33 | Single | Rent | When to take the foot off the pedal?

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Makaveli
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33 | Single | Rent | When to take the foot off the pedal?

Post by Makaveli »

High level overview:
  • Zero debt
  • ~30x current expenses
  • ~20x arbitrary retirement expenses (more to keep my mind in that savings mode)
  • 50% taxable 50% tax-deferred
  • FireCalc returning 95-100% success rate on a variety of runs
  • I am a partner with ownership at my current company, excluded from forecasts, which has a reasonable likelihood to leap frog portfolio to 100x expenses
  • Accept and partake in all events/activities/experiences, so it's not really about "spending more"
  • Current asset allocation - 85:15 equity to fixed income
I am frozen over the following trifecta "ability, willingness, and need to take risk". I stuck my head in the sand for 10 years and have been absolutely robotic about my investment plan. Now I am wondering if there is a need to maintain the 85:15. I feel like I should de-risk my portfolio since the real risk/upside is tied to the company. Yet, I also feel like I am at an age where I can weather most storms. So why not continue on with the plan that is working? Then lastly, if I de-risk, do I really want to dump a hefty portion of my equities into the fixed income side given current market conditions and the longevity to retirement?

What would you recommend dear BH'ers?
AlohaJoe
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by AlohaJoe »

I wouldn't make any changes. A lot of times doing nothing is the best option. It doesn't sound like you're really losing any sleep over your current asset allocation anyway. If you were thinking about leaving your job maybe I'd have a different answer but it doesn't sound like that's in your near future either.
Last edited by AlohaJoe on Thu May 06, 2021 9:22 pm, edited 1 time in total.
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FiveK
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by FiveK »

Those who have "won the game" (in other words, have accumulated more than enough to allow retirement) have simultaneously
- the ability to take more risk, and
- no need to take more risk.

It thus comes down to the willingness to take risk.
Last edited by FiveK on Thu May 06, 2021 9:41 pm, edited 1 time in total.
hi_there
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by hi_there »

What is your actual portfolio size? Are your expenses $25k or $250k? The closer to the lower value, the more possible it is to double or triple and throw the 30x or 20x multiples out of whack.
averagedude
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by averagedude »

Assuming you are 33 years old, you have 30+ years of human capital which is a bigger asset than your present net worth. No need to take the foot off the pedal and no need to care if the market goes up or goes down. Actually you would benefit more if the market goes down and you keep investing in it.
dachshunddad
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by dachshunddad »

You could do small adjustments and trim some risk. But you are pretty young to scale way back on the risk scale IMO.
Patzer
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by Patzer »

Around what age do you think you will retire? The further from now, the more risk you can take.
sailaway
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by sailaway »

You make no mention of your goals. It doesn't sound like you plan to retire any time soon, so why would you take the foot off the pedal?

We are more comfortable with 70/30, but that isn't so big a difference from what you have. We also include all of our cash in our portfolio and add all new monies to stocks until we rebalance twice a year, so we actually end up being a little more aggressive than many other bogleheads with the same nominal allocation.
finite_difference
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by finite_difference »

Great work and fortune for being in your position.

I would probably go to 80/20, 70/30, or 60/40 if it helped me sleep better at night. That’s plenty of equities and if your saving rate is high, and you don’t make any behavioral mistakes and lower life-reducing stress, that’s arguably even more important than sticking with 85/15.

If your job is stressful then look to make it less stressful, reduce your hours, get more exercise, etc.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
dboeger1
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by dboeger1 »

As others have said, it largely comes down to personal preference, as you have enough to live comfortably either way. Keep in mind, there are 2 ways to "take your foot off the pedal": 1) Increase spending; 2) Set more conservative asset allocation. You can do either or both if you'd like, or you can simply continue doing what you're doing if you want to maximize your potential to be very wealthy. I'm a bit confused by your 2nd-to-last bullet point, but I think what you mean is that you don't foresee yourself spending more as you're already living quite comfortably at your current spending level. Personally, I would shift to a relatively conservative asset allocation to account for the risk/reward skewness toward your company, like you said. However, it's not like you "need" to do that, and you may very well feel that the likelihood of such large returns are sufficiently low that you want to risk up your portfolio to achieve your goals independently of company results.

I think the thing you really want to hone in on is this sentence:
Makaveli wrote: Thu May 06, 2021 8:40 pm Yet, I also feel like I am at an age where I can weather most storms.
The thing is, do you want to? If you love working and don't see yourself retiring early or anything like that, and you have sufficient faith in your ability to keep a job, then it's fine to plan on working through any downturn. But if you instead place more value on the ability to just hang up your hat if this company doesn't work out and there's a crash in the next few years, then maybe it's time to focus on de-risking the portfolio a bit. I definitely fall into the latter camp, as the bulk of my life goals and aspirations have nothing to do with my day job and I would be as happy as a pig in a sty never having to work for someone else again. But that's just me. I got the impression you're much happier and confident in your work than I am, so that may not describe you at all.
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Makaveli
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by Makaveli »

dboeger1 wrote: Thu May 06, 2021 10:20 pm As others have said, it largely comes down to personal preference, as you have enough to live comfortably either way. Keep in mind, there are 2 ways to "take your foot off the pedal": 1) Increase spending; 2) Set more conservative asset allocation. You can do either or both if you'd like, or you can simply continue doing what you're doing if you want to maximize your potential to be very wealthy. I'm a bit confused by your 2nd-to-last bullet point, but I think what you mean is that you don't foresee yourself spending more as you're already living quite comfortably at your current spending level. Personally, I would shift to a relatively conservative asset allocation to account for the risk/reward skewness toward your company, like you said. However, it's not like you "need" to do that, and you may very well feel that the likelihood of such large returns are sufficiently low that you want to risk up your portfolio to achieve your goals independently of company results.

I think the thing you really want to hone in on is this sentence:
Makaveli wrote: Thu May 06, 2021 8:40 pm Yet, I also feel like I am at an age where I can weather most storms.
The thing is, do you want to? If you love working and don't see yourself retiring early or anything like that, and you have sufficient faith in your ability to keep a job, then it's fine to plan on working through any downturn. But if you instead place more value on the ability to just hang up your hat if this company doesn't work out and there's a crash in the next few years, then maybe it's time to focus on de-risking the portfolio a bit. I definitely fall into the latter camp, as the bulk of my life goals and aspirations have nothing to do with my day job and I would be as happy as a pig in a sty never having to work for someone else again. But that's just me. I got the impression you're much happier and confident in your work than I am, so that may not describe you at all.
A few replies touched on the lack of retirement insight. And goals for that matter. My broad goal has been to reach financial independence ASAP (saving between 50-80% of gross income). From there it's rather nebulous. Hence the confusion/searching phase. In the back of my mind I've always envisioned teaching highschool science/math and coaching the HS basketball team. But yes, you are right, I do enjoy my job and the folks I work with. However, it doesn't necessarily check the "fulfilling" box.

The more I ponder my original post I wonder if I am not as anxious about my portfolio/risk strategy but more a lack of goals and feeling like a sail boat in the middle of the ocean, without a breeze.
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retired@50
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by retired@50 »

Any desire for a family, or marriage?

If so, that would probably create a radical change in your spending patterns.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
FBanks
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by FBanks »

Wow, great job so far!

Keep in mind that you’re young. If you plan to start a family one day, your expenses will increase in the short term (daycare), and the long term (college), and all the fun stuff in between. Keep your foot on the pedal so that your net worth can handle that eventuality. If done correctly, your income-producing assets will increase such that you’re wealth building rate isn’t impacted when you have higher family expenses. In other words, don’t grow into your income now, and you won’t be stretched thin later if/when your expenses are higher.

The nice thing is, that still leaves lots of room for living and having fun today, so long as you don’t dramatically increase the big 3: housing, transportation, or taxes (by saving less in tax deferred space).
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Wiggums
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by Wiggums »

Continue on the same path. No changes needed at this time.
"I started with nothing and I still have most of it left."
Onlineid3089
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by Onlineid3089 »

Given what you have in the OP, I probably wouldn't change anything. Maybe I'd splurge on something nice, but you sound like you're not really feeling like you're missing out on anything.
Topic Author
Makaveli
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by Makaveli »

FBanks wrote: Fri May 07, 2021 8:52 am Wow, great job so far!

Keep in mind that you’re young. If you plan to start a family one day, your expenses will increase in the short term (daycare), and the long term (college), and all the fun stuff in between. Keep your foot on the pedal so that your net worth can handle that eventuality. If done correctly, your income-producing assets will increase such that you’re wealth building rate isn’t impacted when you have higher family expenses. In other words, don’t grow into your income now, and you won’t be stretched thin later if/when your expenses are higher.

The nice thing is, that still leaves lots of room for living and having fun today, so long as you don’t dramatically increase the big 3: housing, transportation, or taxes (by saving less in tax deferred space).
Thank you. Retired@50 touched on this as well. I would love to settle down and start a family at some point. Which I agree, that'll significantly change my spending habits. Of the "big 3" the house is the only true x-factor. I have my eye on a specific neighborhood/community and will likely buy there when that time arrives. To your point, this could be a slippery slope:
  • I opted to rent through my "starter home years" so figure I'll be purchasing my forever home when that family phase begins
  • I originally wanted to purchase in the 3-400 range but where I live those are all tear downs so our first home will likely be in that 5-600 range. I've even toured a $750k (lake front property) which is 3.25x current take home but fulfills my dream of owning a lake house.
  • Taxes at that range are simply outrageous
mr_brightside
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by mr_brightside »

you're doing great -- super job

i wouldn't change much. maybe keep a little more cash position if it makes you sleep better.

but keep up the great work

-------------------------------------------------------
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Meg77
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by Meg77 »

Makaveli wrote: Fri May 07, 2021 8:37 am The more I ponder my original post I wonder if I am not as anxious about my portfolio/risk strategy but more a lack of goals and feeling like a sail boat in the middle of the ocean, without a breeze.
Ditto. I'm 37, married no kids and we are around 50x basic expenses (including mortgage) but more like 22x actual expenses (including some really bloated travel/fun). We don't have kids and probably don't plan to, and my DH does not really "get" my feeling of lack of goals/meaning/purpose which has kind of been a constant in my life after giving up organized religion in my 20s. Also since checking all the boxes I really care about with regard to personal life and career/income.

Asset allocation wise, I'm 51% stock, 42% investment real estate (rentals and syndicated partnerships), 2% alternatives and 5% bonds/cash (moved most cash to short term bonds for a sliver of yield).

I want a less risky overall picture but replaced what might be fixed income (bonds) with fixed income (real estate) effectively. it's obviously not the same but comes with tax breaks and better "yield" each month.
"An investment in knowledge pays the best interest." - Benjamin Franklin
Topic Author
Makaveli
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by Makaveli »

Meg77 wrote: Fri May 07, 2021 2:56 pm
Makaveli wrote: Fri May 07, 2021 8:37 am The more I ponder my original post I wonder if I am not as anxious about my portfolio/risk strategy but more a lack of goals and feeling like a sail boat in the middle of the ocean, without a breeze.
Ditto. I'm 37, married no kids and we are around 50x basic expenses (including mortgage) but more like 22x actual expenses (including some really bloated travel/fun). We don't have kids and probably don't plan to, and my DH does not really "get" my feeling of lack of goals/meaning/purpose which has kind of been a constant in my life after giving up organized religion in my 20s. Also since checking all the boxes I really care about with regard to personal life and career/income.
It appears that your sail boat has been drifting longer than mine. Somewhat disheartened, yet relieved, to have company. So what is your plan of attack? Keep searching? Change of scenery? Change of mindset? I've recently began gratitude journaling as an attempt to find contentment/joy.

Also, since RE is such a large aspect of your portfolio - what is your take on the $750k house? Secondly, if looking to diversify into hard assets, such as RE, what do you recommend for someone starting out?
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Meg77
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by Meg77 »

Makaveli wrote: Sat May 08, 2021 7:52 am
Meg77 wrote: Fri May 07, 2021 2:56 pm
Makaveli wrote: Fri May 07, 2021 8:37 am The more I ponder my original post I wonder if I am not as anxious about my portfolio/risk strategy but more a lack of goals and feeling like a sail boat in the middle of the ocean, without a breeze.
Ditto. I'm 37, married no kids and we are around 50x basic expenses (including mortgage) but more like 22x actual expenses (including some really bloated travel/fun). We don't have kids and probably don't plan to, and my DH does not really "get" my feeling of lack of goals/meaning/purpose which has kind of been a constant in my life after giving up organized religion in my 20s. Also since checking all the boxes I really care about with regard to personal life and career/income.
It appears that your sail boat has been drifting longer than mine. Somewhat disheartened, yet relieved, to have company. So what is your plan of attack? Keep searching? Change of scenery? Change of mindset? I've recently began gratitude journaling as an attempt to find contentment/joy.

Also, since RE is such a large aspect of your portfolio - what is your take on the $750k house? Secondly, if looking to diversify into hard assets, such as RE, what do you recommend for someone starting out?
3.25x your current take home pay is very reasonable for a home, especially a "dream" home and especially given your financial stability otherwise. Nothing is forever anyway - if you can't afford it or don't want it anymore at some point, sell it.

Personally I am doing a lot more reading and introspection, but I've also sort of accepted that I may just be a "seeker" type who is always looking for Truth or Meaning or what have you. Maybe you find it or maybe one day you realize the searching was the point...I don't know lol. But some celebrity (Jim Carrey? I can't remember) once said something like money and success truly don't make you happy, but most people want to prove that for themselves. The problem with goal oriented/driven/ambitious people is that you run out of goals and then they just become arbitrary. And then you realize they always were arbitrary.

One quote I love is "If you have love, you don't need to have anything else. If you don't have love, it doesn't matter much what else you do have." James Barrie. Corny, but probably true at the end of the day.

More to the point, I am thinking of a change of career/scenery. Tbd...
"An investment in knowledge pays the best interest." - Benjamin Franklin
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Makaveli
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Re: 33 | Single | Rent | When to take the foot off the pedal?

Post by Makaveli »

Meg77 wrote: Mon May 10, 2021 4:20 pm
Makaveli wrote: Sat May 08, 2021 7:52 am
Meg77 wrote: Fri May 07, 2021 2:56 pm
Makaveli wrote: Fri May 07, 2021 8:37 am The more I ponder my original post I wonder if I am not as anxious about my portfolio/risk strategy but more a lack of goals and feeling like a sail boat in the middle of the ocean, without a breeze.
Ditto. I'm 37, married no kids and we are around 50x basic expenses (including mortgage) but more like 22x actual expenses (including some really bloated travel/fun). We don't have kids and probably don't plan to, and my DH does not really "get" my feeling of lack of goals/meaning/purpose which has kind of been a constant in my life after giving up organized religion in my 20s. Also since checking all the boxes I really care about with regard to personal life and career/income.
It appears that your sail boat has been drifting longer than mine. Somewhat disheartened, yet relieved, to have company. So what is your plan of attack? Keep searching? Change of scenery? Change of mindset? I've recently began gratitude journaling as an attempt to find contentment/joy.

Also, since RE is such a large aspect of your portfolio - what is your take on the $750k house? Secondly, if looking to diversify into hard assets, such as RE, what do you recommend for someone starting out?
3.25x your current take home pay is very reasonable for a home, especially a "dream" home and especially given your financial stability otherwise. Nothing is forever anyway - if you can't afford it or don't want it anymore at some point, sell it.

Personally I am doing a lot more reading and introspection, but I've also sort of accepted that I may just be a "seeker" type who is always looking for Truth or Meaning or what have you. Maybe you find it or maybe one day you realize the searching was the point...I don't know lol. But some celebrity (Jim Carrey? I can't remember) once said something like money and success truly don't make you happy, but most people want to prove that for themselves. The problem with goal oriented/driven/ambitious people is that you run out of goals and then they just become arbitrary. And then you realize they always were arbitrary.

One quote I love is "If you have love, you don't need to have anything else. If you don't have love, it doesn't matter much what else you do have." James Barrie. Corny, but probably true at the end of the day.

More to the point, I am thinking of a change of career/scenery. Tbd...
Thanks Meg, best wishes to you.
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