Retiring Early

Hey there...

2009-05-23T16:35:00.000-07:00

Much to my surprise, it looks like there is still a steady stream of folks coming to my old blog. I'm starting to wonder if it makes sense to start posting again. Anyone? Let me know...

August Net Worth Update (up 1.87% to $988,082)

2007-09-01T07:35:00.000-07:00

It's been a few months since I've done a real monthly update here on the blog, so I thought I'd take the time to provide an update.

First off, I've been busy as all heck on all of my other projects and writing the blog has taken a bit of a second priority, but do expect me to chime in every now and then over the next few months.

On the surface, this month looks like a great month, but let's dig into the details a bit further. First off, this was an absolutely brutal, brutal month in the market with huge swings, hedge fund redemption selling, periods of low volume and economic stories.

All told, I lost nearly 9% of my portfolio value (or $51,000 if you're playing along) from mid-july to the low in mid-August. Paper money? Yes. Was I nervous? Heck yeah.

Thankfully, it wasn't worse because I was holding a fair bit of cash and even though I was starting to buy into the market as it was dropping, I never committed my full amount of sidelined cash. Also, from mid-August to now, the market has rebounded nicely, although it's still off the highs. With ongoing help from the Fed and now Bush on the sub-prime issue, I can see the market ending the year higher over the next four months and ultimately the correction and following consolidation was a good thing for a move higher.

Although it looks like the portfolio has come back almost entirely from the lows, it really has only regained about $26,000 of that $51,000 lost. The other gains that make August look like an "up" month, were due to a) three prior stock awards in the amount of about $15,600 after taxes, b) 401k and c) ESPP contributions.

Three other points about the current month:

Although I have bought a few equities during the correction, I continue to hold nearly $65,000 in cash. I'll continue to look for opportunities to put this cash to work and I think the time is pretty ripe right now.
I continue to pay down the mortgage and am on track with my mortgage goals for the year. As a reminder, the plan is to pay double mortgage payments for the next few years with the result being a fully paid off home. Double payments are being made possible by reducing expenses, not through savings withdrawals. The ending mortgage balance goal for this year is: $144,000 (stretch goal of $135,000), and I'm still on track.
On the Prosper.com front, I have $3000 principle invested into 22 loans, and this month, I had one loan go into default. The Proper collection agency was able to recover about 15% of the loss making my net loss only $80 after all was said and done. All other loans are current. Although I am still making over 16% on these loans, I stopped funding new loans in June. If sub-prime folks (same folks getting loans on Prosper) can't pay their mortgages and keep their homes, does anyone really believe they'll have enough money to pay back these loans? There's definitely much more risk for Prosper loans now and I'm not jumping out in front of that truck. There's nothing I can do about the current loans, but at least they are being paid back methodically and don't appear to be in trouble (yet).

Anyway, that's the update -- Things are still good and it looks like I'm only $12000 away from my first Mil mark. Hopefully I should be able to meet that milestone by the end of the year.

Tough market these days...

2007-07-21T07:45:00.000-07:00

Ok, time for a portfolio and market update.

It has been a turbulent few weeks -- up $5000/day, down $8000/day, up $3000/day. Apply, rinse, repeat. I hung in there -- until Thursday.

I have started taking profits in a few areas (only a few) this week, and thankfully I was selling into the strength of the market on Thursday. I took my CLWR gains (up about 30% on a deal announcement with Sprint), and I also sold off AEDAX, a Euro growth mutual fund because I couldn't justify the expenses I was paying vs the EZU EFT. They were basically performing the same, so why pay the expense premium, even for such a consistent fund manager? I may re-evaluate paying those manager expenses when this wicked bull market slows down and finding good returns becomes more difficult. Since Europe is doing so well, I did move some of the proceeds directly over to EZU, but not all of them.

I was also pretty lucky on my CAT investment -- the run up over the past 5 months has been incredible. When it missed estimates and was downgraded, it fell over 8%, which was a ridiculous overreaction. What did I do? I bought more! The luck part of the story came when CAT closed only down 4% for the day, so I MADE 4% on CAT yesterday. Sometimes you just get lucky.

Those were some of the bright spots, but on the other hand, I have had some pretty challenging days with both GOOG and SHLD. In an earnings miss from GOOG and a 50 pt down day for them, I lost my 10% gain in the stock. Thankfully, it wound up closing only 30 pts down, so I'm even on the stock from where I bought it. I'm holding strong and expect good things from the stock going forward.

On the SHLD front, I firmly believe in the investing and asset mgmt talents of Eddie Lampert and I expect good things to happen over the next few months. Wall Street is rightfully becoming more interested in the retail side of Sears, which I (somewhat boldly) think is the least attractive asset that the company owns -- time will tell. I have added to my position on the slide down and hope to see a turnaround in the stock in the back-to-school time frame (when retail picks up again) or when Lampert announces another investment stake or an all around buyout of some company.

One other recent sore spot for me is with GS. The financials are getting killed right now, but I'm hanging in there. I may even buy more as GS nears the 200 level, which would be one heck of a fire sale.

Other than that, the rest of the portfolio is doing incredibly well -- at one point last week, my entire portfolio was up nearly 7% for the month of July alone! Of course, as you'd expect, I have given up some of those gains over the past week, but I'm ok with that given that it was a broad market sell-off.

How is this market treating you? Are you buying, selling or hanging tough?

Who has paid off their car?

2007-06-17T07:37:00.000-07:00

JLP over at AllFinancialMatters reports that he finally paid off his car. It's great not owing money on a depreciating asset like that! Personally, our car loans are some of the first debts we paid off after the credit cards. We've been without car loans for over 4 years now, and it feels great.

Anyway, it got me wondering -- I wonder how many people own their cars outright? Anyone know the stat?

Another way CC arbitrage hurts you

2007-06-08T06:20:00.000-07:00

I always knew credit scores figured into how much you pay for insurance, but I never mentally put these two together. The fact is, 0% balance transfer and credit card arbitrage schemes wind up costing you money on your insurance premiums because premiums are more expensive when your credit score is lower. ...And clearly, having $100,000 on the books as a 0% loan is going to lower your credit score. So how much more will you pay for insurance? Looks like we'll never know.

Saving more than your parents

2007-06-02T10:15:00.000-07:00

I came to the realization the other day that I have more savings than my parents -- seems kind of obvious, but it never really sunk in. After all, how is it possible that someone in their mid-30's has saved more money than their parents in their mid-60's?! Looking at the numbers, it's shocking: I have 3x more saved than they do. Absolutely shocking to me.

Anyway, I've been worried about them and their finances for some time now. I hope they will eventually pull together a plan, formally retire, and hopefully not run out of money. It should be possible with their current savings and home equity, unless debt and rampant consumerism takes over.

Anyway, anyone else out there hit this point and realize that they now have more savings than their parents?

(photo courtesy of: Indigo Goat)

Countdown to retirement (or whatever!)

2007-05-25T15:07:00.000-07:00

Ok, this is some admitedly geeky stuff, but you can't help but want to get some yourself once you see it (or maybe it's my inner geek just coming out). So, some of you know that I am running Windows Vista on my laptop and one thing that it lets you do it to pick amongst a number of "gadgets" that you can place on your desktop that provide you live updates over time. Things like clocks, weather, stock updates, etc.

As I was browsing through some of the available "gadgets" that are available, I came across a gadget that lets you "count down" to any date of your choice. Naturally, I added the gadget, set my retirement date goal and promptly labled it "until FIRE", meaning "until [I'm] Financially Independent and Retiring Early". I set it to count down in weeks, but you can also set it to days, hours, minutes, or even seconds.

You can see some of the gadgets I have on my desktop to the left, including my retirement countdown timer on the bottom -- only 226 weeks to go! (Also, as you can tell, we're having a pretty nice day in Seattle today!)

If you're running Windows Vista, you can get your copy of the gadget here.

Getting what you deserve

2007-05-23T06:04:00.000-07:00

Over the past 7 years that I've known my wife, she has worked at a number of different companies. She has a self-described "2 year itch", meaning after about 2 years, she wants a change of environment -- new employer, new colleagues, new surroundings, etc. Well, I'm not sure if it's just that it's spring time, but that time has arrived.

She likes her current situation, but isn't in love with it. She does have a LOT of perks, however. First, she works in the city in a nice, modern loft space, and it's only 8 blocks from home. As if getting to work was a problem, she also has the luxury of working from home at least one day a week! Extra vacation time isn't a problem. ...and the work? She has mastered the job and can do it in her sleep, and she's viewed as one heck of a value to her company. She's a go-to person -- the kind no one in their right mind would want to leave. So what's not to like?

Well, to be honest, she took a pay cut from her last job to take this one. Yep, the 2 year itch strikes again. Now, she's not making minimum wage by any stretch of the imagination, but there's just something about taking a pay cut. She has had 2 raises and a few bonuses over the past 1.5 yrs, but she's still not back to making what she was prior to taking this job.

So, to make a long story short, she had her annual review discussion with the owner of the business and the owner gave her a respectable 4% raise, but surprisingly, left the door open for discussion if she wasn't happy. 4% is not a bad raise these days, but for someone who took a pay cut to take a job, it looks downright minuscule!

Any time someone leaves the door open like that, it's a huge tell-tale sign that you're not getting what you are due. With that in mind, I strongly encouraged her to fire back and get a larger raise. Much to my surprise, she wasn't going to ask for another 2-3%, but she went for a full-on 10% raise! Holy cow, that's incredible!

So I helped her craft an email message and justification, and low and behold -- without hesitation -- it was approved within minutes (strange that you can negotiate these things completely over email!). I was so incredibly proud of her!

The lesson? Of course, it's easy to let the 2 year itch take over and jump ship to find a new role, but getting what you deserve can be as easy as just asking for it. And it goes without saying that significant raises get you to retirement much more quickly, so it's a boon on all fronts!

(Image courtesy of irinaslutsky)

Easy come, easy go.

2007-05-13T08:12:00.000-07:00

Lottery winner sues a investment adviser and accounting firm over bad advice. It's partially another dot-com bust story, but it's also a story about the need to really understand what is happening with your money. Trust and money don't go together.

He won about $5.5M and decided to take an "immediate lump sum - in his case, about $2 million - that he could roll into investments. He'd just live off the earnings and interest." This is where the real trouble started:

He alleges that within a few months, the Smith-Barney advisers had 98 percent of his money invested in individual stocks, substantially technology companies.

The year was 2000, which would prove a spectacularly bad time to sink one's entire fortune into tech stocks. Cicero's lawyer has alleged the advisers were "breathtakingly irresponsible" to put a lottery winner's windfall wholly into individual stocks.

"Fifty to 80 percent of their income ought to be in bonds and other fixed-income investments," Stoltmann said.

The court and financial-arbitration filings tell the story in flat terms, claiming Cicero lost $600,000 or more in bad investments. And he ended up paying $240,000 more to the IRS for penalties and interest after he learned the hard way that a lump-sum lottery buyout doesn't count as capital-gains income. There was also a divorce.

"You want to talk about a sob story, he's it," Stoltmann said.

So, not only did he get screwed by Smith-Barney and an incompetent tax accountant, but he also wound up in divorce court? I really do feel sorry for this guy because my guess is that he thought he was trusting real professionals that knew what they were doing.

The lesson? Even so-called professionals need to be scrutinized and double-checked.

(Photo courtesy of: Lazy_Lightning)

Some really good stuff...

2007-05-12T07:22:00.000-07:00

While I have not had a lot of time to blog myself, I have been really enjoying the posts of my fellow bloggers. Lately, blogging on the weekends is all I've had time for and I'm sure that will change in a bit, but for now, here are a few posts that I found interesting:

Lazyman on removing inflation to get the real rate of return.
Stealthbucks on being socially selective on where you spend your money and on why it's not a right to own a home -- you have to earn it. I've posted on that second one a few times myself and it's a great riff. Stealth is on a role with these -- check them out!
Madame X on acquiring and owning things that further isolate you.

Hope you enjoy them as much as I did.

On to something more fun...

2007-05-06T09:27:00.000-07:00

Wow, that last post took a lot outta me, or perhaps is was the 116 comments I read. Anyway, I'm off to enjoy some free entertainment: a hike in the Cascades. Happy Sunday all.

Have's and Have-not's

2007-05-06T06:46:00.000-07:00

Some of you saw it reported last week that King County, Washington (where I live) now has over 68,000 millionaire households (excluding primary residence), making it the 10th largest concentration of millionaires in the country. While I am not surprised by this given the companies located here (Microsoft, Amazon, Starbucks, Boeing, Nordstrom, etc), I am absolutely shocked by the fall-out of comments posted on the SeattlePI website. There must be 100+ comments on this story! ...and they're entertaining as heck!

While there is a LOT of commentary and heated discussion, following is a random selection that hopefully captures the spirit of the debate:

The immediate reaction was "Tax them all" to pay for all of our problems, like schools and our massive transportation issues. Since we have a higher sales tax in Washington to offset our lack of income tax, a renewed interest in a state income tax was being discussed.

Then there was talk of the "obligation" to give back. I firmly believe in giving back, but as I've discussed in the past, I don't buy into the fact that I need to give back financially, especially not right now as I'm on a push to hit financial freedom. I give back with my time, and that's my choice. The "obligation" word bothers me because it implies that someone else is "entitled" to it.

And then someone chimed in with an IRS stat about "45% of wage earners paying no tax at all" -- suggesting that, perhaps low-income folks were getting a pretty good deal already (that stat is pretty shocking if it's true). And then, finally, several people posted about "The Millionaire Next Door", claiming that more people should be living below their means, instead of making questionable lifestyle choices, choosing jobs knowing they don't pay well, and keeping up with the Joneses.

Of course, then the conversation moved on to the topic of native Seattlites being pushed out of their homes (real estate prices have been high for a long time). Someone even made the comment that all of these "nouveau riche", who moved to Washington, should move back to where they came from. These are real comments from some pretty passionate sounding folks. I was starting to wonder if I'm part of the problem here -- really. To be fair, I'm not one of the 68,000 households because my liquid assets are well below $1M.

Then, the conversation shifted back to: "HARD work got me to where I am -- stop complaining and do something productive." "Why do you think you're entitled to my hard earned money?", one guy wrote. Another one chimed in with a "you're not entitled to anything" argument. If you want it, you need to work for it, which is an attitude that has driven me all my life. I really hate that entitlement attitude.

...and then finally, someone chimed in, saying that a million dollars is not worth nearly as much as it was in the 70's and 80's, where one was really, really rich with a million dollars. One word: inflation. His point was: these people are well off, but they are not rich -- and clearly some of the less than financially savvy folks out there don't understand the concept of inflation and decreased buying power, given their comments.

Bottom line: It's clear that having money and showing that you have money is a recipe for pretty harsh criticism in this town (and probably most places). I had no idea there were such deep feelings and also mis-understandings about money, simple things like tax percentages, and how wealth is created. It's scary because people like this have the potential to drive important public policy (votes on state income taxes, etc), some of which will negatively impact even lower income households! We really need to start financial education in schools and possibly even requiring students to read books like "The Millionaire Next Door" so people understand this stuff. Hard work (not just working hard at your job) and LBYM really can make all the difference in creating wealth.

(Image courtesy of 4x4jeepchick)

Tag, I'm it.

2007-04-28T06:40:00.000-07:00

I wasn't quick enough to dodge the tag that Madame X put on me a week or two ago (while I was on vacation, nonetheless!) Ok, so here they are -- 5 obsessions of mine:

I'm a HUGE outdoors fan -- especially if it involves mountains, I'm in. Things like hiking, biking, snowboarding, rock climbing, running, or any combination of these will do.
As much as I try to deny it, I cannot lie: I like technology stuff. Gadgets, software, home automation junk, etc. I really like taking "some of this" and "some of that" and making them work together in a way that makes people go "wow, that's really cool!". I am somewhat limited to what I can do these days because I'm no longer a software developer, but you would be amazed by what you can do with a little tinkering. For instance, I can control the lights, thermostat, web-cam and security system from a web browser anywhere in the world, including from my cellphone. Controlling your house from a cellphone is GEEKY stuff, but you have to admit, it's pretty interesting that it can be done.
Ok, on to #3: As you can probably glean from this blog, I am obsessed with all things that lead to financial freedom. I don't particularly like money for what it can buy, but for the freedom it brings. There isn't a day that goes by without me having thoughts about getting there sooner. As I've said before, freedom means working because I want to, not because I have to. It's that simple.
Don't take this one the wrong way, but I am also obsessed with great food. I LOVE great coffee. I LOVE great wine. I LOVE great beer. I LOVE great cheese. I LOVE fresh organic vegetables. I LOVE interesting new food preparations -- crazy things like blue-cheese stuffed dates. We treat ourselves every now and then to restaurants that serve this kind of stuff, but in general, it's too expensive. With that in mind, and given all of the natural food, unbelievable markets and overall variety of food you can get in Washington state, it's quite easy to enjoy this stuff without emptying your wallet. The other challenge on this front is balancing a food obsession with fitness. :)
... and finally, I really, really love to travel. With my first overseas trip for work in 1997, I've been on countless other overseas trips for both work and pleasure. I've done everything from 4-star hotels in Tokyo, to backpacking through third-world countries, and everything in between. I'm by nature a curious guy, so putting me in places and cultures that hold mysteries and an infinite amount of things to explore is incredible. Traveling has truly expanded my mind and sense of compassion.

Ok, my turn: How about hearing the same from: Stealthbucks, Finance Girl, PFblog, Naked Networth, and Sitting Pretty.

Mixed bag: More young savers and shaking moochers

2007-04-21T07:52:00.000-07:00

Well, I'm finally back from vacation and very refreshed. I'll probably write a quick post about vacation tomorrow, but today, I came across an article with a few interesting takeaways:

Although the article is titled "Young strivers see slacker friends as costly", the article has a few interesting takeaways other than how to lose your loser friends when you are raking in the dough. First, from a Scottrade survey, it seems as if younger folks may be thinking more about saving earlier:

Scottrade’s recent 2007 American Retirement Study found an astonishing level of financial maturity for its youngest adult respondents."While 59 percent of 18-24 year-olds said they saved for retirement in 2006, that number jumped to 89 percent for those who said they planned to save in 2007. Of 25-to-34-year olds, 70 percent saved in 2006 while 85 percent indicated they will save in 2007," says Chris Moloney, chief marketing officer for the St. Louis-based broker. "Previously, people waited for assets to accumulate before they began thinking about their financial futures and retirement. With the Internet and the wealth of information available to them, many are starting younger," he adds.

Pretty good to see this data. Whether they actually follow through on actually saving is another matter, but it's a start. The other quote of interest is the following one that touches on being social with friends who have a lot more or a lot less money than you do. It's usually a tricky situation to navigate, and I tend to "go humble" when faced with these situations (i.e., if you're having dinner with a friend who makes $40,000/yr, pick a low-priced restaurant, not the latest restaurant where you'll easily spend $80/person):

"When a teacher and a stockbroker are old college friends, for instance, you find their dramatically different financial resources often create tension," says Draut. "The stockbroker may resent the teacher expecting her to treat her to dinner, but the teacher may be equally resentful her friend chose such an expensive restaurant."
Such inequities create social awkwardness, yet little conversation, observes Draut. "It is hard to be the friend who says, 'I can’t come along because the restaurant is too expensive for me.' But we need to make it OK to start having these conversations; to start saying, ‘I cannot afford it.’ "
And conversely: "I cannot keep floating you."

You have to love that last quote. I've certainly been guilty of treating less fortunate friends in the past, but I've learned that lesson. Interesting discussion -- just imagine what happens between a handful of retired 80 year olds after indulging in the surf-and-turf early-bird special. :)

Fin_indie not lost, on vacation...

2007-04-10T19:49:00.000-07:00

Just a quick note now that I've secured internet access. I took off on a quick, week-long vacation and should be back to my regularly scheduled posting next week. I had hoped to get a detailed March update out before I left, but it just didn't happen. See you all next week.

Spending your retirement money: On a gaming console?!

2007-03-23T08:47:00.000-07:00

I came across this article this morning and had to share. It's both interesting and bit strange all at the same time. The article is basically claiming that Nintendo has been successful in luring non-gamers (including retirees) into buying their new gaming console called the Wii (pronounced "WEE"). Of course, the key to growth in the gaming world is growing the number of gamers, so this is a great strategy. They did throw a bit of a Hail-Mary pass with their console strategy this time around by not focusing on better graphics or near-real experiences, but it's great to see it paying off for them.

Anyway, back to how this is related to retirement: The article calls out two things that have retirees loving this new game console:

The games are fun and interactive. Since you're required to move your body to play the games, older folks looking to stay active can do just that: stay active while having some fun. That's pretty cool, actually.
It's not only social, but it's also helping to bridge the generation gap between retirees and their grandchildren. Again, that's pretty cool.

It'll be interesting to see if/when they bring out the "brain games" to the Wii. That should be the one-two, knockout punch for keeping retirees coming back to play. Good work Nintendo.

(Photo courtesy of msnbc.com)

Quick Update...

2007-03-18T09:21:00.000-07:00

I'm still here, it just feels like I'm working three full-time jobs. Between my day job and my moonlighting effort, things are starting to take a bit of a toll. I should have more to share on my moonlighting efforts pretty soon, however. After 4 months, I'm not making money yet, but new milestones are being met and that's a good sign. Progress! More soon...

Light bulbs?!

2007-03-10T07:45:00.000-08:00

Over the past year or so, I've seen a lot of PF Bloggers writing about the merits of replacing your light bulbs with compact fluorescent (CF) bulbs as a way to save both energy and ultimately more money. I used to think it was a bit crazy, but they have a valid point: why not save the planet and money at the same time?

A few months back, I joined in and bought a few CF bulbs myself and have been very pleased with the performance. They're bright, no flickering and they come on instantaneously. Frankly, I don't notice any difference, which is great.

Now, as we're settling into our house more and more, we're finding more things that we want to "make our own". You know, customize. It's the American way, right? Well, my wife is pretty hell-bent on replacing many of our normal light switches with dimmers. I'm fine with that, but one thing I'm not sure how to handle is the combination of CF bulbs with dimmers. My understanding is that they just don't mix -- is that right? Are there any CF bulbs that can be dimmed?

If I go around and replace all of my light switches with dimmer switches, am I doomed to use normal, high consumption bulbs for eternity? On the other hand, I'm guessing that that dimmed bulbs use less energy, so perhaps it's a wash. Normal "dimmable" bulbs vs. compact fluorescent "non-dimmable" bulbs.

Anyway, it's a bit of a mind exercise that I'm throwing out there. For us, it's more of a comfort of life issue than a savings issue, but if you know me yet, I'll take any savings I can get. Either way, drop a comment if you have any thoughts on the subject...

Watching like a hawk

2007-03-08T07:19:00.000-08:00

As you all know, I've been spending a lot of time watching the markets and waiting patiently to deploy some of my cash on the sidelines. I've also been very busy at my day job and with my moonlighting effort (more on that in another post). Finally, home projects have sopped up every last remaining bit of time. I just quite simply haven't had a lot of time to capture my thoughts here, until now. Here is a a little update:

As I've mentioned several times, I'm watching the markets even closer than before (and I watch they a LOT!) I do believe we are still only at the beginning of a an overall downturn, but I do expect it to round out at the bottom over the next 4-6 weeks with a significantly higher finish to the year. We do have a lot of wicked volatility right now with up and down days alternating like waves hitting the beach (tsunami waves, at that.) Trading in a market like this is definitely not for the faint of heart and you have to have some pretty well defined goals. My goal? Create or add to long positions at rock bottom prices.

Anyway, It's clear where people are putting their money -- some sectors and equities have had shallower dips than others and have started to rebound nicely and consistently. They're easy to miss if you're not watching like a hawk. It'll be interesting to see if this continues or not, but for a handful of names in defensive sectors, I think we are in ok shape right now. To that end, over the last few days, I have cherry picked what I consider to be GREAT entry points on two great, great names. They are considered defensive, staple stocks, and I think they have a lot of upside even in an expanding economy. Here is what I bought with the associated entry point:

Altria @ $82.77 -- I got really lucky on this one. I was adding to a long term position on 3/5 and I'm lucky to see it up over $85 today. The ex-div date and Kraft spin off (both in the next 2-3 weeks) make Altria especially attractive.
Costco @ $55.25 -- The stock has been testing the $54.70 level and has held well. Today, they missed earnings, but only because of a few one-time charges. The downtrend after the miss provided a great entry point for the position.

Btw, I know my blog has taken on an investing tone lately and I hope that is ok. I promise to sprinkle in more retirement-focused content. Investing well is just one way to help get you there.

UPDATE: It looks like COST broke through it's support in the mid-$54 range today, but the good news is that there is another great support level around $52. I'm not sure if it'll head down there for a test or not, but my guess is that it'll hold if it does. Excluding the one time charges, they were in line with earnings expectations, so I'm not overly concerned about it. If we break the $52 level, I may become more concerned.

Patience...

2007-03-01T06:40:00.000-08:00

This is the word I keep repeating in my head. Over and over. Patience, patience, patience....

I hate seeing such great stocks at such low valuations, but I cannot buy yet... If you saw the open today, you know that there is much more downside to come... Repeat after me: Patience...

In a word...

2007-02-28T08:14:00.000-08:00

Ouch.

Like most people, I took a hit yesterday, but the hit was much softer than it would have been, had I not been steadily building a cash buffer over the last month (pigs get slaughtered, you know). At the start of the day yesterday, I was holding about 22% of my portfolio in cash.

That said, when I did look at my investment accounts, most of my holdings were down over 3% each yesterday -- a scary moment for sure. The only notable exceptions were ERTS and BSD, a municipal bond offering. The key is: I did not buy or sell anything yesterday, and it certainly would have been a mistake given the fact that the entire market was selling off in tandem. Anyway, after all the dust cleared, I was down around 2.5% of my portfolio. Again, given the Pacific rim sell off in the 7%-9% range and the US sell-off in the 3.5% range, I fared ok.

So what's next? This is exactly the correction I mentioned I was waiting for, and I'm particularly interested in doing some bargain hunting when the time is right. The time is not right yet and I'll be looking for more conviction before committing funds into the market.

Retiree kills mugger with bare hands!

2007-02-23T09:44:00.000-08:00

Smart or stupid, this story is pretty amazing. A 70+ year old ex-military retiree on holiday in Costa Rica was part of a tour, whose bus was apparently held up. The story reports that he fought back, getting one of the attackers in a headlock, breaking his clavicle and essentially choking him to death.

WOW. I've been to the Atlantic side of Costa Rica through the shipping port of Limon, and I have to say, it's not a place to linger. The coast is an undiscovered gem, but getting there through Limon can be dangerous. All I can say is: I hope I retire with as much go-gettum as this guy!

Owning individual stocks

2007-02-20T08:01:00.000-08:00

I own individual stocks, how about you? A lot of the PF blogs I read have authors who appear to primarily align themselves with mutual fund investing. While I agree that mutual funds have their place (primarily for indexing, IMHO), I believe that it's very possible to beat (if only slightly) the market with some well-researched, value-based individual stock picks. In the long term, how can you go wrong with buying undervalued assets??

Whether you agree with me or not, you're certainly entitled to your opinion. As I was thinking through this last night, I wondered how many of my readers do actually own individual stocks, and whether or not it is an interesting topic for me to post on. I have been spending a lot of my time lately thinking through how I am going to play the correction that I continue to believe is imminent. So there you have it. Lets call it "Fin_indie's Tuesday morning question" -- leave a comment and let me know if you own individuals or not. And if you're feeling adventurous, let me know why or why not.

To give or not to give...

2007-02-17T11:16:00.000-08:00

There is an interesting discussion going on over at Free Money Finance about what's better to give: time or money. Over the past several years, I have been giving both. Unfortunately, over that same time period, my work obligations and family obligations have grown and I'm in a position where I need to make a choice. I've given it a lot of thought, and at this point in my life, given my constraints, time is just more important to me. I've been dragging this on for a while and now is the time to just make the call -- I'm going to stop giving my time away and focus solely on giving money for the time being.

Since our goals are to hang up our corporate hats and retire in the next 4-5 years, I guarantee my approach will undergo a 180 degree change. When I have the right-sized nest egg and all the time in the world, I'll likely switch to giving away more time than money. In fact, I'm somewhat looking forward to spending more time on charity!

And isn't that what being financially independent is all about? Having more time to do whatever you want to do?

Prosper.com scare

2007-02-12T07:00:00.000-08:00

Ok, it's no surprise that I've been dabbling with Prosper.com over the past few months. I was checking on my loans yesterday and had a bit of a scare. Normally, I see 15 loans, all "current", etc., but this time, I had the unpleasant realization that one of my loans was marked in yellow and marked as LATE! Yes, LATE!

At first, I wasn't sure what to do, or what I could do, so this was definitely a new experience for me. I poked around the site a bit and found that I could contact the borrower and also found that Prosper does give you a few other metrics about the late loan, but you really have to dig for it. Perhaps what was most surprising was that this borrower wasn't one of my "D" credit borrowers -- they're all "current" on their loan payments. This borrower has a "B" credit rating and has a positive 10% debt to income ratio -- meaning that they have more than enough income to pay their debts off. All in all, this is a solid borrower, so what gives?

Well, hate to let you down after such a setup, but it turns out that the borrower had actually paid, but 4 days late. It appeared that the payment was "in-transit" and would be applied to the loan within days -- it just wasn't clear from the information provided by Prosper.com. I guess the take away for me is: 1) don't freak out -- late payments will happen, even with worthy borrowers, 2) Prosper.com needs to figure out how to better show loans in different states of "lateness" -- currently it's hard to figure out what is going on and if you need to take action, and 3) Prosper.com needs to do a better job telling you exactly what to do when borrowers are late.

Anyway, I'm hugely thankful to see that I was only misunderstanding the problem vs. actually having a late loan.Anyone else freak out when they saw their first missed payment?

January Net Worth Update (up 1.84% to $932,372)

2007-02-11T06:45:00.000-08:00

Another decent month -- not a blow out, probably because I am holding a significant amount of cash right now (more than 15%). Overall, my stock gains were up 2.44% and retirement accounts up over 4%, likely due to my REIT holdings blowing through the ceiling. Following are more details:

Investment gains were great given the overall bull market sentiment. I did take some profits off the table because I believe, as I've said recently that the market is richly valued right now. My cash holdings moved up to over 15% as a result of the selling. I'll be looking to put this cash back to work as the market corrects. Yes, perhaps a bit of market timing here, but as a value investor, I don't see a lot of value right now. Value should peek it's head out in the next month or two and I want to be positioned to take advantage of it. If a correction doesn't materialize in the first quarter, I'll be happy with my 5% money market interest and look for opportunities to deploy the cash as the year wears on.
I paid down the mortgage more in January and am on track with my mortgage goals for the year. As a reminder, the current plan is to pay double mortgage payments for the next 4.5 years with the result being a fully paid off home. Double payments are being made possible by reducing expenses, not through savings withdrawals. The ending mortgage balance goal for this year is: $135,000, and I'm on track.
On the Prosper.com front, I have $3000 principle invested into 15 loans, and all loans are current. Over the past three months, this money has returned $10, $16 and $42 per month, respectively, as the loan payments have been paid. Once I reach steady state next month, I expect to see a sustained interest return of about 1.33% per month, or about 16% per year.

As I'm watching my net worth increase, one thing I am starting to realize and get excited about is the possibility that in the next few months, if all goes well, I should find myself above the $1MM mark in net worth. Some might think this is a bit of a stretch, but one thing I haven't been including in my numbers are my stock options. I currently have nearly $40,000 in stock options at the current market value, post-exercise and tax. One reason I haven't been including these is because I'm not sure if I should be including inherent value (ie. Black Scholes) or the value post-exercise and taxes at current market value. I'm sure I will get some feedback on this and should probably update my numbers to reflect them.

Top 100 personal finance blogs!

2007-02-10T13:49:00.000-08:00

I'm happy to say that my Retiring Early blog has been included in a list of the Top 100 Personal Finance blogs! Thanks to the good folks over at YourCreditAdvisor.com for including me! Many of the usual suspects are also listed there (My Money Blog, Blueprint, FMF, Consumerism Commentary, BostonGal, All Financial Matters, My Open Wallet, 2 Million, Frugal, and tons more. (btw, If that ain't link love, I don't know what is. :) I particularly like the breakout by category -- I'm included in the retirement category, as you might have guessed.

Check it out: Top 100 Personal Finance blogs

REITs on a tear!

2007-02-08T05:15:00.000-08:00

REITs have moved up nearly 20% over the past month in a largely flat market, and it's definitely time to consider taking profits. This is one of the great benefits of owning non-correlated assets -- some make huge moves up while others languish with the rest of the market. With the clarity on the EOP deal and information about SPG's offer to buy MLS, there is a lot of optimism in the sector and I personally believe it's time to take money off the table.

I'm not trying to show my investing brilliance here, but I wanted to raise the flag for others who may own REITs as well. The fact is, they've REALLY outperformed and if you own them, you should at least evaluate your position. (Again, do not consider this investment advice, but just some insight into my actions as a REIT owner myself.)

Check out this chart vs. the S&P for the period after Jan 5th:

That is a gigantic move! Moves like that just aren't sustainable and I'll be closing my positions when the market opens today. If they pull back over the next few months, I will probably buy back in, but I can't see owning them any longer given the risk in the market and this huge move. For what it's worth, REITs make up 6.3% of my portfolio, primarily invested in ICF.

"Stealth Correction"

2007-02-07T08:55:00.000-08:00

I saw an analyst on CNBC yesterday that suggested that the market was undergoing a "stealth correction". I wish I remembered who said it, but does anyone have any idea what market symptoms might lead someone to believe that there is a "stealth correction" going on? ...or for that matter, even what a "stealth correction" is, as opposed to a consolidation? :)

mOOm, any ideas?

I still don't trust Zillow...

2007-02-04T08:41:00.000-08:00

I've been marveling over Zillow since it first appeared back in 2005, and after moving to our new house about a year ago, I've become increasingly skeptical. Our old house was valued appropriately and even today, it's enjoying a nice bump in value along with the rest of the Seattle market.

Our new house is an entirely different story. The fact is: the Zestimate and even the "Value Range" listed on Zillow has been less than our purchase price since the day we closed. Now, I'd be fine if we purchased at the top of the market and overpaid, but similar houses in our neighborhood over the past year have been selling for between 30% and 45% higher than we paid, so I'm confident that that's not the issue. Our Zestimate is still listed around 10% lower than what we paid a year ago, and upwards of 30% lower than "like" properties are selling for today within a block of my house. Seems odd given that Zillow says their median error rate for the Seattle area is only 5.6%.

I've contacted Zillow twice about this and they've been less than helpful. And, while I've read a lot of criticism about Zillow and am starting to agree that without them improving their valuation model, it's hard to see how they are going to be successful. Sounds like StealthBucks trusts the Zillow numbers, but what about other Seattle-based bloggers -- do the numbers add up for you? What about others in different states?

Still not saving enough...

2007-02-01T16:36:00.000-08:00

I saw at least one other blogger commenting on this article about Americans not saving enough money, and I expect a few more... It's an interesting article, both from the perspective of "aren't they done studying this yet" as well as the supposed explanations for why we aren't saving enough. Here's my favorite quote:

"Economists have put forward various reasons to explain the current lack of savings. These range from a feeling on the part of some people that they do not need to save because of the run-up in their investments such as homes and stock portfolios to an effort by many middle-class wage earners to maintain their current lifestyles even though their wage gains have been depressed by the effects of global competition."

Wow. Really? We've all become such good investors that our portfolios are keeping us warm at night? I also don't buy the housing claim, but this idea that depressed wages and maintaining lifestyles is an interesting claim. It may be a bit of a stretch, but it's definitely an interesting point.

Extreme Early Retirement

2007-01-28T11:01:00.000-08:00

If you haven't read about Billy and Akaisha Kaderli of retireearlylifestyle.com before, you probably should to understand what is possible with early retirement. While they are definitely on one side of the spectrum, but hearing their story will make you think a little differently about retirement.

They retired in their late 30's (they're now 54) on about $500,000, and did so by only spending about $24,000 per year. How the heck did they do that?? Here's how they did it:

Simplify. A complicated lifestyle costs more.
Look beyond the border. An attractive lifestyle can cost much less in many countries outside the U.S.
Track your spending. And figure out where to cut. This is your life now, not a vacation.
Pursue low-cost entertainment, such as hiking, bicycling and reading.

I like many of the ideas here, including living outside the US for periods of time and also pursuing low-cost entertainment. Personally, however, I don't think I could cut my expenses down to $24k per year. It's amazing that they are able to live on that, even with some of the low cost places they have been living.

My current spending plan for retirement calls for about $60k per year, including allowances for taxes and a small annual buffer. How much will you need to cover your annual expenses in retirement?

More on 529 plans...

2007-01-22T07:10:00.000-08:00

You probably remember me calling attention to a comment made by My Pocket Change in one of his posts about the feasibility of using 529 plans for general savings, instead of educational savings. My post was met with some amount of skepticism and I was planning a more formal response until I saw this one over at My 1st Million at 33. Bravo to the sheer amount of work put in to model the possibilities!

ML, the guest blogger who put the post together, calls this part one, and truth be told, I'm very interested in what else could possibly be added to the equation (pun intended). At the end of part one, the following conclusion is reached (emphasis mine):

At this point, you’re probably thinking, “Why bother!” Indeed, 401(k), Roth IRA or the traditional IRA, even the non-deductible kind are much better ways to save for retirement. It is only after those have been maxed out, does the 529 plan emerge as a potential alternative. As described so far, it’s applicable to only a very small segment of the population with high disposable income or a lump sum to invest early on.

If the story ends here, this would not have been a useful exercise. Fortunately, there is much more, both in terms of the 529 vs. taxable plan comparisons and ways of utilizing the 529 for qualified educational expenses thus avoiding the 10% penalty. Please stay tuned for Part 2!

Looking forward to what's next. Thanks for carrying the torch and deeply researching this one!

Reminding yourself to live simply

2007-01-21T06:39:00.000-08:00

This article in Kiplinger's contains a lot of the usual mumbo-jumbo about keys to financial security, but this one jumped out at me. It's good to remind yourself periodically in a positive reinforcement sort of way:

Key 7: Live simply today for a more comfortable tomorrow
Deferred gratification is no fun, but it's the only way I know to fund your long-term goals -- college for your kids or grandkids, that vacation home you've always wanted, early retirement, a generous bequest to your alma mater. Take a close look at your current lifestyle, and if you see a lot of spending that is dispensable, consider it found money for the bigger dreams in your life (see The Invisible Rich).

Now, I'm not saying that you should live a hermit's life, but simply that you should be mindful of your spending choices. I've been running the expenses numbers from last year and have a certain amount of frustration with our burn rate because I think it's too high (mostly due to costs associated with the new house). However, as I've said, you can't put life on hold between now and retirement, so I probably just need to let it go and do a little living for today. In the end, it's really a balancing act.

December Net Worth Update (up 1.26% to $915,500)

2007-01-20T06:59:00.000-08:00

Ok, so I didn't really get this one out in a timely fashion. It's amazing how the first few weeks of the new year can pull you in so many directions. It has been a heck of a busy new year so far!

Anyway, I'm back and here's the update:

Not a bad month at all to end the year. Overall, my stock gains were up 2.16%, but I used some of these proceeds for other purposes so the gain showing at NetworthIQ is shown a bit lower (see below). Also, my retirement gains were up a meager .69%, given that I moved into some cash early in the month. Following are the details:

Investment gains were great, but mostly due to end of year dividends. I racked up around $6000 in dividends and long term capital gains (from mutual funds) in the last two weeks of Dec. Also, I sold about $9000 worth of company stock (@ the 15% capital gains tax rate) and purchased another $5100 in company stock through our quarterly discounted employee stock purchase plan. On the one hand, it's great to have this stock, but on the other hand, it's quite a challenge managing how and when to get out of it.
As expected, I paid down the mortgage to meet my goal of $170k by the end of 2006. Given that I far exceeded my brokerage account goal for the year, I moved $5k from the brokerage account to realize this goal. To summarize, I've paid down $30k of the principle on my $200k mortgage this year (or 15% of it). Without extra payments, I would only have paid off $5400 (or 2.7%). That a huge accomplishment towards having this baby paid off by retirement in 2011.
On the Prosper.com front, I have $3000 principle invested into 15 loans, returning an average of 15.89%. All of these loans are current and I'm pretty comfortable with the whole thing so far. It's still more of an experiment for me, so don't expect me to all of the sudden dump $50k in there.

That's it, a pretty basic month.

On final comment I'll throw out there: overall, I'm a little nervous with the market right now. I'm in the camp that says we really need a decent correction at the current levels to be able to go higher. Consolidation in my mind always makes the markets stronger. To this end, I'll continue to hold the cash ($62k in my retirement account) that I have, as well as look to take some profits off the table (around $30k in my brokerage account) to position myself to buy the dip as it materializes. In my mind, it's not if, but when.

Ending the year...

2006-12-25T08:30:00.000-08:00

Happy holidays! I hope everyone has a chance to relax with family and enjoy the holiday season. I know from my end, I've been enjoying it!

I'll probably only make a few more posts this year as I continue being in vacation mode for the rest of the holiday season. I expect to post my financial goals for 2007 and of course, an update on 2006 that includes both a December update and a summary of the full year accomplishments. Ending a year is always an exciting time, so I'm really looking forward to these summary posts.

Again, happy holidays and I hope everyone is well.

Overweight? Getting to retirement is going to be hard!

2006-12-17T12:41:00.000-08:00

I came across a Dec 2nd copy of the New York Times at the gym this morning and was curious how I missed this story. In the business section is an article called "Extra Weight, Higher Costs" that talks through a study attempting to correlate weight and net worth. It's an interesting premise. Before creating this post, I searched around and it appears a few other bloggers have already written about it, but that won't keep me from chiming in on it.

The article can be boiled down to a few core points:

People with normal BMIs (Body Mass Index) earn more money than who are considered overweight or obese
People with normal BMIs accumulate more in net worth
People with normal BMIs inherit more than their overweight counterparts.
Further, people with normal BMIs spend less on health care.

Wow. So not only do overweight people earn less, accumulate less and inherit less, but they also pay substantially more in health care costs. I know this is all logical and such, but when you boil it down that way, and couple it with the fact that overweight people generally live shorter lives, how can anyone honestly look themselves in the mirror and not want to take immediate action to improve their overall weight and health.

My favorite quote in article:

"...a unique twist on the calculations to determine what “supersizing” a fast-food meal costs society. Paying 67 cents to supersize an order — 73 percent more calories for 17 percent more money — adds an average of 36 grams of adipose tissue. The future medical costs for that bargain would be $6.64 for an obese man and $3.46 for an obese woman. “The hidden financial costs associated with weight gain from upsizing a value meal may help convince people it is not a bargain..."

Being overweight is hard and the battle to lose weight is hard. Keep up the battle, if not to save extra money, at least keep up the battle to save your longer-term health. Oh, and if you haven't seen this movie yet, go see it.

Who carries a mortgage into retirement?

2006-12-16T06:53:00.000-08:00

Jeremy of GenXFinance and I are having an interesting discussion over on AllFinancialMatters about people who carry mortgages into retirement. My contention was that most people do not and should not. He pointed to a BusinessWeek article that has some interesting data in it, but I'm convinced that they are spinning the data to make it more dramatic so they can create a story around it. Bottom line: less than 25% of people in their 70s have a mortgage and about 44% of those in their 60s have mortgages. It's not clear which of these people are retired and it's not clear whether or not these mortgages are for retirement homes or primary homes. In short, there are enough missing pieces to the puzzle to draw any solid conclusions.

BTW, there was also some discussion around paying down my own mortgage in preparation for early retirement between me and Larry Nusbaum. You can see that discussion in the comments here.

Now here's a scary thought...

2006-12-15T18:43:00.000-08:00

Imagine that you've saved a nice chunk of money in your 401(k) for retirement, but as you approach retirement, the sum total of all of your investments still seems like it may fall short. What do you do? Well, I was shocked when I read it, but I can see it happening and I can see it being a popular option:

"The next frontier for retirement saving may be annuitization, which would allow retirees to turn over funds accumulated in their 401(k) plan in exchange for a regular monthly or annual payment for the rest of their life."

The premise sounds good, but anyone familiar with annuities knows that they have serious drawbacks. You're basically paying someone else to guarantee you enough money for the rest of your life, and that costs money. The scary part about the quote above is that someone figured out that if you offer an option to make your 401(k) look like an annuity without using the "annuity" word, you'll make a killing on those who haven't saved enough. I'm sure the annuity industry is thinking of it as "picking the low hanging fruit" out of the 401(k) population. Brilliant, but also sad.

(Photo courtesy of brendanadkins)

More on Prosper.com

2006-12-10T07:26:00.000-08:00

As I said in my November update, I've funded another $2,000 into my Prosper.com account and have been looking to fund a few more loans. As I'm looking through the loan requests, I found myself asking few more questions and putting a few more stakes in the ground:

Group endorsements: What accountability do groups have when they provide endorsements? As I said earlier, I am somewhat skeptical about a group's involvement because they ultimately wind up getting paid if a loan is funded. Anyone can make statements about how worthy someone is for a loan, but when the loan goes into default, I'm sure they're nowhere to be found. Does anyone know what their accountability is?
Credit Ratings vs. Debt to income ratios: I'm always a little curious when I see an A or AA credit rating with a HORRIBLE debt to income ratio. For instance, I saw a borrower who has an A credit rating with a 74% debt to income ratio. While this is a likely scenario for someone in college (low income, high debt), it seems odd for someone in their 40's or 50's, right? The skeptical side of me wonders if there is a loophole in Prosper.com's loan applicant process. For instance, can I provide my 10 year old daughter's social security number so her untarnished A credit rating is displayed, while I provide my own W2 forms that show my income, etc. I haven't gone through this process, so I am speculating, and one thing that's not entirely clear is how they come up with the debt side of the equation. Does the debt side all come from the credit report? If so, credit rating and debt to income ratio are tied together, then. Either way, anytime I come across a borrower that is at different ends of the spectrum for DTI and Credit rating, the red flags go up and I move on to a borrower with more normalized rankings.
Bid amounts: Again, as I pointed out earlier, it takes a fair amount of time to sort through and manage bids and funded loans. Since most people on Prosper.com are trying to diversify away the risk as much as possible, you find them funding loans with $50 each. If you have $10,000 lent out, that's over 200 loans to keep track of! I wasn't that bad last round, but in this round of funding, I am going to fund fewer loans in higher amounts. My minimum funding amount per loan will probably be in the $250 range and will go up to around $500 per loan. Obviously, the trick here is to figure out how to distribute your money across higher interest rates (and risk) to maximize the return. It's a bit art and a bit science, so we'll see how it goes.

Anyone else out there trying to squeeze returns out of Prosper still? Let me know what you're up to...

November Net Worth Update (up 2.27% to $904,687)

2006-12-02T07:03:00.000-08:00

Again, another good month with a lot of little things going on. Overall, my stock gains were up 3.71%, but I used some of these funds for other purposes so the gain showing at NetworthIQ is shown a bit lower (see below). Also, my retirement gain was 2.94%, both of which were great despite the huge one-day drop at the end of November. Following are the details:

Investment gains were great. I sold my position in HOG after a near 50% run in the stock, and according to my goal of having $501k in stocks/retirement and a remaining mortgage of $170k by the end of 2006, I used some of the cash proceeds to pay down the mortgage ($12k). Also, I paid down an extra $1790 with free income cash for the month (in lieu of investing it). Note, my stocks/retirement total is still hovering around $510k after this move, so I'm quite confident I will hit my goals for the year.
In December, I expect to pay down the mortgage more with free cash and hope to make the $170k balance by end of year. For me, hitting this goal is all part of the early retirement plan. At the rate I am paying it down, I should be mortgage free by 2011 (5 years), about the same time I hang up my big corporate hat.
I also moved another $2000 into Prosper.com in anticipation of additional positive returns. I have 6 loans returning an average of 14%, all of which are low risk and "Current". I may step up the risk a bit on this next round of funding, but I'm not going overboard. I'll take a reasonably assured 14% return any day.
I should point out that on the stock front, there are about $1500 worth of contributions (via employee stock program), so the gain is a little mis-represented.

Using a 529 for non-educational retirement savings??

2006-11-30T07:49:00.000-08:00

I came across a very interesting post that alludes to a loophole in the 529 educational savings plan. Miller over at My Pocket Change writes:

"There might be games you can play using a 529 account. I briefly looked into this at some point in the past. Basically, your money grows tax-free in a 529 account, but if you spend any gains on non-educational expenses, you pay a penalty. There is a breaking point (in time) in which even with this penalty, you’d be better off using a 529 account (given, against its intended use)."

Now, given that I don't have kids and don't intend to, I would have to do some reading to understand whether or not there is something here or not. Anyone have anything to add here? Is this something that can be exploited?

Carnivals this week...

2006-11-29T10:51:00.000-08:00

Just a quick note that a few of my posts are included in the following blog carnivals -- go check them and all of the other great posts out:

On the Cheap? What to do about retirement planning?

2006-11-26T09:54:00.000-08:00

There is an interesting article on Smart Money about a couple of relatively new services provided by Vanguard and T. Rowe Price that should help those on a serious budget, do some proper investment planning for retirement. There is one from Fidelity mentioned as well, but it is backed up by an automated tool versus a warm-blooded human. While I'm always cautious about taking retirement planning from a big house like this, you should be able to get some good info out of them without necessarily committing your money to their funds --that's the goal at least.

The services supposedly provide personal consultations and annual check-ups with a dedicated personal advisor. Vanguard advisors charge a one-time $1000 and are CFPs and T. Rowe Prices advisors only charge a one-time $250 and only work under the supervision of a CFP. Despite the higher price, I'd go with Vanguard if you can afford it. Here is more about how they work from the article:

"How the services work: Investors provide detailed information on their financial situation online or by mail. A financial advisor at the fund company reviews it and puts together a retirement plan. Once the investor receives the plan, he or she gets a call from the advisor to talk about it and make changes, if necessary."

Once you have the plan, you are golden. Again, the key is not to have the advisor execute the plan by buying their own funds. If you're comfortable investing, take the plan and find equivalent investments in the same asset classes, or if you trust the recommended funds, go ahead and let them buy into some of them according to their plan. Depending on what they come up with, it would be interesting to compare their recommendations versus their "Target Retirement" mutual funds.

The article does call out a few drawbacks to the services as well:

"Another potential drawback: These services leave it up to the investor to put in their current financial information and make important predictions like their expected retirement spending, says Christopher Van Slyke, a fee-only CFP in La Jolla, Calif. There's a chance they may misunderstand the questions or give the wrong information, he says. "Without experience, it's likely they'll make mistakes."
An individual investor may easily underestimate his or her retirement income needs, for example, by not factoring in things like medical expenses. (If you don't make your own retirement income suggestion, Fidelity's tool will calculate one as 85% of your current income, adjusting for future inflation. T. Rowe Price advisors will suggest 50% of your current income.)"

I suspect most people that read my blog are not the target for these kinds of services, but perhaps they are good for an aging parent or a brother who may not have the biggest interest in investing for retirement. These are the people most likely to benefit from these kinds of services. If anyone has used these services, I'd love to hear about it. Lets us know.

(Photo courtesy of: Jan Tik)

Early retirees: Focus on taxable or tax-deferred?

2006-11-25T08:34:00.000-08:00

Ok, so here's the dilemma of the day I'm looking for feedback on: for people like myself who intend on retiring around age 40, and will need to fund a lot of years before they can withdraw money from 401k/IRA/SS, etc., how much of your portfolio should you concentrate into taxable accounts to ensure you have enough money to "cross the gap" from age 40 to age 59 1/2? (Also, I'm not a big fan of the "72(t) exception", except in extreme circumstances.)

When I first started engineering my early retirement, I thought a rough 1/3 tax-deferred allocation and a 2/3 taxable brokerage account allocation was a good rough target. At the time, my thinking was: since my ability to fund 401k and IRA accounts was throttled each year according to the government limits, I should fund those and stuff everything else I could afford into my taxable accounts. If anyone has used a different strategy, I'd be interested in hearing more about it.

There is one wrinkle however: since my joint income is too large to deduct my IRA contributions, I haven't been making post-tax IRA contributions. Since those IRA contributions will yield tax-free withdrawals later on, it may make sense to fund an IRA with $4000/yr post-tax. What do people think about this? Again, the trade off is: less money to "cross the gap", but more tax-free money after age 59 1/2. As Ben Stein put it: Retirees have little money early on when they need it, but lots of money later on [due to returns and compounding] when they start slowing down and don't really need it -- the Retiree Paradox, as he calls it.

I have a strong leaning to keep funding the taxable brokerage account and leave the $4000 post-tax IRA contribution out of the picture, given the good insight our old friend Ben.

Great quote, had to share...

2006-11-23T07:49:00.000-08:00

I'm sure this has been uttered over and over again, but it's the first time I've heard it and it couldn't be more true than right now:

"When the stock market is having an argument with the bond market about the future, the bond market almost always wins."

Found at: http://usmarket.seekingalpha.com/article/20702

Happy Thanksgiving everyone!

Early Retirement Forum gone mobile!

2006-11-20T18:08:00.000-08:00

Quick one here: I used to read the Early Retirement Forum on my smartphone during my long commute, and it used to render ok, but not great. Today is the first time I've looked at the forums on my phone in a few months and I noticed that they're now optimized it for the small form factor of a smartphone! Bonus!

Just navigate to the normal page on your mobile device and enjoy the read...
http://early-retirement.org/forums/

More on Moonlighting

2006-11-18T08:36:00.000-08:00

One thing I've noticed as I was looking around for other opportunities for my career, in talking with friends and co-workers, I found that a lot of people have side "efforts" that they are devoting time to. People I know are creating new businesses or providing their services after hours and on weekends -- all in addition to their day jobs. In short, they're moonlighting. I'm not sure if this is a byproduct of us being in a new internet boom or due to the recent surge in entrepreneurship or what, but when I say a lot of people, I mean a LOT of people have stuff going on on the side. So much so that it was a little bit shocking to me. Does anyone else out there have coworkers, friends, family have stuff going on on the side trying to generate more cash in addition to their normal day job?

Blogging while driving

2006-11-16T13:42:00.000-08:00

Are you one of those people that has a hard time finding time to write down all of your great thoughts into one or more blog posts, edit them and get them all posted? I am definitely one of those people.

Inspiration for blog posts seem to come at the most inconvenient times -- often, it's the shower or while driving in the car when I don't have the means to capture the ideas. Recently, I've been spending more and more of my idle time in the car thinking about blog post ideas. Now, the idea is not to write down or type up these thoughts while driving, but the idea is to somehow capture your idle thoughts about blogging or other interesting things so you can fully process and post them later on. What I've started doing is leaving myself voice mails from my cell phone containing the contents of the intended posts. Then, when I get into the office, I can transcribe these thoughts and ideas into a proper blog posts, clean them up and quickly post them. This process helps me in a number of ways. Number one, I don't lose those important, often fleeting thoughts that I think will be good blog posts, and I'm also more productive while driving because I'm not doing much else while sitting in traffic.

This idea of transcribing verbal messages is easy if you're like me and your voice mails are sent to your inbox through unified messaging software. In this case, listening to it on your computer and transcribing it is very easy. If you don't have this capability, there may be a few other steps you need to go through, but it can still make you more productive overall. One other option is to use recorded voice notes on your cell phone and then transcribe those. Either way, transcribing blog posts that you create while you are driving can be really helpful in creating more posts in a more regular way. Of course, it goes without saying that if podcasts are your thing, this method works just as well -- you just need to make sure that you have a good cell signal and can do the cast in single take or with minimal editing.

(...and yes, this post was created by transcribing a voice mail conveniently waiting for me in my inbox when I arrived at the office.)
(Photo courtesy of dakinewavamon)

Should I use Blinksale, Freshbooks, or something else?

2006-11-16T12:53:00.000-08:00

Ok, question time. Working on the new business, one of the first things we are trying to nail down is the software that we will use to manage the business. Has anyone out there used either Blinksale or Freshbooks to manage some or all of their business? We are looking to manage our customers and invoices with one of these services. We're using basic online banking for paying the bills, so that side is covered. I'm just wondering if anyone has any experience using these tools -- they both seem like they have a lot of online awareness.

Two other tools that I also found that may have worked for us are: SideJobTrack (which is free) and SimplyBill. Although SideJobTrack is free, it looks like it has been abandoned by it's creator. The last blog post on their blog was in June and it looks like the creator of the site has moved on to other things.

My initial impression of SimplyBill was ok, but after digging into it a bit more, the service is very rough around the edges and looks like the team that put it up there hasn't done much to it since it launched. As with SideJobTrack, they also look like they have moved on to other efforts. There is nothing worse than using software that is no longer a focus of the creator.

Anyway, any opinions on any of these tools would be much appreciated. If there are no opinions, I may have to do an in-depth analysis myself...

Moonlighting?

2006-11-13T08:06:00.000-08:00

Well, I promised an update on my career issues from a month or two back, so here it is. I have done a considerable amount of work looking at a number of different options, and as the post title suggests, I settled on something that may be gaining momentum in the workplace: Moonlighting.

I've interviewed both within my existing company and outside the company, and have also evaluated a number of new ventures that are just starting up. What I found was that I was most energized by the idea of joining a brand new venture. I wasn't, however, willing to take the risk of leaving my day job in case the new venture didn't work out. Enter moonlighting.

As much as I want to spill the beans on the new venture, unfortunately I cannot say much, other than the fact that I'm really excited about it. It is in a field that I am uniquely positioned to contribute, so assuming we execute flawlessly, we should be in a good position to succeed.

As the new venture gets off the ground, I am sure I'll have questions and will be posting them here in hopes of learning from others' experiences. Sorry for the vague update, but I'm sure you understand.

Anyone else out there doing any moonlighting?

Special Election Day Rant

2006-11-07T07:15:00.000-08:00

You normally won't find me posting rants, but today I feel compelled. This one is about local politics, but I'm sure it applies to many other cities around the country. It's no surprise that I live in Washington state, so expect a healthy amount of the rant to be focused at the City of Seattle. I vote absentee every year because I'm not sure I'll be in town on the day itself, so I actually voted yesterday. That said, I have a few choice questions about the ballot and it's contents. They're mostly rhetorical -at the top of my lungs- questions that don't require any response whatsoever.

Ok, here we go:

The ballot this year is apparently larger than last year, requiring more postage. Ok, an extra 39 cents -- fine. This point, however is just a setup for what follows :)
15, count them: FIFTEEN of the candidates on the ballot -- and 25% - 30% of the entire ballot was uncontested. Sure, I could use that handy "write-in" line to nominate Mickey or Donald Duck, but honestly, tell me when the last time a write-in candidate actually won an election. Seriously. Around the Civil War, was it? (I'm aware that this write-in mechanism is a vehicle for making sure everyone has the opportunity -- whether or not they got on the ballot or not. I just happen to think the concept is and always will be, just a dated concept.)
Next up: Silly city council resolutions that they can't possibly need my help in approving. On these, I seriously feel like a micro-manager who's had too much coffee. If I recall correctly, there were 3 to 4 items that we voted on that removed language from the city code because the referenced xyz no longer existed. If the code doesn't make sense because you eliminated a job, update the freaking thing yourselves and stop wasting my time! I don't need to vote on this stuff!! I know, I know... "citizens need transparency." If it's transparency you want, send me a "notice of change" like my cell phone does when it changes my policy. If you're a citizen and feel compelled to vote on this stuff, you need more to do in life.
Next: the transportation item: you remember it: this is the one where they promised to replace bridges, maintain roads, build tunnels, improve transit, coddle to bike riders, improve transit facilities, plant trees at park and rides, and do just about anything else that comes to mind. I don't want to vote on this crap. (told you this was a rant!!)... I want new bridges and I want to know what they are going to cost. What I don't want are inflated taxes being levied to handle everything under the sun, including adding a bathroom at a park and ride! I want this stuff broken down into consumable, specific chunks with real costs, and then I want them to appear on the ballot INDIVIDUALLY so we can vote on them. In their current form, I have no idea what I'm approving, and the taxes aren't cheap.
Finally, and this is for the working man out there: Write the entries on the ballot in plain, straightforward English. Some of these were written with triple negatives and then asking a positive with a yes, no answer. Some of the items read like SAT puzzles! Now, I have a university degree from a very respected university, and I had to read some of these questions several times! If I had to read them a few times, imagine voters with lower comprehension skills than mine. (not bragging here, just acknowledging that voters run the gamut of educational levels and comprehension skills). Anyway, my favorite example is the first item on the ballot. I wish I still had the exact text, but after reading it I thought to myself, why didn't they just say "Do you want to remove the current state estate tax? Yes / No".

I'm sure there were a few more things that annoyed me about voting this year, but these are the ones on the top of my mind. My time is very valuable, so when 30% of the ballot is uncontested and I need to fill in little circles like a scan-tron exam, and then I have to pay extra to send in the ballot due to it's increased size... man, something had to be said. Rant off / end of rant. Thanks for listening, no replies required.

(photo courtesy of hannahs_mum)

The Carnival of Investing is up!

2006-11-06T05:52:00.000-08:00

My post on the Downside of Dollar Cost Averaging was included in the Carnival of Investing this week. Check out the rest of the great posts at AllFinancialMatters.

How Do You Stack Up Against Your Neighbor When It Comes to Retirement Planning?

2006-11-04T07:05:00.000-08:00

The Zen Personal Finance blog has a post about a new retirement tool from Nationwide called RetirAbility. It's a flash-based tool with some cool, personalized video to help you through. It's probably more suited to people newer to retirement planning, but it's entertaining nonetheless.

At the end, they give you an "R-score" that rates your planning to date as a way of estimating how likely you will be able to keep your current standard of living in retirement. My beef with the tool? They assume you'll retire around age 65. Hey, what about us early retirement folks??

Read more

The downside of dollar cost averaging...

2006-11-02T06:30:00.000-08:00

I wandered into a Barnes and Noble bookstore this weekend to pass the time while I was waiting for my wife. Of course, I gravitated to the investment / personal finance/ retirement section and started to browse. I came across a book by Ben Stein and became intrigued by a little section in the back called "25 Big Truths of Retirement Planning" Naturally, I started measuring my retirement efforts against the sacred list of 25. While I had most of the items covered, two of the items were interesting and warrant some discussion. The first I'll talk about here and the second I'll reserved for another post entirely.

Ok, so you probably guessed that he said something about dollar cost averaging, right? So what did old Ben say about DCAing? Well, since about 99% of us who employ some form of DCAing are basically trying to ease into a position and effectively trying to time the market to get the position at the best price. What most of us forget is that at some point -- even if we're long term investors -- that we'll eventually be selling some or all of the position.

So our friend Ben called to light the fact that in retirement, the benefits of dollar cost averaging are effectively neutralized because you need to sell your positions at specific times for living expenses. He doesn't go on to give perscriptive guidance, but he made the point and I think it's certainly valid to consider. This isn't to say that you shouldn't employ DCAing, but you will need to be smart about how and when you withdraw in retirement.

October Net Worth Update (up 3.29% to $884,564)

2006-11-01T08:00:00.000-08:00

As many of you probably had, I had a great October! I've updated my NetworthIQ profile with the numbers, but here is the detailed breakdown:

On the stock front, my portfolio generated $15,853 in market returns (a 5.16%!!). I have been saying that these are not normal one-month gains, but I'm starting to wonder... obviously, market conditions were incredible in October. Also, to be fair, however, a few throusand of this gain were due to additional savings.

On the retirement front, the gain was due to 401(k) contributions as well as pure market returns. The gain was a stellar 4.73% return...

I added my Prosper.com funds in the Assets->Other category, so you will be able to see how I do on those over time. I currently have 5 funded loans at an average interest rate of 13%. These are all very conservative loans and I expect to dabble down stream to add more risk and return. This is going to be interesting.

The net effect on the mortgage balance was almost 2% this month. As I mentioned, I made a $4500 payment this month to pay down the principle. I hope to continue paying it down aggressively until the end of the year.

The Carnival of Personal Finance is up

2006-10-30T08:50:00.000-08:00

The Carnival of Personal Finance is up at: Its Just Money. Check it out...

Prosper.com Strategies (Part I)

2006-10-29T14:46:00.000-08:00

Since I started loaning money on Prosper, I have been coming up with my own heuristics for who, how and when to lend money. I still only have $1000 deposited and only a handful of funded loans so far (it takes a while!). Anyway, here are some of my initial learnings and habits to make the process of loaning on Prosper less risky and less time consuming. Some of these are (hopefully) insightful and others, just common sense:

1. Spotting good borrowers. To maximize the rate of return for any particular loan, you want loans that effectively balance between someone likely to default and someone who will pay off early. People on the downward spiral of multiple delinquencies (both current and over the past 7 years) need to be avoided. On the other side, anyone who willingly writes in their description that they don't really need the money or that they intend to pay it off early is probably not what you want either. It takes a while to get a loan funded so having someone turn around and pay it off early is frustrating. Balancing these two extremes takes some research, but once you get the hang of it, you will be able to spot them quickly going forward.

2. State interest rate caps. Some lenders claim that they cannot offer interest rates to lenders above a certain amount due to their home state's regulations. These rate caps do exist, and generally people from states with low rates are people you want to skip. This is especially true for people who have really bad credit and can only offer a nominal lender rate (i.e., Kentucky has an 8.25% cap!!). These people are not going to get loans on prosper, as most lenders are going to wait for loans in states where the cap is higher or non-existent before committing to a lot of risk in low-cap states. This will ultimately limit the prosper marketplace size.

3. Verified homes/accounts. I personally feel more secure lending to people with verified homes and verified bank accounts. In my mind, this lowers the risk, even with a D rating.

4. Loan search criteria. When looking for new loans, I generally exclude credit grades of E and below, ignore group affiliations (see below), although group ratings can sometimes be helpful. Again, these are my habits, yours may vary.

5. Tracking loans. When I find loans that I want to track, I put them on my Outlook calendar with a reminder for a few hours before they end. Given the chaos and tendency for lenders to aggressively bid down the lender rate, I don't waste time putting in my lowest bid and hoping I don't get outbid -- it just takes too much time to manage. I want to track the loan only just before it closes. (sorry MapGirl, but I may have been one of the snipers you encountered. :) Once the chaos in the marketplace settles down a bit and more borrowers can sop up the lending demand, I may be able to use bidding system more reliably.

6. Follow the herd. I hate to say it, but following the proverbial "herd mentality" seems to have some benefit on Prosper (i.e., using the wisdom of the crowd may be a way to minimize risk, while getting a reasonable return.) If there are lots of bids for a particular loan, there is probably good reason, if not: again, there is good reason. Loans that become fully funded early are a good sign, although the lender rate can plummet near to when it closes. The other side of the spectrum are loans that have anywhere from a handful of bids to no bids at all. Trust me, the lender community is VERY active on prosper, so odds are that you aren't the first one coming across a great undiscovered gem of a loan. A little checking on the borrower background (within the Prosper site) is usually enough to tell you to stay away. I don't mean to make light of anyone here, but here is an example of bad stuff lurking beneath the surface. (hint: look at the credit information detail after logging in)

7. Loan descriptions. The more detail in the description the better, but no matter what it says, the credit information numbers should be how you make your primary decision to loan. There are a lot of descriptions out there intended to tug at the emotions, or descriptions that provide merely a sentence or two on why someone should loan them $10,000. Remember, this is an investment, not a charity lending board. Here is an example of a good description. Here is a bad one. (I don't know how long these loan requests will be live, so check 'em while you can.)

Some things I'm not quite sure about yet:

Automatic Funding. This option is used by borrowers who want the money fast and don't care as much about the interest rate. Sounds risky to include these folks to me. See #1 above -- they may be able to pay it off early, denying you full interest payments.
What is better with all other things being equal: a positive debt to income ratio or a better credit grade?
Groups: I know they are supposed to give lenders confidence, but the fact that they are taking a cut means there is a conflict of interest. I am not sure what to think about groups and I currently pretty much ignore them. I am sure there is money to be made by joining one, but again, seems like there is a real conflict there.

Disclaimer: This list of learnings is not an endorsement, nor is it a recommendation on how you should invest in loans on Prosper.com. This information is provided as-is and I make no warrantees as to it's accuracy or applicability to your dealings on Prosper.com. Simply put: do your own research and draw your own conclusions. :)

The new 2007 401(k) limits...

2006-10-28T07:07:00.000-07:00

Here's a quick one: Does anyone else feel like contributing an extra $500 next year to your 401(k) seems like a drop in the bucket? Sure, I'm all for any increase in tax-deferred savings, but $500??? Since 2002 we've been able to add $1000 more per year, why the sudden slowdown? What am I missing here? (BTW, I saw this over on Our Money)

Screwed again!

2006-10-28T06:22:00.000-07:00

Well, I guess I should have seen this coming. Although I regularly pay a little extra on my mortgage payment each month, the $4500 the I recently paid was mis-applied. Surprise, surprise. It happens almost every time I pay more than the usual extra principle payment. What I can't figure out this time is where the money went! On my online statement, they show a payment of $3583 and a second principle-only payment of $917. Fine. Breaking down the numbers, however, the good folks over at Abn Amro applied the $3583 as follows: $462 applied to principle, $955 in interest (yep, that hurts!), and $373 applied to escrow.

Now, I took algebra in high school, so I'm fairly confident that 462+955+373 only equals my normal mortgage payment of $1790. So why, may I ask, does the applied payment total say $3583? Where is my extra $1793 that should have been appled to my principle???

I was even more frustrated when I called them at 4pm on Friday, navigated through 5 call routing options only to find out that their customer service center was already closed. Oh well, I guess I'll get in the phone queue first thing Monday....

I love this time of year!

2006-10-26T07:33:00.000-07:00

Not only is Fall my favorite season, but this is the time of year that I look forward to extra cashflow. You know the time... the time when you've fully funded your 401(k) for the year, the time when your employer stops taking Social security taxes out of your paycheck (for those who fall into this category), and the time when you can look forward to comparing your annual performance to your goals. For me, this also means it's time to start paying down my mortgage with the extra cashflow. Since we have already met our net worth goals for the year, it only makes sense for us to start paying down the mortgage. Again, one of my goals is to retire with a fully paid-for home, and I know this is within reach.

My current mortgage payment is around $1790/mo (20 yr fixed @ 5.85%), and I was very pleased to make a whopping $4500 payment for November yesterday. Granted, some of this money was extra checking account build up, but the other funds came from extra cashflow as I described above.
(Image courtesy of tiarescott)

I've opened a lot of topics, haven't I?

2006-10-23T07:35:00.000-07:00

Realizing that I have introduced a number of topics that I need to follow up on, I thought that creating a list of them would help me focus my posts over the next few weeks. Yep, you guessed it, I'm a list maker... Ok here it goes:

Networth goals (For 2006 and overall) -- I realize that I have never spelled out my goals on this forum. I certainly have them, so I should probably spend some time talking through them and soliciting feedback.
Prosper.com -- I've started playing around with this and will do my best to keep you updated on what I do, what I think of it and ultimately whether or not I'll continue with it.
Career update -- I briefly discussed this, but need to follow up. Many changes have happened over the past several weeks, and all of them too quickly to really blog about.
Early Retirement Forum learnings -- I will need to collect my thoughts on this one to provide my insights. Expect something over the next few weeks.

Any other threads or ideas I've raised that you would like me to follow-up on? Let me know. ...And as always, I encourage your comments and feedback.

Update:

Added an update on Prosper.com
Added a career update.

Experimenting with Prosper.com

2006-10-21T08:10:00.000-07:00

Ok after reading about Prosper.com all over the place, in order to talk about it intelligently, I had to do some homework. I've recently deposited $1000 into Prosper and have already made some bids to get a hang of it. Of course, I was outbid within 24 hrs, which leads me to believe that you need a serious strategy in order to make any serious returns.

There are a TON of people bidding for what appears to be a precious few funding spots. Unless Prosper successfully attracts enough borrowers to meet the lending demand, I fear that rates are going to plummet to an unreasonable level. Sure, there will still be some premium in the rate over and above what borrowers can get on the street through conventional means, but as a lender, the margin has to be worth the risk being taken. As rates plummet, I can forsee the margin not making up for the risk.

Time will tell. For now, I will use my play money to see what kind of return I can generate. The other thing I will be watching closely is how much time I am spending trying to generate these returns...

BTW, why don't they have RSS feeds for these things???

The Early Retirement Forum

2006-10-19T19:58:00.000-07:00

When I read the great post back at pfstock's blog, I can't help but feel some bit of camradarie. S/he mentions a few of my favorite retirement forums that I have actively lurked around for the last few years. In particular, the Early Retirement Forum.

Truth be told, I have thought about writing a series of posts about what I learned on these Forums over the last several years, and I still may do so. Introducing them seems like a first good first step.

The Young Dreamers board is filled with your 20s, 30s and above folks who dream about retiring early one day. Some of the folks are just learning what early retirement means and how to get started working towards it. What is good is that some of the "been there, done that" crowd from the other boards check in here and give great advice. The support in this community is unparalleled.

The FIRE and Money board is filled with folks actively trying to hit "the" number. These guys are mostly talking about investments and the state of the market. (By the way, FIRE stands for Financially Independent, Retired Early)

Finally, the Life after FIRE board contains a number of lively discussions about folks living in early retirement. Some of these folks are in their 40s, 50s and above, but I have to admit, this board is the most interesting of the three. When reading the discussions on this board, I can't help but feel that I'm a fly on the wall listening to a conversation amongst great friends. This board has a great feel and I usually spend my time here even though I probably belong in the other two.

Anyway, for what it's worth, I hope you enjoy these boards (actively or passively) as much as I do.

September networth and mid-October update

2006-10-14T11:50:00.000-07:00

Optimism is high -- nothing but sky up there.

Ok, I didn't exactly detail out what happened in September, so I'll spend a little time discussing it now and then move to a mid-month update for October.

September was a particularly good month for me, as it was for many others, I suspect. Net-net, my net worth was up 4.9% or +$22496.

Other highlights that helped bump up the net worth included:

I accelerated my 401(k) contributions to reach my $15k limit as early as possible
I recieved a 10% bonus and a 5% raise (yes, I am lucky to get this -- raises seem low these days). The bonus went directly into my brokerage account and will be deployed over time.
I had a block of employee stock purchase shares deposited (about $6k worth)
Overall market appreciation made up the rest.

I guess the message for September was: any money coming in got saved.

------------------------------

October has been quite good to me, as I suspect it has been for others as well. The market has been on fire and I'm lucky to be reaping some of the rewards. Here is a rundown of happenings to date:

I finally finished funding my 401(k) up to the $15k limit. From here on out, funds that would have wound up in my 401(k) will be redirected to pay down my mortgage. (I'll give the numbers at the end of the month update)
I never try to time the market like this, but I made a short term investment move in my 401(k) in July to buy my significantly undervalued company stock and finally sold it off this week for a near 26% return / $10k profit. I'm holding the proceeds in cash, but suffice it to say that my 401(k) performance to date with this move is hovering around 17%. I'm unbelievably happy with that.
Overall investment returns have been around 4% (+$17449) at the halfway point, which is great, but with any market pause, I'm sure I will pare those gains.

Looking forward to the end of the month -- Lets hold these gains!

SeattleSimplicity?

2006-10-10T08:06:00.000-07:00

Anyone know what happened to SeattleSimplicity.blogspot.com?? I really loved her site and I'm wondering what happened? It almost looks like a strange redirect was put in there...

Anyone?

Craig's List Experiment Update

2006-10-09T06:40:00.000-07:00

Ok, I have some great news on the Craigslist experiment that we've been doing. Basically, we have sold about 90% of our furniture from our old house and have been replacing it with new and used (read: antique) furniture. Our goal was to upgrade old stuff and pay a bit more, but not more than 25% above our proceeds for the new stuff.

Well, the results are positive. We sold everything from couches to chairs to tables, to area rugs and even some garden tools (ok, we probably stretched the experiment on that one, but revenue is still revenue.) All told, we netted around $5200 over the last month! That sounds like a LOT of money, but bear in mind that we sold a LOT of stuff, including a pair of expensive leather chairs that netted us nearly $3000 alone. On the purchase side, we have spent around $7010 and have replaced everything we sold, and then some. Overall, we still have a few minor things to sell and I'm sure my wife can come up with more things to buy, but I think we've done well. Relative to our goal of spending no more than 25% more than revenues, we did well. Our actual figure turned out to be 26%, but who's counting that extra 1%.

For those who haven't had good luck on craigslist, all I can say is: keep trying, don't let someone chew you down on price if you are asking a fair price and above all, be persistent. Things do sell, including expensive 3-year old Pottery Barn leather chairs that you believe are worthless. Somewhere, there is someone just like you that wants those Pottery Barn chairs, but just isn't willing to pay Pottery Barn prices to get them. Even a 25% discount off retail price is enough to yield a credible buyer.

September Update

2006-09-30T06:54:00.000-07:00

I posted my updated end of September numbers up on NetworthIQ, but I haven't had a lot of time to analyze them yet. Overall, I'm happy with the progress, but this weekend is devoted to my wife because it's her birthday (happy wife, happy life, you know). Anyway, I'll do some more analysis and post a round up on Monday.

Career crossroads...

2006-09-23T11:29:00.000-07:00

I've been thinking about this for the past 6 months or so. Although I've recently moved on to a new project at work, I can't help but feel less than passionate about it. Additionally, my entrepenurial leanings are showing themselves again and my feet are getting itchy! From that perspective, I'm thinking about leaving my current company for a web startup environment. Since I'm already in high-tech, this isn't a stretch for me, but I am carefully considering the risks, especially with respect to the early retirement plan. It could accelerate my plan or put a large dent in it.

On one hand, I am leaving a significant portion of yet-to-be-vested options on the table as well as a good salary, great benefits and the security of a larger tech company. On the other hand, I should be able to match my salary and benefits, and hope to get a significant equity deal in the new company to help offset some of the money left on the table. The risk is obvious -- money waiting to vest vs. a hard to realize amount of company equity. There are obviously a lot of other dimensions to the decision, but from a retirement perspective, these are the key financial aspects. I really believe in the mission and founders of the the company I want to work for and it has significant funding, a great product and a lot of buzz. For me, that helps mitigate some of the risk, but it doesn't alleviate it entirely.

Has anyone gone from a large tech company to a startup in the last year or so? If so, I'd love to hear some thoughts...

Home value tracking

2006-09-20T07:59:00.000-07:00

I have been a fan of Zillow.com for some time and I used the service to help in selling my house earlier this year. One complaint I've always had is that I wanted to be able to update the horribly wrong details of my home as maintained by the county. It was a 100 year old home that had been remodeled several times and the value was close, but not close enough (about 18% off). Now, every home owner with a home listed on Zillow.com can update the details of their home and come up with an "owner valuation". This is GREAT. Check out the details here.

In the context of retirement and trying to get there early, it's obviously beneficial to understand where your real estate holding(s) fit into the overall picture. Should you sell, downsize and pocket the cash, or should you hold and reverse mortgage if you get into trouble 40 years from now? Who knows, but at least you'll have the data to make a better decision.

Craig's List Experiment

2006-09-13T08:03:00.000-07:00

I already mentioned that I've recently moved into a new house. With that usually comes a series of extra expense like new furniture, new window coverings, landscaping and a variety of other little things. The biggest issue that I have right now is that I moved into a smaller place than I used to have and fitting my old furniture into the new space is problematic. (...and yes, downsizing is a GREAT way to prepare for retirement.)

With this challenge in mind, I'm going to try something that I'm not sure will be successful, but it sure will be interesting. My goal is to sell all of my current furniture on Craig's List in order to entirely fund new furniture for the new place. To give myself a little bit of leeway, I'll agree to spend up to 25% more of what I sell the current stuff for to help fund the new stuff. (ie. if the current stuff sells for $1000, i'll spend up to $1250 for the new stuff.) That seems somewhat reasonable.

To answer the question about why I would downsize my house only to buy all new furniture, let me offer the following: The new place is considerably smaller and some of the furniture doesn't even fit through the door! Other pieces of furniture are ok, but they take up way too much space. And again, the goal is to try to fund the new stuff by selling the old stuff. Lets see how we do. Ok, Craig's List, here I come...

Lifecycle Funds for retirement -- Careful!

2006-09-12T06:26:00.000-07:00

TheStreet.com has a good reminder piece about "Lifecycle Funds", funds that are supposed to help less investment-savvy folks get to a happy retirement with no fuss investing. One of the most important aspecsts of the funds are that they are standalone offerings that maintain an appropriate asset allocation over time. Also, although you can invest in these funds outside of retirement accounts (401(k), IRA, etc), the piece mentions that the funds are gaining traction in retirement plans. Therein lies the rub, however. If you invest your retirement account nest egg in one of these funds and the funds are already allocated across the right assets, how do you allocate the rest of your non-retirement funds?

Other suggestions they provide:

Own only ONE Lifecycle fund. (owning more than one doesn't make sense to most people)
Make sure expenses are much less than 1% (Vanguard is .25%)
Since not all funds have the same asset allocation or rebalancing strategy, choose one from a fund family that matches your risk tolerance. Some might be more aggressive, some less.

UPDATE: I should note that I personally would never consider one of these because I enjoy managing my money too much. They may be a reasonable option for conservative / risk adverse and/or folks that do not understand investing, asset allocations, rebalancing and the like.

Should you include your home in your net worth?

2006-09-07T06:52:00.000-07:00

I admit it.

From a retirement perspective, I find it hard to include my home in my overall net worth. Granted, it is an asset with appreciable value and strictly from an accounting perspective, it should be includced. Also, I guess if I really needed the funds, I could liquidate it with a reverse mortgage, but I'm still having a hard time with it.

Perhaps it's the fact that I'm looking to retire early and will need to draw on my liquid funds much more than people retiring in their 60's. I'm not sure. Either way, if you look at a number of the profiles on NetworthIQ, you easily find a lot of profiles where the majority of the net worth is due to a large real estate holding (sometimes with a minimal mortgage, but still).

With my home included, my net worth is $832k, without it, it drops to $461k. In terms of retiring early, I want to make sure the latter number is as high as possible and it's just not there yet.

What do other people think about including your home in networth, as it relates to retiring early?

Vacation...

2006-08-29T13:14:00.000-07:00

Hate to say it, but I will be off the grid for the next week or so. If I manage to find a PC to post with, I'll add an update or two, but I won't be fully back in action for about a week.

Who am I and how did I get here?

2006-08-25T06:43:00.000-07:00

Getting back to the point of the blog, I guess it makes sense to take a step back and spend some time discussing how I got to where I am today, then discussing my goals for the immediate and long term. And since I tend to read a lot about this topic, I'm sure I'll post about related topics that I find interesting, but generally in the direction of retirement, investing, personal finance, LBYM, or the like.

Let me start with my background and a quick summary on how I got to my current "retirement readiness" (ie. net worth).

I grew up in a middle class family with 5 children. I worked my way though public school and finally made my way to a Big-10 University, where I paid my way through the engineering program with a number of side jobs. In 1995, after college, I made $35,000/yr slaving away at a Big-6 (now Big-4) management consulting company. After only a few years and lots of travel (sound familiar to anyone?), I moved on to a high tech company, where I have worked for the past 9 years. I am reasonably well paid now and have had access to small amounts of profit sharing and stock options (although, these options have not contributed as much to my net worth as most people think.)

I am married with no kids, and no plans for kids. Both my wife and I drive used cars between 9 and 11 years old each. Cars and other depreciating assets are obviously are not important to us. (see book 2 below)

I purchased my first condo at age 23 for $67,000 and after 11 years and moving three more times, my current home that is worth over a half million dollars. I was lucky to have started early and rolled equity and appreciation into subsequent houses. I contemplated landlording a few times, and only wound up renting one condo for a year. Each other time, I decided that it wasn't the best option for me.

To be fair, I have also made a number of mistakes over the years. I've taken loans against my 401(k), I've had over $12,000 in credit card debt while living paycheck to paycheck, I've purchased overly expensive cars, I've not contributed to retirement accounts and I got caught up in the internet bubble and day trading (and lost money in both cases). I've learned a number of lessons -- all learned the hard way.

I was lucky to have mentors that helped show me the way. In particular, I was shown the way through books. Had someone tried to instill these lessons in me, I guarantee I would not have listened. The following three books that have had the largest impact on my current view of retirement, money, and investing:

Well, there you have it. This is a pretty good summary as of August 2006.

In subsequent posts, I'll dive down into certain parts of my past and dissect how I really got here. The most important points of discussion will be around those handful of decisions that I made over time that changed the course of my life forever. Some call these decisions "life inflection points". I believe the choices you make at these critical junctures can significantly impact your future successes and are worth understanding.

Boston Gal's Open Wallet: Blogging for big bucks

2006-08-24T15:46:00.000-07:00

Boston Gal's Open Wallet: Blogging for big bucks

Jane Dough makes an interesting comment about blogging: essentially do you do it for Love or Money? While money would be nice, it's not too practical for most of us. Her comment that blogging is all about the community -- leaving comments, recieving comments and having shared-interest dialogues is dead on. This is not my first foray into blogging, just a new blog on a topic that i spend a lot of time thinking and reading about.

401(k) enrollment now automatic!

2006-08-23T08:29:00.000-07:00

In a great move, the government has finally enacted a law to allow companies automatically enroll employees into their retirement savings plans in an effort to boost retirement savings. Read the full article here.

Most people know that being in an employer sponsored retirement plan is a great way to ensure a suitable nest egg, especially when your employer matches some or all of the contributions. Although it's not a mandate for companies, this has the potential to get a lot more people in the fold.

Although I have been very active in a 401(k) plan for most of my career, I have made a few mistakes along the way. 1) Not contributing at all for periods at a time, 2) Moving from investment to investment trying to time the market, but ultimately losing money, and finally, 3) taking a "loan" out of my 401(k) to fund the down payment on a condo.

Some might say that 3rd one is questionable, but it probably would have been better had I saved for the downpayment instead of living a highly consumption-oriented bachelor lifestyle. To be fair, that was at age 23.

About this blog...

2006-08-22T17:16:00.000-07:00

I am starting this blog to discuss all things related to becoming financially independent. I know there are a lot of blogs out there that discuss the topic of personal finance, investing and all aspects about retirement. While these are often times very related, my focus in this blog will be on how they relate to retiring early. By "Retiring Early", I don't mean moving south, booking endless tee times and wearing out the rocking chair. When I refer to retiring early, I mean leaving the hectic pace and politics of corporate America. It means finding a more simple existence, finding ways to be less consumption driven and figuring out how to do more with less.

In short, the goal is to become financially independent to allow for truly interesting, leisurely and rewarding pursuits at an early age. Life is short.