We Sold Some Investments: Putting Our Version of the 4% Rule to the Test!
4 Jun, 2023
In early May, Jonny and I made a call; we decided to sell off a portion of our investments to supplement our lifestyle. Had you asked me in April if I would do this, I’d probably have said no, thinking we were still years out from actually spending any of the money we have spent many years investing.
But things change.
There is no drama, and we are not doing this due to inflation or the current cost of living; the simple fact is that our journey with money continues. For those who have followed along from the beginning, you’ve seen us slowly growing our net worth in readiness for it supporting us in early retirement. We are not there yet, we still need to work for an income, but we are well underway with our early retirement plans.
What has changed is that there are things we want to do now that we need money for now.
Life is an inexact science.
As a couple, we constantly discuss the where, what, why and how of life and position our time, energy and money towards whatever interests us. We bumble along, and I’m pleased to say we are really happy. But now that we are at the ages of 49 and 50, we know that it’s only a matter of time before there will inevitably be things we can’t do anymore. Until now, we have pretty much done everything we wanted, but more cash in the bank could enable us to have even more of these life experiences.
I’m still reading it, but the book Die With Zero by Bill Perkins does an outstanding job of explaining how you should make the most of every age you are at, and it questions the point of working for money now that you won’t be using when you are dead. It turns out that, thankfully, we were already on the right track, putting how we use our time and money high up on our priority list. I STRONGLY encourage you to read his book.
Since starting this blog back in 2016, I’ve been fortunate to have a lot of conversations with people who are transitioning to making work optional or are quitting work altogether and living off their investments. Interesting people from all walks of life have told me at length what they get up to in their lives, how they made their money and where they invested it, and they tell me what they are pleased they did and regret not doing.
I’m a sponge for hearing about what other people do, and I’d be foolish not to learn from the experiences of others. I am drawn to people who are content and live life well, in whatever way that means to them. We are all so very different, and I know there are a thousand ways to create a meaningful life.
Considering what others do has made me comfortable with living life on our terms and adjusting course if we feel like it. Nothing we do is particularly groundbreaking, and what we have found to be effective is:
Live on less than you earn; if you can’t do that, spend less or earn more.
Track your net worth each month to know if you are going forward or backward.
Have money set aside for when trouble strikes (which it absolutely will).
Get out of debt and stay out of debt because it simplifies life.
Continually invest a portion of your monthly income in the share market or retirement funds.
Look after your health. There is little fun to be had being wealthy yet unwell.
Talk to strangers and read/listen to a wide variety of content because it helps you understand the world better.
The incredible thing is that if we can get the basics right, which we do consistently, it all works out just fine financially. And if we do ever take a hit, we can recover.
Two days of work a week is going well.
In January, we moved to each working just two days a week at a PAYE job. We also get a third source of income from blogging/podcasting, a project we work on together. I blogged about our work situation earlier in the year: We now work just two days a week!
Our monthly income varies wildly, but it averages about $7,000 per month gross, which I find remarkable. We invest, on average, 30% of our take-home pay. Our remaining income pays for daily life and saves up to pay bigger annual bills and holidays. And this is where our latest pivot entered the scene.
Saving up for things was taking too long!
And neither of us wants to work more hours.
Therefore, I took a closer look at the value of our investments and asked myself, “Why don’t we just spend some of that?” Would doing so destroy us? Probably not. We have discovered that when we try new things (such as working part-time), it rarely has calamitous results—quite the opposite.
In January, I reviewed our net worth and shared how we track financially. Our stash grows year upon year. Since 2015 I’ve been making a note once a month of the total value of our investments. Not including the house we own debt free, we had about $160,000 of investments in 2015. Today the value of our investments has grown to about $420,000, which I find remarkable since we have only worked part-time all these years. I often wonder what we could have built it to had we worked full time. I’ll never know! The secret has undoubtedly always been to spend less than we earn and invest the difference.
What we have been doing is working. However…
The discussions Jonny and I have about the things we want to do keep getting stuck on the fact that we don’t make enough income to fuel all these experiences we want to have. We remedy this by saving up for stuff, but that takes time. I would often look at the total value of our investments and say, “We have plenty of money; it’s just in the wrong place for where we are at right now”. It has always irked me that so much of our net worth is stuck in our house. We knew we didn’t want to be the people constantly saying, “One day, we will do X, Y, or Z”. What if tomorrow never comes?
So, I’d been floating the question to Jonny of whether we could apply the 4% Rule to our investments now, excluding the house. Even though we would still work for money, and we would also invest a portion of our monthly income. Of course, we also discussed the alternative of just working more instead.
By selling a slice of our share investments, we would give ourselves a cash injection once a year to do whatever we liked. It would solve our problem of needing more immediate funds.
What do our FIRE friends think of our plan?
Each time we caught up with financially savvy friends that we have made via this blog, something we regularly do, I asked their opinion about whether or not it would be wise for us to begin to apply the 4% Rule now. Because they are so open to talking about money, they didn’t hesitate to give us their point of view.
These were the responses that I remember:
Our friend, the ex-banker, said that given our habits of managing our money well for so many years now, we are unlikely to muck the whole thing up by selling a sliver.
Our friend, who retired at 39, questioned why we would continue to invest while we took money out of our investments. Why not just stop investing and save that money instead? Other than that, he said, why not give it a go?
Our friends who retired in their early 30s said heck yes. What’s the worse that can happen? Do you have to work another day a week? Poor you!
Finally, a conversation between Jonny and I on a Monday morning at the beginning of May, where he was researching a holiday but said, “We don’t have enough money saved yet”, spurred me into action.
Sod it; I was sick of thinking about it; let’s just do it.
I immediately opened up my laptop, and this is what I did.
Our investments were worth $422,000 on May 1st. 4% of this is $16,880. We both felt we needed less money, so we decided on $12,000 instead, which is 2.84% of our investments. $1,000 extra a month would be plenty for us. If we looked at our total net worth, including our home, selling $12,000 off represents just 0.87%. So, we are selling less than 1% of our total net worth.
I sold all of my investments in Kernel (no offence to them, and I might be back again soon) and some of our Sharesies investments. I chose these because they are easier to sell than our Smartshares. By Thursday, $12,000 was in our bank account.
I love the liquidity of share investing. Try doing that with a house (without going into debt).
We have always had a sinking fund for holidays where we transfer $100 a week, and this $12,000 has joined that. The current balance is now $14,000.
What are we going to do with this money?
Anything we want.
It’s already allowed us to be more impromptu than before. I shot up to Auckland with my daughter on short notice to celebrate my sister's birthday. We had a great time. Since my 15-year-old daughter is now studying for NCEA and has a part-time job, it is much harder for us to plan trips overseas in the holidays, so we plan to do many mini excursions around the motu instead.
We signed our daughter and her friend up for an art class, and while they were at that, Jonny and I roamed around Cromwell. A place we drive through all the time and rarely stop at. We bought some exercise kit we had wanted but never quite got around to purchasing because it felt too extravagant.
Some of the watercolour artwork our daughter created at the art class.
Who else has driven past the sign to the 45th Parallel on their way to Wānaka and thought, “I really should walk up to that”? We finally did! A steep climb with epic views!
Neither Jonny nor our daughter, nor I are keen shoppers. This money is not meant for the acquisition of more stuff. It’s cliched, I know, but it’s the experiences and memories they create that we are after. The book Die With Zero also confirmed the view that I have long held that we would rather share our money with our daughter (and others) now than have her wait to inherit from us when we die. We can share with her and still leave plenty for ourselves to live life. This is the type of parent I want to be.
It’s not binary.
Often I hear financial commentators talk about money in a black-and-white way, but in the words of Katie Donegan, “Money is not binary”. So many factors are at play that it is impossible to formulate the perfect life plan. It simply does not exist. Instead, each time we need to decide on money, we just ask ourselves if it's moving us closer to or further away from the life we want to live. As my friend, the ex-banker, said, we have consistently made ‘good enough’ decisions over a long period; we are unlikely to stuff it up now.
We pulled money out of our investments while still investing on the 20th of the month because I just wanted it done. I wanted that lump sum of cash in our account so that from that moment, we could no longer use the excuse of “we don’t have enough money” to do something. Plus, as I mentioned above, our income varies too much, and it would be difficult to plan exactly when we could have saved enough from cash flow. Since it arrived, our ideas of how we might spend it have been flowing freely, and that would not have been the case if we were waiting for six months for the amount to build up to $12,000.
Furthermore, my once-a-month investing habit has been going on for years, and I don’t want to upset that rhythm. The share market grows over time; I want money to be invested constantly so it evens out those highs and lows. I’d hate to stop it to let the cash build up and forget to start it again or find another reason not to invest. So, it’s clean this way.
And as for timing the market when I sold, which I know the number crunchers among you will be asking about? No idea. I didn’t even look. I just sold what I needed to.
This is the crazy bit.
It has been almost a month since I sold some index and ETF funds to the value of $12,000. Before selling, the balance was $422,000. Today, Sunday, 4th June 2023, it is $420,000. A $2,000 decrease despite removing $12,000. How remarkable is that? Why is that? The share markets have had a good month, and because we also made our usual investments (approximately $2,000), we are only down by a very small amount.
I should have stopped mucking around and done this much earlier! Learn from me, please. If you have enough wealth to start spending and enjoying it now by creating memories with whānau and friends, what are you waiting for? Tell me in the comments section below.
I’ve already set a calendar reminder for May 1st 2024, to do it again.
Until then, we will be enjoying life.
Happy Saving!
Ruth
P.S. For the number crunchers amongst you, this Mad Fientist blog came out a couple of weeks after we enabled our version of The 4% Rule. You might enjoy their thoughts on the rule itself.
After completing this post, I went for a walk. I picked the Earn & Invest Podcast: Is FIRE Lifestyle Design? It turns out that what we are up to has a name: Barista FIRE. It’s worth a listen!
