As of June 2023, I have crossed the $100,000 mark, which I had set as the second milestone. I had reached my first milestone of $50,000 in July 2020. Readers who are curious about the details can click here and take a look. Almost three years have passed since then. I reached my first goal in three years. Thus, I got a 100 thousand-dollar portfolio from scratch in six years. As a payroll prisoner, I went through this portfolio with personal savings from my salary. There is no asset transfer from the family.
Let me share with you the current portfolio breakdown as of June 2023. My financial independence portfolio was around 101 thousand dollars in June 2023. You can see the asset allocation in the share chart below. According to this, the S&P 500 (VUSD) ranks first with a share of 28.1%. Long-term US Treasury bonds (IDTL) are in second place with 26.6%. In third place is cash (USD) with 21.8%. Holding such a large amount of money was to take advantage of a possible sharp drop in the S&P 500. But so far, this possibility has not materialized 🙂 In fourth place are Eurobonds issued by the Turkish Treasury, with a share of 16.9%. Fifth is the high-yield corporate bond fund (HYUP), which I started substituting Eurobonds with 3.9%. The current cash distribution rate of this fund is 7.7%. Finally, I have a fund investing in emerging market equities (VDEM).
Savings rate or rate of return?
I arrived at this portfolio size mainly through the savings rate. The rate of return becomes more important once your portfolio size exceeds a certain threshold. To achieve a high savings rate, you need to have a high level of disposable income and a high propensity to save. So, how much of a role did my rate of return play in achieving this portfolio size? I can only give a clear answer to this question if I do detailed calculations all the time. But if I had to make an estimate, I could have achieved an annual return in the range of 7%-9% in dollar terms.
What is the threshold?
You may remember Warren Buffet’s buddy Charlie Munger’s famous quote about the first $100,000: “It’s a bitch, but you gotta do it. I don’t care what you have to do – if it means walking everywhere and not eating anything that wasn’t purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit.” Charlie Munger said that in 2002. If we take the inflation since then and extrapolate that amount to today, that’s about $166,000.
This figure is in line with what I had in mind. Most ordinary people can get a 7% annual return in the long run. So, by investing in the S&P 500, that’s a yearly return of $7,000 for a $100,000 investment. It’s not a small amount of money, but saving still contributes more. 7% annual return means $11,900 for a portfolio size of $170,000. In other words, after this threshold, the rate of return contributes an average of one thousand dollars per month to the portfolio size. After this point, it would be much more rational to focus on raising the rate of return by one or two points instead of saving more.
As a result
The second milestone was essential for me, too. Setting milestones and passing them provides motivation. If you are pursuing financial freedom, you need to be highly motivated. More importantly, you need to maintain your motivation for many years. That’s why I set achievable milestones for myself. My next milestone will be 150 thousand dollars. My fourth milestone will be to cross the threshold of $170,000 in today’s dollar prices. This threshold also means pure financial freedom if I want it. Because this portfolio, together with my pension if I decide to retire, provides a minimal standard of living.
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