COVID19 – FIRE Planning
It’s been a very interesting year in 2020. It’s always important to implement systems to stay the course and not panic. Investing is a long game and over the years we have learnt this. We would like to give an update on our strategy. As some of our followers know we have 3 key areas we invest (we call in the Family on Fire 1/3 rule), Shares, Investment Properties and Super. We outline below the key changes for us in 2020.
This is what we have done to tune and stay the course.
Shares – Restructure
I still had some shares in my name, we took the lower prices and sold everything in my name and bought back into our LICs under our family Trust. This way I avoided high capital gains and still bought back in at approximately the same price. This allows future gains to be under the Trust and future income now in the Trust. The Trust which we set up a few years ago cost us $600 to set up and about $600 per year to run. The advantages are protection (difficult for people to sue you and get your money), distribution can be allocated to family members with less income and assist with family estate planning.
We have also automated reinvestments. I like to be automated as much as possible to enjoy other aspects of life (non-admin). I’ve turned on DRP on all five of our LICs. “What?”, I hear you cry – that will be a nightmare when you sell to calculate all the buy prices at a future time you want to sell! Ah – all is managed through sharesight.com which automatically tabulates the buy price so if and when we sell in 20 – 40 years all the records are kept. I export this out and also keep it in our Google drive as a backup. Why do we do this?
- Autopilot – We don’t need to study or be affected by market sentiment (I don’t trust myself to reinvest while the news is that the world is coming to an end). This type of strategy is often called dollar cost averaging by continuing to put in additional money on a set schedule. With 5 LICs, each with 2 dividends per year at various times of the year.
- No brokerage – not a big one but with each trade between $1k-$10 costing $20 there is a $200 per year saving.
- One of our LIC’s also has a discount of 0.5-5% which is an advantage
Investment Properties – Reduce costs and bring forward tax refund
It’s true our rental income has taken a hit. Our Airbnb has only been open for 6 weeks between March and late November. It was a bumper 6 weeks but no income other than that. We know this will change now that our state has opened up again and there will be lots more local travel for the next few years. Our permanent rental needed to be released at a 20% drop in rental income.
Steps we have taken:
- Renegotiated with the banks for better rates. Not locked in any fixed interest as we think it is heading down and the banks know this and try to lock you in (been hit there before).
- Filled out an eVariation form to reduce my employee tax paid each month. Instead of getting a large tax return at the end of the year due to the expected loss situation, we estimate this upfront and the ATO writes a letter to my employer saying “Give the guy more cash” each month :). We are using this to sit in our offset accounts and to reinvest into LICs. Better to have it in our pockets than the government for the whole year.
- We did more DIY repairs undertaken to some of the properties while vacant including updating professional photos, etc.
No change here. We still put our maximum $25k each into our super – high growth / equities (40% into International equities).
Rainy Day Fund
We now keep at least 6-12 months of cash in our rainy day account (offset account). This is incase I lose my job and/or all of our rentals are not being rented.
What to expect in 2021
No one really knows! The vaccines are starting to be rolled out and in Australia we are getting on top of outbreaks, but we are to expect more outbreaks and we are learning to better live with this virus. Human endeavour will keep pushing markets up. We will continue to keep small cash reserves for job loss or reduction in business/rental income. However we are still staying the course and in the game. Often during these disasters people look back in years to come and say, “What a time to invest!”.
It’s been so great to hear messages (public and private) from the Family On Fire readers and I’ve learnt so much from you. We are looking to invest our trust more internationally, this may be a small portion in a LIC or ETF.
Love to hear your FIRE plans! Please continue to let us know