24 year old trying to get to millionaire by 35, punch holes in me plan

[AirJordan]

Just curious. Why did you ask this question since the answer was already imbedded in your post? You gave the value of your current investments, the value you plan to invest in the future, the time period and the returns you expect. That's everything you need to calculate the answer.

Yes, with $65K now, adding $65K annually and meeting your target of 12% - 14% via managed funds, you'll be more than a millionaire by 35.

Yah this whole thread is pretty silly now I think about it. Sorry for coming off like an ass, blah blah I have a 100k a year job and I'm only 24. The thing is I by no means want to retire at 35, probably around 50, when I hopefully have 6+ million saved up. I basically just wanted a critique of my investment plan, from which the overwhelming response is put all your money in Vanguard index funds. I think I can do better, but perhaps I'm wrong and you can all laugh at my demise. I was just surprised that so few of you are invested in actively managed funds. There are a lot of great ones out there

Dodge and Cox
Fairholme
Third Avenue Value to name a few, but maybe their 10 year hot streak was just luck

 

[unclemick]

Let's call it skill - no good deed goes unpunished - past performance brings money flooding in - which can limit the ability of management to deploy it - and performance begins to suffer. Closing the fund to new investors(Dodge and Cox) can help but it's a judgement call by management to SWAG the particular area of the market they are targeting for investment.

That and the fickle finger of fate(historical cycles) can put various asset classes and sectors in and out of season for varying periods of time.

heh heh heh

 

[MasterBlaster]

If I recall correctly that Dogge and Cox fund invests a high percentage in emerging market stocks.

I expect that those stocks just may get hammered this year as investors flee them in search of safety. The bubble just may pop on that fund.

 

[macdaddy]

Yah this whole thread is pretty silly now I think about it. Sorry for coming off like an ass, blah blah I have a 100k a year job and I'm only 24.

If it makes you feel any better, a few of my close friends are 24 and all made 125k-150k last year. One of my business partners is also a lawyer who graduated from law school (Harvard) at a young age (23). He didn't make 100k but got a lot of stock options which are now worth seven figures. My experience has been that the better you are, the higher you rise, until suddenly you've risen so high, that when you stop to look around, you're just about average again, compared to the people around you...

 

[AirJordan]

If I recall correctly that Dogge and Cox fund invests a high percentage in emerging market stocks.

I expect that those stocks just may get hammered this year as investors flee them in search of safety. The bubble just may pop on that fund.

MasterBlaster, great old NES game btw, can I ask what you use for international? If the bubble pops on D&C then a lot of us are in deep doo doo. That's my single largest position as of now followed by Fairholme.

 

[donheff]

Alright AJ, you are talking like a human being now so I will take back my assertion thta you are a troll. You jumped to insults to quickly. Lots of us have managed funds. I have more than your target including over 100K in D&C. I am also moving a a substantial portion over to Vanguard index funds after looking at what I have gotten compared to what would have resulted from an index approach all along. I would probably chase performance with a fair sized chunk of my portfolio if I considered myself an expert on market trends and had a solid theory to back up my speculations -- I don't. If you do, you should pursue your ideas. You will get both good humored push-back and support here. I hope you will stay around long enough to report back on the 5/10/15 year results.

On the general "I'm a wunderkind" front you should understand that you sound like a dick head to almost everyone. $100 K at 24 is a lot of dough (on the other hand my son's GF will make $150 as a first year associate at Skadden, so you are not top tier) but the people who you work for won't suffer such an arrogant attitude for long.

 

[MasterBlaster]

AJ:

I just put all of my spare cash in a coffee can out in the garage ! The coffee is imported though !

Oh I'm in a few funds. Lets just say that EAFE index funds are the core of the international component.

The issue with emerging markets is corruption and speculation and markets not what they appear to be (ie. market rigging). Sometimes companies and stocks in emerging markets are run for the enrichment of those other than the stockholders. They have done well recently, but if and when the bubble bursts those emerging market funds will drop like a rock.

So since I am an investor and not a gambler, I only have a relatively small portion in emerging markets.

I don't need to "bet-the-farm" to acheive my objectives

Perhaps you should go back and read my first post in this thread and see if that applies to you !

http://early-retirement.org/forums/index.php?topic=12601.msg231926#msg231926

 

[TromboneAl]

Just a bit surprised here that everyone is so enamored with haystacks here.

it just seems that every single person who responded said, this will never work, past performance doesn't secure future, stick with indexes.

This is interesting, what you've noticed: Almost everyone on a forum of people, most of whom have successfully retired early and have amassed a lot of dough, recommends low-cost index funds. Wow, that's really significant! Are you paying attention -- read what you've written.

Many of us were like you at your age. If I could go back in time and whisper advice to my sleeping self when I was your age, I'd say this:

Whispering: Hey this is you from the future. Listen: Don't chase performance -- go with low-cost index funds.

 

[Fttaw]

AJ- I think you will find most people on this forum don't tip toe around, and will come right out and tell you what they think. Since you are asking for holes in your plan that is just what you want.

You don't have to agree with everyone, but I guarantee you will learn a great deal from the posters here if you listen and keep an open mind. If you disagree, explain your position, and you can be sure someone will explain why they disagree, usually with supporting doc.

Take some time and read The Four Pillars of Investing by William Bernstein, you will learn a few things, and get an understanding of much of the prevailing view on this board.

This is not your typical get rich quick board, long term is not measured in 5 years or 10 years here but more like 20 or 30 years plus. This forum has a lot of experienced investors who have accumulated more than a few dollars. I doubt you will find another forum with a higher quality of discussions (or a lower quality & more entertaining in some cases ).

If you take the time to keep reading here, you will find there is much more here than just index funds also. If you find that you are still happy with your plan go for it, just don’t stop learning and reevaluating you views and the rational behind it.

Good luck!

 

[Spanky]

Air-J should not have any problem getting to $1 mil by age 35 since he can invest so much every year. If he starts with $65K first year and increases it by 5% every year, he could do it by age 32 based on an annual return of 8% and the assumption that the deposit is at the beginning of the year.

8%
Age Beg balance Add Ending balance
24 0.00 65,000.00 70,200.00
25 70,200.00 68,250.00 149,526.00
26 149,526.00 71,662.50 238,883.58
27 238,883.58 75,245.63 339,259.54
28 339,259.54 79,007.91 451,728.84
29 451,728.84 82,958.30 577,462.12
30 577,462.12 87,106.22 717,733.80
31 717,733.80 91,461.53 873,930.95
32 873,930.95 96,034.60 1,047,562.80
33 1,047,562.80 100,836.33 1,240,271.07
34 1,240,271.07 105,878.15 1,453,841.16
35 1,453,841.16 111,172.06 1,690,214.27

 

[Spanky]

Yah this whole thread is pretty silly now I think about it. Sorry for coming off like an ass, blah blah I have a 100k a year job and I'm only 24. The thing is I by no means want to retire at 35, probably around 50, when I hopefully have 6+ million saved up.

No problem even at 5%.

5%
beg balance add ending balance
24 0.00 65,000.00 68,250.00
25 68,250.00 68,250.00 143,325.00
26 143,325.00 71,662.50 225,736.88
27 225,736.88 75,245.63 316,031.63
28 316,031.63 79,007.91 414,791.51
29 414,791.51 82,958.30 522,637.30
30 522,637.30 87,106.22 640,230.69
31 640,230.69 91,461.53 768,276.83
32 768,276.83 96,034.60 907,527.01
33 907,527.01 100,836.33 1,058,781.51
34 1,058,781.51 105,878.15 1,222,892.64
35 1,222,892.64 111,172.06 1,400,767.93
36 1,400,767.93 116,730.66 1,593,373.53
37 1,593,373.53 122,567.19 1,801,737.76
38 1,801,737.76 128,695.55 2,026,954.97
39 2,026,954.97 135,130.33 2,270,189.57
40 2,270,189.57 141,886.85 2,532,680.24
41 2,532,680.24 148,981.19 2,815,744.50
42 2,815,744.50 156,430.25 3,120,783.49
43 3,120,783.49 164,251.76 3,449,287.02
44 3,449,287.02 172,464.35 3,802,838.94
45 3,802,838.94 181,087.57 4,183,122.83
46 4,183,122.83 190,141.95 4,591,928.02
47 4,591,928.02 199,649.04 5,031,155.91
48 5,031,155.91 209,631.50 5,502,826.78
49 5,502,826.78 220,113.07 6,009,086.84
50 6,009,086.84 231,118.72 6,552,215.85

 

[AirJordan]

This is interesting, what you've noticed: Almost everyone on a forum of people, most of whom have successfully retired early and have amassed a lot of dough, recommends low-cost index funds. Wow, that's really significant! Are you paying attention -- read what you've written.

Many of us were like you at your age. If I could go back in time and whisper advice to my sleeping self when I was your age, I'd say this:

Whispering: Hey this is you from the future. Listen: Don't chase performance -- go with low-cost index funds.

Trombone Al,

Let me just ask you a couple of questions.

First what do you think of Bob Brinker?

His Portfolio consists of Fairholme, DODFX, Meridian Growth, VTSMX, etc. i.e. one index fund amongst a bunch of actively managed ones. He is a very respected auteur, and while he is a large advocate of Bogle, he still puts faith in good managers.

Second question:

So you're saying for the next 10 years you'd be more comfortable with

VTSMX
VIVAX
VISVX
VGTSX
VPACX
VGSIX

Rather than

VPCCX (Primecap Core)
DODGX (Dodge and Cox Stock)
DODFX (Dodge and Cox Internationa
TAREX (Third Avenue Real Estate)
RYVPX (Royce Value)
VGENX (Vanguard Energy)

I just can't see it. Indexes may beat 75% of funds, but the ones I list are all top 5% with tenured management

 

[AirJordan]

Thanks Spanky, cool stuff!

 

[Spanky]

Second question:

So you're saying for the next 10 years you'd be more comfortable with

VTSMX
VIVAX
VISVX
VGTSX
VPACX
VGSIX

Rather than

VPCCX (Primecap Core)
DODGX (Dodge and Cox Stock)
DODFX (Dodge and Cox Internationa
TAREX (Third Avenue Real Estate)
RYVPX (Royce Value)
VGENX (Vanguard Energy)

I just can't see it. Indexes may beat 75% of funds, but the ones I list are all top 5% with tenured management

When you invest in passive funds, you are not bidding on the manager's ability or luck. It's possible that these managers may leave also. It's very difficult to stay on top years after years. In addition, cost does matter. Index or ETF funds are usually cheaper.

 

[NinjaPigeon]

First what do you think of Bob Brinker?

His Portfolio consists of Fairholme, DODFX, Meridian Growth, VTSMX, etc. i.e. one index fund amongst a bunch of actively managed ones. He is a very respected auteur, and while he is a large advocate of Bogle, he still puts faith in good managers.

I actually had to look up who this is since I've never heard of him. But my reaction before seems to match my reaction after knowing. Why do I care what this guy holds? I'm investing for my future, not to compete with everyone else for who can collect the most money.

So you're saying for the next 10 years you'd be more comfortable with

VTSMX
VIVAX
VISVX
VGTSX
VPACX
VGSIX

Rather than

VPCCX (Primecap Core)
DODGX (Dodge and Cox Stock)
DODFX (Dodge and Cox Internationa
TAREX (Third Avenue Real Estate)
RYVPX (Royce Value)
VGENX (Vanguard Energy)

I just can't see it. Indexes may beat 75% of funds, but the ones I list are all top 5% with tenured management

Absolutely I'm fine with it. Again, you don't need to be number 1 in the measuring contest to retire. It's not a competition. And think about the numbers you just made up (I'm not sure what the percentages are, so I'll just go with what you said). That means 3 out of every 4 people who think they are smart enough to beat the rest of us are wrong.

Now, I'll admit that even though I'm older than you (29), you have about the same amount invested and sock away more per year than I do. I've been doing this only a little over a year. I don't understand one in five words Brewer says either. But index-funds make sense even for the layman.

Doesn't mean you can't aim for the fences and do what you're doing. It all boils down to risk tolerance and clearly defined goals. If you are comfortable with your asset allocation, and feel it's the best way to reach your goals, then I wish you the best of luck.

But for me? Right now indexing just makes sense. Hopefully after a few more years of experience behind me I'll be informed enough to decide if a different approach might work better.

 

[CybrMike]

READ 4 PILLARS OF INVESTING by William Bernstein

/25 years old with $6 million invested

 

[unclemick]

In spite of my tongue in cheek posts - it's not a straight up/down pass or fail. In general expenses and turnover are a relentless drag on performance over long(say 10 yrs or more) periods - a tough bogey.

But I started in 1966 in T Rowe Price New Horizons - 500 index didn't show up till end of 76 or start of 77 - and I chased value, gold, international until the early 90's via pssst Wellesley, Gold and PM, trustees co-mingled International.

I had to learn the hard way over and over more than once that past performance didn't always project forward. In only took 15-20 years to convince me on indexing.

Even then - an active fund with low turnover, low expenses, with a solution to management tenure chasing the value premium or some varient thereof - oh boy!

heh heh heh

 

[AirJordan]

I actually had to look up who this is since I've never heard of him. But my reaction before seems to match my reaction after knowing. Why do I care what this guy holds? I'm investing for my future, not to compete with everyone else for who can collect the most money.

Absolutely I'm fine with it. Again, you don't need to be number 1 in the measuring contest to retire. It's not a competition. And think about the numbers you just made up (I'm not sure what the percentages are, so I'll just go with what you said). That means 3 out of every 4 people who think they are smart enough to beat the rest of us are wrong.

Now, I'll admit that even though I'm older than you (29), you have about the same amount invested and sock away more per year than I do. I've been doing this only a little over a year. I don't understand one in five words Brewer says either. But index-funds make sense even for the layman.

Doesn't mean you can't aim for the fences and do what you're doing. It all boils down to risk tolerance and clearly defined goals. If you are comfortable with your asset allocation, and feel it's the best way to reach your goals, then I wish you the best of luck.

But for me? Right now indexing just makes sense. Hopefully after a few more years of experience behind me I'll be informed enough to decide if a different approach might work better.

2 things, Bob Brinker is one of the better respected financial analysts out there, whose portfolio has made a lot of people very rich (nevermind the qqq call), and he is certainly knows more about the market than everyone here. So I would certainly take his word over just about any poster.

Second, I didn't make up that number. That's the fact about index funds. VFINX, will always be a bottom 70% performer, and other active funds will beat it. It's ok, you guys think one way, and refuse to think that any manager can beat the indexes for the 10 year average. It's fine, it's your money, and aside from the Vanguard Diehards forum, nearly everyone out the realize the merits of active management

 

[Bikerdude]

Whispering: Hey this is you from the future. Listen: Don't chase performance -- go with low-cost index funds.

Good one Al!

 

[DRiP Guy]

Bob Brinker... certainly knows more about the market than everyone here.

I would certainly take his word over just about any poster.

You're fun!

 

[firewhen]

To each, his own. I only own index funds and highly doubt I will ever own anything else. Call me lazy or average seeking, whatever. I pay almost nothing in expenses and no capital gains, since I do not sell the funds and shift around. The funds have not paid out any capital gains either in years, so my tax deferral is almost complete other than dividends. Once I get up the courage to ER, I will slowly tap these funds, and have large capital gains to live off of at 5-15% tax rates.

So I am the market, and if the market averages 8-10% the next decade or so I will be very happy. Would I like 12%? Yes. Can I pick the right active fund to attain it? No. Do I think any funds will beat the market by any margin? No, and if any do, I would never find them anyway.

I have been with Vanguard for years and do not consider any other company.

AJ, I have read that 91.5% of a portfolio's return comes from the selection among asset classes: equity/bonds/cash. So as long as you are in equities, and earning and saving large amounts, you will do spectacularly. I always tell people it is much more important to be invested than what you are specifically invested in.

I have also found the people here to be very nice, even caring, especially if you approach them in a positive way.

 

[REWahoo]

...Bob Brinker is one of the better respected financial analysts out there, whose portfolio has made a lot of people very rich (nevermind the qqq call), and he is certainly knows more about the market than everyone here.

AJ, remember a couple of hours ago when you said we "all claim to be indexers"? Now you're absolutely sure Mr. Brinker "knows more about the market than everyone here"?

Do you have any idea of the real identity of the posters on the board? Didn't think so. There's no way you can back up your statement since TromboneAl may actually be Alan Greenspan. Point is, you just don't know who you are talking to so it might be prudent to refrain from making sweeping generalizations that cannot be supported with facts.

We got off to a bad start, and I thought we were finally headed in the right direction. I'm no longer confident that's the case, but I sure hope my doubts are unfounded.

 

[DRiP Guy]

As to Mr. Brinker, just like with all Guru's, opinions vary:

"If you add in the recommendation for up to 5% of P1 into TEFQX which remains down by 80%, then his P1 is about equal to buying and holding the S&P500 since January 1, 2000. If you had to pay any taxes on gains from selling in January 2000, then you are behind."

http://investment.suite101.com/discussion.cfm/7/86-94#message_94

And, for those interested, there is a Fan Club!

http://home.netcom.com/~fanclubs/BobBrinker/index.html

The beautiful thing about the 'net is that you can find any sort of environment you are comfortable with, even one that reinforces magical thinking like being able to time the market effectively.... did someone say "QQQQ"?



Well... [stifles a yawn] ...time for me to jump back into my comfy little home...

 

[sgeeeee]

. . .I didn't make up that number. That's the fact about index funds. VFINX, will always be a bottom 70% performer, and other active funds will beat it. . . .

Well, AJ. I don't think your portfolio is bad or evil. I actually think you have a better plan than probably >70% of your same age colleagues.

But you need to realize that the statement you made above is, at worst, wrong, and, at best, incomplete and misleading.

First, the statement has little meaning without attaching a timeframe to it. Over periods of at least 5 years, most funds do not beat the corresponding index. Over periods of 2 to 3 decades the funds that outperform the corresponding index drops to a very small percentage. Different historical studies come up with slightly different values, but index funds do very well compared to managed funds.

It's important to realize that a fund never has to finish first over any 12 month period to finish first over a 12 year period. A fund could theoretically finish in the lower 30% of competing funds for 10 years in a row and yet beat those funds in overall performance for the decade.

You have an okay plan. You believe you can beat the indexes. Most studies will tell you that historically, over multiple decade time periods, your chances are not great that you can succede, but it's not impossible. And your choices are not wild and dangerous. Worst case, you will earn a little bit less than a lazy indexer. That might upset you a little, but it won't bankrupt you.

Go for it. But keep reading. A great deal of the academic and economic literature doesn't really support your position. What you are hoping to do is not easy.

Good luck.

 

[youbet]

AJ......I don't see what the controversey is. Your plan seems very sound. Select managed funds that will perform in the top 5% over the next decade, invest heavily based on your attractive $100K income and reap the harvest based on your projected 12% - 14% returns. Excellent!

The FI portion of your march to FIRE seems to be in the bag. With that behind you except for turning the pages of the calendar a few times, you ought to start thinking about what you want to do, where you want to live, etc., as you enjoy a long and prosperous ER.