Re: Retiring at 33, where to invest the money?

[Bob_Smith]

Re: Retiring at 33, where to invest the money?

Hi Ganda,

You have a very long horizon. Perhaps something like this:

35% Vanguard Total Stock Market Fund
5% Vanguard REIT Fund
5% Vanguard High Yield Bond Fund
55% Individual TIPS

 

[John Galt]

Re: Retiring at 33, where to invest the money?

Yeah, me too!! At 32 I was awash in debt and no
savings either. I'm guessin' our young posters have no kids.

John Galt

 

[Hiss]

Re: Retiring at 33, where to invest the money?

The money came from a good property deal and job stock options.

I got in the wrong business. I've been getting stock options for years but the company stock has been flat the whole time. I wish they would at least give us the dividends! Should have gotten into the high tech business and retired early.
As for land, I sold my cabin on a lake just before the real estate boom 4 years ago. Sold it for what I bought it for. Had I held onto it, ah.........

 

[newellcr]

Re: Retiring at 33, where to invest the money?

Ganda,

I am happy for you that you have the stash, but I get the impression from your post that you haven't spent much time considering your ER other than you are unimpressed with the corporate world, which IMO is a valid assessment. How long have you been considering ER and what is your investment background? ER/FI is what I am working towards, but to be successful at it, it requires sticking to a well-constructed, well thought out plan (or tremendous good luck), especially if you are trying the no-frills route.

Certainly, I don't want to douse your plans with cold water, but the tone and content of your post caused me some concern. The best of luck to you in all of your endeavors.

Cheers,

Chris

 

[John Galt]

Re: Retiring at 33, where to invest the money?

Agnostic here. New topic??

John Galt

 

[unclemick]

Re: Retiring at 33, where to invest the money?

Consider these:

Retro(the old fashioned way) - 50% Vanguard Wellington (started 1929) and 50% the 'newer' Vanguard Wellington (started 1970) - take out the taxable SEC yield - should get
$20,410 for 600k as of yesterday.
Then work on your business. Read some of the old posts on books recommended. Take a flyer on some stocks with 'mad money'.

And then when you get really - really old - say 40 or 45 - look at balanced index funds.

 

[unclemick]

Re: Retiring at 33, where to invest the money?

Sorry-Wellesley Income for the other 50% - not two Wellington's.

 

[newellcr]

Re: Retiring at 33, where to invest the money?

ganda,

Good to hear. Congrats! Play with FIRE calc. There's a good chance that one or both of you will live to be 90...

Cheers,

Chris

 

[Ted]

Re: Retiring at 33, where to invest the money?

This subject has been heavily (and I think intelligently) discussed under the "Safe Withdrawal Rates" heading. See especially this page:
http://www.early-retirement.org/cgi..._board;action=display;num=1074837390;start=60

I'm in very close agreement with Bob Smith's advice as to how to invest the money, except that right now I'd personally have more in the other assets relative to TIPs because the next year or so looks good for stocks and high yield bonds, and REITs are a good long term inflation hedge.

However you invest the money, you need to limit your withdrawals to pretty close to 4% of your starting asset value, and only increase it in proportion to the CPI.

The very best way that you can insure your future, however, is to maintain your earning capacity, perhaps by working part time. That has the additional advantage of greatly increasing the amount that you can safely spend.

 

[wabmester]

Re: Retiring at 33, where to invest the money?

the next year or so looks good for stocks and high yield bonds.

Just curious, Ted -- why do you still like junk bonds? I loved them a year or so ago, but the yields have narrowed relative to quality. I just don't see them having any performance headroom left.

If you're only looking for a 3% withdraw, I also agree that Bob_Smith is pretty close to target. The basic premise is that TIPS will give you the inflation protection you crave, but they'll only provide part of the real withdraw you want and won't give you much appreciation. So, allocate about 1/2 to TIPS for absolute safety, and put the other 1/2 at risk, but try to spread the risk around several asset classes to reduce volatility. I'd substitute a little international exposure for part of the TSM.

As far as CD's go, I prefer them to treasuries right now, so feel free to build a ladder to handle your cash needs for the next few years.

 

[ganda]

Re: Retiring at 33, where to invest the money?

Apologies for deleting my posts in this thread - I was uncomfortable having some of the personal information on the net. Thanks for the advice, had a play with the calculator, very promising.

 

[Ted]

Re: Retiring at 33, where to invest the money?

Just curious, Ted -- why do you still like junk bonds? I loved them a year or so ago, but the yields have narrowed relative to quality. I just don't see them having any performance headroom left.

High yield bond funds are now yielding about 7% to 8%. I agree that there isn't much prospect for further price appreciation, but there also isn't too much of a risk of losses to defaults now that the economy is improving. In a scenario of slow economic growth, I can imagine them returning more than stocks, with less volatility. Today, for example, the Vanguard Small Cap Index Fund dropped by about 2%, while the High Yield Corporate Fund dropped by only 0.3%. Of course, one day's results are meaningless by themself, but this low correlation is typical. And having just 5% of a portfolio in high yield bond funds isn't going to be of much benefit, because there is virtually no chance that they could really "take off" like, say, emerging market stocks.

Apologies for deleting my posts in this thread - I was uncomfortable having some of the personal information on the net. Thanks for the advice, had a play with the calculator, very promising.

If we assume that there are about 50 people who read these posts, out of 100 million who use the Internet, and that there are 200 people who know enough about you to guess who you are based on your posts (and care enough to bother guessing), then your chances of being recognized are about 1 in 10,000. I wouldn't worry about it if I were you....unless, of course, you recommend the site to your friends.

 

[unclemick]

Re: Retiring at 33, where to invest the money?

Why you buy is important as well as what you buy.

For example we have a small (maybe 3%) amount of Vanguard High Yield in our taxable account to get cash flow as the last small increment cover the 'core' budget. At the same time we have Vanguard REIT index in IRA for their low correlation with certain other assets.

I know - less than 'pure' - theory wise - but it works for us. When SS kicks in - will reorient the portfolio again.

 

[wabmester]

Re: Retiring at 33, where to invest the money?

High yield bond funds are now yielding about 7% to 8%.

Vanguard's high yield has dropped below 6% and is about even YTD. Normally I'd sell at this level, but my junk exposure is less than 5% so I'll probably hang on, but I wouldn't be buying right now.

 

[unclemick]

Re: Retiring at 33, where to invest the money?

Who cares? If you 'need' the 6%, buy and ignore the bond price fluctuation. Fixed income investors 'think different'. Page 138, Forbes Feb.16 issue attempts to explain the considerations fixed income 'buyers' need to address - market price/cap gain is to be ignored in many cases - Depending on WHY and WHAT you buy.

 

[Ted]

Re: Retiring at 33, where to invest the money?

Vanguard's high yield has dropped below 6% and is about even YTD.

Vanguard's High Yield Fund holds higher grade bonds than most -- which makes it less risky but also makes the yield lower.

The yield on high yield bonds tracked by a Merill Lynch index, as reported in the Wall Street Journal, is about 7.4%. Of course, the effective yield is reduced by the expenses of a mutual fund.

In reporting the "yield" of the bonds that they hold, mutual funds credit zero yield for bonds that are in default, and tend to hold some bonds that are discounted and can expected to appreciate in price as they mature (this includes the bonds that are in default). So the reported "yield" is sometimes less than the total return that can be expected to materialize as long as economic conditions are good and the default rate is low.

To me, the appealing thing about high yield bonds is that, unlike growth stocks, it is not necessary for the profits of the issuing corporations to grow for the investment to be profitable. The companies simply need to avoid bankruptcy, and even that doesn't result in a total loss of value.

 

[John Galt]

Re: Retiring at 33, where to invest the money?

Hello Ted and all. Ted, you did it again, explained
HY bonds perfectly and in a nutshell. You're kind
of the Hemingway of pontificators on this site.

Obviously high yield bonds are important to me as I
hold no stocks, nor will I. However, I do recall the
old saying, "More money has been lost chasing
yield than at the point of a gun!" Caveat Emptor!

John Galt

 

[BunsGettingFirm]

Re: Retiring at 33, where to invest the money?

Ganda, take a look at this guy http://philip.greenspun.com/ who retired at 40 with 7 million+ from an internet venture. He seems to have absolutely NO problem sharing his daily life on the Internet. Different strokes.

 

[Ted]

Re: Retiring at 33, where to invest the money?

Ted, you did it again, explained HY bonds perfectly and in a nutshell.  You're kind
of the Hemingway of pontificators on this site.

I do recall the old saying, "More money has been lost chasing yield than at the point of a gun!"  Caveat Emptor!

Thanks for the compliment, John.

Like most of the thousands of sayings about investing (which often contradict one another) there is some truth to this one about "chasing yield." Higher expected return equals higher risk. But some of that risk can be eliminated through diversification, and that is why a person investing in high yield bonds should almost always do so through mutual funds, despite the fact that a part of the return will be lost to expenses. As I have said before, these funds have proven to be a lot less risky than stocks, and I find it absurd that people who think nothing of investing their money in stocks avoid high yield bond funds because they are "too risky."

Speaking of guns, I know quite a bit about them as the result of having used them all my life, including all kinds while serving as an Army officer in an armored cavalry unit. I suspect that you wouldn't agree with my opinion that handguns should be essentially eliminated through a mandatory federal buy-out of legally owned handguns.

 

[John Galt]

Re: Retiring at 33, where to invest the money?

Ouch Ted! You had me until you got to the handgun part. Sorry, you can't be my hero after all. If I had only
2 choices (elimination of handguns being one) I would
prefer it if virtually all sane non-felons were allowed to be "packing heat". Come to think of it, I would prefer
that situation even if there were more than 2 choices. Quite
serious about this. Second Amendment issues are my Number One
"hot button" and I already resemble the elevator panel of the Empire State Building in that regard.

John Galt

 

[Ted]

Re: Retiring at 33, where to invest the money?

I agree that as long as handguns are readily available to felons, that sane adults should have the right to carry them. Not that it will actually be of much practical benefit, because the bad guys always draw first, but if that makes people feel more secure, that should be their right.

However, I'm conservative enough to understand and believe in the original intent of the Second Amendment. It was passed to allow individuals the right to own and carry firearms, for the purpose of defending themselves against both other individuals, and tyrannical governments.

But the "arms" that the founders were talking about, for practical purposes, meant single shot muskets and rifles. It was the ultimate form of democracy -- one man, one shot. Handguns were practically irrelevant because hardly anyone used them, for the practical reason that their single shot could not be delivered accurately.

If the founders had been asked whether the "right to bear arms" should include hand grenades, machine guns, rocket launchers, and rapid fire concealable handguns, I seriously believe that they would have been more explicit in excluding those types of anti-democratic tools for mass killing. Fortunately, they were sufficiently wise to design the Constitution in a way that it could be reinterpreted to fit changing circumstances.

 

[Cut-Throat]

Re: Retiring at 33, where to invest the money?

I am a liberal on all social issues. Do not ever confuse this with being in favor of banning guns!

Liberal came from the word liberty!

IMHO, Americans should be free to buy guns, dope, alcohol, abortions, prostitutes or whatever their heart desires. If a couple of lesbians want to get married - fine with me!

The Social Agenda of the far right is mostly about restricting individuals rights to be free. They have used the gun issue as a political wedge and most liberal politicians are not pushing gun control at all!

 

[John Galt]

Re: Retiring at 33, where to invest the money?

I would love to get into Cut-throat's politics, but I have
time constraints today. I will say this about Ted's last
post. Thoughtful as usual. I too have thought about the change in weapons since the Second Amendment was written. It's tricky I agree. My position is that
individuals should be able to acquire and keep just about anything short of WMDs, with just a few
restrictions. And, they shouldn't have to justify why they
want to have legal weapons either,
to any governmental body.
I am not worried about my fellow citizens being armed to the teeth. A government that won't allow it scares the hell out of me! Is this hyperbole?
Yep, but not by much.

John Galt

 

[Ted]

Re: Retiring at 33, where to invest the money?

IMHO, Americans should be free to buy guns, dope, alcohol, abortions, prostitutes or whatever their heart desires. If a couple of lesbians want to get married - fine with me!

Except for abortion (in some people's mind but not mine) none of the above other than handguns are used in deliberately killing some 15,000 people each year in the United States, and accidentally killing a few hundred more (mostly children). The founders certainly didn't foresee that sort of misuse of "arms," and equating my position against handguns with a position that advocates elimination of rifles and shotguns is a "straw man" argument, because I recognize that these types of arms are as fundamentally different in their impact on society as rocket launchers would be from shotguns. Or should rocket launchers be legalized too?

 

[unclemick]

Re: Retiring at 33, where to invest the money?

Yes. The govt. needs to butt out of amateur rocketry - they are thorn in the ass of progress and don't get me going on NASA's current management.