first time poster, could use an assessment, and a few Qs

[sfenrir]

questions are on when and how to actually diversify, they're on the bottom mainly 'cause i wasn't sure by themselves without context they'd make much sense.

Hi guys, first time forum posters, though a long time MMM blog reader at this point. so pardon my ignorance.

First, a brief of my situation, i think i’m pretty much ready to let go of the corporate gig at any moment. Actually planning staying another 7 months or so before i pull the plug, (partly to build a bit more of a $ buffer, but also for symbolic reasons as i’d have hit a 10 year mark at my current gig and i really want that anniversary gift)

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I’ve divided my pie into Long Term vs Short Term, short term to me just means it’s meant to generate what i need to live

Short Term, Illiquid
32k in rental, off a property worth 650k. this property has high taxes, maintenance and hoa, so i actually only clear 18k in profit. but the demand is also very high and i’ve never even had it sit empty for more than a month.

0-3k in potential rental income, off the house i will soon be living in, worth 250k. (i know primarily residence doesn’t usually generate an income, but i bought a 3br/2bath house even though i’m just one guy ‘cause i would like a house mate if possible, and also why i estimated this at 3k a year which i think i can probably fill relatively easily).

Short Term, Liquid
22k in dividend income, off of a 300k investment in stocks that i picked primarily for income purposes only. (REITs, MLPs and some more conservative picks to balance out the riskier stuff)

Short Term Total, basically i think i can generate about 54k off of about 1.2 million ish worth of assets. (yield would be about 4.5%, close enough to the 4% rule i think) My regular, non optimized burn rate is somewhere between 30 to 35k (this is including the 14k in upkeep for my rental property). So i think a 22k buffer should be more than enough extras like traveling or what not that i don’t do enough of currently.

will probably hold 25k in cash as well. at the moment i also have a car that i barely drive, but i plan on selling that before i relocate, that might net me another 10k in cash.


Long Term

300k in 401k/IRA - in some index funds (midcap and emerging markets), won’t touch it, don’t need to. this is totally illiquid
200k in home equity in the apt i live in right now. I plan on selling this place when i leave, not to make money but mainly so i don’t have to deal with two different rentals on opposite coasts. after paying the commission this might end up more like 150k. also illiquid ’til its sold
100k in vanguard index fund (snp500)- just started indexing in a regular brokerage this year
700k in company stocks - this is an estimate, and only if i stay 7 more months.. technically i work for a snp500 company right now so really i’m just extremely overexposed in this category.

Long Term Total, i’m guessing a bit more than 1.2 million ish in money that i hopefully never need to touch, just to grow. The average yield will be pretty close to 1.5% ish. which would essentially be my “savings” rate, post corporate job, to be reinvested. but since most of it is just in a regular brokerage, i could always sell some if i need to for big purchases

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so here are my questions, on the when and hows of diversification

1. i know i should sell more of the company stock and put it into vanguard index, i actually just started doing that this year… but i stopped after doing so for 100k mainly i realized that if i do it next year after moving away from California i can at least not have to pay the very high state tax rate of Cali. Ideally i’d leave 300k in the company stock vs about 500k in vanguard index. is it better to diversify say 100k each year for 4 years to reach this equilibrium or 200k for 2 years, or just do it all at once post relocation so it’s on autopilot sooner?

2. when i do get rid of the California property, should the proceeds go right into more vanguard index, or what’s a reasonable amount to keep in cash to pursue entrepreneurial stuff? to be honest i’m so burned out from the corporate world i’ven’t thought much about what i’ll do after, only that i plan on napping for at least 3 months. mainly i ask this ‘cause while i hate having excess cash just not doing much, i also kinda don’t want to put in another 100k into vanguard index, only to have to pull it back out a year or two later.

3. Any other tips and advice on someone who’s about to pull the plug? i feel like i’ve gone over the math quite a few times and it should work out fine. but obviously the unknown is always a bit scary… I’m definitely excited though and can’t wait ’til this year’s done and over with.

[WalkaboutStache]

"when i do get rid of the California property, should the proceeds go right into more vanguard index, or what’s a reasonable amount to keep in cash to pursue entrepreneurial stuff? "

Been there, done (sort of) that.  I kept about 100K at hand last year for entrepreneurial stuff too.  My intent was to kiss my corporate desk goodbye. I held it, and held it (it wasn't always 100, but it grew to that), and researched, and brainstormed and realized that my mind is fried from the corporate pan.  I will probably do something interesting with my money and time post-FIRE, but in reality I think I'll need some time to decompress.  Last year I could have put my money to work, but was too risk averse to do it and it did nothing for me.

From what I read, needing to decompress is a common experience, so I think the better idea is to put that money to work as soon as you can and liquidating it when you need it.  Alternativeluy, MMM suggested using an equity line of credit for those times when you need to convert the value stored in your properties into cash so that your own money can keep working.  That seems sensible too.

Also, if you are thinking about plunking all of 200K into a single business idea, you may want to think through whether your idea could lean out a little, at least at first. 

[sfenrir]

ok! that really helps! yeah it's not like i have any real ideas. and i should have some cash outside of the proceeds from the property sale, appreciate the perspective!

[LAGuy]

If you try to escape California by moving your primary residence to a no tax state, it's possible they won't let you go if you're still holding property in the state. Apparently you need to cut all ties, property, drivers license, hell your library card or it's possible they'll still hit you up for the taxes on your investments (that they tax at ordinary income rates, of course). You may be small fry enough that they won't bother, but it's worth looking into. There's been a few court cases of successful business people that left the state, but kept a residence in CA and later the state came after them for taxes on their business.