Inspired by the folksy wisdom in Warren Buffett’s annual letter to Berkshire shareholders (scheduled for Feb 27, 2021), I decided to write my own letter. I don’t have any shareholders so this letter is written to my family, or my householders.
Alas, I don’t expect anyone to make the pilgrimage to Lethbridge, Alberta for our annual household meeting, so instead you’ll get to read Engen’s annual letter to householders.
Engen’s annual performance versus the market
| Year | My personal rate of return | TSX Composite annual rate of return | S&P 500 annual rate of return |
|---|---|---|---|
| 2009 | 35.54% | 30.70% | 26.46% |
| 2010 | 14.20% | 14.50% | 15.06% |
| 2011 | 9.80% | -1.01% | 2.11% |
| 2012 | 12.30% | 7.33% | 16.00% |
| 2013 | 13.60% | 12.83% | 32.39% |
| 2014 | 8.50% | 10.23% | 13.69% |
| 2015 | 9.40% | -8.22% | 1.38% |
| 2016 | 8.80% | 21.08% | 11.96% |
| 2017 | 14.10% | 8.92% | 21.83% |
| 2018 | -4.36% | -8.86% | -4.38% |
| 2019 | 21.71% | 22.86% | 31.49% |
| 2020 | 10.24% | 4.60% | 18.40% |
To the Householders of Engen Inc.
The Engen family’s gain in net worth during 2020 was $184,645 which represented an increase of 22.3% over 2019. Over the last 11 years (since I started this blog) our household net worth has grown from $102,200 at the end of 2009 to $1,013,141 by the end of 2020 – a rate of 23.2% compounded annually.
There are five building blocks that add value to the Engen family’s finances: (1) high savings rate; (2) no new debt; (3) minimizing cost of living increases; (4) investment earnings from our portfolio of stocks; and (5) increasing income.
High savings rate
We’ve always tried to maintain a high savings rate and 2020 was no exception. Between our RRSP, TFSA, and RESP accounts, we managed to save one-third of our income. That’s in addition to the $100,000 we were able to invest inside our new Corporate Investment Account.
Looking ahead, these savings categories will have to be reassessed beyond 2021 as we have maxed-out both my wife’s and my RRSP contribution room along with my unused TFSA room.
Thankfully, TFSA contribution room is plentiful in my wife’s account and that will be our focus this year with a planned $50,000 in TFSA contributions for her account plus the $6,000 annual TFSA limit going into my account.
RESP contributions are currently maxed-out each year ($2,500 per child) and will be until our children are ready to attend post-secondary.
Our savings rate will actually tick-up to 37% in 2021.
No new debt
Both of our vehicles have been paid off for years and that has allowed us to direct more of our income towards our savings goals and for travel (ha!). We’ve also paid off our home equity line of credit that we used to complete our basement renovation.
We haven’t had any non-mortgage debt for two-and-a-half years. Even though rates are ultra low, we don’t plan to take on any new debt in the near term.
Speaking of our mortgage, we’re halfway through a five-year term with a 1.45% variable interest rate. We’re in no hurry to pay this down, although with the balance now well below $200,000 we believe the next mortgage renewal (in 2023) will be our last one.
Minimize cost of living increases
Raising a family is expensive. Our annual grocery spending now far exceeds what we pay onto our mortgage. What we saved on dining expenses in 2020 was offset by an increase in our wine budget (sorry, not sorry).
Our spending on kids’ activities was down slightly in 2020, thanks to most sports being shutdown over the spring and fall. We expect these costs to continue to rise though as our kids remain in weekly piano and ballet lessons, plus an expected return of some sporting activities later this year.
As I mentioned, we haven’t had a vehicle payment for several years and don’t plan to upgrade our 2007 and 2013 model vehicles any time soon.
I’m a firm believer that Canadians spend way too much money on vehicles, as evidenced by the auto industry’s record sales every year. How many families have two brand-new leased or financed vehicles sitting in their driveway?
The Engen strategy for saving big money is to drive our paid-off vehicles for at least another five years before we even think about purchasing a new one. That will save us $10,000 per year, an amount that will be saved towards our early retirement fund.
The key to managing all of this is budgeting and planned spending – something we’ve been mastering for the past decade and still find tremendous value in each year.
Investment earnings from our portfolio of stocks
Our RRSP portfolio has grown large enough (at ~$250,000) that market changes rather than personal contributions is now the biggest driver of performance.
You see, while our high savings rate is important, that mattered much more in the early years of investing. A 10% return on $10,000 is only $1,000, but a 10% return on $250,000 is $25,000. That kind of compounding starts to make a big difference once your portfolio reaches six-figures or more.
And, while many investors like to focus on the amount of dividends a portfolio can generate, the way I look at it I’m still in the accumulation phase of my investing journey and so I’m most interested in the total returns from my portfolio. After all, if I were a dividend investor I’d be re-investing those dividends anyway, not spending them.
With my one-ticket investing solution (Vanguard’s VEQT), my portfolio is automatically rebalanced and requires no maintenance from me besides adding new money from time to time.
Increasing income
It was a good decision to leave my day job in the public sector at the end of 2019. Wages had stagnated for years and the situation in post-secondary is far worse now thanks to the pandemic.
It was fortuitous that I started this blog back in 2010. Since then, through a combination of hard work and luck, I managed to earn more than $500,000 (before expenses) through advertising, freelance writing, and fee-only financial planning.
Not all of that went back into our household finances, mind you, but we did withdraw an extra $3,000 or so every month to help accelerate our savings goals.
That side hustle has now turned into a full-time career for me and my wife, and we managed to double the business revenue in 2020.
We also found other ways to increase our income each year; earning credit card rewards on our spending, and selling unused items on Facebook and Kijiji.
Increasing income has been the number one difference maker in our household finances over the last 10 years. This hasn’t come from big bonuses or big jumps in salary. In fact, we were a single-salary household and I had never earned six-figures in a year.
Instead, I’ve hustled and found the right opportunities to turn my passion into a full-time business venture. I hope to instil the same entrepreneurial mindset into our kids as they get older.
Final thoughts
As we look to the year ahead we’ll continue to focus on these five pillars that have laid the foundation for financial success.
It’s these building blocks, stacked slow and steady, year after year, that help us reach such lofty ambitions as having a million-dollar net worth by age 41, and becoming financially free by age 45. They allow us to spend freely on things we care about, and save big on things we don’t.
More than anything, they’re the financial values we share as a household, a compass to guide us through life’s milestones and to our destination.
Next year we’ll be that much closer to it. Until then.
