Author Topic: Help with Invesments and FIRE status  (Read 764 times)

ConfusedInvestor

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Help with Invesments and FIRE status
« on: December 17, 2018, 02:46:04 PM »
Life Situation: Married filing separately, 47 year old male, 45 year old wife . two daughters - 12 & 4 years old.

Gross Salary/Wages: $370K
• Me - $230K per year (newly form consulting company setup . plans to  take distribution salary of about $110K )
• Her - $140K per year

Current expenses: $7900 total per month
• Primary Residence Mortgage(P+I+Taxes+Insurance) - $3000 
• Auto Insurance - $100
• Utilities - $240
• Internet & TV - $80
• Phones (for us and one daughter) - $150
•  Groceries - $400
•  Daycare - $340
• Kids Dance/Sports/curricular activities  - $350
• Transportation (fuel/tolls/maintenance) - $360
• Health insurance premiums - $1400
• Other Health expenses ( Dental braces/vision contact lens/medical) - $400
• Entertainment/eat out/recreation - $600
•  Household supplies - $200
• Travel - $160
•  Membership Dues - $12
•  Dry Cleaning - $80
• Clothing - $200
• Gym - $180


Assets: about $2 mil total
• Total Bank CD/SAV/CHK: $500K
   • His and Her Bank Savings/CD/MM : $400K ( CD ladder rates from 2 - 2.7%)
   • Invested in Friends Business  : $100K @ 12%

• Total Retirement : $500K
   • Rollover IRA: $100K, Fidelity equal allocation for  U.S. Bond Index Fund/ Total International Index /Total US index/Small cap/Large Cap/Mid Cap/real estate index/LT treasury/ST treasury
   • Former Employer 401K in Rollover IRA: $290K, Trowe for  Equity 500 index (50%)/Growth Stock (20%)/High Yield (5%) / Mid Cap Growth(25%) planning to move most of funds to  Vanguard Rollover -- > seeking Allocation Advice
   • Rollover IRA: $100K, managed by Personal Capital (I am just trying this out to see how they perform )
   • Her former Employer 401K : $10K

• Total Taxable investment : $256K
    • Merrill Lynch : $100K  -- MDXBX/BND/VTSMX/VGTSX/VWAHX/VWO/VBR/VOT/VUG/MGK  === > plan to move to Vanguard Taxable account after realizing  long term gains. - 4% as of now)
    •  Personal Capital : $100K  (I am just trying this out to see how they perform . -1% loss as of now. They assign a FA if investment with them = 200k)
    • Her Merrill Lynch : $50K   (Managed by Merril Lynch)
    • Fundrise Investment : $2K ( testing them. Fear of losing principal is stopping from investing more)   
    • Cryto Currency : $1K  ( lost $1K as of now. No plans to put more)
    • HSA : $5K 
    • His Term Life: $0  (changed job so need to sign up for this. 20 or 30 year term ? )   
    • Her Term Life: $0  (Planning to get  20 or 30 year term ? )   

• Total College Savings Plan : $18K
    • 529 College Investment plan : $12K (yearly 5K contribution)
    •  State College Prepaid Plan : $6K (yearly 5K contribution)

• Primary Residence Value - $630K
• Honda Odyssey - $17K
• Merc Benz - $30K

Liabilities:
• Primary Residence Mortgage  $450K @ 3.35 % 25 yrs still remaining

• 2 Rental Homes
  • First Rental - mortgage balance of $150K @ 3.5% ( Self Managed.  makes $800 Cash flow )
  • Second Rental - mortgage balance of  $ 285K @ 4.3% ( Self Managed. makes $400 Cash flow )


Specific Questions:

1. Any recommendations for improvement in current investments ? trying out several diversification but unable to gain +10% gains
2.  Money  in Bank CD/MM, better way to invest it ? diversification in terms of specific index funds for this money? 
3. We both do not have active 401K contribution now. any suggestions on opening Company 401K account + our 401K for tax savings . Ideal amount of contributions ?
4.  Are we ready to FIRE in the next 10 years ?
« Last Edit: December 17, 2018, 03:04:15 PM by ConfusedInvestor »

Boofinator

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Re: Help with Invesments and FIRE status
« Reply #1 on: December 17, 2018, 03:47:45 PM »
You guys are doing fantastic. I'll chime in on the basics:

1. Any recommendations for improvement in current investments ? trying out several diversification but unable to gain +10% gains
2.  Money  in Bank CD/MM, better way to invest it ? diversification in terms of specific index funds for this money? 
3. We both do not have active 401K contribution now. any suggestions on opening Company 401K account + our 401K for tax savings . Ideal amount of contributions ?
4.  Are we ready to FIRE in the next 10 years ?

1. Around here, most practice boglehead-type investing. Which means mostly low expense ratio index funds. Do all of your investments meet this criteria (including old 401k(s))? You should probably shoot for less than 0.1% ER (unless there is a compelling reason otherwise). Other than that, pick the asset allocation you are comfortable with.
2. In my opinion, since you are still some ways from FIRE, you are being too conservative with your fixed income portion of the asset allocation. I do not use CD/MM for anything other than dollars I need to spend in the very near future (if that). Instead consider putting that money in bonds, with a duration equivalent to when you might consider spending that money. (If no known duration, consider a Total Bond Fund.)
3. Yes. Absolutely open and max a solo 401k if you can, and same for your wife. You will be in a pretty high tax bracket, and so are looking at considerable savings. When/If you FIRE in ten years, you can pull a substantial amount of this money out at a presumably much lower tax bracket. Also, max backdoor Roth IRA if you can.
4. I think so. As long as you maintain a good savings rate, the formula for "FI" is pretty simple. All income minus all expenses divided by total investment assets should be less than the magical 4% (or whatever your number is). Seems like you are on the right track.

I hope in the very near future you get to laugh at your choice of user name. We were all there at one point, and we are still only making educated guesses about the future.

ysette9

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Help with Invesments and FIRE status
« Reply #2 on: December 17, 2018, 04:43:17 PM »
I agree that your overall asset allocation seems very conservative. Is there a particular reason for that? You need more stocks to keep ahead of inflation over the long run unless you plan on saving significantly more than 25x your expenses.

Your second rental seems to be a real underperformer. How much equity do you have there? You should look into whether it makes sense to sell and put that money into a better-performing investment, index fund or just a better rental.

Overall your investment portfolio feels scattered and likely is more expensive than it needs to be. Around here we certainly don’t subscribe to paying anyone to manage an account for you. You are completely capable of selecting a simple, low-cost set of funds and managing it yourself. If not, Vanguard will manage everything for you for less than anyone else (0.3%).

Have you heard of a personal Investment Policy Statement? I recommend you read about them and draft your own so you have a set I’d guidelines for your overall financial life. That will help you hone in on what your real goals are and how to get there rather than dabbling a little here (PC) and a little there (bitcoin). One coherent, simple plan will serve you better in the long run.

https://www.bogleheads.org/wiki/Investment_policy_statement

reeshau

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Re: Help with Invesments and FIRE status
« Reply #3 on: December 18, 2018, 03:10:55 AM »
4.  Are we ready to FIRE in the next 10 years ?

What is driving your 10 year goal?  I ask, because while it's a round number, it seems like it would be an awkward stopping point.  Your younger daughter will be just 14, so you won't be empty nesters, and so may have a limited ability to change your lifestyle until she goes off to college.  Is this phase of life part of your plan?  A lot of your current spending is tied into your children, and rightfully so--do you have any idea what your post-children, post-FI budget will be?

I also note that your primary residence mortgage is almost 40% of your current expenses, (of course, with taxes and insurance rolled in) but you list that you have 25 years to go on it.  What are your plans for the house after you FI and/or your youngest daughter moves on?  There is much gnashing of teeth about whether or not to prepay a mortgage.  I think the answer depends on your personality.  Given how conservative your portfolio is now, I suggest you run your FI budget with and without a mortgage, and see how you feel about paying it off as an FI goal.

With both these questions answered, you may find that your FI budget is much more modest than it is currently, and the answer to your question about whether or not you are on track is much clearer.

I also agree with suggestions to simplify your investments and your account structure:  no ML (unless you are getting free trades through other business with them) no helpers.  Just simple index funds with a simple discount broker.

ConfusedInvestor

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Re: Help with Invesments and FIRE status
« Reply #4 on: December 19, 2018, 02:07:08 PM »
Thank you all for your responses.

I usually don’t keep high balances in the Bank CD/MM . I planning to invest some of the funds purchasing rental properties but given the current  real estate market, housing market is up for price correction. I will purchase once  prices come down (not trying to time the market just trying to increase chances to buy low) .
The second rental home has about 20% equity (this home has lost about 90K in value but it is slowing coming up) so I guess  I am planning to be on rent till I can.

As far as the stock market goes, there are analysts prediction about correction due soon so am holding off on investing more at this time. just waiting little more to buy low.   In Past I have realized loss of about 25K in stock market so going with somewhat conservative investing style.  My ideal asset allocation is 90/10 stocks/bonds . But as recession is on the horizon so for this year and may be next year , I went with more bonds in the portfolio.

I agree with you all about high ER. I plan to move all of the taxable and retirement funds into Vanguard . Put all retirement funds into Vangurad rollover IRA distribute into  5-6 Vanguard  funds such as total stock market index(50%), international index(15%), emerging market(10%), large cap(10%), small cap(5%), total bond (10%)  and put all taxable funds into similar 5-6 Vanguard ETFs.  Does that sounds like a good plan. 

My objective is to get  annual return of 10%  (stock + rental real estate + whatever)  so that way all these “passive income” will cover my expenses.  That’s what I am trying to do, just achieve 10% return but unable to get that. hence, seeking input from you experts.

« Last Edit: December 19, 2018, 02:11:16 PM by ConfusedInvestor »

Boofinator

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Re: Help with Invesments and FIRE status
« Reply #5 on: December 19, 2018, 02:50:57 PM »
My objective is to get  annual return of 10%  (stock + rental real estate + whatever)  so that way all these “passive income” will cover my expenses.  That’s what I am trying to do, just achieve 10% return but unable to get that. hence, seeking input from you experts.

There is no magic way I'm aware of to get an annual return of 10%. You take your bets using various investment strategies based on past performance and get what you get. Typically, those investments with higher past annualized returns come with higher variance as well; it's just the name of the game. But no doubt the best way to get an immediate boost for investments is to use tax-deferred buckets that are available to you.

ysette9

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Help with Invesments and FIRE status
« Reply #6 on: December 19, 2018, 03:06:52 PM »
A lot of what you posted is concerning. First, i read a lot of market timing. “The sky is going to fall so I’ll wait and invest later/change my investment strategy”. This is a recipe for failure, or at the very least, underperformance.

“Time in the market, not market timing.”

Decide on your asset allocation based on your goals and timeline and risk tolerance. Note: nowhere in there did I say “current market conditions” or “what my magic 8 ball says the market will do next year”. You may guess correctly once or twice but in the long run you will be wrong more often than right, and I can guarantee you aren’t better than the people with the fancy finance degrees who do this all day every day for a living and still basically suck at timing the market.

As for real estate, have you considered investment properties in other regions that have better ROI numbers? Having a bunch of cash sitting around is a drag on your returns. My husband didn’t want to buy a house six years ago because he thought prices were high and due for a correction. The six years since then have seen spectacular appreciation in our housing market, to the point that we almost missed out entirely on buying because the growth exceeded our handsome salary increases and the stock market appreciation in the same time. If it is just an investment you want, look in another area where you can get a better return on your investment.
« Last Edit: December 19, 2018, 03:10:15 PM by ysette9 »

ysette9

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Re: Help with Invesments and FIRE status
« Reply #7 on: December 19, 2018, 03:18:02 PM »
Just one more thing since I just can’t let this go.

You talk about holding off on investing and wanting more bonds because you think a downturn is coming (maybe, eventually, perhaps next year). You do realize that you are investing for the next 40 or 50 years, right? On timescales like that even if you were lucky and guessed correctly about a downturn, it will have little overall impact on your portfolio success that far into the future. It is much more important to establish disciplined investing strategy. Investing should be boring. You shouldn’t be spending your time researching and analyzing and trying to predict.

A thousand articles and papers have been written about how market timing is a bad strategy. Here is the very latest I read.

https://www.economist.com/finance-and-economics/2018/12/15/the-perils-of-trying-to-time-the-market

“This strategy is too complex for ordinary investors to profit reliably from it. But there is a simpler form of market timing, which has some empirical support: rebalancing. It requires investors to decide first how they want to divide their investments. It could be, say, an equal split between American and non-American stocks. The precise weights matter less than that they are stuck to. That requires regular rebalancing to restore the original weights. It means shedding assets that have risen a lot in favour of those that have gone up by less.

The virtue of rebalancing is that it is simple. You are less likely to make a costly mistake than if you follow a more complex strategy. The drawback is that you must give up the delusion that you can time it like Livermore. To do what he did takes nerve and a rare feel for markets. You may think you have such talents. You almost certainly don’t.”