So in order to become financially independent, I need to have an investment income of at least $1000/month. I am not at all familiar with mutual funds or the stock market, but I hope I can achieve a 4% return on my investments (after taxes?). This means I need to invest $300k in order to live off of the $12k/year profit. At this current point in time I have $42k invested in mutual funds and $1.8k in my 401(K) account.
Congrats on a strong start with clear goals that you're motivated to reach. However, some temperance is in order.
Whenever I see someone post on the forums with a belly full of fire to reach FIRE, it's great to see...but when they are talking about retiring at early 30s/late 20s, on a microbudget of $10k-15k/year, assuming a 4% withdrawal rate, I try to introduce a few facts that don't often appear in their realm of consciousness:
4% SWR 'myths' - It's true that you could very well retire on a 4% SWR and never have money issues. However, when by your own admission you don't understand mutual funds all that well, it makes me even more nervous. The 4% withdrawal rate that many people use and reference was a scientific study undertaken by academic researchers to find out "if someone retires, what 'safe' withdrawal rate could they have used on their portfolio and have withstood ANY 30 year retirement period in the US's history. Even including retiring on the eve of the Great Depression?"
The answer was: 4%. Thus the 4% Safe Withdrawal Rate "rule" was born.
However, there are 2 huge caveats:
1. Note that this is for a ***30 year*** retirement period. Not only can the future vary somewhat from the past, but in their study, if you finished year 30 with just $100 in your portfolio, it was considered a 'success'. They didn't care what happened in year 31, because their study was for just 30 years (assuming you retired in your 60s, as most people do). If you extend the period to 40, 50, or even 60 years, the SWR drops considerably, to somewhere in the low 3%. And while this period includes the Great Depression, it also includes the boom of production/profits from WWII. So although you might have retired on the even of the GD (which some parallel to the 2008/2009 crash), I don't know that we would have a similar boom waiting for us around the corner.
2. The 4% SWR study only focused on the US. When you look at retirees in other foreign countries, only Canadians have a higher SWR than the US's 4% (for a 30 year period):http://www.fpanet.org/journal/CurrentIssue/TableofContents/AnInternationalPerspectiveonSafeWithdrawalRates/
Most other countries in the study have a SWR of the mid to low 3%, or even lower.
Also, don't let your invincibility of youth make you assume that you only need this $12k budget (adjusted for inflation) for the rest of your life. Things can cost more as you age. After 10-20 years of 'retirement', you might wish to do more things that might cost money - and when 80% of your budget is consumed by rent and utilities and food, you don't have much left. Unless you want to try to get a job after being out of the workforce for 20-30 years.
You'll never have the same opportunity to earn as much as you are at 30 (presuming you want to permanently retire for the rest of your life), so, (IMO) far better to work an extra 5 years to completely seal the deal - rather than forever limiting you to just $12k/year budget AND rolling the dice and wondering if your -15%, -5%, -10% streak of returns will bounce back with a good gain, or if it will stagnate and force you back to work in your 40s/50s/60s. You might think "I'll be able to wing it without worrying".....but imagine 20 years down the road: will you lie awake at night, not being able to sleep, worrying if you'll have to look for a job because your portfolio isn't turning out the performance you hoped for? It's easy to imagine 3 or 4 consecutive years of future losses now...but actually going through 1,095 days or 1,460 days of it can be a much different experience than theory might predict.