Early Retirement Dream

[pfleming]

I stumbled on this site because I was trying to find out whether people were still using the Charles Givens Money Movement Strategy and found a really old thread where someone wrote about it. It was mentioned in one post in one thread but I realized there was other interesting stuff here.

I don't really have an early retirement plan, but after reading that so many people do and are working on it, I think I might need to put one together. I'm interested in owning enough rental properties to cover monthly cash flow. I also would like to build my retirement account to the point where it could cover my monthly cash flow - that way I could have twice the amount actually needed to cover expenses and I can go fishing and track my investments from my laptop at the beach.

[obgyn65]

Welcome.

[jclarksnakes]

Welcome to the forum. The difference between early retired people and the rest of the population is that most of the early retirers learned to live below their means.

[pfleming]

Quote:

Originally Posted by jclarksnakes Welcome to the forum. The difference between early retired people and the rest of the population is that most of the early retirers learned to live below their means.

That makes the goal a bit different, but maybe not so much. Adding cash flow changes the means. I think I have been looking at the retirement plan balance from my full time job for the last six months or so - I have just over three years to be fully vested (increases by 15%/year) but the closer it gets the harder it is to see me staying there. I am a partner in a business so I will go from a full time job + part time to different full time job before getting to the ultimate goal of sitting in the camp chair with my fishing poles out.

[CMH in CO]

Welcome. Love the fishing and laptop on the beach ideas. Now is a great time to buy rentals. Do you plan on managing them yourself?

Cases

[pfleming]

I had a rental quite some time ago that I did manage myself. Interestingly, it was in an area where the real estate agents would actually show it, but not manage or collect a fee for getting it rented. If I had a similar setup I would manage it/them myself. More than two to three I think I want someone else handling the majority of the management work and especially the headaches.

[CMH in CO]

Have you done much evaluating of specifics on your rental plans? Will you have loans on them? What can you get in rental income vs expenses. Do you have emergency savings set aside for new water heaters, repair of a furnace, things that will always come up when you least expect them.

We had several rentals for about 20 years. I would do it again on a smaller scale, but I would be a lot more picky about only getting into those rentals with really good situations; very positive cash flow, great rental area, easily rented, good neighborhood, solid house. This could eat into your fishing time.

Cass

[pfleming]

CMH I do have a plan that is in the very early stages of thought. There are some super deals out there right now, it's just a matter of building up the cash needed. At some point I would probably look at some kind of family limited partnership with my brothers. I personally am most comfortable with a 3-4 month reserve for the contingencies you brought up. I also mentioned the property manager. I've done it without one. Having to go to court to evict a delinquent tenant is not the most fun I've ever had in my life so the property manager will have to be someone who can stand in my place for such things. I was once also threatened with a lawsuit by the parent of a tenant who thought I should be responsible for any accident the tenant might be involved in due to snowfall and driving conditions on the freeway. I don't need to take this call no matter how ridiculous it is - that's why I would pay a property manager.

There are other ways to "leverage" into rentals that I've been studying such as tax liens. Here in AZ they pay up to 16%, which can be a decent place just to park some cash, but it also allows (after a three year holding period) the purchase of properties as low as 10% of the mortgageable value of that property. I would naturally "manage" the liens myself as they just involve waiting for the property owner to pay up, paying additional delinquent taxes if they don't and finally filing the final court paperwork to own the property if it gets that far.

And I would want to carry mortgages on the properties to take advantage of the leverage available there. No sense in putting 100% cash down on one property when 10% or so can be put down on 5-8 with a cash cushion. Done "right" the cash flow can even be tax free.

[ejw93]

Don't take too much of the late Mr. Givens' advice literally- he died penniles in 1998 after being found liable for defrauding his customers in California and settling a fraud case in Flordia.

[ziggy29]

Quote:

Originally Posted by ejw93 Don't take too much of the late Mr. Givens' advice literally- he died penniles in 1998 after being found liable for defrauding his customers in California and settling a fraud case in Flordia.

Some of his advice was pretty good, but it was largely stuff you could get elsewhere. I thought some of his strategies were reckless and some bordered on fraudulent.

I recall he always recommended being 100% invested in either stock, bond or money market funds depending on the level and direction of interest rates. (I also recall him suggesting a 15% annual return. If we think Dave Ramsey's 12% claim is dubious, well....)

One of the good things I did take out of reading his schtick (around 1990, as I recall, when I was in my mid-20s) was "separation of insurance and investments" -- that both are needed but one shouldn't normally be used to substitute for the other.

[pfleming]

Quote:

Originally Posted by ejw93 Don't take too much of the late Mr. Givens' advice literally- he died penniles in 1998 after being found liable for defrauding his customers in California and settling a fraud case in Flordia.

I thought I had read about that. That doesn't invalidate the research that I've personally done in regards to returns based upon that specific part of his "preachings". Wade Cook is serving time for tax fraud, but that doesn't make the stock trading tactic of what he calls "rolling stock" and everyone else calls "trading the channel" any less valid. I currently trade covered calls in my IRA based on Cook's writings (which were way more of an advertisement for everything else he could sell you than Givens' three books).

By way of intro, I was merely referring to the fact that I have done some of my own back-testing of the MMS and merely wondered if anyone had been using it when I came upon this forum. It does not seem to be a highly talked about strategy unless you count the sites out there that merely scanned in the chart as if they came up with the idea. For all I know, he stole that concept. I was looking for one thing and realized I was interested in the rest of the site. ER? Why not!?

I had my securities license for a while - not really a salesman though, never have been - and the basic concepts that Givens wrote as far as "one investment to rule them all" is pretty straight forward. Interest rates and the movement of interest rates will behave exactly as he wrote and affect different investments based upon the rate and the direction. Ask any financial adviser and they can tell you how interest rates inversely affect bonds or bond funds - how many of them will actually advise you on where to put your money based on this knowledge they all must show they have when passing the securities exams? Very few as most of the acceptable sales materials are based upon "risk tolerance" (graded on some kind of test the dealer has to keep on file), MPT and the Efficient Frontier.

I realize that this is a fairly long response to your straight forward statement and I apologize for that. I wanted to clarify my earlier statements and I may have even done so.

[pfleming]

Quote:

Originally Posted by ziggy29 Some of his advice was pretty good, but it was largely stuff you could get elsewhere. I thought some of his strategies were reckless and some bordered on fraudulent. I recall he always recommended being 100% invested in either stock, bond or money market funds depending on the level and direction of interest rates. (I also recall him suggesting a 15% annual return. If we think Dave Ramsey's 12% claim is dubious, well....) One of the good things I did take out of reading his schtick (around 1990, as I recall, when I was in my mid-20s) was "separation of insurance and investments" -- that both are needed but one shouldn't normally be used to substitute for the other.

My personal back-testing (for years with consistent data) shows:
3/1997 - 8/1998: 30.14%
8/1998 - 7/1999: -4.15% (the only losing period before investment change)
7/1999 - 6/2000: 10.26%
6/2000 - 1/2001: (MMS indicated cash based on prime rate @ 9.5%) I did not find a decent mutual fund to compare, so I considered it a wash in my testing.
1/2001 - 7/2003: 13.33%
7/2003 - 9/2007: 61.67%
9/2007- 11/2008: 17.79%
11/2008 - 12/2010: 41.18%
I stopped really following it and had actually switched the stock fund I was following for the stock portion from SPY to QQQ (once QQQQ) and the returns are even higher due to the difference in the indices. I did not consider reinvestment of dividends (except when switching between asset classes) or dollar cost averaging for the returns which would affect the outcomes. Is it what Givens says? Not 100% sure since I have averaged out the returns. It gives me something to try to outperform in my more actively traded accounts at this point in life.

Re: Ramsey I think Ibottsen charts show an average return of 12% for the stock market over the long run but most people don't live over the life span of those charts.

[pfleming]

No more feedback? I was hoping to get a bit more discussion on this investment timing plan.

[growing_older]

I know some people like to build a real estate investment portfolio to the point that they can retire. Good for them. I didn't like being a landlord, so it wasn't for me.

What you seem to be talking about now is either extra leverage or some kind of timing that moves you in and out of investments (including real estate) and that is a different thing altogether. I love timing systems, but I've found they all work until they don't. On paper (or computer) they can generate great returns, but they do so by increasing risk. This works great until the risk shows up. You will need to have a good plan for what if your assumptions are no longer valid.

Also, I'd be reluctant to base a family partnership on an untried timing system. If the system fails to work as you expected, you not only risk personal ruin, you take down family members as well.

Lastly, there are many examples of people with similar (but not quite exactly the same) ideas as what you are proposing, who ended up in deep failure. Why are you so sure this time is different?

[pfleming]

Actually I was talking about two different things. Real estate would be in a family partnership if I were to do it "big". The macro market timing applies to investments held within an IRA or other tax benefited account.
And I'm not even sure the timing system would work as well as it has appeared to on paper. I do know that I look at my active trading and then look at this more or less passive system and wonder what I'm working so hard for. I know the reason I'm more active in my own trading is that I hope to beat this mostly passive system.
I put up some results - admittedly from back testing - that I was hoping to garnish more discussion from. I want to see the flaws in my thinking. I want to see the flaws in this system and any other system I might be thinking about using. Looking up at the time frames I posted is there something that performed consistently better?
In reference to Charles Givens, is this part of his writings accurate or pure bunk? Even a stopped clock is right twice a day so is this a lucky guess, a decent passive method of deciding where to put your money based on the prime rate, or something else entirely? I had my securities license and this flies in the face of those teachings - although half or more of those teachings were cya.

As to the failures... I'm not sure that this time is different nor even certain that I'm "right". I was hoping that more people would tell me I'm wrong and why.

Thanks for taking the time to respond. I wasn't sure if I bored everyone off or this is so much a rehash of old news, ideas and debates that everyone went fishing.

[Sarah in SC]

I guess the honest answer is that there aren't really people here using "systems" or active trading, or market timing. The commentary I've seen from this cohort is that an awful lot use indexing, dollar cost averaging, and basically LBYM to retire early. Some of us use active investments, a few are probably very sophisticated investors in some of the more oddball assets, but mostly we are fairly conservative mutual fund investors.

[pfleming]

Hmm. Although I use the terms system and timing it really is a macro view. I'm not against DCA, in fact I think that's the best way to accumulate. The investment method, or what to invest in, is based on the current prime rate and the fact that different investments behave differently based upon the interest rate and direction. I may look at the spreadsheet again to look at what the difference would be with DCA. My study was really simple, but on its face supports the idea of the Money Movement Strategy. Market timing... sort of. I mean, time the market to switch investments once a year, every 18 to 24 months.
Appreciate you chiming in.