Back in 2015, I’ve started the SF Portfolio with a specific goal in mind. I want it to cover my expenses and ensure my living without being dependent on income from the conventional form of employment. In other words, I target to achieve financial independence. This my long-term goal. The SF portfolio is an instrument to reach this goal. I named it the “Snugfortune” portfolio because it will serve me a huge comfort one day. Think about it. The holdings in the portfolio are generating wealth while I’m sleeping. It is a cash machine running 24/7, without me lifting a finger. And since I invest in quality companies that are raising dividend payments every year, the paycheck is growing organically, even when I don’t deploy new capital. In financial terms, I can’t think of anything else more comfortable than that.
The road to arrive at this destination is anything but a shortcut. It is rather about being consistent and going the long path. I like the comparison of rolling a snowball. In the beginning, you almost don’t feel any impact. But the bigger the snowball becomes, the faster it converts into even a bigger snowball. This is the same with dividend growth investing. The power of compound interest is unfolding its magic with time in the market. Albert Einstein called it the most powerful force in the universe. The good news is that everyone can utilize it to achieve his financial goals.
The definition of financial independence is different from person to person. For me, I decided that I require a passive annual income of about 24-25K EUR net to consider myself financially independent. In the following, I did the math to figure out the year I can achieve this goal. I used the following assumptions:
- Expected ongoing investment amount: €1.000/month
- Expected annual stock price appreciation: 6%
- Initial dividend yield: 3.2%
- Expected annual dividend increase: 7%
This is what I got:
The calculation reveals that I will achieve my goal by the year 2035 – presupposed that the above assumptions do not change. By that time the blue area (projected dividend income) should be completely converted into green (received dividend income). However, it is really difficult to predict how certain variables will behave in the future. Nevertheless, I believe it is very important to have a goal formulated and written down on paper. It helps to create a certain commitment to the goal. By tracking the progress month by month, year by year, we literally can see our goals coming closer and becoming reality.