Do you use Robinhood?

Robinhood is a “Commission-free trading platform” which is fairly user friendly, especially with phone applications. Since its inception, it has been surrounded by a lot of controversy. The idea of commission free trading brings up the question “how are they making money?” Their level of service has been spotty (at best) and at key moments, the site has shut down or not let people make trades which may have cost them significant money. They’ve had a lot of legal issues as well, further confusing the issue.

The solution to many of these issues is a simple one. As laid out by the Motley Fool, the solution is to use the application to invest, not the try and time the market (i.e. don’t use it to day trade). Robinhood plays up its ease of trading, but its performance in quick trades has been poor. However, its ability to make stock trading easier to start is laudable.

I was thinking about this after reading an article by evidence investor about “Why most robinhood traders get lousy returns.” The article pretty much lays out that people are using it to day trade, not invest for the long-haul, and are thus using having their emotions drive their investing decisions. It’s a good article and worth a read.

I personally don’t use Robinhood. Most of my investments are in mutual funds/ETFs. I gave up stock picking (I sucked at it) and chose just to stick with those. I’ve heard it said that it really doesn’t matter that much getting the optimum return – its getting started with regular investing and sticking with it. In that sense, if Robinhood gets you to do that, it can be a worthwhile option.

Hope your holidays are going well!

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Mr. 39 Months

Saturday Linkage

Dec 12, 2020

  1. Start meeting your Money Goals with a Yearly Budget plan (Cash for Tacos); A good place to start if you are just getting started on the FIRE trip
  2. How Large Money Managers Control our Economy (Economic Liberties); Really something to be concerned about going forward
  3. The difference between 10-yr and 20-yr student loans (Simple Dollar); Payment schedule and effects of 10 vs 20-year
  4. Paying yourself first – 6 ways to automate your financial life (Physician on Fire)
  5. When’s the right time to sell (the irrelevant investor); Some good points on how to analyze when to sell a stock you have
  6. Average American debt by Generation (DQYDJ); Kinda sad that folks are in that much debt.
  7. FIRE: A few things I’ve learned along the way (financial bodyguard)
  8. What to expect from Early Retirement (Freedom is groovy); Looking forward to some of these, and interesting in how to deal with some of the others.
  9. How we minimize our Big 3 Expenses (Retire by 40); Housing, Transportation and Food.
  10. The Mad Retirement Rush of 2020 (Retirement Manifesto); Some of its forced retirement, some of its voluntary
  11. Myths and misconceptions about financial independence and early retirement (Get Rich slowly)

Getting started on a new project

Woodworking – getting started on a new project

Well, with the Christmas presents made and other projects complete, it’s time to prep the shop and get started on the next one. Whenever I start a large new project, I take the opportunity to clean up/prep the shop. A lot of that consists of cleaning up, and then sharpening/prepping the tools.

  1. Start with a thorough Thinning
    1. Empty waste cans & Dust Collector
    2. Throwaway wood <12” long
    3. Straighten up woodpile
    4. Shop vac (with bag) to Vacuum/clean up
  2. Tools: Don’t use ‘em, then lose ‘em
    1. Collect not using and get rid of them (ebay, give away, etc.)
    2. Clean Table saw blades
    3. Clean/spray cast iron surfaces of tools (table saw, band saw, etc.) – Topcoat or Wax
    4. Clean putty knives with random orbit sander
    5. Clean glue off of clamps with putty knife, then wax
    6. Touch up/Sharpen chisels & plane irons on 8000 grit water stone

Once that is done, it’s time to start laying out and cutting up the wood to start the next project. In this case, it’s a small kitchen island than Mrs. 39 Months wants. It’s going to look like a craftsman piece of furniture, with lots of mortise & tenon joints. I’ll try to shoot you guys some updates in the weeks ahead.

Hope your holidays are going well!

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Mr. 39 Months

Saturday Linkage:

12/5/2020

  1. Tips for Transitioning into early retirement (the Dragon’s Fire); Good tips for those of us planning to retire early  in the near future.
  2. Lessons from Japan’s Lost Decade (Go Curry Cracker); Interesting notes on the 30+ years of market “stasis” and what you can do to avoid it in your investment future.
  3. Year End Financial Checklist (Women Who Money); Good list of things to do before or right after the new year.
  4. Sequence of Return risk – why you should care (budgets are sexy); depending on when you choose to retire, the 4% rule will be a breeze, or it may need to have adjustments.
  5. How to retire in 5 simple steps (the retirement manifesto); Good summary of the steps needed to accomplish prior to retirement.
  6. What I learned after spending over $6000 on learning development (Costa Rica Fire); Investing in yourself is often one of the best investments you can make
  7. Budget is not a dirty word (My tipid tips);
  8. The youths are coming for the housing market (a wealth of common sense); No sign yet that the housing market is going to collapse. Still not enough housing.
  9. A Simple year end tax checklist (Go curry cracker); Good steps to take at the end of the year to reduce your tax bill
  10. Mental models for career changes (fs blog); In the new year, with Covid going away, I wonder how many people will seek out new jobs?
  11. Secret life of supermarkets (npr.org); One of the miracles of the modern age – the ability of folks to get inexpensive, plentiful food, within a short distance of home.

Investment Update Dec 2020 – What a difference a month makes!

Wow. Just Wow.

Not sure whether it’s the announcement of a potential vaccine, or the election being over, the market took all its pent-up energy and exploded. The investments were up across the board, and I’m sure everyone benefited from their investments shooting up. The result for us was an overall 10.7% increase in our accounts, and our annual number being pushed back into the “black” and the annual return rising to 7.53%. Maybe the year isn’t a total loss.

So our allocation is as follows, as of July 2020:

  • 20% Bond Index Fund
  • 20% S&P500 Index Fund
  • 20% International Index Fund
  • 20% Small Cap Index Fund
  • 20% REIT Index Fund

My 401K doesn’t have REIT option, so it’s just 25% for each.

  • Bonds were up 1.1%
  • S&P was up 10.9%
  • International was ups 13.0%
  • Small Cap up 16.9%
  • REIT Index up 10.1%

My dividend account new allocation (as of Jan 2020) was:

  • 50% Dividend Stocks
  • 50% REITs

The dividend paying stocks were up an average of 12.5%, and the REITS were up an average of 19.8%. Again, wow. The dividend account has been down all year and hasn’t recovered anywhere near what the 401K/IRA accounts have. Now its come roaring back. Hopefully it will end the year in the black.

I hope December is at least level, so that we can end the year in the black.

Hope everyone is healthy and your market returns for the rest of the year go up!

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Mr. 39 Months

Saturday Linkage

Nov 28, 2020

  1. Be an Owner (Four Pillar Freedom); Excellent advice that is the core of financial independence.
  2. End of year financial checklist for high earners (passive income MD): For those making well over six-figures, there are certain steps that you can take to optimize. What
  3. Tips for Transitioning to early retirement (dragons on fire); Preparing mentally, managing expectations, be willing to take risks and to change.
  4. The End of passive investing (Banker on Fire); author writes about the standard arguments for active investing and the issues with them.
  5. Is Early Retirement Selfish? (1500 days); Goes through the standard arguments against FIRE, and rebuts them with excellent reasons to retire early.
  6. What if FIRE doesn’t work? (Monevator); Author riddled with doubt and concern, and discusses some of the issues when “The FIRE dream dies.”
  7. Life Moves On – 2020 Has Changed us (Cracking Retirement); What was important a few years ago may be less important now.
  8. Book review – How to Reinvent yourself in Retirement (esimoney);
  9. Are you too Frugal? (retire by 40); I think a lot of folks are 80% frugal, and they spend on the 20% of the items that really matter to them
  10. Always get a second opinion (full time finance); Good discussion on affiliate links on blogs, advertising in the internet age, and how a lot of items advertised on financial websites are not good options.
  11. The Prestige Trap (Wes Desilvestro);

Need something to do during winter in Covid Season? How about a home inventory?

OK, for many folks that sound more like punishment than fun, but for a lot of us in the FIRE community, we love to create and monitor lists, reports, finance sheets, etc. So this sort of thing can be enjoyable. I know, we are sick individuals.

Its also an excellent spur to make folks embrace minimalism?

Over at Women Who Money, they’ve written a pretty good article on why you need a home inventory and some practical steps on starting one. The key reason is that every year “One out of 20 households has to file insurance claims due to theft, fire, wind and water damage.” Having the items you need replaced inventoried, photographed and ready to go will dramatically help this – and may make you review your insurance to make sure it covers the needs.

The article goes through the variety of helpful aps and computer programs that could assist you in it. Some of the ways folks can do it is:

  • Make a video and describe items and their costs. One for each room
  • Photos. Again, documenting details, including brand names and serial #s
  • A digital inventory. FIRE folks friendly list, using apps, online tools, or just a spreadsheet

For some of the more expensive and/or hard-to-replace items, they suggest you include:

  • Brand
  • Size
  • Model number 
  • Cost – include the receipt if you have it
  • Store where purchased
  • Purchase date
  • Serial number
  • Photos or videos (close-ups are helpful)
  • Appraisal of antiques and collectibles
  • Replacement costs

I think one of the best things the article covers I getting started. Rather than “eating the whole elephant” they suggest you start with selected categories and do them one at a time, then branch out as necessary. The ones they suggest you start with are:

  • Electronics (don’t forget phones!)
  • Appliances
  • Jewelry
  • Art
  • Collectibles
  • Furniture

For storing the inventory as you complete it, they suggest a physical copy in a fire safe at home as well as one off-site (safe deposit box?). Also have digital copies, including out on the cloud.

I’ve had an old version of the inventory, but haven’t updated it in years. Going to start this Thanksgiving weekend with the electronics and appliances, and then go from there.

I liked this article so much, I added “Women Who Money” to my blogroll. Looking forward to reading more from them.

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Mr. 39 Months

Saturday Linkage

Nov 21, 2020

  1. What happens when you get everything you want (Why we money); Good philosophical article on reaching for goals and resetting – and how to embrace happiness now vs. immediately resetting new goals and never being satisfied.
  2. Two Years without health insurance and what I’m doing about it (Mr. Money Mustache); Easier to do when you are young and fit  
  3. 5 Ways Gig Economy Workers Can Save for Retirement (Wisebread); Basic ideas
  4. Documents Required for a Personal Loan (The Simple Dollar); An expensive way to borrow, but often the only way to consolidate debt or move forward. Don’t abuse it (debt).
  5. 3 Points You Should Do When You Are Losing Your Job (my Tipid Tips); Good points if you reach that point in your life
  6. How Our Pursuit of FIRE has Helped Us During the Pandemic (Retiring on My Terms); Taking control of your life decisions can help in any situation
  7. My Credit Scored Decreased Thirty-Four points! (Budget Life List); Credit utilization increased a lot, and only made minimum payments a couple of times. Ouch!
  8. Twitter thread on the logic of paying off your mortgage (twitter.com); I know the numbers, but I still prefer to be debt free. In this age of uncertainty, with the potential for a financial tsumani hitting, I want to be debt free.
  9. When the dust settles (Irrelevant Investor); If you keep waiting for the “dust to settle” so you have the right time to invest – you will never invest.
  10. Peloton Alternatives: Get in shape without breaking the bank (Think Save Retire);
  11. A drive across America: Trip #2 (The Retirement Manifesto); A lot of retirees dream.

Saturday Linkage

Nov 14, 2020

  1. Lifestyle Creep (We want Guac): The Difference Between Lifestyle Creep and Improving Your Life
  2. The opposite of the Latte Factor (four pillar freedom); instead of cutting $1,825 from your existing level of spending each year, try earning an additional $1,825 each year.
  3. 20 Years of home price changes (visual capitalist)
  4. Contentment (clipping chains); Contentment: The Greenest Grass of the Them All  
  5. Never Assume (Humble Dollar); Numerous financial assumptions we make (richer people are happier?) that we shouldn’t.
  6. Entire FIRE community falls ill from Tainted Ramen Noodles (Accidental FIRE); Ha ha
  7. Budgeting that you won’t hate – backwards budgeting (physician philosopher)
  8. Spend less than you earn is the most important money habit (late starter fire); The first steps in achieving FIRE
  9. Consider but verify (freedom is groovy); With the current state of journalism today, you need to take everything written with a “grain of salt” because most of it is just pushing a narrative.
  10. Ten ways to sabotage your finances (retire by 40); Some are pretty obvious, some not so much.
  11. $1.3M in net worth, yet just scraping by right now (route to retire); Its not just your net worth, it’s the cash flow you can generate from that net worth

Is it the 4% rule, or the 5% rule?

The world of FIRE has been working with the 4% rule for a decade now. For those new to the concept, and analyst/statistician named Bill Bengen rocked the retirement planning world in 1994. He did an in-depth analysis on how much you could afford to spend of your “nest egg” each year, and still have money left over at the end of a typical retirement. He pretty much evaluated withdrawal rates every 6 months, starting in 1926 and going to the 1970s – and seeing what rate would allow you to still have funds at the end.

The rates ranged on average from 5% to 13%, depending on how lucky/unlucky your timing was when you retired. With the analysis he came up with the “Safe” retirement rate of 4% (actually a little higher). Even if you retired at the worst times in history to retire (1929, 1937, 1973, etc.), as long as you maintained a 60/40 allocation, you could safely take out 4% of your nest egg a year, and then adjust upward in line with inflation every year after that. This should leave you with  money at the end.

Since writing it, the FIRE community has lived by the 4% rule, or its derivatives (Fat-FIRE, lean-Fire, etc.). Most FIRE folks have said that, since we’re retiring earlier than 65, the need more than the 4% rule (some believe they can only spend 3% or as low as 2% since they’re retiring in their 30s). Bengen stated that the 4% rule was always the “worst case scenario” based on the worst time to retire (Oct 1968). This was when the stock market peaked, froze for 13 years, and inflation went through the roof..

Now Bill Bengen has gone back and relooked at his analysis in the time of low bond yields, low inflation, and high-priced stocks. He’s had another 25 years of data to crunch to add to what he already did. A lot of folks assumed he would drop the rate to reflect on these items. Instead, he’s come back and said the 4% rule is really now more of a 5% rule.

What?

In fact, he noted that at other points in history (when inflation was low and stocks/bonds were cheap) you could have withdrawn 7% – 13% and still been safe. With a 50/50 split of stocks/bonds, invested in index funds and US treasury bonds, Bengen believes you would be safe with a withdrawal rate of no more than 5%. He actually notes that “the average is 7%.” The key to the whole equation is the very low inflation right now.

Bengen does say there are still variables here (what will the Fed do, government spending, inflation, etc.) and the 5% rule should be a starting point in your analysis. Still, its nice to know that all of us panicking about saving 25X our spending (4% rule) might be ok with only 22X our savings.

Happy Veteran’s Day. Thank a Veteran if you can.

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Mr. 39 Months