Financial Independence Daily FI discussion thread - July 07, 2019 |
- Daily FI discussion thread - July 07, 2019
- Sofa FIRE update: 9 months into a lazy early retirement
- FIRE or Embers? Thoughts on a 1990 Japan-style scenario posed by Buffett
- Have I taken FI to far?
- simple formula to stress-test FIRE portfolio in google sheets
- Does A 4% Withdrawal Rate Survive a 60-Year Retirement?
- A cool sankey graph of yearly cash flow
- Is 'travel' really the top goal of FIRE?
- FIRE coach?
| Daily FI discussion thread - July 07, 2019 Posted: 07 Jul 2019 01:08 AM PDT Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. [link] [comments]  |
| Sofa FIRE update: 9 months into a lazy early retirement Posted: 07 Jul 2019 11:15 AM PDT This is a follow up to my posts about my experience FIRE'ing: Quick recap FIRE'd 9 months ago at 35 years old, 1.6 million Canadian dollar, Software engineer. Homebody, with dweebish tendencies. Overall Not much has changed on the surface. Finances Daily routine Hobbies Watched many movies on Netflix - like, properly, without laptop/phone checking. What a strange experience! I read more, and it feels good. Self development mostly. Got to read something else. Played modern 3D video games a lot for a couple of weeks. I don't really enjoy it these days. It feels wasteful. So I stopped altogether.
Work
I would have been good at these jobs. And I'm good at interviewing usually. Expenses and travelling My expenses have remained under control except for some splurging on travelling. 1 month travelling with my girlfriend picking more convenient/comfortable/expensive options than usual. Loved it. Socialization What's next? [link] [comments]  |
| FIRE or Embers? Thoughts on a 1990 Japan-style scenario posed by Buffett Posted: 07 Jul 2019 03:27 AM PDT I promise to get to FI-specific stuff, but it will take me a while to get there, and that's probably because I'm long-winded I am a fairly risk-averse person. I suspect many people here are too, after all a major aspect of the appeal of FI is the security that it offers (e.g. the freedom of not having to worry about how the rent/food/utility bill is going to get paid next month— a huge relief from something probably 99% of people in the world have to think about with some frequency). I was taking a look at my investments the other day and thinking about asset allocation. I have a collection of index funds, mostly stocks with a dollop of bonds. I mostly took this allocation on advice from reading books by people smarter than me. A part of me thinks, golly, there's a lot of risk in that portfolio. I turned 30 not too long ago so my entire investing life has been one long expansion. I hear about how this is one of the longest on record. I see things like the valuations of stocks are historically high using measures like CAPE10 and P/E. I start thinking maybe I'm taking on too much risk, how do I really know what I can handle when the going gets tough? Maybe I need more bonds? But then I consider that the government bonds I'd like to buy pay almost nothing—or I essentially pay for the privilege of holding them after inflation. Investment grade bonds? Not much better. I feel forced to keep going up the ladder of risk to see potential returns that make investing seem worthwhile if I'm going to have to deal with things like 50% drops every now and then. I am not sure what to do. Maybe I need to find some other, better asset class like real estate, commodities, high dividend stocks? In other words, maybe I can somehow get more return without so much added risk or sky-high prices? I start going down rabbit trails, and soon I'm pretty sure I'm straying into parts of the investment world where I'm the sheep and the people talking are not. I then ran across this CNBC interview of Warren Buffett: https://youtu.be/Pqc56crs56s Around the 32 minute mark, Buffett throws out a comment that catches my attention about how he would bet on stocks over bonds over 10 years, interest rates govern everything, maybe we are entering the world of Japan in 1990, stocks might wind up looking cheap, although he notes that these extended low rates (which have only gotten lower recently) haven't been the historic experience of the U.S. I'm no expert, so I didn't initially understand what he meant, and I couldn't find anyone else who commented on this unusually specific prediction from someone generally recognized as probably the greatest investor today. So I did some research and I think I at least partially understand, so I'm going to explain it like I would to a kindergartener (or myself about a week ago). Here goes and correct me if I'm wrong: Looking at how investments are valued mathematically speaking, such as a stocks on a dividend discount model, one of the variables is the required rate of return, which is very closely linked to interest rates. If I can buy a very safe government bond that pays 5%, why would I buy a riskier stock that only pays that same 5%? I would require a much better return, let's say 10% (fairly close to historic U.S. stock returns). Now let's say that you get 0% on that same, very safe government bond. That 5% that wasn't good enough before, now looks pretty darn good. In fact, you get the same extra 5% yield over a safe bond (10-5=5-0) as when you could get 10%. It seems almost like the financial equivalent of throwing a few beers back at the local bar: you're feeling pretty good, your inhibitions for everything are lower, heck maybe you'll say something to that nice Vanguard fund over there after all... Anyway, that's why interest rates are so key. Now in Japan, starting around 1990, I understand that consumer prices started to decline (deflation) and interest rates have been very low or negative for an extended period of time. If the world starts looking more like Japan, if investors can really expect minimal or negative real return on government bonds for the next 10+ years, then it makes sense to pay a historically very large premium for assets that can yield more. In other words, if there were a blue chip stock that (a) sells for a steady $100 per share and (b) very reliably produces $10 worth in returns annually (or 10%), but all I want now is a 5% return, then I should theoretically keep buying that stock until it hits at least $200 for the exact same $10 of return. Across a whole economy, I think that means you would expect to see significantly higher prices for investable assets like stocks, real estate, etc. (Side note: would you see higher wages too? I.e. paying more for the same revenue that human capital would bring to a company? Not sure about that.) So anyway this line of thinking has carried me back to where I started: probably going to stick with my stocks and a dollop of bonds for now. But it got me thinking that if this Japan 1990 scenario is true, then maybe we are all in for a period of paying vertigo-inducing prices for almost every asset needed to FIRE, or more likely it will take longer than before because we would end up getting less return for the same cost. Everyone will be staring at that ladder of risk I was talking about, making increasingly harder choices about how much risk they can (or are forced) to take on. People that have financial assets will be in good shape but the net buyers of those assets, people looking to build wealth for FI, would likely face a riskier or longer path than those who already made it. For instance, I remember reading Your Money or Your Life, the book that first got me thinking about financial independence, and I think it recommended investing primarily in Treasuries. If you do that when treasuries don't yield anything, then you are basically just having to save 100% of your retirement/FI account out of your income. On a normal salary, that approaches the impossible. Earning a typical $50K a year over a 45 year career is just over $2 million TOTAL and of course you have to live off of that amount. Forget a SWR, you'd have no choice but to draw down principal and hope you don't run out. I still think it's all worthwhile, but that scenario could disappoint a lot of people who look at FIRE through the lens of expectations from the post WWII period. Maybe if people's wages go up while consumer prices go down, that might soften the blow quite a bit, but I don't understand if that would happen in such a situation. As far as I know, Japan for example does not have unusually high salaries or cheap COL. What do you think? TLDR: Should I keep buying VTSAX? [link] [comments]  |
| Posted: 07 Jul 2019 07:29 AM PDT I have been pursing FIRE for many years and feel like I am in a good spot. I am worried I am taking it too far. Here is my situation and want to get your advise. Early 30's - LCOL area - married no kids (trying for the first) Income: 125k + wife 40k 401k: 320k (max every year) Roth: 45k - wife's Roth's 20k Stocks: 100k House: 230k (owe 170k) Savings: 20k Paid off student loans - no credit card debt - no car payments ( drive old cars) - minimal expenses each month other than the house Although this looks great, it all comes with a price - I work extremely long hours - 15/16 hour days - even weekends I work from home. My physical and mental health have declined due to the high stress and long hours. Work has consumed my life. I no longer have time to do anything I love and worse off - I am afraid it will impact my marriage. My wife has been extremely understanding but she is ready to see a change and worried about my health. I am searching for another job but most likely will have to take a big pay cut. Do I just bite the bullet and take the pay cut to get my life back and focus on my family and the real things that matter in life? Something else that is making this even harder - I will be leaving a pretty big bonus/ stock options behind if I leave the current company. If I can get the time back - I want to start diversifying my investments and get into real estate which I hope in the long haul will make up for the drop in salary. [link] [comments]  |
| simple formula to stress-test FIRE portfolio in google sheets Posted: 07 Jul 2019 12:00 PM PDT I have a Google sheet set up to give me a "live" net worth estimate, using the GOOGLEFINANCE function to retrieve security prices. Like many here, I harbour some nervousness about current market valuations. Recently I added a "stress-test net worth" cell, which is a live estimate of how low it might go in a market crash. Suppose we have existing cells,
"Net worth" is A1+B1+C1, of course one can add in other assets and liabilities if applicable. I formulated "stress-test net worth" = A1*0.5*GOOGLEFINANCE("VT","high52")/GOOGLEFINANCE("VT") + B1*0.9*GOOGLEFINANCE("BND","high52")/GOOGLEFINANCE("BND") + C1 The scenario represented is that global stocks crash 50% from their highs of the past year, and bond funds drop in value by 10%. This is pretty severe, as we wouldn't expect bond funds to depreciate simultaneously like that except in a significant financial crisis. Defining the formula relative to high52 adds some robustness so that the stress-test number won't itself immediately fall whenever the current market has a pullback (for a year, at least). Suggested improvements welcome? A $1M portfolio of 80% stocks, 15% bonds, and 5% cash, stress-tests to $590K under this formula, as of this writing. I now find myself thinking about a FIRE number in terms of the range between current portfolio valuation and this stress test version. I think constant awareness of the latter will help being psychologically prepared if/whenever a bear market does hit. [link] [comments]  |
| Does A 4% Withdrawal Rate Survive a 60-Year Retirement? Posted: 07 Jul 2019 02:11 PM PDT The other week ERN published a good write up from Dr. David Graham with regards to the 4% rule and how it can impact those attempting to FIRE. If you are not familiar with ERN, their SWR series is referenced a lot on this sub, bogleheads, and elsewhere for FIRE. Overall its a good write up and tackles/pokes holes into some of the dogma that gets preached here on this sub. I'll just quote the conclusion below:
[link] [comments]  |
| A cool sankey graph of yearly cash flow Posted: 06 Jul 2019 08:27 PM PDT I've seen a bunch of sankey graphs in multiple subreddits for a while now, and finally played with it today. It's fun! Here are my actual numbers for this year. I have no idea if anyone will find this interesting. Since it is for this year, some numbers are projected. Here goes. General: I'm a field service tech for industrial machines. I drive and fly around fixing stuff. I'm that guy who lives on a boat in Seattle. My 'rent' is super cheap, and includes the boat slip and some yard space with shipping containers on it. I'm have an AS but not a BS so I'm doing the WGU thing. Work covers most of it so why not. WGU has a right proper Computer Science degree now, not just "IT with a focus in programming" so that's cool. I get a car allowance from the company (fixed + mileage), and am required to buy a new car every four years. I get to choose the car and of course can use it for personal as much as I like. Community - I have Comcast and sublet it out on WiFi to neighbors, plus I have a shipping container I'm renting to someone. I don't have a "side hustle". Should probably find one. SO rent - my SO's contribution to rent and utilities. Roth 401k - we have Fidelity, and they allow you to set it up so any after tax contributions are automatically immediately put into the Roth account, so you don't have to do any manual mega backdoor work. My plan from work only allows a maximum of 15% after tax, so I can't do the full $56,000. (I think I know what I am talking about here. If I'm saying something wrong let me know!!) I didn't feel like further breaking down the budget-level stuff. Overall, the thing that stood out to me is that I make more money than I thought I did. I live in a HCOL area and I make $32.40/hr. That doesn't sound great at all at first glance, especially compared to the local tech bros. But with my company's benefits and the LCOL arrangement I have, I could be saving more than I do. It's a nice perspective. Anyways. Sankey is fun. Try it out. You can pull data from an excel sheet and paste it in and generate a graph. I have a sheet in my money excel file now that I can copy the column and paste into sankey (then clean it up a little), then get this graph. I know this isn't terribly useful, but it's kinda cool. If you know of better ways of doing stuff like this let me know. [link] [comments]  |
| Is 'travel' really the top goal of FIRE? Posted: 06 Jul 2019 06:52 PM PDT What is it with FIRE and 'travel'? It seems that's all people really think about, on so many threads and comments I see. I'm pretty much all traveled out, tbch. The actual travel process itself is pretty ghastly: airports, and dealing with the lines, security screening etc. airlines treat us like cattle, and it seems most people lose 50 IQ points the minute they step into an airport. Having to be on constant guard about getting scammed on arrival in a new country...Maybe if we were still in the time of travel by steamer ships it would be different... And then as someone who has travelled extensively (and actually lived in these places for years at a time), and seen a fair bit of the world-most of it isn't a very pleasant place. This isn't to say I may not live abroad for part of the year, but even then I plan to pretty much stay put in the few places I've been that appeal outside my home country. I don't mean to knock those of you with the travel bug...I just find it interesting that it seems to be a driving force among so many in this group. [link] [comments]  |
| Posted: 06 Jul 2019 05:21 PM PDT I am new to FIRE and am eager to jump in. I know many say that the various ideas are "simple" but I am interested in the possibility of hiring someone as a FI advisor/coach for a handful of sessions to ensure we consider everything we should. Is this even a thing? If so, any recommendations? P.S. And, yes, I appreciate the irony that many FIRE folks do not use financial advisors—and we too are in that camp—but I am essentially asking for a different (albeit more limited) version of that. [link] [comments]  |
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