Simon is 39, has been investing for 17 years and recently achieved his dream of financial freedom in order to concentrate on a new writing career. But a total reliance on the income from his £531,000 investment portfolio means he has undertaken significant restructuring of his investments.
We first featured Simon's investment portfolio in June 2013 as part of our cover story: Financial freedom: retire rich and young. At the time he was hoping to become financially independent by age 45 and had put together an impressive extra-early retirement portfolio worth £325,000. However, Simon has since been unexpectedly made redundant by his employer. Also unexpectedly, the redundancy package, plus a small inheritance, has allowed him to achieve financial independence six years earlier than he had hoped.
Simon says: "Before my change in focus to income, I did a lot of my own research, held individual shares and was even an active high-frequency 'trader'. Now that I have achieved financial independence, I have decided to lower risk by eliminating these activities. I'm quite happy for the various fund managers to do the portfolio worrying, in-depth research and required fund re-jigging for me while I spend my time cooking healthy meals for my family or teaching my son how to play cricket (or maybe he will teach me).
"I hope to generate money from writing to supplement my income. But for now I am assuming that I am going to be a bad writer and so will need to live entirely off my investment yield. I could return to the conventional job market if needed."
In the last IC review we alerted Simon to the Wealth Management Association's Private Investor Indices, which he has been using as guidance.
He says: "I have overhauled my portfolio to adjust the focus from growth to income. My income target/benchmark is the UK median gross annual earnings for full-time employees. According to the Office for National Statistics, this was £27,200 in 2014. My starting point is a portfolio worth £531,049, which has a gross yield of approximately 5 per cent, or £27,220 a year.
"I will pay attention to my investments to the extent that I will monitor that the funds remain 'good value' - satisfying my investment objectives, but also delivering good performance versus their own benchmarks and competitors over the longer term."
UK median gross annual earnings for full-time employees increased on average at a rate of about 3 per cent a year between 1997 and 2014. So Simon's primary objective is income growth of at least 3 per cent a year.
Consumer Prices Index inflation averaged about 2 per cent a year between 1997 and 2014. So Simon's secondary objective is capital growth of at least 2 per cent a year.
"I do not want to have to manually sell parts of the portfolio to create income. I want all the income to come from dividends or fund yields," he says. "I want to enjoy my financial freedom and not have to worry about buying or selling in the market. Put another way, I want a reliable source of income to perpetually appear in my bank account - so as Warren Buffett said, my favourite holding period is forever."
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