Author Topic: Race from $1M to $2M  (Read 21833 times)

Cornbread OMalley

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Re: Race from $1M to $2M
« Reply #50 on: January 10, 2017, 04:05:53 PM »
Not to be a downer but I also fear that we could see a stock market correction in 2017...but then again who knows!
All the more reason for me to build up ample cash reserves while I still have a regular paycheck to ride these market corrections out.

Car Jack

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Re: Race from $1M to $2M
« Reply #51 on: January 13, 2017, 06:49:47 AM »

Edit: Forgot to add that we are also a bit worried about the super high stock market valuations these days.  We have switched some of our holdings to somewhat more conservative funds ( Vanguard Wellesley - VWIAX ).  Not to be a downer but I also fear that we could see a stock market correction in 2017...but then again who knows!

You have to be able to sleep at night.  With stocks so high, rebalancing into bond/conservative investments is fine.  You should have an IPS written and go by that.  If you decide that your asset allocation needs to be changed to prevent sitting bolt upright in the middle of the night worrying "what if the Dow drops 1200 points tomorrow?!", then it makes perfect sense to readjust your AA and do some shuffling of funds.

farmecologist

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Re: Race from $1M to $2M
« Reply #52 on: January 13, 2017, 07:56:20 AM »

Edit: Forgot to add that we are also a bit worried about the super high stock market valuations these days.  We have switched some of our holdings to somewhat more conservative funds ( Vanguard Wellesley - VWIAX ).  Not to be a downer but I also fear that we could see a stock market correction in 2017...but then again who knows!

You have to be able to sleep at night.  With stocks so high, rebalancing into bond/conservative investments is fine.  You should have an IPS written and go by that.  If you decide that your asset allocation needs to be changed to prevent sitting bolt upright in the middle of the night worrying "what if the Dow drops 1200 points tomorrow?!", then it makes perfect sense to readjust your AA and do some shuffling of funds.


Yes..we readjusted a few years ago to 'sleep better at night'.  Vanguard Wellesley Admiral (VWIAX), a 70% bond/30% stock 'balanced' fund has worked out very well for us.  Yields are at around 3% right now. 

On another thread I noted that many here seem to be very, very gung-ho on stocks.  I'm afraid that many will be very disappointed when they see their accounts drop 40% someday ( although I sincerely hope this will never happen ).  As some who has 'lived through' the crash of '08, the experience was good lesson on why we should diversify!  I'm almost certain that many of the pro-stock people have not had an experience like this.  In fact, I think many of the younger folks here probably started investing just after the crash. 

Car Jack

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Re: Race from $1M to $2M
« Reply #53 on: January 13, 2017, 09:11:44 AM »
When you're in your 20's, you can easily be gung ho and 95% stocks without worry.  Your portfolio at that point is low enough to be called "who cares?".  But when you're at the point where you actively think "if they come in and fire me today, I'm set to retire", then pulling a 2008 where stocks dropped 50% doesn't work.  I'm in that near retirement stage.  50/50.

farmecologist

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Re: Race from $1M to $2M
« Reply #54 on: January 13, 2017, 11:21:38 AM »
When you're in your 20's, you can easily be gung ho and 95% stocks without worry.  Your portfolio at that point is low enough to be called "who cares?".  But when you're at the point where you actively think "if they come in and fire me today, I'm set to retire", then pulling a 2008 where stocks dropped 50% doesn't work.  I'm in that near retirement stage.  50/50.

Yes..I agree with you 100%.  However, for many people that's not how it worked out in 2008.  Due to panic/fear/paranoia, I saw FAR too many people pull money out of the market during the crash ( the worst possible time to do so ).  Many also stopped investing towards the low point ( again a horrible idea ).  These are people that should have known better.  Basically, many people believe in the idea of dollar-cost-averaging...but can't seem to stick with it during tough times. 

Of course there are many other variables that play into this.   For instance, the loss of a job during a down market causes lost investment opportunities at the at the 'low point' of the cycle.  This happened quite a bit during the 'great recession'...the very time when there was the most opportunity to invest.  This also happens to be a big reason why the 'smart money' always wins.

My whole point to all of this is to be careful out there!  Invest over the long the best you can and make sure to diversify.
« Last Edit: January 13, 2017, 11:23:12 AM by farmecologist »

Cornbread OMalley

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Re: Race from $1M to $2M
« Reply #55 on: January 14, 2017, 03:18:14 AM »
Compiled my net worth for the check dated 1st quarter 2017:

$1,136,462.13

Freedom17

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Re: Race from $1M to $2M
« Reply #56 on: January 19, 2017, 02:24:14 AM »
Awesome news today. I just crossed over the $2M mark!



Metric Mouse

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Re: Race from $1M to $2M
« Reply #57 on: January 19, 2017, 02:28:01 AM »
Awesome news today. I just crossed over the $2M mark!

Congrats!
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Cornbread OMalley

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Re: Race from $1M to $2M
« Reply #58 on: January 19, 2017, 10:54:22 AM »
Awesome news today. I just crossed over the $2M mark!
Congrats, Freedom17!

arebelspy

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Re: Race from $1M to $2M
« Reply #59 on: January 19, 2017, 06:06:09 PM »
Hit ~$1.0M  in 05/2016 when we sold our house
At  $1.17M in 10/2016 we quit our jobs
At $1.18 at end of 2016

Might be a slow race to two million with no jobs, but hope to join you, doing it while sitting around drinking and hoping the markets do their magic. Slow and steady...

whats your WR.  4% of 1.17M or less?

Hard to say because we have a lot of changes and went into permanent travelling mode, so don't know what our expenses are. Will aim to keep them below $40,000. Long term it will depend on cost of housing in whatever area we settle in.

We're in a similar situation!  North of 1MM, FIRE'd, so our "race" to 2MM will be more like a slow crawl.

Unknown expenses due to travel/kids and unknown future "settling" situation.

But hey, I'd rather crawl to 2MM while not working than rocket there while working full time, personally.  :D

I'd guess maybe.. 2021 or so?  Could be earlier or later, depending on market returns and any contributions.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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Travelling Biologist

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Re: Race from $1M to $2M
« Reply #60 on: January 19, 2017, 06:25:51 PM »

We're in a similar situation!  North of 1MM, FIRE'd, so our "race" to 2MM will be more like a slow crawl.

Unknown expenses due to travel/kids and unknown future "settling" situation.

But hey, I'd rather crawl to 2MM while not working than rocket there while working full time, personally.  :D

I'd guess maybe.. 2021 or so?  Could be earlier or later, depending on market returns and any contributions.

I was under the impression that most of your income was from real estate investments? What proportion of your NW is invested in the market?

arebelspy

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Re: Race from $1M to $2M
« Reply #61 on: January 19, 2017, 08:18:10 PM »

We're in a similar situation!  North of 1MM, FIRE'd, so our "race" to 2MM will be more like a slow crawl.

Unknown expenses due to travel/kids and unknown future "settling" situation.

But hey, I'd rather crawl to 2MM while not working than rocket there while working full time, personally.  :D

I'd guess maybe.. 2021 or so?  Could be earlier or later, depending on market returns and any contributions.

I was under the impression that most of your income was from real estate investments?

Indeed, it is!

The real estate market is a thing, too. ;)

How the real estate market performs (e.g. appreciation) has a big impact on our net worth.

Quote
What proportion of your NW is invested in the market?

Almost everything except the NPV of our pension (though that is also invested, though for us, via the pension managers).

Most in various real estate markets, some in the stock market.

While the bulk of our investments are in real estate, we have a good chunk in the stock market as well, and more all the time (sending all our extra cash flow into equities, to diversify into paper assets and try to hit a "second FI" based on our stock portfolio).

Either way, fluctuations in stocks and real estate values will be the thing that determines when we hit 2MM, likely more so than our contributions (due to them being much lower now that we don't work, obviously--otherwise it would be the contributions driving it, like for most ERees).
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

bigchrisb

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Re: Race from $1M to $2M
« Reply #62 on: January 19, 2017, 10:17:59 PM »
Congrats to those who have crossed the threshold! 

Wanted to add my perspective having recently crossed the $2m barrier ($2.7m in Australian dollars as of this month, so technically now $2m of those funny green dollars too).

Getting to $1m took me 8.5 years from graduation (and negative net worth at that point).  Since then, things have accelerated, taking 3.5 years to get to $2mm.  Assuming current trajectory, getting to $3mm will be under two years.  So, however you look at it, if you keep working/saving/investing, and markets behaving, the trajectory does go exponential.

However, I'm about to pull the pin on my career and its cash supply (5 months to go).  I'm expecting the trajectory to really slow down then, and it will probably be a slow limp over the $3m mark.  From this thread, it sounds like I'm certainly not the only one hitting this point, and having adjustment issues in finding a purpose other than net worth build!


   

Freedom17

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Re: Race from $1M to $2M
« Reply #63 on: January 19, 2017, 10:26:36 PM »
Congrats on pulling the pin and nice to see another Aussie on here! We have 6 months to go before RE ourselves.



Metric Mouse

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Re: Race from $1M to $2M
« Reply #64 on: January 19, 2017, 11:52:17 PM »
Congrats to those who have crossed the threshold! 

Wanted to add my perspective having recently crossed the $2m barrier ($2.7m in Australian dollars as of this month, so technically now $2m of those funny green dollars too).

Getting to $1m took me 8.5 years from graduation (and negative net worth at that point).  Since then, things have accelerated, taking 3.5 years to get to $2mm.  Assuming current trajectory, getting to $3mm will be under two years.  So, however you look at it, if you keep working/saving/investing, and markets behaving, the trajectory does go exponential.

However, I'm about to pull the pin on my career and its cash supply (5 months to go).  I'm expecting the trajectory to really slow down then, and it will probably be a slow limp over the $3m mark.  From this thread, it sounds like I'm certainly not the only one hitting this point, and having adjustment issues in finding a purpose other than net worth build!
 

That's quite the impressive acceleration! I can't imagine making money that fast; be a few years before I crack the 2 mil mark, I would guess. I'd have to start tracking my networth at some point, even to know. I'm way too lazy to do that, much less earn money I'll never need, so it's no doubt much easier for people without my disability. :D
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arebelspy

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Re: Race from $1M to $2M
« Reply #65 on: January 20, 2017, 01:42:38 AM »


I can't imagine making money that fast; be a few years before I crack the 2 mil mark, I would guess. I'd have to start tracking my networth at some point, even to know. I'm way too lazy to do that, much less earn money I'll never need, so it's no doubt much easier for people without my disability.

Do you have no idea what your assets are worth, or what your liabilities are?

Or was this a joke that went over my head?
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

Metric Mouse

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Re: Race from $1M to $2M
« Reply #66 on: January 20, 2017, 01:56:58 AM »


I can't imagine making money that fast; be a few years before I crack the 2 mil mark, I would guess. I'd have to start tracking my networth at some point, even to know. I'm way too lazy to do that, much less earn money I'll never need, so it's no doubt much easier for people without my disability.

Do you have no idea what your assets are worth, or what your liabilities are?

Or was this a joke that went over my head?

I mean... Kinda? I know I'm worth more this year than last year, even after spending a fuck ton of money on a ridiculous lifestyle. Do I keep an up-to-the month mental track of my assets and liabilities, so that I might know when I reach an arbitrary dollar figure of net worth? Fuck no. What's the point?

And yes, you did seem to miss a large part of it, but that's neither here nor there.
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bigchrisb

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Re: Race from $1M to $2M
« Reply #67 on: January 20, 2017, 04:33:24 AM »
As net worth grows, it becomes a decreasingly useful metric. When I had $100k, changes in net worth were mostly reflecting my behaviour. At $1m, the change from the markets on net worth was often greater than the impact of my savings in a given month. Beyond $2m, the behaviour is almost unmeasurable in net worth changes. I spend more time now on monthly savings rate, and don't track net worth so much

Travelling Biologist

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Re: Race from $1M to $2M
« Reply #68 on: January 20, 2017, 01:22:03 PM »

We're in a similar situation!  North of 1MM, FIRE'd, so our "race" to 2MM will be more like a slow crawl.

Unknown expenses due to travel/kids and unknown future "settling" situation.

But hey, I'd rather crawl to 2MM while not working than rocket there while working full time, personally.  :D

I'd guess maybe.. 2021 or so?  Could be earlier or later, depending on market returns and any contributions.

I was under the impression that most of your income was from real estate investments?

Indeed, it is!

The real estate market is a thing, too. ;)

How the real estate market performs (e.g. appreciation) has a big impact on our net worth.

Quote
What proportion of your NW is invested in the market?

Almost everything except the NPV of our pension (though that is also invested, though for us, via the pension managers).

Most in various real estate markets, some in the stock market.

While the bulk of our investments are in real estate, we have a good chunk in the stock market as well, and more all the time (sending all our extra cash flow into equities, to diversify into paper assets and try to hit a "second FI" based on our stock portfolio).

Either way, fluctuations in stocks and real estate values will be the thing that determines when we hit 2MM, likely more so than our contributions (due to them being much lower now that we don't work, obviously--otherwise it would be the contributions driving it, like for most ERees).

Ah, yes, of course it is in a market even if it's a real estate market. I guess I was thinking that your *income* wouldn't be as equities-market-dependent but since this thread is about NW, that makes sense. How do you assess your property values since they are in diverse geographic areas? I know there is Zillow in the US, but I've seen people mention it can be unreliable.


Travelling Biologist

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Re: Race from $1M to $2M
« Reply #69 on: January 20, 2017, 01:25:20 PM »
Congrats to those who have crossed the threshold! 

Wanted to add my perspective having recently crossed the $2m barrier ($2.7m in Australian dollars as of this month, so technically now $2m of those funny green dollars too).

Getting to $1m took me 8.5 years from graduation (and negative net worth at that point).  Since then, things have accelerated, taking 3.5 years to get to $2mm.  Assuming current trajectory, getting to $3mm will be under two years.  So, however you look at it, if you keep working/saving/investing, and markets behaving, the trajectory does go exponential.

However, I'm about to pull the pin on my career and its cash supply (5 months to go).  I'm expecting the trajectory to really slow down then, and it will probably be a slow limp over the $3m mark.  From this thread, it sounds like I'm certainly not the only one hitting this point, and having adjustment issues in finding a purpose other than net worth build!


   

Wow, that's very impressive. We just broke 1 M NW this past summer, but it took us 11 years from graduating with a slightly negative NW. If you're willing to share more details, I would be interested in knowing roughly how much you were saving per month or per year, and whether that number changed after you reached 1 M. I can't imagine getting to 2 M in 3.5 years!

Freedom17

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Re: Race from $1M to $2M
« Reply #70 on: January 20, 2017, 01:34:05 PM »
For us it took 7 years from graduation to hit 1M and 4 more years to hit 2M.



bigchrisb

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Re: Race from $1M to $2M
« Reply #71 on: January 20, 2017, 05:07:46 PM »
Congrats to those who have crossed the threshold! 

Wanted to add my perspective having recently crossed the $2m barrier ($2.7m in Australian dollars as of this month, so technically now $2m of those funny green dollars too).

Getting to $1m took me 8.5 years from graduation (and negative net worth at that point).  Since then, things have accelerated, taking 3.5 years to get to $2mm.  Assuming current trajectory, getting to $3mm will be under two years.  So, however you look at it, if you keep working/saving/investing, and markets behaving, the trajectory does go exponential.

However, I'm about to pull the pin on my career and its cash supply (5 months to go).  I'm expecting the trajectory to really slow down then, and it will probably be a slow limp over the $3m mark.  From this thread, it sounds like I'm certainly not the only one hitting this point, and having adjustment issues in finding a purpose other than net worth build!


   

Wow, that's very impressive. We just broke 1 M NW this past summer, but it took us 11 years from graduating with a slightly negative NW. If you're willing to share more details, I would be interested in knowing roughly how much you were saving per month or per year, and whether that number changed after you reached 1 M. I can't imagine getting to 2 M in 3.5 years!

I'm less convinced that the 2nd was impressive - things were pretty much on autopilot during that time.  The usual things - high income, control expenses, save lots, apply some leverage with low rates, get lucky on market returns. 

For a blow by blow account, I have a journal in the journals section.  For the short version, over the period from $1m to $2m, my numbers were:
After tax income from employemnt (including superannuation - like an Australian version of a 401k): $520k
Spending: $194k
Savings: =$326k, savings rate 63%
Return from market over this time:
Dividends: $193k
Capital gains: $481k.

So, about 70% of the change was from the portfolio doing the lifting, and 30% was from savings.  I suspect I'm not the only one that has seen this kind of trajectory. 

Asset allocation is roughly:
30% Australian residential property (I live in this house.  I believe Australian houses are a bubble)
11% Australian commercial property
44% Australian shares
15% International shares,
plus a little big of leverage ($500k on 3.2M total portfolio value)

Hope that helps.
« Last Edit: January 20, 2017, 05:19:58 PM by bigchrisb »

arebelspy

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Re: Race from $1M to $2M
« Reply #72 on: January 20, 2017, 05:10:50 PM »
Ah, yes, of course it is in a market even if it's a real estate market. I guess I was thinking that your *income* wouldn't be as equities-market-dependent but since this thread is about NW, that makes sense. How do you assess your property values since they are in diverse geographic areas? I know there is Zillow in the US, but I've seen people mention it can be unreliable.

Best estimate. There's no way to know for sure until you sell (even comps aren't sufficient), but I've gotten pretty good at assessing property values.

For us it took 7 years from graduation to hit 1M and 4 more years to hit 2M.

It took us about 7.5 years from graduation to hit 1MM (though we were at NW $0 after 3 years due to a declining real estate market, so from $0 to 1MM took about 5 years), and it'll probably take 6ish years to hit 2MM, but that's with being FIRE'd about 5.5 of the 6 years.  If we were still working, I think 3-4 years to hit 2MM is likely.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

Metric Mouse

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Re: Race from $1M to $2M
« Reply #73 on: January 20, 2017, 08:23:12 PM »
For us it took 7 years from graduation to hit 1M and 4 more years to hit 2M.

That is massively impressive! I suppose i could pull the first one off, if measured from college graduation and not highschool. Have about another year or so for that though. Would love to have the stache double 3 years after that, but it wouldn't matter much, as far as I'm concerned.
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libertarian4321

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Re: Race from $1M to $2M
« Reply #74 on: January 21, 2017, 02:17:26 AM »
The first million is really hard.

The second million is pretty hard.

The third million is a lot easier.

The 4th million isn't that hard, it just becomes inevitable.

begood

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Re: Race from $1M to $2M
« Reply #75 on: January 21, 2017, 07:10:49 AM »
As net worth grows, it becomes a decreasingly useful metric. When I had $100k, changes in net worth were mostly reflecting my behaviour. At $1m, the change from the markets on net worth was often greater than the impact of my savings in a given month. Beyond $2m, the behaviour is almost unmeasurable in net worth changes. I spend more time now on monthly savings rate, and don't track net worth so much

bigchrisb, this has really stuck with me.

Our net worth is at 2.3 right now. My husband maxes out his 403(b), which, including maxing catch-up contributions  and the employer match, added up to $30.5K last year. But it read as "noise" in the overall net worth. The additions we are making don't make a big difference when the market goes up, and they won't make a big difference when the market goes down.

We live in provided housing at my husband's job, and we don't want to be landlords, so we haven't had real estate since we lost $80K on the sale of our house in 2009. We have REITs but no equity. So aside from 7% we keep in money market accounts and a CD because if my husband lost his job, we'd lose both his income and housing, our entire stache is out there in "Return is Not Guaranteed Land", which feels darker and more foreboding the older I get.

We made our first million by saving in a corporate culture where most of our peers spent. The climb to the second million got a huge boost with a $300K inheritance in 2014. But now I don't see a way to 3 or 4, so I would love to hear more from libertarian4321 about why those are easier/inevitable. Frankly, I'm more worried about that value dropping in half than I am convinced it will double.

« Last Edit: January 21, 2017, 07:24:38 AM by begood »

Travelling Biologist

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Re: Race from $1M to $2M
« Reply #76 on: January 21, 2017, 08:31:10 AM »
Thanks for sharing more details about pace and rate of increase everyone. We are now saving about the same amount per year as you, bigchrisb, but quite a bit of our NW is in housing equity. Somehow I don't think returns will be as good in the next few years as they have been in the past few years but of course no one can know that for sure. One or both of us might scale back before we reach 2 M anyway. I would probably stick it out if it could happen in 3.5 years, but my calculations with modest returns suggest 6-8 years, which seems too far away.

arebelspy

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Re: Race from $1M to $2M
« Reply #77 on: January 21, 2017, 01:14:02 PM »
As net worth grows, it becomes a decreasingly useful metric. When I had $100k, changes in net worth were mostly reflecting my behaviour. At $1m, the change from the markets on net worth was often greater than the impact of my savings in a given month. Beyond $2m, the behaviour is almost unmeasurable in net worth changes. I spend more time now on monthly savings rate, and don't track net worth so much

bigchrisb, this has really stuck with me.

Our net worth is at 2.3 right now. My husband maxes out his 403(b), which, including maxing catch-up contributions  and the employer match, added up to $30.5K last year. But it read as "noise" in the overall net worth. The additions we are making don't make a big difference when the market goes up, and they won't make a big difference when the market goes down.

So here's the thing.

Mathematically, if you believe this to be true (contributions basically noise, not much difference, just market movement is the main thing), and you're saving 50% or more, then you should ER!  (Aside from the case where you love your job--in the scenario where you're working towards ER.)

Basically the logic is pretty simple:
1) If you're saving > 50%, your withdrawals (spending) is less than your contribution/savings (by definition of savings and spending).
2) If the amount you're saving is fluctuations/noise among market movements, withdrawing an even smaller amount would be even smaller noise.
3) Therefore you could ER, and the market will do its thing. There's no difference between adding a tiny bit of noise as a tiny boost, or an even smaller amount of noise as a tiny drag.

If you don't agree, then I'd posit there's something else wrong besides the logic--either you don't believe it's just noise (i.e. you think the drawdowns could be significant, in which case the contributions should count as "significant," since they're an even larger amount), or you have psychological hangups around ER'ing (or you aren't trying to ER, e.g. in the case you love your job).

But contributions shouldn't be "noise" until you're at the ER point, basically.

Simply put, most people are saving > 1 year of ER each working year (1 year @ 50% savings rate, 2 years @ 66%, 3 @ 75%, etc.).  When you're saving some number > 1, and your overall stache is < 25x annual spend, it shouldn't be noise.

E.g. say your stache is 18x expenses, and you add 3x.  That's 16% of your stache you add that year.  Certainly not noise.

And this, since it's a percent, is irrelevant of stache size. 

If you're at 2MM, but saving 300k/yr, that's not noise.  If you're at 2MM but saving only 20k (and that's > 50%) that's noise, sure, but then you're well past FI (spending < 20k on a 2MM stache).

So I'd posit if contributions are noise, you can/should (if you don't like your job) ER.

:)
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Freedom17

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Re: Race from $1M to $2M
« Reply #78 on: January 21, 2017, 02:10:43 PM »
You should be careful here with assuming all noise are equal. Market movements move up and down with a certain long term growth rate. On the other hand savings is always positive. Even though savings may be small and appear to be 'noise' they have a very different distribution to market returns. To give another example if the market is volatile then withdrawals of 8% a year may seem small relative to market movements, but over time those withdrawals (at that rate) will almost surely deplete the stash where as market movements won't.



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Re: Race from $1M to $2M
« Reply #79 on: January 21, 2017, 06:07:57 PM »
You should be careful here with assuming all noise are equal. Market movements move up and down with a certain long term growth rate. On the other hand savings is always positive. Even though savings may be small and appear to be 'noise' they have a very different distribution to market returns. To give another example if the market is volatile then withdrawals of 8% a year may seem small relative to market movements, but over time those withdrawals (at that rate) will almost surely deplete the stash where as market movements won't.

Sure, but 8% contributions aren't noise either then.

My point was by the time you get to where contributions are "noise," you should be well past 25x assets, and possibly past 33x, so the "noise" you're adding (1, 2, 3%) would also just be "noise" being removed, and you should be FI.
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Freedom17

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Re: Race from $1M to $2M
« Reply #80 on: January 21, 2017, 06:26:26 PM »
Yeah. So if you define 'noise' as anything at or below 4% then withdrawing at the 'noise' rate is safe. But this is just word games.

It's pretty arbitrary to say that someone would call say 4% 'noise' and 5% 'not noise', or that the level someone would call noise depends on CAPE.
« Last Edit: January 21, 2017, 06:30:17 PM by Freedom17 »



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Re: Race from $1M to $2M
« Reply #81 on: January 21, 2017, 07:22:10 PM »
Right, I'm assuming 4%, 5% are not noise.

I suppose someone may be using the term much looser than I am, but if you overlay a chart with contributions and without, it's past what I'd call "noise" level until the contributions are quite small, meaning past FI.

If you have 1MM and the market goes up 5%, it's not "noise" IMO and if you contribute 50k, ditto.

Once you're at the "noise" level, why are you still working (again, except if you want to work, but no longer for money).

EDIT: Let's move it to hard numbers so we get less vague.  I proposed if you're saving > 50% and it's just noise, you're FI.  You seem to disagree.  So maybe you can provide a number you would view as "noise" where someone is saving > 50% but is not FI?

If you disagree with me, why not provide a counter-example that shows my theory wrong?

« Last Edit: January 21, 2017, 07:25:23 PM by arebelspy »
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Freedom17

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Re: Race from $1M to $2M
« Reply #82 on: January 21, 2017, 09:07:40 PM »
I'm not saying your theory is wrong but just that it misses some subtlety here. Forgive me for being pedantic. It's because I'm a mathematician and noise has a very specific meaning but let me put it in more concrete terms.

Let's say the market goes up and down 1% per day due to noise. It could easily have a good or bad run and move 5% in a month. Even though that seems like a lot it's just noise. The fact that it bounces around doesn't really matter because in the long term it's trending upwards. The market noise averages out over time (it's a random variable with an average value of 0).

On the other hand let's say that in addition to your usual safe withdrawal rate you withdraw an extra 1% per annum. Per day that's only 1% / 356 = 0.003%. On any given day it's indistinguishable from the 1% noise in the market. You might say that it doesn't matter since it's so much smaller than the market noise.

However that extra 0.003% per day doesn't have an average of 0. It's always 0.003%. It stacks up day after day and causes you to withdraw 1% over your safe withdrawal rate per year and may ultimately cause you to deplete your stash.

So to do this properly we really need to talk about both the average value (mean) of the noise and it's standard deviation. Market variations from the long term trend have a large standard deviation (1% per day) but the average is 0 so they average out over time and don't matter if you take a long term view. Spending over your safe withdrawal rate on the other hand has a very small standard deviation (0 if you overspend the same amount every day) but the average value is negative causing all that overspending to stack up over a year and cause potential problems.

So even though spending or saving looks small on a daily basis compared to market fluctuations, it can have a much larger effect over time.

Let me make it even more concrete. With 2M in assets we can easily see a variation in net worth of $20k per day. This could easily be $50k a month. So the market noise is around $50k per month. Our savings rate is 80%. So we meet your criteria.

However if we overspend (or undersave) by $1600 per month it corresponds to a 1% higher withdrawal rate which would be an issue even though such a small amount seems like 'noise' compared to the $50k market fluctuations. We are not FIRE just yet although we will be soon.
« Last Edit: January 21, 2017, 09:33:31 PM by Freedom17 »



frugalecon

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Re: Race from $1M to $2M
« Reply #83 on: January 21, 2017, 09:24:35 PM »
Chiming in to monitor thread.

Investable assets at about $1.4mm, $2.1mm with house thrown in (live in HCOL area.) contributions are running at about 4% of portfolio, so a conservative estimate of portfolio growth over the next couple of years is about 8% per annum. At that rate it will probably take about 5 years to get to $2 mm...

Metric Mouse

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Re: Race from $1M to $2M
« Reply #84 on: January 21, 2017, 09:56:43 PM »
I'm not saying your theory is wrong but just that it misses some subtlety here. Forgive me for being pedantic. It's because I'm a mathematician and noise has a very specific meaning but let me put it in more concrete terms.

Let's say the market goes up and down 1% per day due to noise. It could easily have a good or bad run and move 5% in a month. Even though that seems like a lot it's just noise. The fact that it bounces around doesn't really matter because in the long term it's trending upwards. The market noise averages out over time (it's a random variable with an average value of 0).

On the other hand let's say that in addition to your usual safe withdrawal rate you withdraw an extra 1% per annum. Per day that's only 1% / 356 = 0.003%. On any given day it's indistinguishable from the 1% noise in the market. You might say that it doesn't matter since it's so much smaller than the market noise.

However that extra 0.003% per day doesn't have an average of 0. It's always 0.003%. It stacks up day after day and causes you to withdraw 1% over your safe withdrawal rate per year and may ultimately cause you to deplete your stash.

So to do this properly we really need to talk about both the average value (mean) of the noise and it's standard deviation. Market variations from the long term trend have a large standard deviation (1% per day) but the average is 0 so they average out over time and don't matter if you take a long term view. Spending over your safe withdrawal rate on the other hand has a very small standard deviation (0 if you overspend the same amount every day) but the average value is negative causing all that overspending to stack up over a year and cause potential problems.

So even though spending or saving looks small on a daily basis compared to market fluctuations, it can have a much larger effect over time.

Let me make it even more concrete. With 2M in assets we can easily see a variation in net worth of $20k per day. This could easily be $50k a month. So the market noise is around $50k per month. Our savings rate is 80%. So we meet your criteria.

However if we overspend (or undersave) by $1600 per month it corresponds to a 1% higher withdrawal rate which would be an issue even though such a small amount seems like 'noise' compared to the $50k market fluctuations. We are not FIRE just yet although we will be soon.

This was my understanding.  A 1600 a month contribution would seem to be noise on even a 500k portfolio, when viewed at a monthly level. Incorrect, but it could feel that way to the portfolio holder, when the market moves 12k that month.
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Re: Race from $1M to $2M
« Reply #85 on: January 22, 2017, 04:19:57 AM »
I don't think further savings are irrevelevant by any means. However, as a metric, past a point tracking monthly net worth doesn't give meaningful information on how you are going.
That's why over time I've become more focussed on savings rate, absolute savings per month ($) and spend compared to passive cash flow.


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Re: Race from $1M to $2M
« Reply #86 on: January 22, 2017, 04:37:05 AM »
I don't think further savings are irrevelevant by any means. However, as a metric, past a point tracking monthly net worth doesn't give meaningful information on how you are going.
That's why over time I've become more focussed on savings rate, absolute savings per month ($) and spend compared to passive cash flow.

Smart. Those are useful metrics.
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begood

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Re: Race from $1M to $2M
« Reply #87 on: January 22, 2017, 07:31:03 AM »
Sorry, I tried to send arebelspy a PM and to post here, but apparently neither went through! *sigh*

I appreciate these different perspectives and metrics, and I want to apologize for including the term "noise" in my post, which I used from a former English major's perspective rather than a mathematician's.

Our savings rate is NOT above 50%. (This is now non-numbery I am: I still cannot tell the difference between the < and > signs, so I'm going to use "more than" and "less than"). We save 36% of my husband's gross income, but that includes the employer match and maxing out an HSA as well. We don't count the HSA in savings because we basically spend it every year (Enjoy your thirties, y'all!).

I earn anywhere from $15K-$20K a year doing contract editing work, but between 1099 taxes on that income and American Eagle jeans for our hasn't-stopped-growing-yet 15-year-old daughter, we don't tend to save much of that.

I'm working on dealing with the things I can control (daily expenses and choices) and not worrying so much about the things I can't (what the market's going to do in the near or far term).

arebelspy

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Re: Race from $1M to $2M
« Reply #88 on: January 22, 2017, 10:03:57 AM »
Ah, sure, certainly that could appear as noise then. I think my first premise was savings rate >= 50%.

The neat thing is that right now time is working for you. As long as you have a positive savings rate (even if it was 1%), your stache is now doing the heavy lifting.

My point was to try and encourage those who have so much their contributions have begun to seem like insignificant noise to look at where they're at, because they may already have enough.

Good luck! :)
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Re: Race from $1M to $2M
« Reply #89 on: January 22, 2017, 10:08:01 AM »

I'm working on dealing with the things I can control (daily expenses and choices) and not worrying so much about the things I can't (what the market's going to do in the near or far term).

This is an awesome attitude! I'm confident it will work out very well for you.
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supermustacheman

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Re: Race from $1M to $2M
« Reply #90 on: January 22, 2017, 10:20:58 AM »
excellent thread.

Net worth at 1.65M.  Hoping to get to over 2M by end of the year.

need to start using mint again to see everything in one place.



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Re: Race from $1M to $2M
« Reply #91 on: January 23, 2017, 11:24:43 AM »
Other life "things" can get in the way or ER'ing even if it looks like you're FI.

As older parents with kids in college and high school, we see these education costs which exceed what we'd normally spend for ourselves in a year.  This is the reason I continue to work.  When son #1 graduates college, I'll feel there's light at the end of the tunnel.  For "normal" parents at my age, the kids would already be on their own.


begood

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Re: Race from $1M to $2M
« Reply #92 on: January 23, 2017, 12:20:30 PM »
Other life "things" can get in the way or ER'ing even if it looks like you're FI.

As older parents with kids in college and high school, we see these education costs which exceed what we'd normally spend for ourselves in a year.  This is the reason I continue to work.  When son #1 graduates college, I'll feel there's light at the end of the tunnel.  For "normal" parents at my age, the kids would already be on their own.

I hear you! I'm 52 with a 15-year-old. Just the one but even so, I will probably not relax at all about finances until we know what her college costs will be.

farmecologist

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Re: Race from $1M to $2M
« Reply #93 on: January 23, 2017, 03:07:43 PM »
Other life "things" can get in the way or ER'ing even if it looks like you're FI.

As older parents with kids in college and high school, we see these education costs which exceed what we'd normally spend for ourselves in a year.  This is the reason I continue to work.  When son #1 graduates college, I'll feel there's light at the end of the tunnel.  For "normal" parents at my age, the kids would already be on their own.

I hear you! I'm 52 with a 15-year-old. Just the one but even so, I will probably not relax at all about finances until we know what her college costs will be.

Us too!  One 18 year old high school senior and one 15 year old.   Looking into colleges is a pretty sobering thing.










Metric Mouse

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Re: Race from $1M to $2M
« Reply #94 on: January 24, 2017, 01:03:28 AM »
excellent thread.

Net worth at 1.65M.  Hoping to get to over 2M by end of the year.

need to start using mint again to see everything in one place.

Wow. Awesome! Let us know if you reach your goal! Rooting for you.
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Car Jack

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Re: Race from $1M to $2M
« Reply #95 on: January 26, 2017, 05:08:03 PM »
Other life "things" can get in the way or ER'ing even if it looks like you're FI.

As older parents with kids in college and high school, we see these education costs which exceed what we'd normally spend for ourselves in a year.  This is the reason I continue to work.  When son #1 graduates college, I'll feel there's light at the end of the tunnel.  For "normal" parents at my age, the kids would already be on their own.

I hear you! I'm 52 with a 15-year-old. Just the one but even so, I will probably not relax at all about finances until we know what her college costs will be.

Us too!  One 18 year old high school senior and one 15 year old.   Looking into colleges is a pretty sobering thing.

Back when I was in college, I looked at things compared to the price of a pizza and beer (drinking age 18 back then).  Now I look at each kid's college as a Lamborghini Huracan.  First one is right about on target.  2nd one's 16 (I turn 60 next Monday).  We've expected this all along, though, so were ready. 

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Re: Race from $1M to $2M
« Reply #96 on: January 26, 2017, 06:55:36 PM »
Are y'all including equity in your primary residence as part of the net worth numbers you're posting or not?  Wondering if I should be in this thread or stay in the race-from-$500k-1m one I'm already in.  We're well past $1m if you include our home equity, but under $1m if you don't.

Happy racing!

Freedom17

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Re: Race from $1M to $2M
« Reply #97 on: January 26, 2017, 07:00:16 PM »
Why not. We rent but have several investment properties. If we live in one of our properties our net worth doesn't suddenly drop.



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Re: Race from $1M to $2M
« Reply #98 on: January 26, 2017, 07:36:01 PM »
Are y'all including equity in your primary residence as part of the net worth numbers you're posting or not?  Wondering if I should be in this thread or stay in the race-from-$500k-1m one I'm already in.  We're well past $1m if you include our home equity, but under $1m if you don't.

Happy racing!

Don't have a primary residence, so no.  But if I had one, yes, I'd count it.  Still part of net worth (even if it's not a part of your portfolio for ER purposes, other than as a possible reduction in expenses).
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Re: Race from $1M to $2M
« Reply #99 on: January 27, 2017, 07:44:48 AM »
Are y'all including equity in your primary residence as part of the net worth numbers you're posting or not?  Wondering if I should be in this thread or stay in the race-from-$500k-1m one I'm already in.  We're well past $1m if you include our home equity, but under $1m if you don't.
Happy racing!

I didn't.   Neither did the OP, so I took the same approach.
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