My main goal is to build a portfolio of $1,000,000 in 1500 days with no debt*, starting from 1/1/2013. Every month, I provide an update on my status. My goal for 2015 was to get my portfolio up to $874,353. Because we saw exceptional returns in 2013 and 2014, I have already accomplished this. Let’s have a look at October.
About a decade ago, some of Mrs. 1500’s relatives told me interesting news. They were making lots of money in the stock market. They had gone to a seminar by some guy (name redacted because I don’t like phone calls from lawyers, but you can figure it out) who promised a method to beat the market and were now making bucketloads of money. I was suspicious, but told them I would take a look at one of his books. Here is one of the first things that I read:
Sane? Safe? There is absolutely nothing sane or safe about telling people that 10-20%/month is reasonable.
As if the ridiculous returns weren’t bad enough, he went on to mention that he made a 250,000% return on a recent stock transaction. To put it another way, he turned $1 into $250,000. Not so quick. Reading the rest of the page, this guy explained that he sold a stock for a profit a couple seconds after buying it. He then extrapolated the gain to a one year, “annualized” return. Apparently it’s OK to talk about performance in annual terms when it serves your purpose.
And he isn’t incorrect. If you want to play with numbers, you can make them scream anything you want by manipulating dates and other variables. Of course, any person with more than 3 brain cells knows that extrapolating yearly performance from a couple seconds is an exercise in complete ridiculousness.
Fast Times at Trillionaire High
I want to revisit his “10-20% per month” claim. Let’s say that I go to his seminar, but I’m a bad listener and I do very poorly, only earning a pathetic 100% per year, far less that 10%/month. In the example below, I start out with $10,000 and never add another dollar. Here is what happens:
In 30 years, I have almost 11 trillion dollars. Not enough to pay off the US debt, but nothing to sneeze at either. And yes, Van Halen will definitely play my birthday party and you’re all invited.
Yikes, I’ve dated myself with that reference. Let’s move on.
On second thought, let’s not. I’ve lost all self-control. Hang with me for a short diversion from all of this serious stuff.
Are you Spicoli or Brad?:
Brad: Why don’t you get a job Spicoli?
Spicoli: What for?
Brad: You need money.
Spicoli: All I need are some tasty waves, a cool buzz, and I’m fine.
Pirate King (boss at Captain Hook Fish and Chips): Brad, you’re going over there as a representative of Captain Hook Fish and Chips. Part of our image, part of our appeal is that uniform, you know that.
Brad: You really want me to put this stuff back on?
Pirate King: Yes, I do. Show a little pride.
Oh wow, I don’t know what got into me. If you’re still reading, I promise to mostly behave myself for the rest of this.
Beating the markets isn’t a reasonable expectation
If anyone ever tells you that they have a “system” or “method” to beat the market, consider the following:
- If Mr. Oracle has figured out the stock market, why are they teaching a class in Nowheresville Nebraska for $7,000/week? Why don’t they just use their own method, make billions and ride off into the sunset? The “guru” will usually tell you they do it because they ‘love teaching’ or ‘want to help others.’ Here is what is really happening:
- You cannot participate in the stock market without effecting it and this fact makes most methods useless. Every time you buy or sell a stock, it effects the price. This is supply and demand, perhaps the most fundamental concept in economics. If I put in an order to buy 100,000 shares of Apple, the stock price goes up. This is why any system will fail. It may work for a short amount of time, but people will catch on and it won’t work anymore. Even the great ones like Benjamin Graham and Warren Buffett changed their strategies.
From my perspective, though, Charlie’s most important architectural feat was the design of today’s Berkshire. The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices. –Warren Buffett (2014 Berkshire letter)
- The very few people who do have it figured out aren’t sharing the pie. I listened to a 60 Minutes episode about high frequency trading done with computers. Some of these guys are making bucketloads of money. And they’re not sharing their computers or money with us.
If anyone tells you they can beat the market, demand to see performance for a time period of at least a decade, but preferably multiple decades. Beating the market over the long term is amazingly difficult.
The answer to all of this is just to stick with index funds for the long term. That is why I’m slowly selling my stocks in favor of good old, Vanguard funds.
Performance Update: October
October was a great month and a stinker all at the same time. My portfolio went from $979,614 to $1,058,857 for a gain of $79,243, the biggest ever! It’s also the first time I’ve ended a month with a net worth over 1.3 million****. Yippee, I’m great!! Not so fast…
My performance was actually subpar. The increase of 8.1% didn’t come close to the S&P 500’s 8.9% performance for the same time period. Queue the Sad Trombone:
- Days elapsed: 293
- Days remaining: 62
- 2015 gains: $71,506
- 2015 401k contributions: $42,200***
- Left to go (2015 only): Goal accomplished!
Since the start (1/1/2013)
- Days elapsed: 1033
- Days remaining: 467
- Gains since 1/1/2013: $472,814
- Needed for $1,000,000 (investments and cash only): I’m there, woot!
- Needed to retire ($1,120,000 in investments): $61,143
- Net worth****: $1,308,857
Rebalancing this thing
I was farting around on Personal Capital (<<<— just click it, you’ll be a better person) over summer and noticed this graphic:
Yikes. I enjoy my home country of the United States, but my portfolio allocation is unhealthy. 84% is just too much to have in the USA egg basket. At this time, the US markets are some of the most expensive in the world too, which doesn’t bode well for returns over the next 10 years (shout out to Michael Kitces!).
Over the summer, I decided to put future 401(k) contributions into Vanguard’s Total International Stock Index Fund (Vanguard doesn’t allow the purchase of Admiral shares in solo 401(k)s). I’d feel a lot better if my portfolio was 70% US, 20% foreign, and 10% alternatives.
If that last picture wasn’t scary enough, check out this one:
The top two items are what scare me most. I’m not happy that just two dangerous eggs, Facebook and Apple, make up over 30% of my portfolio. I need to rebalance here too, but I’m doing it slowly so I don’t get whacked too bad by the taxman. I sold some of each earlier this year and will hit the sell button again right after January 1st.
These stock purchases a relic from my past. I purchased Apple in 2007 and Facebook around IPO time in 2012. Despite my success with these two stocks, I firmly believe that index funds are much the best way to go for the average investor. I look forward to the day when individual stocks make up less than 10% of my portfolio.
No bonds, but more cash
Notice that I said nothing about bonds. I’m not sure if I’ll ever have bonds in my portfolio, but I definitely will not while Mrs. 1500 and/or I both have jobs. When we both leave work, I’ll reassess the situation.
Finally, we’re finally in a position where we’ll start having a cash surplus (no more home remodeling!). In some months, it will be quite significant because my work owes me a big bundle of money (“Hey work, please stop messing up my checks in your favor!”). I’m going to use the cash to build up reserves. Perhaps in 2016, we’ll use some of it to help buy a rental property.
I’d love to hear your thoughts on my allocation, rental properties or Fast Times at Ridgemont High.
I’ll never forget the month that Mr. Money Mustache and I got a total of 10,000,000 views between our blogs (9,925,000 of them were MMM). I just made all of that up, but the percentages probably aren’t far from the truth. It’s all good though.
Without the Mustached One, there would be no 1500 Days. Without the Mustached One, I’d still be looking forward to decades of employment (***shudder***).
By some twist of cosmic fate, I also live close to MMM in Northern Colorado. It’s a bit surreal. On some evenings, I know that heavy doses of ridiculous spending are being committed because I see this up in the sky:
Anyway, if you’re anywhere close to Northern Colorado, I hope you come out for the MMM meetup. First beer is on me. Literally. I’m clumsy and am always spilling drinks and food all over myself.
*I still owe something like $120,000 (I’m too lazy to update this every month) on my mortgage. Because I have a low rate, I firmly believe in not paying it off. My compromise is to have enough money put away to pay off the mortgage at time of retirement. So, to retire today, I would need about $1,120,000.
**This is an affiliate link. If you sign up, the blog makes a little bit of money. Personal Capital is a totally free and superior way to keep watch over your investments. It’s worth it for the fee analyzer alone. I would never recommend anything that I don’t personally use and completely believe in, so give it a try. If you’ve already signed up through the link, please know that I think you’re one of the smartest, most beautiful people that I have never met.
***My 401k contributions include my own, Mrs, 15oo’s, and the contributions from my corporation. Self-employment with a solo 401(k) is a very powerful savings tool. I should have done this years ago.
****The numbers on the right side of the page only reflect my investments and cash. Net worth includes, but is not limited to:
- Home equity
- Water bottles! I don’t know how this happened, but I noticed the other day that we have something like 7,563 water bottles in our home. Somehow, they have learned how to reproduce and they are multiplying exponentially. Yes, we have a Tribble problem.
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