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So much for ER in 2010... (longish)
Old 08-14-2006, 10:58 AM   #1
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So much for ER in 2010... (longish)

I had a sobering realization over the weekend, followed by a moment of freedom, and I thought I’d share on the off chance that it might help someone in a similar situation.

While our net worth has been going up consistently over time, the bulk of that growth is from savings and paying down the mortgage and car loans (our only debts; we pay off the credit card in full each month).* The value of the house on the market and the value of our investments has been more-or-less static for the last year (house) or three (investments).*

What this means is, unfortunately, the plan to retire early in 2010 is no longer feasible.* I’ve had a niggling awareness of that for a year or more, but finally over the weekend I sat down and really LOOKED at the numbers.* The net worth is solid (at about half a million, including market value of the house and the mortgage), but it’s just… sitting there.

Now, I’m NOT going to do something stupid and rush off to chase a better investment mix or better but riskier returns.* I know that this is just a corrective cycle, and over the long term, we’ll be fine.*

The short term is the problem.* I’d been looking forward to at the least a semi-retirement in 2010, but just now it’s looking like even semi-retirement won’t be possible then, despite consistently saving 30% or more of our gross income.

So the reality check is painful, but necessary.* I worked through the feelings of inadequacy (I should’ve done better – never mind that we’re already doing better than 90% of the population).* I dealt with an irrational sense of betrayal (where are those “historical” 8% returns NOW, huh?).* And then I sat down to do some re-figuring.

It was in the middle of the re-figuring that I had a moment of epiphany.* I know DH & I are doing everything that we can reasonably be expected to do right.* Could we save more than 30% of our gross?* Maybe, but life wouldn’t be much fun if we did.* Could we go for potentially higher returns?* Sure, but we’d have to accept more risk of losing everything, which I’m not willing to do.

That’s when I asked myself why I needed a “date certain” for ER.* It gave me something to look forward to, a light at the end of the tunnel, if you will.* But then, when the date certain had to be revised, it was painful.

So now I’m working on a more Zen-like attitude.* We’re doing everything right – saving, investing, paying down debt.* What that means is that one day, we WILL be able to retire, and given the high rate of savings, that retirement date will almost certainly be sooner than the traditional or expected retirement date, even if it’s not in four years.* In the meantime, we have jobs that are not abominable, and we have enough room in the budget to enjoy life.

What more can we ask for? (Besides 8% returns, of course.)
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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 11:35 AM   #2
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Re: So much for ER in 2010... (longish)

Yup, those 8% returns are never there when you want them, but as you well know, those returns are historical made up of some pretty astounding moves both ways.
Don't get discouraged and bail out though, that's the worst you could do. Tweak your holdings yes--give up no.* If you see your friends jumping ship that is the sure sign that we have bottomed. If your cabby starts giving you stock tips--we have topped.* I don't know of many folks that are excited about the market right now, and that's the best news I could hope for.
You are light years ahead of most people as you said.* 2010 is still a ways off so anything is possible.
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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 12:02 PM   #3
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Re: So much for ER in 2010... (longish)


How is your portfolio allocated that you have had flat returns for the last three years?

The S&P 500 is up 25% over the last three years. Even if you really meant flat for the last FIVE years (which is pretty much true) you should have seen some positive returns just from DCA'ing into stocks late 02 to late 04.

Are you trading too much? Investing too much in individual stocks? If you want to improve your returns, you need to figure out WHY they are so poor.

WW4B

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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 12:51 PM   #4
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Re: So much for ER in 2010... (longish)

I agree with WWFB... why is your return flat

Here is mine from Vanguard (per their website)

1 Year 3 Year 5 Year
6.8% 13.1% 7.2%


and that is down with the losses over the past few months...
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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 12:55 PM   #5
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Re: So much for ER in 2010... (longish)

Are you investing for 3% returns and expecting 8% returns?

Are you using a financial advisor, front-end loaded funds or high fee firm that suck away 5% of your investment return?

With 30% of gross income invested, you should have really caught the uptrend in the last few years.

Perhaps it is time to examine your strategy?
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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 12:57 PM   #6
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Re: So much for ER in 2010... (longish)

Hmmm, I guess I would just ask if you are SURE that things have been flat for a few years. I find that progress on a day to day level is maddeningly slow. Yet when I update my simple "time to ER" spreadsheet and I look at the least couple of updates (covering 12 to 18 months prior), I am always surprised how much the investment kitty has moved in the intervening months.
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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 01:03 PM   #7
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Re: So much for ER in 2010... (longish)

Quote:
Originally Posted by peggy
So now I’m working on a more Zen-like attitude. We’re doing everything right – saving, investing, paying down debt. What that means is that one day, we WILL be able to retire, and given the high rate of savings, that retirement date will almost certainly be sooner than the traditional or expected retirement date, even if it’s not in four years. In the meantime, we have jobs that are not abominable, and we have enough room in the budget to enjoy life.
I came to the same "zen-like" state of being. It took a while. At first, there was a lot of spreadsheeting, calculating, analysis of "what-if" scenarios, etc. Now, I get the "what-if" bug once a year. I prepare quarterly financial statements to track net worth to see where I'm at and where I'm headed, but to also improve my financial management.

ER may arrive in 8 years, maybe 16. There's enough unknowns in there that it is really hard to predict beyond a vague range of years. I'll know I have enough when I get there.

Regarding your investment returns, what are you invested in? Seems like flat returns are hard to come by the last 3 years. Maybe 8% seems like a very small amount, but year after year it adds up quickly. I see my own portfolio inching up very slowly it seems. Then I check the quarterly portfolio value for the last year or two and see how it has really doubled or tripled (primarily due to new investments).
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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 01:12 PM   #8
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Re: So much for ER in 2010... (longish)

How old will you be in 2010 (sorry if I missed that fact, somewhere)?...

- Ron
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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 01:44 PM   #9
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Re: So much for ER in 2010... (longish)

Zen is good Don't despair--you don't know what the next few years will bring. A windfall? Higher-paying job? Figure out a way to lower expenses and thereby add to savings? Move to a lower COL area? Find a more pleasurable job to make the years of waiting more pleasurable? Just because your investments have been flat recently, doesn't mean that will continue indefinitely. Try not to respond by increasing the riskiness of your portfolio (OK, unless you have it all under the mattress ) --since you're hopefully just a few years from ER or semi-ER.

Sometimes visualizing yourself FIREd hurts as much as it helps. IIRC you're a writer. Perhaps you can write something interesting out of the frustration...perhaps a FIRE wannabe who turns to murder or mayhem (Mystery fan here!). Good luck to you!

PS--If you post your asset allocations, I'm sure we'll be happy to nitpick :
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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 01:51 PM   #10
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Re: So much for ER in 2010... (longish)

Quote:
In the meantime, we have jobs that are not abominable, and we have enough room in the budget to enjoy life.
Hey Peggy,

You and DH seem to be doing all the right things. Even when you do all the right things, the results are not always as you planned them. So what?

You have just come to a short-term realization that 2010 will not work for you, BUT you have jobs that afford you the opportunity to continue saving, living a comfortable lifestyle, and room to adjust your goals. Just imagine your options if neither you nor DH were employed? What if you did not have a next egg already built up? Your alternatives would be severely limited and options few.

Keep your realistic goals and continue to assess the viability of your plan. *You are doing what few folks in your situation are doing and it will pay off in the long run.

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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 01:54 PM   #11
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Re: So much for ER in 2010... (longish)

Quote:
Originally Posted by Ron'Da
How old will you be in 2010 (sorry if I missed that fact, somewhere)?...

- Ron
I'll be 42 in 2010; DH will be 49.

Quote:
Originally Posted by astromeria

PS--If you post your asset allocations, I'm sure we'll be happy to nitpick
I will; the detailed breakdown of subcategories is on the computer at home, not here at work, so I'll post it as soon as I get home tonight. *Nitpicks are welcome, honestly. *We're overloaded in stock funds (about 80%, IIRC), and had planned to shift over to a more balanced portfolio (60-40) about two years before ER.

To answer a couple of other posters, yes we are invested through a brokerage firm (AG Edwards), and the fees are higher than a Vanguard fund. *The largest fee we have, though, is 1.8%, so I haven't felt any real urgency to switch over to no-fee funds. *(You may now commence beating me about the head and shoulders for this statement, LOL.)

And when I said "flat" I was imprecise. *There's been a slow uptrend, but not more than about 3%. *

On preview:

Mickeyd - yes, exactly.
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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 02:05 PM   #12
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Re: So much for ER in 2010... (longish)

Quote:
Originally Posted by peggy
To answer a couple of other posters, yes we are invested through a brokerage firm (AG Edwards), and the fees are higher than a Vanguard fund. The largest fee we have, though, is 1.8%, so I haven't felt any real urgency to switch over to no-fee funds. (You may now commence beating me about the head and shoulders for this statement, LOL.)

And when I said "flat" I was imprecise. There's been a slow uptrend, but not more than about 3%.
AG Edwards and the funds you're in got the other half of your returns. Think hard about switching to Vanguard (or another low cost provider).
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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 02:10 PM   #13
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Re: So much for ER in 2010... (longish)

Quote:
Originally Posted by peggy
The largest fee we have, though, is 1.8%, so I haven't felt any real urgency to switch over to no-fee funds.
I know of a likely way to increase your returns by over 1%.
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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 02:16 PM   #14
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Re: So much for ER in 2010... (longish)

http://flagship4.vanguard.com/VGApp/...stsContent.jsp

As the above link indicates, costs can eat you up. Avoiding expenses is a no-brainer way to increase your return. For example, many Vanguard funds (Admiral level) are close to .10% as compared to the 1.80% that you quoted. And...this is each and every year.
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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 04:05 PM   #15
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Re: So much for ER in 2010... (longish)

1.8% is just the start of the true cost. Front end and back end loads (if applicable). Bid/Ask Spreads. Market Impact costs. Trading commissions. All the costs add up quickly.
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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 04:47 PM   #16
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Re: So much for ER in 2010... (longish)


I'd say 30% savings should be good enough, even though it never hurts to increase more. It sounds to me like you're returns are being taken by high fees and poor diversity/selection. A couple of very easy things you could have done (all at Vanguard since I'm most familiar with those options) are:

Target 2010: 6.1%
Total Stock/Total Int'l Stock/Total bond in 50/25/25% ratios: 10%
S&P 500: 11%

Returns are all over the last 3 years. Sometimes, less is more. You may be trying to hard or clever to beat the market.

Mark
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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 10:09 PM   #17
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Re: So much for ER in 2010... (longish)

Okay, finally the allocation.*

Symbol % of Total (exp ratio)
CASH 3
CD 3
RTGCX 13 (1.00)

NMCAX 4 (1.64)
NMCBX 7 (2.37)
RSVSX 6 (1.07)
REMSX 2 (1.73)
RRESX 5 (1.1)
RQESX 15 (.98)
RDESX 15 (.98)
RISSX 6 (1.23)
RSPSX 4 (1.27)
OIGAX 5 (1.41)
OPMBX 2 (1.97)
OMDBX 2 (2.14)
Camp LP 6 (unk)

Some of the cash (about $3,000), was in a holding account to be transferred to one of the other funds as of the end of July.

Critiques and nitpicks are welcome.
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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 10:31 PM   #18
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Re: So much for ER in 2010... (longish)

Ouch. Eyeballing your ER I come up with an average in the 1.3 - 1.4 range. This poll shows 80% of those responding had an ER 0f 0.5 or less (mostly less).

You are definitely being robbed missing out on the opportunity to improve your returns by moving to a low cost fund family (Vanguard, Fidelity).

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Re: So much for ER in 2010... (longish)
Old 08-14-2006, 10:43 PM   #19
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Re: So much for ER in 2010... (longish)

HOLY COW!!!

And I am sure that there are other fees that the brokerage charges (or they will be out of business)...

You need to MOVE your money... but, be careful about taxes... do it smartly... but move ASAP...

Take a look at my first post... a lot better return and they are still getting good fee...

I would say you are at least 1.5% plus fee... think about this... for each $100,000 you are paying $1,500 per year or more... I am paying maybe $500.. or less..
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Re: So much for ER in 2010... (longish)
Old 08-15-2006, 10:38 AM   #20
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Re: So much for ER in 2010... (longish)

Peggy, I will echo everyone's comment here that you should be very concerned about your expense ratio. I haven't looked at the funds you posted, but if they are managed funds you likely are incurring a lot of unnecessary taxes and hidden expenses as well.

Think about it this way -- an extra 1% is $5,000. If you were paying $5,000 for, say, your cable or cell phone you'd be pretty concerned, right? And there you'd get to watch Showtime or call Hong-Kong; I'm not sure what you're getting for your $5k in management fees.

The 1 year return on the S&P has been about 5%, so if you subtract high expenses / trading costs and a little for bonds a 3% return seems about right.

On the original point I am very sympathetic. I have had similar moments of realization when the stock market dives, or I find out just how much college will cost for my kids. It is easy to pull up a spreadsheet, plug in some numbers, and see retirement in your 40's, but, for many reasons, very few people seem to make it. Keep doing the right thing (and watch those expenses!) and you'll turn out fine.
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