Survive or Thrive?

Since I’ve known the concept of FIRE, I’ve wondered if it really is a destination for me or more a step-stone to something way bigger. I’ve found 2 good definitions which could be used to describe FIRE.

Financial independence is having enough money in passive income that you can stop working. Essentially, the money you have invested and saved provides you enough of a return that you don’t rely on a traditional income anymore, hence the term financial independence. People that pursue FI generally have plans to pursue their passions and other things in life.

Early retirement, while similar, takes an ode to its traditional retirement counterpart. It generally means that you retire early and stop working. But instead of retiring at 65, or later, you may retire at 45 or 55. In general, people that want to retire early want to enjoy the traditional benefits of retirement.

However I could still find myself in the FI definition, the Retire Early is not a thing I would pursue. I mean, I don’t want to be sitting on a chair watching through the window all day at age 35.

Elderly horrified man watching through a window

Nonetheless, the FI definition can be interpreted in many ways. To me there is a big difference in the ability to stop working VS. pursuing other passions and things in life.

In Belgium, an individual could survive with €18,000-€20,000 a year with a modest lifestyle in my opinion (mortgage/rent included). Without a mortgage or rent, €12000-€14000 should be enough. However, this doesn’t imply traveling to exotic locations, fancy ski holidays or expensive dinners.

Some people enjoy sitting at home, which I fully respect. However, I think this becomes pretty boring soon enough and people tend to spend more money when not working (at least in my case). By seeking new opportunities, money will be required. The portfolio income will thus not be sufficient to cover extra or unforeseen expenses.

What if you want to go Down Under with your family? What if you would like to start a project which requires a sum of money? What if you would like to roadtrip the USA? I don’t plan these things years ahead so it is hard to budget this.

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I rather pay for experiences than for possessions, meaning I’d rather go on a roadtrip to the USA instead of buying a new design leather couch set. I would love to go scubadiving around some cool islands. Or throw a party on a boat with some friends on a hot summer night. Unfortunately these experiences tend to be rather pricy. However, there is a very thin line between prestige and these experiences. I really appreciate a nice car with a roaring motor and some cool options to play with. Is it about the experience of driving it, or about the prestige? It can provide thoughts for an endless discussion.

Knowledge is power, but so is money. Money creates opportunities. As I’m turning 22 soon enough, I’m keeping my eye on the real estate market. Old apartments need a lot of renovations and are still expensive. New apartments cost a lot more but enjoy the benefit of low energy costs and fewer maintenance costs the first 20 years. Then I started thinking if I could buy a piece of land and build let’s say 8 apartments. I can’t, because I don’t have enough money. However it would be way more economic instead of buying just one. I could sell or rent out the other 7. I’m pretty sure I could make a profit out of this, but on my current budget it simply is impossible. I could try to find like-minded people to help me fund it, but I rather have the full control in my own hands.

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I would really enjoy those projects on my own or fund start-up businesses and invest in them. Having enough money to fund these kind of initiatives, is only were my FIRE starts… Being able to do something for the good of the community or start your own business. A whole lot of opportunities and possibilities…

Do you sometimes have similar thoughts in which FIRE for survival just isn’t enough?

 

 

Dividend Report May ’17

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With a little delay, May’s dividend income report! A great part of European companies pays their annual dividend in May, so let’s look at the numbers!

British American Tobacco: €29,24
Bayer AG: €32,00
AB Inbev: €42,00
Sofina SA: €32,26
Solvay: €107,35
BASF SE: €38,65
Peugeot: €23,52
Intervest Offices & Warehouses: €77,42
Ageas: €147,00
Euronav: €27,46
Verizon Communications: $13,75
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Total dividend: €569,40

This is by far my highest passive income ever! I was hoping to reach the €500 mark for once and my stocks didn’t let me down!

May is one of my favorite months as next to my regular paycheck, my holiday money comes in. This is a very nice boost for my net worth.

€1,732 (paycheck) + €1,385 (holiday money) + €569 (dividends) = €3,686 of free cash flow.

However I went on a citytrip to Copenhague and had a very nice time, I still managed to re-invest around 95% of my free cash flow.

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Did you enjoy May?

Perception Is Everything

It’s a quote my first Lieutenant told me once. At the time I didn’t pay much attention to what he was saying, but eventually it always stuck in my mind.

What he tried to say was that it doesn’t matter how you really are, if people have another perception of you. Their perception becomes a reality. It’s not important if you are a hard worker or not, as long as people believe you’re a hard worker. Of course you do give some hints in your behaviour to allow other people to perceive you.

However, perception is often not fail-proof. I like this point. Even my friends don’t have the same perception of me. Most of them know I’m active on the stock market, but their perception of my life style can be completely different. To some I’m frugal, to others I’m more of a big spender. I like these different perceptions.

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Truth is, both perceptions are right. The perception they create is mostly based on my reaction to their behaviour. Their behaviour is a trigger in the way I will let them perceive me. When I go out with friends at home, I don’t mind giving a round or paying for a hamburger. It feels good. These friends are still studying and don’t have an income, but more important, they return the favor as well. This ‘returning the favor’ thing is of major importance to me, as it is not a one-way street. It’s not really about the money, but about the gesture. So at the end of the night, if I paid a couple of euro’s more, that’s fine by me. I won’t reach out for a calculator to ask for a refund.

At the other hand, when I do go out with my employed friends, things change. I realized that when people start to earn money, they become more greedy. They want more. This ‘returning the favor’ gesture starts disappearing, however they are fully capable of doing it. I’m no saint either, but I will adapt to the situation and then decide to pay separately. It’s a bit sad and unpractical in my opinion, as the difference might be a matter of just a couple of cents.

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Theoretically I could pay cash for this badass Maserati Ghibli and shiny golden Rolex Daytona and still have €50k in the bank.

Add a suit to this combo and I’d sure as hell look like a rich, succesful guy. Yes, look like it. I rather am in the situation I am in today because switching my precious assets for liabilities doesn’t make much sense. In fact, I don’t have the need to look rich now. Attracting people for the wrong reasons and always worrying about the appearance, no thank you.

Last week I’ve been watching golddiggers being caught on video on YouTube. It was really funny but sad to see how girls first say ‘no’ to a guy but then suddenly change their mind when he pulls up in a Lambo.

Do you have a different behaviour towards different friends? Would you make a personal choice solely based on money?

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A €1,62 life lesson

A couple of weeks ago I started using a different investing strategy. I focused more on selling at-the-money put options to realize gains. This meant I was actually using money that I didn’t have available. This requires quite a lot of follow-up, possible rolling and manual work.

However the gains on these options can be very decent because you are working on margin and thus realizing profits on money you don’t have, I realized it was not my kind of investing strategy.

These options on a margin implied that my cash was blocked for a possible execution and I couldn’t buy much. I had plenty of cash but little room for buys of my own.

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I bought between 10-15 options and hold onto them for a couple of days/weeks. With the recent panicking due to Trump I didn’t feel comfortable being on margin AND having my cash blocked.

However I could still handle the margin thing, the blocked cash is a killer. This meant I would not be able to buy into a stock if a real opportunity represented itself.

“There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.” – Warren Buffett

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This quote is most applicable to my situation. I like to buy big into a stock when I think the market is too pessimistic about it. This can be very profitable. Working on margin would yield an additional 0,8% YoY (around $900), but for me the opportunity cost is bigger of not having cash available when opportunities represent themselves. By buying at a good moment, the amount of cash that would be blocked by options, could turn out to bear bigger fruits than the $900.

However the option strategy is certainly not a bad one, it’s not my core business. I really like dividends and passive income without lifting a finger. This gives me more peace at mind and doesn’t require me to check on every stock every day.

Regarding the pros/cons, I decided to close 75% of the options. I had some winners and some losers. Eventually I ended up with a €1,62 loss. I’m glad I tried the strategy and that it didn’t cost me a leg. It was a valuable lesson.

I still do have options in my portfolio, but I will be more careful and decisive about which ones I sell in the future. The expiry date should be in the near future for me. I prefer having plenty of cash available.

Other than this €1,62 loss, I realized €1050 YTD with other option plays. Most of this money is thanks to my bold AB Inbev put. These kind of options are the ones I will focus on in the future, instead of selling plenty ATM options and hoping they don’t decrease until my strike price.

A beer to that!

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Your FIRE or your house?

What if it was a decision you had to make?

Let me tell you a little story about John and Jack.

Intro

Both guys are 21, single and in the same class. Their net worth is approximately the same, a nice €100k. However, both have a very different view on their life. While John is testing his luck in the stock market and trying to build assets, Jack is watching movies and doesn’t care all that much about financial literacy. John believes he can make returns of approximately 8% the coming years and decides to work towards FIRE. Jack, however, puts his money on a savings account so he can buy a house in the near future. Both seem feasible options.

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Start of life

The 2 guys undertake actions to reach their goal once they graduate. John decides to rent a modest 1-bedroom apartment for a couple of years to grow his stash and net worth. Rent is estimated at around €600 (yes, cheap rent in Belgium). The portfolio keeps on accumulating.

Jack decides to go house hunting and finds a decent place, fitting his needs and those of a possible family. There is no big luxury, consider it a very normal house.
Total cost: €300,000. (Yes, Belgium is expensive considering real estate). Jack uses his €100,000 savings to pay up front and signs for a €200,000 mortgage. This results in monthly payments of €1,000 at a 2% intrest rate for a 20-year period.

Financial implications

John’s cash flow: €2,100 (paycheck) – €600 (rent) – €750 (food, utilities, others) + €500 (bonus) = €1,250/month (+ dividends but those are immediately reinvested)

John owns assets and keeps buying them. Let’s look at the next 5 years.

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So, John has a net worth of around €232,000 after 5 years.

Notice John’s new annual dividend income as well, almost hitting €6,000 of passive income!

Jack’s cash flow: €2,100 (paycheck) – €1,000 (mortgage) – €750 (food, utilities, others) + €500 (bonus) – €200 (costs because of ownership, big repairs…) = €650/month

Jack owns a liability. Let’s look at his future.

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The above mentioned number is the estimated price appreciation of his house. We should adjust this number by adding his earnings over the last years. I won’t take into account capital appreciation as savings intrest is fixed at 0,11% and thus negligible.

So, Jack’s total net worth stands at €149,500 (= €110,500 + 5x €7,800)


This makes a difference of more than €80,000 in only 5 years!!!

Imagine this for a 10-year period… Spoiler: John has more than twice Jack’s net worth.

However both have above average Belgian saving rates, the end difference in net worth is huge.

So far for the story, now reality.

As I’m in a perfect position to observe behaviour of young people, something is very remarkable. When people start to have a (small) sum of capital, they buy a house, apartment… whatever. They drain their own funds and start paying off their mortgage. Around 50% of my class has already bought real estate to live in. Most of them still stay at work though. We don’t receive a fat corporate paycheck but we can’t complain either. After graduation, we will earn around €2,100/month without bonuses. In Belgium, this is a very nice amount considered our age range. This amount was used as a parameter in the calculations above by the way.

However John is the winner by miles, almost all people tend to walk Jack’s path. By now I hope it’s pretty clear that I’m more a John-type of guy. The opportunity cost is huge. Nonetheless there might be personal reasons as why to prefer buying.

In my opinion, one should grow his net worth until it’s big enough to take care for itself and then start considering buying something as probably family is going to need shelter and stability in the longer run.

With your current knowledge, would you do things differently at age 21? Would you prefer to be a John or a Jack?

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April Income Report

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Time for the monthly numbers! 2017’s divies are marked in green.

Before the European companies drop their yearly dividend bomb real soon, let’s have a look at what April brought in dividends.

Vanguard S&P500 ETF: €9,87
HSBC Holdings PLC: €86,41
Nestlé SA: €19,48

Wal-Mart: $11,53
Altria Group: $5,44


Total april dividend income: €131,40.

Not bad. It’s a good warm-up for May’s dividends. As you can see in the graph above, last year there was a big bump in income for May. I expect it to be even higher this year. I guess it to be a little under €500.

I’m really looking forward to make May’s income report, as a couple of options are set to expire and I’m curious about the movements.

I’m mostly poised about the sold put option on AB Inbev.

Small recap: in the beginning of March I sold 1 put option on AB Inbev, strike 110, expiry date May. I received €1,158 for this action. Due to the recent jump in stock price, the stock is trading near the strike. Actually I do want to be assigned the stocks, so I’m hoping they just trade a little under 110 when the option expires. On the other hand, netting €1,158 in 2,5 months is pretty decent too (almost 12% ROIC).

Yesterday I noticed a very high activity in call option trading on AB Inbev stock. Strike price was $130 (around €118) for September ’17. In case I’m not assigned, I will probably try to sell another put option with a higher strike (preferably 115 or maybe 120 euro), expiring in September.

Now it’s just sitting back and waiting for the end of May. The French elections might still be a bummer but we’ll see how it evolves this weekend.

 

April Activity + Options

Hi folks,

April has been a busy month so far. I’ve done a couple of transactions.

1. I bought 10 additional Peugeot PSA shares at a price of €17,80 each. This is a very small increase but for tactical reasons. Almost 2 years ago I bought 90 Peugeot shares, without having DGI in my mind. I’ve been holding on since then but I would like to quit the position when the stock trades a little bit higher. My objective was to own 100 shares so I am able to sell covered calls on the shares. This way I can boost the profits a little. The transaction fees of around €10 should be covered multiple times by the option premium. Even if it’s only a profit of €20-50, it’s easy money.

2. Sold naked put 1 NN P MAY 2017 28,00 for a premium of €51,55. NN Group is a Dutch based insurance and investment firm. They were trading at a price of €28,85 at the moment of writing but I didn’t intend to buy them. I would rather keep the cash I have now. The option strikes in less than 30 days and my goal is to rack in the premium. It’s a solid company with a big dividend and good earnings. Next to this, I think NN Group did make a good deal buying Delta Lloyd.

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3. Sold naked put 1 AH P MAY 2017 18,00 for a premium of €24,55. Ahold Delhaize was trading at around €18,75 when I wrote the option. Once again I don’t intend to buy them, just to rack in the premium. Nonetheless I wouldn’t mind owning them at all. Then I would just sell covered calls…

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I’m just a bit short of available cash after my following buys which is why I rather keep the cash in my wallet for better opportunities. However I do like to place a little bet on the price of a stock.

4. Bought 12 shares of dividend aristocrat Johnson & Johnson. This buy was long, long overdue and a lack of them would be a stain on each DGI’s palmares. I took advantage of the small price drop after the earnings announcements last week to buy them at a price of $121,24. I should have bought them way earlier on, but hindsight is 20/20. It’s not a big position, but I’m trying to allocate my capital smartly and if the price would drop more, I’ll buy again. This will raise the net yearly dividend by $22,85. I expect them to increase the dividend soon because they already distributed the same amount for 4 quarters so the time has come.

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5. Initiated a small position of 7 shares W.W. Grainger. This industrial supplier company has taken a beating since the earnings report due to lower price settings. However, the MRO market seems to have enormous potential and plenty of room for improvement. The stocks were acquired for a price of $206 each. They have a history of increasing dividends for about 45 years. This adds a net $20,33 to my yearly dividend income. I expect them to increase the dividend next quarter too.

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6. Acquisition of 35 shares of chemical company LyondellBasell. However they do operate in a cyclical chemical sector, they manage to gather nice earnings and decent margins. They also buy back shares at a high rate and steady dividend increases are forecasted. For a summary of my reasons to buy the stock, I gladly refer you to LyondellBasell Analysis from The Investment Doctor on Seeking Alpha. It is worth reading. At a current dividend of $3.40/share, the net dividend addition comes in at $70,80. This stock too, is expected to raise its dividend next quarter.

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7. Last but not least: in March I had already sold 1 General Mills in-the-money Put OCT 2017 strike $67,50 for a premium of $922,5. I would like to own 100 shares of GIS to grow my dividend portfolio. Because the price dropped even further, I wrote another one but out-the-money this time. 1 General Mills Put OCT 2017 strike $55,00 was sold for $202,5. I don’t expect the stock to go lower than $55 and the premium can decrease my average costs on the first put option when exercised.

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I don’t have all the cash available right now if all options would be exercised. However, I will make sure the money will be available when the strike comes close.

Bonus: Unilever recently confirmed it is raising its quarterly dividend by 12%. This means, based on my 110 stocks, an increase of €11,86 without lifting a finger. Gotta love the game!

Dollar dividends converted, my future yearly dividend income should stand around €1,947.

How was your activity so far?

Financial goals by age 25

However most people specify a certain date or year to reach FIRE, I don’t. I do have a number in my mind but I don’t focus myself on it. The journey towards FIRE should be enjoyed and many obstacles will cross the path. In my case, it doesn’t make much sense to fix a certain FIRE date. In my current stage of life and the coming years, my whole life will (or should) be determined. Will I have a partner, kids, a real estate property with mortgage,…? Who knows… The future is too uncertain for me to just toss a date on FIRE. The parameters can vary heavily.

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A thing with a fixed FIRE date is, what are you going to do when you hit the date but not reach FIRE? Are you gonna be unhappy? All the years of investing didn’t pay off eventually? Was it one big lie? Is living on lower standards an option to yet reach FIRE? No, it’s nothing more than a long-term guideline which adapts accordingly to one’s life in my opinion. FIRE isn’t the ultimate goal, happiness is.

Now let’s satisfy the number craving people:

At 01/01/2021, I will be 25 years old. I want my net worth to reach €250,000 or receive €5,750 in yearly dividends. The reasons I write this as an ‘or’-goal are the following: I can’t forecast stock market movements neither dividend increases. The date gives me a little under 3 years and 9 months to reach the goal.

I don’t think of FIRE as a one-lap sprint. To me it’s more interesting to set temporary milestones along the way to keep motivation high on the mid-term. This way it doesn’t seem like forever to get along with the process.

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March Income

Finally got the paycheck raise! I was already promoted in Q3 2016 but had to wait untill this month to see it on my bank account. I got a €151 raise so my job income stands around €1,732 right now. Thanks to the retributions of the past months and promotion bonus, job income in march stand at €3,764.

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Side hustlin’ income:

€305

Now let’s look at the dividend numbers:

Novartis AG: €58,34
Unilever PLC: €24,37
Novo Nordisk A/S B: €18,87
RD Shell B: €51,42
Imperial Brands PLC: €32,81

IBM: $7,50
Allergan: $2,94
Gilead Sciences: $15,47

= €210,09 dividends

Trade Income:

Veolia Environment, sold. Profit: €244,42

I didn’t plan to sell Veolia, as this was an experiment in the fiscal benefits of turbo’s. However, markets were turning a bit the wrong way for my put option in General Mills. I needed to secure some cash in case the option was exercised. I had expected my bonus to arrive in February but it didn’t so I had to secure my cash position temporarily (2 weeks). Too bad for the experiment, but the position managed to make a 15% profit in 1 month. Can’t complain.

March income: €4523,51

Best monthly income ever. In normal circumstances, it would take me a little over 2 months to earn this amount of cash.

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What about your partner?

It’s a question I’ve been asking myself a lot for quite a while. Being a single guy turning 22 in a couple of months and having family members constantly asking me ‘Don’t you have a girlfriend yet?’, one can start asking the questions of life.

During a FIRE-meetup last year I already talked about the topic of (frugal) girls with financialfreedomsloth. Some weeks ago, I stumbled upon a forum with discussions about marriage and financial arrangements. Long story short: often men got bashed for their financial ‘behaviour’ in marriage by women and very few people had any financial knowledge or knew how money works.

Some subjects that repeatedly saw the light:

  • Every euro/dollar you make in marriage, should be on a mutual bank account. No matter how much your partner makes. In case of divorce, you split 50/50.
  • Everything you have before marriage, becomes property of both partners in marriage (for instance a house).
  • An argument for the 2nd bullet was the following: if they divorce, one partner would have nothing (although the owner had to pay all the bills for the house and the not-owner could save up??).
  • From a different view, if one partner is ‘rich’ and the other ‘poor’, then how does the ‘rich’ one know for sure money is not the reason for a marriage?

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I can keep on going, but these were the main thoughts.

I think it’s easier to come to an arrangement if you found out about FIRE together. Both partners know the value of money and investments so there’s no leak in one’s hand.
But, still, there is always the possibility things go wrong. Did you take any measures as a couple or as an individual in case you break up? Any marriage clausules?

Very often my young age is an advantage, but not in this domain. Rowing against the flow of luxurious parties and money-flush events, I make offers in a financial way. Let me illustrate this: a lot of my friends go out to eat in restaurants a couple of times a week. I love doing this too, but not 3 times a week. First of all, it is expensive (ranging from €10 – €30 each time) and secondly, it would become too mainstream so it would bring less joy when I actually do go. This implies a small part of social isolation, but luckily enough I make this up in other domains. ‘Normal’ students don’t go out to eat 3x a week either…

My hobbies are either free or cheap. I don’t have expensive horses to take care for or like to get €80 haircuts + €60 manicures. Everyone chooses his own lifestyle of course…

On the other hand, I like owning things. I really really do. I simply love it. It aren’t really materialistic things like brand watches or design furniture, but stocks. I adore the idea of being owner of a business. Knowing more than 2 million people get out of their beds everyday to work for my cause makes me feel like a king. At this very moment I’m looking at a box of Nesquik and realizing I own shares of the company (Nestlé). It’s an awesome feeling. Knowing that you contributed in a financial way by buying stocks and knowing that you will (hopefully) be rewarded with value creation in the long run. Enjoying a drink in a bar and seeing someone having a Stella Artois, makes me smile. “Yeah bro, that’s “my” company providing the beer!”

If I would tell this to most of my friends, they wouldn’t understand shit. That’s ok. It just turns out that my passion for stocks is a profitable one.

Now, this turns into a small problem… To buy stocks, you need money. It’s pretty hard to manage a portfolio with a partner who you have to explain everything and convince. It’s either my way or no way. I’m only this stubborn concerning stocks and portfolio management. Don’t worry, I do know how to compromise in other subjects. (Tip: glasses of wine can help)

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Now the biggest issue: buying a house with your partner. To buy a house, you need tons of money (especially in Belgium, expensive as fuck). This would imply selling stocks because I won’t buy much with €800 cash (additional possibility is the €22k piggy bank). It’s impossible to estimate the net worth of a future partner, but I guess I’m a bit unique in my investing habit and net worth age-wise. I’m a bit afraid any partner would like to use all available money to buy a house. This would mean an unequal share in the invested capital in a house. Having a job in which percentages of divorce are pretty high, I don’t want to take any risks.

For this reason, I need some opinions. I never told any girlfriend any exact numbers, but I did say I invested in stocks. Would you rather not even do this? I was thinking about not even telling anything at all and just count the cash + piggy bank as available capital. It feels a bit like lying. Unfortunately, it would also be awkward after a couple of years announcing you can FIRE. “Hey honey, I’ve got enough dividends to live off. Enjoy work today!”

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Another point why I don’t want to converse my stocks into cash for a house: low mortgage intrest rates. At current rates of +- 2%, I do make a hell of a lot more even with very safe high risk/reward options (5-6%). Opportunity cost > mortgage cost –> maximize mortgage to maximize gains. Good luck explaining this.

Anyways, so far my questions/doubts/views on the matter.

What about you and do you have any financial arrangements?