45 yr old, young family, 3.4MM Net worth

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Topic Author
Urbanspan
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Joined: Wed Sep 01, 2021 3:30 pm

45 yr old, young family, 3.4MM Net worth

Post by Urbanspan »

Hi all - I’m 45 years old, wife, two kids in daycare (3 and 10 months) living in a generally low cost of living area of the country.

I’ve been a boglehead in the past and have read all the books. As luck would have it, I began concentrating my portfolio in early 2020 and from the March low, have more than tripled my portfolio from the March 2020 lows to today (even after massive short term capital gains taxes).

3.4 MM net worth
1MM in my taxable brokerage.
120k is home equity on my 340k home.
The rest is in retirement accounts.

As of today, I’m frozen.
After such incredible gains over the past 18 months, I sold my growth stocks and and now have mostly cash, outside of about 800k in. 70/30 stock/treasury split. My greed and luck has turned into fear, even for a much more reasonable 70/30 stock/bonds portfolio.

I cannot time the market, of course. But I’m also in a place where my desires for an early retirement or at least the financial independence to raise my kids, have flexibility to do some cool things with them over the next couple of decades, are taking precedence over making more money. My motivation for work has substantially diminished as well - 1) because I have more money 2) my work is becoming more ans more untenable.

Combined, my wife and I earn roughly 250k (150k is my income).

Now that I have 1MM in my taxable, I’m looking at this pot of money as my ticket to early freedom. I’ve been tempted to yield chase via REITS, high div stocks like MO, CVX etc to stretch for 60-70k income. That said, I know it’s all about total return, and I understand the potential pitfalls and realize there’s no free lunch.

I’m not entirely sure what I’m seeking here, but what I know is the standard boglehead mix would still be suitable for my retirement accounts. Just not sure how to structure my 1MM taxable to create the income I may need if my job goes south (it will), and I choose to peel back on work for the next 15 years.

Could it possibly be prudent enough to take this 1MM and buy high quality, high dividend stocks (diversified) to create the income I want, knowing over 70% of my net worth would hold the boglehead-type allocation for when I retire?

Any thoughts are appreciated!
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CyclingDuo
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Re: 45 yr old, young family, 3.4MM Net worth

Post by CyclingDuo »

Urbanspan wrote: Sun Sep 19, 2021 9:26 am Hi all - I’m 45 years old, wife, two kids in daycare (3 and 10 months) living in a generally low cost of living area of the country.

I’ve been a boglehead in the past and have read all the books. As luck would have it, I began concentrating my portfolio in early 2020 and from the March low, have more than tripled my portfolio from the March 2020 lows to today (even after massive short term capital gains taxes).

3.4 MM net worth
1MM in my taxable brokerage.
120k is home equity on my 340k home.
The rest is in retirement accounts.

As of today, I’m frozen.
After such incredible gains over the past 18 months, I sold my growth stocks and and now have mostly cash, outside of about 800k in. 70/30 stock/treasury split. My greed and luck has turned into fear, even for a much more reasonable 70/30 stock/bonds portfolio.

I cannot time the market, of course. But I’m also in a place where my desires for an early retirement or at least the financial independence to raise my kids, have flexibility to do some cool things with them over the next couple of decades, are taking precedence over making more money. My motivation for work has substantially diminished as well - 1) because I have more money 2) my work is becoming more ans more untenable.

Combined, my wife and I earn roughly 250k (150k is my income).

Now that I have 1MM in my taxable, I’m looking at this pot of money as my ticket to early freedom. I’ve been tempted to yield chase via REITS, high div stocks like MO, CVX etc to stretch for 60-70k income. That said, I know it’s all about total return, and I understand the potential pitfalls and realize there’s no free lunch.

I’m not entirely sure what I’m seeking here, but what I know is the standard boglehead mix would still be suitable for my retirement accounts. Just not sure how to structure my 1MM taxable to create the income I may need if my job goes south (it will), and I choose to peel back on work for the next 15 years.

Could it possibly be prudent enough to take this 1MM and buy high quality, high dividend stocks (diversified) to create the income I want, knowing over 70% of my net worth would hold the boglehead-type allocation for when I retire?

Any thoughts are appreciated!
You have options, but there are several different items you are mentioning in your post: market timing, early retirement, dividend income investing, fear, motivation, etc... that it is hard to address them in terms of matter of importance.

The taxable account is probably capable of throwing off $30-$35K of income, but is that enough for you to live on if you and your spouse both pulled the plug on working? I don't think any of us would suggest seeking a yield trap portfolio of shooting for an overall higher dividend yield, as you want that account to focus on total return investing. Sure, you could bump it up to a $40K to maybe a $50K or a bit more income producing portfolio by choosing what appears to be higher dividend yields, but that would be excluding a lot of investments that over time would contribute to a more solid total return taxable portfolio.

We (as in my household) would probably hang on to that nice income that is flowing in from your human capital via the dual income to continue funding your lifestyle and socking away even more for a potential early retirement (say 5-10 years from now). Enjoy your kids and raising them - all the while adding more and more each year to investments on automatic pilot. The market will do what it is going to do over time, but the amount you contribute to your investments is a more important metric than how it is invested and all the chasing around due to fear and some hope that you can outfox the market with your timing by jumping in and out and in and out and in and out.

Jonathan Clements has written some nice articles on this. Here is one that I liked entitled Show Me the Money, and an excellent quote from the article...

https://humbledollar.com/2019/09/show-me-the-money/

"That brings us to a perverse conclusion—one I’m almost reluctant to mention: Because savings are so crucial, and because they’re the key driver of your ultimate nest egg, how you invest is somewhat less important."


Your human capital that can produce the household income of $250K living in a low cost of living area would be difficult to walk away from at your age.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
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AnnetteLouisan
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Re: 45 yr old, young family, 3.4MM Net worth

Post by AnnetteLouisan »

I agree. I would say if you believe your job wont last much longer, focus on getting a new one and you may breathe a lot easier. Age 45 making 150 with small kids seems a bad time to leave the workforce unless you really have to or have a big backup plan. Congrats on having 3.4 mil so early though!
Topic Author
Urbanspan
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Re: 45 yr old, young family, 3.4MM Net worth

Post by Urbanspan »

Thanks so much for your replies. Makes total sense. I honestly can’t see not working at 45 (and my wife generally has a stable career she enjoys with no plans to stop anytime soon). I’ve been working in sales for 20 years so snagging another decent sales job with flexibility would be entirely doable.

More than anything, I probably just need to dial back the risk (3/4 of my portfolio was concentrated in 6-8 positions and the stress level to capture those gains was significant- plenty of 30% drawdowns along the way, even while the S&P was flat/rising).

Loads of great advice on this forum so I’ll scour some additional posts for ideas. The greed/fear I feel is pretty significant ans I need to figure out a more balanced approach. You’re replies are helpful - thanks a ton!
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Wiggums
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Re: 45 yr old, young family, 3.4MM Net worth

Post by Wiggums »

I retired at 56. It’s understandable that after a big gain you feel like you should take some money off the table. If you’re reducing your asset allocation, I think that makes perfect sense to sell. Taking profits to sit in cash is not a good strategy, because it makes it harder to get back into the market. In addition, you still have a long career and subsequent retirement years ahead of you.
"I started with nothing and I still have most of it left."
Carousel
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Re: 45 yr old, young family, 3.4MM Net worth

Post by Carousel »

Urbanspan wrote: Sun Sep 19, 2021 9:26 am I’ve been a boglehead in the past and have read all the books. As luck would have it, I began concentrating my portfolio in early 2020 and from the March low, have more than tripled my portfolio from the March 2020 lows to today (even after massive short term capital gains taxes).

...

Now that I have 1MM in my taxable, I’m looking at this pot of money as my ticket to early freedom. I’ve been tempted to yield chase via REITS, high div stocks like MO, CVX etc to stretch for 60-70k income. That said, I know it’s all about total return, and I understand the potential pitfalls and realize there’s no free lunch.
I personally would invest like a BH, then have one person retire/both cut back hrs drastically, still bring in more than 70K/yr (with work plus dividends in taxable) and spend tons of time with your young children--but I'm unusual, so you should probably do what the other posters say instead.

Care to share how you got to 3x? Sounds very exciting! (Congrats.)
Topic Author
Urbanspan
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Re: 45 yr old, young family, 3.4MM Net worth

Post by Urbanspan »

Loaded on CRWD, DDOG, NET, UPST and the like last year. Had a massive position in CRWD, specifically, that did really well. Risky business.
er999
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Re: 45 yr old, young family, 3.4MM Net worth

Post by er999 »

Why don’t you use vanguard’s advisory service? If you are done with individual stocks and want reasonably safe investing guidance it would probably be worth hiring them. Better then going to mostly cash. The 0.3% fee is probably worth it to you.
Topic Author
Urbanspan
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Re: 45 yr old, young family, 3.4MM Net worth

Post by Urbanspan »

Wiggums wrote: Sun Sep 19, 2021 12:34 pm I retired at 56. It’s understandable that after a big gain you feel like you should take some money off the table. If you’re reducing your asset allocation, I think that makes perfect sense to sell. Taking profits to sit in cash is not a good strategy, because it makes it harder to get back into the market. In addition, you still have a long career and subsequent retirement years ahead of you.
I think that’s my issue - I feel like I lucked out, and the market is also at pretty frothy levels (or not). Just migrating to a BH allocation seems like the most prudent thing to do, but it’s easy to just feel like I want to wait for a drawdown, which may or may not come soon. So you’re right, it has been harder to want to get back into the market.
Zeno
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Re: 45 yr old, young family, 3.4MM Net worth

Post by Zeno »

Urbanspan wrote: Sun Sep 19, 2021 2:26 pm
Wiggums wrote: Sun Sep 19, 2021 12:34 pm I retired at 56. It’s understandable that after a big gain you feel like you should take some money off the table. If you’re reducing your asset allocation, I think that makes perfect sense to sell. Taking profits to sit in cash is not a good strategy, because it makes it harder to get back into the market. In addition, you still have a long career and subsequent retirement years ahead of you.
I think that’s my issue - I feel like I lucked out, and the market is also at pretty frothy levels (or not). Just migrating to a BH allocation seems like the most prudent thing to do, but it’s easy to just feel like I want to wait for a drawdown, which may or may not come soon. So you’re right, it has been harder to want to get back into the market.
You are kind to post your story, OP; thank you for sharing it.

This is my understanding of your investing history (and if I'm mistaken, it is only because I have misunderstood).

1. You were a Boglehead until you became a market timer.

2. You had success as a market timer over a brief period of time and in a small number of stocks. You did in fact "luck out."

3. You then cashed out of your market-timed-based equity gains.

4. Now you are sitting on cash. A lot of cash.

5. You perceive the market to be "frothy" so don't want to reinvest. Instead, you are waiting for a drop, or maybe a non-trivial dip. Either could occur tomorrow, or maybe not until, say, May 25, 2023. Or maybe sometime in the year 2054. Either could happen this Thursday though, or maybe the coming Friday. The complication is that dips and drops may only be judged retrospectively. So was the drop this coming Thursday the beginning of the falling knife, or instead was it merely letting off some steam for a major move to the upside this Friday?

6. Each day your cash is on the sidelines, you are losing to both inflation and market gains. Your prior gains are dissipating daily. Or maybe instead the crash will occur tomorrow and you will be deemed the next Nostradamus -- at least this time anyway.

7. It is impossible to predict the future. (Apologies to Nostradamus)

8. You understand all of the above.

9. All of which leads to a healthy reminder of the following principle: "What matters is time in the market, not timing the market." A corollary of this is: "A market timer has to be right not once, but twice -- the first time on the exit, and the second time on the re-entry." You understand this, too.
delamer
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Re: 45 yr old, young family, 3.4MM Net worth

Post by delamer »

One of several problems in investing to generate large dividends is that you get the dividends and have to pay taxes on them whether you need to spend them to cover your expenses or not.

You’ve made no mention of your current expenses, and so we don’t know how much income you’d need to replace of you stopped working (or cut back).
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Keenobserver
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Re: 45 yr old, young family, 3.4MM Net worth

Post by Keenobserver »

I would grt back in.th3 market but as a booglehead...DCA if that works for you. Maybe diversify into real estate if you have an interest? I feel with inflation, sitting on cash is not the best thing. I recently took some profits and bought an investment property ans I feel better. As for retiring, I would not retire but cut the hrs and look for a more flexible gig. At 45, fully retiring is not as ideal as it might sound. I plan to cut down my hrs in 2 years time for same reasons. I cant see myself fully retired in my 40s though.
Jimsad
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Re: 45 yr old, young family, 3.4MM Net worth

Post by Jimsad »

You were lucky . Congratulations!
But you cannot afford not to invest and sit in cash when you are only 45 y with young kids .
It stings me when I lose 50k plus in a week when the market dips but I try to hang in and maintain my asset allocation .
May be if you were 65y with no other debt Or responsibilities , you may be able to afford to sit in cash .
Topic Author
Urbanspan
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Re: 45 yr old, young family, 3.4MM Net worth

Post by Urbanspan »

WyomingFIRE wrote: Sun Sep 19, 2021 3:41 pm
Urbanspan wrote: Sun Sep 19, 2021 2:26 pm
Wiggums wrote: Sun Sep 19, 2021 12:34 pm I retired at 56. It’s understandable that after a big gain you feel like you should take some money off the table. If you’re reducing your asset allocation, I think that makes perfect sense to sell. Taking profits to sit in cash is not a good strategy, because it makes it harder to get back into the market. In addition, you still have a long career and subsequent retirement years ahead of you.
I think that’s my issue - I feel like I lucked out, and the market is also at pretty frothy levels (or not). Just migrating to a BH allocation seems like the most prudent thing to do, but it’s easy to just feel like I want to wait for a drawdown, which may or may not come soon. So you’re right, it has been harder to want to get back into the market.
You are kind to post your story, OP; thank you for sharing it.

This is my understanding of your investing history (and if I'm mistaken, it is only because I have misunderstood).

1. You were a Boglehead until you became a market timer.

2. You had success as a market timer over a brief period of time and in a small number of stocks. You did in fact "luck out."

3. You then cashed out of your market-timed-based equity gains.

4. Now you are sitting on cash. A lot of cash.

5. You perceive the market to be "frothy" so don't want to reinvest. Instead, you are waiting for a drop, or maybe a non-trivial dip. Either could occur tomorrow, or maybe not until, say, May 25, 2023. Or maybe sometime in the year 2054. Either could happen this Thursday though, or maybe the coming Friday. The complication is that dips and drops may only be judged retrospectively. So was the drop this coming Thursday the beginning of the falling knife, or instead was it merely letting off some steam for a major move to the upside this Friday?

6. Each day your cash is on the sidelines, you are losing to both inflation and market gains. Your prior gains are dissipating daily. Or maybe instead the crash will occur tomorrow and you will be deemed the next Nostradamus -- at least this time anyway.

7. It is impossible to predict the future. (Apologies to Nostradamus)

8. You understand all of the above.

9. All of which leads to a healthy reminder of the following principle: "What matters is time in the market, not timing the market." A corollary of this is: "A market timer has to be right not once, but twice -- the first time on the exit, and the second time on the re-entry." You understand this, too.
Yep, you nailed it. My prior history of investing over the past decade+ trailed the market. My recent luck now has me ahead by roughly 7% per year since 2009. Lucky and also unlikely to continue. Therein lies my answer, I suppose. Thanks a ton for post!
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Third Son
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Re: 45 yr old, young family, 3.4MM Net worth

Post by Third Son »

Today would be a good day to go all in.
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Re: 45 yr old, young family, 3.4MM Net worth

Post by Wanderingwheelz »

Today would be a great day to go all in.
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xraygoggles
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Re: 45 yr old, young family, 3.4MM Net worth

Post by xraygoggles »

I would definitely consider adding some to equities today - even if it continues to drop, you can keep adding more back in.
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dbr
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Re: 45 yr old, young family, 3.4MM Net worth

Post by dbr »

Urbanspan wrote: Sun Sep 19, 2021 9:26 am
That said, I know it’s all about total return, and I understand the potential pitfalls and realize there’s no free lunch.

First you say the above and then in the below what you say means you don't understand the concepts of return and asset allocation.

I’m not entirely sure what I’m seeking here, but what I know is the standard boglehead mix would still be suitable for my retirement accounts. Just not sure how to structure my 1MM taxable to create the income I may need if my job goes south (it will), and I choose to peel back on work for the next 15 years.

Could it possibly be prudent enough to take this 1MM and buy high quality, high dividend stocks (diversified) to create the income I want, knowing over 70% of my net worth would hold the boglehead-type allocation for when I retire?

Is the problem that you want to know how to retire at age 45 when assets in retirement accounts are not accessible until age 59 or taken under SEPP? The starting estimate for all of this would be taking about 3.5% safe withdrawal from your portfolio, plus eventually your Social Security. The back of the envelope on that is retiring on an income of about $120,000/year. Presumably the snag is that you don't have enough money in your taxable account to do that for 10-15 years. Is that where the issue really is? A safe withdrawal rate for ten years from about any asset allocation might be about 8% or $80k/year for you. An estimate like that comes from looking at the properties of investments in a total return rather than an income model.
Carousel
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Re: 45 yr old, young family, 3.4MM Net worth

Post by Carousel »

Urbanspan wrote: Sun Sep 19, 2021 2:18 pm Loaded on CRWD, DDOG, NET, UPST and the like last year. Had a massive position in CRWD, specifically, that did really well. Risky business.
Good for you! Fun to hear about this.
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Urbanspan
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Re: 45 yr old, young family, 3.4MM Net worth

Post by Urbanspan »

xraygoggles wrote: Mon Sep 20, 2021 1:43 pm I would definitely consider adding some to equities today - even if it continues to drop, you can keep adding more back in.
Yeah, interesting timing:). I’m finding it still tough to pull the trigger because hey, it could drop more. Of course, at the end of the day the market retraced 1/3 of the daily draw down and futures are up almost 1%. Another micro example of how difficult to time the market.
roguewarrior0
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Re: 45 yr old, young family, 3.4MM Net worth

Post by roguewarrior0 »

First of all congrats on the success of your investing. Also, the questions you ask are reasonable and normal. I am in a similar situation. I am 47 and just announced my retirement at the end of month. Like you, I had an extremely lucky run with some individual stocks. In my situation, I am accepting luck and now have given up timing the market and will just convert to full on Boglehead 3 fund portfolio.

Given our respective young ages and the fact you still plan on working. I would recommend you stick to 3 fund Boglehead across both your taxable and retirement accounts.

Taxable Accounts: 970k in Total Stock Index, 15k in Total International, 15k in Total Bond
Retirement: Fill out the rest of your Total Bonds (30% less the 15k) + Total International (14% less 15k) and the rest in Total Stock.

The reason for this:

1) Keeping Total Stock in Taxable gives you the most "growth" potential over the long term in your Taxable and will be more accessible if you decide to retire early.

2) Keeping a small % of all 3 Funds/ETF will make it easier to rebalance later (especially if do so with MF @ Vanguard).

3) Keeping Bonds and Int'l Funds in retirement is the most tax efficient.

Using Boglehead 3 fund @ 70/30, you will average ~1.9% dividends. At your portfolio size, that's roughly $60k/year.

Also with young ones, you should start looking at the 529 Funds. Cost of education is growing way faster than standard portfolio.

Good luck, you are on a good path.
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Urbanspan
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Re: 45 yr old, young family, 3.4MM Net worth

Post by Urbanspan »

roguewarrior0 wrote: Tue Sep 21, 2021 8:32 am First of all congrats on the success of your investing. Also, the questions you ask are reasonable and normal. I am in a similar situation. I am 47 and just announced my retirement at the end of month. Like you, I had an extremely lucky run with some individual stocks. In my situation, I am accepting luck and now have given up timing the market and will just convert to full on Boglehead 3 fund portfolio.

Given our respective young ages and the fact you still plan on working. I would recommend you stick to 3 fund Boglehead across both your taxable and retirement accounts.

Taxable Accounts: 970k in Total Stock Index, 15k in Total International, 15k in Total Bond
Retirement: Fill out the rest of your Total Bonds (30% less the 15k) + Total International (14% less 15k) and the rest in Total Stock.

The reason for this:

1) Keeping Total Stock in Taxable gives you the most "growth" potential over the long term in your Taxable and will be more accessible if you decide to retire early.

2) Keeping a small % of all 3 Funds/ETF will make it easier to rebalance later (especially if do so with MF @ Vanguard).

3) Keeping Bonds and Int'l Funds in retirement is the most tax efficient.

Using Boglehead 3 fund @ 70/30, you will average ~1.9% dividends. At your portfolio size, that's roughly $60k/year.

Also with young ones, you should start looking at the 529 Funds. Cost of education is growing way faster than standard portfolio.

Good luck, you are on a good path.
Sounds entirely reasonable - thanks so much for you reply. And congratulations on your early retirement!
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dziuniek
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Re: 45 yr old, young family, 3.4MM Net worth

Post by dziuniek »

Just slowly DCA into your allocation, even though lump sum works best.

You've "won the game", as they say. Relax and smell the roses.
Get rich or die tryin'
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