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Our story
Old 07-19-2004, 09:32 AM   #1
 
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Our story

I am a newly married 30 year old. I have approximately 100 k left on my mortgage with no other debt. Our combined income is approximately $95,000. Right now, our savings is the following: $51,000 - 401k; $5,000 -Roth IRA; $6,000 individual stock, and $12,000 cash. I max out my 401k and my wife puts in about $125 per pay period. I am aggressive so I am looking into individual small- mid sized growth stocks currently. We paid off around $25,000 in debt over the past 3 years and are ready to kick our savings into high gear. We have a nice home, but drive '93 older paid off cars, and work to be frugal. We feel we do our best to not spend our money irresponsibly. We've had some very pricey lessons learned in the past, which I feel has slowed down our retirement. How do we look so far? I feel I might be behind in regard to retiring early. Any advice?
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Re: Our story
Old 07-19-2004, 11:45 AM   #2
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Re: Our story

I think you're doing pretty good, a tad ahead of me. *My wife and i are at 92,500/year, average age 31, and have about 66K in cash savings (net worth 102k), so you're a little ahead of me. *I'd have more but i got slammed in the 00'-02' crash. *You mentioned you made some mistakes too, but i think in both our cases, if we stick to it, we'll win in the end.

You're looking good not just cashwise, but looks like you didnt buy too much house either, and you're driving older cars. *Maxing your 401(k) and your wife's contributions are great. *When you think you can afford it, try making more contributions to those Roths too.

If i had to guess, i'd say house, cars, and entertainment are probably the thee biggest killers to most people's retirement plans. Buying too big house/moving often, having to drive something new/expensive (that needs collision), and having to do a lot of expensive entertainment (concerts, sporting events, lots of travelling at expensive hotels/resorts, etc)

Sounds like you have the idea down. *Decide on an investment strategy, stick to it, and i think you'll be fine. *I hope so cause your situation is similar to mine.
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Re: Our story
Old 07-19-2004, 08:19 PM   #3
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Re: Our story

Hey ejlog,

You only have $5K in a Roth IRA which indicates that you are not maxing out the Roth.

You and Mrs ejlog should be putting in the max of $3k each per year in a Roth IRA. A Roth is made for you, plaese take advantage of it to the max each year ($3k in '04 and $4k in '05... each)!!

I like the idea of maxing out the life of any autio that you own. A car is a depreciating asset that, if looked on as other that basic transportation, will be an anchor around your leg if given a chance. Good job!

Congrats on paying off the debt. Don't go there again!!






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Re: Our story
Old 07-20-2004, 09:37 AM   #4
 
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Re: Our story

does anyone recommend investing in individaul stocks? I am intrigued by stock picking but have no experience in it. I have stock mutual funds through my 401k and Roth so I am starting to research individual stocks to invest in. Other than stocks, at age 30, what other investments should I consider?
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I think you should consider learning more.
Old 07-20-2004, 10:28 AM   #5
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I think you should consider learning more.

You can accomplish your ER goals without individual stocks. You won't necessarily accomplish them faster with individual stocks, either, as demonstrated by the last few years.

Before you put the retirement funds into individual stocks, read Bernstein's "Four Pillars" and take a look at the FundAlarm website. Those two sources (and there are many others) will answer your second question about what other investments to consider.

You can also read Charles Ellis' "Winning the Loser's Game" (it's not implying that investing is for losers, it's a book about how to win by not losing) along with Belsky & Gilovich's "Why Smart People Make Big Money Mistakes--and How to Correct Them: Lessons from
the New Science of Behavioral Economics".

If your intrigue survives this reading, then try Charles Carlson's "Eight Steps to Seven Figures" and the 1980s (or later) edition of Nicolas Darvas' "How I made $2,000,000 in the Stock Market". If you're even thinking about short-term trading (I can't tell that you are), then you have to read Gary Smith's "How I Trade For A Living". Even he avoided individual stocks in favor of mutual funds.

If you're still with me, then I wouldn't plunk the whole portfolio into individual stocks. Open an account with a smaller amount (say $50K) and go hard. Give yourself at least two years (five would be more educational) and keep reading. Check your stock results against the rest of your portfolio or some other suitable benchmark (like the Russell small-cap index or the S&P 500). After those years you'll be much wiser. Hopefully you'll be much richer, too!

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Re: Our story
Old 07-21-2004, 06:23 AM   #6
 
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Re: Our story

thanks for the reading list. I am reading Buffetology right now and its a great introductory to investing based on Warren Buffets principles for investing in stocks. My intention for investing in stocks right now is for long term growth. My primary focus is to max my 401k, and Roth IRA. Any remaining funds I am going to invest in individual stock. I look forward to getting into these readings.
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Re: Our story
Old 07-21-2004, 10:16 PM   #7
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Re: Our story

ej, I think you are on the right track. The two key parts of getting to ER are expense control and saving a healthy chunk of your income. After that, investment choices, etc. aren't critical as long as you don't do anything disastrous.

WRT individual stocks, I guess you have to do what you feel is best. However, I would make the observation that there are a lot of people out there with more time, knowldge and resources than you or I trying to get better returns on individual stocks, so you'd better be on your game if you do more than dabble in this area. Many posters settle for a "core and explore" approach in that most of their portfolio is in index funds following an asset allocation model, and they have a hobby portfolio of individual stocks to sate their itch to pick individual equities.

I have pretty much been wedded to picking my own buy and hold investments and I have done pretty well. However, I have devoted years of training and partially chosen a career that would give me a leg up on the competition. I work in financial analysis for a living, have a MBA from a top finance and accounting program, am almost done getting my CFA designation, and live and breathe this stuff every day. Even so, as I get busier with the general stuff of life, I find that incremental cash flows into my portfolio are largely going to index funds beause Idon't have the time to do a proper job of selecting stocks.
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Re: Our story
Old 07-27-2004, 10:46 AM   #8
 
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Re: Our story

are there any particular index fund you recommend? I have a S & P Index Fund in my 401 k. I do not invest in anything other then stock funds and individual stocks. I have about $12,000 in cash. Should I look to other areas like bonds to balance? I am 30 so I figured I'd stick with stocks to be aggressive. Any thoughts?
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Re: Our story
Old 07-27-2004, 02:20 PM   #9
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Re: Our story

If you really want to see how badly small growth stocks returned compared to small value, large value, large growth, and the Total Stock Market, Money Chimp has an excellent asset class calculator. If you really want to be aggressive, you might consider a whole lot of small value stocks, and not small growth stocks.

As for individual stocks, the evidence seems to point to the conclusion that we/you/investors are pretty horrible investing this way. Check out Terrance Odean's website (Berkeley Finance Professor). The streaming video presentation is an excellent overview of his research on investor behavior, especially with individual stocks. His article, You Are What You Trade, was also hilarious. I'd agree w/ previous posters, that if you're going to go this route, I'd try and limit individual stocks to a small portion of my portfolio (like 5% or under). Think of it as play money - if you lost it all, you'd still be on track for retirement.

As far as portfolio design goes, Roger Gibson has some very good articles/charts to look over:

Investment Portfolio Design Format from Roger Gibson. It's a good decision tree for deciding on your asset allocation.

Virtue of Diversification

The Rewards of Multiple-Asset-Class Investing

Related to the last link, a chapter from his book "Asset Allocation: Balancing Financial Risk".

You might want to ask yourself, "Am I really diversified?" Do you own all kinds of different stocks (large, small, value, growth; domestic, int'l; Europe, Asia, Emerging Markets)? You might consider REITs for added diversification (preferably held in your 401(k) or Roth IRA)? Can you handle the volatility of an all equity portfolio?

I'm 29 and, personally, I cannot handle 100% equity, nor can my wife. So we use about 20-30% intermediate term bonds in our 401(k)'s. We currently use almost nothing but index funds. S&P 500 index fund, MSCI EAFE Index fund, Small Cap Value index fund, REIT index fund, managed large value fund (Vanguard Windsor II) in 401(k), stable value fund in 401(k) for Bonds. First two index funds are through 401(k)'s (managed by Barclays for around 0.10%); next two are with Vanguard. Our portfolio is pretty small, so that's about all the diversification we can do without racking up more fees in our IRA.

I think we'd all agree that the really heavy lifting is done. No debt, except mortgage. Saving a good deal. I can't stress enough how important it is to minimize investing costs. So, whichever index funds you choose, make sure they charge as little as possible (like Vanguard's). Also, make sure that you're investing tax efficiently in your taxable account. Index funds like Vanguard's S&P 500 fund, TSM fund, and Tax Managed funds are very tax efficient. As are individual stocks, if you don't trade much. Index funds like Vanguard's small cap funds, REIT fund, and Emerging Markets fund aren't very tax efficient. I'd first decide on your asset allocation (see first Gibson link). Only after this is done, go about choosing investment vehicles - mutual funds and such

- Alec
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Re: Our story
Old 08-14-2004, 06:56 PM   #10
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Re: Our story

Not trying to stir things up, but if you are aggressive, consider refinancing your house and using the equity to purchase good real estate investments that will allow you to leverage your returns 5 to 1 or more. You may want to read some of Robert Kiosaki's books, especially his newest one that talks about the "velocity" of money. (and no, I don't get a commission on book sells : )

Just food for thought, after all, that is how we did it and we were FIREd at 36 (just couldn't keep up with Paul Terhorst, missed it by 2 months )
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Re: Our story
Old 08-14-2004, 08:14 PM   #11
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Re: Our story

Since everyone who has responded to you has added reading recommendations (virtually all of them excellent, I have no doubt; I've read enough to get the idea about asset allocation but I reached a limit after 2 or 3 books and a bunch of websites) -

if you decide to follow Beachbumz advice about real estate, read the book that everybody here told me to read: Investing in Real Estate, by Andrew McLean and Gary Eldred.

I'm sure your library has it, or can get it on interlibrary loan.

Anne
queen of interlibrary loan
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Re: Our story
Old 08-15-2004, 08:18 AM   #12
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Re: Our story

Ann, isn't interbranching loaning the best!!! I use it all the time.
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Only read Kiyosaki for the entertainment value.
Old 08-15-2004, 10:04 AM   #13
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Only read Kiyosaki for the entertainment value.

http://www.johntreed.com/Kiyosaki.html

http://www.johntreed.com/Reedgururat...l#anchor529971
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Re: Our story
Old 08-15-2004, 05:45 PM   #14
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Re: Our story

Nords,
Thanks for the link. For the record let me say that I am not a big fan of Robert Kiyosaki. I personally think he pretty much sucks as an author. I also think that he is rich...but from selling books, not buying real estate! It appears (I didn't read the whole thing) that your link critiqued "Rich Dad Poor Dad" which I agree was terrible. I simply stated that in his new book "Who Took My Money" (I don't know if you have read it) he makes some good points about leverage or as he calls it "the velocity of money). I think this book should be read cautiously and probably after several of the other books recommended here have been read.
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Re: Our story
Old 08-15-2004, 05:46 PM   #15
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Re: Our story

Oh and Don't buy the book, take Trumpeting_Angel's advice and get it from the library!
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Well, after I've been lied to...
Old 08-15-2004, 11:06 PM   #16
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Well, after I've been lied to...

... it's kinda hard for me to pay any further attention to the author. Life's too short.

He has several books on BUSINESS WEEK's "Perpetual Best Seller" list. They claim it's done through MLM.
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