New to Mustachianism, FIRE questions.

[Ganon91]

Hi all,

I'm a 23yr old debt-free Male that is determined to be FIRE within the next 10 years.


Yearly take home salary: 38k

Yearly Expenses:
20k

Holdings:
5.5k in Roth IRA mirroring S&P 500 Index
~6k in Prospective Stocks

I contribute 5% (The maximum they will match) to my  TSP.

So I have a few questions that I'm hoping some more experienced Mustachians could help me with.

*How do I transfer/rollover my full or partial withdrawal after separation from employer into without incurring penalties?
-Is SEPP for me?

*I don't really understand how to determine the appropriate asset allocation for my goals.


Any advice/help appreciated. Thanks!

[DMoney]

Welcome!

I'm sure some investor whiz kids will reply soon enough with lots of info. 

BUT here's some free advice.  Even after you leave gov't service, consider keeping your investments with TSP if you can.  My husband is really kicking himself for rolling it over into his non-govt employers 401K because the fees with TSP are just so much lower.  That was a big mistake on our part.

[nereo]

hello and welcome

First, I'd recommend reading the http://jlcollinsnh.com/stock-series/.  Lots of information there about asset allocation, stocks, and investing in general.  Plus they are easily digestible posts.

now, "is SEPP for me" - well, SEPP is typically when you are retired before 59.5, and want access to some of your retirement accounts without paying penalties.  Since you are 23 and just starting out, you've got many years before you have to worry about it, but SEPP is an effective method of getting access to your accounts later on.

You can do a rollover by contacting whatever company you want to rollover the funds to.  For example, if you are with Vanguard you call their personal invester number and tell them you want to initiate a rollover.  They will ask you some questions and generate all the paperwork, and it will take you less than 30 minutes.  Easy.  Vanguard and Fidelity are highly recommended, btw. 

out of curiosity, why and what do you have $6k in "prospective stocks"?  You aren't speculating on penny-stocks, are you?

[Ganon91]

Thanks DMoney!

I'm really ignorant about how to strategize which accounts to use when to execute the whole FIRE thing. I love the TSP, and would stick with it if it turns out to be my most productive option.

It seems to me that saving the 500k I need is going to be the easiest thing for me to figure out. I'm projected to hit the mark between 2023-2026.


nereo,

Thank you as well!

4k of it is Tesla, 2k of it is in embarrassing decisions I made when I was 18.
No sir, no penny stocks here!

[nereo]

nereo,

Thank you as well!

4k of it is Tesla, 2k of it is in embarrassing decisions I made when I was 18.
No sir, no penny stocks here!

I'm always wary when someone has >5% of their portfolio in a single stock.  Maybe Tesla will continue to do well.... maybe it won't. 
For the 'embarassing decisions' made when you were 18 - if you don't like owning them you should sell what remains pronto and put that money towards your index fund.  Don't fall victim to 'price-anchoring' (being tied to what you bought it for)... all that matters is whether those stocks are likely to beat the average.  From what you've said, you don't seem to think they will.

[Retired To Win]

... 4k of it is Tesla, 2k of it is in embarrassing decisions I made when I was 18.  No sir, no penny stocks here!

I too invest in individual stocks.  But, regardless of what stocks you are invested in, you absolutely must spread your risk more than you have.  You've got 66% of your individual stock money in one stock.  Heck, you've got 36% of your entire investment holdings in one stock.  That's too much concentration.

I calculated that the best stock portfolio size for me was 16 essentially egual-weighted stocks, with no more than 2 of those stocks in one industry.  That works out to each stock carrying about 6% of the portfolio weight and risk, with no industry carrying more than 12%.  I stopped the diversification at 16 basically because the next step of going to an 18-stock portfolio only lowered the risk per stock an additional 0.7%.

You can do this even if you invest small amounts of money and still sidestep trading commissions.  When I started, I used Folio Investing as my online broker.  They have a program that allows unlimited trading for a $30 per month flat fee.  They also have a separate program with a low, low $3 per transaction commission.

Good luck with your FIRE plan!

[Ganon91]

Thank you both for the advice.

I intend to put all future investment into either my tsp or index fund(s). I haven't yet determined which is the better decision for my Net Worth.

[Grande]

One thing I wish someone got across to me more strongly was that over the long haul what stocks or funds you are in really doesn't matter so long as you are not bad.

I've had good success as equity investor (over S&P 500 and other common benchmarks)  but after a while I realized it just wasn't worth it for me. Holding a stock requires regular research and work. The time is a cost. A cost to your career (and potentially earnings)  and personal life. I still hold plenty of stock but I have a child now and I'd rather be spending time with her than keeping up with my brokerage accounts. That said I am glad I did it in my 20s because I learned so much, the mistakes were not that costly, and I feel I am a far more sophisticated investor for it.

One thing I would advise is to start stock investing with boring US large cap companies over anything speculative.  Read the statements. Buy the highest quality companies in the industry/sector.  Buy the companies with highly regarded management.  Look at the earning growth, debt, dividends, payout ratios, etc. And look back 5, 10 years. All that boring stuff. You can have some fun on the side but in my experience the stuff I bought on gut never did as well as over the long run vs the old tried and true methods.

That said I wish I did more maxing out of the 401k and Roth in low cost index funds before buying stock in taxable brokerage accounts when I was in my early 20s. If you are 23 you should be in mostly stock (~90% plus). Don't get too hung up on allocation right now. I assume you don't have an eight figure account so you can't screw yourself too hard. Just get in. It'll take you many years to figure out what's what. Low cost index funds- you cannot go wrong and I am in no means one of those preachy Boglehead groupie types.   

[PencilThinStash]

First, I'd recommend reading the http://jlcollinsnh.com/stock-series/.  Lots of information there about asset allocation, stocks, and investing in general.  Plus they are easily digestible posts.

+1

I spent about 2 years reading everything about investing that I could get my hands on. Eventually boiled it down a strategy that incorporated the best of everything I'd read... and then stumbled on Jim Collins' Simple Path to Wealth post and realized that it lined up with 95% of my financial philosophy. Could have saved myself 2 years of reading if I'd started with him!

Granted, I'm too stubborn for my own good and still would have spent 2 years reading, just to develop my own conclusions...

He's got tons of good stuff, though. Easily one of the smartest men on the internet.