Recently I am worried, there will be few nights when I do not know whether we are still on track on our journey towards Financial Freedom. This is due to the trade war between China and United States where my HK stocks took a beating. To aggravate things further, Richard Liu (CEO of JD) was arrested on account of sexual misconduct and subsequently released back to China. I never consider this key person risk in my portfolio management and I own 2,500 shares of JD.com at average price of about USD 37 per share. You can understand the anxiety when the share price drops to USD 26 per share. Currently, its EV/revenue is about 0.5x whereas you see competitors such as AMZN at 4.6x and BABA at 8.5x. It is very undervalue if you use sum of parts, just consider the eCommerce business only and the rest of the businesses are free. If he is charged, I do not need to pen further, you will know the aftermath of the stock price.
Coming back to the planning part towards Financial Freedom, I have a deep desire for my wife to be a home maker so that she can be there for the children during the formative years. Unfortunately, I am not man enough to ask her to quit and stay at home yet. The hard truth is we need dual income to create more free cash flow, saving aggressively and reinvest everything back to building our portfolio. I used to have a higher salary than my wife but times have changed. The industry I am working for is dying in Singapore and most of them have shifted to Kuala Lumpur. My pay has dipped by 40% from its peak.
Based on my calculation, I still need another 5-7 years before I can achieve Financial Freedom and that is assuming that both of us have the same salary for the next few years. There are many factors which can derail our end goal. Currently, the market is facing lots of turmoils and more buying opportunities are available. However, I am fully vested and run out of free float.
With all the uncertainty and unknown factors, we need to plan for worst case scenarios.
1. Work Income
Work Income will most likely be the largest source of income for working population. This is the exchange of our time and daily grind for money, allowing your employer to leverage on your life. I will coin it as the modern slavery. Ok, you got the idea and brutal fact. Both of us face our own challenges. Her challenge is to constantly battle her roles and functions been outsourced to cheaper countries. Inevitably, she needs to learn new things and take on new role to remain relevant.
Ways to mitigate:
- Upgrade and stay relevant
- Learn new skills outside of our professions
- Network with people in the industry which we are interested to enter or work in
- Continue to do your 150% best in your work to contribute to your firm to justify your headcount
- Ditch my current role and take up a sales job, compensated according to your effort while Mdm is putting food on the table
2. Dividend Income
Currently our portfolio strategy is about 10%-20% stocks in high dividend yield stocks with deteriorating fundamentals, 30%-40% stocks in stable but no growth stocks, 20% stocks in low dividend but small growth and remaining in growth stocks. The concern is with challenging business environment will affect the fundamental of the business. Hence, this will affect the dividend payout ratio and dividend.
Ways to mitigate:
- Continue to analyse and follow the businesses
- If fundamental of the company is good and deterioration is just a passing phase, will continue to accumulate during price weakness
- Increase free cash flow to acquire more shares during stock price consolidation, need to find more ways to save money
3. Rental Income
The unit is currently rented out till June 2019 which means thereafter I need to look for new tenants. I am only taking $400/month out of this. The rental income is subjected to market forces and fortunately the location is considered very convenient.
Ways to mitigate:
- Need to continue to market the unit in March 2019
- Continue to maintain the unit
- Work closely with my property agent
There is no definite answer that we will reach our target in 5-7 years. Nonetheless, I believe in continuously taking baby steps towards our goal, with faith that we will eventually reach there.