This post will contain a number of historical reflections on the post 'Quarterly update 2014 Q2'. Please refer to it to easier understand my comments.
The current level of debt vs. property value is the lowest that we have ever had since starting to pour cash into our living premises, but in absolute terms it is still higher than at most times, however it is down from the top levels two to six years ago. We have switched property several times and the first two quarters in the summary show the actual price appreciation between a purchase (which was a couple of years before Q2 2004) and sale in Q3 2004. At that time we did something very uncommon in the market in the city we lived in, we sold our property BEFORE we bought a new one (this practice became much more common after the crisis in 2008). We were also very diligent when looking for new property and probably looked at about 100 different properties before we finally were able to acquire one where I actually thought there was an inaccurate price (in relation to value) in the market; we were at that time in a strongly rising market able to buy the property at a seven percent lower price than the seller had paid several years before (the broker clearly told me a couple of days before closing that he did not think the seller would accept our offer). Three years later we were able to sell the property at a price well above 40% more than we had paid. In the summary I have spread out the appreciation equally per quarter over the holding period. Furthermore, the last few years we have chosen to drive down debt in two larger one-off 'amortisations'. I did this in order to take down the risk to a level that I am more comfortable with, and to counter the effect from increasing interest rates (boy have I been wrong there so far...). At a debt level below well below 50% and interest rate at all-time low we are currently not doing any regular monthly amortisation.
So while fairly diligent on the property side already early on, I today with hindsight would really like to give you kids some advice on cars. Today we own a really basic car, bought used while still not being too old or having too much mileage to (hopefully) incur too much issues (and costs) with repairs. More than ten years ago I went 'all-in' buying a brand new car (in cash). Don't do that when you are young (unless you already have made all the money you will ever need)! The alternative cost for that cash has proven to be fairly high, so I would today have been able to drive a used Porsche Panamera instead ;-) or better, already laid the first part of the equity fund to pay off the remaining debt.
Kids, it is also always very important to remember that these assets (property and cars) are cash-consuming, so I do not view them as keys to building wealth, rather the opposite. They just cost you. You can (or if you run into trouble have to...), however, dispose of them to improve your debt situation. The less of these type of assets (cash-consuming) you acquire (especially early on in your lives) the more you can invest in the cash-generating assets.
So, now to the really funny part, the financial assets. They GENERATE cash. Every year we get a CASH amount as dividend or interest (on cash). This year alone, the cash amount generated by the financial assets will be higher than total financial savings were ten years ago. It is quite amazing when I think about that now.
In general I have put nearly all surplus cash (except the two larger amortizations mentioned above) into financial assets over the last twelve to thirteen years plus reinvested dividends. The CAGR value growth since late 2000 is currently somewhere above 12%, probably close to 13%. This will probably fall down to 9-10% when the next major correction will come. Still, this is a number I am OK with, even though my ambition would be to increase it somewhat when retiring fully and being able to spend more time following potential investments.
As you see from the asset figures, (easiest seen in figure 2), I was lucky to hold a fair share of my financial assets in cash by end of Q32008, and then going 'all-in' in the beginning of Q42008 when the world was in turmoil. Since then it has basically been a soon six-year very positive development in the stock markets. As you can also see I have nearly all the time since more than three years operated with a fairly high amount of cash, having the 'gun' ready for shooting. As you can also see, the last quarters I have shifted over even more of the financial assets to cash, basically just loading the gun with more bullets as I cannot find any big elephants to shoot. My cash amount is today higher than my total financial assets were less than six years ago, so there is now some firepower if/when needed.
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