1500 Days to Freedom

Think different and escape the rat race.

August Performance Update (Day 2068): I Will Lose Lots Of Money Soon

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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:

Because:

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:

Chart from Personal Capital***!

 

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!

 

Portfolio Breakdown

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.

***This is an affiliate link. If you sign up, the blog (me) makes some cold, hard, beautiful, cash. Personal Capital is a totally free and awesome 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 you are a fine person of above-average intelligence.

****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.

Join the 10s who have signed up already!

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*Only if your life is pretty bad to begin with.

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Comments

  1. Very sensible advice Carl. People get too focused on the short term. The stock market can do any random thing over the short term.

    It’s probably best not to look at short-term price fluctuations and read too much into them.

    P.S. Congrats on the nice net worth increase!

  2. a 15% market gain for the year is pretty sweet. i had something similar all supercharged by individual holdings. the sp500 is us 7% YTD and my individual stock portfolio is up 28%. the index funds in the 401 are holding it back but it’s diversified. the big winners in ’18 are netflix, match.com, and i started a position in OKTA which us up 61% in a few months. i finally decided to write up the whole thing for tomorrow as to what’s under our dress.

    i saw schiller on tv not too long ago saying his own cape ratio is not a great predictor. i guess we’ll see.
    freddy smidlap recently posted…Want Something? Build it Yourself!My Profile

    • Whoah, you’re killing it although I’m pretty sure I don’t want to see what’s under your dress!

      “i saw schiller on tv not too long ago saying his own cape ratio is not a great predictor. i guess we’ll see.”

      If I had to guess, I’d say that we’re in for some rough times in the very near future, maybe even before end of year. You heard it here first!

      • Have you heard the scam detailed by JL Collins’ book? Where you recieve predictions about a stock’s performance in the mail, and it ends up being right… and then you get another ,and another one. Pretty soon you are thinking “wow, this guy is a genius, he never misses!” and you invest your money with him. The gist is the guy is sending 1000 letters, half are that that stock will go up, half are it will go down. The half that were wrong, he stops sending letters- the other half, he again halves it and does it with another stock (250 get up, 250 get down), and so on and so forth, until someone ends up being the “lucky” few that have like 5 or 6 prediction all correct.
        You could do that too! :). Half all of the market wizards and economist are saying the market is crashing soon, and the other half say its going to soar like no tomorrow. Someone is right….eventually.

        • Haha, this stuff cracks me up! Pay attention to the media for 3 seconds and you find a story like this:

          “Mr. Dufus predicted the last crash and now he’s saying this!!!”

          Like you said, if you have a 1,000,000 people making predictions, one of em’ is gonna get it right. Let’s see someone do it twice!

          The smartest people (Buffett, Munger, Bogle) never make specific predictions.

  3. I wholeheartedly agree – equities are a wild ride in the short term, it’s the long term that counts. They’re definitely not for the skittish or anxiety-prone.
    BTW congrats on the strong month! Here’s to another one this month 🙂

  4. Seems like there are more and more people out there saying things about waiting to invest and timing the market. Problem with timing is that you have to be right twice. Plus, interesting tid bit I recently heard is that if you missed just the top ten trading days from 1993 to 2013, you would have lost almost 4% total return. In total agreement, it’s tempting to time, but just staying the course is the way to be.

    • The being right twice is sooooo important! I just listened to someone who mentioned he sold a lot of his real estate in LA before the last recession. Unless you bought it back at some point before 2012, you’re probably lagging.

  5. Nobody says it better! I always tell myself, “Now that is what a blog post should look like!” Financial numbers are inherently dry content but you make it fun. And comforting, since I’m an older FI guy like you who also is retired from any real JOB. Because I loved my job I accumulated a lot more than I need now, but even so it is comforting to read your answers to the alarmist comments that are all over the place due to the long bull market run. I too can afford to lose money, and have no worries about losing some in the short run. In fact I’ll be shocked if I don’t. But it feels nice to hear someone say it so calmly.

  6. You’re a million dollars over your FI number, you have blog income, and your wife still works. I can certainly believe that you’re not afraid of losing money. No disrespect meant, but I do wonder if you’d feel the same way if the above weren’t true. For those of us who are planning to FIRE with no immediate plans for doing a side gig, I can certainly see why people are a little more cautious like aiming for a 3% w.r. even though 4% is probably fine. It’s for the piece of mind. After all, what’s the point of early retirement if you’re stressed about money.

  7. If we’re gonna have a big drop in the market I’d rather it all just happen now! That way while I’m working my W-2 job I can funnel as much money as possible into the market while prices are lower and then sit back and watch it grow again. Alas, I’m in this for the long haul so no need to worry about short term volatility. Nicely said!

  8. Another quote I like: “The market can stay irrational longer than you and I can stay solvent.”

    I get the whole “aren’t you afraid to invest in the market when shows that we’re due for a crash?” from people sometimes. I mean, yeah, we’re due for a crash….but predicting when that crash is actually going to happen is dang near impossible, and you just don’t know if you’re avoiding more in gains than losses by sitting out of the market.

  9. We done… I love the comment about if it was the 2% rule people would need 1% of it was 10% people would need 9%. Makes me laugh.

    Regardless… good on you for the good growth. And living the good life!!

  10. For my husband and I, I’m not that worried if the market drops sometime soon. We are aiming to retire in 3 years, a good decade before the traditional age. If the market were to crash, we are young enough that we could delay FIREing for a while.

    I’m more concerned about what to do with my parents’ money, who are in their mid-60’s. They’ve let me guide them the last few years, and they’ve made some great gains! However, they started way behind and they’ve still got a couple hundred thousand to go before we get to the bare minimum they need to comfortably retire. We’ve been focusing on VTSAX, taking more risk in order to get to their target as quickly as possible because of their age and having to play catch up. If the market were to crash and wipe out 30-40% of their retirement funds, it would be a devastating set back. They are both in fantastic health and could keep working traditional jobs for several more years… but they don’t want to. They’re trusting me, but I’m just not sure what the best advice for them would be. Any input from you or the hive mind?

    • Wow, that’s a hard one. I’d say that if they’re that close to retirement, they probably don’t want the whole thing in VTSAX. At their age, they need more downside protection, so if I were in their shoes, I’d probably have a portion in bonds with annual rebalancing. It may take them a little longer to get to the end of the road, but they won’t be completely wiped out when the next 25% drop happens. And it will happen…

      • Would you say the same for a 52-year-old, new to FI, with a super-steady job (tenured prof) but one which she (me) would like to have the OPTION to leave when it suits me, i.e., before my 80s, as used to be the way of professors. Having caught fire w/ FI, I have rapidly payed off my terrible debt, moved my retirement fund to VTSAX; but do you recommend taking a portion out in bonds? My other equity is in a home we bought cheaply in a hugely expensive area, very stable due to universities located there. Or am I crazy? Thanks for any input !

        • “…but do you recommend taking a portion out in bonds? ”

          It all depends on you! If you’re going to have a heart attack when the next 25% drop happens, maybe you should be more conservative. However, if your mindset is that you can just stay at work a couple of years longer should the market tank, than you can be more aggressive.

          My personal choice is to be very aggressive, but I also have a buffer.

          Also, the two Fs will take you a long way; Frugality and Flexibility. If you’re frugal and flexible, it the markets do take a huge dump, it doesn’t take much to move your financial needle. Just go back to work part-time for a bit until the clouds clear.

  11. Great job, Carl! You’re killing it this year and all of your advice is spot on. You seem to have the perfect balance of financial security, happiness, health and appreciation for what you have.

    For Tracyl-5, I am also on the 3 and out plan, well ahead of traditional retirement age. Check out the FBALX fund for your parents if you have time, as it seems to have a solid asset allocation to weather market downturns.
    JRobi recently posted…Accountability Challenge Week 7 Results (week 8 for me)….My Profile

  12. I’ve read to have 2-3 years of cash reserves available (either cash in a checking/savings account , or tiered CDs that are set to expire every month or whatever) so that if there is a market crash, you aren’t having to withdraw that capitol when the market is depressed. The other thought is to make sure some percentage is in bonds- and use the bonds to live off of if the market crashes- or a combination of both, use the bonds to live reinvest in the now “on sale” market so you can take advantage of the (hopefully) soon market gain, and use the cash reserves to live on.
    I wouldn’t ask me , though, I’m still trying to figure out how to turn my savings account into tiered CDs with reasonable maturity dates

    • I only have one crowdfunding deal and that’s with Fundrise. My others are six syndication deals and one private loan. Out of all of them, I like the private loan the best because I’m intimately familiar with the deal. I do worry what happens to many of these crowdfunding platforms when the next recession comes around. As Warren Buffett likes to say, we’ll see who is wearing shorts when the tide goes out…

  14. I recently finished JL Collins’ book, The Simple Path to Wealth. I think his advice is spot on. I’ve never been one to try to time the market, and I’m a little nervous about the imminent crash that is “sure” to happen soon, but I just grit my teeth and stay put with my low-cost, total market index funds. I’m still working, but I have a 5-year timeline for retirement. I’m reassured by the fact that the market doesn’t stay down for very long. I was surprised by this–to listen to the media, you’d think that the market crashes ALL THE TIME.

    • The media likes to scare people. Fear resonates and gets ratings! It’s also mostly crap!

      A crash probably will happen soon and that’s good for you! Right now (well into a bull cycle) is probably the riskiest time to retire. You’ll be just fine.

  16. Carl,

    Out of curiosity:

    1) What is the breakdown of your investments across account types: taxable, tax-deferred (IRA, 401k, etc…), and tax-free (Roth, 401k Roth)? This probably isn’t a problem for you personally but I’m sure there’s a number of people seeking FI might have some difficultly actually achieving a 4% withdrawal rate given that they are FI so much earlier than the standard retirement age as they can’t access (without penalty) their tax-deferred investments generally until 59 1/2 (56 for current employer 401k when you retire) and tax-free investments (59 1/2 for earnings but anytime for post-tax contributions).

    2) How much do you actually rely on the 4% withdrawal? Given that you have passive/active income from both you and your wife still, what is your actual withdrawal rate? Or are you still actually in an accumulation phase and just relying on your investments to give you the FI cushion to do what you want to do? And are you calculating the % based on total net worth or only the investments (i.e. not primary house/cars/etc…)? Obviously just because you’re FI doesn’t mean that you’re kicking back popping bonbons or beers all day – it just means now you’re free to work on what you want.

    3) Do you ever post your general budget numbers? Just breaking down the overall budget into the big ticket categories like: Housing, Education, Medical Insurance, General Living Expenses (Utils/Food/Clothing), and Discretionary Spending?

    4) Have you set aside any monies specifically towards college education expenses for your kids? Or is the money all in the general accounts and you’ll just shift where that money is spent? Did this factor into your FI number at all given the potentially high costs? (It is personal choice as to how much/if any parents feel obligated or want to contribute towards their children’s college education expenses – there is no right/wrong answer.)

    Just FYI – I’m not trying to be critical here in any way with my questions. I think it’s absolutely amazing what you’ve done – to be free to work on what you truly want instead of having to work just to make the ends meet! As I continue on my own path towards achieving FI, I’m grappling more with when I’ll actually cross that line, will I be able to make all the ends still meet, how I’ll be able to walk away from my current job, and what I might actually choose to work on (future earnings).

    • #1: I own an update on this, but check this out for now. And, you can access tax-deferred without penalty before age 59.5. See here.

      #2: I didn’t plan it this way, but I’m not an example. See here.

      #3: Nope, but we spend around $3,000/month. $1,250 is for housing and the rest funds our life.

      #4: We have no accounts and I also don’t feel like we have to put our kids through college. However, we will help them if we can. I do want them to have skin in the game so they appreciate their studies, so no matter how much we have, they’ll pay for something.

      And don’t worry about offending me. I really appreciate these questions and the media should ask them every time they interview one of us.

      • 1) “And, you can access tax-deferred without penalty before age 59.5. See https://www.madfientist.com/how-to-access-retirement-funds-early/.”

        This is what I get for posting in the middle of the night! Duh I’d completely forgotten about that post and the surprising conclusion that even if you end up having to pay the 10% early withdrawal penalty the tax deferred growth long term outstrips post-tax contributions. But of course Ladder away as much as you can first (if you can – which is in fact my plan).

        2) “I didn’t plan it this way, but I’m not an example. See https://www.1500days.com/passion-play-pay-what-you-can-and-cannot-learn-from-me/”

        Thanks for that link… I missed that one. You say FIRE but really it’s just FI (maybe that will keep the FIRE police from hauling you away!) – having reached your 4% goal you could then take advantage of the opportunity it provided to step into what you really wanted to do. Extra bonus that what you want to do and what your wife wants to do is actually keeping you two in the asset accrual phase .

        But the keys are a that: a) you all had and stuck to a general plan (the goal), b) executing that plan (the journey) gave you time to figure out what you’d really like to do when you hit FI (even if that evolved over that time), and c) the opportunity FI presents can be truly amazing.

        “8:30 am-10 am: Exercise! This is weights every other day and cardio or rest in between.
        10 am-12 pm: Writing, emails, social media.
        12 pm: First meal of the day.”

        Tsk! Tsk! You need to feed your engine after you exercise! Your body will thank you. 🙂

        • Haha, I’m still trying to figure the exercise thing out! I usually do have a protein shake after a hardcore weight workout. However, since I nearly trapped my finger off today, I won’t be lifting weights for a little while. Doh!

          Thanks for being nice with your comments. I struggle to wrap my mind around my own situation. I didn’t see any of this coming. I’m so damn thankful though. I’m having way more fun than any human deserves right now! Life is good.

  17. If you use “quantitative investing science” in managing your equity based portfolios and growing your assets, then much of the uncertainty about valuations and all time highs may be relieved.
    In the book “A Guide to Modern Quantitative Tactical Asset Allocation”, core concepts towards “tactical” investing are spelled out. Starting investment in the equity market as early in the lifecycle as possible, the use of a Roth or standard IRA account, investment in the highest tier excess returns premia assets, and risk management are some of the topics covered.
    Learning new methods can be a challenge, but that’s what “college” is for anyway !

    https://tinyurl.com/y6w4ca8b
    https://www.stockmarketmap.com/market-environment

  19. Amen! People worry far too much about trying to predict macro movements. It’s simply not worth it. Economists in the UK has predicted 9 of the last 2 recessions over the past two decades. Clearly we’re not very good at predicting and timing the markets. Better to just commit for the very long term and continue to drip feed into your investment.

  20. It’s difficult to resist to the urge of financial media trying to predict the future by closely commenting every single market move. Like Jim collins says, the market is like a beer. The noisy financial media and traders are just the foam. Investment is the beer underneath.