My main goal is to build a portfolio of $1,000,000 in 1500 days, starting from 1/1/2013. Every month, I provide an update on my status. My goal for 2013 was to get my portfolio up to $672,750, from a starting point of $586,043. I accomplished this in June and then raised my goal to $727,750 to account for the money I made selling our last home that I plowed back into the portfolio. Time to look back on the month of October.
The markets and my portfolio continued to roll in October. The S&P 500 climbed an incredible 4.5% while my portfolio shot up 5.4%.
I started the month at $791, 287 and finished the month at $833,677. During the course of the month, I hit $839,159 which was a new all time high. Here are the numbers:
- Days elapsed: 303
- Days remaining: 1197
- 2013 gains: $253,133 (including my contributions)
- Left to go (2013): Goal accomplished!
What goes up doesn’t have to come down
I’ve been hearing a lot of chatter lately about how the markets are ‘hitting new highs’ and as a result, ‘we’re due for a correction.’ People who make these statements are missing a fundamental aspect of the market. If given enough time, the markets always go up. This is the natural way of Mr. Market. If the markets are performing as they should, new highs should be reached periodically. Mr. Collins explains it much more eloquently than I ever could over here. (While you’re visiting Mr. Collins, you’d be wise to read his whole stock series.)
This isn’t to say that there won’t be occasional market farts. Black swans will periodically show up and take things down for a while. The derivative black swan of the past decade was a mean one, bringing the S&P 500 all the way down to 683 on March 6, 2009. Today, this index sits at 1,761. If you yanked your money out when that swan showed up, you missed one of the greatest bull runs in recent history.
There will also be periods of irrational exuberance. The Internet stock boom of the late 90s was a recent example. But again, Mr. Market self corrected and prices returned to normal. Again, ignore the market farts.
The bottom line is that just like most other aspects of life, the market is cyclical; however the long term trend is up. Stay in for the long haul and you’ll do just fine.
Home hunting failure
Over 99% of my investments are in the stock market. The other 1% are in peer lending. This doesn’t make me happy. I just told you that I think that Mr. Market is great for long term wealth appreciation, but I’d like a consistent source of income in retirement. The solution for me is rental homes.
In the past couple months, we’ve tried to buy multiple homes. We’ve struck out every time. The housing market in our slice of America is on fire. It is not unusual for homes to have multiple bids just hours after hitting the listing service. I really dislike getting into a bidding war.
The other problem is that our rental returns won’t be so hot. On a $200,000 home, we may be able to get $1400. Bleh. However, I am extremely bullish on prices long term in our area, so this doesn’t bother me too much. Hopefully, we have more success in 2014.
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Heck of year Mr., one heck of year! Goes back to your question of what would you do during a black swan event, and the answer is still sticking to the plan and keep investing in financially sound companies whose fundamentals have not changed.
As for the rentals, have you considered investing in anything outside of your immediate area to find properties that will have a better chance to cash flow? Since you already do own real estate (your personal residence) in one location, this will also add some geographic diversity to your real estate assets.
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I’ve thought of moving out of my area, but then it becomes harder to manage. If I had some solid contacts in the area, I’d certainly consider it.
Great month and great year, it’s really cool to see how your goals are being knocked out of the park. And good stuff by Mr. Collins too, thanks for the recommendation.
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Mr. Collins is really great. I highly recommend his site. He has some of the best advice out there.
Wow, that’s awesome!!! The market is on fire. It’s crazy! Prices are rising too.
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Yep, markets are on fire. Craziness! 2014 will be interesting…
I know you do your homework and I am just speaking anecdotally. Managing rentals would seem to me to be a time consumption headache. Is it really a retirement income panacea? Maybe a young retiree, with skills can handle the inevitable crazy renters. I shudder to think of the possibilities. Do you enjoy dealing with the public? I hear legal screening for good tenants is tedious as well.
I’ll stick to the market.
I’ve actually done it before. The key is to screen people like mad. It is much, much better to have a place sit empty for a month or longer than get a bad tenant. I’d also be very competitive on rent so I have my pick of tenant.
When you think about it a lot of your (Pwsher) friends and family probably rent. I was a renter for a long time and was a fantastic tenant. The problem is property in Colorado is really hard to come by! I am also looking into investment properties and will have no problem renting to people as long as they are screened like crazy per Mr. 1500’s advice.
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Every once in a while I worry about how the markets are hitting new highs and how they must be in for a correction, until I realize that no one cane predict the future. I’m secure in my belief that I don’t know what is going to happen, but no one else does either. Rental income seems like a logical next step for you. Are you thinking single family or multiunit?
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I’ve love a multi-unit as they usually produce better numbers. They are hard to come by though.
Holy Cow, your Net Worth grew over a quarter of a million dollars in 2013 – Astounding.
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It’s been a great run, but really, it’s a very small amount of time. I do not expect a repeat performance of the past 5 months for a very, very long time.
That’s a really awesome investment portfolio amount, Mr. 1500. We’d love to get there someday.
We’re also trying to get into rental property but keep getting caught in a cycle of saving money but not doing anything with it. We’re on the sidelines for now but hopefully, 2014 might bear some fruit.
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Thanks and you will get there, most likely ahead of me! Keep in mind that I’m almost 40 (weeks away). By the time you hit 40, you’ll probably have sailed past me! Please wave as you go by.
Your are far more bullish about investment real estate than I am. I know plenty of people who’ve lost thier shirts in the rental game, and a fancy few who’ve done quite well.
Overall, I find a lot of people like to compare the returns from thier rental portfolios with stock market returns, or dividend returns, or REITS. I don’t feel these are apples-to-apples comparisons. Most, if not practically all, of the profit from your rentals will come from you directly. Buying the right house at the right time, sweat equity in, screening and renting to quality applicants, making decisions on when to get them out, when to sell, etc. It sounds like a part time job to me, and not one I would particularly enjoy. And if you calculate an hourly rate for all your time and subtract that from your ROI, I wonder how profitably many rental opporitunities truly are.
Finally, don’t forget the risk of only having a few properties. Lack of diversity, liquidity, and all that.
Here in my part of Michigan they are pretty much in line with what you were showing. Barely cashflowing in the best of times. Having to rely on price appreciation to earn a positive return.
It all makes me long for the good old days of 2008 & 2009. But I didn’t have my financail bearings back then.
I agree that real estate is a tricky game. With that said, I’m very conservative with everything I do. So much so that it may take years before I jump in. I’d rather do it right than jump in and screw myself somehow.
You were certainly well positioned to take advantage of the market increases this year! Congratulations. Couple thoughts.
1) I agree that just because the market is up doesn’t mean it can’t go up more. Especially in the long term. P/E ratios i think give a better idea if the market is under or overvalued at the moment though than absolute levels. http://www.multpl.com/ indicates that we are above norm on the P/E which indicates overvalue, but by no where near as high a percentage as we were in 2000 or 2008. International stocks are right around norm which indicates they might have a little more upside available in the short term.
2) Housing prices are relative. The prices you have look better than what I can get in my neck of the woods so i am jealous 🙂 Right now we are running about $315k for $1700 rent (on an attached townhouse before any fees which would all include $100+ month on HOA). Going to SFH makes the ratio worse. Going further out makes it a bit better all around, but not much. I guess the best thing for you would be if interest rates went up significantly as that would push people without cash the the sidelines for the moment 🙂
3) Didn’t check what percentage of your portfolio is in tax sheltered accounts, but I am pretty convinced that you could do a SEPP withdraw strategy from these assets in place of rental properties for a fairly stable income stream with low tax consequences, and a lot less “work”. The last i calculated it at 35 you could setup an amortization based withdraw of 3.6% of assets out of IRAs with no penalty! the percentage goes up with withdraw start age or the mid term AFR rates. The only real downside is in terms of having to continue this income stream till 59 1/2, but that is pretty much it (and if you have additional income you can always re-contribute to a different IRA or 401k to offset the withdraws).
4) I bailed on Peer To Peer Lending as it turned out not to be a viable option for a significant percentage of my portfolio (too much money from bit players going into it right now, and the quality of the loans is going down). So yes the return is good but it was too much work/hassle to maintain for ~1% of my portfolio (like you). I was able to liquidate lending club fairly quickly, although pricing the notes to sell on folio was a pain in the but as there is no good way to price at 1% discount to value (point where i found they sold very quickly).
Lucas-
Thanks for all of the advice. I recently learned what a SEPP is and I’ll be pursuing that in the near future.
I’m considering bailing on peer lending as well. Good loans are very hard to get. It just isn’t what it used to be.
Great job! I totally agree that just because the market is up doesn’t mean it won’t keep going up. However when I see a lot of people saying that (like right now), it makes me nervous. It always seems like when people start claiming they can’t lose, we end up getting a big dip.
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PN-
Agreed, especially about this year. Returns have been off the charts. It just can’t continue. Its not healthy.
Fabulous! Have you already reached and surpassed your 2014 and 2015 goals too? =)
Mrs PoP @ Planting Our Pennies recently posted…PoP Income Statement – October 2013
2014 goal is in the bag and I have about 35K more to go for 2015…
Just one observation. A black swan is some bizarre event that could not have been predicted. 9/11 was a black swan. Lehman Brothers going bankrupt with no warning might be considered a black swan. If the U.S. was to default on its debt when it did not have to, that would be a black swan. A price correction for a stock market with a rather high shiller p/e ratio does not strike me as a black swan. Not to say that this will definitely occur, but it seems quite possible.
My general approach is to steadily put money into the market when the fundamentals seem sound, throw in a little extra cash during the black swans, and ignore it the rest of the time.
Awesome progress. I’m wondering when you’re going to change your name to Mr. 500 cause that’s the way it’s looking. Will you quit when it hits that magical million or will you pad the account til 43?
Ha, I’m not going to count my chickens before they hatch. One won battle does not win the war…
Thanks for the links, Mr. 1500…
and congrats on the progress.
Cool use of the chart, too. It makes an important point:
All market investors have made money this year and since 2009. But what determines whether the stock market will make you wealthy is what you do in times like 2007-09.
Hint: Nothing.
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“Hint: Nothing.”
Love it and you’re welcome!
Amen….it will go down…. I hear hints of those that think they can time it..by trying to time the drops, you miss the ups……
Always stay the course…
I really wish I could have convinced my mom to do nothing in the 2008/2009 recession. She panicked and sold it all to put it into real estate… Lesson learned. Looking at that chart tells me that things would be quite different now had she held out.
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Its easy to think of what you’d do when times are good, but much harder when the feces actually hits the fan. Lots of smart people bailed out just like your mom. Herd mentality.
You keep trucking at this pace and we will have to change your name to Mr. 1200. I don’t really worry much about a correction as I plan on just staying the course. Honestly, if I were to be greedy, I should actually be hoping for a correction so I can load up a bit more while I’m still young.
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Kicking it as usual, 1500 fam! It will be interesting to see how the rental prop stuff turns out. We’d love to get into that market one day too.
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I earned just over $25 in dividends for October. A record high for me.
Dividends are so much less headache than rental properties and if I can wipe out my debt and concentrate on building a portfolio of good dividend stocks I will be set in a decade or so.
I won’t have any taxes on my dividends because they are sheltered in tax free savings accounts and retirement accounts.
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Very impressive mate. Thoughts on Tesla at $126 and Apple at $522? Are you still long?
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I buy stocks for the long term and I see Tesla and Apple as two very different companies.
Tesla has a long runway with their SUV coming out late next year and an $35,000 car a couple years after that. Other car companies are going to start releasing electrics at a furious pace, but the Tesla’s network of charging stations gives them a large competitive advantage. Down the road, if gas stations get smart* and install charging stations, Tesla may be in some trouble.
On the other hand, Apple terrifies me. The iPhone is their cash cow and Android has caught up and in many ways, surpassed iOS. I’ve always thought that a full-on TV set makes a lot of sense for Apple to sell, but now I read that it may not be out until 2016. Technology moves fast, Apple does not. They are going to be left in the dust.
*This actually makes perfect sense for a gas station. Gas stations make most of their money from the convenience store, not from selling fuel. Having a captive audience of 30 minutes or more while the car charges could benefit a gas station immensely.
My biggest fear on Tesla is the off chance they do a total recall of the Tesla due to the three fires. If that happens, the stock will be cut in half. I test drove my first EV car yesterday and LOVED it. Tesla’s charging network is a good competitive advantage, but I’ve got to imagine a corum of competitors can create their own no?
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Yeah, good point. They fires are scary business, but there are a lot of them with all models of cars: http://www.nfpa.org/research/fire-statistics/the-us-fire-problem/highway-vehicle-fires Tesla gets the press though.
A recall would be scary with Tesla though since the battery location the bottom of the car is fundamental to the design. There is no easy fix.
Yeah, maybe some other manufacturers will form a consortium and do a charging network. Tesla could become like Apple where they lose the first mover advantage and their proprietary/closed technology becomes their weakness.
I do really like Elon Musk though. Someone on Quora asked a question about Elon Musk versus Steve Jobs. I didn’t even read it because Musk has already surpassed Jobs by a long shot.