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This is when diversification and LBYM really pays off
Old 09-16-2008, 09:02 AM   #1
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This is when diversification and LBYM really pays off

So we're in market melt down. This is when LBYM is the only anchor we have to hold onto. Being frugal is a great way to save a few dollars and makes me feel less freaked about my shrinking mutual funds.

When the DOW went below 12500 I reallocated from 80/20 to 60/40 and sat on it in the 11000s. I don't really like to attempt market timing so I'm done nothing since, as I have 15 years until retirement. Still those statements don't make good reading, but it's nice to save a bit of money by driving 55 mph and I'll have the heating set at 60F this winter. Also my mortgage statement makes good reading as I'm 8 years into a 4.5%, 15 year fixed on a 2 family that generates rental income.

So this episode will be painful, but I'm reasonably diversified, I'm not leveraged or spending more than I earn, my one loan is at a low interest rate and I have a regular rental income......If I can do it why can't Lehman or AIG??
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Old 09-16-2008, 09:14 AM   #2
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If I can do it why can't Lehman or AIG??
Well, maybe because you are a "private company". The financial decisions (and their outcome) affect you, alone.

With a public company, you have those pesky stockholders, who want you to maximize their investment return (and as investors, we expect that). Sometimes that leads to taking "managed risks" (OK - so it's an educated guess) to get the best "bang for the buck".

I'm with you. My (and my DW's) lifestyle allowed us to take retirement prior to normal SS age, and allows us (being completly debt free, and having a healthy "cash bucket" for current expenses) to ignore the current market "flux". Additionally, our home is paid for, and we expect to live here for many years. What the current "perceived value" is of our home is of little concern to us. It will be sold as part of our estate. It is not considered part of our retirement income (either through sale, or reverse mortgage). We have no outstanding loans, nor any CC debt (yes, we use CC's, but pay them every month).

I comes down to that an indivudial has more control over their "financial management" than a public company has.

Anyway, that's my thoughs on the subject.

- Ron
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Old 09-16-2008, 09:24 AM   #3
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in lbym you regulate your greed by looking more at yourself than at others, so you have more mirrors. as an aforementioned private company, you have to look out for your own money which means you have more transparency, so you have less smoke.

as finance is nothing more than smoke and mirrors, it is safer to have more mirrors and less smoke.
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Old 09-16-2008, 09:37 AM   #4
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.... taking "managed risks" (OK - so it's an educated guess) to get the best "bang for the buck".

- Ron
I think the issue was lack of risk management. There must have been a lot of actuaries asleep at their differential and integral equations
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Old 09-16-2008, 09:56 AM   #5
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When you LBYM and invest and the market tanks...

You will be better off only if the market recovers (in your lifetime/timeframe). So there is some faith there. If everything goes to pot and stays there you are just as screwed as everyone else. In fact you could make the case that you should consume now rather than at some later date when your assets are worth less.
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Old 09-16-2008, 11:05 AM   #6
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Some feel that they are holding onto an anchor, while others feel that their ships are well-anchored by attachment to the far end of the anchor chain. Visualizing both gives me a smile while the market gyrates.
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Old 09-16-2008, 05:52 PM   #7
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in lbym you regulate your greed by looking more at yourself than at others, so you have more mirrors. as an aforementioned private company, you have to look out for your own money which means you have more transparency, so you have less smoke.

as finance is nothing more than smoke and mirrors, it is safer to have more mirrors and less smoke.
So true. That's why I'm not married.
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Old 09-17-2008, 06:27 AM   #8
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It's like that saying about the two ways to become rich: "Make more, or desire less". The first route for people already in ER is not so open, so we'll be tested as to our capacity for the second.
Actually, in our (me/DW's) case, it was "Make more, and desire less".

During our first ten years of marriage, we were in a "survival mode". Luckily, when I finally landed a "decent" j*b, we made the conscious decision to prepare for the future without even knowing that we were in a "LYBM mode".

IMHO, when your expectations are high "out of the chute", you expect to live, and do so at a higher standard. Nothing wrong with that as long as your educational, family support, and job prospects are strong early in your wor*ing life.

However, I doubt if "young folks" would want to live in the conditions we lived in those first ten years of marriage and resulted in our financial independence (not rich) many years later.

- Ron
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Old 09-17-2008, 06:50 AM   #9
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During our first ten years of marriage, we were in a "survival mode". Luckily, when I finally landed a "decent" j*b, we made the conscious decision to prepare for the future without even knowing that we were in a "LYBM mode".

IMHO, when your expectations are high "out of the chute", you expect to live, and do so at a higher standard. Nothing wrong with that as long as your educational, family support, and job prospects are strong early in your wor*ing life.

However, I doubt if "young folks" would want to live in the conditions we lived in those first ten years of marriage and resulted in our financial independence (not rich) many years later.

- Ron
DH & I are very similar - both of us grew up in families where money (when there was any) was really tight. I was on my own at 19, and squeezed all I could out of a dollar, but still saved a little out of each paycheck for "someday", just like Grandma taught. When we got married, we had decent jobs, and I got a promotion and we had more money than we were used to - a LOT more. We had discussions like, what are we supposed to do with all of this money?? We didn't know how to spend it. So we put it into a money market account, which (happily) in the early 80's got us upwards of 16% interest. By the time we were in our late 20's, we had enough to put 25% down on a house. We have never understood the "spend it all" lifestyle. LBYM is who we are. I'd be too nervous living on the edge and in debt.

CJ
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Old 09-17-2008, 07:28 AM   #10
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OK, back on track...

to me, LBYM is all about setting goals and making your finances work toward these goals without incurring debt you cannot possibly afford. we each have our own parameters of "success", either material (fancy car or boat or vacation home) or situational (size of retirement fund, college for kids, FIRE date, mortgage paid off).

at least that's what i've read and been told in all my financial planning exercises. how we get there is as unique as the goal.

in my case, when i was 45, i set a goal to have a Mustang (convertible with 5 spd transmission) by age 50. i saved up and actually achieved it at age 48. i drove my old faithful 92 Honda for 13 years vs buying a newer car, and bankrolled the Stang fund. Honda still runs and is my winter rat.

FB
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Old 09-17-2008, 07:55 AM   #11
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I'm valiantly trying to steer the car thing to new thread "Mustang & Sports Car Lovers" in Other Topics.



see ya there!
FB
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Old 09-17-2008, 08:04 AM   #12
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I'm valiantly trying to steer the car thing to new thread "Mustang & Sports Car Lovers" in Other Topics.



see ya there!
FB
Maybe have the moderator move all messages (starting with the one about you wondering about my avitar ) over to that thread?

- Ron
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Old 09-17-2008, 08:43 AM   #13
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Maybe have the moderator move all messages (starting with the one about you wondering about my avitar ) over to that thread?

- Ron
great idea but outside my range of knowledge. can you help?

FB
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Old 09-17-2008, 10:15 AM   #14
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Maybe have the moderator move all messages (starting with the one about you wondering about my avitar ) over to that thread?

- Ron
OK, done.... Good idea to make a new thread, and thanks!
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Old 09-18-2008, 07:25 AM   #15
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LBYM...
it's been 1 yr 5 mos since I FIREd. a few snags taught me some great lessons about cash flow and emergency fund usage. i came out OK, but boy was it painful.
one pothole was unexpected income taxes for the tax year i FIREd. I worked 1 quarter in 2007, and foolishly thought the fed tax already taken out of my paycheck was gonna be sufficient. HA! my filing status is single, no dependents. there was no lump sum involved at my exit. i converted my TSP to a fixed annuity. my survivor's pension was a known amount with fed taxes being taken out.
but my portfolio had some great cap gains and dividends paid year end 2007, so that put me in the lobster pot.

so LBYM took on a whole new flavor. it took me 3 months of an austere budget to replace the emergency fund depleted by the tax bill. add inflation in 2008 and it got pretty sticky.

a tough lesson learned!

2008 income is more predictable and extra taxes are being taken out of pension and annuity.
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Old 09-18-2008, 08:55 AM   #16
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LBYM got me to ER at 50. Diversification helps me sleep at night. And I'm still glad that I went ahead and paid off my mortgage. When we were making $250k, we lived on $125K. Now with the kids out of school and the house paid off we are living on closer to 85K with no change in our standard of living. I guess we are not LBYM any longer but we could cut back if we wanted to. We have several years of cash and as long as the dividends keep rolling in we wont have to sell any stocks soon.
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