Somewhat Stuck/Overwhelmed

[Siobhan]

My husband and I have been fortunate in life in that we both worked hard, got good jobs, and we've been paying off student loans and saving for years before we heard of the FIRE concept.  Our current net worth is 664k, we are 32 and 35.  However, I just feel like it is scattered everywhere without a solid plan.  I've also gotten some resistance from my husband who seems to think that individual stocks are the way to go (if i hear "if only we bought Tesla 3 years ago"...one. more. time). 

Over the past couple of years he hasn't really been involved in the finances, he's active duty, and has pretty much been gone for the past two years except for scattered weeks here and there.  In that time we've managed to save and see gains of around 300k, and he is now pretty happy to just let me handle most things (trust me I would LOVE his help...and actual constructive feedback).   I'm just not sure where to go from here? 

He doesn't want to move out of the individual stocks since his grandfather made a good fortune on individual stocks, he wants to emulate that, however we don't have the time necessary to do the proper research. I don't want to put any more into them and stick solely to index funds.  Is the below a complete mess or should we just stick with it, hope the individual stocks stay stable, and plow all future money into index's/TSP/401k.  Getting him to move completely out of individual stocks will never happen.

Home equity of 210k, this is split between a rental house and our primary, both are on 15 year mortgages.

317k in a taxable stock account of individual stocks, there are some definite dogs in there, but over the past few years we've managed to sell the worst of them and invest in more stable dividend -bearing companies.  We are still down on a couple like BAC that he bought at around 24 while deployed in 07-08...boy do I wish I knew more about investing that year.

100k in between his TSP and my 401k, neither of us gets a match.

37k in Vanguard 10k in a taxable, the rest in Roths.

The idea is to be FIRE within 7-10 years.  He wants to complete his 20 in the military for the pension and health benefits and we want to move to a more expensive WARMER area so we'll probably need more then most folks.  At the moment, between home equity and cash we increase our net worth between 8500-9000 a month and this will continue for at least 4 more years.  Once we move from the area we are currently in, there is a large possibility of me being unemployed for a period of time and since we are in a high cost of living area, his BAH will drop.

[acroy]

You're in the right place. Net worth 664k? wow! Congratulations. You are FIRE now if you want to be!

#1 is get a plan together and get hubby on board. do some more research, consideration, write down your plan (what are your goals, how much is enough, what will you do when FIREd, etc).

Stock picking: it's just gambling. Get hubby on-board with limiting gambling to 5-10% of the portfolio. INVEST (as opposed to speculate) the rest in index or balanced fund(s) and let it ride.

You've got it made. Congratulations again.

[cynthia1848]

Congrats on accumulating so much so far!

Index funds are the way to go.  FAR less risky than individual stocks - spreads your risk out over the whole market instead of tied to individual companies.  It might be hard to sell what you have now without incurring big gains, but I would start harvesting losses and plowing those proceeds into index funds.  Also see if you can get a financial adviser (the military should have those available for families) who will champion index funds, and then go see that person with your husband when he returns from deployment, so that your husband can be talked into that strategy.  :)

[GardenFun]

Agree with Acroy.  Give him a % of money (no more than 10%) to use on individual stocks.  This amount comes from Benjamin Graham's The Intelligent Investor.  It's a way to help people do something they love (picking individual stocks) while not risking the majority of their financial savings.  If you were doing massive amounts of research, a higher percentage could be justified.  But be careful using the past 5 years as proof of your stock picking prowess.  If you are not really doing research on the stocks, then what is your plan going forward for choosing them?

Do you know what your yearly return has been on the stocks vs. S&P500?  Have you been better or worse?  That answer can help you determine if the risk associated with owning a few stocks outweighs the benefit of spreading risk over numerous companies.  In regards to Tesla, I said the same thing to myself about Ford numerous times but Ford could have easily been GM.....

Are you currently in the 15 or 25% tax bracket?  Are you maxing out your Roth IRA's?  With no 401k match and if you are in the 15% bracket, I would max the Roths before going the 401K route.   

[GardenFun]

I forgot to add that overall, you are doing an awesome job.  Organizing it takes time but the fact that you have something to organize is a problem many people would dream to have.  :-)

[Siobhan]

I have tried talking him into going to a financial adviser for three years now.   He won't go, I have no idea why not, he just says we don't need someone to tell us what to do with money.  I'm thinking of taking some gains in the deployments, and moving that into the indexes.  Right now he's gone for a few months so we are taking that time to max out his Roth TSP since it's tax free so much of the spare cash is going in there and to some maintenance on the rental house. 

He's good with putting the money going forward into Vanguard but doesn't want to move much out of the existing individual stock account so maybe I work on that and then slooooowwwwly start moving moving money over.  We should get a decent boost to that Vangaurd account here in the coming months when my bonus hits so maybe show him YoY numbers, see which accounts had the largest percentage gain.

[Siobhan]

Trust me it's not a position I could have ever dreamed I'd be in when I was paying off 100k in student loans.  But my engineering degree has paid off in spades, and his health benefits mitigate what could be a large bill for us.  Neither of us really paid attention until this year when we found out about a FIRE concept, we are both getting burnt out and it sounded like a wonderful idea...we were actually a little shocked at what we had been saving without realizing it.  We are both pretty cheap people so it never felt like we were "giving" anything up.

This year there is a CHANCE we will be in the 15% bracket because of the large pretax 401k contributions, plus a SURPRISE...short deployment (it's going to depend on how many months they count) and other deductions.  Normally we are solidly in the 28%, with occasional years in the 25% bracket so we max both the pretax 401ks to bring our taxes down, then put 11k into the Roth IRA's at Vanguard the past couple of years (once we got smart and stopped stashing money in cash).  Since he's deployed this year he was pretax into his TSP until the deployment when we switched over to his Roth TSP (His Roth IRA is already maxed).

Surprisingly...the individual stocks have been a mix, in 07-08 WAY down below the SP500 but I've managed to sell and reposition a good chunk of it since then, and last year, 2013 we were up 60% vs 30ish in our other accounts, this year up about 15 or so.  However, there is a LARGE chunk of that concentrated in a few stocks.  For example we bough a lot of Visa when it plunged to 45, and it's way up now.  But we also bought BAC right before the crisis, so we are still down there, but have seen amazing gains on it the past two years and I do think it will hit break even at least in the coming few years. 

I really like the 10% idea, that way I don't feel like the evil step mother saying no, he doesn't think I'm being controlling, and we have a solid footing going forward while we build up the index funds.

[Elisabeth]

You are both doing an Awesome job. Seriously.

We had some of the same issues. Maybe your husband can take a more active role if he wants to be making the rules for the game plan. That has worked well for us. Two heads are better than one, but a fee-only planner can save a lot of frustration.

Good luck on the transition to index funds :)

[Jon_Snow]

I've read a ton of journals and case studies on this forum and I can say this with absolute certainty: the are many other members here that should feel much more "stuck" and "overwhelmed" than yourself, Siobhan.

Early to mid-30's with a base of assets like you have accumulated, you are on track for a myriad of possibilities moving forward. Congrats.

[GardenFun]

I really like the 10% idea, that way I don't feel like the evil step mother saying no, he doesn't think I'm being controlling, and we have a solid footing going forward while we build up the index funds.

That's the approach we take.  The majority of the savings goes into index funds via 401k, Roth IRA and 529 account.  We are currently setting aside an additional 10% for something completely different.  DH is not completely sold on putting everything in the stock market so until we find a non-stock opportunity, it is sitting in cash.  Not my favorite place to 'stashe, but keeps the peace.

In reading through this forum for a while, you've hit the nail on the head.  The SO needs to maintain something beneficial to them, otherwise they will dig in their heels like a 2-yr old.       

[BaldingStoic]

Personally I think Index Funds are the way to go but there are broad ETFs which are essentially Mutual funds bundled as securities which can be traded like stock.  Not sure if EFT will fulfill your husbands desire, but they do allow for real-time trading without the volatility of individual stock.  Another suggestion is to simply have two separate funds, one for investing and another for speculation.  Put 80-90% in the investing fund, which should be properly allocated in Index funds based on your risk tolerance.   Then put the remaining 10-20% into individual stocks.   If the stocks take off, great!  If they crash, no huge loss.  Best of luck. 

[retired?]

That's an awesome net work at your age.  I'll reiterate what others have suggested - carve out portion of the portfolio to play with.  I did this when I recently became FIRE and have the time to do research.  Set aside about 10% of total portfolio or 20% of taxable.  I included 20+ split between name brands and growth.  The returns have beaten S&P by 1.5% since May, but with a lot more volatility.

If he still doesn't want to do index stocks, point him to sector stocks.  It is a gamble in the sense that, by definition, the market portfolio (the total sum of investments) earns what is called the market rate of return and so the winners balance out the losers.  To gamble is to answer in the affirmative the question "do I have the skill, knowledge, time to beat the average investor?"  For most people the answer is "no".  You'll be lucky some years and unlucky others.  Bill Miller of T. Rowe Price became well known b/c he beat the S&P 15 years in a row, but then lagged 2 years in row.  He's one of the best and his funds are well-diversified. 

On top of that, you have to beat the fees of non-index funds. 

Were some of your holdings inherited?  Some people keep them out of sentimentality OR they don't want to ruin (by selling) what had been a decent track record.  Both my wife and parents wanted to keep the stocks they inherited rather than think "ok, we now have 100k, what would we do with it?"

[Siobhan]

Not inherited, these were things that he and I both purchased over the years.  I grew up poor and pretty much didn't know anything about money until I started teaching myself in grad school.  He grew up in a wealthy family where his grandfather made a killing in the markets over the broad bull markets.  His grandfather is still alive (bless his heart at 93) and has always preached the gains he got from some individual stocks. 

I point out to my husband that he worked hard for many decades, across three continents, to earn what he did, and that I'm sure he had some losers in there too but, really, who talks about the losers?  I think there is a part of him that wants to "make his grandfather proud" by doing the same thing but the fact of the matter is that neither one of us has the time to do the research....ESPECIALLY HIM.  Not knowing much when we first met/got married I kind of followed along with what he said, since his family had more experience in it.   Over the years I've taught myself A LOT on finance from that starting point and am trying to change his mindset now.  It's slow going but I've gotten him to budge at least by opening up the vanguards and maxing out the TSP and 401k, but honestly I think that 'budging' is pretty much me telling him, he's too busy to think about it, just nods and says OK versus an actual comprehension and OKing of the plan.

I did recently start a monthly net worth tracking spreadsheet a few months ago, that seemed to make him more interested.

[Catbert]

If you talk him into moving somewhat out of individual stocks you'll face a capital gains tax.  That may argue slow movement.  Things to consider to minimize cap gains:

-Match winners with losers so the cap gains/cap losses even out in the tax year
-"Fill up" the 15% bracket with 0% capital gains in years like this one when you're in the 15% bracket
-Make charitable contributions of appreciated stock rather than cash.  Neither you nor the charity will pay capital gains on the appreciated stock but you still get the tax write-off (Fidelity has a Charitable Gift Trust thing-y - I assume other brokerages have the same)

[retired?]

one idea - when talking to gramps, speak in terms of returns rather than $$.  Can keep the small stash in the individual stocks.

I was just about to update our NW calc.  Was doing it quarterly, but now that I am recently not working, I feel the need to do it monthly to see where the variation lies.

[Iron Mike Sharpe]

How many individual stocks do you own?

I would try to convey them idea that Index funds are owning ALL of the stocks.  Whereas, you guys only only X number of individual stocks.  What happens if 10 of your individual stocks tank vs what happens if 10 stocks in your Index tank?