I could have started better on my financial independence journey in 2022. However, I ended relatively well, especially with the appreciation of my assets in the Istanbul Stock Exchange in the last quarter. The financial independence journey is a marathon. 2022 was my fourth year in this marathon. During the year, we witnessed a shock in the global supply chain, Russia’s attempt to invade Ukraine, escalating high inflation globally, and the Federal Reserve raising its policy rate from zero to 4.5% in a record nine months. I’m not even mentioning the political instability and populist practices in Turkey. Yet, I was able to continue on my journey. Moreover, my experience as a small investor also increased. Let’s take a closer look at how my portfolio has changed.
2022 portfolio size
In 2022, my portfolio increased by 29.9% in dollars and reached approximately 83 thousand US dollars. In the Turkish Lira, the increase rate was 82%. At the same time, the exchange rate of the US Dollar/Turkish Lira increased by 40.1%. The depreciation rate of the Turkish Lira is significantly lower than the increase in the annual inflation rate to be announced by TUIK. That is because of the political will to control the foreign exchange market and the exchange rate. When inflation data is released, the artificially low exchange rate means the US Dollar is relatively cheap. As a result of this policy, I had a good return in the rally on the Istanbul Stock Exchange in dollars. I cashed in part of my gains by selling 25% of my TL assets and adding it to my cash stock. I am still determining when these unsustainable policies will eventually collapse.
At the beginning of the article, I stated that I had a bad start to the year. As you can see from the following table, the first three quarters were quite demoralizing. There were three reasons for the portfolio not growing. First, due to the increase in the country risk of Turkey, I suffered a significant capital loss in Treasury Eurobonds. Second, due to the rising inflation in the US and the reaction of the FED, there was a substantial decline in overseas assets. Third, due to the depreciation of the Turkish Lira, the real return on my stocks in Borsa Istanbul was a little. However, Eurobonds and Borsa Istanbul developments turned around in the last quarter. I could close the year with satisfactory portfolio growth.
Asset allocation
There were significant changes in asset allocation as well. Eurobonds constituted 38.3% of the overall portfolio at the end of 2021. By the end of 2022, their weight dropped to 29%. The share of the S&P 500 (VUSD) increased from 24.1% to 26%. On the other hand, we see that the percentage of the Istanbul Stock Exchange remains the same. However, this is misleading. Because in recent days, I have turned a quarter of this asset item into cash. As regular readers know, overseas real estate investment timing was also relatively poor. I have removed this asset item from the portfolio.
On the other hand, I am increasing the weight of US long-term Treasury bonds. Finally, I am holding a large amount of cash in case there are declines in the S&P 500 to take advantage of the opportunity that emerges. I hope to catch this opportunity in 2023.
Change in the components
In the table below, you can see the annual changes (%) in portfolio components. Last year, I gained a return of 70-80% in Borsa Istanbul in USD, and I realized a part of it. I bought one Eurobond to show how to purchase Eurobonds from Interactive Brokers. I did not make any additions to Eurobonds. Similarly, I have yet to make any additions to ETFs focused on emerging markets (VDEM).
Cash flow
I completed the year with a total cash flow of 2,777 dollars (51,873 TL at an exchange rate of 18.68 TL per dollar). The cash yield of my portfolio was approximately 3.3%. In the last quarter of the year, I earned 194.1 dollars as dividend income and interest from my foreign assets. I also received around 280 dollars from Treasury Eurobonds. So, my cash flow in the last quarter was 474 dollars. If Tüpraş distributes dividends next year, I can also expect to earn a significant dividend income from Borsa Istanbul. And since I continuously make purchases, I will also see an increase in my dividend income from foreign assets next year.
In conclusion
I increased my portfolio by 29.9% in dollar terms in 2022. Indeed, I achieved two-thirds of this growth with my savings and one-third with the return I earned from the Istanbul Stock Exchange. I wasn’t expecting such a return from the Istanbul Stock Exchange while there was still time before the election. It’s impossible to know the future. I would have missed this opportunity if I weren’t on the Istanbul Stock Exchange.
On the other hand, I was expecting the S&P 500 to fall much more, but it didn’t. We’ll see what happens in 2023. If things go well for me, I may approach and even exceed the 100,000 dollar limit next year. Let’s hope for the best!