50 yo with speculative portfolio

[NEOP]

Hi, I’m 50 years old with a family of four, including my wife of 43 and children of 13 and 8. I’ve been seriously contemplating retirement or semi-retirement for a couple of months, but now feel ready to make the plunge. But I am nervous about giving up a good-paying job with good benefits, and I’d love to hear your opinions. Here’s my story:


My current net worth is about 4.5M, with about $3.75M in securities in a regular taxable account, about $520K in taxable roll-over IRAs, about $125K in a Roth IRA, and another $300K in a 401k. Expenses for my family are about $100K per year (although it will rise through college years, then likely drop significantly). I have about $300K in debt on my home. So by any measures I can find (as I understand them) I have sufficient net worth to retire.


But here is the twist in my situation. I have a very high percentage of my portfolio, i.e. > 90% invested in a speculative biotech play (which is responsible for giving me this opportunity in the first place). And I believe it will appreciate significantly sometime during the next year. So I want to leave most of it there for approximately one more year. In other words, I don’t want to allocate my assets “prudently” until sometime in mid-2012. I am considering taking out perhaps $500K-1M in the near term to ensure I will have enough cash to get back on my feet were the rest of the investment to absolutely tank. But other than that, want to keep my speculative investments for another year.


Currently, I have enough cash to last several months. My plan is to quit my job, with the intention of retiring. If my admittedly speculative investments do well, there is no doubt I will never have to work again. In that case, I would rebalance my portfolio next year to be suitable for a retiree, and probably live securely ever after.


But if my investments take a big dive, then I will have to go back to work. But I am ok with that. In fact, after I first retire (quit my current job), I plan to spend some time developing some skills to be ready to go back into the workforce anyway, just in case I need to. But I am so sick of my current job, that I would not want to go back there anyway, so there is no issue in quitting that job. And I really, really want to take a few months off, minimum, to clear my head and enjoy some time off. And the fact is that I can easily afford to do that now. And if I do need to go back to work because my investments do poorly, I feel certain that I will find a job that will greatly improve my quality of life from where it is now. But don’t get me wrong, I think I will be happy permanently retiring if I have that opportunity.


So to me it looks like a win-win situation. Best case, which I feel is about 80-90% likely, is that I’ll never have to work again. Worst case, I get some time off, still come out with more cash than I had even just a few years ago (my net worth in 2006 was < $150K), and I would probably be working in a much more satisfying job than I am now (almost 100% certain of that). So what do you think, should I go for it, as planned?

 

[FreeAtLast]

You just hit 50 which is an age where medical problems can start to develop. There is no guarantee that you will be able to work. I would take the money and run. You have enough to not have to take such a risk.

You got this once in a lifetime opportunity that only some of us get.

Even if you just eave only what you are willing to lose in the bio tech, you will probably do very well.

Get the help of a financial planner if you need it.

 

[MBAustin]

Congratulations and welcome to FIRE! I agree with FreeAtLast that you should go for it.

I personally would pull out ~3 years of expenses (don't forget health insurance) into a less risky (cash/CD/short-term bonds) investment and go see a fee-based financial planner ASAP. Even though I'm very comfortable managing our finances and investments, I got good insights as well as confirmation of my general strategy from having a formal financial plan completed.

Your kids are at the ages where spending more time with them is a huge investment bordering on priceless. Especially if you are not happy in your job, it will be wonderful for your family for you to just "be there" while you decompress and figure out what's next. Then even if you decide to go back to w*rk of some kind, you will have had that wonderful time together.

 

[arebelspy]

Call it a sabbatical rather than retirement.

Quit the job you hate.

See over the next six months how your portfolio does and how you enjoy not working.

You have enough assets IMO, that you can move to be conservative now and not risk it (why do you feel you need/want more) and have a very good SWR, but that's obviously your call, and irrelevant to my thoughts above. That is, regardless of if you go conservative now or in a year, don't do the job you hate with the position you're in. Life is too short.

Also do plenty of research into insurance (for your wife and kids' sake).

 

[steelyman]

It seems to me you are playing with fire (and I don't mean FIRE in the way it's usually used around here). The 3.75M in the taxable account won't net 3.75 after taxes, and if > 90% is speculative, that could be gone.

Of course if things really did tank with your speculative biotech, there may be another site (I haven't checked) called www.late-retirement.org

 

[mb]

My suggestion: Your expenses are about $100k so sell enough of the bio-tech to set up a balanced portfolio of $2.5M to $3M. That should cover your expenses. You will still have $2M to $1.5M in the speculative bio-tech stock.

 

[donheff]

My suggestion: Your expenses are about $100k so sell enough of the bio-tech to set up a balanced portfolio of $2.5M to $3M. That should cover your expenses. You will still have $2M to $1.5M in the speculative bio-tech stock.

+1 It sounds like you want freedom - to ER now, to learn new skills and try new things. You will better assure that option by diversifying. Also, have you discussed your plans with your wife? Does she understand the risks you are contemplating and is still OK with leaving all the money in one basket?

 

[obgyn65]

My view also.

Call it a sabbatical rather than retirement. (...) See over the next six months how your portfolio does and how you enjoy not working.

 

[chinaco]

I would keep working if I intended to have 90% of my assets invested in one stock.

But.... the candid opinion!

If I went form $150k to $4.5M is 5 years... I would be locking in the gain by positioning it in a broadly diversified portfolio even if I were not going to retire.

If I felt like I needed to keep some level of investment in the speculative investment (1 stock).... I would limit it to no more than 10%.


What could be lost: Financial independence, better life for the family, good education for the children to get them off on the right foot in life, on and on... I would not want my good fortune to "possibly" turn into a foolish greedy move that would jeopardize the "new found" well being of my family.

What could be gained: More money.

The problem: No exit plan... just a hunch on the future and a one more year plan... a dream of: "I could be crazy rich"! But, all it takes is one bad event or news articles and it could drop like a stone!

IMO - Using the strategy you suggested, you could likely wind up being either be a genius or an idiot. Locking in the gains or a major portion guarantees genius!


Take a look at the insiders (management)... chances are they have locked in their fortunes along the way (assuming regulations permitted).

 

[Easypick]

I was in a similar situation although not involving such a high amount. I choose to take the money off the table and secure my ER. The stock has nearly doubled. I have not one regret-it could have tanked. Why risk it?

 

[REWahoo]

Take the money - at least most of it - and run. You've already won, no need to try to run up the score.

 

[DoraM]

Sell half now!

Pigs make money, Hogs get slaughtered!

If the other half in the biotech play shoots up for a 10 bagger, focus on the fact that you made 5x.

Original post sounds like a troll though....any good trader already knows to lock in those kind of gains he claims to have made.

 

[Earl E Retyre]

Obviously your decision. But I would not risk it and would take the money and run. I was in a somewhat similar situation but did not know any better. And was not a member of this FIRE community to ask advice. I could have easily had north of $5M and the stock tanked. I regretted it ever since. You say you would not regret it - so, maybe you are different than I.

 

[Gatordoc50]

Sell half now!

Pigs make money, Hogs get slaughtered!

If the other half in the biotech play shoots up for a 10 bagger, focus on the fact that you made 5x.

Original post sounds like a troll though....any good trader already knows to lock in those kind of gains he claims to have made.

Yes, I'd have a hard time giving financial advice to someone who has saved 800 K in tax deferred retirement accounts, 3.75 in taxable accounts and yet still qualifies for a Roth IRA. He should write a book.

 

[Gatordoc50]

Yes, I'd have a hard time giving financial advice to someone who has saved 800 K in tax deferred retirement accounts, 3.75 in taxable accounts and yet still qualifies for a Roth IRA. He should write a book.

I suppose you could have done a conversion, but it's still extremely impressive.

 

[NEOP]

Thanks, everyone, for your replies. I had been reading this forum for a couple of weeks before I joined, and was really impressed with the good-nature and knowledge of the members here. I hope that over time (after I manage to work through some of my own decisions) that I can sometime contribute something of value to others, too.

Although I think I usually make good decisions, I'm not the most decisive person. So going from my recent "decision" to quite my job soon, to actually doing it will definitely involve some anxiety. I'm taking vacation the first two weeks of July, and will use that time to finalize my decision and to also work out some details, like health care insurance, etc. And maybe I'll even be selling a bunch of the shares in my "speculative" stock

Thanks, again, everyone!

 

[NEOP]

possible regret

I could have easily had north of $5M and the stock tanked. I regretted it ever since. You say you would not regret it - so, maybe you are different than I.

Actually, I'm sure I would regret it after the fact. And I would probably feel devastated on some level. That possibility is always on my mind, but I've been willing to take the risk. Of course now that I am in this position to possibly retire, and with everyone's advice, I am carefully re-considering how much exposure I should leave myself. I appreciate your comment.

 

[arebelspy]

And we appreciate you not being a troll. Keep us updated.

 

[NEOP]

good luck in the IRA

I suppose you could have done a conversion, but it's still extremely impressive.

Thanks. No doubt good luck was a big factor. Several years ago I opened the IRA. At the time, I think the limit was just something like 3K a year. And I think I contributed for two years. The story roughly is that I bought 24K shares of a company at 25c, made a few trades over the years to get to 33K shares, and now several years later the shares trade at $3.70, which gives the 122K.

 

[NEOP]

troll

And we appreciate you not being a troll.

Well, I had to look that up today since I wasn't familiar with the term. From dictionary.com I found

"troll- slang ( intr ) computing to post deliberately inflammatory articles on an internet discussion board".

All I can say is that if I said anything that was perceived as inflammatory, sorry about that - it was unintentional.

 

[NEOP]

good trader

....any good trader already knows to lock in those kind of gains he claims to have made.

Maybe, but I've never claimed to be a good trader!

 

[Animorph]

I was in a similar situation when the company I worked for was bought and my stock options were suddenly worth real money. I was still working and wanted to hang on to the stock (tech, year 200). The financial advisor I hired didn't push me enough to diversify. Nonetheless, a few months after the lock-up ended I started diversifying. In my case I was able to find other solid, low debt, tech companies whose stock price had fallen faster than ours. So I was able to reduce company-specific risk while still retaining the upside pretty well. In a few years I was significantly ahead of where I would have been had I held on to the company stock, and ready to diversify out of tech.

You may not be able to find companies you like as well as your own, biotech seems pretty breakthrough-dependent. Either way, I'd keep working for the year and diversify into similar companies, or sell at least half of you current stake. If you decide to bail now, I'd sell about 90% of the company stock and allocate your portfolio for retirement (like with bonds and cash) before you quit.

Good luck!

 

[harley]

There was a young guy on the Motley Fool early retirement forum who had retired in the late 90s based on a huge profit from Apple stock options. I can't tell you how many times people told him to diversify, but he kept riding that stock. Then came the tech crash, and he announced he had to go back to work. That was the last I ever heard from him, but I think of him often as an object lesson in diversification.

The only thing (IMO) worse than not retiring early would be retiring early then having to go back to work. The stuff of nightmares. <shudder>

 

[FIREd]

At some point last year, more than half our net worth was invested in a single biotech stock and we faced a similar dilemma. The stock had gone up 400% from the depth of 2009, when we had acquired it. This run up allowed us to reach financial independence much sooner than anticipated. My instinct was to sell it, lock in the gains, and secure our financial independence. My wife, on the other hand, wanted to let it ride in hope of hitting an even bigger home run. She argued that the extra gain would give us more financial cushion and a better lifestyle in retirement. After much debate, we decided to sell most of it, and keep only a small "gambling" stake in case the stock went though the roof. I am so glad we did. The stock has lost 50% in the last 6 months. The drop was as sudden and baffling as the 400% rise. Had we not sold it when we did, we would now have to work at least several more years to make up for the losses.

I think that "a bird in the hand is worth two in the bush". Ask the people who lost millions during the dot com bust.

 

[nun]

.... there may be another site (I haven't checked) called www.late-retirement.org

Wow the backwards bizzaro world