I'm writing a shorter post this week as I am on vacation enjoying beautiful springtime coastal British Columbia with my family.
I've received some requests to clarify my investment portfolio returns distinct from my contributions. Since 2014, my net worth has gone nearly straight up from $120,000 to $750,000—a compounded growth of 45 percent annually. This is the product of aggressive saving and aggressive investing.
There are outstanding risk/reward benefits of investing very aggressively when young with a small portfolio and high savings rate. In fact, if I had to do it all over again with my current understanding of risk, I would have invested even more aggressively at the start.
However, over time, as savings shrink in relation to net worth, it is generally wise to shift focus from high absolute returns to greater risk control (the Bernoulli rule). This is true in my own portfolio. Even when I'm contributing $60,000 a year towards my investment accounts, it is difficult to come back from a massive drawdown on $750,000 portfolio without a little nervous sweat.
As stated, our savings rate is quite high. This is thanks to careful spending. My wife and I both work full-time in professional careers. Our salaries are healthy, but far from enormous and actually look quite slim after the many mandatory deductions on our paycheques: income tax, pension contributions, extended health plans, life and disability insurance, CPP, EI, etc.
For the past few years, our income could roughly be broken down as follows: we spend around C$50,000 per year, we pay around C$50,000 in taxes, and we save the rest either in our directly controlled investment accounts or via our workplace pension plans.
I do not include our pensions in the net worth calculation as they are difficult to value with great accuracy. For some perspective on our pensions, we both have DB plans which are split between employee and employer contributions. We contribute over 12 percent of base salary and our employers put in around 13 percent.
Although DB pensions are envied by many and have much ado made about them in the media, based on my calculations our pensions are likely to provide the returns of a short-term bond fund if we wait until they mature.
My Investment Returns
I started investing in 2008, but I pulled nearly all my money out of my account to buy a house in 2011. I didn't get back to investing seriously again until 2014 as we put a lot of money into home renovations for a few years to try "build equity". We eventually sold our house and made a pitiful profit. I can confidently say we would be much wealthier if we rented from the start, but it was a valuable lesson.
To share my actual investment returns net of contributions and without pension estimates, I completed a chart which shows my portfolio returns since 2014. I will keep this chart updated each month and post it on my About Daren page starting next week.
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