Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Taking the long view.
Old 05-06-2007, 05:05 PM   #1
Recycles dryer sheets
 
Join Date: Apr 2007
Posts: 113
Taking the long view.

A few months ago, I was browsing the web for information on how to handle early retirement. I eventually found my way here, and have been perusing ever since. This place is an amazing support group to counterbalance the subliminal (and sometimes overt) consumption pressures that society, coworkers, and even family provide.

I haven't quite hit 30 and recently (a bit over a year ago) divested myself of the "graduate student" moniker. Those extra three (well, five total, I guess) letters from a good university after the BS certainly make a difference in both job prospects and income level.

In the past year I have been able to pay off somewhat over half of the debt I accrued as a student (I paid my way through an expensive undergrad with a combination of scholarships, work, and student loans. Grad school was fortunately paid for). This removes all high-interest debt, albeit I will retain a moderate balance of low interest rate debt. Even though I cannot take student loan tax deductions, it behooves me to invest in equities (it's even low enough to more than break even with present CD rates, including the tax burden). I have no debt other than these student loans.

As of this year, I am beginning to invest a decent sum of money in after-tax accounts. The 401k is maxed for tax purposes and I also receive a minimal company match. I am not eligible for tax-deductable or ROTH IRA accounts, and I don't see the benefits of an after-tax IRA due to my present and expected future lifestyle and expenditures.

I live in a high income-tax state, am in a high tax bracket, and have no significant deductions. I will pay double in taxes what I spend this year; rent and student loan repayment constitute over 60% of those expenditures.

The local real estate market is, in my opinion, hyper-inflated and does not represent true affordability. Rent for an equivalent property is less than 40% of purchase price/taxes/etc. assuming tax deductions. I don't see affordable housing to be a reasonable scenario within the next several years (it would take >50% decrease, in my opinion).

Right now I'm trying to figure out monetary allocation into the best long-term investment vehicles. Unless I want to be an active trader, I need to determine the best mix of non-correlated index funds (with so much readily available information anymore, I'm wondering how long any market will be non-correlated). Being that I have a background in math, have audited some theoretical economics courses, and don't feel like spending 90% of my non-working hours doing company research, that knocks out the active trader aspect.

Barring any major unexpected circumstances, I anticipate being FI in around 10 years assuming my market allocation returns >4% per year after inflation. Retirement should come soon after that; I have too many hobbies and nowhere near enough time in which to do them, now.

Anyway, I can't exactly discuss these plans with colleagues, some of the family wouldn't quite understand (and no reason to create any type of rift), and friends simply don't have the same perspective. Image seems to be of more import than financial independence; friends that make a fraction of what I do have brand new cars, the newest HD TV, and think shopping is a hobby.

So all in all, I guess what I'm looking for is early-retirement anonymous - a place to remember to live below my means and not feel like a complete societal outcast.

Now if I could only find that cute someone who felt the same way
__________________

__________________
cho oyu is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Taking the long view.
Old 05-06-2007, 05:31 PM   #2
Recycles dryer sheets
 
Join Date: Mar 2007
Posts: 211
Re: Taking the long view.

Welcome aboard! And there are more of us young LBYMers floating around than you might think...
__________________

__________________
OKLibrarian is offline   Reply With Quote
Re: Taking the long view.
Old 05-06-2007, 06:19 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,241
Re: Taking the long view.

cho oyu,

1) you have realistic expectations of market performance. Good.
2) You don't think you can be a successful active trader. Good.
3) You appreciate the value of index funds. Good.
4) You find that you march to a different drummer than your colleagues and family. Good.

Great start!

You wonder how markets can remain non-correlated. I do, too.

Still, in my accumulation phase I am 50/50 US/international (mostly index funds) because historically it seems to work better than 100% US. Probably the best non-correlated assets are stocks vs. bonds. Somewhere between 50/50 to 75/25 seems give the best trade-off between volatility and returns, but since stocks give the best long-term returns, I am gambling on 100% equities--until I lose my nerve. Paul Merriman's web site gives some historical data that supports these positions. Others disagree.

I also have added weight to small cap and value in the hope that these really do produce better long term returns than the broad market. Maybe it will and maybe it won't. So far, it has worked pretty well for me, but who knows what the future holds? Maybe The Genius Bill Gross will be right and bonds provide better returns for the next century.

You pays your money and you makes your choice.

Best of luck.
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Re: Taking the long view.
Old 05-06-2007, 08:21 PM   #4
Recycles dryer sheets
 
Join Date: Apr 2007
Posts: 113
Re: Taking the long view.

Quote:
Originally Posted by OKLibrarian
Welcome aboard! And there are more of us young LBYMers floating around than you might think...
Yep. 2 in OK, 3 in CA, 1 in Texas, and another 2 in NJ.

Seriously, I think it's difficult to meet people with similar ambitions (ironic word to use) because this attitude is not generally acceptable. Plus, who in their right mind wants to make it public knowledge that they don't intend to stay in the work-force long term? Not a good thing to get out - the world is a very small place, especially in certain professional circles.
__________________
cho oyu is offline   Reply With Quote
Re: Taking the long view.
Old 05-06-2007, 08:40 PM   #5
Recycles dryer sheets
 
Join Date: Apr 2007
Posts: 113
Re: Taking the long view.

Quote:
Originally Posted by Ed_The_Gypsy
cho oyu,

1) you have realistic expectations of market performance. Good.
2) You don't think you can be a successful active trader. Good.
3) You appreciate the value of index funds. Good.
4) You find that you march to a different drummer than your colleagues and family. Good.

Great start!

You wonder how markets can remain non-correlated. I do, too.

Still, in my accumulation phase I am 50/50 US/international (mostly index funds) because historically it seems to work better than 100% US. Probably the best non-correlated assets are stocks vs. bonds. Somewhere between 50/50 to 75/25 seems give the best trade-off between volatility and returns, but since stocks give the best long-term returns, I am gambling on 100% equities--until I lose my nerve. Paul Merriman's web site gives some historical data that supports these positions. Others disagree.

I also have added weight to small cap and value in the hope that these really do produce better long term returns than the broad market. Maybe it will and maybe it won't. So far, it has worked pretty well for me, but who knows what the future holds? Maybe The Genius Bill Gross will be right and bonds provide better returns for the next century.

You pays your money and you makes your choice.

Best of luck.
I agree quite a bit with your estimations. I don't think bond markets will outperform equities as long as two things continue: 1) world population increases and 2) increased wealth for a larger proportion of that population. As long as countries like India and China increase consumption without a signficant decrease in Western-world population/consumption per capita, I think an appropriate equity mix will outperform bonds.

I'm a bit more hesitant about the best mix of international/US stocks. From my understanding, a 50/50 mix of US and non-emerging foreign doesn't give much different market exposure due to the relative percentage of market-cap for multinational firms. On that note, it still looks like I will be investing more heavily in international at this time than 'experts' recommend.

I also don't know whether direct exposure to value or growth stocks is worth it compared to an overall index. It seems that dividends are being decreased across the board and the two areas are becoming more equivalent. I'll need to check out what percentage of value and growth stocks are double-listed on, say, the Vanguard indices. I suppose that, at least for US based companies, the best allocation will very much depend on future tax treatment. And that is something I have absolutely no means to predict.

For me, it really seems to come down to living inexpensively but not poorly, putting money away, and watching compound interest perform its magic. I just wish I had been able to let my money play in the housing and equities market for the last 5 years

Thanks for the comments. It's nice to see another engineer who made it out of the race early.
__________________
cho oyu is offline   Reply With Quote
Re: Taking the long view.
Old 05-07-2007, 12:47 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,241
Re: Taking the long view.

Quote:
Others disagree.
Like I said.
__________________

__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Reply

« Hello | Hello All »

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Equity Is Altering Spending Habits and View of Debt Craig FIRE and Money 6 02-21-2009 12:25 PM
Long term S&P vs EAFE Delawaredave FIRE and Money 6 11-30-2006 04:56 PM
Live Long? Die Young? Answer Isnít Just in Genes Eagle43 Other topics 6 08-31-2006 11:12 AM
long interest rate Bart523 FIRECalc support 0 08-25-2006 04:07 PM
Taking some money off the table redduck Hi, I am... 14 06-23-2005 10:25 AM

 

 
All times are GMT -6. The time now is 12:42 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2016, vBulletin Solutions, Inc.