What to do after you reach 1 million?

[cute fuzzy bunny]

Harm, your basic question is whether you're on track to amass $2.5M by age 50, right?

No problemo. Even if you stopped contributing, you'd only need an average return of 7.5% to grow your $700K to $2.5M in 18 years.

Since you'll probably continue to save much of your income, you'll be retired well before 50 even with a very conservative allocation.

Only problem with that is after inflation that 2.5M will look a lot like 1M does today

 

[retire@40]

...Is it more expensive for Bill Gates to pick up a $20 bill off the ground or leave it. The answer is picking it up. You used to probably think a penny was alot. As you grew up, a nickel, then dime. You're views changed right?

So my views started changing as I grew into more money. That said, I didn't get to where I was my spending like mad.... For instance, 3 years ago, I would have gladly saved $300 to build my own computer than buy one. This week I bought a new computer, which cost me $300 more than building it because I thought my time was better served doing something else, like reading a business book and looking for a good stock to buy. I'm starting to feel like my time is more precious...

As you get closer to FI, your time becomes more valuable. But being frugal (but not cheap) is still important, no matter how much money you have.

Frugal means not being wasteful. Cheap means denying yourself something you want even though it is well within your means and will not hurt you financially.

I'm also in my 30s and I'm almost in your same financial situtation, but if I see a clean penny on the ground, I still pick it up. I spent thousands of dollars on vacations last year, but my net worth still went up every month. I enjoyed every second of time on vacation with my family more than I would have enjoyed earning more money. So I view my money as a tool that gives me more time to enjoy.

I've kept the same philosophy about money when I hit $100K, $200K, $300K, etc. As long as you respect money and don't worship it, you'll be fine no matter if you're a millionaire or billionaire.

 

[Jarhead*]

And if you do happen to earn tens of millions, you'll wake up and realize that $2-3mm gets you about 99.99% of all the happiness you're ever gonna see anyway.

Good prescription, Doc.

As a matter of fact, (IMHO) if the heavy lifting is in the background, children raised, etc. etc., and only you & a spouse left, fortunantly for us, you can
drop the above numbers downward, and still be happy

Disclaimer: Helps to be a tournament golf playing & fly-fishing "Bum".

"Left arm straight, right elbow tucked at impact, grip it and rip it."

Don't need no stinkin $10,000,000.00

 

[Spanky]

He should to be able to hit the $2 mil mark in about two years based his record of 35% annualized return from 1999 to now.

 

[runchman]

Frugal means not being wasteful. Cheap means denying yourself something you want even though it is well within your means and will not hurt you financially.

An excellent distinction. Being cheap seems pointless, since you are only given one life on this earth, while being frugal makes perfect sense - you end up with more money so you don't have to be cheap

I've never understood the 'spending money is inherently bad' notion that cheap people have. What a way to live.

- John

 

[Spanky]

Here is a blog about cheap vs. frugal:
http://www.iwillteachyoutoberich.com/blog/cheap-versus-frugal

 

[runchman]

This comment from that blog sums it up for me:

<Cheap people are cheap all the time with everything, because they're in a constant worry about money and where it goes. >

I see this with my brother, living in fear and worry. Not a healthy way to operate.

- John

 

[Harm]

Great posts.

For one, I don't earn the $150,000 salary alone. I earn it with my wife. So I don't make $360,000 per year. So I was able to contribute to the ROTH, for a awhile at least. $150,000 is an approximate number, I've probably made more, but never more than $180,000 in one year I think. It doesn't include interest and dividends or tax refunds (because I still claim 0). I know, I know, free money for the government. Hey, peace of mind for me and a "free" bonus (even though it isn't), when April comes around.

I went literally more $200,000 something to neraly 1 million from 2001-2007. The gains are not just from the market as Spanky as it. I made gains by saving money and getting home wealth from living in the NW. So 35% you say? That would be from all this.

Yes, I've always told my wife that 2.5 million is the magic number, the day she could "retire". So I've been thinking about the age of 42. Why 42? That is the day our 15 year mortgage is completely paid off. I need to say for the children collage eduation (which I've already started) during that time and get to 2.5 million from 1 million in 10 years.

Now some of you say my really meaning is to be more aggressive. Yes, that was the intent of my original post. PART of me says you are going to regret "What-if" if you just TRY and make it big (lots of wealth, house by a lake, water skiing with wife, etc.), so I'm asking everyone if you have lived this "What-if" scenario. RIGHT NOW, I'm staying put, stocks/bonds/REITS/saving money/keeping the job/etc. How it got me to this point in the first place.

So thanks everyone for all the wonderful advice. I hope more people would contribute there "What-if" scenarios.

And, yes, I still pick up a penny if I see it on the ground (if it isn't corroded). But I won't think about it too long if my wife's back hurts and like the $2600 sleep comfort bed. My parents instilled in me to not by the bed, but fix the current one up (using particle boards underneath or sleeping on the floor). With money, I see things that I SHOULD spend on and do it. But as my wealth as grown, I find spending a little to save time is worth it, but I STILL haven't got past the point that I have to hire a lawn service, maid, online groceries. I still find that wasteful... Who know, maybe I won't anymore at 2 million. Pretty psycological stuff.

 

[scrinch]

Here's a timeline for you, Harm. First million took 16 years out of grad school. Second million took 5 years after that. Third million took 3 years (with a pension lump sum). Didn't change a thing. Still pick up pennies, still invest in mutual funds, paid off the house a few years early. Just had more money working for me after a while. My advice...enjoy your life, enjoy your wife, have kids and enjoy them...let your money work on the side and you get on with your life just as you are doing today. If you keep on working and saving as you are now you'll have your $2.5M by the time you're 40, not 50. That money is what will set you free in a decade or two. Great, but don't let it bog you down or put a damper on your life now. Keep living, loving, and saving.

 

[SteveR]

This comment from that blog sums it up for me:

<Cheap people are cheap all the time with everything, because they're in a constant worry about money and where it goes. >

- John

One needs to remember WHY one saves. Sometimes the act of perpetual sacrifice becomes a "religion" and $$$ becomes god-like.

Remember $$$ is the tool to get what you want; it is not the $$ itself, it is what it does to give you freedom from want. Once you have enough...you're done! The switch then gets thrown the other way and the money now flows out instead of in. Some folks can't deal with this and ER never happens. Their "enough" will never happen early enough to be ER'd.

Stay focused on the goal.

 

[Grep]

While it’s certainly possible that Harm is not a fraud, and he has apparently maintained good habits and made some good decisions, what concerns me are thought patterns that are over-confident and, to be brutally frank, may border on delusions of grandeur:

First, he is apparently ignoring the fact that substantial slugs of luck were involved in his getting to where he is. The superb timing in getting out of the stock market just before the crash, and into real estate just before the boom, etc., was likely driven by needs and circumstances other than prescience. Yet his language hints that he ascribes quite a bit of his luck to the latter.

Second, he thinks that 11 million is small change, and that he can or should change his behavior to keep up with and play with the big boys, though he doesn’t know what that means or how to do that (except by leaving 20’s on the side-walk?).

Third, he holds the likes of that Rich Dad fraud as roll models, which in my mind demonstrates deep naiveté and even an inability to differentiate reality from fantasy.

He may have a rocky road going ahead unless he takes the more conservative advice offered here to heart.

 

[Corporateburnout]

Harm, your basic question is whether you're on track to amass $2.5M by age 50, right?

No problemo. Even if you stopped contributing, you'd only need an average return of 7.5% to grow your $700K to $2.5M in 18 years.

Since you'll probably continue to save much of your income, you'll be retired well before 50 even with a very conservative allocation.

Bingo!!!!!!!!!!! For someone who have accumulated a $1 million NW at 32 you'd think he would have figured this out.....

 

[Corporateburnout]

Only problem with that is after inflation that 2.5M will look a lot like 1M does today

To be exact 2.5 Million in 18 years would be worth 1.6 Million at 3% inflation

But the point here is if he continues to accumulate at his current rate of 50K per year and his money earns a modest 7.5% average return he would have 3 million (adjusted for inflation) when he is 50........

 

[scrinch]

But the point here is if he continues to accumulate at his current rate of 50K per year and his money earns a modest 7.5% average return he would have 3 million (adjusted for inflation) when he is 50........

...assuming he and his DW get no raises for the next 18 years....

 

[Peaceful_Warrior]

I agree entirely. Last year when my 401k was around $50k-$60k or so I would watch as $1k to $2k would literally disappear in a day. Of course, it would also reappear as well since my 401k was invested completely in stocks... primarily real estate and international.

My return on that account last year was 24.6% and this year-to-date is 7.1% already.

I see no reason to believe harm is "full of it." If people paid attention less to whether or not his experience fit within their own paradigms of reality and paid more attention to the energy behind what he says (i.e. how he says it) then they'd pick up on the fact that he's legit.

And to answer his original question on the "team" issue. No, I haven't done it, but I intend to get into real estate and business. I can only read so much about the topic of wealth building before I realize that sure I can FIRE at 50 at my current pace, or I can find other sources of income and FIRE at 40 or earlier if I put my mind to it. Considering I'm 29, 40 sounds a lot more appealing than 50....

1.2% daily swings are not all that uncommon in an all-stock portfolio. I have seen
plenty of 2% swings. In early 2004 I had a 17% drop in 5 weeks. You just have to
have confidence in your investment style.

 

[Spanky]

Last year when my 401k was around $50k-$60k or so I would watch as $1k to $2k would literally disappear in a day. Of course, it would also reappear as well since my 401k was invested completely in stocks... primarily real estate and international.

My return on that account last year was 24.6% and this year-to-date is 7.1% already.

It seems that you should consider more diversification. Both REITs and international stocks have been performing well, but do you really think this will continue indefinitely?

 

[Peaceful_Warrior]

I have a lot of faith in REITs over the long term so I don't intend to reallocate that for probably decades, and international for at least another few years so I don't plan to reallocate that anytime soon.

However, outside my 401k I do have some diversification both with Vanguard Total Stock Market Index, as well as some private LLCs I invest in that return dividends consistently of around 10% with minimal risk that fill the bond section of my portfolio.

I intend to continue diversifying by adding more assets to my portfolio, but for the 401k it's currently in 4 funds (I also have Fidelity Contrafund and and a Mid Cap Value in addition to Real Estate and Dev. Markets) and I intend to keep it 100% equities for at least a decade or few.

I am a long-range investor. I first decide what allocation I want to have, then I look at the investments with the best historical returns over several benchmarks (i.e. not just last year, but also 3, 5, 10 yr markers) and choose accordingly.

It seems that you should consider more diversification. Both REITs and international stocks have been performing well, but do you really think this will continue indefinitely?

 

[bright eyed]

he may be full of something!

hope he doesn't get too excited and try to do things before he understands them - he sounds a bit "caught up" inthe "idea" of the $1mill net worth - but remember a lot of things could change tomorrow and then he'd have to live off what he has or pay crazy medical bills etc.

also - is your $150k net or gross?

remember, people round these parts want to retire early - not build big buildings like trump and live in gold lined palaces in NYC like the trumpster!

 

[ladelfina]

Bright eyed is kind of on the right track.. I don't think any of us here have or want the Trump lifestyle.

PART of me says you are going to regret "What-if" if you just TRY and make it big (lots of wealth, house by a lake, water skiing with wife, etc.), so I'm asking everyone if you have lived this "What-if" scenario.
...I hope more people would contribute there "What-if" scenarios.

I don't think people who are posting here have that type of "make it big" mentality. If they did, they wouldn't be sitting around chatting with other retired folks.. they'd be out water-skiing or overseeing the maids, gardeners and caterers, or out talking with lawyers and accountants and chasing the next deal so they could pay for it all..

"Retiring" means taking yourself OUT of the striving and acquisition rat race, at whatever level, and being satisfied with maintaining, roughly, one's current std. of living. Trump can never 'retire' from being Trump (and if he did he'd probably sink like a stone, since his whole 'empire' seems to be more or less established on churn/froth/loans; he's handcuffed himself to a life of 'deal-making', from what it looks like).

I think just adding a few high-maintenance aspects to your lifestyle complicates it disproportionallly, perhaps almost exponentially. I see it as taking more than 2x the time and money to deal with 2x the stuff and activities.. just as a matter of overhead and efficiency. So there's not much temptation for me to look in that direction. Don't know if others here would agree.

Don't want to speak for everyone, but I think we're here because we value security over extra toys. If we were still in the "what-if" universe, we'd out be buying lottery tickets... 'cause ya never know!

Harm, just chill. You're doing great; someone else will always be doing better.. I think also just the word "million" puts people over a psychological tipping point. We still think of the "millionaire" as being chauffer-driven and caviar-fed. Spend some time studying some inflation tables (as others here have alluded) and try to adopt a calm and steady strategy. Chop a zero off your numbers, or add one.. and try to think about what you might do differently, realistically, in those two alternate scenarios and then ask yourself about your conclusions.. Best wishes!

 

[Spanky]

I do not think that you have to "make it big" to live by the lake. There are still affordable houses with waterfront view in northern Washington (e.g., Bellingham). I am sure that are many other places like that. The only down (or plus?) side is that it is usually a little far from a metropolitan area.

 

[WRBT]

So I have almost $1 million dollars in net worth with my house being about $280,000 (principal) of that. I am 32 years old.

But this is the slow path to real wealth, IMO.

Eh?

 

[kcowan]

Eh?

The definition of real wealth is as broad as the number of posters on these boards...e.g. live by the lake much cheaper than living in the city, etc.

 

[Slarty]

Harm, You sound like someone who is looking to continue to learn new things, and you're asking "what else is out there?" Life's an adventure and I think this is the kind of question that propels adventurers. I was in a similar situation to your but I was a bit older. I'm now at $1.4M and climbing. The only thing I did was to add a little investment real estate to my portfolio as a new non-correlated asset class. I felt I could absorb the risk of owning a modest amount of such real estate. Otherwise, I've done the same things that got me to $1M, which is all the conservative wisdom you've used so far. Here are my thoughts on some things you may want to think about:

1) A big risk for you is that you let your spending increase. You'll then find you need more to FIRE and it will become a moving target. Even if you stay LBYM, the increased spending can cut your income savings rate at the same time as increasing the amount of NW you need for FIRE. It's a double effect and it's a powerful risk. Don't start thinking that you can spend more of your income because your investments are now earning almost as much as you earn in some years.

2) Also, I haven't seen this mentioned here yet, it depends on how painful your job is. If it's interesting work most of the time and not unhealthy stress? Or is it really stressful? This might make a difference in your choice about what to pursue with your career. The easiest thing is to continue with your current career usually since you've build up a lot credibility there.

3) Assume you don't have a pension, which is the case for me.... Since I don't have the "security" of a pension, I'm thinking that I'd like to create a small business that is simple to run that will return $40k or $50k a year to me without needing a huge amount of my time. The idea would be to establish it and then put in good management. I wouldn't need to work at growing the business once it returns $40k to $50k a year to me. Hopefully it would be involved in something I like to get involved with once in a while and I could touch base with the business once a quarter after it's well established. This would provide some extra risk mitigation to get me through my 40's and 50's. I could then sell it or give it away in my 60's or 70's. I've recently entered my 40's and I haven't done this yet so its just a concept right now, and not proven as a good path. But, I am seriously researching it now. I'd like to do it with minimal capital investment so it doesn't hit my nest egg hard which means it might end up being a service based business. It takes a long time to save $1M and $40k/yr income from a small business would be like another $1M in the bank, except I'd be able to increase prices with inflation and weather investment ups and downs easier.

 

[Harm]

Hey all,

For one, I don't think 15% in commodities is risky at this time. Besides, I am diversified within that class. I own IGE, DBC, PHO, PBW, and GDX. So I own alternatives, gld producers, gld, oil futures, water. It is important to be diversified within classes as well.

I completely am in line with peaceful_warrior's way of thinking and slarty. I am looking to start an capitol UN-intensive side business that will only make me $100/month. I don't know what yet, but I'm researching and I don't know what yet either. I just know I should do it.

My $150,000 is gross, by the way (someone asked).

 

[Jay_Gatsby]

Some of you people think it's not possible to have 1 miillion net worth by 32. I don't understand.

Let's see, I had no debt (parent's paid for my college)

I was a TA in graduate school... earned some money there.
Married someone who earned my same salary.
Sold stock in 1999 to buy a house.
Rode the 2000-2002 market because lots of money went to the house downpayment.
All the while, extra money went to buy stocks at depressed levels.
Maxed out 401K, Roth (when we could), IRA.
Added to taxable accounts stocks/bonds.
Rode 5 good years of market
Live in the northwest and rode housing boom last 2-3 years.

Not possible?

Not to detract from Harm's achievement, but it would appear that the ~$1MM accumulated was the result of his and his wife's combined efforts, not just his alone. Needless to say this is still a remarkable achievement at the tender age of 32, but certainly not outside the realm of being very possible if two people are contributing, a fantastic real estate market, a fantastic bull market and timing things just right to take advantage of both.