My Story / Looking For Advice At 32

[Karloff]

Dear All:

Long time "lurker", first post. Like most of you, I spend most of my waking hours (and some of the rest as well) contemplating, ruminating and, some of my friends would agree here, sometimes perhaps even obsessing over the idea of an "early" retirement, away from the camouflaged slavery of contemporary society and ever-growing blindfolded masses.

As an admirer of the discipline and tactics of most of the folks in this board, I would love to hear your opinions, advice and any comments and/or perspective you might have on my particular situation.

My basics:
- 32
- Married.
- No kids.
- No debt WHATSOVER. Never been in debt, ever.
- House is paid for.
- Cars are paid for.

My background:
- I have always been frugal, a saver, a coupon-lover, aware of the "do I need or do I want this" fundamental differences, always abiding to the "if I can't pay cash for it, I don't buy it" mentality, etc, etc. The everyday rules most of you here follow through.
- I have been saving since I was 20, aware, I suppose, of the "fundamentals" of money, credit cards, the consequences of debt, etc, even though I never made much money.
- I will be making about 38K this year (if all goes well), and made only 33K per year during the last 5 years. My wife makes about 42K per year, working in the Health Business. She started this year.
- I am conservative. No experience with stocks, mutual funds, nor any other investment. As an immigrant from South America, these were things we were not exposed to, and nobody around me had any experience with them, either. All I ever had experience with were savings accounts and CD's. I had to learn most of the basics behind investing on my own. And I am still a novice when it comes to it.
- I keep a low-expense, below-my means lifestyle. Don't care about what most people my age care about. Don't need a fancy this or that. I am happy reading books, watching films and listening to music. All low-expense activities that I could do for the rest of my life. Smoke and mirrors are not for me. I don't have time for the media bombarding and telling me what to look like and what to do with my life. I only use my TV to watch movies and NOTHING else. Freedom is an illusion, and I am simply hoping to retire early in order to have more time for myself and my wife, to do with that time what we please.
- As you can see, we do not make much, but we do SAVE a lot. Sometimes more than 50% of our take-home pay.

Where I Stand:
- I have 56K saved in a Money-Market Savings account that used to have a 3% interest rate and is now basically collecting dust (ie: a 0.55% interest rate). I consider this my "retirement account".
- I also have 15K saved in a regular savings account. I consider this my "Emergency Fund" account.
- I keep around 5K to 7K in my checking account. This covers my monthly expenses, times 3. I consider this my "Everyday account", and if I loose my job, I can still use it for about three months before even touching my savings.
- We spend between 2K and 2.5K a month, TOTAL. This includes $1100 a month for our house. Even though it is paid-for, the condo fees and taxes add up to that monthly amount.
- We save between 2K and 3K per month. If we ever get a raise, that amount will only increase.
- Did I mention no debt?
- Again, we don't have much investing experience. We recently opened a brokerage account, but it only has 1K worth of ONE mutual fund in it. This account has been opened for a little less than a year and it has performed at around 3.2%.


My Goal:
- We would like to retire as early as possible, and that is why we save so much. We won't also need that much, either. The house is valued at $225K or so (a gift from her parents, who bought it a LONG time ago... I know, we are VERY, VERY LUCKY). We could sell it in 2 decades or so, buy something way cheaper with lower taxes and fees, and combine that with whatever other savings we have by then.

My Questions:
- What would you recommend as far a investing options? Where should I go to, what should I look for? I am conservative and don't want to risk much of my hard-saved cash. It REALLY was hard to save the above numbers, specially on a salary like mine. I might have not made a killing so far, never earning returns of 10% or more, but I have never lost money in my life, either.
- Any ideas for an investing portfolio of about 3K to 5K to start with, that would return around 5%? I would be willing to risk only up to 5K, maximum, but I am tired of having almost 60K in one account that's giving me $25 TAXABLE bucks per month.

I welcome ANY feedback. Thank you for reading all the way down here. I appreciate your time and look forward to your comments.

[BigNick]

At your age, even if you are very conservative, you can afford to be in stocks. Put some money in a low-cost index tracker fund and don't look at it for 10 years. You'll be pleasantly surprised when you do.

[seabourne]

Some relevant questions: where (country) are you located?

In the US (what most of us know best): Look into RothIRA accounts - even if you stay cash or bond heavy there, it will remove the taxable issue. Look into a balanced retirement fund (for instance, I use the Vanguard2050 fund) as a means to invest in a reasonably intelligent/balanced way for low cost without having to get highly educated on investing. You can add up to $5k/year for each of you and your wife, and invest conservatively as you like.

Outside of the US, I don't know enough to have particular opinions on anything tax wise, but the balanced retirement fund, add regularly, ignore for a long time would still be my recommendation. Returns will vary, and you may lose some money, though probably not anything like your whole investment.

[Karloff]

Hi Seabourne, and thanks for the reply.

I am in the US. We are looking into IRA's, actually. I am aware of the benefits and differences between a regular one and a Roth IRA, but to be honest I am unsure as to which one would be the way to go in our case. Under normal circumstances, I would go with a ROTH IRA. But we live in a a day and age when nothing is "normal" anymore. The idea of transferring money to an account that I won't be able to touch (without being heavily penalized) before retirement-age concerns me.

A little more personal background: I am originally from Argentina. We lived through military coups, hyper-inflation, a heavily-publicized default back in 2001 and lots of currency devaluations. Simply put: I do not trust anything nor anybody easily. And the US is resembling Argentina more and more. Paranoid is my middle-name, and that is why I keep 99% of my money in a regular savings account. I am trying to "escape" that mentality and "take a risk" with some basic investing, but it is difficult when you have memories of banks confiscating your money, going through 4 presidents in one week, and currencies that never stay the same...

That is why I was thinking a normal IRA might be better in our case. Do I give Uncle Sam around 5K every year, so that he can bail-out the big fishes, or do I put that away in my own account and write it off in my tax form the following year? Then, 30 years from now or so, who knows where we will ALL be? Who knows where we will be in 5 years, at this rate?

What would you recommend, based on my personal situation and "paranoid" mindset, then? Regular or Roth? Thanks in advance.

[Tigger]

Quote:

Originally Posted by Karloff What would you recommend, based on my personal situation and "paranoid" mindset, then?

Harry Browne's Permanent Portfolio isn't popular around here, but hey, you asked for a solution for *paranoids*

It's not perfect, it's not for everybody. It excels at capital preservation during times of total chaos, but lags when the stock market is roaring ahead because it contains only 25% stocks. It performed better than pretty much all other diversified portfolios in 2007-2008, during Japan's deflation and Iceland's meltdown. All that without trying to predict anything or time the market. And it's low maintenance, too.

* Results: (few negative years!) Permanent Portfolio Returns
* Short book about it: Failsafe investing - Life-Long Financial Safety in 60 Minutes
* Recent performance compared to other portfolios: Mad Money Machine
* Forum: Permanent Portfolio Discussion Forum

But if you want to raise a lot of additional money fast, such a portfolio won't do.

[seabourne]

I understand that you haven't taken a lot of time to study investment options, but I think that you need to sit down and read about the two IRA types. Because you make a moderate amount of money, I would probably continue to recommend a RothIRA, especially for your reluctance to trust. In a Roth, you are allowed to withdraw your contributions without penalty (although you have a very limited time to put them back or lose the opportunity to do so). You do not have that option with a standard IRA. That means if you put in $5k each year for 3 years, earn $500, and need cash, you can withdraw $15k without penalty, but can't withdraw the $500 in earnings without triggering the early withdrawal penalty.

Other people here are likely to be better at explanations than I am, but I recommend reading about Roths in particular, and retirement planning in general. There are some good places recommended often here, such as, well, here (look at old threads and saved ones) and Bogleheads, as well as some good basic books such as "Your Money or your Life", "Work Less Live More", and (since you're only 32) I kind of liked "Getting Loaded: Make a million while you are still young enough to enjoy it," which has some good recommendations for younger people, and worth it for some good basic recommendations.

[scrabbler1]

Congrats on your good start toward being FIRE.

When I started dabbling in investments back in 1990 at age 27, I began with muni bond funds. Back then, MM savings account interest rates had dropped from 7% in 1989 to about 2% by 1990. And that small interest income was taxable, unlike that from muni bond funds.

Yes, the value of muni bond funds can rise or fall, but I was investing in it for the income, not the usually small changes in its day-to-day value. And I liked being able to put its income on the "tax-exempt" line of my tax return. You seem to be LBYM so you won't need to tap into it regularly. I did keep some money in my MM savings because it was needed to meet minimum balance requirements to avoid monthly fees from the bank. With MM savings interest rates so ridiculously low these days, you can't really distinguish it from a non-interest-bearing checking account any more LOL!

This is not to say you should avoid the stock market. A few years after dabbling in the muni bond funds with comfort, I began investing in mixed-asset-class and stock mutual funds. Thankfully, this was just as the mid-1990s stock market boom was starting, so I was in for a great ride. I was already investing in the stock market through my 401(k) which had a longer-term horizon than my taxable accounts. [There was no Roth IRA until 1997, BTW.]

[Karloff]

Thank you, Scrabbler, Seabourne, BigNick and Tigger, for the advice and recommendations. They are much appreciated and I am certainly contemplating some of your ideas. Please keep them coming, as I can not stress enough how unexperienced I am when it comes to investing (where I come from, only about 1% of the population has access to such endeavors). I am proud about my saving discipline and strategies, and hope to continue saving around 50% of my salary, but I am definitely aware of the fact that even extreme saving strategies won't get me where I'd like to be in about 20 years or so, specially not with interest rates the way they are now and will continue to be... Again, then, please keep any ideas or recommendations coming, and the more specific you can be when it comes to types of stocks, funds, etc., the better.

On that subject, what is your opinion on ETF's? Like everybody else these days (it seems), I am interested in the GLD ETF.

[REWahoo]

Quote:

Originally Posted by Karloff Like everybody else these days (it seems), I am interested in the GLD ETF.

Investing is an interesting thing. Those who do poorly at it want to buy things when the price goes up (see GLD) and sell things when they go down. Some of the most successful investors do the opposite, specifically buying when there is "blood in the streets". Those of us who don't have the nerve to do that buy index funds...

[ronocnikral]

well, i'm tres envious about having the house paid off. i'll only echo what the others have said.

in case you didn't come by the FAQ section, here is some excellent recommended reading...I check one out from the library about once every week or two. i would start with the boglehead's guide to investing, but that is just me.

[Tigger]

Quote:

Originally Posted by Karloff On that subject, what is your opinion on ETF's? Like everybody else these days (it seems), I am interested in the GLD ETF.

ETF's can be very useful.

But if you want to invest in gold, maybe you should buy physical gold, not GLD. If things go really bad, paper gold will be paper, not gold. Using an ETF adds counterparty risk to one of the few assets that you can own without depending of a counterparty.

Also, a lot of people are increasingly doubting that ETF's like GLD really own enough physical gold. And the Custodians of both GLD (HSBC) and SLV (JPMorgan Chase) are thought to hold the largest short gold and silver positions in the market. Etc.

Guest Post: Got Gold? Why Owning GLD Can Be Hazardous To Your Wealth | zero hedge
Guest Post: GLD And SLV: Disclosure In The Precious Metals Puzzle Palace | zero hedge

EDIT: if you invest in gold, know that it has dropped as a brick in the past and may not recover during your lifetime. Also, gold doesn't produce any income (no interests or dividends), so while you wait for it to recover, your money is unproductive.
So think well if you want gold and only buy it as a part of a coherent strategy.
In the PP neither of these disadvantages of gold are considered a problem because the PP contains other assets that do well when gold doesn't and vice versa. And the PP profits off the gold allocation by rebalancing out of it when it goes up, which means gold contributes to return even if it doesn't produce interests or dividends.
Some people just buy gold and try to time the market, but that's a dangerous game (I'm guilty of it but DO NOT RECOMMEND IT - I know someone who didn't get out in time thirty years when gold was last popular, got burned badly and didn't live to see it recover).

[scrabbler1]

Karloff, the one thing you did not mention is if you and your wife planned to have any kids in the future. If you do, that will increase your expenses for the next 18+ years. If you remain childless/childfree, you will have a much better chance of retiring early.

We have had several threads about kids. Some of them heated, others not. A few of them have been active in the last few weeks in the "Other Topics" forum. But you asked for ideas, albeit more on the investing side. But deciding whether to have kids or not will greatly influence how much you will be able to save and invest in the coming years.

[Karloff]

Amazingly enough, my wife and I had a heated argument last night regarding that very subject: children. Basically, she WANTS, NEEDS, CAN NOT SEE HERSELF WITHOUT one, etc, etc, and I have never been, nor do I think I'll ever be, father material. She's exactly my age (32), so her clock is ticking and her hormones seem to be working harder than her rationale mind, even though she is aware that she just started a job (which we can not afford to loose) and would like to have one single child around 35 or so, after we travel a little bit and visit a couple of places we always dreamed about visiting. And even if my desire to procreate were there, I do not see how we could realistically afford a child on less than 80K (combined) a year. I am aware that numerous families do in fact have more than one child while earning MUCH LESS than that, but I am not willing to sacrifice my mental health, my free time, my savings discipline, my hobbies, etc, in order to pursue something that I do not feel passionate about. I work hard as it is. My wife works hard as well. 14-hour shifts are not uncommon for both of us. Right now I have one full time job + one part-time job. I work too many hours and can feel my stress levels raising every day, and do not necessarily love the idea of being forced to do that for 3 more decades, just because society tells me that is the norm.

When I married my wife, I thought perhaps one day I would be ok with the idea of fatherhood. I can certainly not imagine a better mother, and If we had twice of what we now have in savings, etc, I wouldn't mind having a single child, to make her happy and fulfilled.

I love my wife dearly, and can not see myself without her in the future. But the idea of parenthood, in this society, in this day and age, with these unemployment numbers, and with paradigm shifts seemingly occurring every year, simply PETRIFIES me. I never had health insurance in my life until I married her, for example. And I was blessed with a terrific college education in Argentina that I would NOT be able to afford if I have my own child in this country.

I look at it this way: we are both young, healthy, 100% debt-free, with a paid-for house (beautiful in every way, and located in a great neighborhood, about 3 miles from BOTH our jobs, which saves us time, gas and stress), saving 50% of our take-home pay and living comfortably. In other words, we are living what most logical, rational folks would consider "the perfect life". I do not wish to change that! It would only be more "perfect" if we could retire at 50 or so, when we are still relatively young and healthy, to do MORE of what we love doing. A child would only complicate and delay things...

[seabourne]

I do not wish to pry in anyone's life, nor hold my own up for comparison, but please re-read what you just wrote. You are not about to go bankrupt, you are financially stable, and you have some good base ideas to pursue. My suggestion, and please take no umbrage at it, is to work carefully at preserving and growing things in life that are most important to you, such as your marriage. Investments and money have their importance, but remember to prioritize to what matters most to you.

[REWahoo]

Quote:

Originally Posted by Karloff A child would only complicate and delay things...

Yes, they are very inconvenient.

[Karloff]

Thank you for your kind comments, Seabourne. I do realize my last post might give the impression that I am some sort of selfish and self-centered abomination, but please keep in mind that, like I said, my wife and I just had "that" argument last night. The repercussions are still resonating in my mind, I'm afraid. Yes, it is true that I am in a relatively "solid" financial position, but believe me: it took LOTS of sacrificing. Please remember that I never made more than 33K a year until now. I lived in an 200 square foot efficiency for 4 years when I moved to this country, saving almost 80% of my salary back then and working very long hours (sometimes 18+ hours a day, one time for 3-weeks in a row, almost collapsing afterwards... and with NO overtime pay!). I had a long-term goal/plan (that DID include marriage), and, as of right now, have NO job security (well, who does, really?). I work in the TV Production business, and have no benefits WHATSOEVER. If I do not take care of our own savings and retirement planning, no-one will. Again, if I had 250K or so saved, I would feel different about parenthood... But 80K in savings can be easily depleted between child emergencies, health issues, child expenses, college savings, etc, etc... And once we bring the child into the equation, there is no way we'll be able to save what we save today, and our salaries are simply not going up anytime soon...

And I'd like to think that my "sacrifice" years are behind me, and not in front of me...

[Karloff]

Thank you for your observations regarding gold and ETF's, Tigger.

[seabourne]

Karloff -
I did not mean to imply that you are more secure/financially stable than you are aware, simply that you are stable enough for a few months or so that a lot of your concerns can take a back burner to discussing/considering/relating with your wife, who is a critical part of your life. Which is also why I'm trying to be very gentle with the wording. The issue is a large one, as you recognize, and with long-term financial and life-style consequences. Not one that needs immediate answering, but one that both the answer and the process of getting there is going to have massive consequenses for your current stress and life as well as your future life and relationship. The financial things are important, but not as time critical as a current/ongoing arguement in a relationship. There is time-value in things other than money (as I've discovered over my own past.... let's call them learning events). My reaction may well be due to you still writing in a somewhat emotional state from the arguement, and I know next to nothing about you, your wife or your relationship which is why my advice is given walking on eggshells.

I intend to stop this line of conversation, as I really don't want to get into advice outside what is directly requested, and again, my apologies for stretching the conversation.

[Karloff]

No apologies necessary at all, Seabourne! I am the newbie here and certainly have LOTS to learn, both when it comes to finances and life in general. I do appreciate your words (and your wordING), and by no means do I take your comments as anything other than well-meant advice and thought-provoking observations. Of course, money is worthless without love, health and happiness. Totally agree there. Thanks again for your comments!

[jblack]

Hmmm....two of the top 3 things people argue about in a marriage, kids & finances. Hopefully you don't have too many problems with the third issue ;-)

I'm about to turn 34 and we recently had our first child. Yes, there are sacrifices in lifestyle & savings, but taking the BIG step back and thinking about what I think I'll want most 5, 10, 20+ years from now helps put things in perspective. We can't wait for FI but happy to delay it a couple of years while we invest in our family, marriage, and long-term quality of life. A tricky balance but it's done by many here.

That aside, you may also want to consider your timing. If you are okay with kids at 35 and are currently 32, remember that it may take a little bit of time to actually get pregnant (took us 11 mths....which I can't complain about given what is required...lol) and even then there is 10 months of pregnancy. So you may be closer to your target age and not have to sacrifice much between now and then.

Good luck!