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Old 09-08-2013, 12:06 AM   #21
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Welcome to the forum! I don't have much to contribute regarding your AA and methodology, but I too am interested in the topic of long-term FIRE. In general, I think that for us young FIREes the ability to remain flexible is particularly important and I have many backups built into my plan.
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Nice Job! Planning a fifty year retirement is beyond my pay grade. Your probably gonna have to re- roof a few times.
the long term time horizon makes rigid planning difficult. I agree fully with both of you - flexibility will be important - hopefully just the ability to be flexible will be enough, but planning for changes if needed is part of the plan. ha.
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Old 09-08-2013, 08:26 AM   #22
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First of all, to reiterate on the 529- scholarships do not punish you- you get to have more money for your retirement if your kid gets one. Only pay taxes on the withdrawl as you would any other investment in a tax deferred account. No 10% penalty. Also, a stat school tuition and fees can easily burn thru the majority of what you have saved and if child goes to grad school--use up all of it if you want. if there is money left -so,what? That money does not diminish your flexibility or wealth. You can spend on your own education or redesign ate to a grandchild or worst case pay the 10% penalty and the taxes and you still have MORE money for your retirement than you thought.
To this latter point it looks like if I add it up that your Title of this thread is a bit short-- adding in the value of your home you have a net worth closer to $6MM. If you are flexible about downsizing and cutting back--and your current expenses are really $156,000 a year you look as golden as anyone can be based on PAST markets. As 50 years is a long time to plan for, and our data represents a very short time to study trends- there is no way to give more certainty. Nice job and good luck!
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Old 09-08-2013, 09:45 AM   #23
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Congratulations! You've won the game, now all you have to do is not screw up.

At 37 you need to be planning for the next 60 years and not 50. If I were you I would discount the pensions due in 28 years, unless COLA'd they will be worth peanuts by that time.

Get a decent umbrella insurance policy. You have a lot of assets at risk there.

It does appear you have about $5m in investable assets, with the paid for house on top. Of course, at these levels fluctuations of $100k or more per day are frequent. An annual spend of $156k is just over 3%. I think this is reasonable especially if you can ratchet back should the need arise, although some would say not. Make sure that you have counted all expenses, including taxes, allowances for capital replacement items, and the cost of your investments in this figure.

Now to the 90+% stock allocation. I think you are completely crazy unless you plan on going back to work. Take $5m as the portfolio. That gives you in excess of $4.5m in stock type investments (I don't think you can count your position in NLY as a bond-like investment). Five years ago in the last crash you would have seen that position reduced by approximately 50%. Yes, you would lose $2.25m. That would leave you with $2.75m of which a draw of $156k pa would constitute almost 5.7%. You can draw less but even a 4% withdrawal on the reduced stash would only be $110k. Do you really want to go this low? I repeat, you have won the game. Look at reducing your stock allocation to at most between 50-60%. You should be investing with the mentality of a 57 year-old.

20% in hedge funds is your decision, I wouldn't do it.

My advice to you is to get reading the bogleheads board.

Bogleheads Investing Advice and Info

And I repeat - don't screw up!
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Old 09-08-2013, 09:47 AM   #24
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Originally Posted by urn2bfree View Post
First of all, to reiterate on the 529- scholarships do not punish you- you get to have more money for your retirement if your kid gets one. Only pay taxes on the withdrawl as you would any other investment in a tax deferred account. No 10% penalty. Also, a stat school tuition and fees can easily burn thru the majority of what you have saved and if child goes to grad school--use up all of it if you want. if there is money left -so,what? That money does not diminish your flexibility or wealth. You can spend on your own education or redesign ate to a grandchild or worst case pay the 10% penalty and the taxes and you still have MORE money for your retirement than you thought.
To this latter point it looks like if I add it up that your Title of this thread is a bit short-- adding in the value of your home you have a net worth closer to $6MM. If you are flexible about downsizing and cutting back--and your current expenses are really $156,000 a year you look as golden as anyone can be based on PAST markets. As 50 years is a long time to plan for, and our data represents a very short time to study trends- there is no way to give more certainty. Nice job and good luck!
Thanks for the comments. I wasn't sure if home equity generally was included in the NW number but yes that gets us to around 6MM.

I remember now on the 529 - the things you said about being able to redesignate it, the tax benefits we have already gotten from our contributions and the tax advantaged growth, and the possibility to use it ourselves, all make it worth the slight risk of worst case as you said withdrawing with the penalty.

thanks again.
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Old 09-08-2013, 09:49 AM   #25
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Congratulations! You've won the game, now all you have to do is not screw up.

At 37 you need to be planning for the next 60 years and not 50. If I were you I would discount the pensions due in 28 years, unless COLA'd they will be worth peanuts by that time.

Get a decent umbrella insurance policy. You have a lot of assets at risk there.

It does appear you have about $5m in investable assets, with the paid for house on top. Of course, at these levels fluctuations of $100k or more per day are frequent. An annual spend of $156k is just over 3%. I think this is reasonable especially if you can ratchet back should the need arise, although some would say not. Make sure that you have counted all expenses, including taxes, allowances for capital replacement items, and the cost of your investments in this figure.

Now to the 90+% stock allocation. I think you are completely crazy unless you plan on going back to work. Take $5m as the portfolio. That gives you in excess of $4.5m in stock type investments (I don't think you can count your position in NLY as a bond-like investment). Five years ago in the last crash you would have seen that position reduced by approximately 50%. Yes, you would lose $2.25m. That would leave you with $2.75m of which a draw of $156k pa would constitute almost 5.7%. You can draw less but even a 4% withdrawal on the reduced stash would only be $110k. Do you really want to go this low? I repeat, you have won the game. Look at reducing your stock allocation to at most between 50-60%. You should be investing with the mentality of a 57 year-old.

20% in hedge funds is your decision, I wouldn't do it.

My advice to you is to get reading the bogleheads board.

Bogleheads Investing Advice and Info

And I repeat - don't screw up!
I just read this quickly and found myself nodding my head. I agree with what you have written, possibly I agree 100%, let me think about it and come back with a possibly more detailed response/plan of action.

thanks!
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Old 09-08-2013, 10:07 AM   #26
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The OP is actiing like those microcap things never lose money and like hedge funds never lose money. With assets like that, there is less need to take risk even though there may be ability and willingness to do so.

And what are "private investments"? Is that commercial real estate or something with even more risk?

I would dial back the risk myself and unload microcaps and hedge funds as soon as I could and invest more conservatively. Sometimes folks will say, once you've won the game, why keep playing?
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Old 09-08-2013, 10:20 AM   #27
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To put it another way, you have accumulated an excellent net worth that, if managed well, can sustain you for the rest of your life (Congratulations!). Capital preservation and income generation should be your primary goals from now on. Currently, your portfolio is very growth oriented, which is fine during the accumulation phase. During the withdrawal phase, growth remains important, particularly with a long time horizon, but the extreme growth tilt (and accompanying volatility) of your current portfolio risks derailing your primary objectives. This is a particular risk should you run into an adverse sequence of returns in the early years of retirement.
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Old 09-08-2013, 10:24 AM   #28
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Originally Posted by jj View Post
Now to the 90+% stock allocation. I think you are completely crazy unless you plan on going back to work. Take $5m as the portfolio. That gives you in excess of $4.5m in stock type investments (I don't think you can count your position in NLY as a bond-like investment). Five years ago in the last crash you would have seen that position reduced by approximately 50%. Yes, you would lose $2.25m. That would leave you with $2.75m of which a draw of $156k pa would constitute almost 5.7%. You can draw less but even a 4% withdrawal on the reduced stash would only be $110k. Do you really want to go this low? I repeat, you have won the game. Look at reducing your stock allocation to at most between 50-60%. You should be investing with the mentality of a 57 year-old.
I respectfully disagree with your sentiments of having 90% stock allocation as crazy. Don't forget that even the S&P 500 ETF currently yields just over 2%, so it wouldn't take a giant effort to get an average yield on your portfolio close to 3% and have it grow over time.

I'm 36, hoping to retire at some point over the next 10 years, and plan on a SWR of sub 3%. I am currently about 86% equities and 14% 'fixed income', with an overall portfolio yield of 4.2%. (I'm hoping to be able to live off of <3%, so my excess yield will simply reinvest and provide additional safety factor).


The equities portion has a decent international/emerging market component for capital growth, along with some MLPs, REITs, and BDCs to juice up the yield AND have some decent dividend growth.

The fixed income is 1/3 in I-bonds with an average fixed rate of 3.3%, and 2/3 in mostly preferred stocks with an average current yield of of 7.4%.

Based on my portfolio, I don't need to consume my portfolio to live off of, so I'm not uneasy with 86% of it in equities. If the market drops 50% again, I'm sure some companies will cut their dividends...but I'm not expecting a 50% slash in dividends. And even if that were to happen - those I-bonds will come in handy to supplement things for a few years. Yes, I realize that the preferred stocks are flat with their coupons, but they have a high enough yield to spin off income while the capital growth part of my portfolio grows over time, and will allow me to (eventually) sell off a little bit of that if need be to add to fixed income.

So, perhaps over time I will naturally increase my bond holdings, but I'm not seeing myself jumping up to a 50% fixed income allocation - unless I were in my 70s, rates were 6%-8%, and I only needed 2% to live off of.
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Old 09-08-2013, 10:37 AM   #29
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I would ladder my bond portfolio with treasuries, tips, government agencies. All ten years or less. Possibly short term AAA munis. If long term treasuries get to be 5 % or higher, I would go heavy on those. I would also limit my hedge fund investment to 10%. One thing that I've done is gifted to my children over the years. Nothing spectacular but enough to get them interested enough to learn about investments. Got the snowball started.
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Old 09-08-2013, 11:08 AM   #30
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If it were me I would do as some other posters have suggested and also just focus on a capital preservation portfolio and not take any risks. You've more than won the game. If I had your nest egg at your age, I would focus on minimizing taxes and not losing money to inflation.

It is one thing to lose 20K in a week in stocks when you are younger, have a high household annual income and many years ahead.

But when you get older and have saved up a sizable nest egg, a stock crash hits and all of a sudden gee, you can't make that money up by working another month or so. Now you'd have to work a year or two or maybe more to make up what you lost in stocks in a day or a week.

If I had life to do over I would have changed our investments to a capital preservation portfolio around 7 years ago, moved to a smaller house with less upkeep and less expenses, called it good enough, and just worked at hobby jobs for the rest of our lives like we do now.

You have a great nest egg, but you could improve the number of years of living expenses you have saved by lowering your annual household run rate, since at your age you have a lot of decades of retirement to fund.

You probably don't need to cut expenses in order to retire, but we cut out a lot of stuff we either no longer needed or missed, like eliminating life and disability insurance, not buying fast food because we had more time to cook at home, switching to LED bulbs, and weather stripping. Even if you don't need to cut expenses in order to retire, if you can lower some expenses it is still money that can eventually go to your kids or to the local food bank instead of insurance, fast food and utility companies.
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Old 09-08-2013, 11:17 AM   #31
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I think 37 is still an age where someone can take on risk and still be able to recover if it ends poorly. A 60 year horizon is just too long to focus on capital preservation, IMHO. Way too much will happen, and new opportunities will arise.
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Old 09-08-2013, 11:51 AM   #32
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I think 37 is still an age where someone can take on risk and still be able to recover if it ends poorly. A 60 year horizon is just too long to focus on capital preservation, IMHO. Way too much will happen, and new opportunities will arise.
I guess it depends on your priorities, risk tolerance and how much money you need to have a happy life.

Personally, I would rather avoid the "ends poorly" option as much as possible.
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Old 09-10-2013, 12:15 PM   #33
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Mostly from feedback in this thread I have made the following changes to our asset allocation:

1. sold a small amount of emerging markets (really only part of the portfolio with a tax loss).
2. Sold all of our long-term fixed income (TLT) exposure
3. used all sale proceeds plus existing brokerage cash to purchase BIV and BND

Changes I plan on making

1. Withdraw 75k from the microcap hedge fund (request is in, done quarterly)
2. Use existing cash to purchasee more BND and some TIPS (bring overall cash position down to 100k or so.

3. step back and re-evaluate again.

current brokerage allocation looks like this:
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Old 09-15-2013, 08:13 AM   #34
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To the OP: you are all set. Well done.
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Old 09-15-2013, 10:53 AM   #35
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You've done well, you know that. What you haven't told us is how you like to live. If you like to camp and walk trails, you'll probably be fine.....If you like to fly 1st class and travel the world, you'll need some more money

I wouldn't worry about too much in the 529 accounts. My DW and I are bright, so are my kids and every one of them has gone or will go to private colleges....50k a year....one of them them wants a phd.....7 years at 50k a year today.

I really don't know how we can help. When I was your age I was worth a couple million, then years later 6 or 7 million but my goal was 10m. Today, I love the good life and really appreciate all I've been given. Most important is my health....nothing if I'm not able to enjoy it......my family.......they truly give me joy......and my portolio.....it's invested conservatively and will oullast DW and myself. These are all your choices.....you have done very well and the best advice is your advice to yourself.
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One year update. Some progress
Old 10-07-2014, 10:37 AM   #36
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One year update. Some progress

In my continuing interest to hold myself somewhat accountable I am posting a one year update, for comparison purposes and to solicit any comments or suggestions this wonderful community might have.

now 38 and married with two children ages 11,12 and live in California.
I would love opinions/criticism on asset allocation/porfolio construction and future methodology, or anything else that might standout enough for you to comment.

Current expenses down slightly to 12k/month, all included.

Our current balance sheet is as follows:

Taxable brokerage account: 3.38MM
Roth brokerage acct: 285k
Roth microcap hedge fund: 280k
Taxable microcap hedge fund: 730k
529 for 11 year old: 148k
529 for 10 year old: 152k
Traditional IRA husband 13k
traditional IRA wife 11k
SEP IRA 14k
treasury direct/paper bonds: 33k
private investments: 360k
Cash 220k
House value owned outright 1.1M

Total NW: Approx 6.5MM


Asset allocation has continued to trend towards lower risk when I can make changes that maximize tax efficiency and as other opportunities arise. I sold 75k from the hedge fund last year and will sell another 75k this year. Bond holdings have increased and overall duration has decreased. The private investments are extremely illiquid but I was able to ratchet down some over the past year and will continue to do so as the opportunity arises. IRAs are exclusively in fixed income, the hedge funds and private investments are certainly risky assets, and below is a snapshot of the brokerage allocation (I would love to be able to depict the entire balance sheet but am not able to aggregate this chart at ameritrade).
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Old 10-08-2014, 12:12 AM   #37
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I would get out of the hedge funds as they are two things I do not like: high expense and active management.

Hedge funds skim off 20% of the profits and charge 2% per year management fee. They are for suckers as far as I can tell and this blog,post explains in more detail why:
http://assetbuilder.com/andrew_halla...e_fund_manager


Sent from my iPad using Early Retirement Forum
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Old 10-08-2014, 04:39 AM   #38
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+1 on the hedge funds.

If it is 2%, you are paying 20k in fixed fees alone to these guys.

Assuming you'll keep up with the overall stock market at say 7%, that's another 1.4% tacked on (20% performance fee), so 14k.

34k payment for a performance which will leave you off worse than general indexing is a perfect example of "heads I win, tails you lose".

Everyday I'm surprised this is still legal.


[Edit: never mind, I see the fees are lower in your earlier post at 1% with a hurdle of 10%]
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Old 10-08-2014, 08:24 AM   #39
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I agree with ratcheting down the illiquid stuff, which is over 20% of your net worth. I have none of that stuff with a significantly larger nw. I think those types of investments are appropriate only for institutions and individuals with nw > $100 million.
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Old 10-08-2014, 03:58 PM   #40
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Agreed on the illiquid investments and partly on the hedge fund. I withdrew 75k from the hedge fund last year and am doing another 75k this year. Presumably, 75k per year going forward might be where I stay, depending. As hedge funds go, this one is relatively benign on the fees side (certainly not cheap). 1/20 with a 10% hurdle, approx 20MM TOTAL AUM so the attention of the PM is extremely concentrated. He will find microcap arb situations with very high yet low risk returns (yes I realize this sounds like a fairytale or sales pitch but its definitely not a sales pitch and it might be a fairytale but I believe it and it has held true for a long time now. No I don't know why he hasn't grown the fund significantly I think he likes it small) This is simply because nobody else is looking in this space or they are too small to do anything for anyone else or too sophisticated for any individuals. If there is anyplace to add value/alpha in the US, the microcap space is it.

A further breakdown on the private investments (and unfortunately an explanation on why it will be difficult to decrease quickly).

Approximately 300k of the 360k total is equity we purchased in a private company called Laundry Locker, based in San Francisco. The only way to access that investment would be a liquidity event for the company - public offering or getting purchased being the two most likely. For now it looks like a winning investment, but of course the risk is very high and anything can happen.

The remaining 60k is loans to friends and family. The paper is quite reliable in my opinion, and actually there is a high chance 50k of it gets repaid within the next 12 months.

The Roth portion of the hedge fund I think I will keep hopefully for a very long time. The taxable portion it would be great to withdraw 75k per year to re-allocate and still watch it grow. We shall see.
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