This post is written in reference to a fellow blog and buddy LP in an article which he wrote here.
Like him, I have a lot of similar thoughts on this subject matter regarding the different priorities at different points in life. There is a bigger learning to takeaway from this for those who understand it better.
There is no doubt that I am still in the building phase of my investment portfolio, which technically means I cannot rest on my shoulders, drop my worries and let nature runs its course. There is a goal which I wanted to achieve in my investment portfolio every year and that is to achieve a minimal of 10% return. This can be achieved by both dividend and capital gain. An ideal scenario would be 5% dividend and 5% capital gain. When stocks are high and they push the yield to a low 5% without any room to run for further capital gain due to stretch valuation, my immediate reaction is to sell.
There is no right or wrong with buying or selling at a certain period. So far, it works a perfect miracle for me. This may or may not be sustainable, until I prove another 5 to 10 years otherwise.
To grow the portfolio by injecting a fresh capital, I will have about $25k / year on average from 2017 onwards. There is a good announcement which I am expecting to make which will push the savings rate visually lower than before. Based on the latest Jul portfolio of $433k, the yearly capital injection represent a 5.7% growth on the portfolio. That is hardly significant if I were to reference based on my 10% goal. Working out and growing both organic and inorganically will create the most optimal scenario, but my energy will run low over the years.
From understanding the above scenario, I can roughly know how long more I need to sustain my working lifestyle. I can either stretch the years of working or grow the portfolio inorganically at a higher and faster rate.
This does not mean that working is not an important factor when you are at the “growing the portfolio” stage. A 100% return on a $1k base is not as powerful as a 5% return on a $100k base. The earlier we work out those numbers, the better we understand what and where our situation are and we can channel our energies towards it better.