Fighting gravity

A few months ago, I became what I like to call “KoFI” (kind of financially independent): our household reached the “target” amount of investments at which I don’t need my job anymore (for money): our expenses are covered by my side gig + my investments.

As I’ve explained before, I don’t intend to quit my job just yet, for two reasons: the first one is that I need the job for non financial reasons: I rely on my company to facilitate bringing my family back to Japan, and then I will need a job there to look respectable in the eyes of society, at least long enough to secure a mortgage for a house or condo. Once these things are in place though, the original plan is to pull the plug as soon as I realize the job isn’t bringing me any satisfaction (disclaimer: my job hasn’t been very satisfying for years, there’s still a bit of hope that moving to Japan could lower some of the sources of pain, but I’m not betting on it).

The other reason is financial: my side gig is great, and last year brought in almost 200% of what I need it to bring in the long term. I don’t see any reason it could go down any time soon, but who knows. So, call it One More Year syndrome, but I’m trying to build a safety net with a bit more investments than needed. After all, I’m not really FI until I don’t need the money from my side gig.

Luckily, these two constraints are aligned: I need to keep the job for a couple years maybe, which will help securing the mortgage AND build some security cushion on our investments.

Sadly, since I reached KoFI back in november after the Trump election, my money (expressed in Japanese YEN) has been stagnating, and recently it’s even been going down.

Our expected annual income, numbers in JPY: side gig in green, investments (4% rule) in purple. Since December, numbers have been stagnating despite good market returns, mostly because of the Japanese Yen strength

Our expected annual income, numbers in JPY: side gig in green, investments (4% rule) in purple. Target in blue. Since December, numbers have been stagnating despite good market returns, mostly because of the Japanese Yen strength. Our ultimate goal is for the purple line to cross the blue line. Then the side gig income becomes all gravy: FI.

It’s typical and I’ve seen it last year.

First the Japanese Yen keeps getting stronger: The USD/JPY pair has lost more than 7% since November (around the time I claimed victory). Yes, stocks have been doing pretty well between December and March too, so that basically compensated the Yen strength. The net result for me though, just like last year, is that although my wealth in USD is going up at a pretty smooth and constant rate, the same wealth in JPY has been hovering just above my KoFI line for almost half a year now.

To make things worse, this week my portfolio has been going down, and this is multiplied by the effect of the JPY going up.

Of course, I’m not really worried. I’ve seen it before, things will go up and down but the general direction will be up. This got me thinking though, given the state of my investments, about the lowest USD/JPY rate I can sustain assuming a 4% withdrawal rule. In other words, how expensive would the Yen need to be for me to not be KoFI anymore? And currently, that number is around 108 Yen to the dollar. back in 2015, that number was closer to 130, so overall this is good news.

It’s pretty obvious really, but the more I stay the course, the more I offset the risk of currency issues with the Japanese Yen. If I work one more year, and assuming positive market conditions, I believe I could sustain a rate of 100 Yen to the dollar. However the historical low of the USD/JPY pair was about 75, and that was not so long ago, in 2011. That number gets me worried, because at such a high Yen, I’d probably need to work 6 more years to reach my target again. Ugh…

I’ve started to look into ways to hedge some of that risk, as it’s been one of the the main risks of my FI plan so far. A part of the plan will be to have some (non invested) cash in Yen available for years where forex is not playing nicely. Additionally, as we go back to Japan, we’ll probably open a brokerage account for my wife there and invest in local stocks and bonds (but I do intend to keep that to reasonable levels).

It’s been a bit frustrating to save so aggressively, and yet to see our wealth stagnating for months just because of arbitrary forex events. But that’s how that game is played, and really this is the main reason I’m posting here: Talking about the situation is how I cope with it. Plus last time I complained about market issues, things were back to positive right after that. I’m convinced that writing on my blog influences the market! 😉

3 Comments
  1. Financial Velociraptor
  2. Mr. Tako
  3. Joe

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