Well that was unexpected – Not!

All you heard on the news last night and this morning was the “gigantic” drop in the investment market yesterday. Some are already calling it “Black Monday.” I personally had about $20,000 erased in one day. Ouch!

From Marketwatch

 How did the main benchmarks perform?

 The S&P 500 SPX, -4.10% dropped 113.19 points, or 4.1%, to 2,648.94. The large-cap index is now off more than 5% from its all-time intraday high of 2,872.87 on Jan. 26. The S&P 500 had gone 406 sessions without such a decline, marking the longest period without a 5% pullback in 20 years.

 The Dow Jones Industrial Average DJIA, -4.60% slumped 1,175.21 points, or 4.6%, to 24,345.75, not up all its 2018 gains. The S&P 500’s percentage drop was the largest since Aug. 18, 2011, while the Dow’s drop was the biggest since Aug. 10, 2011. The S&P 500 and Dow both turned negative for the year.

So what is the FIRE community doing this morning? My bet is that, like me, they are going about their business and not sweating it. Folks in our community invest for the long haul, have a long-term outlook on investments, and understand that the market is going to jump at times. Heck, in January it was up almost 6%, so if anything, we are still up for the year. In 2017, it was up 19% (versus its long-term average of around 10%). So why “work ourselves up into a lather” about it.

Besides, I rebalanced at the beginning of the year, so I took some of those gains off the table (buying low cost “losers” and selling high cost “winners”). One of the reasons to do that.

My plan continues. I will contribute funds every paycheck on a regular basis, with the same allocation as before. I expect to hit my FI goal in 29 months, and nothing I see here makes me think any different.

Similar sentiments:

 

Mr. 39 Months

Financial Independence and Stoicism

Some things are in our control, while others are not. We control our opinion, choice, desire, aversion, and in a word, everything of our own doing. We don’t control our body, property, reputation, position, and, in a word, everything not of our own doing. Even more, the things in our control are by nature free, unhindered, and unobstructed, while those not in our control are weak, slavish, can be hindered, and are not our own.” Epictetus

Anyone who has read some of Tim Ferris’ work or listen to some of his podcasts know that he is a big fan of stoicism, and often goes over the benefits that can be gained by studying and following the tenets of the philosophy. I have been reading about stoicism for the last year and find that I greatly enjoy and benefit from the readings and practice of it. Contrary to many folks opinion, stoics don’t turn away from the world, the philosophy demands that they engage in it. However, it also asks them to realize how little control they have over events and other people, and to recognize that the only power they have is to control their own actions and emotions. It is here where people get their ideas about folks “behaving stoically.” Stoics can be sad, angry, etc. – but they are taught to recognize the emotions and not act on them without thinking.

I believe the stoic attitude definitely helps with frugality, because stoics are taught to recognize that all of these items are fleeting, and that they really don’t determine a person’s happiness. One of the key stoic exercises is to spend a period of time without something you believe necessary for your life (good food, a smart phone, nice home) so that you can see that, in the grand scheme of things, you can live without most of this stuff. It can make life easier, but it isn’t absolutely necessary.

This month, I chose to give up on sugar for the month (which is really hard, Mr. 39 Months has a definite sweet tooth). I’m on day 3 so far, and I am adapting. I have survived 72 hours without a sugary snack – and I’m not dead.

For those interested, I’d suggest a book titled “A guide to the good life” by William Irvine. It’s an excellent introduction to stoicism.

Mr. 39 Months

Good post at Early Retirement Extreme about having the right motivation when you retire early

I always appreciate his articles, especially when he gets into a deep topic. In this one, he discusses how not having intrinsic motivation for something else when you retire will cause you to fail (either returning to work, or worse). Good read.

Lack of intrinsic motivation will destroy your early retirement

Monthly update – Feb 2018

Keeping it rolling, only 29 months from Financial Independence!

A pretty good month to celebrate!

  • For the first time, our investment assets (not counting savings, checking, home, etc.) hit over $1M
  • Good month for gains – got a 1.36% monthly gain, in addition to what I put in
  • Was able to roll my Dad’s IRA required distribution and some additional savings (total of $9K) directly into investments, and I bumped up my deferred pay allotment as well. All total, I put in about $13K into my investments in January alone. Getting into FIRE really motivates you to save.
  • Did my first travel hack! Mrs. 39 Months and I attended a dulcimer conference in mid-January, and got to stay at a nice hotel for free. Sweet!
  • Traffic on the site exploded, up over 200% from my 2017 monthly average. Thanks for tuning in!

A great way to start the year. I want to keep the momentum going.

My “fun money” value portfolio was interesting. I have three stocks in them (Gilead, Beasley Broadcast and SBS). I’ve already gone over why I chose them.  Gilead is up 12% for the month, and SBS is up 10%, However, Beasley is down about 1.5%. Overall, they’ve been great picks, and I’m up 2.5% for January (even counting my bond fund losses). About that – when I was originally planning it, I thought I’d set it up as a dividend account as well – so I have Bond Funds in it. Since I want to evaluate value with this money, I’ve decided to sell the bond funds, and invest the money in a Vanguard Value fund. I’ll do that at the beginning of February, so I will have a “baseline” to compare my stock picks to.

My inherited IRA that I set up for Dividends didn’t do well in January. Since its 25% REITs and 50% bond funds, you would expect with the raging economy and work on raising the prime interest rate, they’d suffer – and they did. Overall, they are down -1.8% for January. Not unexpected.

My company 401K and deferred accounts are up about 6% for January, because they are more heavily invested in stocks (25% S&P, 25% Small Cap, 25% Int’l, 25% bonds). Small cap really knocked it out of the park.

Our IRAs and Roth IRAs came back in around 1.2% for the month – pretty good. These are the ones that are 30% bonds, and then evenly split over REITs, Small Cap, Int’l and S&P 500. Again, good returns, and not unexpected.

While I expect a market correction at some point, I think we will be able to weather it, provided the Zombie Apocalypse doesn’t come. My plan is to re-balance in July, unless the market really goes crazy.

Hope your new year is starting well!

 

Mr. 39 Months.

 

 

 

Healthcare III

Well, as you remember from my last healthcare post, I was looking into the internet and healthsherpa.com to identify potential healthcare costs for the period between 56 and 65 (when Medicare is supposed to kick in). I started out with my current area in southern NJ, and came up with a list of 7 different plans. Healthsherpa also gives you estimated total annual costs, based on light, moderate or heavy usage. We were coming in around $12K a year for insurance, co-pays, prescriptions, etc.

I next wanted to see costs for healthcare in states we were considering moving to once we hit FI – Delaware or North Carolina (near Asheville). Delaware would enable us to keep close to where we currently are, and Mrs. 39 Months family. North Carolina would be closer to my family, and would have the benefit of being in the mountains (something both Mrs. 39 Months and I grew up with, and miss since we moved to Southern NJ).

First I checked out North Carolina, using the same steps that we followed in Healthcare II posting. Mrs. 39 Months really liked Black Mountain NC when we visited last year, so I’m going to use that. After researching, it looked like we could get $580/month back in reimbursement.

After going through the other parts (it started with 7 plans, I put in that we wanted a PPO and Silver) it came up with 3 plans to compare, all coming in similar to the monthly cost that we were looking at for NJ. The expected spend still ends up being around $12K a year.

For Delaware, we did the same thing and came away with:

  • Monthly reimbursement of $1,489/month (wow!)
  • Overall annual costs of around $12K/year

So it appears that, as of right now, we can budget about $12K/year for medical, based on what HealthSherpa is telling us. I will continue to do research on this in future postings, and I’ll let you know what I can find out.

 

Anyone have further information, or things you want me to look into for Healthcare?

 

Mr. 39 Months

Great Post at Slowly Sipping Coffee on benefits of FI for job growth

He is being provided an opportunity to move  up the corporate ladder, and he talks about how the pluses and minuses of moving up. He also discusses how, as they have sought out FI, it gives them more options and allows them to stress out less about this potential move.

I’m Getting Pulled up the Corporate Ladder…

“Yep, if this new assignment turns out to be horrid, I already have a parachute packed with my name on it and I can jump out of this plane at any time knowing that I will land safely on the ground below”

One of the other major benefits of pursuing the FI lifestyle!

Mr. 39 Months

 

Healthcare II

Well, as you remember from my last healthcare post, I wanted to look into using the internet to research potential  health care costs for myself and Mrs. 39 Months when we retire early. I thought it might be of interest to folks to see what I found, and what questions this raised.

After looking through some of the sites that I discussed on my last post, I chose to go with Healthsherpa.com as my source for finding information. The steps I followed are:

  • Go to HealthSherpa.com
    • You can setup account if you want, and then log in to keep your stuff
  • Type in zip code . Very important. Some places have Healthcare exchanges, some don’t. I will cover some of those areas that don’t in another post.

  • Who needs coverage (me & spouse)
  • Put in ages, answer questions on disability, smoking, etc.

  • Put in number of people in household (2) and estimated income (I went with $60K)

  • Sherpa says that I can save $892/month on healthcare by reimbursement by government in my zip code (in southern NJ)
  • It asks for the qualifying event, and gives me a list. I chose losing coverage (since I’d be retiring)

  • Asks you to rate how often you use healthcare (low, medium, heavy) based on doctor’s visits, prescriptions, hospital visits, etc. Not perfect, but it will get you in the ballpark. I chose heavy use, because as we get older, we’d go more often

  • Let’s you go into detail on the plan (visits, prescriptions, etc.)
  • Also let’s you compare other plans & costs by clicking “view all 18 plans”

  • This sorts by lowest cost to highest cost, and has a screen on the left side that lets you filter your search. Since I wanted an EPO and Silver plan, I typed those in.
  • The result was a series of seven (7) different plans, ranging in price from $489/month to $2,076/month. Wow. The screen also lets you select up to three different plans to compare.

  • The three plans ranged from $489 to $589 per month. Some of the areas they compare are:
    • Deductible
    • Max Out-of-Pocket (OOP)
    • Primary Care co-pay
    • Prescriptions
  • This should help you get an idea of potential costs. Again, these costs reflect a reimbursement from the government of $892/month. If my income went above the 400% poverty level (around $64K right now), I would be adding about $900/month onto my healthcare bill.

Well, at least I’ve got a starting point for budgeting.

Next healthcare post, we’ll go over what to do when you have a state that doesn’t have a healthcare exchange.

 

Mr. 39 Months

 

Health Care – Post 1

Like many FIRE folks in the United States, the topic of health care takes a major part of our planning as we look to exit the rat race early. The current plan, as reader’s know, is to retire in 30 months, when Mr. 39 Months will be 56 and Mrs. 39 Months will be 58. Since Medicare doesn’t kick in till age 65, and we aren’t the kind of idiots who try to “chance it” by going without medical during the gap, we need to look for medical coverage to cover us for 7-9 years. Even though the healthcare issue continues to be a political football, we need to start planning. I won’t get into the politics here (thank god) other than to say that, as a “libertarian leaning” individual, I find it distasteful that politics enters into it at all.

Now that that is out-of-the-way, I wanted to go through my initial research on this, and what I found. I expect this will be an ongoing topic, as I update you on my findings and go through my logic as I approach FI and potential early retirement.

First some basic info:

  • Mr. 39 Months is 53, and Mrs.39 Months is 55
  • Overall health is good, though not as good as 20 years ago (i.e. no chronic illnesses, diabetes, injuries, etc.)
  • We have typically had a PPO plan (i.e. it allows us to go outside of our network fairly easy). An HMO plan is typically less expensive, but it is more difficult to seek doctors outside of a prescribed network. We both felt the additional expense was worth it for the flexibility
  • Mr. 39 Months job has typically been the one which has provided our health care (like so many folks in the US). The co-pay cost has gone up a lot over the last ten years, as health care costs and regulations have increased. At this point,  we are currently paying $9,835/year out of our paycheck (not counting co-pays and deductibles).
  • We currently have  a “Silver PPO” plan, which
  • As most folks know, you can’t easily deduct your medical expenses from you income taxes in the US (for 2016’s taxes, you could only deduct anything over 10% of your income – very difficult to hit).

Even though the healthcare issue is a moving target right now, here is what I’ve done.

  1. Figured out generally what we are looking for. The plan is to try to get a similar Silver PPO plan. While I’d like to look into an HSA type, I’m not dedicated to it. We will have to see.
  2. The plan is to live on around $72,000 per year. That is pretty generous (our current base expenditures are around $30,000 year + taxes). The extra is to provide $12K to each of us for an allowance ($1,000/month) for our expenses, $12K for medical, and $6K (just in case). This gets us to $72K. We are thinking of some “geo-arbitrage” in the US to potentially reduce the spending.
  3. With the new US tax law, we can deduct a base $24K from our income as a deductible. This puts us at $48K per year in income – well within the confines of the current US healthcare “assistance” level, based on being under  400% of the US Poverty level (which for 2016 was around $64,080 for 2 people)
  4. Looked for various sites on line to assist. Some of those I found include:
  • Healthcare.gov
  • Ehealthinsurance.com
  • healthsherpa.com

I’ll share what I found in my next healthcare posting.

Some other FIRE blog posts that I have found on the topic that folks might want to look into include:

  1. Our Next Life
  2. Root of Good
  3. The Green Swan
  4. Michael Dinich: Hacking the ACA

Mr. 39 Months

Spending less doesn’t mean living less: How?

Guest Post: Spending less doesn’t mean living less: How?

Today’s post is contributed by Amy Nickson, a passionate writer on finance. Amy is a professional blogger whom has started her own blog and also works as a contributor for the Oak View Law Group. Please share your opinions by commenting below.

Spending less doesn’t mean living less: How?

If you are living beyond your means, then you should be wary about your poor financial future. Having a lot of financial obligations make you frustrated and restless.

Getting your finances in order is not easy, especially if you owe huge debts.

However, spending less money is one of the sure shot ways to make a positive impact on your finances. But, a lot of people often believe that spending less means depriving themselves. But it is not true. It is sad that people don’t know that living a fulfilling life while spending less is possible.

 Living on less: What does it mean?

 People often think that living on less means living in misery. They believe that once they adopt a frugal lifestyle, it will force them to live a poor life.

But in reality, living a frugal life means, you are able to distinguish between your wants and needs. Being a frugal person, you can live a more meaningful life. Of course, you can dream of a high-end watch, a car, and some latest gadgets, but all these come after paying the monthly bills on time, paying off debt, and deposit a definite amount into the savings account. Frugal persons are even able to make investments to grow their money over time. Frugal habits also make financial life peaceful and secured.

On the other hand, cheap skate persons deprive themselves or others just for the sake of saving some dollars here and there. They have only one goal in their life – saving money at any cost. They eat at a low-quality restaurant just because the price is low. They show their obsession over the price. They believe, the cheaper price, the greater benefit.

But being a frugal minded person, you are actually saving money by buying fewer but quality products.

Frugality helps you learn how to cut down expenses that are unnecessary. By doing so, you can save quite a significant amount that you can put into a savings account or can use purposefully.

Here are some ways you can start living a frugal lifestyle.

 1. Avoid frequent restaurant visits

One of the best ways to save money is to avoid eating out every day. It is true that eating out can be a lot of fun and sometimes it’s difficult to carry home cooked food to work every day. But, eating at a restaurant every time you feel hungry can cause a huge hole in your pocket. These expenses may not appear too big individually, but can be huge if taken altogether. You should try to eat at home and pack your lunch when going out to work. This will help you save a lot of money that you can put towards other expenses.

  1. Consider thrift stores

You must consider a thrift store for purchasing your necessities without spending a lot. By doing so, you don’t have to compromise on the quality of the products. The added benefit is, you are saving some bucks. Also, consider shopping in bulk for grocery and vegetables. You can easily store perishable items that you won’t use right away in the refrigerator and stock up the non-perishable items when they’re on sale.

  1. Keep one car in good state instead of keeping multiple bad quality cars

 Keeping multiple cars that are in a bad state can cost you dearly. You will need to pay thousands of bucks to repair the cars, if required. On the other hand, if you claim insurance for repairing the damaged car, the cost of insurance coverage can increase on policy renewal.

Therefore, it is wise to keep one car in good state, which can serve you better, and for which you don’t have to spend much.

  1. Make spending changes wisely

You may get tempted to purchase goods from the best manufacturers or goods that have a high brand value. By doing so, you are wasting money on something that you could have purchased for a much lower price. Thus, it is recommended to compare price before purchasing an item. You can also wait for a sale to buy the item on discount.

  1. Keep a piggy bank

Create a coin bank to dump the changes collected from the gas station or a grocery store. See how much you have collected over the course of a year. You can also save the money you received as gifts on birthdays, holidays and sometimes unexpected gains like the tax refund (you haven’t calculated), lottery, etc.

  1. Contribute money into a retirement account

You should set aside a certain amount (at least 20% of your monthly income) every month into a retirement fund. Try not to spend your hard-earned money in impulse buying. It’s possible for you to secure your retirement, but it takes some serious commitment and time.

  1. Consider free entertainment

Remember, your family needs your time, not your money. Instead of buying expensive gifts, or planning luxurious trips, entertain your family through public resources. Instead of buying costly story books, visit the library for story hours with your kids. You can rent movies to spend a good time with your spouse. Buying CDs or story books from a public library can help you save a lot of money. Go for fishing, gardening, and cycling, to spend happy hours with your family.

  1. Build an emergency fund

Put the extra money into a separate savings account so that you can easily build an emergency fund that can be utilized during an emergency. If you can make sure that you have built an emergency fund, you don’t have to take resort to loans and become liable to repay them in the future.

  1. Use cash for everything

Instead of using credit cards for buying things, you should use cash. By doing so, you can avoid buying things that you can’t afford with cash. Thus, you will be able to avoid huge credit card bills to pay off every month.

  1. Go for DIY revolution

The DIY revolution has helped a lot of people to live on less. It allows you to stop buying many items as you can make them on your own. Thus, you can save a considerable amount of money. Stop taking out a loan to meet the expenses. You can easily make your own gifts and decor items to save enough money in the long run.

Sometimes, it becomes difficult for you to resist the temptation of purchasing a particular thing. To avoid such a purchase, you should wait for a few days before buying that particular thing. After a few days, if you still desire to purchase the item, buy it. Many a times, chances are, you will lose the desire to buy the item. By following these simple frugal tricks, you will be able to live a more fulfilling life on less without depriving yourself. Living a meaningful life will help you to get a better financial prospect. So, think about it right now!

Update on Value Investing Portfolio

I went through my value investing choices in my “fun money” account, and reviewed them for performance. If you remember, this account is around 5% of my total invested assets (the majority of them are in straight index funds, allocated over stocks, bonds & REITs). With this account, I sought to experiment with investing in value stocks, based on the writings of Graham, Buffet and other value stock disciples. I wrote two articles on that back in 2017.

The general tenets of the analysis, I broke down into several categories of analysis for each stock:

  1. Market value greater than $2 Billion (Strength)
  2. Current ratio (current assets/current liabilities) of 2-1 or greater
  3. Positive earnings in each of the last 10 years
  4. Paid dividend at least 20 years, and raised over last 20 years
  5. Increased earnings per share by at least 1/3 over 10 years
  6. P/E of 15 or less
  7. Price-to-book of 2.5 or less
  8. Return on Equity of 15% or more, and growing

Not every stock can have all of these, but they should have the majority (and be trending in the right direction). Most stock analysis tools (like Morningstar) will let you put in these feature and determine those stocks that meet or are close to these values.

In the account, I had three stocks that, when I did the analysis, matched somewhat close to these values: Gilead Science (GILD), CSS Industries (CSS) and Tahoe Resources (TAHO).

In addition, Graham had a value equation (updated by recent value disciples) that helped to determine real value for the stocks. Using that, I was able to determine that all three of these were undervalued, based on current earnings, growth potential, etc. In it, you took the company’s earnings without dividends, multiplied it by 2*a company growth rate (I chose 6%) plus 8.5%, and then multiplied that times 4.4 divided by the corporate bond yield.

When looking at my three value stocks, I had the following results:

  • GILD: 6 out of 8 in the categories. Est value of $101.02/share vs current price of $75.42 (+@$25.60)
  • CSS: 6 out of 8 in the categories. Est value of $22.10/share vs share price of $27.86 (-$5.76)
  • TAHO: 3 out of 8 categories (they fell off a lot this year). Est value of $4.81 vs current price of $4.49 (+$0.32)

Based on this, I chose to sell my CSS and TAHO at the beginning of the year. I also chose to sell the REITs I had in the account (I was originally setting it up like my dividend paying account, and only in 2017 did I chose to do value investing in it). This would give me a significant amount of money that I planned to put into three value stock plays.

I did the analysis of the eight categories and came up with 2 other stocks that interested me:

  • SBS (Companhia de Saneamento Basico do Estado de Sao Paulo SABESP): 5 out of 8 in the categories. Est value of $19.69/share vs. current price of $10.43 (89% upside)
  • BBGI (Beasley Broadcast Group Inc.): 5 out of 8 in the categories. Est. value of $29.01/share vs. price of $12.80 (127% upside)
  • I also chose to double my investment in GILD, as it still had significant upside.

I was struck by the lack of stocks that met many of the categories, due to price. It appears the stock run-up has cut into the potential for getting good value stocks.

So evenly split, I have about $12K in each of these value stocks. I’ll let folks now how they do throughout the year.

 

Mr. 39 Months