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Believe we are on the way, but....
Old 10-21-2019, 12:44 PM   #1
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Believe we are on the way, but....

Hello,

I believe we are on the right path, but would like advice from others who have been down it.

Currently my wife and I are 38 years old with two wonderful daughters - age 4 and 5.

We are at $1.5M net worth. $850k in VTSAX, $200k in 529 plans (should more than cover the education), $350k house (paid off). We have no debt. My wife stays home and I teach and have a side business that has grown. We plan to retire at 55 with spending around $80k/year.

Everything from Firecalc perspective looks great, but just would like to hear from those that have been down the path. I know there will be many, many things that happen that I can't imagine or think of in the coming 20 years. I just would like to sit back and relax a bit and work on things I really enjoy and not be too worried about the money. I'm like most of you here, grew up poor, etc.

I believe we are on the right path and I can relax a bit and let the markets do the heavy lifting for us, but I would enjoy some insite from those that have been down the road before.

Thank you for your time and help.
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Old 10-21-2019, 12:59 PM   #2
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Coach,

Put me in the outfield I want to play centerfield….

My experience has been to expect a few recessions btw now and your expected date of retirement and expect your equity holdings to decrease by anywhere from 25% to 50% + depending on the cause of the downturn. This decrease may happen multiple times.

At your age, when you see your holdings decrease and your doubt your investing skills, perhaps you will have a few sleepless nights, remember that, if you believe in the markets, you should stay the course and invest more heavily at even better prices on the way down as well as on the way up once more. On the other end, you will have even more money.

As you approach retirement, you may want to adopt a glide path to investing to prevent sequence of return risk or if you amass enough capital your concern will not be investing for growth but investing for capital preservation.

Discipline is the key.

Stay focused.
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Old 10-21-2019, 01:07 PM   #3
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I will put you in centerfield for sure....

Thank you for the advice. I know that downturn is coming, I believe I will be able to trust the long term approach. I know 2008 hurt me, but not near what it would feel like now with a larger portfolio.

Thank you for the reply.
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Old 10-21-2019, 01:17 PM   #4
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Don't include your house value when you are looking at financial planning and investments. That is, unless you plan to sell it as part of your retirement plan and move into a large cardboard box.

You have to live somewhere.
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Old 10-21-2019, 01:19 PM   #5
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I know 2008 hurt me, but not near what it would feel like now with a larger portfolio

During the 2007-2009 downturn my portfolio fully invested was down 70%...since then it has risen 10xs. Currently, just below $6 million dollars.

As I am close to retirement, I am scaling back my equity exposure.
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Old 10-21-2019, 01:20 PM   #6
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Congrats, Coach. You're off to a great start. You didn't mention what you would be contributing over the next 20 years to that already nice little pile of cash. But, if all you need is $80k and you are still growing your nest egg, I can see scenarios where you could go before 20 more years.
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Old 10-21-2019, 02:53 PM   #7
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We are at $1.5M net worth. $850k in VTSAX, $200k in 529 plans (should more than cover the education), $350k house (paid off). We have no debt.
100% of your invested assets are in VTSAX. While you're doing well, you might consider diversifying your investment, unless you're ready to accept whatever temporary losses the market throws at you!

I was 100% in equities until 1.5 years before my anticipated FIRE date, but I never held just one fund.
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Old 10-21-2019, 04:13 PM   #8
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100% of your invested assets are in VTSAX. While you're doing well, you might consider diversifying your investment ...
IIRC VTSAX holds about 3500 stocks. That's pretty good diversification and makes it totally unnecessary for the OP to hold another US Equity fund. Where/how are you suggesting that the OP diversify? Internationally?
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Old 10-21-2019, 04:45 PM   #9
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IIRC VTSAX holds about 3500 stocks. That's pretty good diversification and makes it totally unnecessary for the OP to hold another US Equity fund. Where/how are you suggesting that the OP diversify? Internationally?
Yes, internationally, and perhaps, some bonds or bond funds.
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Old 10-21-2019, 04:51 PM   #10
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Yes, internationally, and perhaps, some bonds or bond funds.
OP is pretty young to be looking at bond funds, IMO, but 30-50% international would probably be a good move just for diversification as you say. A sweetener, though, might be international stocks reverting to the mean after a decade of underperformance. They seem to be on kind of a 10 year cycle.

Any decline on the dollar will also sweeten up international assets.
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Old 10-21-2019, 04:53 PM   #11
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OP is pretty young to be looking at bond funds, IMO, but 30-50% international would probably be a good move just for diversification as you say. A sweetener, though, might be international stocks reverting to the mean after a decade of underperformance. They seem to be on kind of a 10 year cycle.

Any decline on the dollar will also sweeten up international assets.
Agree! But it also depends on the OP's reaction to a 50% reduction in value of his one fund, should the markets tank. Would he panic and sell? If so, some bonds aren't such a bad thing.

I would have a hard time buying that much in international funds at this time, as they have underperformed as you mentioned. Maybe some developed markets in certain countries? Of course, that's a targeted investment...but emerging markets, internationally, just don't seem to have performed well, recently!
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Old 10-21-2019, 05:11 PM   #12
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... Maybe some developed markets in certain countries? ...
IMO that is a slippery slope that leads to trying to pick and trade sectors. Chinese pig farmers anyone? Malaysian shrimp? EAFE, maybe, to be a little conservative and avoid emerging markets. But China is an emerging market -- do you really want to avoid that one?

In most cases I start with the EMH and assume that any purchase is properly priced. Then I look at the behavioral aspect. If that is making prices wild and crazy I'll back off and watch. As Buffet points out: The stock market is a device for transferring money from the impatient to the patient. That said, my only sector bets are a small (~8%) worldwide tilt towards value stocks and small caps -- per the Fama/French 3 factor model.
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Old 10-21-2019, 08:02 PM   #13
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I know 2008 hurt me, but not near what it would feel like now with a larger portfolio

During the 2007-2009 downturn my portfolio fully invested was down 70%...since then it has risen 10xs. Currently, just below $6 million dollars.

As I am close to retirement, I am scaling back my equity exposure.
Thank you Mr. Ed. I need to re-read this when that downturn does happen. Growing 10xs to $6M is very impressive.

I believe as I get closer to retirement I will scale back my equity exposure as well. How soon should I do that 5 years out, 10 years out?

Thanks again.
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Old 10-21-2019, 08:10 PM   #14
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Congrats, Coach. You're off to a great start. You didn't mention what you would be contributing over the next 20 years to that already nice little pile of cash. But, if all you need is $80k and you are still growing your nest egg, I can see scenarios where you could go before 20 more years.
Thank you Brokrken. I have thought about that as well, but I do enjoy my job. I'm a college instructor and volunteer baseball coach at the college. It is a pretty good gig. I know things could change, but I'm more interested in side hustles that I enjoy compared to just getting to the exit number faster (more profitable ventures). My side business currently has grown tremendously. It has allowed my wife to stay home with our girls. Also at 55 my family's healthcare will be taken care of so hard to leave before then if I'm enjoying what I do.

I plan to continue to invest, but not at the rate that we were investing. Some years we put in $75k into IRA.

Thank you for your input.
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Old 10-21-2019, 08:24 PM   #15
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Agree! But it also depends on the OP's reaction to a 50% reduction in value of his one fund, should the markets tank. Would he panic and sell? If so, some bonds aren't such a bad thing.

I would have a hard time buying that much in international funds at this time, as they have underperformed as you mentioned. Maybe some developed markets in certain countries? Of course, that's a targeted investment...but emerging markets, internationally, just don't seem to have performed well, recently!
Thank you both for the input.

I was internationally diversified through an additional fund, but with VTSAX I feel with the amount of globalization I have international exposure. Ex. Coca-Cola, Wal-Mart and McDonalds are sold all over the world. Plus I don't have to worry as much about currency/exchange rate risk.

I feel I would be okay with a 50% drop in value, heck even a 70% because I believe I have read enough and understand the power of sticking to the plan of long term index investing especially when things go south - Ex. Bogle and Buffett. I am not naive though, I have not been through a 2008 with the level of my portfolio now. I trust that I won't panic and sell, but until I go through it - I can't tell you.

I don't really want bonds at my age because I do believe in my ability to handle risk. Also, if things tank and I have to work 5-10 more years for the porfolio to recover, I'm okay with that. That is the risk level I signed up for (and I believe I am comfortable with) - Swing for the fence and hit a homer or strikeout. I have to understand risk is a double-edged sword.

Thank you both for your input.
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Old 10-22-2019, 07:06 AM   #16
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Don't include your house value when you are looking at financial planning and investments. That is, unless you plan to sell it as part of your retirement plan and move into a large cardboard box.

You have to live somewhere.
+1

I also wouldn't count the 529s, as that money is already allocated for non-living expenses.

OP - all you can do is save and invest and hope for the best. You're too far away from retirement to draw conclusions.
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Old 10-22-2019, 07:07 AM   #17
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Thank you Mr. Ed. I need to re-read this when that downturn does happen. Growing 10xs to $6M is very impressive.

I believe as I get closer to retirement I will scale back my equity exposure as well. How soon should I do that 5 years out, 10 years out?

Thanks again.
Sounds like you need to do some reading.

Start here: https://www.bogleheads.org/wiki/Bogl...g_start-up_kit
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Old 10-22-2019, 07:29 AM   #18
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You're on the right path, but you still need to save and invest wisely.

To have $80k of spending power in 17 years will require $121k if inflation averages 2.5% between now and then.... the Fed's current target for inflation is 2%.

You can't count the 529s or the house.... so you really only have $850k that can be used for retirement... though you could add some from the value of the paid off house if you intend to downsize in retirement.

If you had a reasonable 3.8% WR at retirement at 55 and $121k in withdrawals you'll need $3.2m ($121k/3.8%).

Your $850k would need to grow at 8.12% on average over the next 17 years to grow to $3.2m.... additional saving contributions will reduce that required return... if you save $12k a year then the required return is only 7.3%.

I agree with you... stay in VTSAX until you're about 5 years out.
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Old 10-22-2019, 09:00 AM   #19
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You're on the right path, but you still need to save and invest wisely.

To have $80k of spending power in 17 years will require $121k if inflation averages 2.5% between now and then.... the Fed's current target for inflation is 2%.

You can't count the 529s or the house.... so you really only have $850k that can be used for retirement... though you could add some from the value of the paid off house if you intend to downsize in retirement.

If you had a reasonable 3.8% WR at retirement at 55 and $121k in withdrawals you'll need $3.2m ($121k/3.8%).

Your $850k would need to grow at 8.12% on average over the next 17 years to grow to $3.2m.... additional saving contributions will reduce that required return... if you save $12k a year then the required return is only 7.3%.

I agree with you... stay in VTSAX until you're about 5 years out.
Thank you for the response. This is what I was looking for. I plan to move a portion over to VBTLX around 5-10 years out. I'm not sure the percent yet - maybe 30%. I plan to do a lot more reading prior to that point.

I invest $10k per year through my teaching job alone and I believe I will have additional funds to invest from my side business in the future.

I can really concentrate now on things I enjoy when adding to my side business income - not so much only ventures that only pay well.

Lastly, if I have to work until 60 I think I will be fine with that. I want to do what I can to invest for retirement, but don't want to miss out on these years by being so focused on "the number."

Thank you again.
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Old 10-22-2019, 09:03 AM   #20
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Sounds like you need to do some reading.

Start here: https://www.bogleheads.org/wiki/Bogl...g_start-up_kit
Thank you for the reading list. Little Book of Common Sense Investing is one of my favorites.

I teach and my last class day is "How to be a Millionaire Day." We go over the basics of investing, budgeting, etc. I offer all my students an option if they read - Total Money Makeover, Millionaire Next Door, or Little Book of Common Sense Investing. I will pay them the cost of the book in cash if they come in and talk about it with me (prove they read the book). Sadly, I only have a handful that come in and I am able to pay them for the book.
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