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My head is coming out of the sand, want to help me get oriented?
Old 10-14-2008, 11:21 AM   #1
Confused about dryer sheets
 
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My head is coming out of the sand, want to help me get oriented?

Hi all,

I ran across this forum a few days ago and have been doing a lot of reading ever since. Sadly, many of my suspicions have been confirmed and I think I need some advice.

Here's the rundown on my current situation. I'm 29 and dead set on retiring in 12 years. This plan has been in motion for three years with the 'help' of a FA who I've come to realize is an insurance salesman in a pin stripe suit. More on that later. I'm married, we plan to remain childless, we will continue to drive crappy cars, and we are debt free...aside from the mortgage. This year our joint income finally crossed into 6 figures...$111,000 before taxes joint.

We're currently setting aside 30% of that income toward retirement. Another 3.5% goes toward fixing up our house (we do all the work ourselves).

Okay, 'the plan'. When we got set up with our FA, I knew even less than I know now, which is still embarrassingly little. We bought off and didn't think much about it. Our mindset was, "well, he's a professional..." After the recent 25% bath, our total portfolio is sitting at about $230k, give or take. It's roughly allocated in 1/3 mutual funds, 1/3 annuity, and the remainder split fairly evenly between IRAs, roth IRAs, 401ks, and one VUL. In past years, this was all yielding 8-18%, so I wasn't in a position to complain.

As I read through this site, I notice two seemingly large problem areas; the annuity and the VUL. Going forward, I'd like to consider managing this myself with the possibility of some pay-as-you-go advice from a non-salesman FA. I don't want to be involved with it on a daily basis or lose sleep over it, which was part of the logic in hiring a FA. I finally pulled my head out of my ass and realized that in EVERY other aspect of my life, if I want it done right, I do it myself. My house, my car, my work...why not my finances? Since they're at the heart of my biggest goal in life, maybe I should start putting in some effort. Genius, right?

A few major questions. First, what are the thoughts on the best way to proceed forward? Index funds? Stocks? Mayonnaise jars of cash buried in the yard?

Second, what are my options for reallocating what I already have, specifically the VUL and the annuity? Will penalties kill me or is it worth it in the end?

Sorry for the long post, but thanks in advance for any advice.

edit: I am confused about dryer sheets.:confused:
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Old 10-14-2008, 02:54 PM   #2
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Quote:
Originally Posted by Lucky 7 View Post
... A few major questions. First, what are the thoughts on the best way to proceed forward? Index funds? Stocks? Mayonnaise jars of cash buried in the yard?...
First thing is to educate yourself a bit more before doing anything. I highly recommend the book "The Bogleheads Guide to Investing", which covers all of the basics you need to know to take matters into your own hands. You'll get lots of great advice here, but you really should understand why people are making the recommendations that you might get.

And don't be too hard on yourself - it's great that you realized this at age 29. I finally woke up at age 47 and realized the mistakes I made by depending on a financial advisor. Like you said, I figured a professional could certainly do better than I could myself - now I know better.

Read that book, read this forum more, and also the forum at Bogleheads Investing Advice and Info if you haven't already found that one.

And good luck with your plans - you're starting young enough so you should do well.
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Old 10-14-2008, 03:05 PM   #3
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if you are 29 now, i doubt you will retire in 12 years with the current market climate
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Old 10-14-2008, 03:49 PM   #4
Confused about dryer sheets
 
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Nice. That's helpful. Care to develop that anemic thought or are you just another naysayer like the rest?

Joe, thanks for the recommendation. I'll check it out.
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Old 10-14-2008, 04:56 PM   #5
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I was 29 when I watched an old man drop dead while running a lathe at the machine shop where I worked. He was 70 years old. That's pretty much when I decided I didn't want to still be running machines when I was his age.
I spent the next couple of years absorbing as much info as the local library could supply. I believe my first book was "Making the most of your money" by Jane bryant Quinn. There were many others, including Bernstein's "Four Pillars" and Bogles books.
Like Joe suggested in the above post....you can do this stuff yourself. Read and learn as much as possible.
At your age and stage, you should do very well. Most 29 year olds aren't even thinking about retirement.
best of luck to you.
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Old 10-14-2008, 05:30 PM   #6
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12 years is a fairly short time period. I am not sure it will work out. But if you do not try... it definitely will not work out.

IMHO - LBYM, Stash as much as you can in a diversified portfolio of (low cost) Mutual Funds in both stocks and bonds... stick with your plan. Do not take excessive risks to try to force fit to 12 years... you could just wind up losing money.

Consider a 12 year, 15 year, and 20 years time horizons (plan A, B, and C). Do reality checks along the way.
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Old 10-14-2008, 05:45 PM   #7
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You currently have $230k post last week. That is wonderful! You save 30% which is excellent! You have learned to do it yourself and while perhaps not in love with the LBYM virtues you appear to embrace it as a means to an end.

I think with a 12 year time frame and 30% savings rate you just may be able to do it.

Get your education (read & ask questions) and develop your plan. Then execute on it. If you can increase the wage then the savings will follow. Another big item is can you also eliminate housing costs about the time you want to pull the plug? That and health insurance are the 2 biggest cost issues to FIRE in my opinion.

Remember plans can and do change! Take time to enjoy the journey, because you only get to pass this way once.
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Old 10-14-2008, 06:14 PM   #8
Confused about dryer sheets
 
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Originally Posted by chinaco View Post
12 years is a fairly short time period. I am not sure it will work out. But if you do not try... it definitely will not work out.
That's been my approach to this from the beginning. Sure, it may not work, but maybe my wife can retire early and I can follow a few years later. I need goals, and the harder they are, the harder I work at them.

Connie, maybe it was the crappy cars comment that threw you off, but I'm definitely a LBYM kind of guy. I much prefer a modest lifestyle, actually. My dream is to be the millionaire next door with the rusted out subaru.

In the meantime, I'm going into business for myself to increase my takehome and decrease my time commitment. Since our cost of living doesn't change, that'll all be headed straight for savings. Sounds like I need to do some reading.

Thanks for all the helpful advice, I appreciate it.
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Old 10-14-2008, 06:35 PM   #9
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Lucky 7

I have 2 20 somethings living at home. Daughter drives an 8 year old Jetta I bought her while in high school when I was making great money and living out of a suitcase. She is out of college now with a 50+K a year job and trying to keep it alive until her savings account can buy her what she wants. Son is finishing up at ASU and driving an 86 Buick I gave him a few years ago. Yes, on occasion they get some teasing about the cars but both smile and say to peers that it is paid for.

The LBYM is a tough nut for people of all ages to embrace. It sounds as though you have which is the biggest part of the savings and Financial Independence game we play to meet our goals. You truly are off to a great start. Keep repeating the simple cost efficient ways and you will meet your goals with just a little market help!
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Old 10-14-2008, 06:47 PM   #10
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If the market ever recovers and I get most of mine back, I'm going with the mayonnaise jars of cash buried in the yard approach. Well maybe not that conservative, but probably 80% cd's and 20% dividend stocks. I know you didn't ask what an old fart should do, but you get the idea of how I look at the market.

But I have no idea what the markets will do over the next 12 years. If I were you, I would go with a balanced approach. Probably no more than a 60/40 blend. Most will say that is too conservative for someone your age, but I just don't have much confidence going forward.
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Old 10-14-2008, 07:16 PM   #11
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Welcome to the board, Lucky.
Quote:
Originally Posted by Lucky 7 View Post
Second, what are my options for reallocating what I already have, specifically the VUL and the annuity? Will penalties kill me or is it worth it in the end?
You'll have to read the pages of fine print to figure that one out. Frequently the penalties decline with time, other times the expenses would chew up more money during the time you're waiting for the penalties to disappear.

But I wouldn't mess with either asset until you've done the reading. The Bogleheads Guide is particularly good for its perspective on these types of investments.

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edit: I am confused about dryer sheets.:confused:
(FAQ archive) The board's first mention of dryer sheets
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Old 10-14-2008, 07:25 PM   #12
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Nice. That's helpful. Care to develop that anemic thought or are you just another naysayer like the rest?

Joe, thanks for the recommendation. I'll check it out.
take a look at the historic data for any market index. for the Dow you can get data going back to the 1890's at www.dowjones.com. there have been regular bull/bear cycles each lasting approximately 14-22 years. The Great Depression bear was 22 years and the 1970's bear was 14 years. They are called secular bear markets. We have been in one since 2000 and we are either 1/2 the way through it or 1/3.

the Great Depression had 3 bear markets, 1929 - 1933, 1937 - 1942 and a quick post WW2 bear.

the 1970's had 3-5 depending on how you count them, 1966-1967, 1968-1971, 1973-1974, 1976-1978, 1979-1982.

so far we're on the second or third bear market depending on how you count. 1997-1998, 2000-2002 and 2007 - whenever.

for the first 2 bears i used the Dow Jones data. for the current bear all the indexes are in bear mode. no one knows when the current secular bear will end. the bottom could have been in 2002 or it could come next year and the next two bears will be speed bumps on the way up.

my personal opinion is that we'll see the bottom sometime next year and it will be Dow 4000 - 6000, SP500 400 - 800 and around 900 on the Nasdaq. Wall Street still has a lot of leverage they need to work off, but i wouldn't use this as something to invest on. it's also entirely possible we can end up like Japan. The Nikkei hit 40,000 back in 1989 and it's still under 10,000.
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Old 10-14-2008, 07:29 PM   #13
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for the first 2 bears i used the Dow Jones data. for the current bear all the indexes are in bear mode. no one knows when the current secular bear will end. the bottom could have been in 2002 or it could come next year and the next two bears will be speed bumps on the way up.
The thing is, for an accumulator, that might cinch a 12 year horizon. Flat until 2018, money pouring into investments, and then a nice appreciation right into retirement.

I've been looking around, I could have sworn that there's another population boom coming of age now that will start accumulating and investing around 2018. All signs point to a nice bear then.
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Old 10-14-2008, 07:39 PM   #14
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I'm not a fan of universal life, whole life, or variable universal life. It seems to make sense, to me, as an investment vehicle if you're out of other places to squirrel money or see it as a valuable part of estate planning.

My wife and I sat down and figured out what the shortfall would be if she died today or if I died today. We looked at our savings horizon and factored in the life insurance from our employers. We picked up an $850k and $250k 20 year term policy. I'm not in the top rate structure (high triglycerides) so I pay a little more than an otherwise healthy male would. We pay a combined $900 a year. The idea is that, in 20 years, our portfolio will more than cover a shortfall if one of us should die prematurely so we can take life insurance out of the equation at that point.
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Old 10-14-2008, 07:45 PM   #15
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that's what Harry Dent said, around 2019-2022 we'll get out of this bear. he's been right on a lot of things and wrong about 20% of the time. i read his book and supposedly we share a lot of similar demographics with Japan circa 1989. what really will decide how long the bear lasts will be The Masters of the Universe in Washington D.C.
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