Author Topic: Early FIRE, Investment Conundrum  (Read 3675 times)

kib

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Early FIRE, Investment Conundrum
« on: February 26, 2015, 01:02:29 PM »
I'm FIRE, and for a long while I avoided thinking about investments other than real estate.  Now the properties are sold and I need to get back into other investments, and I'm really uncertain about how to look at it.  I'm in my early 50s.  If I were a typical worker, I'd have 15 years before I needed my funds.  If I were a typical retiree in my 70s, I would be quite conservative and only looking to cover 20-25 years of expenses at the outside.  But I'm here in hybrid land instead; I can't ignore inflation risk over 50 potential years of living expense, but OTOH I can't invest as if I don't need money for decades.

Any suggestions on how to arrange a portfolio that's not insanely interactive in this situation?  Do I invest in target funds and create multiple targets?  Compartmentalize into "investments I can play with" and "investments I can't play with" in some other way?

MDM

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Re: Early FIRE, Investment Conundrum
« Reply #1 on: February 26, 2015, 01:10:03 PM »
What Withdrawal Ratio do you have?  I.e., what percent of investable assets do you need for total annual expenses? 

Have you looked at cfiresim.com?

TexasStash

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Re: Early FIRE, Investment Conundrum
« Reply #2 on: February 26, 2015, 01:39:17 PM »
Target funds could be done with multiple targets, but I think it would be easier/better just to pick a small portfolio of broad funds (3-5) and go from there. Stay aggressive due to your potential long time horizon, but just leave maybe equivalent of 2 years of spending in lower risk funds (high quality bonds, cash, etc) to cover yourself if stocks tank, and spread the rest among broad stock funds (domestic and international).

Something like a 70/20/10 split might make sense (stocks, bonds, cash). YMMV though.

ZiziPB

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Re: Early FIRE, Investment Conundrum
« Reply #3 on: February 26, 2015, 01:59:29 PM »
Sounds like you need to spend a bit of time reading and educating yourself.  Here is a good place to start (and mentions additional resources).  http://www.bogleheads.org/forum/viewtopic.php?t=6211

Once you are ready, you can start perusing the Boglehead forums and asking specific questions.  http://www.bogleheads.org/forum/viewforum.php?f=1&sid=020eea4b71c1c8ca0e2831c6e59576f4

kib

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Re: Early FIRE, Investment Conundrum
« Reply #4 on: February 26, 2015, 05:26:25 PM »
What Withdrawal Ratio do you have?  I.e., what percent of investable assets do you need for total annual expenses? 

Have you looked at cfiresim.com?
Ok, I am new to this area, so forgive me if I misunderstand or I'm just a blathering idiot.  I'm in a position where I wouldn't withdraw my principal, i.e. the shares I bought with external funds.  I'm just too young to start drawing down my investments, IMO.  In the event that my interest / dividends don't meet my expenses by any significant amount, I would either reduce my COL or go back to work.  At this point, a 4% return pretty much covers my needs.  I guess my issue is that simply living on dividend / interest could get me in trouble; I think for inflation's sake, given my age, I actually need to be increasing the value of the portfolio over time, not just making ends meet.  But I still need to be conservative about investments, as I need to draw out much of the return as it occurs.
« Last Edit: February 26, 2015, 05:37:52 PM by frufrau »

Financial.Velociraptor

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Re: Early FIRE, Investment Conundrum
« Reply #5 on: February 26, 2015, 06:36:07 PM »
frufrau,

There are quite a few municipal bond funds out there that pay 5-6% tax free right now.  [I like, own, and recommend NIO.]  You could buy a basket, live off (less than) 4% since you won't be paying much, if anything, in taxes; and reinvest the surplus to stay ahead of inflation.  Most of these funds have the bonus of paying a stable and monthly distribution.  Budgeting is easy-peasy.

I wouldn't recommend a 100% bond allocation.  You could maybe do a split between munis and VOO (s&p 500 index), which currently pays almost 2%.  You would be able to make it a year that way without withdrawing any principal from VOO, keeping it tax efficient.

MDM

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Re: Early FIRE, Investment Conundrum
« Reply #6 on: February 26, 2015, 11:44:48 PM »
What Withdrawal Ratio do you have?  I.e., what percent of investable assets do you need for total annual expenses? 

Have you looked at cfiresim.com?
Ok, I am new to this area, so forgive me if I misunderstand or I'm just a blathering idiot.  I'm in a position where I wouldn't withdraw my principal, i.e. the shares I bought with external funds.  I'm just too young to start drawing down my investments, IMO.  In the event that my interest / dividends don't meet my expenses by any significant amount, I would either reduce my COL or go back to work.  At this point, a 4% return pretty much covers my needs.  I guess my issue is that simply living on dividend / interest could get me in trouble; I think for inflation's sake, given my age, I actually need to be increasing the value of the portfolio over time, not just making ends meet.  But I still need to be conservative about investments, as I need to draw out much of the return as it occurs.
New is ok.  Everyone was new at one time. 

There is an issue with the two bolded phrases: over time, the "riskier" (i.e., higher stock/bond ratio) portfolio will usually increase more than the "conservative" (i.e., lower stock/bond ratio) portfolio.  E.g., see http://www.bogleheads.org/wiki/Trinity_study_update for the asset allocations that, historically, have maximized FIRE success.

The questions I asked were intended to get (more importantly, give you) a better understanding of how "close to the edge" you are.  If you haven't tried it, it seems worth your while to investigate www.cfiresim.com.  After you do, you may well have more questions, either about the tool itself or what the results suggest to you.  If so, ask away!