1 Year Bogleheadiversary - Before and After Picture

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swimirvine
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1 Year Bogleheadiversary - Before and After Picture

Post by swimirvine »

Today is my 1 year Bogleheadiversary. I wanted to post a “before and after picture” … of our portfolio and also tell a bit of a story about our journey over the previous year. In addition, I have to admit that I wanted to document this for my own selfish reasons. Hopefully Bogleheads.org will still be going strong in 20 years when our kids are ready to start investing and I can have them read this as well as any comments (hopefully positive). I’ll probably also re-read it myself decades from now.

Here’s how the story goes:

I’m a physician and finished my residency a few years ago. My wife is an elementary school teacher. During my residency I made less than my wife did as a teacher which is pretty standard. In early 2011 we had only my Roth IRA and my wife’s 403b both worth around $20k. My wife and I knew NOTHING about investing. I entered private practice and got a great job and obviously a large pay increase. I had met with a couple of financial advisors along the way and knew that when I started work and especially when I made partner, I would have to invest heavily to catch up with where I wanted to be. Unfortunately, I got off to a rocky start and from January 2011 through June of 2013 I was investing with a Financial Advisor that had me going down, what I now know to be, the wrong path. I was being charged 1% AUM + mutual fund ERs + transaction costs. He had sold me an Indexed Universal Life Policy and was trying to sell me a second one for my wife. My wife’s 403b is with Valic and we had signed up for something called Guided Portfolio Services (GPS) - sounds great right? They choose your investments for you and it adds 64 basis points in addition to the mutual fund ERs. They chose the most expensive funds that revenue shared with them and I’m guessing the Valic advisors would spend around 10 minutes per year, if that, working on our portfolio for those 64 basis points. Finally, I narrowly avoided getting involved in some sort of limited partnership with some other physicians. I was told it would be an “investment club” where with the guidance of some “professionals” and for the rock bottom cost of 2% plus 20% of the profits, we would use our combined knowledge to invest in primarily biomedical and healthcare related companies. Honestly, it was my inaction and not a conscious decision that saved me from that mistake.

The breaking point for me with my Financial Advisor was in the early part of 2013 when I asked him about setting up a college fund for my daughter who was around 2 1/2 years old and he discouraged me from starting a 529. His answer was to do taxable investing with him. I didn’t understand why especially after reading several articles about 529s and their advantages. I realized that he didn’t want me to do a 529 because those assets would not be under his management. Either that or he was extremely confident in his ability to beat the market by more than the tax deferred and tax deduction benefits of a 529. This irked me and I felt as if he didn’t have our best interests in mind.

At around the same time I found myself with a little bit of free time for the first time in my life since I didn’t have to study for some upcoming exam. I started listening to audio books on my way to work and reading books on my Kindle. I had never really had time to read many books other than for school and/or residency training. I decided to find a book about investing. I wanted to educate myself and make sure we were investing our money wisely. I didn’t want a gimmicky book about getting rich quick. I wanted something smart and simple. At the same time I started reading articles online about investing and found the Bogleheads website. I finally registered on bogleheads.org on May 28th, 2013. This journey, including Bogleheads.org and the books I’ve read, has really opened my eyes. The list of books is below in between the before and after posts.

Here is what our retirement finances looked like “before” and “after:”

Before:

Emergency funds: <2 months of expenses
Debt: Mortgage Fixed at 6.0% (relative <4.0% after tax deduction) Student Loans Fixed @ 2.8%
Tax Filing Status: Married Filing Jointly
Tax Rate: >35% Federal, ~5.00% State
State of Residence: MD
Age: 32-34 (2011-2013)
Desired Asset allocation: Whatever our financial advisor said was a good idea
Desired International allocation: no idea

Portfolio size – From ~$40k up to the low six figures
Annual additional contributions – approximately $70,000

“Before” retirement assets
(I don’t have the exact percentages from back in 2013 and before so I’ll just list the ticker symbols and expense ratios)

Life Insurance:
Index Universal Life Policy -$1,000,000 benefit – $12,000/year or $1000/month premium. This was sold to me by our financial advisor. I was told it would go up with the S&P 500 but wouldn’t go down when the market went down. In retirement we would be able to easily borrow $100,000 per year from ourselves tax free. My financial advisor wanted us to start a second IUL for my wife.

Her Teacher’s Pension
I didn’t even know she had a pension let alone what it entailed or what it would contribute to our retirement income.

Taxable

None

His 401k – managed by our financial advisor
PROSHARES ULTRA S&P 500 PROSHARES (SSO) (0.90)
SPDR SER TR S&P METALS & MNG ETF (XME) (0.35)
DIREXION DAILY SML CAP BULL 3X SHS (TNA) (1.01)
SPDR DOW JONES INDL AVERAGE ETF TR UNIT (DIA) (0.17)
ISHARES RUSSELL 2000 ETF (IWM) (0.24)
POWERSHARES QQQ TR UNIT SER 1 (QQQ) (0.20)
GENERAL MILLS INC (GIS)
MICROSOFT CORP (MSFT)
CUMMINS INC FORMERLY CUMMINS ENGINE INC (CMI)
HAIN CELESTIAL GROUP INC (HAIN)
APPLE INC (APPL)
AT&T INC COM (T)
GLAXOSMITHKLINE (GSK)
INTUITIVE SURGICAL INC COM NEW (ISRG)
FRANKLIN RES INC (BEN)
FIRST SOLAR INC COM (FSLR)
CASH (FDRXX)

His Roth IRA – managed by our financial advisor
GENERAL ELECTRIC (GE)
CASH (FDRXX)

Her 403b - (ERs + a 0.64% GPS fee [guided portfolio services]) – managed by Valic
AMERICAN BEACON LRG CAP VALUE (AAGPX)(0.93)
DREYFUS BOND MKT INDX INV (DBMIX) (0.40)
AMERICAN FUNDS EUROPAC R4 (REREX) (0.85)
COLUMBIA ACORN A (LACAX)(1.07)
ARTIXAN MID CAP VALUE (ARTQX)(1.20)

Her 457b
none

Her Roth IRA
none

New annual Contributions
$52,000 his 401k
$17,500 her 403b
$0 her 457b
$0 his Roth IRA
$0 her Roth IRA
$0 taxable

**********************************************************************************************************************************************************

Then I read and/or listened to the following books; some of them multiple times.

In this order:
The Smartest Investment Book You’ll Ever Read – Solin
The Smartest 401(k) Book You’ll Ever Read – Solin
The Little Book of Common Sense Investing – Bogle
***Broke up with our Financial Advisor here***
A Random Walk Down Wall Street – Malkiel
The Bogleheads’ Guide to Retirement Planning – Lairmore et al.
The Investor’s Manifesto – Bernstein
The Bogleheads’ Guide to Investing – Lairmore et al.
All About Asset Allocation – Ferri
Common Sense on Mutual Funds – Bogle
Why Smart People Make Big Money Mistakes and How to Correct Them – Belsky et al.
Your Money and Your Brain – Zweig
The Man in the Arena – Rostad
The Only Guide to a Winning Investment Strategy You’ll Ever Need – Swedroe
The Four Pillars of Investing – Bernstein
If You Can – Bernstein
The Power of Passive Investing - Ferri

I also completed the free online course offered by the Stanford Business School – The Finance of Retirement and Pensions. This really helped me get a better understanding of bonds and my wife’s pension.

Once I began to educate myself I knew what I had to do. The break-up process with our financial advisor was tough. First, I wanted to evaluate his performance to make sure I was making the right decision. I asked him for our returns for 2011, 2012 and the first 6 months of 2013. He was surprised. It was as if he wasn’t used to people asking him for their returns. “I’m going to have to calculate that, it may take a while.”

I decided to compare his performance to the Vanguard Target Retirement 2045 Fund (VTIVX) to make things easy and fair. He trailed VTIVX by about 2.5% per year for 2011 and 2012. He did even worse during the first 6 months of 2013 providing less than half the return of VTIVX.

Our financial advisor tried to convince me to stay with him but it became obvious to me that I was doing the right thing when I challenged him:
He started off with: “you’re not going to get those big returns we’ve talked about by doing passive index investing. You’ll never get any Alpha”
My response was: “you haven’t beaten the market for two and half years straight.”
To which he responded: “yes … well … we’re reducing your risk….”
“… so which is it? Big returns? or Risk Reduction? Because if you tell me you can generate big returns with a small amount of risk I think my head will explode.”
That was our last conversation.

Since this time I have written our IPS, taken control of all of our investments, fired our financial advisor, moved everything I could to Vanguard, flushed my IUL and signed up for term-life, started our 2 backdoor Roth IRAs, our taxable brokerage account and two 529s, reduced our needless spending, increased our monthly investing and we now have a total cumulative portfolio ER of approximately 0.16.

In addition to all of this, I convinced the partners in my private practice group to change the structure of our profit sharing 401k so I could have my account located at Vanguard.

*********************************************************************************************************************************************************
After: (I don’t include total portfolio percentages for the 403b and 457b because those are on autopilot, rebalancing themselves. I manage the other accounts at Vanguard.com and balance across accounts)

Emergency funds: 6 months of expenses
Debt: Mortgage Fixed at 3.75% (relative <2.5% after tax deduction) Student Loans Fixed @ 2.8% (paying these off as slowly as possible. I get no sense of euphoria from paying off low interest debt)
Tax Filing Status: Married Filing Jointly
Tax Rate: >35% Federal, ~5.0% State
State of Residence: MD
Age: 36
Desired Asset allocation: ~100 Equities (overweighting small cap value and emerging markets)
Desired International allocation: 25% (27% if you include international REIT)
Current Asset Allocation of the accounts I manage at Vanguard (not the 403b or 457b)
• Total Stock Market – 40%
• Small Cap Value – 25%
• Total International - 20% (overweighting EM with VEMAX to bring EM% up to 30% of Intl and will use Developed Markets VTMGX to bring EM% down to 30% if necessary although I don’t think EMs have gone above 25% of Total International by market cap historically)
• International Small Cap – 5%
• REIT – 8%
• International REIT – 2%

Portfolio size – Mid six figures. Goal – low eight figures
Annual additional contributions – $150,000-$200,000

“After” retirement assets

Life Insurance:

20 Year Term Policy with $1,000,000 benefit - $380/year or ~$32/month (so no longer a “retirement asset” I just included it to show the difference).

Her Teacher’s Pension

0.182 benefit factor, 7% contribution rate, she’s fully vested and the pension system itself is >80% funded. Overall it’s a relatively strong well managed state pension plan and I’m confident it will stay solvent throughout our retirement – If we retire on our goal date (07/01/2039) she will receive approximately 60% of her final average salary (average of highest 3 years).

Taxable
10% Vanguard Total Stock Market Index Admiral (VTSAX) (0.05)
6% Vanguard Total International Index Admiral (VTIAX) (0.14)

His 401k
30% Vanguard Total Stock Market Index Admiral (VTSAX) (0.05)
7% Vanguard Small Cap Value Index Admiral (VSIAX) (0.12)
11% Vanguard Total International Index Admiral (VTIAX) (0.14)
3% Vanguard Emerging Markets Index Admiral (VEMAX) (0.15)
5% Vanguard All-Wld ex-US Sm Cap ETF (VSS) (0.20)
8% Vanguard REIT Index Admiral (VGSLX) (0.10)
2% Vanguard Global ex-US REIT ETF (VNQI) (0.27)

His Roth IRA (backdoor)
14% Vanguard Small Cap Value Index Admiral (VSIAX) (0.12)

Her Roth IRA (backdoor)

4% Vanguard Small Cap Value Index Admiral (VSIAX) (0.12)

Her 403b (30% LC, 15% MC, 25%SC, 30%Intl)
Fidelity Spartan 500 Index (FUSEX) (0.10)
Vanguard Mid Cap Index Signal (VMISX) (0.09)
Vanguard Small Cap Index Signal (VSISX) (0.09)
Fidelity Spar Intl Index (FSIIX) (0.20)

Her 457b
Nationwide Destination 2045 Instl Svc (NWNSX) (0.68)
(this is the ONLY reasonable investment option. The others have ERs of over 1.0)

New annual Contributions
$52,000 his 401k
$17,500 her 403b
$17,500 her 457b
$5,500 his Roth IRA (backdoor)
$5,500 her Roth IRA (backdoor)
$50,000 to $100,000 taxable (variable based on my private practice group revenue)

Each month I direct where new money in the 401k and taxable accounts is to be invested based on which assets are below their goal percentages. I fund our 2 backdoor Roth IRAs when I need more Small Cap Value. I use the 5%/25%/6month rule as a trigger for re-balancing. I have a great excel spreadsheet that does all the calculations for me.

******
Listing these just to finish the story since the 529 issue lead me to become a Boglehead:
$9,600 annually to child 1 529 at Vanguard ($800/month)
$6480 annually to child 2 529 at Vanguard ($540/month)
(Child 1 529 was started when she was 2 ½ years old. Child 2 529 was started when she was still in utero (due 06/21/14!). They should have around the same balance upon HS graduation … the miracle of compound interest! I looked into the Maryland options which were more expensive and the tax deduction would amount to about $150 per year. I did the math and the difference in fees will be more than the tax deduction sometime next year based on the portfolio values so to keep things simple I have these at Vanguard).
******

Well, that’s it. What a difference a year makes. I really feel as if we’re on the right track and I sleep well at night. This post is not intended to garner opinions about our 100% equity allocation or my slice and dice choices. It’s really just to show how dramatically different our portfolio is compared to this time last year. The process wasn’t easy. It was tough breaking up with our financial advisor since he was also my friend and came over to my house for a monthly poker game. The IUL decision was probably the toughest since it involved taking a loss but I did the math every which way I know how and I think we’ll be better off in the long run. The Bogleheads’ forum and this article were also very helpful with respect to the IUL decision: http://www.insurancenewsnetmagazine.com ... glO3E0ZV5R

I plan to continue investing with Vanguard as described above (as well as Valic and Nationwide). I read the bogleheads.org website several times per week. I especially enjoy the articles written by Larry and Rick, articles or videos about Jack and the fact that I can mention these people by their first name alone and everyone knows who I’m talking about. I manage budgets and keep track of our total portfolio value on mint.com. I calculate where our new money should go, trigger rebalances and track overall portfolio performance with my homemade excel spreadsheet and the SMF Add-in. I’ve attended the D.C. Bogleheads’ meeting and I’m registered for the 2014 Bogleheads’ Conference.

I’ve even tried to convert some friends to the Bogleheads’ philosophy but without much luck. I’ve come to the conclusion that ignoring the importance of saving for retirement or believing in active investing, stock picking or day trading is like being an alcoholic. People will only accept your help when THEY are ready to accept it not when you are ready to offer it.

My “to do” list for books (created from the bogleheads.org website and William Bernstein’s recs):
Devil Take the Hindmost – Chancellor
Unconventional Success - Swenson
The Great Depression: A Diary – Roth
How a Second Grader Beats Wall Street – Roth
Capital Ideas/Against the Gods/The Power of Gold – P. Bernstein
A Fool and His Money – Rothchild
Where are the Customers’ Yachts – Schwed
Once in Golconda – Brooks
Bernard Baruch/Money of the Mind/Minding Mr. Market/The Trouble with Prosperity – Grant
Winning the Loser’s Game – Ellis
Global Investing – Brinson et al.
Asset Allocation - Gibson

I can honestly say that our journey over the previous year has significantly changed our lives for the better. We will be able to retire earlier, with more money and be able to sleep well along the way. I realize that I still have a lot to learn but I feel as if I have a strong foundation and I’m confident that I won’t make any major mistakes in the years to come.

Thank You Bogleheads!
Stay the Course!
-=swimirvine=-
Last edited by swimirvine on Wed May 28, 2014 1:48 pm, edited 3 times in total.
The way I invest my money is not the right way to invest, it's the right way for ME to invest.
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matjen
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by matjen »

+1000! Very, very impressive. An amazing transformation along all fronts in only a year's time. Thank you so much for sharing. :sharebeer
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fredflinstone
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by fredflinstone »

Terrific. ¡Salud! :sharebeer
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by Grt2bOutdoors »

Congrats on making the move.
Apologies I wasn't able to finish the Stanford course with you.
That's quite an extensive list of summer reading there. The Roth book is very depressing (no pun intended), you'll have to put the book down every few pages and thank a higher being you are where you are today. Really.
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Medviersi
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by Medviersi »

Very impressive transformation and account. Thanks for sharing!

Are you sure about 100% equity allocation in your mid 30's though? Putting a small bond allocation in gives some advantages with little loss of average return. With your high income and sound financial footing what if you decide to retire earlier?
livesoft
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by livesoft »

Can somebody post the Cliff Notes version of the OP's post?
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by Fallible »

A wonderful read and thanks for taking the time to share your financial year with us. One suggestion for your reading plans: make "Customer's Yachts" first. After your hard work and tough decisions of the past year, you need some fun and good laughs and Schwed provides plenty of those throughout.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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swimirvine
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by swimirvine »

livesoft wrote:Can somebody post the Cliff Notes version of the OP's post?
Cliff Notes:

BEFORE:
IUL @ $1000/month
401k/403b = expensive active management
pension ... what pension?!?!?
457b - nope
529s - nope
back door Roth IRAs - what is that? it sounds inappropriate.

(magic happens here)

AFTER:
Term Life @ $32/month
maxing out 401k/403b/457b/2xBackdoor Roths and as much taxable as I can with low cost passive index funds
pension - well understood and good quality
529s set up
The way I invest my money is not the right way to invest, it's the right way for ME to invest.
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matjen
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by matjen »

swimirvine wrote:My “to do” list for books (created from the bogleheads.org website and William Bernstein’s recs):
Devil Take the Hindmost – Chancellor
Unconventional Success - Swenson
The Great Depression: A Diary – Roth
How a Second Grader Beats Wall Street – Roth
Capital Ideas/Against the Gods/The Power of Gold – P. Bernstein
A Fool and His Money – Rothchild
Where are the Customers’ Yachts – Schwed
Once in Golconda – Brooks
Bernard Baruch/Money of the Mind/Minding Mr. Market/The Trouble with Prosperity – Grant
Winning the Loser’s Game – Ellis
Global Investing – Brinson et al.
Asset Allocation - Gibson
Since you are a slice and dicer (and obviously very bright) I would suggest you add Antti Ilmanen's Expected Returns to your list. I have the big one arriving today but there is a free condensed version as well. Small: http://www.amazon.com/Expected-Returns- ... ed+returns

Large: http://www.amazon.com/Expected-Returns- ... ed+returns
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swimirvine
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by swimirvine »

Fallible wrote:A wonderful read and thanks for taking the time to share your financial year with us. One suggestion for your reading plans: make "Customer's Yachts" first. After your hard work and tough decisions of the past year, you need some fun and good laughs and Schwed provides plenty of those throughout.
Done! I just finished the Power of Passive Investing by Ferri so I was ready for my next book. I just went online and purchased "Where are the Customer's Yachts." Thanks for the recommendation!
The way I invest my money is not the right way to invest, it's the right way for ME to invest.
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swimirvine
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by swimirvine »

matjen wrote:
swimirvine wrote:My “to do” list for books (created from the bogleheads.org website and William Bernstein’s recs):
Devil Take the Hindmost – Chancellor
Unconventional Success - Swenson
The Great Depression: A Diary – Roth
How a Second Grader Beats Wall Street – Roth
Capital Ideas/Against the Gods/The Power of Gold – P. Bernstein
A Fool and His Money – Rothchild
Where are the Customers’ Yachts – Schwed
Once in Golconda – Brooks
Bernard Baruch/Money of the Mind/Minding Mr. Market/The Trouble with Prosperity – Grant
Winning the Loser’s Game – Ellis
Global Investing – Brinson et al.
Asset Allocation - Gibson
Since you are a slice and dicer (and obviously very bright) I would suggest you add Antti Ilmanen's Expected Returns to your list. I have the big one arriving today but there is a free condensed version as well. Small: http://www.amazon.com/Expected-Returns- ... ed+returns

Large: http://www.amazon.com/Expected-Returns- ... ed+returns
I just downloaded the free "small" kindle version. I'll start with that. Thanks for the recommendation!
The way I invest my money is not the right way to invest, it's the right way for ME to invest.
livesoft
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by livesoft »

swimirvine wrote:...
(magic happens here)
...
Congrats on learning some magic and becoming a magician. :)
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MP173
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by MP173 »

sounds like you have a plan!
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by staythecourse »

Congrats. Good to see you have a plan and are sticking to it.

Only question I have is how did you come up with a "low 8" digit target?

Seems you wife has a pension and you should be well off in the next 20 yrs. so is the 8 digit goal just for fun or is there a need that it is ear marked for?

Just curious.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
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swimirvine
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by swimirvine »

staythecourse wrote:
Only question I have is how did you come up with a "low 8" digit target?

Seems you wife has a pension and you should be well off in the next 20 yrs. so is the 8 digit goal just for fun or is there a need that it is ear marked for?
I want 100% of our current spending power in retirement and I believe we will need to get to the low 8 figures to accomplish that. I realize that most people shoot for 75-80% income replacement. I'm not the kind of person that would normally be able to enjoy retirement because I always have to be busy but I've seen physicians that have worked into their 80s and I also don't want to do that. My wife and I LOVE to travel and especially go on cruises so we've come to the conclusion that we're going to try and retire when we're 62/60 (2039) and travel the world until grand kids show up and after that continue to travel but obviously spend tons of time with the family. I think that's the only way I'm going to be able to actually retire. That can be very expensive. I don't think I would be able to retire if we couldn't travel the world. We don't have expensive tastes by any means but I like having "beer tastes and a champagne budget" rather than the reverse. We love cruising and have talked about purchasing a condo on "The World" http://aboardtheworld.com/ or something similar 25 years from now. This currently costs about $200k per year in fees. We'd also consider doing a cruise like this every other year or so: http://www.oceaniacruises.com/findcruis ... fault.aspx

I realize that everything I just typed included a lot of very detailed plans 25 years off in the future and everything could be completely different by then. We could have health issues, grand kids could come a lot earlier, etc. etc. I need to have short term, intermediate term and long term goals. That's how I function best. I appreciate that those goals will evolve with time. We are investing a large percentage of our combined annual salary to reach those goals but we are also "enjoying the now." and we've already booked this vacation: http://www.royalcaribbean.com/findacrui ... iseType=CO Even though we could afford a suite for our family of 4, the Boglehead in me says that we only need a balcony room which is what we have. :D
Last edited by swimirvine on Wed May 28, 2014 11:27 am, edited 1 time in total.
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staythecourse
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by staythecourse »

swimirvine wrote:I want 100% of our current spending power in retirement and we will need to get to the low 8 figures to accomplish that.
I am all for saving as much as one can. I like to save well into 200k+ year myself. Just wanted to ask if you need that much for "current spending power". Remember you are paying a lot of your current incomes in salary so not all your take home is spendable money, you will be in a lower tax bracket in retirement, and most importantly the money you do take home a large proportion is going into savings. All in all you are living well below your means in current income.

Just food for thought. No matter you are doing a great job and I LOVE to see fellow docs saving a ton. It is fun to see the new breed of physicians becoming intelligent and savvy out in the real world as much as they are in the hospital!!

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by White Coat Investor »

Great story. A similar series of events eventually led to the establishment of The White Coat Investor. Physicians certainly have a big target on their back.
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by johnny847 »

Congratulations on your massive turnaround!

I thought I'd add - Maryland does not recapture the tax deduction for their 529. This means that you could deposit into MD 529, grab the tax deduction, and then roll it over to Vanguard's 529. Also, although MD gives you a deduction on the first 5000 of your contribution (this may be per beneficiary, I don't remember) you can carry forward the deduction for 10 years - i.e., if you contribute 10k this year, you can deduct 5k this year and 5k next year.

EDIT: Maximum deduction is $5000/beneficiary/year for married taxpayers. Since your contributions to each child exceed this, that's a savings of $575/year, and you can use the carry forward. However, because you can't claim more than $5000/benificiary/year, you can't necessarily use all of the deductions that get carried forward if you keep making contributions in excess of $5k/beneficiary/year.
Last edited by johnny847 on Wed May 28, 2014 1:48 pm, edited 1 time in total.
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by swimirvine »

johnny847 wrote:Congratulations on your massive turnaround!

I thought I'd add - Maryland does not recapture the tax deduction for their 529. This means that you could deposit into MD 529, grab the tax deduction, and then roll it over to Vanguard's 529. Also, although MD gives you a deduction on the first 5000 of your contribution (this may be per beneficiary, I don't remember) you can carry forward the deduction for 10 years - i.e., if you contribute 10k this year, you can deduct 5k this year and 5k next year.
that's great info! My backdoor Roth IRAs require a few clicks of the mouse to do a rolloever but I initially did a Maryland 529 and then transferred it to Vanguard and the process was pretty arduous.

If I were to change my contributions to:
Child 1 - $592/month @ Vanguard and 208/month @ Maryland (for $2,500 tax deduction)
Child 2 - $332/month @ Vanguard and 208/month @ Maryland (for $2,500 tax deduction)

then rollover the 2 Maryland accounts annually I could get the maximum tax deduction of $125 for each child = $250. The difference in fees for the year would be around $10-$15 bringing the benefit down to $240.

I'll talk to my wife about it and see what she thinks. I remember the process being a pain in the butt and the Maryland plan administrator saying they didn't receive forms to complete the rollover, etc. That might have been a fluke and the next time it could go smoothly. We'll have to discuss whether the absolute benefit of the $240 is worth all of the paperwork and time.

Thanks for the info!
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by johnny847 »

Ah sad to hear the rollover process is a pain in the butt.
As noted in my edit above, its $5000/beneficiary for married taxpayers filing jointly.
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by 123 »

Congratulations on your rebirth as a Boglehead. It does feel so much better to be in command of your own situation.

My only critical comment is that you may be prone to too much slice-and-dice. Ongoing positions of less then 5% may not do much to change your overall return and incur certain overhead of monitoring and rebalancing. I've done that at times to and within a year or two I normally eliminate such stray positions. As has been said on this blog before "The enemy of a good plan is the search for a perfect plan".
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by mptfan »

123 wrote:My only critical comment is that you may be prone to too much slice-and-dice. Ongoing positions of less then 5% may not do much to change your overall return and incur certain overhead of monitoring and rebalancing. I've done that at times to and within a year or two I normally eliminate such stray positions. As has been said on this blog before "The enemy of a good plan is the search for a perfect plan".
:thumbsup
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by LeeMKE »

Wonderful Cinderella story.

EmergDoc mentioned his blog (The white coat investor), and I have to echo that recommendation for you. You'll find it entertaining and confirming.

Go team.
Last edited by LeeMKE on Wed May 28, 2014 2:25 pm, edited 3 times in total.
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by Coiled_Snake »

Ahhhhh!!! This is EXACTLY what I needed to see. Just joined the club one year behind you! THANK YOU. I have lots to learn... didn't understand one-third of the figures you were describing. Thanks for the reading list.

And I just posted a question about whether to pay off student loans or not. :oops:
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by npatel12 »

Great Post! I just joined the Boglehead community about a month ago. You and are I in similar positions literally. I am moving to Baltimore in June for a fellowship as my wife and I are both physicians (she will be working private practice). I like you have 2 small children (I know your second one is on the way). I love your reading list and have read a few of the books you mentioned.

I have started 529 funds in MD for my kids and plan to roll them over next year after we make appropriate contributions for tax benefits. We will see how seamless the rollover process is.

I would love to attend one of the Boglehead meetings. Is there a local chapter in Baltimore? I have a few questions that I would love to bounce off of you if possible. I will try to pvt message you somehow on here.

Thanks for the great post. Hope to share a similar story soon!
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by Mel Lindauer »

Great turnaround success story for others to read. Thanks for posting it.

See you in Philly at the 2014 Bogleheads Conference! There will be book signings by the authors in attendance, so bring your Jack Bogle, Rick Ferri, Allan Roth, Bill Bernstein and Bogleheads books if you'd like to have them signed by the authors.
Best Regards - Mel | | Semper Fi
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by sesq »

Long post, but worth the read. Great to see so many horrible horrors be vanquished.
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by swimirvine »

123 wrote:Congratulations on your rebirth as a Boglehead. It does feel so much better to be in command of your own situation.

My only critical comment is that you may be prone to too much slice-and-dice. Ongoing positions of less then 5% may not do much to change your overall return and incur certain overhead of monitoring and rebalancing. I've done that at times to and within a year or two I normally eliminate such stray positions. As has been said on this blog before "The enemy of a good plan is the search for a perfect plan".
Thank you! I very well might eliminate the international REIT and international Small Cap positions for that very reason. Right now, I really look forward to the 1st of every month when I get to work with my excel spread sheet and direct my money. I know I've mentioned the spread sheet multiple times in this thread and it's hard to visualize so I'll post an image. I had to format it down to fit and it's still huge. I filled it with generic numbers. But on the 1st of each month I come into work early with my coffee, sit down at my desk and update the values of my holdings in my spread sheet (Column F) and with the help of the SMF Add-in all the calculations are done for me. This took a long time to make but it makes everything very easy. This calculates the overall percentages of my holdings across all accounts. The cells automatically turn red to signal the need for a re-balance if any of the percentages are out of range (5%/25%). It pulls the ERs (Column H) and trailing 1 year returns (Column D) from the web and gives me my overall portfolio ER as well as overall trailing 1 year return. It grabs the current % of EM within VTIAX from the Vanguard website and then calculates my total current % of EM and that cell turns red if I have less than 25% or more than 35% of my international in EM. I enter the amount available to invest (N17) and it tells me how to split that between the holdings with percentages lower than their goals (N5 - N12). It also keeps a running tally of what I would need to sell/buy to completely re-balance even though I've only needed do that once every 6 months (U5 - U12). And just for kicks I have it spit out the value of an annual annuity that my portfolio could purchase (Q3) and the 4% SWR value (R3). It's hard to visualize that so here's a picture:

Image
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by michaelsieg »

Great post,
I noticed that your 529 plan is not the Maryland 529 College savings plan - in MD you can deduct your contributions to the MD 529 plan from your state income taxes (not sure what the upper limit is, I think around $6000 per child), so I would consider to fund the Maryland plan first (T Rowe Price is the administrator) and then after you have your assets for one year in the MD plan roll them over into the VG plan with the lower ER - Maryland does not apply "claw-back" taxes after one year (apparently some states do).
Even though the MD plan has a higher ER, to do this for one year might be worth it, if you consider the tax savings.
Also, I would consider an about 20% bond allocation, it will feel better if you can rebalance when a market correction occurs.
Good luck
Michael
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by swimirvine »

Mel Lindauer wrote:Great turnaround success story for others to read. Thanks for posting it.

See you in Philly at the 2014 Bogleheads Conference! There will be book signings by the authors in attendance, so bring your Jack Bogle, Rick Ferri, Allan Roth, Bill Bernstein and Bogleheads books if you'd like to have them signed by the authors.
My only hard copy book is Common Sense on Mutual Funds which I will bring for an autograph ... everything else is on my Kindle :oops:
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by Mel Lindauer »

swimirvine wrote:
Mel Lindauer wrote:Great turnaround success story for others to read. Thanks for posting it.

See you in Philly at the 2014 Bogleheads Conference! There will be book signings by the authors in attendance, so bring your Jack Bogle, Rick Ferri, Allan Roth, Bill Bernstein and Bogleheads books if you'd like to have them signed by the authors.
My only hard copy book is Common Sense on Mutual Funds which I will bring for an autograph ... everything else is on my Kindle :oops:
That simplifies things; now you'll only have to stand in one line to get your book signed. :D
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by Sunflower »

Thank you for sharing your voyage with us. I always enjoy and appreciate personal stories.
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by White Coat Investor »

Mel Lindauer wrote:
swimirvine wrote:
Mel Lindauer wrote:Great turnaround success story for others to read. Thanks for posting it.

See you in Philly at the 2014 Bogleheads Conference! There will be book signings by the authors in attendance, so bring your Jack Bogle, Rick Ferri, Allan Roth, Bill Bernstein and Bogleheads books if you'd like to have them signed by the authors.
My only hard copy book is Common Sense on Mutual Funds which I will bring for an autograph ... everything else is on my Kindle :oops:
That simplifies things; now you'll only have to stand in one line to get your book signed. :D
I bet you could talk Taylor into signing your Kindle. Just bring a sharpie. It'll be fine.
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by bottlecap »

Thanks for sharing. That's a great post and a great story. I particularly liked the conversation with the FA. That conversation takes guts, but is right way to do it.

I do think you should look into some sort of bond allocation, however. I say this because I know that growing as an investor is a learning process. In particular, it takes a while to learn the value of a stable portion of a portfolio. We all get excited and want to boost our returns once we figure out what we are doing, but I think considering something like your age -10 in bonds will stabilize your portfolio and barely put a dent returns. With your income, you particularly don't need to take quite as much risk as the average bear.

Anyway, you've done a fantastic job. Congratulations.

JT
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by michaelsieg »

johnny 847 wrote
I thought I'd add - Maryland does not recapture the tax deduction for their 529. This means that you could deposit into MD 529, grab the tax deduction, and then roll it over to Vanguard's 529.
Johnny - I didn't see your post - sorry if I kind of duplicated.
One caveat about the roll over is that it should not be done in the same tax year - that is at least what my tax accountant told me - not sure if that is just a "playing safe" rule or if they would disallow the tax deduction if you did it immediately.

Swimmirvine wrote:
Child 1 - $592/month @ Vanguard and 208/month @ Maryland (for $2,500 tax deduction)
Child 2 - $332/month @ Vanguard and 208/month @ Maryland (for $2,500 tax deduction)
You can deduct $2500 per account holder per beneficiary, if you and your wife are both account holders, you can deduct $5000 per child per year. So the annual benefit is about $500.
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by michaelsieg »

One other thing I noticed is the term life insurance for 1M. It seems low to me for a high income earner like you.
If you are healthy I would consider to get additional term life insurance, the way I calculated it was, that if a disaster were to strike me, my wife should be able to have enough money to pay for the kids college expenses (I project about 250k for each of the 3 children), pay off the mortgage (to reduce her cash flow requirements) and give her an income stream that allows her to work part time until the children are out of the house. There are many ways to do this, but if you add these numbers up, you will easily get up to 2-3M in coverage that you need. With your savings rate, an additional 10 year term life insurance would probably be enough.
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Post by Taylor Larimore »

swimirvine:

Thank you for sharing your inspiring story about how you learned and adopted The Boglehead Investing Philosophy.

You are now on your way to investment success. Your personal story will encourage others to do the same. It's the Boglehead way.

Thank you and best wishes
Taylor
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by Grt2bOutdoors »

michaelsieg wrote:One other thing I noticed is the term life insurance for 1M. It seems low to me for a high income earner like you.
If you are healthy I would consider to get additional term life insurance, the way I calculated it was, that if a disaster were to strike me, my wife should be able to have enough money to pay for the kids college expenses (I project about 250k for each of the 3 children), pay off the mortgage (to reduce her cash flow requirements) and give her an income stream that allows her to work part time until the children are out of the house. There are many ways to do this, but if you add these numbers up, you will easily get up to 2-3M in coverage that you need. With your savings rate, an additional 10 year term life insurance would probably be enough.
+1 I agree, $1MM in term is quite low - 10 year term may make sense, keep costs low and at the end of 10 years you'll likely have alot more than $1 million saved up.
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by matjen »

swimirvine wrote: Thank you! I very well might eliminate the international REIT and international Small Cap positions for that very reason. Right now, I really look forward to the 1st of every month when I get to work with my excel spread sheet and direct my money. I know I've mentioned the spread sheet multiple times in this thread and it's hard to visualize so I'll post an image. I had to format it down to fit and it's still huge. I filled it with generic numbers. But on the 1st of each month I come into work early with my coffee, sit down at my desk and update the values of my holdings in my spread sheet (Column F) and with the help of the SMF Add-in all the calculations are done for me. This took a long time to make but it makes everything very easy. This calculates the overall percentages of my holdings across all accounts. The cells automatically turn red to signal the need for a re-balance if any of the percentages are out of range (5%/25%). It pulls the ERs (Column H) and trailing 1 year returns (Column D) from the web and gives me my overall portfolio ER as well as overall trailing 1 year return. It grabs the current % of EM within VTIAX from the Vanguard website and then calculates my total current % of EM and that cell turns red if I have less than 25% or more than 35% of my international in EM. I enter the amount available to invest (N17) and it tells me how to split that between the holdings with percentages lower than their goals (N5 - N12). It also keeps a running tally of what I would need to sell/buy to completely re-balance even though I've only needed do that once every 6 months (U5 - U12). And just for kicks I have it spit out the value of an annual annuity that my portfolio could purchase (Q3) and the 4% SWR value (R3). It's hard to visualize that so here's a picture:

Image
WOW! That is quite a spreadsheet. Is there any chance you would be willing to add it to the small Boglehead collection found in the Wiki? I'm not sure how that works but I bet a moderator could get it added very quickly. http://www.bogleheads.org/wiki/Using_a_ ... _portfolio
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by swimirvine »

matjen wrote:
WOW! That is quite a spreadsheet. Is there any chance you would be willing to add it to the small Boglehead collection found in the Wiki? I'm not sure how that works but I bet a moderator could get it added very quickly. http://www.bogleheads.org/wiki/Using_a_ ... _portfolio
Thanks! I'm working on a generic version of the spread sheet now. I PM'd one of the moderators to see if they would put it on the wiki. If they say no, feel free to PM me with your e-mail address and I'll send it to you. I took out some of the functions like the annuity calculator and the EM% calculator because those were specific to my situation. The generic spread sheet can balance across 5 accounts with up to 9 holdings within each account.

VERY IMPORTANT - you need to install the SMF Add-in for a lot of the functions to work. There are instructions on how to do this in the spread sheet.
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by sesq »

swimirvine wrote:
123 wrote: But on the 1st of each month I come into work early with my coffee, sit down at my desk and update the values of my holdings in my spread sheet (Column F) and with the help of the SMF Add-in all the calculations are done for me. This took a long time to make but it makes everything very easy.
You may want t consider migrating to a google doc with the excellent =googlefinance function. Perhaps your SMF add-in is a better tool, I am not sure what that is. At a min, google will take the task of updating the values away (on a 20 minute delay). I enjoy (lately enjoy) watching the girations of my portfolio on a daily basis at around 6 pm or so when all my tickers update and I see a day's change.

Not trying to take time away geeking out with the spreadsheet. Lord knows I love messing around with mine. And I look forward to the first of the month for updating my NW calc. Sad but true.

More here:
https://support.google.com/docs/answer/3093281?rd=1
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by sans souliers »

Wow, that's quite a turnaround in a year, thanks for sharing.

It's too bad, that a friendship is challenged because of a business arrangement - that's a good lesson -- to keep business separate from friends/relatives.

You're absolutely right, too, about offering advice to the uninterested -- it's wasted time.
My only advice to family has always been simple - LBYM - and even that fell on deaf ears.

I was going to warn you about the temptation to move to safer asset classes in market downturns, but it looks like you've got your feet firmly planted on solid ground. You've empowered yourself and your family, as well. Congratulations on grabbing the reins!
Sometimes pessimism leaves me pretty well prepared for when things don't go my way, and pleasantly surprised when they do.
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by BillyG »

Congrats, Swimirvine! That's a wonderful makeover.

I'm also in MD, but not an MD. There is a Bogleheads chapter in DC that meets every two months. I hope to meet you at the Bogleheads conference this year.

I second the comment about getting more term life (for you and your wife) considering you have small kids. My kids are mid-teens and I started 529s for them when they were born. We're in the T Rowe Price Maryland 529 plan.

Also consider sufficient umbrella insurance to protect your assets and future earnings against bad actors and accidents. It is cheap to add another $1M to your umbrella policy.

I can suggest one more book to add to your list. It is called Control Your Retirement Destiny by Dana Anspach and it is truly excellent. The book is methodical and organized and it will be a good reference book. I bought it as a paper copy and made lots of notes in it... I think my future investment books will be paper copies as well. I had only one paper book for Jack Bogle to sign at last year's conference because everything else was on my Kindle. This is the book by Dana Anspach, which I learned about at a local DC Bogleheads meeting.
http://www.amazon.com/gp/product/143025 ... UTF8&psc=1

Stay the course!

Billy
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by michaelsieg »

I like the spreadsheet too, I have the same issue that the investments are spread across tax deferred, tax free and taxable accounts. It is nice how it pulls it all together.
Quick question - do you manually enter the $ values in your spread sheet or do you have Excel fetch the values for you ?
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by swimirvine »

michaelsieg wrote:I like the spreadsheet too, I have the same issue that the investments are spread across tax deferred, tax free and taxable accounts. It is nice how it pulls it all together.
Quick question - do you manually enter the $ values in your spread sheet or do you have Excel fetch the values for you ?
Thanks! I'm working on getting a generic version of the spread sheet on the wiki.

Right now I enter the the values of the holdings in the green column manually. Mint.com makes this really quick. I've done research on pulling data from the web from a password protected website. It's possible with certain websites but it's tough. It literally takes me around 2 minutes to update the numbers manually so I stopped trying. I'd love some input from people if others know a good way to do this.
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by LadyGeek »

swimirvine wrote:...Thanks! I'm working on getting a generic version of the spread sheet on the wiki.
FYI - swimirvine PM'd me for help to get the spreadsheet in the wiki. (I'm a wiki editor.)

A possible page: Using a spreadsheet to maintain a portfolio

BTW, suggestions for wiki content updates can be posted in: Suggestions for the Wiki
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by swimirvine »

LadyGeek wrote:
swimirvine wrote:...Thanks! I'm working on getting a generic version of the spread sheet on the wiki.
FYI - swimirvine PM'd me for help to get the spreadsheet in the wiki. (I'm a wiki editor.)

A possible page: Using a spreadsheet to maintain a portfolio

BTW, suggestions for wiki content updates can be posted in: Suggestions for the Wiki
I've sent the info for the spread sheet on my google drive.
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by Luke Duke »

Since it appears that you will end up with a lot of money in your 529 accounts, it might be wise to have 529s in multiple states. This will allow you to spend down the ones with the most gains first. That way, if you have money leftover, your penalty on the gains is less.
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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by IlliniDave »

Congrats!

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Re: 1 Year Bogleheadiversary - Before and After Picture

Post by gabriel1970 »

How did you get exposure to international REITs? Not through Vanguard?
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