In running a personal fund designed for the sole purpose of reaching financial independence, it is crucial that you have a set plan and that you stick to its steps with the most resolute discipline. No exceptions. This is exactly what I will do with the FRF Fund.
I have set out two equity landmarks. The first one is $200,000. Given my expected rate of return, such amount will be sufficient to replace my current net income, but not more. The second one will need to be defined precisely once the first step has been completed. I expect it to be in the vicinity of $1,000,000 though. Such trading capital will allow for total independence.
In case you have ever devised a financial plan, you may have noticed that the power of compounding is almighty in reaching these goals. However, compounding is not noticeable in monetary terms until after a certain equity level is reached. In other words, your capital base needs a boost in the early stages of your plan. That is until the profit output of your capital base outstrips the amount of your contributions. This “replacement” equity level is $200,000 for me, hence the first landmark. I will stop making cash contributions over that amount as the effort of making them will be made obsolete by the irrelevance of their impact over straight equity growth.
For the reasons cited above, I will therefore be relying on both capital contributions and absolute returns to achieve my target. Note that one very simple blanket restriction applies to this whole plan though. Just like I would never average down on a trade, I will not add good money after bad. What that means is that I will not make a new contribution to the fund on a given date unless equity is greater than the previous monthly reading. This way, I will avoid mobilizing cash for stocks when market conditions are providing below average opportunities. Instead, I shall allocate these funds to precious metals (more on that in a later post).
The latest FRF Fund NAV was $44,520 as of July 31st, 2015. I am planning to make significant contributions to it in the coming months, especially since the 2015 trading is quite slow with only a handful of strategies contributing to the fund performance. I will address this very fact in a soon-to-be-released FXP Insight post. But back to topic. Precisely, I will aim to bring the FRF Fund equity to at least $40,000 by the end of 2015, then $47.500 by mid-2016, then $60,000 by the end of 2016, then $90,000 by mid-2017, then $120,000 by the end of 2017, then $160,000 by mid-2018, and finally $200,000 by the end of 2018. Hopefully, trading performance will pick up as this year comes to an end but I will not count on that and will only consider it as an added bonus. For reference, I am assuming an average CAGR of 25.1% over the period, which is the historical non-leveraged performance recorded for the choosen allocation.
For the sake of transparency, I am attaching the latest Fundseeder snapshot of the FRF Fund as of the end of July.