As an older FI blogger, do you ever get the feeling that technology is passing you by?

While I’d like to consider myself technologically adept, I have to admit that over the last five years, I’ve fallen further and further behind. The pace of technology (especially communication tech) is mind-boggling, and the numerous ways that people and business communicate. Just when I think I’ve got the latest tech down, it gets superseded by some other form.

This is happening at work as well. I hate to be the “old fuddy duddy” but there are a lot of new engineers being hired with a lot of tech savvy (and a desire to do robotics and computer simulation) but who don’t have much hand-on experience in the field. My boss, and our customers, are enamored with potential for this (because we are all having a hard time finding labor) so I sometimes feel like I am the odd man out, and becoming obsolete.

The reason I bring this up is that we had the annual “icebreaker” for my professional society this weekend, which was at a distillery in Philadelphia. It was a great time, with a lot of good fellowship, good food, and some drinking. Some of the members there were older (like me) and some were younger (late 20s, early 30s) and the topics eventually settled into our engineering profession. A lot of what was discussed was basic engineer and leadership “blocking and tackling” but some of it was the effect that technology was having on their business and their work. It’s exciting, but also troubling (am I obsolete?).

In the end, one of the concepts of FI is never stop learning, so if I choose to stay in this profession, I need to dedicate myself to continued work in the field. You never stop learning.

 

Mr. 39 Months.

 

Book Review – A Random Walk Down Wall street by Burton Malkiel

This classic book was originally published in 1973, and has been updated every few years to reflect updated data (the version I purchased was from 2003, so it had the dot.com bust in it, but not the 2008 meltdown). The general theme of the book in 1973 was that “an investor would be far better off buying and holding an index fund than attempting to buy and sell individual securities.” Over thirty years later, the data still bears out this lesson – one that most FIRE folks agree with.

Why follow-up editions over the last 30 years? The author states that there have been enormous changes in the variety of new financial instruments over that period, and these will need to be evaluated against the basic thesis of the book. Overall, it’s a very “readable” book, especially for those with an interest in investing and financial instruments.

The first part of the book is a history course of investing down the years, starting all the way back with the Tulip Craze of the 17th century and moving through the great depression, the 60s, 80s, and all the way up to the dot.com bust. In each era, the author points out the prevailing investment theories and provides data on how they performed. It’s a great read for those who want to understand how people have been investing throughout the centuries.

The second part of the book describes the current state of the investing world, and describes, in detail, the two main theories of stock analysis (Technical and Fundamental analysis). He again goes into some detail of the methods of each, their strengths, weaknesses, and effectiveness based on history. In the end, the author uses the findings to state that “investors might want to reconsider their faith in professional advisors.” He notes that most do not beat the market average – although some do, and some do consistently. His final conclusion is that the historical evidence does not support a theory that professionals can do better than the individual investor.

The third part of the book goes through more of the modern investing theory (Efficient Market Theory, Modern Portfolio Theory, etc.). Again, the author provides a wealth of data and comparisons so that the reader can make his own judgements. In the end, the data points to a very efficient market that is difficult for a professional to manage successfully and beat the market.

So what do you do then? The author provides a road map of exercises to follow to build your financial plan, including determining your objectives, insurance, tax avoidance, bond and other investments (real estate, precious metals, etc.). It’s a great read on how to diversify, plan for your life cycle, and winning the investment game. Just for the last quarter of the book alone it’s a valuable read.

I’d rate it an A, and a must read for any FIRE person who wants to learn about the Wall Street Game.

 

Mr. 39 Months

Frugal Fail

Well, I was hit with the frugal “bug” and tried something out. Our old washing machine’s transmission went, and the repair guy said he could fix it for $400 + parts. That’s pretty close to the cost for a new machine, with not guarantee that other parts wouldn’t start breaking as well.

So Mrs. 39 Months started doing research to find a replacement. She likes’ top loaders, so that is what we were going to go with. However, article after article kept coming back with how bad the new machines are. The government regulations on water use forced the manufacturers to come up with “innovative” ways to clean the clothes with about 1/3 the amount of water that used to be used. The result has been a lot of dissatisfied customers and poor ratings.

So I thought I’d look on you tube and see how hard it would be to change out a washer transmission. It didn’t look too difficult, and the part was $270 complete. So the frugal Mr. 39 Months said “hey, why don’t I try and do this to prove to myself that I can fix something significant.” A nice win.

So part ordered, arrives, date set (this last weekend), and Mrs. 39 Months out of the house to meet with a friend. Here we go! Yet once I started pulling the machine apart in order to replace the transmission, I found that one of the components had fused/frozen to the main transmission shaft – and I had to get them apart in order to do the replacement.

For the next 6+ hours I tried everything to get these two parts to come loose (bought some additional tools along the way). After much cursing, struggle, and cuts/bruises – no luck. By Saturday night I was very grumpy (and exchanged some harsh, undeserved words with Mrs. 39 Months when she just asked me “are you done yet”). So, we ended up going out on Sunday and ordering a new washer. Luckily it was in stock, so we were able to get it delivered today (Monday).

I hope to be able to get my money back on the new transmission (just opened the box, never used any of the parts, most are still in their packaging). I don’t regret making the attempt (other than being cross with Mrs. 39 Months) – it’s all part of the learning cycle in life, and I’ll know better next time.

So that was my adventure this last weekend.

 

Mr. 39 Months

Investment update for Sep 1, 2018

Things went well again, with another month of gains which pushed me further into the black for 2018. Still have some ground to makeup after the Feb/Mar meltdown, but its trending well. I am now up 2.24% for the year, with a 1.68% bump in August. An old investment saying was “sell in May and go away!” where you sell everything on Memorial Day (late May) and walk away till Labor Day (Sep). If you did this in 2018, you lost out on some significant gains (about 4% for those 3 months or the equivalent of 15.7% annual). Stick with the plan!

Retirement Accounts: Remember, my allocation for these is:

  • 30% Bond Index Fund
  • 17.5% S&P500 Index Fund
  • 17.5% International Index Fund
  • 17.5% Small Cap Index Fund
  • 17.5% REIT Index Fund

I ended up being about 1.6% up here for August, so they have continued steady increases for a while now. US Small caps continued to surge, and S&P500 and REITS did well. Bonds gained a little and International got hit. See my July post on this to look how each segment did for the first half of the year. Note that these returns include reinvesting dividends.

My 401K/Deferred account at work was up 1.7% for August, with the same general results on each segment. Remember that this account doesn’t have REITs, so it benefits more than above when REITs drop (but doesn’t do as well when REITs surge).

Dividend Income Account: Allocation:

  • 25% Dividend Stocks
  • 25% REITs
  • 50% Bond Index Funds

This account was up 2.2%, so up a bit (in July it dropped -1.6%). For the year, it is a little down, even counting in the dividends. I think this is primarily due to drops in bond index funds. Overall, it continues sending me dividends, but not growing much.

Value Investing Account: Allocation (remember I refocused this at the beginning of February):

  • 40% in individual value stocks I picked myself (2 each, 20% for each) – SBS and GILD
  • 20% USAA Market Index (my brokerage is USAA)
  • 40% in Vanguard Value Index fund

My losing streak starts back up again here, primarily due to my value stock picks. The leader, Cia Saneamento, suffers from the problems that all the international stock funds have (see above). My other value stock, Gilead, was down -2.7%. Meanwhile, my two mutual funds were both up (average of 2.7%). This continues to show me that I am not a good stock picker.

Again, another up month. Let’s hope we can keep this momentum going for the rest of the year, so we can rescue this one.

 

How did you do in August?

 

Mr. 39 Months

Labor Day Weekend with the family

Labor Day, the first Monday in September, is a creation of the labor movement and is dedicated to the social and economic achievements of American workers. It constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.

 

The first governmental recognition came through municipal ordinances passed in 1885 and 1886. From these, a movement developed to secure state legislation. The first state bill was introduced into the New York legislature, but the first to become law was passed by Oregon on February 21, 1887. During 1887 four more states — Colorado, Massachusetts, New Jersey, and New York — created the Labor Day holiday by legislative enactment. By the end of the decade Connecticut, Nebraska, and Pennsylvania had followed suit. By 1894, 23 more states had adopted the holiday, and on June 28, 1884, Congress passed an act making the first Monday in September of each year a legal holiday in the District of Columbia and the territories.

From US Debt of Labor website

Labor Day is often celebrated as the last day of summer. Many companies change company policy (dress codes, work hours, etc.) after Labor Day.  For many places, kids go back to school after Labor Day (after enjoying their summers off). There is a fashion rule that says you never where white after Labor Day. All of these point to the same thing; the day is a transition time, between one parts of the annual cycle to another.

Like many times of change in your life, folks tend to want to experience it with family and close friends. It’s a time of barbeques, picnics, and dinner conversation. Sometimes the conversations are serious, but most of the times the talk is light and enjoyable.

This week Mrs. 39 Months and I are traveling north to New York to spend time with her family (hence the rest area picture). Her sister is closing in on retirement, and since the two of them are very close, where she ends up relocating (she doesn’t plan to stay in NY) will have some impact on our plans.

I hope all of you have a pleasant and enjoyable weekend!

 

Mr. 39 Months

Stoicism

No person has the power to have everything they want, but it is in their poser not to want what they don’t have, and to cheerfully put to good use what they do have.” Seneca, Moral Letters

Many of you know that I have, over the last year or so, started reading and trying to follow some of the basic concepts of stoicism. The philosophy practiced by some of the ancients in Greece and Rome has had quite a resurgence over the last 20 years. I thank Tim Ferris for introducing me to the stoic philosophy and the first book I read on it. Many folks get it wrong, and think of it as an emotionless, stone-like attitude to life. This is not true – it does encourage you to experience and enjoy life; but it suggests that many of the emotions that are created by life’s issues (depression, anger, etc.) aren’t really valid because most of the issues are transitory and don’t really matter in the grand scheme of things.

I have found it difficult to follow many of the lessons of the stoic philosophy. While I am an engineer, I am also a very emotion-driven individual. I’m not sure what caused it (genetics, issues growing up, etc.) but I have quite a temper, especially when I feel that I am not getting the respect I believe I am due. For many parts of my life, my emotions have been the driving force in my decision making. This is, of course, in contradiction to the stoic way.

That is why I am enjoying my reading and daily meditations on the subject. While I still have a long journey to make along this path, I believe it has already helped me. I got a book at the beginning of the year titled The Daily Stoic by Ryan Holiday. It has a daily quote from some of the great stoic philosophers of history, which I can use for my meditation, and to attempt to build a better life. Today’s is where I got the quote above from.

 

I hope you folks are enjoying your journey on the path to Financial Independence and a better life.

 

Mr. 39 Months

Searching for a new home

As a resident of New Jersey, I know that we aren’t going to be able to retire “in place,” i.e. we won’t be able to stay where we live when we retire. New Jersey is already one of the most expensive (or the most expensive) states to live in, and it’s only going to get worse. Taxes keep going up, and as the “Pension Bomb” goes off, there won’t be any money for basic services. The roads are already starting to look like California’s (i.e. rotten). It’s a shame, because the state does have a lot to recommend it, especially its awesome beaches. Still, if we want to be financially independent for the long-term, we’ll have to leave.

There are parts of the country that we have vacationed in that we really like (Pacific Northwest, Northeast US) but we don’t want to retire to. We have ended up concentrating on two areas, Delaware and North Carolina/Tennessee. We can’t decide between beaches and mountains to retire in (I really like mountains, and Mrs. 39 Months and I both grew up in areas that had mountains). We want an area with decent services (hospital, shops, things to do, etc.) and Mrs. 39 Months would like to live in a town setting (she grew up in something like that) where you can walk to things.

Delaware has the advantage of being close to our current area, and the support network we have created (friends, hobbies, clubs, etc.). It has beaches, though the decent ones are very far south (Rehoboth, etc.). It has no sales tax, something that a FI person, who isn’t really generating a lot of income, should concern himself with (Tennessee has no income tax, but a high sales tax). It’s also got relatively low property taxes (because it doesn’t spend a lot on schools, something that shouldn’t concern us). Some of its disadvantages are that it’s very flat, and the beaches aren’t great up north (where the towns and services we like are).

In North Carolina, we are thinking of the Asheville area (near the Smoky Mtns) and in Tennessee we are considering Chattanooga. Both of these spots are in the mountains, offer a lot of outdoor activities, and a thriving social scene in the city. Services are good, though the cost of each (because of their great retirement possibilities) are a tad expensive. Normally I’d think we could sell the house in NJ and buy something in NC/TN and have some money left over, but not so much. Seems everyone is retiring there. Also, it would be a big move, away from all the relationships and everything we’ve built around us here.

I guess that is one of the issues with FIRE. You can use geo-arbitrage to speed up the process, but you still have to consider the move.

 

How are your plans going for where you want to retire?

 

Mr. 39 Months

Sequence

If you are just starting out on the path to FI, or counselling someone who is just starting out, what is the sequence of steps that you would work on? What would you counsel your colleague to do first, then second, then third, etc?  I’ve read numerous books and articles on the various aspects of getting your financial house in order and moving forward. For the most part, they jump around a great deal, based on the author’s particular interests.

If you had a young adult who came to you for guidance on the subject, what would you have them do first?

My thoughts on the subject, and the order I would approach them would be:

  1. Goals: The first step is to identify where you want to go. This is the opportunity to bump up the motivation, as you get your friend to dream big dreams (and small dreams) and identify where they want to go in the next month, next year, next 5-10 years. Its fuel for the fire.
  2. Paycheck: Get ahold of a copy of the paycheck and work out what you are getting paid for, what withdrawals are being taken out, and what benefits you are getting, or could claim (like a 401K, reduced cost insurance, etc.). This is the basis for everything that follows – you have to have money coming in if you are to budget, pay off debts, invest and increase your net worth.
  3. Expenses: Once you identify what is coming in, you need to work out what is going out (housing, transportation, food, clothing, debt, etc.). Depending on the person’s situation, this could be small (student) or large (adult out in the world for a while).
  4. Budget & Cash Flow: Now that you have your income and expenses, you can work out your cash flow (income – expenses = cash flow). If it’s not positive, then it’s time to do whatever is necessary to get it there (additional job, cut expenses, etc.). Once you understand your cash flow, you can make intelligent decisions on how you want to live your life, and how you can pursue your goals.
  5. New Worth: Some folks would say to move this higher up (maybe #2) to get an idea of where you are, but it think this is a more complicated topic, one that you need to have a little knowledge about finances before you can really delve into it. Here you are going to get a “snapshot” of your current financial situation, and this will help you see how far you are from reaching your goals. T
  6. Debt /debt service ratios: So many people are deeply in debt and feel helpless to pull themselves out. By gaining an understanding of debt, a good debt ratio (never have more than 40% of your income in debt payments) and ways to pay it off as quickly as possible, helps to create a feeling of control on the part of the practitioner.
  7. Power of Compound Interest/Investing: The last part I would I would have them learn would be the power of compound interest, and basic investing, to grow their money faster.

I think these would be a good start, and from there, you could cover other items in depth which will add to the knowledge (emergency funds, taxes, spending on home & cars, insurance, etc.).

So what would be the first 5-7 steps you would counsel someone on?

 

Mr. 39 Months

Book Review – Five Years before you Retire by Emily Birken

The title of the book intrigued me, since I started out my journey 39 months from retirement (currently with 23 months left, yay!). The objective of the book is to “layout what you need to do in the last few years before retirement to make sure your life post-career is financially comfortable and fulfilling.” It’s a big objective, and one we here in the FIRE community have been talking about for many years. In fact the author writes for several blogs that are in our community.

Please note that this book is aimed at a US audience, so for those readers outside the US, you will need to take the advice and translate to your country’s situation.

The initial four chapters cover some of the basic finance questions that folks who are nearing retirement.

  1. How far away are you?  (calculating current spending, resources, rates of return, calculating money needs)
  2. Saving and Budgeting for next five years (Ideas to maximize your savings and reduce your expenses in order to close the gap)
  3. Income in retirement (the 4% rule, bucket method for withdrawal, required minimum distributions)
  4. Find the right financial planner (Types, pay structures, questions to ask)

While many of these topics are covered in depth in various FIRE blogs, the book puts them all in one spot for easy reading. There are other ways to perform the calculations in the book, and you can search for others that appeal to you more – but at least it gives you an idea of the steps necessary at the time.

The second part of the book covers aspects of the government that need to be included in your retirement planning.

  1. What to expect from Social Security (Mechanics of SS, what you will get, survivor benefits)
  2. Taxes and your Retirement Income (Taxes on Social Security, 401K, Roth, other investments)
  3. What to Expect from Medicare (Part A & B, Drug coverage, additional costs)
  4. Planning for Health-Care Expenses in Retirement (Coverage if you retire early, Medigap, Disability and Long-Term care).

It covers the basics of government support and costs, and is full of good information. The discussion is chapter 8 covers the basics of seeking out health care if you retire before 65, but doesn’t have many details or links. The book still assumes that Social Security and Medicare will be available when you retire (something we are all a highly suspect of at this time).

The final section covers home, family and other considerations as you prepare to retire.

  1. Housing in retirement (paying off mortgage, staying put or moving, reverse mortgages)
  2. The Family Fortunes (discussions with family, estate planning)
  3. Creating a budget on a Retirement Income (Typical day, week & year, anticipated spending, budget)
  4. Common Retirement Pitfalls (Relying on factors outside your control, 9 others)
  5. If you Don’t have enough saved (work longer, cut spending, change plan)

One of the great things about the book is that, at the end of each chapter, there is a countdown of the topics covered in the chapter, and what needs to be done 5 years before retirement, 4 years, 3, 2, and 1). It’s an excellent guide on the important aspects in the chapter. I would recommend this book for those just starting out on their FIRE journey, or if you want to give the book to a friend or spouse who hasn’t embraced the FIRE lifestyle yet.

Grade B+

 

Mr. 39 Months