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Old 08-13-2008, 11:51 AM   #21
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To add to what others have said... pay as little as possible to the 0% car payment (why pay extra when the money is being borrowed at 0%?) and put as much as your understanding of the risk allows into the 12% investment. 12% will be an incredible return/reward if it continues to pay at that amount, and, as you mentioned, your AA at your age should be able to tolerate more risk... judging that risk is the hard part.

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Old 08-13-2008, 11:54 AM   #22
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Nd make sure that you have disability insurance. Life insurance is probably unnecessary for you, but disability insurance is an absolute must. Go buy a policy on the open market if you don't have a policy through your employer.

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Old 08-13-2008, 01:44 PM   #23
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Thanks for the advice guys.

The car payment is a non-negotiable, private deal. It's basically working as an interest-free annuity for someone who had cash sitting around their house and didn't want to put it in a public place. Nothing illegal, mind you, more like one spouse hiding it from another as an emergency fund. I got the interest free car loan for the last 20 months and I get to suck up paying $1k a month that I could otherwise invest. Considering my loan, with an 820 beacon, was at nearly 7% APR due to what I purchased (it was a one-time thing for me, I'll never buy new again, much less luxury, not that I regret it or anything), I considered it a no-brain bargain at the time to save $5k in finance charges.

or are you willing to try to shoot the moon now in the hopes that you make enough to greatly improve your financial situation in the long term?

That's what I am, that's what I mentioned in a previous post. Thing is, I'm willing to risk what I've done so far, and more over the next few years, but I don't know if I have the cojones to sell off my car, pull out my 401k and all that other stuff to dump the money into this thing. I think that's where my conservative part steps in. So yeah, I'm willing to take a risk, but I don't think I'm willing to mortgage away everything I have for it.

It's odd though that you guys put it that way. I feel extremely confident in the security of the investment but I guess by not wanting to go crazy with it I acknowledge the inherent risk involved.
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Old 08-13-2008, 04:04 PM   #24
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Originally Posted by MiamiDave View Post
I appreciate the advice and the caution urged on both your parts, although I find the sarcasm unsolicited, and frankly, a bit offensive. It seems a bit out of character based on my observations of your other postings and I'm not sure where it comes from. It's a bit disappointing.
I believe in this case the scenario I'm describing is one of those, "you'd have to be there" type deals. I have to re-iterate: I am not naieve. I'm well aware of the risks inherent in deals which are too good to be true. By no means can I ever call my investment 0 risk, but it's not nearly as fragile as people would like to think it. Yes, we can point out numerous examples of companies which offered investors amazing returns that folded without notice.
I don't plan to put all my eggs in this basket long-term. Right now it comprises more than half of my current assets (yes I realize a vehicle is not normally an asset, however I've considered liquidating the vehicle and downsizing should I look into purchasing property in the next 12 months).
Thanks again for the advice, and no hard feelings. I enjoy reading your posts, I just think your approach was a bit unfair.
I think 14,000+ posts gives you plenty of room to draw any conclusions you want, as many others have done before. And if you can't tolerate a little criticism harsh sunlight on your faith in that investment then perhaps you're going to have to think about your objectivity. What were you expecting a bunch of Internet strangers to do-- roll over and cheer for your winning the genetic lottery? But anyway, now that I have your attention...

We have a lot of posters who jump into a discussion of their investments without adequately assessing their tolerance for risk (usually volatility risk but in your case an extremely healthy dose of single-"stock"/investment risk) and without deciding on an asset allocation. You haven't decided what you're going to depend on for your ER and you haven't decided how you're going to get there-- other than making big bets on an investment that, as far as we can tell from the details provided, is extremely speculative. Your ER portfolio lacks an AA plan and by gosh it certainly lacks diversification. You've had no trouble projecting your ER plans at returns of +12% APY. What happens to your ER plans if the returns fall to +1%? What about -100%? Are you willing to live with those consequences, or are you going to continue to explain to a pack of battle-scarred skeptics why that couldn't possibly happen because this time it's really really different?

I speak with some experience. Spouse and I recently let Berkshire Hathaway grow to 36% of our ER portfolio and over half of our kid's college portfolio. It had been that way for three or four years. Finally one of the board's other long-term posters grabbed me by the ears and said "Are you nuts? Do you have enough money yet, and are you willing to risk the loss?" At that point I realized that we might be just a tad overweighted and we spent most of February cutting back. The college fund is now in short-term CDs and our Berkshire allocation is back down to 23%. I owe that guy a set of plane tickets to Hawaii and free surfing lessons huge debt of gratitude for refocusing my attention.

I've spent the last year learning about angel investing. I've seen dozens of presentations that were screened from hundreds of candidates, and most of the surviving pitches still made the audience want to run away fast. The one or two worth additional research turned out to have significant failure issues. Nationally, one out of every three startups goes bankrupt even after all the smart guys have done their due diligence and put their faith in management. That's why the smart guys diversify among 10 or 15 different companies-- so that they're not wiped out by events beyond the control of management, no matter how trustworthy. You might want to suspend the "Yeah, buts" for a while, set aside your family faith for a few weeks, and do the due diligence. Ask yourself if a steely-eyed angel investor or VC would want to put $100K-$5M in your family's investment plan. And even if you do have the next Berkshire Hathaway, anything over a 15% asset allocation is asking for heartache.

If you've really been paying attention to the board's posters then you'd learn from our mistakes. There are several financial advisors here whose clients start out by saying "Holy $%&^, I have 90% of my net worth in the company stock, help!!" The advisors suggest diversifying and then they have to listen to hours of carefully worded explanations on why that just won't do. Usually in that situation the diversification issue inevitably resolves itself...

At least two other ERs on this board continued to rebalance/diversify their ER portfolios as their company stock (or options or other investments) screamed up in value. They lost millions by selling early. They were widely recognized as pathetic loser idiots-- until those stocks lost up to 80% of their value and wiped out the other paper millionaires. Today those early sellers are rich ER'd pathetic loser idiots.

Some of the ERs on this board, me among them, have been investors for longer than you've been alive. You could learn a lot from them if you suspend the rebuttals and work through the thought process. You went to the trouble of posting it, you had your attention called to some issues, and it's up to you to decide whether you're wasting your time or not. The quality of your assessment is not going to affect our lifestyles one way or the other.

Originally Posted by MiamiDave View Post
Anyhow, now that I've gotten that out of the way - at the 28% tax bracket would I find larger 401k contributions to be more beneficial than a Roth IRA? I'd have to calculate just how much to invest into the 401k to drop down to the 25% bracket, but I think it'd be a pretty considerable amount.
Conventional wisdom is that a 401(k) is worth investing up to the company match, and then only further if the funds have low expenses. After the match you'd max out the IRAs (Roth or conventional, whatever you qualify for). After that, a low-cost 401(k) might be worth additional pre-tax money... or as you've pointed out, savings might be better off in a low-cost index fund.

As for the car loan... eh... we buy 'em used with cash and drive 'em into the ground. Seems to be a lot less hassle. It's hard to grab hold of "positive equity" from a depreciating hunk of metal & plastic.

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Old 08-13-2008, 04:37 PM   #25
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I'll look at opening a Roth IRA then and contribute the max. If I put $5k into the Roth by the end of 2008, and continue contributing the max to my 401k, my 12% investment will still be approximately 60% of my overall portfolio come January (liquid/taxable/non-taxable/private investment). That's at least better than the 75% slice it currently entails.

I'm willing to tolerate a fairly high share of risk at this point, with the means in which me and my SO live, and with the high level of stability the health field ensures (RN, already beginning her masters as well), I've done some very conservative calculations and I'm pretty confident we would be able to overcome a potential disaster involving the investment if it occured in the next 6-8 years even if I'm making half of what I currently am. As it stands right now, I'll concede the advice that I should diversify a bit further and try to at least drop the share on that investment to 40-50% as I'm able to over the next 6 months or so.

I should also probably start looking into a good savings account to keep my liquid assets in, and just transfer funds into my checking account as necessary? I currently use the Visa Chase Freedom CC (1%-3% cash back) for everything except my rent anyhow so it shouldn't be difficult to manage.
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Old 08-19-2008, 03:02 PM   #26
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Again, you're doing just fine for your age. You don't need to apologize for having a good investment opportunity yielding 11%. There are plenty of corporate and private finance deals that yield as much or more, and if you've found such an opportunity, good for you. Don't give the naysayers too much thought. There's no problem with having a slightly riskier component. Just diversify and you'll be fine. brewer12345 has it right -- at your age, you've got plenty of time to fine-tune your portfolio before reaching ER.

I find the sarcasm unsolicited, and frankly, a bit offensive.
Well said, MiamiDave. New members like you are the lifeline of any forum, and there are people here who need to remind themselves of that fact. Having a high post count isn't a license to be offensive.
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Old 08-19-2008, 04:38 PM   #27
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Agree with what he said.
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Old 08-19-2008, 06:14 PM   #28
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Originally Posted by CaseInPoint View Post
Having a high post count isn't a license to be offensive.
Looks to me like MiamiDave got a lot of detailed and specific feedback and no obvious offensiveness.

But what should one expect when half of all written communications is taken the wrong way?

So in your opinion, a favorable community contribution is making claims not based on available evidence just to stir the pot?
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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Old 08-19-2008, 07:55 PM   #29
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Originally Posted by CaseInPoint View Post
Having a high post count isn't a license to be offensive.
Damn, and I was hoping when I got to 2000 that I'd get a pass....rats!
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Old 08-20-2008, 08:29 AM   #30
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I find nothing offensive regarding Nord’s advice, in fact, it is a sound advice and I believe Dave will benefit from it. Do let us know if that 12% invest does go belly up or not so we can all learn.

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