Celebrate your successes this year, and extend love to those around you that make up the best part of living!
As part of my plan to transition to FI, and to pursue what I want to versus working the rat race, I’ve decided to start working on my side hustles and researching to eventually move into a different field. As many folks have stated in their FIRE journey’s, its not that they want to stop working, its that they want to work in something that they love. That is what I’m going to do, and I’ll try and chart some of my progress here.
One of the areas I want to work at is in starting up and running a business, even a small, side-hustle one. My thought is to start in a small one centered around one of my favorite hobbies, woodworking. My plan would be to make items for sale at craft fairs and online. I also wanted to go through some of the thoughts and work here, including the numbers, so people could get an idea of the process (and offer advice & counsel on what I’m doing, if it fits them).
In reading through the book Street Smarts, written by two individuals who have helped guide entrepreneurs for decades, the first question they ask at the beginning of potential entrepreneurs is “why do you want to create and build this business?” Along those lines, I laid out the reasons why I wanted to start up this business:
- Learn how to work business numbers and run a business by them (P&L statements, Expenses, budgets, Capital spending, etc.)
- Improve my woodworking skills
- Learn to develop website
- Develop my marketing skills
Adding/improving these skills would help me move onto the next business I was planning on moving to (more on that at a later date). So what steps do I think I need to start with here?
- Create a list of potential items I could make and sell, both online and at craft fairs
- Determine material costs for those items
- Determine Tools/Jigs necessary to build those items
- Determine time in would take to manufacture those items
From that, I would at least have some idea of my material costs, and be better able to build a budget. My list of potential items to start is:
- Photo Holder
- Picture Frame
- Cutting Board
- Tea box
- Fast boxes
- Shaker carry box
- Campaign collapsible bookshelf
- Craftsman bookshelf
So the next step for me is to work out the other three items for each piece I want to produce. We’ll see how it goes.
Mr. 39 Months
For some who have been following, you will remember that I did a Roth conversion of $100K at the end of 2018, and it screwed me up a bit. It basically pushed me into a tax bracket where I could not do our annual contribution of $7K each to our Roth IRA. So I managed to switch $100K to Roth, but lost out on the ability to put the normal $14K into it. Sad face, and a kick on me for not knowing what I was doing, here.
Fast forward to the end of 2019,, and I’m studiously looking at the income levels of Mrs. 39 Months and myself, and it looks like we’ll be about $45K under the limit for contributing to our Roth 401K for 2019. So today, I took the opportunity to shift $40K in my Vanguard IRA to my Vanguard Roth IRA. Note that this is a taxable event. Going from an IRA that I contributed in pre-tax and moving it to Roth, where it is supposedly post-tax and non-taxable in the future means having to pay the government their taxes.
Luckily I have other money set aside to pay the taxes on this item. If I didn’t, then I’d have to take out more from the IRA to pay the taxes, and potentially pay a penalty on that money being withdrawn before I hit 59-1/2. It’s a real accounting nightmare, so better to pay the taxes from another account (like a savings account) rather than going through the hassle.
So now we currently have more in our Roth IRAs than in our normal IRAs. The 401Ks we have continue to grow, but both of these are Roth 401Ks, so in essence we should continue to enhance our future tax-free investments.
Its kinda sad that retirement is such a complicated numbers game, but for those of us in the FIRE community, its part of the fun – finding new ways to squirrel away more money and better prepare for the good life.
Mr. 39 Months
Some excellent points to ponder
As many of you have been following, Mrs. 39 Months and I have been seeing a financial advisor for the last 2 months, reviewing our finances and getting a second opinion on when we’ll have reached FI. There has been some give & take on expenses, investments, inflation rates, etc. Overall, I’ve been pleased, especially as it has helped get Mrs. 39 Months and myself on the same page.
One of the big “bones of contention” between myself and the advisor has been the subject of investment returns. We’re already being somewhat conservative on inflation (setting it at 3.25%, and 6% for medical inflation). Then the advisor is using very low (in my opinion) estimates on investment returns for the next 40 years. Here is what he is using before inflation is taken out (i.e. the real returns will be lower than this):
|Large Cap Growth Equity||5.03%|
|Large Cap Value Equity||6.08%|
|Mid Cap Equity||6.07%|
|Small Cap Equity||7.24%|
|Emerging Markets Equity||7.27%|
|Long Term Bonds||3.40%|
|Intermediate Term Bonds||3.69%|
|Short Term Bonds||3.48%|
|High Yield Bonds||6.07%|
Thus, after inflation of 3.25%, you can only expect to get around 2.5% – 2.75% after investing in the S&P 500. What the…? Based on my current allocation strategy, this would give me a 5.75% return per year. Minus the 3.25% inflation, I’m looking at a 2.5% return. That is going to make it very difficult to make it to 99, even if I don’t retire early!
Historically, since 1930, here are some of the returns, based on market watch report
- S&P 500: 9.7% (4.7% more than the advisor is using)
- Large-Cap value: 11.2% (5.1% more than the advisor using)
- Small Cap: 12.70% (5.5% more than the advisor is using)
- Small Cap Value: 14.40% (7.2% more than advisor is using)
If you go from 1925, the returns from the CRSP report shows the following
- US Stocks: 9.8%
- International stocks: 7.8%
- Bonds: 5.1%
- T-Bills: 3.7%
- Inflation: 2.9%
I actually found a good site, the portfolio visualizer, which shows the returns each year, for a wide variety of asset classes, all the way back to 1972 (almost 50 years of data). While I would like to go back to the mid-1960s (right before the 1968 market, when it started to tank), this is good stuff. It has the inflation rates as well, so you really can dig into the numbers and do some analysis.
Based on this information, my average return for my allocation would be 15.1% vs. a 3.9% inflation, so 11.2% returns. Much better than 2.5%! Much better chance of lasting to 99!
Still, we have had a tremendous run over the last 40 years of stocks. In the early 80s, the Reagan revolution and the Volker defeat of inflation launched a tremendous stock market surge that we have been living with for our adult lives. Most folks don’t remember how much “in the doldrums” the market was from 1968 – 1981. Now we have several knowleadgeable people saying those heady days of returns may be in for a pause of several decades.
Even Jack Bogle, the Vanguard mastermind, was predicting lower returns back in 2018 before he died. He estimated returns of around 4% annually for growth and 2% for dividend (total of 6%). He based this on expected economic growth and the historic P/E ratio versus current levels. He also estimated bond returns of 3.1% annually.
Since returns play such a vital role in all our plans to achieve FI, its critical that we look at them with an experienced eye, and make good estimates for our lives going forward.
What returns estimates are you using?
Mr. 39 Months
One of the things I am not going to miss about the corporate culture is the need to CYA (cover your “butt”) whenever a mistake is made somewhere. It seems in today’s US corporations, they’ve got almost all the “fat” out of the company, resulting is most folks doing 2X to 3X the amount of work done previously, while not receiving any extra pay. With the unemployment rate as low as it is, its very difficult to fill the holes in your department. So you end up having to do even more additional work while the HR department and upper management look for the magical unicorn that has all the skills you want, and will only be looking for low enough wages to fit into a wage “band” that was made 5 years ago and only been raised to match inflation.
At the same time, the company expects 100% perfect work, and any mistake is jumped on and used as an excuse to not provide as big a pay raise or bonus to the workers . Or to place you on some sort of disciplinary status, so you are walking around in fear, and willing to work extra hard so you don’t potentially get canned.
Just recently, I had a situation at my work where a rack project had a major problem in it. It was determined that the piece of lift equipment used to fill the top level did not reach high enough. I designed it for a new piece of equipment, the standard one that we have been buying for several years, which would work. It turns out, in order to save money, the decision was made to use older pieces of equipment that were available, instead of buying new. The result – we have to take the rack partially apart and reset it.
Let the “Blame Storming” (instead of Brainstorming) begin!
The question now is to find out when this decision was made, was it communicated (it wasn’t to me) and who is ultimately responsible for the mess.
Luckily, I’m pretty well defended – I designed it to the standard, and one of the reasons we have standards is to avoid this kind of thing. The emails between the other involved parties have been flowing fast & furious, though! It irritates me that folks will now spend countless hours going back through old emails and trying to fashion a defense so they can shift the blame for this.
It’s a miss. We can try to put in a fix for it to prevent it from happening, but mistakes are going to be made, especially at the pace that the company has been going through (we’ve had twice as many of these projects in 4th quarter this year vs. the average). One of the reasons, I guess, that I (and so many others) are pursuing FI.
So, have you had to shift blame lately in your day time job?
Mr. 39 Months
Only 7 months to go!
US Markets continue to drive forward at an epic pace, making 2019 once of the best years on record for stocks. For those market timers who jumped out of the market at the end of December’s larger drop, they’ve probably missed out on some strong returns. It once again goes to show that the buy and hold strategy of “steady as she goes” will probably win out in the end. When the next downturn happens – and it will – make sure you keep your money in the market, keep your allocation, and keep investing!
As you know, the allocation for my retirement accounts (IRAs, 401K, etc) is pretty much index funds, spread out between the S&P 500, small-cap, international, REITs and bonds.
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
My 401K doesn’t have REIT option, so its just 25% for each.
S&P was up about +3.6%, Small cap +4.5%, and International +1.1%. Real Estate and Bonds were down about-0.3%, so they didn’t hurt much, but also didn’t help. Still, a very strong environment, and my retirement accounts were up about 1.8% all total, for the month.
My dividend account allocation is:
- 25% Dividend Stocks
- 25% REITs
- 50% Bond Index Funds
This account got smacked hard, as it is heavily invested in Bonds and REITs, the two categories that got hurt last month. Several of my dividend stocks did poorly as well (Cisco was down -4.6%). Its almost time for year-end dividends to come out as well (some are already paying out) so that may further drive down the stock and REITs.
The “fun money” account did very well, up a little over 4%, after a very strong rally for my PAWZ ETF. Its been suffering for almost six months, but picked November to rally back and almost get to even. Both the Value and Extended Market had strong gains as well.
For November, I’m up 1.62% (after 1.5% in October). For the year, even though I’m 30% Bonds for the most part, I’m up 18.56%. Time to make a few “end of year” moves before time runs out. See my previous link in reference to end of year moves.
Hope your November was good, and everyone was Thankful!
Mr. 39 Months
Well, it is the Thanksgiving season in the US, and one of the key holidays of the year has come and gone. I have noticed that Thanksgiving, a holiday dedicated to gratitude for the year, seems to be a primarily American holiday, not in keeping with a lot of other countries. Yes, just about every culture has a “harvest festival” where you celebrate a good harvest and the opportunity of plenty. However, Thanksgiving in the US is more than that – its focus is around “counting your blessings,” being with family, and acknowledging how well we actually do have it in this life.
I know one of the key parts of my daily ritual is the Five Minute Journal, which asks you at the start of your day to write out three (3) things that you are grateful for, and at the end of the day, to list three (3) amazing things that happened to you that day. The idea is to make you realize how good you actually have it, both right as you start the day, and right before you head to bed. The result should be an increased sense of happiness and well-being, and I have to say it has helped me a lot (in addition to my readings in stoicism).
So what are you grateful for in your life?
For me, I am grateful for:
- My loving wife of 33+ years, Mrs. 39 Months
- My family (Mother, brothers, sisters, nieces & nephews)
- My health (had a few health scares, and know folks who are in bad shape, so very grateful for this)
- My chance to earn a good living, and to enjoy the fruits of my labor
- My country (in my opinion, best country to live in the world)
Everyone can look at their lives and find things they are grateful for, and I urge all of you in this holiday season to look at your life and constantly give thanks for the blessings you have.
Mr. 39 Months