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8 months FIRED, recession, inflation, war and doom!

Including Financial Independence and Retiring Early (FIRE)
Darka
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8 months FIRED, recession, inflation, war and doom!

#507749

Postby Darka » June 16th, 2022, 10:24 pm

I've been retired for 8 months now and have really enjoyed it, especially after the unsettling decompression phase ended and I started to relax more. The sense of freedom is truly amazing and I don't think I'll ever get bored of that.

But what a start to my retirement, the market is crashing, inflation and interest rates are rising, war has started, and never ending doom seems everywhere - it's very exciting! So what I am doing to meet these unexpected challenges, and believe me I didn't expect any of this!

The answer is very little, not much and pretty much nothing, I don't know what will happen or when and neither does anyone else.
I'm not selling, not trying to reposition my portfolio, not paying much attention to the news and definitely 100% not planning on ever going back to work.

Some decisions I made prior to pulling the trigger have helped and I'm concentrating on enjoying myself and focusing less on the markets, leaving them to do their thing; stress is a killer don't you know ;)

Things that have helped:

1) Having an entire years income upfront, our Income Float; taking a monthly salary from it and replenishing it from dividends as they come in means I have 12 months worth of income at any time and have plenty of time to plan or adjust if necessary.

2) Living off the natural portfolio yield; I would be less certain had I needed to start selling down any of my portfolio, especially with the market being extremely volatile at the moment, that would be scary! Hopefully this will ensure I also miss out on the lovely sequence of returns risk (yes, I know dividends can get cut).

3) Continuing to Invest during the worst part of Covid; this meant that our retirement portfolio valuation increased by 26% over 2020/2021, and dividend income increased by just under 20% over that time.

4) In addition to the Income Float mentioned above, we also have 1 year of spending as an Income Reserve should things go horribly wrong, but hopefully we'll never need to touch that!

5) Safety Margin, I felt very uncomfortable retiring without a decent Safety Margin, at present our essential spending is 45.5% of our monthly budget, with the remainder being discretionary.

6) 20% of our total monthly "salary" is being used to build up reserves further and will shortly be switched over to being reinvested to help boost income for the future.

It could all go horribly wrong of course, but if I wanted to ensure retirement had no risks at all then I would have stayed working for another 20 years, and that was never going to happen.

Anyway, just wanted to give an update that may or may not help anyone thinking of retiring early and who may be concerned about the World we currently find ourselves in; remember you are dead for a very long time, make sure you have some time for fun when you are alive and work is not everything!

Am I right not to worry too much?, who knows but I'm not stupid and know things can get very ugly indeed, but you can't spend your life worrying otherwise what's the point... back to the gin and tonic!

Memento Mori,
Darka

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Re: 8 months FIRED, recession, inflation, war and doom!

#507752

Postby airbus330 » June 16th, 2022, 10:36 pm

Glad to hear that you are taking a chilled approach to the current situation. I'm in year 3 of FIRE. Having endured the market falls as Covid got going, I only made 1 major change to my portfolio and that was spectacularly wrong. So, this time, like you, I'm staying put and doing as little as possible apart from topping up that which looks cheap. Unlike you, I keep 3 years income reserve, its a personal thing that keeps me content and stress free, even though it does lose me potential gains. There's a lot to be said for contentment.

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Re: 8 months FIRED, recession, inflation, war and doom!

#507754

Postby AJC5001 » June 16th, 2022, 10:42 pm

Darka wrote:Things that have helped:

1) Having an entire years income upfront, our Income Float; taking a monthly salary from it and replenishing it from dividends as they come in means I have 12 months worth of income at any time and have plenty of time to plan or adjust if necessary.

4) In addition to the Income Float mentioned above, we also have 1 year of spending as an Income Reserve should things go horribly wrong, but hopefully we'll never need to touch that!

Darka


Where do you hold your Income Float and Income Reserve? Are they in cash in a savings account or in some form of investment?

Adrian

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Re: 8 months FIRED, recession, inflation, war and doom!

#507755

Postby Darka » June 16th, 2022, 10:42 pm

airbus330 wrote:Glad to hear that you are taking a chilled approach to the current situation. I'm in year 3 of FIRE. Having endured the market falls as Covid got going, I only made 1 major change to my portfolio and that was spectacularly wrong. So, this time, like you, I'm staying put and doing as little as possible apart from topping up that which looks cheap. Unlike you, I keep 3 years income reserve, its a personal thing that keeps me content and stress free, even though it does lose me potential gains.


I think 3 years reserve is a good idea, I'll probably settle on 2 but can't boost it too much until my SIPP becomes available in 2 years time.
I will add a few more months to it before switching to reinvestment and then will wait for the SIPP.

airbus330 wrote: There's a lot to be said for contentment.


totally agree.

Darka
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Re: 8 months FIRED, recession, inflation, war and doom!

#507759

Postby Darka » June 16th, 2022, 10:47 pm

AJC5001 wrote:Where do you hold your Income Float and Income Reserve? Are they in cash in a savings account or in some form of investment?

Adrian


At the moment, the Income Float is just sitting in a current account (earning a huge £3ish per month....); the Income Reserve is in premium bonds which is doing better of course.

I'm moving some more cash over to the premium bonds, but haven't yet decided to move the Income Float as all the interest rates are a bit crap anyway.... and I want instant access, just in case.

I did toy with the idea of investing the Income Reserve, but decided I'd rather keep it as cash and with the recent market crash I think I'm glad I did - I just consider it part of my portfolio allocation which helps to stabilise volatility somewhat, but of course it does cost in lost returns but it also helps me sleep at night.

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Re: 8 months FIRED, recession, inflation, war and doom!

#507763

Postby JohnB » June 16th, 2022, 11:04 pm

If you keep a permanent 3 year cash float you are just reducing your returns and still having to sell in a depressed market. It makes more sense to have a reserve that varies in size, from say 1-3 years, which you top-up when the market is favourable.

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Re: 8 months FIRED, recession, inflation, war and doom!

#507781

Postby minnow » June 17th, 2022, 12:15 am

Not sure if I qualify as FIRE at the ancient of age of 52, but I've been retired a year and I love it too :) I hope the novelty never wears off.

Have to agree, what a "interesting" time we chose to leave the workforce ! Personally I maintain a 2Y buffer in cash (premium bonds), plus 5 more in safe funds (CGT is my preferred choice). The rest is in a collection of stocks and a few commodities (all of which have been getting pummelled this year). I intend to keep the various buckets topped up, but (to JohnB's point) will try to be sensible about not selling stocks when valuations are low etc.

Have to admit, I'm getting increasingly gloomy about the prospects for stocks and bonds, I wouldn't shock me to see real returns close to zero over the next decade (hope it doesn't come to that, but you never know). In some of my free time I have started to explore alternative asset classes - things like cat bonds, insurance, carbon credits, royalty streams, trend following. Still dipping my toes but some of these things seem like they might offer some respite if things get bad.

Anyway, good luck on your journey from one ex-convict to another :)

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Re: 8 months FIRED, recession, inflation, war and doom!

#507794

Postby Darka » June 17th, 2022, 3:50 am

JohnB wrote:If you keep a permanent 3 year cash float you are just reducing your returns and still having to sell in a depressed market. It makes more sense to have a reserve that varies in size, from say 1-3 years, which you top-up when the market is favourable.


I don't personally need to sell as I'm living of the natural yield.

But I do think a more flexible reserve might be useful.

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Re: 8 months FIRED, recession, inflation, war and doom!

#507795

Postby Darka » June 17th, 2022, 3:54 am

minnow wrote:Not sure if I qualify as FIRE at the ancient of age of 52, but I've been retired a year and I love it too :) I hope the novelty never wears off.

Have to agree, what a "interesting" time we chose to leave the workforce ! Personally I maintain a 2Y buffer in cash (premium bonds), plus 5 more in safe funds (CGT is my preferred choice). The rest is in a collection of stocks and a few commodities (all of which have been getting pummelled this year). I intend to keep the various buckets topped up, but (to JohnB's point) will try to be sensible about not selling stocks when valuations are low etc.

Have to admit, I'm getting increasingly gloomy about the prospects for stocks and bonds, I wouldn't shock me to see real returns close to zero over the next decade (hope it doesn't come to that, but you never know). In some of my free time I have started to explore alternative asset classes - things like cat bonds, insurance, carbon credits, royalty streams, trend following. Still dipping my toes but some of these things seem like they might offer some respite if things get bad.

Anyway, good luck on your journey from one ex-convict to another :)


Thank you, it's nice to be free, I retired 1 month after my 52nd birthday but I think we can still say we retired early, just not as early as some in the FIRE community claim.

As for future returns, I don't worry about it as there isn't much I can do and hopefully we'll all be ok. I will continue to invest spare cash and grow my returns that way.

My SIPP becomes available in 2 years so that will help and in the meantime plenty of things to enjoy.

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Re: 8 months FIRED, recession, inflation, war and doom!

#507796

Postby Itsallaguess » June 17th, 2022, 6:18 am

Darka wrote:
But I do think a more flexible reserve might be useful.


Great thread Darka, and you've rapidly turned into a role model for me in terms of how well you've planned and implemented your recent exit from paid employment, as well as seeing how much you're enjoying your new found freedom.

Just on the point being discussed above, regarding placement ideas for cash or 'cash-like' reserves, there's some useful interest rates becoming available in fixed-rate savings bonds nowadays, with the recent interest-rate rises, and certainly for me, I'm happy to lock some level of 'reserve funding' away for either one or two years, to help deliver a known set of returns over a known period, which helps with how I like to plan things going forward with some lumps of this type of cash-level capital -

Kent Savings Fixed Rate Bond (1 year - Issue 97) - 2.36%

Kent Savings Fixed Rate Bond (2 year - Issue 91) - 2.76%


https://www.kentreliance.co.uk/bonds

As you'll of course know, things are fairly fluid at the moment regarding interest rates, and with the Band of England only yesterday raising rates again by 0.25%, I would expect new issues of the above bonds fairly soon, so it might be worth keeping an eye on this area of the interest-bearing options if a delivered 'rolling lock-in' of some level of cash-reserves might suit you, and one that is likely to return at least some level of useful and known return going forwards.

One thing to mention on the above Kent Bonds is to say that after recently opening a couple myself, they released some new higher-interest issues which I was initially kicking myself for missing out on, but during a quick phone call to their extremely helpful customer service team, I found that because I was still within the 14-day cooling off period for my initial applications, they were able to very simply roll over my previous savings-bond applications into the above higher-interest bonds, and I even gained a small amount of interest on the capital that had been invested in the previous issues, so full marks to Kent Reliance on dealing with that request so efficiently, where a single quick phone call was able to sort absolutely everything out with no further work from me being required, and it was nice in the current post-COVID environment to see that great customer service hasn't *all* gone to the dogs just yet...

Like you, I also use Premium Bonds for some level of my planned cash-reserves, and I'm likely to hold some level of 'pure cash' float as well, when I get a little nearer to implementing my own plans, but I think things like the above savings-bonds are now also beginning to offer another blended option to sit alongside other cash-like facilities for this type of reserve-funding, so I just thought I'd mention it if you've not already considered them.

Well done again though on implementing your well thought through FIRE plans, and please, make sure to keep us all updated with your progress, both on the financial side of things and on how you're enjoying and developing your post-work life.

Best wishes,

Itsallaguess

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Re: 8 months FIRED, recession, inflation, war and doom!

#507798

Postby Dod101 » June 17th, 2022, 6:57 am

Darka wrote:
JohnB wrote:If you keep a permanent 3 year cash float you are just reducing your returns and still having to sell in a depressed market. It makes more sense to have a reserve that varies in size, from say 1-3 years, which you top-up when the market is favourable.


I don't personally need to sell as I'm living of the natural yield.

But I do think a more flexible reserve might be useful.


For many years, I have lived off the natural yield and it is in times like these that the idea of creating an income by selling some shares does not look such a great idea. I would take your time over what to do with your cash reserves. Obviously with inflation the way it currently is holding cash over the long term is not a very good idea because at this rate, a three year reserve could soon become a 2 1/2 year reserve and so on. However interest rates on cash will soon begin to rise nd that will help. Maybe buying some of the wealth preservers might be an idea. I have never had that dilemma as I hold about three years' expenses in Index Linked NSCs. No longer available sadly.

I try to be conservative and I would urge you to do the same irrespective of the siren voices.

Dod

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Re: 8 months FIRED, recession, inflation, war and doom!

#507803

Postby Urbandreamer » June 17th, 2022, 7:15 am

Great to hear that you are enjoying retirement. I'm on a10 month countdown to retire myself.

It certainly is interesting times. Unlike you I expect 10 months of earned income to invest, and a significant cash return just for putting it into my SIPP.
That means that I'm racking my brains about where to put it.

Currently it's going to either dividend paying IT's or Ruffer, however SMT is looking increasingly tempting.

I expect that I will be comfortable with the natural yield on my portfolio, as long as inflation does not outpace returns. Given that fact I intend to run a lower cash float of 6-12 months when I retire, but that may change with experience.

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Re: 8 months FIRED, recession, inflation, war and doom!

#507850

Postby DelianLeague » June 17th, 2022, 9:55 am

Well done for making your retirement a reality.

This is a very helpful post for me, especially as I am in the process of retiring at the moment.

What you have done is pretty much what I have been planning to do. This year I am saving one years living expenses + some extra and I will also have divi income and a small amount of guaranteed income for basic needs. I have a good enough safety margin at the moment so I will probably be reinvesting all divis this year and I am also still paying monthly pension contributions (until my retirement run-down final date).

I decided to plan it this way so I could ride out bad market conditions with or without any pension drawdown money.
Basically I can survive ok and be able to take my 25% tax free cash from my pension at a time of my choosing (as things stand now).

Thanks, D.L.

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Re: 8 months FIRED, recession, inflation, war and doom!

#507851

Postby Snakey » June 17th, 2022, 10:00 am

+1 to Darka - if I knew then what I know now, I'd still have left my job when I did

Crash virgin here too (one year retired, current age 50)... I'm unbothered.

As for regrets, nope, not at all. I remain aware in an abstract sense that if I were still working I'd have had an extra year's worth of surplus income to help cover me against inflation, and that I could have been putting more money into the markets at lower prices over the last few months in pension contributions and outside, but when I have these thoughts it doesn't make me want to change anything today or cringe with regret either. I sure as hell don't wish I'd spent the last year working, or that I was at work today! I'd heard about the One More Year trap when making the original decision, and felt strongly that I had not climbed all the way up to the high-diving board just to chicken out when I got there. No, it's more idle speculation along the same lines as imagining what your life might be like now if you'd stayed in/left a certain relationship, job or your home town, chosen a different course at Uni, whatever your personal big decision points have been.

The only thing that concerns me slightly is specific to me personally: I'm in the middle of a pensions transfer which can't be done in specie because Standard Life are so very special. So I will shortly be out of the market for what one side says is "normally 2-3 weeks" and the other side says is "up to 30 days". I pressed the buttons on those earlier this week, so who knows whether I'll find myself down, up, or neutral when I come out the other side. But even then, I can't touch my pension for five years so honestly it's just a number. Obviously I'd rather it was a bigger number than a smaller one, but it doesn't seem to be troubling me at all at the moment when I think about it. (And there will never be a time when you could say yep, it's totally safe to do the transfer now because nothing's going to happen in the next month.) Ask me again when I'm seventy and maybe I won't be as carefree about it! But the important thing is making sure I don't mess around when the money becomes available again - I need to sort myself out about what I'm going to invest in and be ready to do it.

In the interests of full disclosure I should add that in the last twelve months I've done bits and pieces which have covered my living expenses (which are only a grand a month or thereabouts), meaning that I have yet to need to access any of my investments. My cash reserve is £50k sitting in Premium Bonds so I'm fine for a good while longer if the market's settling in for a few dead years.

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Post edited to revert subject/ title to that of the thread. --MDW1954

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Re: 8 months FIRED, recession, inflation, war and doom!

#507855

Postby moorfield » June 17th, 2022, 10:13 am

A great post Darka.

As someone who is about 4-5 years out from looking to FIRE all invaluable advice.

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Re: 8 months FIRED, recession, inflation, war and doom!

#507869

Postby airbus330 » June 17th, 2022, 11:07 am

Talking about the cash float. One of the amusing novelties I now have to think about is the possibility of incurring tax on my cash savings! When we were earning 0.1% on deposits it was not a problem. Now it suddenly is. I'm maxed on Premium Bonds, cash ISA's are still poor rates, so tax efficient options are limited. With Chase offering 1.5% instant access and Fixes approaching 3% I need some new ideas. Or maybe another classic motorcycle :D

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Re: 8 months FIRED, recession, inflation, war and doom!

#507909

Postby Darka » June 17th, 2022, 3:14 pm

Itsallaguess wrote:Great thread Darka, and you've rapidly turned into a role model for me in terms of how well you've planned and implemented your recent exit from paid employment, as well as seeing how much you're enjoying your new found freedom.


That's very kind of you Itsallaguess, appreciate it, I look forward to the day you find your freedom from work, it's very satisfying.

Itsallaguess wrote:Just on the point being discussed above, regarding placement ideas for cash or 'cash-like' reserves, there's some useful interest rates becoming available in fixed-rate savings bonds nowadays, with the recent interest-rate rises, and certainly for me, I'm happy to lock some level of 'reserve funding' away for either one or two years, to help deliver a known set of returns over a known period, which helps with how I like to plan things going forward with some lumps of this type of cash-level capital -

Kent Savings Fixed Rate Bond (1 year - Issue 97) - 2.36%

Kent Savings Fixed Rate Bond (2 year - Issue 91) - 2.76%


https://www.kentreliance.co.uk/bonds

As you'll of course know, things are fairly fluid at the moment regarding interest rates, and with the Band of England only yesterday raising rates again by 0.25%, I would expect new issues of the above bonds fairly soon, so it might be worth keeping an eye on this area of the interest-bearing options if a delivered 'rolling lock-in' of some level of cash-reserves might suit you, and one that is likely to return at least some level of useful and known return going forwards.

One thing to mention on the above Kent Bonds is to say that after recently opening a couple myself, they released some new higher-interest issues which I was initially kicking myself for missing out on, but during a quick phone call to their extremely helpful customer service team, I found that because I was still within the 14-day cooling off period for my initial applications, they were able to very simply roll over my previous savings-bond applications into the above higher-interest bonds, and I even gained a small amount of interest on the capital that had been invested in the previous issues, so full marks to Kent Reliance on dealing with that request so efficiently, where a single quick phone call was able to sort absolutely everything out with no further work from me being required, and it was nice in the current post-COVID environment to see that great customer service hasn't *all* gone to the dogs just yet...

Like you, I also use Premium Bonds for some level of my planned cash-reserves, and I'm likely to hold some level of 'pure cash' float as well, when I get a little nearer to implementing my own plans, but I think things like the above savings-bonds are now also beginning to offer another blended option to sit alongside other cash-like facilities for this type of reserve-funding, so I just thought I'd mention it if you've not already considered them.

Well done again though on implementing your well thought through FIRE plans, and please, make sure to keep us all updated with your progress, both on the financial side of things and on how you're enjoying and developing your post-work life.

Best wishes,

Itsallaguess


Again, thank you for some great idea's and I shall certainly look into them as it would be nice to get some interest, even if not that much.

Post work life is very interesting so far, my wife and I have joined a gym which keeps us fit and I have more muscle now than I did at any point in my life which is very satisfying :)

I still run and have another 50 mile race next April to train for, so that keeps me focused too.
Next up is spending more time learning guitar now to make up for the lack of time that I had whilst working.

regards,
Darka

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Re: 8 months FIRED, recession, inflation, war and doom!

#507910

Postby Darka » June 17th, 2022, 3:16 pm

Dod101 wrote:
Darka wrote:
JohnB wrote:If you keep a permanent 3 year cash float you are just reducing your returns and still having to sell in a depressed market. It makes more sense to have a reserve that varies in size, from say 1-3 years, which you top-up when the market is favourable.


I don't personally need to sell as I'm living of the natural yield.

But I do think a more flexible reserve might be useful.


For many years, I have lived off the natural yield and it is in times like these that the idea of creating an income by selling some shares does not look such a great idea. I would take your time over what to do with your cash reserves. Obviously with inflation the way it currently is holding cash over the long term is not a very good idea because at this rate, a three year reserve could soon become a 2 1/2 year reserve and so on. However interest rates on cash will soon begin to rise nd that will help. Maybe buying some of the wealth preservers might be an idea. I have never had that dilemma as I hold about three years' expenses in Index Linked NSCs. No longer available sadly.

I try to be conservative and I would urge you to do the same irrespective of the siren voices.

Dod


Thanks Dod, indeed being conservative is the plan going forwards, especially during the current inflation/market turmoil.

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Re: 8 months FIRED, recession, inflation, war and doom!

#507912

Postby Darka » June 17th, 2022, 3:21 pm

Urbandreamer wrote:Great to hear that you are enjoying retirement. I'm on a10 month countdown to retire myself.

It certainly is interesting times. Unlike you I expect 10 months of earned income to invest, and a significant cash return just for putting it into my SIPP.
That means that I'm racking my brains about where to put it.

Currently it's going to either dividend paying IT's or Ruffer, however SMT is looking increasingly tempting.

I expect that I will be comfortable with the natural yield on my portfolio, as long as inflation does not outpace returns. Given that fact I intend to run a lower cash float of 6-12 months when I retire, but that may change with experience.


Thanks Urbandreamer,

Those 10 months will go quickly, I had a 2 year countdown in Excel prior to retiring, showing holidays and how many working days I had - it was satisfying to cross those off every week or so, especially during the more difficult times at work.

I've topped up SMT recently myself and likewise some dividend paying IT's as I hope that they will continue to pay out even if the market suffers, assuming of course they have sufficient reserves.

To counter inflation (or at least to try), I will be starting to reinvest some of my income but need to build a buffer as we are having a new bathroom installed very soon.
aaaa

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Re: 8 months FIRED, recession, inflation, war and doom!

#507914

Postby Darka » June 17th, 2022, 3:27 pm

DelianLeague wrote:Well done for making your retirement a reality.

This is a very helpful post for me, especially as I am in the process of retiring at the moment.

What you have done is pretty much what I have been planning to do. This year I am saving one years living expenses + some extra and I will also have divi income and a small amount of guaranteed income for basic needs. I have a good enough safety margin at the moment so I will probably be reinvesting all divis this year and I am also still paying monthly pension contributions (until my retirement run-down final date).

I decided to plan it this way so I could ride out bad market conditions with or without any pension drawdown money.
Basically I can survive ok and be able to take my 25% tax free cash from my pension at a time of my choosing (as things stand now).

Thanks, D.L.


Thanks D.L.,

Glad it was helpful, I also wrote it as a reminder to myself about trusting in the plan, and how I felt at regarding the ongoing doom, etc.

I don't know for certain of course, but I am pretty sure that not panicking but instead looking out for good investment opportunities will be the right thing to do.

It might take time for things to recover of course, but I am very confident that it will, and I'm in no rush.


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