FIREd at 37 with Net Worth of approx 5MM comments/criticism welcome

[clifp]

Not many people retire both earlier and richer than I did. Congratulations.

You are obviously a very sophisticated investor and also sounds like very successful. I suspect you enjoy investing, so keep doing what you are doing and have fun. There is more to investing than index funds, and you've figured that out.

My only caution, which I learned the hard way during the great recession is there is cash and bonds and then there are CDs. I found that during the great recession that stocks were so cheap I wanted to buy more, so anything I could sell bonds, money in a money market etc. to buy stocks I did.

Still there was a sinking feeling in about Feb 2009 when I realized I had no cash left. I looked at the mirror, "Clif you idiot, you retired early with millions and if the market continues to declines you are totally hosed, you basically won the game and then lost it, buy playing to aggressively" Now obviously buying stocks in late 2008 and 2009 was the right thing to do in hindsight.

So my advice is start looking for CD deals (PenFed typically has one in Dec. Jan) and put at least 2 years worth of expense which looks like 250-300K in 5+ year CD ladder. You'll hate the interest rate, and every year there isn't a monster bear market, you'll hate how much money you've lost because the money should been stock or bonds..

Don't worry about it, this is your emergency fund, in cause the financial market collapses again. You'll think twice about paying the penalty to break a CD early to buy stocks, or some other high risk, high reward investment. But you'll sleep better during that next crisis. Knowing I've got 2 years in the bank, lets me not worry about my overall AA, or investing in start ups etc.

[dallas27]

Wow, what would you charge to teach me how to do whatever you do? Im 37, but you have 10x worth.


Sent from my iPhone using Early Retirement Forum

[Travelwanted]

Quote:

Originally Posted by sonomaguy Agreed on the illiquid investments and partly on the hedge fund. I withdrew 75k from the hedge fund last year and am doing another 75k this year. Presumably, 75k per year going forward might be where I stay, depending. As hedge funds go, this one is relatively benign on the fees side (certainly not cheap). 1/20 with a 10% hurdle, approx 20MM TOTAL AUM so the attention of the PM is extremely concentrated. He will find microcap arb situations with very high yet low risk returns (yes I realize this sounds like a fairytale or sales pitch but its definitely not a sales pitch and it might be a fairytale but I believe it and it has held true for a long time now. No I don't know why he hasn't grown the fund significantly I think he likes it small) This is simply because nobody else is looking in this space or they are too small to do anything for anyone else or too sophisticated for any individuals. If there is anyplace to add value/alpha in the US, the microcap space is it. A further breakdown on the private investments (and unfortunately an explanation on why it will be difficult to decrease quickly). Approximately 300k of the 360k total is equity we purchased in a private company called Laundry Locker, based in San Francisco. The only way to access that investment would be a liquidity event for the company - public offering or getting purchased being the two most likely. For now it looks like a winning investment, but of course the risk is very high and anything can happen. The remaining 60k is loans to friends and family. The paper is quite reliable in my opinion, and actually there is a high chance 50k of it gets repaid within the next 12 months. The Roth portion of the hedge fund I think I will keep hopefully for a very long time. The taxable portion it would be great to withdraw 75k per year to re-allocate and still watch it grow. We shall see.

Hey Somomaguy-

Congrats on your success. Few questions for you if you don't mind. I am a tad older and bit higher nw but overall fairly similar status.

1-How did you have the faith to make the leap? My nw is about 2m higher running similar monthly expenses. The calculators look good but...

2-How are you spending your time? Part of my fear is will I get bored?

3-How have you handled this with your kids? Meaning, yours are of the age they obviously know you are retired. Just looking for guidance as my kids are younger.

I'm planning on pulling the trigger dec2015. I already have part-time july2015 in place. The whole thing just makes me a tad nervous. Thanks!

[sonomaguy]

Quote:

Originally Posted by clifp Not many people retire both earlier and richer than I did. Congratulations. You are obviously a very sophisticated investor and also sounds like very successful. I suspect you enjoy investing, so keep doing what you are doing and have fun. There is more to investing than index funds, and you've figured that out. My only caution, which I learned the hard way during the great recession is there is cash and bonds and then there are CDs. I found that during the great recession that stocks were so cheap I wanted to buy more, so anything I could sell bonds, money in a money market etc. to buy stocks I did. Still there was a sinking feeling in about Feb 2009 when I realized I had no cash left. I looked at the mirror, "Clif you idiot, you retired early with millions and if the market continues to declines you are totally hosed, you basically won the game and then lost it, buy playing to aggressively" Now obviously buying stocks in late 2008 and 2009 was the right thing to do in hindsight. So my advice is start looking for CD deals (PenFed typically has one in Dec. Jan) and put at least 2 years worth of expense which looks like 250-300K in 5+ year CD ladder. You'll hate the interest rate, and every year there isn't a monster bear market, you'll hate how much money you've lost because the money should been stock or bonds.. Don't worry about it, this is your emergency fund, in cause the financial market collapses again. You'll think twice about paying the penalty to break a CD early to buy stocks, or some other high risk, high reward investment. But you'll sleep better during that next crisis. Knowing I've got 2 years in the bank, lets me not worry about my overall AA, or investing in start ups etc.

clifp - Thanks for taking the time to lend your comments, they are much appreciated.

I often debate internally between tax efficiency and asset allocation. Unfortunately for me, a large part of my net worth is in traditional accounts without tax shelter, and because of tax loss harvesting and our strong market for the last 4-5 years all of my equity holdings in traditional accounts have significant unrealized gains. Thus far I have chosen to simply let them go because that is very efficient from a tax management perspective. So I basically have equities with large cap gains and short duration bond holdings in these accounts.

In my sheltered accounts, I have mainly longer duration/higher risk cash flowing securities (PCY, JNK, NLY, VCIT)

My current plan is too simply continue to ratchet down overall portfolio risk while still maintaining a very high level of tax efficiency, so basically all dividend income, any other proceeds, etc will be re-invested into VCSH effectively and then go from there.

Would you consider VCSH an ok proxy for a 5 year CD ladder?

[sonomaguy]

Quote:

Originally Posted by dallas27 Wow, what would you charge to teach me how to do whatever you do? Im 37, but you have 10x worth. Sent from my iPhone using Early Retirement Forum

I wish it were that simple but my "knowledge" isn't anything that someone can replicate. Mainly I have been fortunate to have two successful careers at the right time, along with some success in small business entrepreneurship. I'll continue to participate on this board in my own small fashion, so that would be your best access to my thought process but there are plenty of people around here with a lot more to offer.

[sonomaguy]

Quote:

Originally Posted by Travelwanted Hey Somomaguy- Congrats on your success. Few questions for you if you don't mind. I am a tad older and bit higher nw but overall fairly similar status. 1-How did you have the faith to make the leap? My nw is about 2m higher running similar monthly expenses. The calculators look good but... For me, it was something that basically occurred naturally as my second career was a bubble that burst. I went from making 7 figures a year to low 6 figures while working harder. Some of my largest earning years were 2007 to 2010 and I was fortunate enough to dump that money into our markets at a very opportune time. If your networth is 2m higher with similar expenses I don't really think its a matter of faith anymore. You are a virtual lock in my mind to be successful financially for FIRE. Whether you want to or not depends on other factors as well as I can see by your follow-up questions. 2-How are you spending your time? Part of my fear is will I get bored? I do have some days where I am slightly bored, but they are rare. I get to spend a bunch of time with my children during a formative time period for them. I take them to school, contribute at managing our household with my wife, coach my son's soccer team, continue to monitor our portfolio, examine and participate in small business opportunities periodically (though this serves the purpose of capturing my attention, from a portfolio perspective is not ideal from a risk/AA standpoint). I serve on the board at my local country club, and am an avid cyclist and golfer (those two things are extremely effective at soaking up the hours in a year). 3-How have you handled this with your kids? Meaning, yours are of the age they obviously know you are retired. Just looking for guidance as my kids are younger. They are starting to understand the landscape of the situation for us and it's an ongoing process. They've seen me work pretty hard in the past but now see me work very little or not at all. It's not something we know the answer on, other than to recognize the issue and do our best to instill a sense of work ethic and LBYMs, and doing our best to discourage any sense of entitlement. I'm planning on pulling the trigger dec2015. I already have part-time july2015 in place. The whole thing just makes me a tad nervous. Thanks! I partly retired 8 years ago at 29, and fully retired approx 2 years ago and both decisions I'm extremely happy with. Current job satisfaction is a huge part of the decision, but if its anything less than above average I would say you can't go wrong

answers above

[2B]

With $5MM you can certainly retire at 37 but I'm concerned with your spending rate of $13K/mo (assuming this covers any taxes and medical). I think you're asking too much from a conservative, balanced portfolio. I haven't read the thread carefully but I don't know if you've included repairs, replacements, kid needs, etc. in all of your calculations. The biggest problem I see is you don't have a conservative, balanced portfolio. Those hedge funds need to go. You aren't so loaded that you can afford the risks and fees associated with that crap. You may be doing well but research shows that broad market indexes significantly beat the hedge fund average. Some hedge funds may do wonderful but that's the exception. You need to get out of the illiquid stuff.

You're doing great in amassing $5MM at age 37. You probably won't be looking too good in a few decades if you don't reduce your risk and control costs. Have you considered leaving Taxifornia? That could really reduce your housing costs and taxes.

I'm not sure what VCSH is but it's unlikely to be a CD equivalent unless it's guaranteed by the federal government to be worth what you need on the day you need it.

[jim584672]

13k/month expenses
Wow, that will almost last me a year. ER includes both frugal types and lavish types I guess.