The English Investor end of year review – 2018 edition

My fiancee and close family members sometimes tell me I can be difficult to satisfy. It might be an unintended consequence of being a lawyer: I am trained to spot issues, no matter how small the issue. Bearing this in mind, I’m happy to report that 2018 was overall a good year.

I’ve never been into introspection. Somehow, I believed that if you spend more time counting what you achieved, you’re wasting time that could have been used to work on the next big thing. I know it’s not true but old misconceptions are hard to shake off.

This year will be the first that I “officially” review. In what is a new exercise for me, I will relive in this post the highs and the lows of 2018. I want to focus on the following life categories: day job, finances and business, family and personal relationship and miscellaneous items.

Let’s get started!

A review of 2018

Day job – 7.5/10

As most of you know, I’m a leveraged finance lawyer by day and a blogger by night. I work in one of those Magic Circle law firms where it is not uncommon to work 80+ hours a week.

This year, I transitioned to a more senior role. It was a significant step-up for me and I had to learn a lot, quickly. I’m still figuring it out but I feel much more comfortable now than 12 months ago.

I’ve also reached that level where it’s “survive or die.” I suspect that at the end of 2019, my boss will tell me if I have a chance of getting promoted (or if I’m on track to get a promotion). The overwhelming majority of my income comes from my current employment. Therefore, I need to continue performing given how high the stakes are.

Financial markets were choppy this year, which directly impacted the debt market. Issuing debt is the bread and butter of my job, so when something is wrong, I know. In particular, the volatile environment negatively affected the high-yield bond market. The loan market fared better but pricing is still tightening.

Finally, I am seeing more and more companies seeking a restructuring of their capital structure. This does not bode well as yields have only slightly increased in Europe. The European market is far behind the US market when it comes to monetary policy tightening. This means that European companies (especially the ones rated below investment-grade) face an uphill battle to refinance existing debt.

For those reasons, business was slow in the second half of the year. I expect challenging conditions for 2019. More than ever now is the time to perform at work so that I am not the first one to be shown the door! So a great year from a personal standpoint but I am increasingly concerned with the market backdrop.

In spite of a reasonably slow second semester, I received a full bonus, which was appreciated. My pay increase was minimal – and disappointing – but that’s the only negative point here.

Finances and business 7/10

Pension and retirement plan

Last year, I started to dive into the daunting world of pension and retirement. I’m about to turn 30 and retirement seems far away. Unlike many FIRE proponents, I do not intend to retire early, even if I’ve reached financial independence. I want to continue to try cool things.

I guess I’m lucky to be considered as wealthy enough by Her Majesty’s Government. As a result, I was hit with the full force of the tapered annual allowance introduced by George Osborne. I can now only contribute £10,000 each year to my pension pot. If I go above this threshold, I have to pay hefty taxes.

I, however, realized that I still had approximately £35,000 of carried forward from previous years. This carry forward mostly comes from the 2015/2016 tax year, which was the “transition year” following a number of changes to pension rules.

I aggressively saved into my pension pot throughout the year and even recently sacrificed a portion of my bonus (approximately £13,000), which allowed me to pay less tax on this amount. I used the salary sacrifice scheme to make this contribution. As a result, my employer saved on national insurance contributions and they were kind enough to contribute those savings to my retirement account. Always ask your employer if they will pass on any national insurance savings so that you ensure that you are not contributing above your allowance.

This was my last year to use my carry forward and I’ve now used the full allowance that I had. I do not have many options when it comes to pension contributions in light of the existing pension rules. One of my goals for 2019 is to find other ways to build retirement income other than the traditional retirement account.

Cash

It’s no secret that I favor cash in those volatile times. While it might be an obvious play with plummeting stock markets, remember that I missed out a good chunk of the bull run. Sure, I was still in law school when the recovery started and paying rent on time was more important than investing in equities.

Excluding my retirement account, over 90% of my net worth is in cash. My priority is to build enough cash reserves for a significant down payment to purchase an apartment or a house. As I witnessed through my job a tightening of credit conditions, I avoided splashing large sums as major indices reached new highs. I estimate that my cash position increased by approximately £70,000 this year.

With stocks plummeting and the London housing market falling apart, there will be opportunities in 2019. I would not be surprised if I end up deploying substantial amounts if the conditions are right.

Yolo account

My Yolo account went on a rollercoaster ride. And it lasted all year long! My returns for the first half of the year were spectacular and the second half was abysmal.

As I’ve previously explained here, my Yolo account is how I cope with Impulse Investing. This is where I make those crazy risky bets and where I win or lose big. Only play with an amount that you can afford to lose.

Blockbusters this year included my long position on Facebook (FB) for their Q1 results and then shorting that same company for their Q2 results. I had also a good long position on Lam Research (LRCX).

On the other end of the spectrum, my multiple positions on Micron (MU) proved to be utter disasters. This play easily cost me a third of the portfolio. I thought that a P/E ratio 5 and overblown concerns on the slowdown experienced by the semi industry offered an opportunity. Unfortunately, markets did not care about the attractive P/E (it’s at 3 now with the recent drop) and Trump intensified his anti-China rhetoric, which did not help.

It was a valuable experience but I wished I had been slightly more conservative with some of my . I added more Micron options when I started to lose money, which had been a winning strategy with Facebook. Unfortunately, it only made things worse and I will keep this in mind for next time.

At least, I managed to avoid the meltdown of this quarter, which means that my account is only down 2% over the year. I might even make this back by December 31!

The English Investor

In August 2018, I purchased a domain to start The English Investor and in September, I started to publish posts in earnest.

Having worked over 6 years now as a corporate lawyer specialized in leveraged finance, I was eager to share my take on a few financial topics. The ultimate aim is to provide value to readers and help people in reaching financial independence by avoiding some of the mistakes that I made.

Nonetheless, I was concerned by how over-crowded the personal finance blogosphere was. Many blogs out there continue to preach Financial Independence / Retire Early (FIRE) in a volatile environment where any of many factors could trigger a recession. It just seems to be a bad idea right now to retire.

Launching a blog seems easy and in some way it is. A computer and an internet connection is all you need. Yet, most blogs close down within 3 years. Mastering the technical aspects is one challenge. Maintaining a regular publishing schedule is an even bigger one.

One of my key issues is how long should posts be. I find anything below 1,500 words to be too short. But with a full-time job, it can be challenging to write quality posts that are consistently above 2,000 words. This is an area where I’m still learning.

While I’m not focusing on monetization, I was elated to see that I had already made £10 from Google’s Adsense!

I intend to ramp up my work on The English Investor in 2019 so make sure to check it out!

Venture Capital

As an additional-rate taxpayer, I’m always looking to find tax-efficient investments. I only made one very small investment this year in a company called Graphene Composites. This year will be the first one during which I claim EIS/SEIS tax relief.

While the company seems to be doing well, the investment is so small that I won’t lose sleep over it. It’s unlikely to have a major effect on my net worth. Nonetheless, the investment process was a valuable experience and I intend to continue with more significant amounts next year.

Real Estate

There is not much to report. I really wanted to purchase property as an investment but the UK property market lacks direction and London house prices are decreasing. It’s just not worth it to take the risk with the Brexit uncertainty. There will hopefully be more political clarity in a couple of months and then will be a better time to invest.

My view is still that a Corbyn government is a bigger threat to real estate investments than Brexit due to expected tax hikes. Given the current state of our politics, a general election is not out of the question.

Family and personal relationships 8.5/10

I got engaged last October and I’m obviously very happy that she said yes! Nothing else this year will top this. Now, the real work begins with wedding planning (and yes, we have not made much progress).

Shopping for a ring was stressful because I spent quite a lot. I tried to follow many rules, including this one from Sam at Finacial Samurai, but in the end, I just settled with an amount I was comfortable with.

I spent a bit more also in the hopping of securing a quality product that would not depreciate over time. Quite the contrary, short of a complete collapse in diamond prices, I hope that this engagement ring will hold its value when facing the test of time.

There were still a few difficult moments with family over the year. At times, it can be stressful, especially when I hate fighting for a protracted period of time with close relatives. Things happen and, while we patched things up all right, I will be consciously making an effort next year to anticipate and avoid those situations.

Miscellaneous items worth mentioning 7/10

There were a couple of important events this year too.

I achieved a childhood dream when I became admitted to the United States Supreme Court. Yes, I also went to law school in the USA and now you know why I tend to spell words with an American spelling. Given that I’m not a litigator, I probably won’t argue a case anytime soon. But you never know. One day, an opportunity might present itself. Also, as part of the swearing-in ceremony, I got to meet Chief Justice Roberts and Justice Ginsburg. That made me VERY happy.

I’m a huge guitar fan and I’ve had issues this year maintaining a regular schedule to practice. The music school I went to had to move location and it’s been a bit of a challenge to find a new tutor. Definitely, this is something to fix for 2019.

Finally, I’ve been trying a few things when it comes to exercising. I had a phase where you could find me quite often at Psycle (Mortimer Street) or Barry’s Bootcamp. In 2019, I intend to go back to the gym with a PT as I’ve only seen mixed results so far.

Conclusion

2018 was overall a good year. It could have been a great year but it didn’t quite reach that level, which is a bit frustrating the potential was there. My engagement was the high of the year and I definitely made progress in maximizing the value of my retirement pot.

Some of the things that happened in 2018 laid the groundwork for 2019. I anticipate taking more aggressive financial steps in 2019, especially if markets continue to fall. With a wedding to get ready and deteriorating credit conditions, things are about to get real!