My main goal* was to build an investment and cash portfolio of $1,120,000* in 1500 days**, starting from 1/1/2013 and ending in February of 2017. I made my goal in 2016, my 1500 Days are over, and I’ve left my job. In the interest of openness, I’ll continue to share my numbers.
One of the most common questions I get is this:
What the hell is wrong with you?
Just kidding. Maybe…
It’s really this one:
Are you afraid to invest now with the stock market at all time highs?
Or this variation:
The Schiller PE is in the stratosphere. Are you scared?
Investosaurus and I agree that the answer is:
I’m not afraid to lose money.
Let’s address the two questions above:
The stock market is at all-time highs.
Yes, it is, but this is how it always is. This is how the stock market works. From this article:
Since 1950 to now, roughly 1 out of every 15 days the market was open, it has closed at a new high level (roughly 6.7% of all trading days).
The S&P 500 has spent roughly 32% of its life within 5% of its (up to then) all time high and 24% of its life within 2% of its (up to then) all time high. That’s often!
And I love this:
If you think the market’s “too high” wait ’til you see it 20 years from now.
That was easy. Next.
The Shiller PE is at the second highest point in history.
The Shiller PE, according to Wikipedia, is:
…is a valuation measure usually applied to the US S&P 500 equity market. It is defined as price divided by the average of ten years of earnings (moving average), adjusted for inflation. As such, it is principally used to assess likely future returns from equities over timescales of 10 to 20 years, with higher than average CAPE values implying lower than average long-term annual average returns.
The scary part is that last sentence:
…with higher than average CAPE values implying lower than average long-term annual average returns.
So, what does this mean in layperson terms? Again, let’s consult Investosaurus.
So, two things are more likely to happen in the near future:
- Returns will be poor. If you listen to Warren Buffett or Jack Bogle, expect 4% for the next decade.
- We will have a correction that will bring valuations back down to reasonable levels.
It doesn’t matter because successful investing should always be about the long-term (more than a decade). Short-term, the markets are unpredictable and scary. If you have short-term needs, keep part of your portfolio in cash or bonds.
However, give the markets a long enough time period and the trajectory is up. To put it another way:
So, I wasn’t telling the whole story before. Instead of just saying this:
I’m not afraid to lose money.
I should have said this.
I’m not afraid to lose money in the short-term. A decade doesn’t matter when I have many more decades to live.
For a more nuanced take on the current state of the markets, see JL Collins’ post: Investing In A Raging Bull.
August Performance Update
Our net worth started at $2,142,950 and ended at $2,195,959 for a gain of $53,009:
2018 (as of 9/1/2018)
- Days elapsed: 244
- Investment portfolio gains: $153,210 (including 401(k) contributions**** of $32,077)
- Net worth gains: $203,210 (investment portfolio gain of $153,210 + home appreciation of $50,000)
Since the start (1/1/2013)
- Days elapsed: 2068
- Investment portfolio and cash: $1,680,911
- Gains since 1/1/2013: $1,084,868
- Needed to quit work ($1,120,000 in investments): Mission accomplished!
We have a diverse portfolio that includes real estate:
- mobile home park (elevated home living to the easily offended)
- private loan (only one outstanding)
- syndication deals
And stock market holdings:
- individual stocks (old thinking)
- index funds (most money goes here now)
Here is the breakdown:
- Stock market: $910,702
- Monthly gain: $41,307.91
- 2018 gain: $120,916
- Real estate: $750,208
- Monthly gain: $11,653.20
- 2018 gain: $32,293
- Cash reserve: $20,000
*My goal wasn’t to have $1,120,000 at the end of 1500 days, but at any time before the day count was up. Why? It all goes back to the 4% Rule. Remember that our little friend, Mr. 4%, is nothing more than the most conservative safe withdrawal rate. So, if I were to quit my job now, I could spend about $60,000 in my first year of retirement.
**My original goal was $1,000,000 and no debt, I later raised the goal by $120,000 to $1,120,000 because I will have debt in the form of a mortgage and I firmly believe in not paying it off. My compromise is to have enough money put away to cover the mortgage at the time of retirement. So, to retire today, I would need about $1,120,000.
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****My 401(k) 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.
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