Family

This week, I’ve had both of my brothers come by to visit us for the week. My younger brother is in town for business (his company does environmental testing, with software and hardware). He’s doing some software upgrades for one of his customers. He tried to get them to do it remotely, and offered to send them some pre-loaded hardware, but they wanted him to “do it live” so he’s up here.

My older brother, when he found out, decided to come down as well. His work allows him to travel on his own, and I think he just wanted to get out. His son is also a resident doctor, working just across the river, and this would give him the chance to see him. So my house turned into a hotel for the week. We were able to set it up so they each got their own room. Nothing worse than having to share a bed with your 50+ year old brother!

Its great having them here, although we get on each other a lot (politics!) We know and love each other, and while busting on each other constantly (as brother’s do) we know we would do anything for each other, including giving our last dime to help the other out.

Often folks in life lose sight of the family part of their social life, especially as they are starting out in life. They go to school, move away for a job, start their own families, etc. Its only later in life, as friends move away, as contacts fade, as job satisfaction ebbs, that we circle back to the ones that were always there, and always will be there for you. That is why, whenever asked, I urge others to make up with family members – because in the end, they are the ones who will always have your back.

Stay healthy!

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Mr. 39 Months

Sometimes the simplest tools are the best

       

The world of FIRE has developed a wide array of analysis tools and software methods to optimize your finances, your schedules, your travel, and your lives. That is why reading the blogs is so fascinating, because there always seems to be something new to learn, to try out, to experiment with. It can be dizzying at times, the pace of change and new technology.

However, there is an old bit of wisdom that states “sometimes the simplest tools are the best.” I’ve heard a lot of financial experts say that picking the best stocks/mutual funds/bonds is secondary – the key is to start investing, as early as possible, and to continue with it. For budgeting purposes, many folks do fine without budgeting by just “paying themselves first” and then surviving on the rest. To avoid “lifestyle creep” a simple method is to set your lifestyle, and then every time you get a pay raise, you just take the lion’s share of it and automatically deduct it from your account and invest it.

All of these are very simple methods to achieve financial independence, and if you perform them, you are 90% of the way towards achieving your goals. Do them early in your life, and you can achieve FI early.

In the photo above, I was working on boxes for TKD woodworking. In order to reinforce the corners, I needed to cut 45-degree grooves in the box corners and glue in “splines” of wood. By making these splines of a contrasting wood (in this case Walnut) it enhances the look of the box. The simple “jig” used to do this on the tablesaw is literally four pieces of wood, glued and screwed together, running across the tablesaw. Simple tool, but very effective!

Look at the simple things first in your FI work, and you will be going a long way to getting to your goals!

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Mr. 39 Months

Are you suffering from “FIRE Exhaustion?”

I was recently listening to the May 25th edition of the Stacking Benjamins Podcast, and they had on as their guest the host of the Marriage, Kids & Money Podcast, Andy Hill. For those unfamiliar, Andy also does a podcast where he “explores personal finance topics to strengthen your family tree and live financially free.” I’ve listened to a few, and they are fine podcasts, as is the Stacking Benjamins show. Please do not take the comments below as any criticism of any of the individuals involved.

As the interview progressed, it appeared that Andy filled in many of the perceptions a lot of folks (including Mrs. 39 Months) have of the FIRE movement. Both Andy and his wife had high-paying jobs almost from the beginning, and took the opportunity to maximize their savings. While Andy noted that they did spend money to live their life (moved to larger home, etc.) they also saved a massive amount of money. Even when his wife left her job to raise the kids, they had enough with his six-figure salary to continue to fund their lifestyle and sock away cash.

After reviewing the situation (Andy’s wife wasn’t completely on board with FIRE concepts) they realized they could take their savings and the extra money they made, and pay off their mortgage quickly vs. using that to move to a larger house. Fast forward less than four years, and they were mortgage free! Congratulations to them, and its great that they can share that story to the world.

The problem is that the vast majority of folks will never make six figures, or even have a combined salary of six figures. Because of that, it is almost impossible for them to see the lessons provided here as applying to them (even though a lot of people could benefit from the frugality and savings lessons). Because a lot of FIRE folks are like Andy and his family, it seems like that is what the FIRE story is all about – take your massive income, be frugal, and get independent in your early years.

It seems to me that a lot of the blog posts I read in the community are similar to this, and I’m starting to suffer from “FIRE blog exhaustion.” A lot of the same stories, told by similar people. I long to read more blog postings of folks in the lower middle-class, working and suffering as they slowly move towards FI. I think a lot more people would commiserate with the community if they could read stories like that. It would provide them with lessons they could see themselves learning from.

I know I’m not one to talk. As an engineer in his 50s, I’m earning a very good salary, and since my mid-30s, we have had more than enough that we didn’t have to struggle and could put away money in greater amounts every year. Still, I’ll be on the lookout in the months ahead, and hope to update my blog roll with some of this.

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Mr. 39 Months

Asset Allocation – an old word that was in heavy use until the dot.com boom

Back when I was a young investor in the late 80s and early 90s, one of the big topics of discussion was “asset allocation.” As most of you know, this was how you broke down your investments in a variety of buckets (stocks, bonds, precious metals, real estate, etc.) in order to gain the benefits of each and to offset some of the drawbacks.

When you were investing back then, this was a primary part of the discussion, and even folks starting out in their 20s were encouraged to invest in a significant percentage of bonds. Of course, that was when bonds were paying close to double-digits in dividends/interest!

Something odd happened in the late 90s with the dot.com boom – everyone stopped talking about asset allocation, and just started pursuing a 100% growth stock strategy. Due to that, and many other causes, a bubble was formed as everyone bid it up, and then it finally popped in 2000. Many of the growth/IT companies lost 80%-90% of their value, or when out of business completely.

Then 2006-2008, the real estate market was the place to be, and folks ended up going “all in” for houses, condominiums, apartments, and REITS. The prices were bid up again, and then – pfft! Another great crash, this one close to 50% of the stock value being killed – and many folks underwater on their mortgages for a decade.

Now we have hit another “crash” where people using Index funds and Vanguards “buy the whole market” index have priced the market up (over 24 P/E ratio on the S&P 500 before the crash vs. a historical average around 15). While the market is showing signs of recovery (just look at yesterday’s jump), it still is down significantly and will take some time to work its way back, especially if the economy sputters coming out of the Chinese Flu.

I was looking through my investments and allocations, and realized that, if I had been 100% in the S&P500, I would have dropped over $350K during 2020, but since I am at a 70/30 split with our investments, I only ended up down $250K as of the March 23. My allocation helped “ease out the rough parts.”

I wonder if everyone’s pursuit of the “fast buck” or the quick gain (dot.com stocks, real estate, etc.) is one of the major causes of these bubbles. Instead of following the “get rich slowly” kind of attitude, everyone seems to want to chase the brass ring. Yet as we have learned in the FIRE community, just reaching FI does not make you happy – and you need to plan what you are going to do once you reach FI, or you will end up nuts (or going back to work).

It would be nice if that word got out to more people in our society – do not rush it, but enjoy the ride as you go. Plan, but do not try to short-circuit the process. Maybe then, we would have growth without as many mad crashes.

Mr. 39 Months

So how have your FIRE calculations been affected by the recent “Unpleasantness?”

As I write this, the American S&P500 Stock index is down 31.8% from its high on Feb 14, 2020. Trillions of dollars have been wiped out in the span of five weeks, primarily due to the uncertainty of the Chinese Corona Virus. Many folks, myself included, expected some sort of a market correction this year (the P/E ratio of 24+ vs. a historical average of 15 almost guaranteed it). Still, this as been a staggering loss for many, including myself.

My paper losses have been something around $250,000 from the beginning of the year (it would have been $350K if my allocation was 100% stocks). My plans to achieve FI on July 1st of this year are pretty much trashed (even without the recalculation that our financial advisor forced upon me). So how is my morale?

Actually not bad. I think this is due to my age – “with age comes wisdom.” In terms of the Chinese Corona Virus, my generation has been hearing about the end of the world so many times, that this sort of things bounces off. We will get through this like so many other things. In terms of market dropping, I’ve been through 1987, 2000, 2008 and now this. The market will recover, and the younger folks have even more time that we do. It does look like my retirement timeline will need to be reset, but even that doesn’t have me too frustrated.

Like many folks, I’ve been sequestered from work for this past week, working from home. While the workload has been heavy, I’ve been able to get it done. However, I find that I miss the comradery of my work peers, and it has made me realize that I can’t just retire and sit on the porch (most FIRE people can’t either). So when I retire, I am going to have to make sure I have a lot to keep me busy (side hustles, charity work, etc.) In the meantime, I think I will be OK with working a while longer in order to build myself back up to my FI number.

How are you doing in terms of your drive towards FI? How has this drop affecting your plans, if you are already retired or moving towards it? Are you handling this downturn well? What moves have you chosen to make (if any) in your investment strategy or allocation? I hope that you aren’t “overreacting” or panicking like so many folks I hear about. The S&P 500 is trading at a P/E ratio of 17.34 – which is still a little high vs. its historical average. Bonds aren’t selling well, due to the Fed’s interest rate drop. What do you do?

I’d like to hear from other people on how they are reacting to this. One great thing about our community is how much we share, including the “nitty-gritty” details.

Good luck in the weeks ahead!

Mr. 39 Months.

Now is the time of testing…..

Well, it has been an interesting couple of weeks in the market! My beginning of month post noted that I was down about 5.4% for the year on March 1st. Little did I know it was going to get a lot worse!

For the second time in 15 months, folks in the FIRE community (and everyone else) are dealing with a double-digit sell-off of the market. As of close-of-business Monday (Mar 9) the old FIRE standby, VTSAX (Vanguard’s index for the entire market) was down -19.3% from its previous high. The Price-Earnings ratio for the S& 500 in mid-February was 24.24. By Monday, March 9, it was 20.67. Note the historical P/E ratio is around 15, so we still have a long-way to go until the stocks are priced where they are historically.

So what to do? This is why I call this “the time of testing.” So many people in the US and the FIRE community have gotten use to the markets consistently going up, with a few “hiccups,” but nothing substantial. Now two large events within 15 months may have you questioning if it is not time to play it safe, buy some gold, or shift resources to bonds/savings. It would be the “safe play.”

Do not fall for it. All the financial advisors I have talked with, in 2000, 2008 and Dec 2018 say the same relative thing. Have your planned allocation and investment plan, based on your risk tolerance – and stick to it. Continue to invest when the market jumps up, or when the market drops like a stone. In the end, you will be rewarded.

I’ve often heard the story that, while the stock market returns around 10% a year, on average, the typical investor only gets half that. This is because when the market drops; they jump out – solidifying their losses. They then wait to get back in, and miss many positive gains before they finally jump back in. It is for that reason that most successful investors take the “buy and hold” strategy of investing. Warren Buffet is known for saying that the optimum holding period for him is “forever.”

So we are all being tested right now, especially those who are close to retirement, or who have just retired (sequence of return risk?). Will you pass the test?

Wealthy Accountant’s comments on the current situation

Mr. 39 Months

A Life of Continual Learning

One of the financial podcasts I listen to, Stacking Benjamins, had an interesting topic on their Friday show. A financial article/letter was written in which the person took the task the concept of getting to FIRE by cutting expenses alone. Their article went on to discuss the income of the bottom two quintiles of income in the US ($11K and $31K average income) – how can someone cut expenses and save 30%+ if their income is so low, they are barely getting by (or is many cases, not getting by at all). You just can’t cut enough to get to FIRE!

The show’s guests and host generally agreed, and emphasized that they had been pushing this idea before. Only someone making significant amounts of salary can afford to spend $5 on a latte or purchase avocado toast. Their belief was that one could only cut expenses so much, and the key to further improving your financial life is to increase your earnings. As you increase your earnings, you try very hard not to correspondingly increase your expenses. Keep your expenses in line with what you spent before, and save the increases.

Some methods for this include:

  • Put 1% of your income into your 401K when you first get hired, and then every pay raise, put at least an additional 1% of your pay into your 401K. By the time you are 30, you’ll be putting 10%+ away, and will hardly miss it.
  • Setting aside automatic withdrawals to your emergency fund, and once that is fully funded, just shift that money to automatically go into an investment fund (or Roth IRA, etc.)
  • If you get any sort of bonus, put at least half of it away into investments/savings

Yet, how do you go about increasing your income up from the annual pay raises (typically around 3%)? The key is that you have to be able to provide more value than your current work – either to your existing employer, or to a new employer. The other way is to expand your value, on your own (entrepreneur work with a side-hustle). The idea is that you should look to continually improve yourself so that you can make additional money. To improve yourself, you must  dedicate yourself to continually learning new skills and improved knowledge.

New skills/knowledge expands your ability and usefulness. You can now do things beyond your current job function, you can teach others these new skills, and you have increased the flexibility of your boss (or your own situation). This makes it less likely you will be the one chosen to be let go in case of a downturn (you can do multiple jobs) and enhances the ways you can make money in your entrepreneurial endeavors.

So dedicate yourself to constantly learning new things. With the internet, YouTube, articles, books, etc. there is a wide range of ways to learn and apply new skills. I personally am working on a side hustle (TKD Woodworking) not only to make additional money, but to learn new skills (not just woodworking, but business, marketing, and website design skills). You should always be pushing your self to grow – otherwise you may find yourself spending too much time sitting around in front of the TV or online gaming. You have so much potential, that it’s a shame to waste it.

So what are you learning about lately?

Mr. 39 Months

Casting “Shade” on the FIRE Movement

                    

Is it just me, or does it seem like the FIRE movement has been “taking fire” from snipers a lot lately? In listening to the Stacking Benjamin’s podcast this morning on the way to work, they talked about a tweet-storm that was created when Tracey Alloway tweetedOne thing I’ve often wondered- does the financial independence/retire early movement (#FIREmovement) survive the eventual end of the current bull market? The idea of pouring all your money into $VTSAX and living off it for the rest of your life feels like such a bull market thing

Jason Zweig of the Wall Street Journal chiming in with immediately followed this “No, because the fintech companies paying thousands of dollars a month in poorly disclosed affiliate marketing fees to all those “independent” FIRE bloggers will run out of VC cash in a bear market.”

Ouch! The comments and tweets from there came fast and furious, with folks defending and attacking the FIRE movement. Apparently, the tweets succeeded in agitating many folks (maybe the tweet author’s intent) and got the conversation moving again.

It just seems to me that the FIRE movement has been taking many hits recently, partially due, IMO, to the release of the movie “Playing with FIRE.” The ideas of financial independence are starting to pop up, and the result is that it is being both castigated and explored in some depth.

The general consensus on the Stacking Benjamin’s show was that the tweets didn’t really represent the FIRE movement accurately, but also noted that many folks in the movement hadn’t really dealt with a serious market correction (2008-2009) where 50% of their investments drop. The panel noted that this will affect some FIRE people (the ones who didn’t really embraced the concepts), but the ones who are actually following the ideas will probably continue to push on and readjust their end dates while continuing to save towards their goal.

I think that many of the anti-FIRE folks use a “straw-man” argument where they place the FIRE people as checking out of society, sitting on a beach, and sipping mixed drinks. They are going to just sit there for 50-60 years and not do anything else. I do not know about you, but this does not seem to match what I have seen from people in the FIRE world. I see folks that are “type A” and always busy, so once they hit FI, they just keep going. They work in less lucrative but more enjoyable fields, either volunteer their time, or find other activities to keep them busy. My bet is after a couple of years, even those who are taking a break will re-enter the market. So I do not see as much of an issue as the “anti-FIRE” folks.

I guess we will see when we hit our next market downturn. I am betting on 2021 for a dip, but nothing like the 50% drop in 2008-2009. However, my plan would be to just “stick with the plan” in that case.

I hope your FIRE plans include the potential for a market correction, and that they will still work out for you.

Mr. 39 Months