Where I Stand @ 39 - Please Offer Your Comments & Advise

[Karloff]

Long time without posting on these pages!

If I am not mistaken, the last time I did I was 32 (now 39), and I thought it would be interesting to offer an update on where we currently stand, with the hopes that you folks could offer your invaluable advise and, by all means, critique my choices.

Like most of you, I spend most of my waking hours (and some of the rest as well) contemplating, ruminating and, some of my friends would agree here, sometimes perhaps even obsessing over the idea of an "early" retirement, away from the camouflaged slavery of contemporary society and ever-growing blindfolded masses.

As an admirer of the discipline and tactics of most of the folks in this board, I would love to hear your opinions, advice and any comments and/or perspective you might have on my particular situation.

I thought it would also be fun to compare our current situation with that of of my last post on the subject a few years ago, so I have copied and pasted what I posted back in the day below, and added the updated totals in bold next to each line.

My basics:
- 34 (now 39)
- Married. (same)
- No kids. (same)
- No debt WHATSOVER. Never been in debt, ever. (same)
- House is paid for. (same)

Biggest difference since the last time I posted is that I quit my day job and went solo. I am technically self-employed. So far, it has been a fantastic ride. I was able to make about 3 times what I used to make, but the dry patches are nerve-wracking and keep me awake at night. Sometimes you are able to make in one month what you used to make in 6, and sometimes the phone does not ring for 3 weeks in a row, specially now that we are in the Summer. You know how it goes... But I would say all in all the positives far outweigh the negatives.

Luckily, my wife has a "traditional" job (about $60K+ a year), so at least a paycheck is more or less guaranteed every two weeks, and this completely covers our full monthly expenses. I budget all our main expenses as if my own income did not exist, in fact.

- I keep a low-expense, below-my means lifestyle. Don't care about what most people my age care about. Don't need a fancy this or that. I am happy reading books, watching films and listening to music. All low-expense activities that I could do for the rest of my life. Smoke and mirrors are not for me. I don't have time for the media bombarding and telling me what to look like and what to do with my life. I only use my TV to watch movies and NOTHING else. Freedom is an illusion, and I am simply hoping to retire early in order to have more time for myself and my wife, to do with that time what we please.


Where We Stand:
- I have 56K saved in a Money-Market Savings account that used to have a 3% interest rate and is now basically collecting dust (ie: a 0.55% interest rate). I consider this my "retirement account".
(this is now $175K, and the interest rate is 0.5%)

- I also have 15K saved in a regular savings account. I consider this my "Emergency Fund" account.
(this is now $125K)

- I keep around 5K to 7K in my checking account. This covers my monthly expenses, times 3. I consider this my "Everyday account", and if I loose my job, I can still use it for about three months before even touching my savings.
(this is now $25K... excessive, I know, but please note that out of this, about $7K goes to property taxes, and the rest I keep for unforeseen house repairs, my quarterly taxes, etc.)

- We spend between 2K and 2.5K a month, TOTAL. This includes $1100 a month for our house. Even though it is paid-for, the condo fees and taxes add up to that monthly amount.
(this is now more like $3K a month on average, mostly because we like to travel to Europe once a year, and because condo taxes and fees have increased slightly)

- We save between 2K and 3K per month. If we ever get a raise, that amount will only increase.
(this varies... but I try to save at least 2 to 3K a month, and many times I am able to put $5K aside. If I have a crazy-busy month, and I can stretch it, I try and save $10K that month, but this is rare. My goal is to save at least $50K a year, which I have been able to more or less do during the last 2 years, but I realize that this may not be feasible forever, since my job can be unpredictable).

- We don't have much investing experience. We recently opened a brokerage account, but it only has 1K worth of ONE mutual fund in it. This account has been opened for a little less than a year and it has performed at around 3.2%.
(this changed dramatically. We now have about $45K in a self-investing account, mostly Vanguard ETF's and a few individual stocks that pay a high dividend (T, OHI, VTR, O, etc.). My wife also has an additional $21K in a 403b plan, all in low cost Vanguard ETF's...)

To sum up, I estimate our net worth to be +/- $800K.

Property: $400K
Cash: $300K
Investment Accounts (combined): $70K

We also have a life insurance policy originally worth $100K (now $240K) that my in-laws purchased for my wife more than 25 years ago. I am not in favor of this type of vehicles, normally, but the policy essentially pays for itself through the dividends it produces. It is on auto-pilot. Cash value if we decide to terminate the policy is currently about $36K.

Annual dividend and interest income is only about $3800. THIS is what I would like to work on, but as you can see above, I am mostly in cash and always fearful/hesitant when it comes to the stock market. This is the area where your feedback and input would be most appreciated.

I welcome ANY feedback. Thank you for reading all the way down here. I appreciate your time and look forward to your comments.

[Blue Collar Guy]

I enjoy these long term updates, As far as investment advice, your statement of "Fearful/hesitant" with regard to the stock market will probably in the long run hold you back from getting better returns. So as usual I have a story, I hope it helps you decide what to do. I have a former boss , wonderful person. He only invested his money in a retirement fund called stable income . It was a guaranteed sort of thing that paid interest higher than money markets at one time maybe 7-8 % , now I think in the 2 % range. He has been investing the max allowed since 1987,in those days it was 7500 a year. Now i dont know the limit maybe 23,000? When the market crashed in 2000, and 2008, he still made money. He was happy as a clam. I on the other hand took on paper a beating and wouldnt open up statements as I could not bear to look at the plunging numbers. I did stay the course. In 2000 i owned individual stocks , I sold them as they still havent recovered and those losses are permanent. I only own 1 individual stock now. I learned about index funds namely Vanguards total stock market index,its symbol is VTSAX. I have a slight (heavy) slant to small cap fund. By the end of 2009 I had more money in my retirement holding than my old boss did and he was in the fund for 8 years longer than me, and had put in about 60k more than I did. I will tell you he slept better at night than I did during the roller coaster ride of the stock market. You said you like to read books. Start with the mutual fund for dummies book. Its a quick read available in most libraries. In a few days you will get a ton of info. My suggestion if you were my Son, I would encourage you to have at least 25 % of your money in the total market. I say this as you are a bit gun shy of investing( IM 80 in stocks/20 % bonds). Discuss this with your wife see how she feels. But my friend who is 100 % in safe investments is still happy as a clam,And is very well off just by being a blue collar working stiff, he never risked a dime in the market. I will note that he is still working at the same job for over 36 years, I packed it it after 25 years 9 months. Keep us updated, good luck!

[pb4uski]

Ditch the MM account in favor of an online saving account... they pay 1.0-1.3% and are fully FDIC insured, totally liquid and no interest rate risk.... but re-evaluate whether it is wise to keep so much cash to begin with and put some of those funds to work so later in life you won't have to.

At your age most of use were 90% or more in equities... while the market is at all-time highs you can still dollar-cost or value average in.

Have you considered a solo 401k for your business? You might save a lot on taxes.

[plex]

You basically have way too much in cash, and you are reaching the point where you have enough money it is worth it to educate yourself soon.

What you need is 1 year's worth of expenses as an emergency fund, a bit in a high interest savings account if you really like having some extra liquid cash, a bit more in something like 5-year CD's if you are really shy about having too much volatile assets even at a young age, and the rest needs to go into something that is able to actually stop you from bleeding money from inflation.

I won't get to much into the timing of doing a major asset allocation change, that is too complicated of a subject, and people have varying opinions on it, personally, I would wait 1.5 years into the next downturn before making a 40%+ asset allocation change into something highly volatile like stocks from something completely stable, since the long term returns have now gone quite a lot past the historical average, e.g., S+P 500 per year is at 14.9% at this point, or 17.3% with reinvested dividends, since the last downturn ended (Mar. 2009), and has gone past the average length of a bull run. Inflation over that period was about 1.9%, very low historically, it has been quite a run.

[Huston55]

My one piece of advice would be: put more $$$ in equities.

You're 39yo DINKs; you can afford to take more risk. Another way to think about it is, if you want to meet your goal of FIRE as soon as possible, you cannot afford to NOT take more risk (put more $$$ in equities).

I know that probably makes you pucker a bit but, reading some of your old posts, you seem very methodical, responsible & analytical. So, increase your equities in a way that you can live with. I suggest you consider Wellesley or Wellington or, a combo of the two. They are a great way to get equity exposure & steady, inexpensive management.

I like Blue Collar's story, and think that would be a good exercise for you. Compare your current portfolio to all Wellesley (30/70) and all Wellington (70/30) from the time of your first post (2010) to now. Obviously, the W's will result in much bigger NW than you have now, which will give you a good idea of what you'd have gotten for the risk. But, also look at the W's in 2008-09 to see the biggest paper loss, then ask yourself: "As relatively young DINKs who can live on DW's salary, could we have stomached that loss for the greater longer term gain?" [BTW: they lost ~20% & 30% respectively and recovered it all w/in 7 mos & 16 mos respectively]. If I were in your shoes, this would be a very useful exercise for me.

Congrats on your progress (better than ours @ age 39), and hope you find a good path forward. Pls keep us updated.

[UnrealizedPotential]

You will need some more money in stocks if you hope to keep pace with inflation. How much is something you will have to decide. Your savings rate is very good, but not good enough to where you will not have to take a little market risk going forward. Maybe put $500 a month into a conservative stock fund until you have 20% portfolio assets in the market and see what it looks like at that time. Baby steps. Just one way you can do it. Or, you could continue on the path you are on, but you are rolling the dice on inflation having so much in cash. Inflation begins to bite in 10 years, after 20 years it's brutal.

[Karloff]

Thank you all for your replies and comments.

Yes, I agree. I need more money in stocks. The reasons why I have not invested more in equities yet are the following:

- I sleep better at night sitting on the cash (irrational side) even though I know I am being raped by inflation (rational). I may move half of it to a CD once interest rates are around 2% or so.

- I do not like online savings accounts. Yes, I realize that they are FDIC insured, but I would rather have a physical location to be able to go to in the event of a problem. Our banks are literally walking-distance from where we live. Once is across the street. Also, the difference would mean an additional $600 or so a year. Just not worth it at this point.

- My wife is going for her Master's and, even though her work is supposedly paying for a big part of the entire degree, we are still responsible for a good percentage of it. So some of the cash will be used for this. If all goes well, once my wife graduates we should be able to recover that fairly quickly, and then some.

- I simply do not see value in most of the market today. Everything is at an all-time high. Of course, I have been saying that for 2+ years and have missed out. So, in the meantime, I keep saving so as to have the cash ready to deploy during the next correction, while I invest in "boring", high-yield stocks. What money we have in stocks has performed pretty decently, though, and my goal is to generate at least $25K/year in dividends between now and the next 10 years or so (that would cover about half of our yearly expenses).

I realize nobody owns the crystal ball, but do you believe it's wise to move cash to equities at this point, or just keep sitting tight and wait until the next correction?

[exnavynuke]

I believe the best time to move cash to equities is "now" at all moments in time - now, 10 years from now, 20 years from now, 10 years ago, etc. DCA has been proven to be the most effective method of investing for the long-term. Timing has consistently failed to keep up. As such, my money goes in regularly whether the stock market is "on a roll" or "is in a freefall". If I have money I want to invest for the future, it gets invested as I get it.

Money "on the sidelines" is all but guaranteed to be worth less in the future than when you earned it. Leaving it on the sidelines means you have to work more to get the same results in the future.

[NgineER]

Quote:

Originally Posted by exnavynuke I believe the best time to move cash to equities is "now" at all moments in time - now, 10 years from now, 20 years from now, 10 years ago, etc. DCA has been proven to be the most effective method of investing for the long-term. Timing has consistently failed to keep up. As such, my money goes in regularly whether the stock market is "on a roll" or "is in a freefall". If I have money I want to invest for the future, it gets invested as I get it. Money "on the sidelines" is all but guaranteed to be worth less in the future than when you earned it. Leaving it on the sidelines means you have to work more to get the same results in the future.

+1

Are all indices at an all-time high? There is more to the stock market than the DJI or S&P 500 if you want to be diversified. Set up your asset allocation, stocks/bond/cash and then also US/International for stocks and bonds. When you DCA in, adjust your contribution so as to meet your allocation if it is getting out of whack due to increase or drop of one of your components.

[kgtest]

too much cash...look back past ten years of your life. When have you needed more than $2000 at a time besides a wedding, car or home? now, in the next ten years, provided no wedding, new car or home...when will you need more than $2000 at a time?

Even $2000 with two working folks is probably more than what MOST of America has in cash.

[Blue Collar Guy]

Quote:

Originally Posted by kgtest too much cash...look back past ten years of your life. When have you needed more than $2000 at a time besides a wedding, car or home? now, in the next ten years, provided no wedding, new car or home...when will you need more than $2000 at a time? Even $2000 with two working folks is probably more than what MOST of America has in cash.

When the bookie sends over a few goons "to Collect", its best to have ample cash.

[Senator]

Your wife makes $60K a year. You have $3,800 in dividend income. You save $50K a year. You spend $36K a year. There is only ~30K left at the top end to account for your money.

Do you only make ~$30K a year? And that is 3x what you were making? Or do you actually spend a lot more that you are not seeing?

Get rid of the MM account. Buy a dividend ETF or an S&P 500 ETF.

[Karloff]

Quote:

Originally Posted by Senator Your wife makes $60K a year. You have $3,800 in dividend income. You save $50K a year. You spend $36K a year. There is only ~30K left at the top end to account for your money. Do you only make ~$30K a year? And that is 3x what you were making? Or do you actually spend a lot more that you are not seeing? Get rid of the MM account. Buy a dividend ETF or an S&P 500 ETF.

No, my yearly income fluctuates (it can be $50K, or it can be $100K), as I am self-employed, but, essentially, I budget all our expenses using my wife's salary and save as much as I can from my own income. Our yearly expenses fluctuate between $36K to $50K (depending on if we buy a car, for example, we buy a piece of art (we both love and enjoy this) or take a vacation overseas, etc.).

As I said in my post, we can not always save $50K a year. That has only been a recent occurrence and I do not foresee that it will happen forever, as my wife starts college soon and my job has been slower than usual lately.

Don't forget that, being self-employed, my tax responsibility is high, since I have to pay twice as much for social security, etc.

So, if we both make about +/- $150K combined (average from the last 2 years):
we spend $50K (tops)
save $50K (tops)
and the rest goes to taxes and is also saved as extra cash for college, etc.

I should have been clearer on this: When I mean we save up to $50K I do not include college savings in those savings. Case in point: Last year we were able to save about $65K TOTAL, out of which $50K I consider "net" savings and $15K I do not even think of, since I know these are funds that will be soon spent on college bills.

I hope that does make sense.

And, yes, I agree that I should be drastically more invested. I am working on it.

[pb4uski]

Quote:

Originally Posted by Karloff Thank you all for your replies and comments. Yes, I agree. I need more money in stocks. The reasons why I have not invested more in equities yet are the following: - I sleep better at night sitting on the cash (irrational side) even though I know I am being raped by inflation (rational). I may move half of it to a CD once interest rates are around 2% or so. - I do not like online savings accounts. Yes, I realize that they are FDIC insured, but I would rather have a physical location to be able to go to in the event of a problem. Our banks are literally walking-distance from where we live. Once is across the street. Also, the difference would mean an additional $600 or so a year. Just not worth it at this point. ..... - I simply do not see value in most of the market today. Everything is at an all-time high. Of course, I have been saying that for 2+ years and have missed out. So, in the meantime, I keep saving so as to have the cash ready to deploy during the next correction, while I invest in "boring", high-yield stocks. What money we have in stocks has performed pretty decently, though, and my goal is to generate at least $25K/year in dividends between now and the next 10 years or so (that would cover about half of our yearly expenses). I realize nobody owns the crystal ball, but do you believe it's wise to move cash to equities at this point, or just keep sitting tight and wait until the next correction?

Yes, I do think it is wise to move cash to equities at this point. To be blunt, cash is a losing proposition and you are just rationalizing that you are not in the market because you sleep better at night, do not like online banking, don't see value in the market today, etc.

What I would suggest that you do is "value" average in over some period of time. For example, let's say you have $200k that you want to invest in the market and you want to do it over 20 months. The first month you invest $10k... a month later you add whatever you need to to increase your balance to $20k (it may be more or less than $10k depending on what the market did in the past month)... after another month you add whatever is needed to increase your balance to $30k... repeat until you have invested the $200k. You will end up investing more when prices are "relatively' lower and less when prices are "relatively" higher.

Also, if you are waiting for your local bank's CDs to be 2% then you may be waiting a long time... you can get a 2% CD today through PenFed or one of the online banks. Discover Bank's 5 year CD pays 2.25% and PedFed is 2.12%... my local bank is 1.25% and my local CU is 1.4%.

[pjigar]

Like everyone said, you need more investments. Lot of people have already commented about equities so heed that. Also if you are a handyman kind and have flexible work hours, then look in to real estate investing. I am not referring to get-rich-quick-flip-that-old-house but rather buy cash flow positive house (from day 1) and rent it for life. It is hard to make the numbers right now but you can still find a deal now and then.

[Karloff]

Quote:

Originally Posted by pjigar Like everyone said, you need more investments. Lot of people have already commented about equities so heed that. Also if you are a handyman kind and have flexible work hours, then look in to real estate investing. I am not referring to get-rich-quick-flip-that-old-house but rather buy cash flow positive house (from day 1) and rent it for life. It is hard to make the numbers right now but you can still find a deal now and then.

While I appreciate the advise, I'm afraid that sort of investment is most certainly not for me. I am not the handyman type and have no desire to become a landlord.

[Karloff]

Quote:

Originally Posted by kgtest too much cash...look back past ten years of your life. When have you needed more than $2000 at a time besides a wedding, car or home? now, in the next ten years, provided no wedding, new car or home...when will you need more than $2000 at a time? Even $2000 with two working folks is probably more than what MOST of America has in cash.

I would have to respectfully and strongly disagree on the above. Yes, my own cash-heavy position is not ideal, but your advise is just as extreme, in the opposite direction. In fact, I could simply not sleep at night having "only" $2K in cash at hand.

Case in point: we are having roof issues at the moment. Working on estimates, but when all is said and done the total bill will be at least $9K.

Then we have college bills, etc.

Our property taxes alone are $8K/year, and the monthly association fees are $600. This is considered "cheap" for our area, amazingly enough. Next-door building pays $1K/month in fees.

Housing is our #1 money pit, even without a mortgage. I am hoping to sell in a few years and move into a place that costs half as much, elsewhere, once my wife is out of college. If it was up to me I would be living in the middle of nowhere as we speak, but my wife loves the place and her job is a good one, and it is only 10 minutes away.

[pb4uski]

I dunno.... we never had much in cash all of our working lives.... we had a steady stream of income coming in, credit cards or a HELOC if needed as an interim measure until we could sell some investments, etc.

That $9k roof bill will not be due today... just sometime soon. I presume that you have a fair idea when the colege cash flows will be due... ditto with property taxes, etc. Even the $25k of cash that you have in your checking account is probably excessive for your needs and you conceded to that yourself in the OP.

You asked for advice and people gave you advice... if you don't want to do it fine... it's your money after all... but WADR it seems to me that you are just rationalizing the status quo and not taking any actions even though you know you should.

So, given the advice... is there anything that you plan to do differently? Inquiring minds want to know.

[RetireAge50]

Well good job with the budget but I would invest 100% stocks at your age. You actually want the stock market to fall (since you will be buying for awhile).

Good luck!

[Senator]

Quote:

Originally Posted by Karloff Don't forget that, being self-employed, my tax responsibility is high, since I have to pay twice as much for social security, etc.

Taxes will be required in FIRE too. Be sure to budget for them.

My point about how much you are saving is this. You should be able to come up with what your expenses are two ways. With a spending report, and by backing into it from your income less documented savings. Far too many people think they spend a little, when they just cannot account for the spending. Yet, there is no money being saved.

I am very familiar with being self employed. Pay yourself less on a W2, and take a larger dividend. A $50K in profit, after all expenses other than payroll, should give yourself $25K in W2 income and $25K in dividends.

There are a whole host of other tax write-offs too. That should help you save.