My financial targets for 2023 and beyond
You can't hit the target you can't see.
Unknown
As I mentioned yesterday in #Jahresbericht 2022 from the #Howsyshaussehedge I measure myself against self-imposed annual goals. In doing so, I follow the KISS principle: Keep it simple, stupid. To set my annual financial goals, I have created a small Excel spreadsheet, no witchcraft. You can certainly approach this in a highly scientific way, but I prefer to keep it simple.
Calculation of the annual target value
Since the Corona crash in 2020, I have been setting financial goals for my investment in the stock market. For this purpose, I assume an average annual return of 7% on my portfolio value. Together with the investment of the previous year, this gives the target value of the portfolio at the beginning of the following year. I add the investment at this point. A return on the investment in the current year does not take place at this point.
In the column "Investment p.a." the investment of the current year is entered. The figures for this come from the program Portfolio Performance. I try to invest 1.000€ per month. I am not sure if I can keep this savings rate in the future. Since I am starting a new job this year, which will initially involve a loss of salary, the savings rate could well suffer at this point. The advantage, however, is that on average I "only" have to put 850€ fresh into the system each month. The remaining 150€ are fed by my dividend payments.
I aim for an annual dividend yield of 2.5%, which I think is a very healthy assumption. My portfolio includes high dividend stocks as well as dividend growth stocks. Therefore, I assume that the dividend yield will increase in my favor in the future. However, I conservatively expect the 2.5% p.a. on a permanent basis. I then compare the target value of the annual gross dividend with the actual value received. This in turn comes from the Portfolio Performance program.
Current situation
This year I missed my target value at the beginning of the year 2023 by 7.006,03€. In order to make the delta between this year's actual value and next year's target value disappear, my portfolio would have to grow by €26,750.50, taking into account my investments of €12,000 during the year. Considering that I only add the investment from the current year, i.e. I assume that this investment does not earn interest, my portfolio must "earn" 14,750.50€. This corresponds to a return of 14.23%. Sporty but possible at the end of the bear market and a corresponding recovery.
Book profits or currently rather losses or not, what counts is the cash flow! The gross dividend actually received was cause for celebration. Here I was able to exceed my target value by € 73.48. According to the app Divvydiary, I should reach my target value of 2,765.88€ gross this year. However, it is important to know that the app only uses the current deposit balance for the calculation. Future investments and the resulting dynamization as well as dividend increases or decreases are not (yet) known to the app.
Why actually the gross dividend? Because I don't know how income from investments will be taxed in the future. For the best possible comparability across decades, I choose pre-tax dividends at this point in my table. Normally, I always use the net value for the dividend data, because only what ultimately ends up in my account counts.
Target value for retirement
The quality of our goals determines the quality of our future.
Josef Schmidt
Why am I doing all this? Why do I invest? Why do I do without in the here and now? Of course, to have a good time in my old age! Or to not have to exchange my lifetime for money for eternity. From the pension I expect actually nothing. The shareholder is himself!
If I continue my table up to an age of 65, I receive a depot value of 2.286.833,78€. Wow! Considering a 2.5% dividend yield, this portfolio should yield a pre-tax dividend of 57,170.84€. If you subtract the currently (!!!) applicable capital gains tax rate (+ Soli, 26.37%), you get 42,094.89€. This means to be able to live monthly from 3.507,91€. Taking inflation into account (conservative assumption 3% p.a.), one still has a monthly purchasing power of 1.361,90€ in 32 years. That means a loss of purchasing power of 61.17%! Not so wow anymore.
At this point, you could throw in the towel. But since I am more of an optimist than a pessimist, I say to myself: Step on the gas! Especially in the early years of the depot get as much money as possible to work so that the compound interest kicks. Since I have not been able to influence the returns of the stock market in the long term, my only other option is to increase the dividend yield. However, as already described above, I assume that this will develop independently in my favor. The concluding quote fits quite well at this point:
If you achieve all your goals, you have probably chosen them too low.
Herbert von Karajan
For a quick estimate of what income from dividends is possible, I use CW Röhl's table. Source:
https://twitter.com/cwroehl/status/1484509586698735622
