1500 Days to Freedom

Think different and escape the rat race.

Performance Update (Day 2249): KISS My VTSAX

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Ask the Readers returns in a couple of weeks. This week, I regale you with numbers and bad jokes in my February performance update. Next week, I’ll tell you about the coworking space Mrs. 1500 and I bought and why we did it.

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.

Everything should be made as simple as possible, but not simpler.

-Albert Einstein

Less is more.

-Mies van der Rohe

Simplicity is the keynote of all true elegance.

-Coco Chanel

Have you ever heard of the concept of KISS? No, I’m not talking about the glam rock band with those dudes who wear stupid makeup:

Not this KISS

I’m talking about the acronym:

Keep It Simple Stupid

As a software developer, my team and I talked about KISS frequently. Simple code is good code.

The more I think about investing, the more I think that KISS is also the right answer. And in investing, KISS equals simplicity. In other words:

KISS equals VTSAX

VTSAX >> Fancy

The market has had a big, big run and by some measures, you could argue that stocks are overvalued and have been for a while. So, I decided to get fancy. In November of 2016, I put $50,000 into a real estate syndication deal.

In a syndication deal, a group of investors pool their money to buy something far bigger than they would have been able to afford otherwise. In this case, the syndicator would purchase an apartment building, rehab it, raise rents, and exit 5-10 years later. Investors get quarterly payouts and then a big one at the end when the property is sold.

This investment has performed poorly and is getting worse:

  • The syndicator’s November performance report stated that it had fired the management company due to poor performance.
  • The February report stated that the (now fired) management company had been falsifying data. The deal was performing so poorly that our quarterly payout would be a big fat zero. Not good.

My payouts so far on my investment of $50,000 total $2921.04. This is a little under 6% in two years or 3% per year. During the same time period, the S&P 500 has risen by 28.2%. If I had left my $50,000 there, it would have gained $14,102. Oof.

There is still a chance that the syndicator could right the ship. But at this time, I’m not holding my breath, because the news gets even worse.

Recently, I was talking to a friend who happens to be a syndicator based out of the same city as my deal. I showed him the location of the building and he said:

That’s not a good area. We never would have bought there.

Sigh…

The reason I’m not naming names is despite my poor returns, I have a lot of respect for the syndicator. The folks running it made a poor decision. They didn’t know the area and got burned. However, I think they’re also doing the best they can and continue to run the operation in an open and honest way. While I appreciate the honesty, that alone won’t buy the children clothes and feed the dinosaurs. So, they won’t be getting any more of my money. I’m going to stick with simplicity from here on out.

If you don’t like it, you can KISS My VTSAX.

February Spending: $3,661

February was our lowest month for spending since we started tracking it again. After paying our mortgage of $1427, we chewed through $2,234. After the mortgage, our four largest expenses were:

  • Groceries ($852.87): Wow, this was a lot of spending on groceries. We don’t eat fancy food, but we did host an epic birthday party for our daughter:
Happy Birthday Older Daughter!
  • Restaurants ($403.54): This is high. Over 1/3 of the total was the result of taking some good friends out to a fancy meal in Denver.
  • Health care ($261): Payment on braces…
  • Utilities ($178.11): In the winter, we use more natural gas.

Most Fun Expense

On a day off of school, I took the girls down to Denver where we visited the Denver Museum of Nature & Science. I love museums and I love science, so I visit these types of museums whenever I can. While the girls don’t quite share my level of enthusiasm yet, we got to see some cool dinosaurs:

February Performance Update

We started the month with a net worth of $2,164,953 and ended at $2,173,864 for a gain of $8,911:

Yey, Personal Capital!***

2019 (as of 2/28/2019)

  • Days elapsed: 59
  • February gains: $8,911
  • 2019 gains: $109,424  (including 401(k) and HSA contributions**** of $3593.32)

Since the start (1/1/2013)

  • Days elapsed: 2249
  • Gains since 1/1/2013: $1,072,821
  • Investment portfolio and cash value: $1,658,864
  • Net worth (investment portfolio plus home equity, a silly toy car (Acura NSX!), bikes, and dinosaurs): $2,173,864

Portfolio Breakdown

We have a diverse portfolio (full listing here) that includes real estate:

  • Mobile home park (elevated home living to the easily offended/politically ultra-correct)
  • Coworking space: We own a building/small business in Longmont
  • Private loans (2 now totaling $135,000)
  • Syndication deals (6 including the bad one I mentioned in the intro)

And stock market holdings:

  • Individual stocks (old thinking)
  • Index funds (most money goes here now)

Both sides of our portfolio saw increases, although real estate did the heavy lifting this month:

  • Stock market: $752,171
    • February appreciation: $836
  • Real estate: $866,693
    • February income from mortgage notes, syndications, and private loan: $8,345
    • 2019 income: $14,137
  • Cash reserve: $40,000

KISS My VTSAX

The other aspect of fancy investing is that it consumes mental bandwidth. While I like evaluating deals, there are 100 things that I’d rather be doing.

Now, if I was in control of the investment and confident in the numbers, I’d reconsider. I have no regrets about the trailer park or coworking space that we own. I was close to the metal on both of those deals.

We continue to look at real estate. Perhaps we’ll purchase another fix and flip or partner up on something bigger. Or, maybe we’ll just ride the index fund horse from here on out. We don’t need more money…

*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. Since my investment portfolio now sits at $1,550,000, I can spend about $62,000 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 was to have enough money put away to cover the mortgage at the time of retirement.

***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. My main investment vehicle is also VTSAX but I’ve been going back and forth on purchasing some real estate to use as a rental with the intention of increasing my income to reach FI (Ideally starting with a duplex and living in one side while renting the other and then adding a couple other properties over time). It’s not the right time in the market for this right now, but I’ve been watching properties so if/when a good deal comes up, I can strike if I decide to. Based on your experience, would you say your real estate workings (minus said syndication deal) over the longer haul have brought in more/average/less than VTSAX? I realize there is time and work that go into the real estate side to factor in but since my tunnel vision is set on existing the cubicle world, I’m just looking at numbers right now. If I go that route and find I really enjoy it, who knows, maybe I’d add more quicker. If I don’t enjoy it, I’d deal with it while I needed to and sell when it made sense.
    Financially Fit Mom recently posted…Ways Kids can Give BackMy Profile

    • “Based on your experience, would you say your real estate workings (minus said syndication deal) over the longer haul have brought in more/average/less than VTSAX?”

      Fix and flips, definitely yes. But, they were also a lot of work.

      The other syndications are trailer park have beaten VTSAX, but mainly because VTSAX was negative in 2018 while the real estate returned money.

      “I realize there is time and work that go into the real estate side to factor in but since my tunnel vision is set on existing the cubicle world, I’m just looking at numbers right now”

      Real estate definitely isn’t passive, but it doesn’t have to be painful either. Get good deals and good tenants to minimize the pain.

  3. I just saw KISS for the 7th and probably final time. Don’t mess with the KISS Army!

    I’ve converted a bunch of various low cost index funds to VTSAX too

    What do you think of the new zero cost Fidelity funds? Will Vanguard follow the concept?

  4. Just this morning my wife got word from Corporate Overlord’s HR department that they were getting out of VFIAX, VIMAX, VSMAX, and VBTLX in their 401(k) offerings and switching over to Fidelity. VTSAX was never an option so she was distributed across the first three. Seems a little short-sighted but eh, we’ll keep socking it away. We still have a healthy amount in VTSAX directly through Vanguard with a rollover IRA.

    As to nice dinners… two months ago wife’s cousin, a professional musician who has stayed with us over the last few years when taking DC-area service band auditions, won a job with one of the local military bands. It was her thirteenth audition, against dozens of other players in each instance. Her MOS will be ‘musician,’ she’ll start out of basic as an E-6, and she gets to perform for a living for the rest of her career. Yer damn right we took her out for a fancy meal the day she won that gig. 😀

    • “Her MOS will be ‘musician,’ she’ll start out of basic as an E-6, and she gets to perform for a living for the rest of her career.”

      Damn, that’s pretty awesome!

      Vanguard to Fidelity: This isn’t a bad thing. As the commenter above pointed out, some of Fidelity’s fees are even lower than Vanguard’s.

      • I agree that the low fees are awesome — but they seem like a loss leader to get people to jump onboard, and then they’ll raise ’em down the road. It’s privately-owned, not like Vanguard; I bet those sweet sweet dollars will look mighty good later.. Maybe I’m just cynical.

        • My guess is that they won’t raise them, but try to get you to sign on for an active advisor or some other service. Kinda like the Personal Capital model…

  5. Yikes, sorry to hear that syndication deal is going south for you. That’s rough, but kinda part of the game when you invest in single property deals.

    Personally I’m a fan of REITs for my own real estate investments right now. I don’t have the time for anything less passive, and the returns over the last decade have been decent.

  6. Well, if you had bought VNQ instead of the Real Estate Deal, you would be up by 16% or so since Nov 1, 2016. If you had bought the commission free ETF for REITs at Fidelity, FREL, you would have been up by 21%. So there is performance variation even if you end up choosing one index ETF over another.

    In the end, I think that a two year period is noise. Let’s see how your syndicated investment does in 7 – 8 years, shall we?
    Dividend Growth Investor recently posted…Three Dividend Increases In FocusMy Profile

    • “In the end, I think that a two year period is noise. Let’s see how your syndicated investment does in 7 – 8 years, shall we?”

      True. The other thing that I didn’t mention and I should have is that syndication deals skew towards paying out at the end.

  7. No Risk, No Return! Too bad the syndication deal is not working out well for you, but the powers of spreading are savings you @$$. Could have been worse if we would have a market collapse, the syndication deal would have looked really good It’s all a matter of time and perspective…

  8. A decent month.

    The urge to do “something else” is so strong. 6 syndication deals, elevated home park and MMM headquarters. They might work out, might not. Certainly not keeping it simple. 🙂

    It is like the allure of individual stocks. The hopes of “hitting a grand slam” dangle out there. A low cost, total market, appropriate mix of stocks and bonds portfolio is like hitting a bunch of singles, maybe a walk in there.

    We resist the deep seated urge to do something else. Thanks for the update!

  9. Hooray for simplicity. The portfolio we chose is aptly named, Bernstein’s Simpleton’s portfolio. Though even it has four index funds so it’s many times more complicated than just rolling with the VTSAX.

    In favor of making things fancy though, have you seen this series on Youtube?

    https://www.youtube.com/watch?v=XEOzx3_C0oo

    I love these videos.

    Congrats to your little one. I’ll have to pick your brain on the RE part of FIRE soon…we’re getting close, friend.
    Done by Forty recently posted…Our Mortgage SwoopMy Profile

    • I have not seen that series! I showed this one to my 9-year-old who loves Macaroni and Cheese and she did not approve: “Dad, can we just make it plain?”

      Pick my brain any time! Unfortunately, we won’t make it down to your neck of the cactus desert this spring break though.

  10. Sounds like a cautionary tale in getting involved with syndicators! (though I’m sure Mrs. 1500 has heard many stories of them working out well, to balance it out). It seems you are not including income from the blog as part of your “investment” since it’s just extra on top. But not bad earning $100k in increased value in something like 3 months. Compounding really really works! I am also in VTSAX and a few other vanguard offered ETFs and index funds for a bit of fund diversity.
    Cathleen Cooks Stuff recently posted…2 roads to FI: save more vs make moreMy Profile

  11. Hang in there, the syndication deal may work out in the end. Overall, you are still killing it. I like the KISS analogy. We love Vanguard indexes. We ascribe to the three fund simplicity plan: Vanguard’s Total Stock, Total Bonds, and International indexes are our weapons of choice. We too have ventured outside this plan over the years. Some good, some bad! But our basic investments (IRAs, 401ks, 529’s, and HSA’s) have always stayed as listed above (3 funds). Our returns are exactly as expected over time. Realestate has been the biggest surprise (a good one) for us. Ten years ago we recognized the down market and initially started with a single rental property. We now own over fifty units, and an initially small real estate investment has since out paced our thirty year plus 401k’s. So our net worth in real estate is now greater than our net worth of traditional investments enabling us to retire early on real estate income alone, and allow the traditional stuff to just grow. So don’t throw in the towel too quickly on the real estate. It’s one of many great early retirement tools in the bag. But also keep the KISS approach on the traditional stuff! Great advice for your readers.

    Great job and keep it rolling! Love the reads!

  13. May I ask how you keep your utilities so low?

    I live in Michigan (we had a cold winter this year), and my utilities don’t stay anywhere near that low. I live in an older brick ranch home with finished basement. The windows were updated about 6 years ago, the furnace was replaced with a high efficient model in 2015 (same with the AC), NG hot water heater done in 2018, and I use a new ecobee thermometer (we have the winter daytime temp at 65 and evening temp set at 61). My attic is fully insulated (I’m not 100% certain but I believe the walls are insulated as well) I still can’t get anywhere near that low of a utility bill. Our last year utility totals:

    $1450 Electricity
    $1036 Natural Gas (Heat and water heater)
    $903 water/sewer
    $322 garbage
    $617 internet

    • Longmont produces its own electricity and is almost the cheapest in the state. We pay for the smallest trash can. Colorado winters are warm compared to Michigan and I insulated the sh*t out of the house. One thing though is I don’t include business expenses and we charge the internet ($50/month) to the business.