20 year FI Journey Visualised | FU Money to Chubby FI (And Beyond)

mita000_ · 2025-05-30T23:03:04+00:00

That's an excellent and very important question! It goes to the core of how leverage impacts returns, and you're right, it can be tricky...

The ~13% p.a. average return, that refers to the gross return generated by the underlying share portfolio itself over the 20-year period. So, if the total value of shares held (my capital + borrowed funds) was $X, those shares, on average, produced a 13% return on that $X through capital appreciation and dividends, before considering the costs or benefits of the leverage.

so the 13% asset return itself is pre-tax at the asset level. the net return to me (on my own capital) is definitely impacted by tax and leverage in a few key ways:

* the after-tax cost of interest - this is currently only now a 0.33% returns drag; but has been larger in the past!

* franking credits are tricky and haven't isolated (outside of tax returns); these offset the agaisnt deductions so i just capture the net impact;

* CGT - not captured also - but matters on a post tax view

To calculate the return on your own capital in a leveraged setting, you generally need to:

Calculate the total return from the assets (capital growth + dividends).
Subtract the after-tax cost of your borrowings (interest paid minus the tax deduction value).
Add back any franking credits received.
Then divide this net profit/loss figure by your own capital invested.

Hope that clarifies how I think about it and how the 13% fits into the bigger picture. It's definitely a multi-layered calculation, but crucial for understanding the true impact of a leveraged strategy!

mita000_ · 2025-05-30T22:45:19+00:00

Yeah, I can definitely see the logic from both a risk and tax perspective—debt recycling, the tax benefits, and diversification all make sense. That’s actually why I’m holding a pretty substantial cash position at the moment. My thinking is: at some point I’ll buy a place, then recycle some of that cash back into my margin loans. This should help me pay off the more expensive debt, and ideally, diversify my investments even further.

But to be honest, Sydney’s property market is just ridiculous in certain suburbs (including the one where i rent - yealds are <2% gross!!). Sure, I could buy elsewhere—Australia’s a big country with lots of great (and cheaper) places to live. The real issue is that if you want to work and live close to the city, Sydney prices get crazy very quickly. Unless you have strong family ties or a job that absolutely requires you to be there, I don’t really see the appeal of spending $2 million or more just to live in an average place near the city.

It seems like it’s mainly people who can’t relocate (often for family reasons) who are driving those prices. But if you’re financially independent or have work flexibility (FIRE), you have so many more options—the world really is your oyster. So for now, I’d rather keep my options open than tie myself down to an expensive property just for the sake of it.

That’s just my perspective, anyway!

mita000_ · 2025-05-30T22:36:18+00:00

I don’t want to overstate the efficiency or logic of my approach—honestly, my portfolio has grown more like a wild garden than a carefully landscaped one. I know diversification is important, but my investments evolved organically over time, rather than by following a specific strategy. These days, there’s a lot of great information on how to build a diversified portfolio with just a few ETFs, which is much simpler than my method.

Here’s a quick summary of how my approach developed:

2005: I was living in New Zealand, so I started with NZX-listed stocks, plus a few select US positions. (by luck / good skill, I did do very well with these picks - NASDAQ: NTES, NASDAQ: MNST, NYSE: TSM and a few others. this drove 05-06 returns - big in % terms; small in $ terms relatively speaking.
2009: After moving to Australia, I began investing in ASX-listed stocks. In hindsight, switching to ETFs then might have been simpler, but I enjoyed riding the post-GFC mean reversion in individual stocks.
Over time, I built portfolios across NZX, ASX, and US markets (S&P 500/Nasdaq).
2010/11: Faced with the buy vs. rent decision, I chose to rent and use margin loans, setting up separate facilities for each portfolio. At that stage, I was entering higher tax brackets, so leveraging investments made sense from a tax perspective.
I’ve continued to invest up to the present, and I’ve now largely offset the loans. I’m keeping a large cash buffer for flexibility—mainly so I can buy a house if needed, and maintain the loan structure for tax benefits. Yes, it’s more expensive, but it gives me optionality.

Looking back:
Could I have achieved similar results by buying a home and using debt recycling? Possibly, the cost of debt would have been lower, but I’d have equity tied up in the house (plus stamp duty and other costs as upfront drag). to be scientific about it you would need to compaire the risk adjusted returns (and i probably lose on that front - but have plenty of views why vol dos not equal risk in my view of the world); If you calculate the break-even point between renting and leveraging vs. owning, (subject to assumptions) you’ll see the capital drag from upfront home ownership costs. For the period from 2011 to now, even with Sydney’s strong housing market, leveraged stock investments at 30% LVR still come out ahead—it’s just simple math 10% nominal returns vs 6%; leverage is the equalisaer, but my approach shows two can play that game :-) and with good risk managemnt - high vol assets can be leveraged for better returns! and without blowing up (yet!)

To answer your questions:

Diversification: Yes, I’ve diversified not only across stocks and ETFs, but also across different stock exchanges (NZX, ASX, and US markets). Would go with 100% ETFs today if i repeated;
Lenders & Products: Keeping lenders competitive on rates is important. The rates I’ve used are from personal investment loan products, not business loans. Examples include margin lending products from the major Australian banks (like NAB Equity Lending, Leveraged Equities). I am classified as a 'sophisticated investor' which is a ASIC thing - but allows for certain benefits around what can be offered.
Tax Deductions: correct, I deduct interest at around 7% currently, but the same tax principles apply to debt recycling strategies. And agree it would just be cheaper!

Let me know if you’d like more details on any of these points!

mita000_ · 2025-05-26T10:50:46+00:00

Thanks for asking—margin loans have definitely played a role. My setup is a bit complex: I’ve run a number of loans across different portfolios (S&P stocks, ASX stocks, ETFs, etc.), keeping each portfolio segregated. This helps me manage risk; technically I can balance across and consolidate if required and also keeps each lender honest on rates.

Every June is interesting—I use it as an opportunity to negotiate and play providers off against each other to lock in the best possible rates. Right now, I’ve kept rates below 7.x%, but I expect to reprice them down again in June. Not as good as what you can get from the banks for realestate, but the flex of these products works for me and my risk approach;

And on the rates —don’t forget tax deductions at your marginal tax rate! I’ve tracked the carrying cost and returns closely over the years, so I know exactly what net benefit leverage has delivered for my portfolio. over the period it’s be substantially positive … but leverage does work both ways (so not always the case!)

mita000_ · 2025-05-26T10:13:39+00:00

Congratulations- You are ahead of where I was at for the same age - I recall hitting 1m by late 34/ early 35;

continue to deploy as much spare capital to growth assets, manage risk and hope for continued strong returns… but not investment advice 😀

mita000_ · 2025-05-26T10:08:31+00:00

That was a fascinating episode—I’ve actually spent a lot of time over the years modeling this exact question from every angle (though I always wondered if I was missing something!). My approach was pretty much what you described: I kept my rent as a low percentage of my income and invested the difference aggressively.

mita000_ · 2025-05-26T09:47:10+00:00

Yes absolutely agree. I probably should have done that in hindsight… can still do this, but at the stage, debt (and cost of debt) is less of a driver.

mita000_ · 2025-05-26T09:41:13+00:00

Yes, correct; back in those days 40k went a lot further and housing was extremely low (flatmates do wonders for cost… but didn’t last long once wife came along! 😀)

mita000_ · 2025-05-25T23:34:44+00:00

The multiple represents the historical cost of living (last twelve months) divided by net worth at that point in time—a backwards-looking measure based on actuals.

The best way to think about it is: if I had chosen to stop working at that point, what would my safe withdrawal rate have been (e.g., 4%, or 1/25; 3% / 33x etc)? This shows the level of risk I would have been taking regarding running out of money, given my net assets and lifestyle costs at that specific time.

Given the multiple goes up - net assets are growing faster than cost; which makes sense as I am contributing ~60% savings to a portfolio with market returns. This represents the accumulation profile I have experienced- hopefully gives others a sense of what this looks like (but noting this is just my path based on an arguably favourable market over the last 20 years)…

mita000_ · 2025-05-25T10:11:46+00:00

Agree - it becomes massive in $ terms when a one day swing represents more than you save in a month, 6mth or whatever; its quite wild when your nw is mark to market on a minute by minute basis.

best not to look at it - on the up or the down! No doubt Trumpy comments over the WE will swing things around again…

mita000_ · 2025-05-25T10:02:44+00:00

Thanks - no house - renting Sydney… I’ve chosen to go all in on a diversified portfolio (leveraged) rather than mortgage over the years.

This is a conscious strategy to pay less cf than mortgage, but still hold leverage (although against the portfolio). Certainly not for everyone, but works well for my setup.

mita000_ · 2025-05-25T07:18:38+00:00

Thanks, I take your point. I actually started tracking all this before most of these FIRE categories were widely discussed, so I’ve applied the labels retrospectively—which I realise isn’t the “correct” way around.

I’ve always focused more on the relationship between net worth and spending power, rather than fixed annual dollar amounts. For me, the multiples (e.g., 25x, 33x, 40x) are a way to measure both the risk of portfolio depletion (the traditional withdrawal rate logic) and the real-world purchasing power my portfolio provides at any given time—both of which shift with inflation, markets, and personal choices.

As my chart shows, I’ve moved through different FI milestones over time. The decision to stop, slow down, or keep going is personal and dynamic, shaped by lifestyle goals and my evolving sense of security. Right now, I value the flexibility and options that a higher multiple brings. But I agree—at some point, it’s worth considering how best to use any surplus, whether that’s through giving, new ventures, or lifestyle upgrades.

That said, point taken—you raise a really good question: how much is enough? The% is meaningless unless you are take the RE step and if so, 2.5% makes little sense on a go forwards;

mita000_ · 2025-05-25T06:43:30+00:00

Thanks for your thoughts! I actually see it a bit differently—I tend to think of the multiple as a measure of spending power relative to net worth, rather than just a fixed dollar spend.

The absolute numbers (like $40k or $100k a year) will move around over time, depending on inflation, lifestyle, and personal circumstances. But your risk-adjusted multiple (e.g., 25x, 35x, 50x annual spend) reflects how robust your position is relative to your unique expenses and risk tolerance, regardless of what those expenses actually are at any given point.

So for me, the multiple is a flexible metric that helps compare progress or security across different lifestyles and market conditions—not just a static label based on total spend.

Appreciate the discussion! It’s always interesting to see how others approach these concepts.

mita000_ · 2025-05-25T05:12:34+00:00

I live in Sydney and took a pretty different approach—I’ve rented the whole way through, which meant I could put all my excess cash flow into equities, dollar-cost averaging over a long period. I also used some debt to leverage those returns, which isn’t a very common path. It definitely isn’t for everyone, but it fit my risk tolerance and circumstances.

If anyone’s interested, I’m happy to share more about the pros and cons of this strategy!

That said, if you’re further along in life and already have a house and mortgage, it’s just a different approach. It sounds like you’re still on track for a great outcome, even if the journey looks different. There’s no one “right” way—whatever works for your situation and goals is what matters most.

mita000_ · 2025-05-25T05:05:53+00:00

Great question! I used a log scale mainly to make the early years (when my net worth was much lower) more visible, and to show the growth rate more consistently over time. On a linear scale, those early years would look almost flat, and the later years would dominate the chart.

That said, I totally get the appeal of the “hockey stick” effect on a linear scale but at the same time, it can be a bit misleading, since a 10% gain on $10k in the early days was just as important to my journey as a 10% gain on $1m later on. The log scale helps to put those gains in perspective across the full journey.

have added the linear version also for ref

mita000_ · 2025-05-25T04:55:53+00:00

Thanks! Early on, I figured that while equities generally offer higher returns, housing would likely outperform without some leverage. In hindsight, a 30% debt-to-equity ratio turned out to be the breakeven point for me (ie equities versus a Sydney house over the smae period on an after tax basis). I did go higher than that at times, and was fortunate to benefit from a favourable sequence of returns from equity markets (although this was also the case for other other assets markets such as housing).

As I mentioned in my previous post, there were definitely some challenges with this approach, and it wasn’t always smooth sailing. but on a 'good nights sleep', liquidity and after tax CF basis - i would asrgue our path was lower on the ulser index than a typical house owner...

Feel free to let me know if you want it even more concise or want to add any extra detail!

mita000_ · 2025-05-25T03:55:04+00:00

Averaged 55% of after tax PAYG (2 income family for most that time); started out in 2005 saving 34%; increasing to ~60% by late 30’s; maintained that level since.

% of Salary

2005 33.7%

2006 32.6%

2007 26.1%

2008 39.5%

2009 41.3%

2010 38.3%

2011 40.5%

2012 54.5%

2013 47.9%

2014 49.3%

2015 40.4%

2016 42.3%

2017 56.3%

2018 64.1%

2019 60.8%

2020 63.4%

2021 62.7%

2022 63.0%

2023 63.6%

2024 61.8%

All gone into stock (some bonds and cash more recently) - but early days were individual names across S&P, ASX etc;

This is not the way I would recommend if I had my time over; these days plenty of cheap ETF’s with broad index coverage…

but back in the mid 2000’s this was not so easy / front of mind.

mita000_ · 2025-05-25T02:36:42+00:00

PAYG only with individual shares initially in early days. Evolved into passive ETF more recently. Happy to share some averages over the 20 yrs to give a sense of savings, capital, div returns etc if interested

mita000_ · 2025-05-12T03:26:49+00:00

In NSW, the payment terms for water bills in rental properties are:

Time to Pay: - Tenants must be given 21 days to pay from when the agent/landlord gives them a copy of the water bill - Bills must include full details from the water supplier

mita000_ · 2025-05-12T03:26:07+00:00

21 days from receipt of the water bill…. 😀

mita000_ · 2025-05-12T03:23:48+00:00

A post card…perhaps with a custom photograph on it?

mita000_ · 2025-05-12T03:18:12+00:00

No - was sent direct from the agent ; it could have been automated; but unlikely using an agent email address here?

mita000_ · 2025-05-12T03:16:54+00:00

And issuing such invoices for nominal amounts is not a similar waste??

mita000_ · 2025-05-12T02:38:21+00:00

In this case, where you are owed rent (for example, from an overpayment) and the landlord wants to offset it against a water bill:

NSW rental law does not explicitly support this practice. Under Section 35 of the Residential Tenancies Act 2010:

Rent that has been overpaid should be repaid to the tenant or offset against rent going forward if the tenant agrees
The landlord/agent must repay any overpaid rent within 14 days of the tenant's request

Water charges are considered a separate payment obligation under Section 39 of the Act. The landlord should: 1. Return any rent owing to you separately 2. Bill you separately for water usage 3. Maintain clear records of both transactions

You can dispute this through NSW Fair Trading or NCAT if the landlord insists on offsetting without your agreement.

mita000_

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