Walked out on my 45th birthday

[EarlyRetirement2008]

45, I commend you on your concern for the values that maybe passed on to your children! Only an EXCEPTIONAL Father would have such noble hopes for his children.

Although, I do not have children (yet), I was struck by the brilliant way that John and Cettie Rockefeller dealt with this issue with their children. The oil baron taught his children a mantra, "with opportunity comes responsibility". Over 100 years later, David Rockefeller, his grandson, emphasizes the saying in his recent book.

One of the main tools John used to teach his children about money was the budget. He and his wife instilled discipline by letting each child make a budget of what they spent during the month. He would also encourage them to find ways to save money in their budget. It was a simple exercise, but as the children grew you see how it played a MAJOR role in giving them a respect for the value of money.

The book is TITAN by Ron Chernow. It may inspire some ideas.

[45th Birthday]

Sorry I didn't post sooner, but I was away.

Before I list the portfolio, I'll tell you my strategy. I do most of this myself, with the help of a traditional full-service broker who is paid low, negotiated commission rates (not as low as discount brokerage companies would charge, but I trust him and he is good). I try to keep things simple.

Given the length of time I expect to need to rely on these funds, I did not invest it all in the market when I received the bulk of it. I was too concerned about the risk of a 20%+ decline right off the bat followed by a prolonged flat period, forcing me to draw down depreciated assets.

I have written a fair amount of put options at levels where I wanted to buy. Some have gotten filled, and others expired. But the portfolio started to get bought in and I earned the option premiums. I also put in buy orders below (sometimes well below) the market. On some of the really bad days in the market, these got filled.

Overall, I have stayed away from individual stocks and buy larger, established ETF's. The ability to do market orders and write options as well as the tax efficiency are appealing. I'm not big on commodities (I feel I missed the best part of the runup, we might be in bubble territory, and there aren't many easy, tax-efficient ways to own them. I also don't own REIT's (already have enough RE exposure) or other stuff. I have plenty of exposure to energy, financials, tech, etc., but not huge amounts of small cap and mid cap right now because I think the market isn't going to be kind to these companies for awhile. I have some foreign, but not much developing countries right now because I think in the next few years there will be an opportunity to buy these at better levels.

I started off keeping all the uninvested cash in a very safe, high-yielding money-market-type account and then shifted all of this to muni bonds when short rates started falling and munis became so attractive.

Eventually, I plan to be 80-90% exposed to equities, with that level coming down, but perhaps 20 years from now.

One of the reasons I keep the mortgages is to have the ability to go "all in" if there is a major, relatively sudden, significant move down in the market. These opportunities don't happen often, but they almost always result in very attractive returns.

So it breaks down as follows:

50% ETF's: Large holdings of EFA, RSP, VTI, IVW
35% Munis: Mostly Vanguard High Yield
15% Misc: Includes Fidelity IRA's from working days (mostly Leveraged Company Stock Fund), a previous employer's stock (low tax basis), a 529 plan, and some other stuff from before I was FIRE'd.

As far as the comfort factor, I spent a long time before I decided to sell the company figuring out what amount of money I would need to support my spending for a prolonged period. I didn't know about FIRECALC, but I relied heavily on Fidelity's retirement planning tools, which include an excellent Monte Carlo simulation of future returns, and a little as a check on something called ESPlanner, which is robust but not very user-friendly.

[lbymfire]

Thx 45th. Our approaches are quite similar. Excluding real estate, my mix is roughly 50/50 equities/fi and I also plan to work my way towards 80%+ equities over time. The calculators all say I'm safe but 50-60 years of retirement (assuming we live that long) is a bit scary. That said, we have decided to move ahead with ER. Unless something changes, we will be joining you in roughly one year. Thx again

[CaseInPoint]

Originally Posted by 45th Birthday

We have discussed it with them, and they say they know our situation is unusual, but I'm not sure they are really old enough to truly understand. My fear is that this might have a negative impact on them as they become adults.

Hi 45th,

You might avoid the problem by setting up a small office outside your home. You can head there to take care of your investments, pay home bills, read some news, etc. Set your hours as you please.

That way, the kids see their father going to an office, and your professional "identity" is solidified as an investor.

[Milton]

Originally Posted by EarlyRetirement2008

Although, I do not have children (yet), I was struck by the brilliant way that John and Cettie Rockefeller dealt with this issue with their children. The oil baron taught his children a mantra, "with opportunity comes responsibility".

Cf. Children of Famous Parents: Capitalist John D. Rockefeller

[Oldbabe]

Originally Posted by socca

A nice idea, but perhaps a touch idealistic. I have yet to meet a wealthy person who hasn't erected all sorts of barriers (both physical and mental) to contact with the 'lower classes'. Many wealthy folks do, however, leave large sums of money to charitable organizations they hope will make a positive impact on the world (especially if their children don't appear destined for such a role).

Not unrealistic at all. While not super wealthy, my ex and I sent our kids to do volunteer work in the summer which they really enjoyed a lot.
I highly recommend Landmark Volunteers. Volunteer work for teens - Landmark Volunteers.

Also, study abroad in third world countries is realistic for well to do kids, and it has a major impact on their outlook on life.

[LOL!]

Originally Posted by retire@40

... even factoring in your income taxes which are probably in the $100K to $200K range.

I'm late to this thread, but want to state that one could have virtually no income taxes on $350K of annual unearned income. We saw a hint of this already with the mention of tax-exempt bond funds. Not only is "return of capital" tax-free, but long-term capital gains are taxed at only 15%. If taxable income is low enough, then our OP would even qualify for the child tax credit.

Example: Sell ETFs for $350K that have a cost basis of $300K and you pay no taxes.

Back on topic .... Thanks for starting this thread. We live in a relatively wealthy area. We make no pretense that we are not rich, however we are below average among our children's peers. Despite being multimillionaires ourselves, the parents of our daughter's friend were asking her how we could afford to pay for college for her. I guess it is all relative.

[kcowan]

Originally Posted by LOL!

Despite being multimillionaires ourselves, the parents of our daughter's friend were asking her how we could afford to pay for college for her. I guess it is all relative.

LBYM works at every level of income. The ones that don't marvel at the ones that do....

[CaseInPoint]

Originally Posted by LOL!

Despite being multimillionaires ourselves, the parents of our daughter's friend were asking her how we could afford to pay for college for her. I guess it is all relative.

Well, it depends on how "multi" the "multi" is...

These days, I wouldn't consider people with a few mil to be really wealthy. More like middle class millionaires, maybe.

[LOL!]

These days, I wouldn't consider people with a few mil to be really wealthy. More like middle class millionaires, maybe.

I'll grant you that since your tagline says you are from Los Angeles. But I also want to point out that college is really not that expensive either.

[Milton]

A relevant article from last Saturday's Financial Times: FT.com / Wealth - The wealth generation game.

[CaseInPoint]

Originally Posted by LOL!

I'll grant you that since your tagline says you are from Los Angeles. But I also want to point out that college is really not that expensive either.

Heh!

Originally Posted by Milton

A relevant article from last Saturday's Financial Times: FT.com / Wealth - The wealth generation game.

Milton, I wasn't able to access that page without a password, although I could see the first paragraph or two. I could see that it discussed children growing up knowing that they will eventually inherit a lot of wealth from their parents.

If there's anything you think is particularly noteworthy, you might want to copy and paste it here.