have learned to invest our after-tax income into ETF share investments that track the direction of share markets instead of property. Share markets only go up over time as the thousands of companies that make up my ETF funds continue to produce goods and services that the world wants.
Jonny and I have share market assets worth $500,000 and just earned $20,000 from them. Despite this withdrawal, our assets will continue to grow. This is actual passive income. I don’t need an accountant, financial advisor, lawyer, or property manager to invest as we do. I don’t pay rates or insurance on my investments. There are no maintenance costs or tenant management. There is no debt to service, and I don’t have to worry about interest rates. I pay tax on the minimal amount of dividends I earn but no capital gains tax on the increase between what we paid for a share and what it is worth today. There is a two-day wait from deciding to liquidate my investment to having it in our bank account.
Occasionally, I’m accused of being anti-investment property ownership. But that is not the case at all. We need investment properties for those who choose to rent. I rented for years because it fit my life at the time, and I don’t rule out renting again one day. But as a way for me to grow our wealth, forget about it. I’m just not interested in this long-term, low-return, time-sink type of investment.
FIRE
Since I stumbled upon the concept of Financial Independence Retire Early (FIRE) all those years ago and we began to grow our wealth slowly, it has freed up our time to live a decent life. Even with the cost of seemingly everything rising at the moment, we are still moving relentlessly towards our goal to cease all paid work and live off our investments. I’ve got to agree with JL Collins here: This is indeed the most simple path to wealth that I’ve come across.
You do you.
When I read, watch, or listen to content about personal finance, I find that many people either beat around the bush or are too absolute in their convictions about money. While the 4% Rule is based on sound mathematical research, our implementation of it is not. On paper, selling off $20,000 makes no sense because we still earn an income and are still investing in the very assets we are selling.
But in the real world, and away from the spreadsheet, selling off $20,000 makes perfect sense! It’s awesome.
I’ve long understood that ‘good’ personal finance allows for much flexibility. It’s a collaboration of many levers we can adjust as we go. Our overriding goal is to grow our ETF and KiwiSaver investments over time, and despite us selling off a tiny sliver of our investments, our wealth will continue to grow.
My final words are to encourage you to do you!
Don’t blindly follow the herd into property investment—and don’t blindly follow me either. Follow up on all the links I’ve shared above and then deeply dive into your finances. Your situation is unique, as is mine, and you have a lot more control over your future than you realise.
