Author Topic: Equities vs Fixed Income to Reach FIRE  (Read 2982 times)

clumlee

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Equities vs Fixed Income to Reach FIRE
« on: April 17, 2017, 12:02:27 PM »
Hi all,

I'm in a bit of a fork in the road. I have different types of investments outside of my IRA which includes U.S. stocks (individual stocks), a CEF for preferreds, two foreign ETFs (one in Australia and one for Nigeria), high-yield corporate and two muni bond funds, peer-to-peer (P2P) lending, and I finally bought a rental property. So long story short...I'm trying to reach FIRE within the next five years and as far as the investments excluding real estate and P2P, I've been thinking about just going all in from now on with the muni bond funds because they're tax-free on the Federal side.

Considering things like inflation, etc., if I'm just accumulating shares of those over the next five years, do you think that it's a good route to go? Or should I just pile into the regular stocks I have and bite the bullet on the taxes?

marty998

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Re: Equities vs Fixed Income to Reach FIRE
« Reply #1 on: April 17, 2017, 03:26:07 PM »
Glad to know we're up there on that high pedestal with Nigeria...

East River Guide

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Re: Equities vs Fixed Income to Reach FIRE
« Reply #2 on: April 17, 2017, 05:11:14 PM »
and bite the bullet on the taxes?

What is your tax rate?

clumlee

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Re: Equities vs Fixed Income to Reach FIRE
« Reply #3 on: April 17, 2017, 05:44:57 PM »
Glad to know we're up there on that high pedestal with Nigeria...

Nigeria is a speculation...same as Oil ($OIL).

clumlee

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Re: Equities vs Fixed Income to Reach FIRE
« Reply #4 on: April 17, 2017, 05:46:00 PM »
and bite the bullet on the taxes?

What is your tax rate?

25% Federal / 4% State (Hawaii)

maizeman

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Re: Equities vs Fixed Income to Reach FIRE
« Reply #5 on: April 17, 2017, 06:05:46 PM »
Right now a 10 year AAA rated muni yields about 1.87%. A 10 year AAA rated corporate bond yields 2.70% If you pay 29% tax on the corporate bond,* that brings the after tax yield down to 1.92%. You can run the numbers for a lot of other durations and ratings (https://finance.yahoo.com/bonds/composite_bond_rates?bypass=true) but at a first pass seems like your marginal tax rate isn't high enough for tax free bonds to make sense even if you decide you'd like to be investing in bonds.

*Should actually be less than that since you can deduct state taxes on your federal return.

deborah

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Re: Equities vs Fixed Income to Reach FIRE
« Reply #6 on: April 18, 2017, 03:52:55 AM »
Glad to know we're up there on that high pedestal with Nigeria...

Nigeria is a speculation...same as Oil ($OIL).
And Australia is your solid performer?

MustacheAndaHalf

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Re: Equities vs Fixed Income to Reach FIRE
« Reply #7 on: April 18, 2017, 09:21:33 AM »
Your portfolio sounds very scattered.  Nigeria, corporate bonds, P2P lending, ...

The role of bonds is to balance out bad times in the stock market.  When you use P2P lending or corporate bonds to fill that role, you don't get what you intended.  The P2P loans can have higher default rates when the economy is bad - and in those times stocks are more likely to be down.  The lower the quality of bonds, the more they move like stocks.  So all these attempts to have different bond investments would really be better off with something simpler and more stable.  In the 25% tax bracket, have you looked at municipal bonds or bond funds?

Why not own stocks in proportion to Vanguard World?  In the world, emerging markets are about 10% of the total.  Nigeria is roughly 0%.  It might be better if you instead bought the entire cast of emerging markets stocks instead of just one country.. you could use Vanguard Emerging Markets to do that, or Vanguard Total International to get both developed and emerging in one fund.

clumlee

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Re: Equities vs Fixed Income to Reach FIRE
« Reply #8 on: April 19, 2017, 02:27:46 PM »
Glad to know we're up there on that high pedestal with Nigeria...

Nigeria is a speculation...same as Oil ($OIL).
And Australia is your solid performer?

Australia has done well for me in terms of dividend play.

clumlee

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Re: Equities vs Fixed Income to Reach FIRE
« Reply #9 on: April 19, 2017, 02:39:37 PM »
Your portfolio sounds very scattered.  Nigeria, corporate bonds, P2P lending, ...

The role of bonds is to balance out bad times in the stock market.  When you use P2P lending or corporate bonds to fill that role, you don't get what you intended.  The P2P loans can have higher default rates when the economy is bad - and in those times stocks are more likely to be down.  The lower the quality of bonds, the more they move like stocks.  So all these attempts to have different bond investments would really be better off with something simpler and more stable.  In the 25% tax bracket, have you looked at municipal bonds or bond funds?

Why not own stocks in proportion to Vanguard World?  In the world, emerging markets are about 10% of the total.  Nigeria is roughly 0%.  It might be better if you instead bought the entire cast of emerging markets stocks instead of just one country.. you could use Vanguard Emerging Markets to do that, or Vanguard Total International to get both developed and emerging in one fund.


I own two muni bonds funds. One a high-yield and one emphasizing investment grade- trying to spread out the risk.
I was thinking about keeping my individual equities and etfs and adding a couple of ETFs and focusing only on those. I was looking at Wisdomtree Dividend Growth ETF ($DGRW) and the Wisdomtree Emerging Market High Dividend ETF ($DEM). I'm thinking how I can readjust my strategy but instead of it dovetailing it's crashing together like a car wreck hahaha.

Proud Foot

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Re: Equities vs Fixed Income to Reach FIRE
« Reply #10 on: April 20, 2017, 12:06:25 PM »
Glad to know we're up there on that high pedestal with Nigeria...

Nigeria is a speculation...same as Oil ($OIL).

Investing in each of those Nigerian Princes??

and bite the bullet on the taxes?

What is your tax rate?

25% Federal / 4% State (Hawaii)

What do you expect your tax rate to be once you RE?  It might be more tax efficient and give you higher returns if you were to invest in equities now and then shift to Fixed Income/Bonds/Preferred/Dividend Stocks once you are no longer working.

clumlee

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Re: Equities vs Fixed Income to Reach FIRE
« Reply #11 on: April 20, 2017, 02:16:01 PM »
Glad to know we're up there on that high pedestal with Nigeria...

Nigeria is a speculation...same as Oil ($OIL).

Investing in each of those Nigerian Princes??

and bite the bullet on the taxes?

What is your tax rate?

25% Federal / 4% State (Hawaii)

What do you expect your tax rate to be once you RE?  It might be more tax efficient and give you higher returns if you were to invest in equities now and then shift to Fixed Income/Bonds/Preferred/Dividend Stocks once you are no longer working.


I'm trying to be conservative with my estimates so I'm planning my tax rates to be the same as is now. What I've been doing since the dividends are kicking up my taxable income is I've been saving additionally for taxes, and withholding a little more.

clumlee

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Re: Equities vs Fixed Income to Reach FIRE
« Reply #12 on: April 21, 2017, 04:23:59 PM »
Maybe I'm looking at this wrong. I just had an idea. What if I just start saving only into the Vanguard LifeStrategy Growth Fund (VASGX) and then when I have enough then switch it into another fund or funds that provide income since my entire strategy all along was income through dividends to accumulate anyway???