Evaluate my finances. Young guy.

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Topic Author
techcrium
Posts: 166
Joined: Sun Mar 24, 2013 12:09 am

Re: Evaluate my finances. Young guy.

Post by techcrium »

techcrium wrote:Age: 26

Assets:
$185 000 in equities (stocks/etfs/funds)
$5 000 in cash

Debt:
$18 300 at 1% interest credit card
$35 000 at 3% interest from a close relative for 3 years
$26 000 at 3% interest for margin with brokerage

Networth:
$110 000

Salary: 45K per year

Est. Savings per year: 20K

Stock market has been roaring in the last 2 years. I am up 40% last year and already up like 10% this year.
Well, as per the advice of bogleheads, I have begun to reduce my debt load by adding savings and not adding more equities.

Assets:
$195 000 in equities (stocks/etfs/funds)
$5 000 in cash

Debt:
$17 300 at 1% interest credit card
$36 000 at 3% interest from a close relative for 3 years
$23 000 at 3% interest for margin with brokerage

Networth:
$123 000

Salary: 45K per year

Est. Savings per year: 20K
clevername
Posts: 292
Joined: Sun Jul 10, 2011 7:13 pm
Location: FL

Re: Evaluate my finances. Young guy.

Post by clevername »

Your after tax income, assuming you are single with the standard deduction in a no income tax state, is about $36k. How in the world are you living on 16k/yr? I'm a bit of a tightwad myself but that's really impressive and for that alone you should be commended.
Topic Author
techcrium
Posts: 166
Joined: Sun Mar 24, 2013 12:09 am

Re: Evaluate my finances. Young guy.

Post by techcrium »

clevername wrote:Your after tax income, assuming you are single with the standard deduction in a no income tax state, is about $36k. How in the world are you living on 16k/yr? I'm a bit of a tightwad myself but that's really impressive and for that alone you should be commended.
16/12= 1332

rent+utilities: 400
internet: 10 split
food: 200
gas: 100
insurance: 100
other: 490 (car repairs, going out, etc)
v1rtus
Posts: 109
Joined: Sat Jul 12, 2014 4:36 pm

Re: Evaluate my finances. Young guy.

Post by v1rtus »

techcrium wrote:
clevername wrote:Your after tax income, assuming you are single with the standard deduction in a no income tax state, is about $36k. How in the world are you living on 16k/yr? I'm a bit of a tightwad myself but that's really impressive and for that alone you should be commended.
16/12= 1332

rent+utilities: 400
internet: 10 split
food: 200
gas: 100
insurance: 100
other: 490 (car repairs, going out, etc)
I'm in an almost identical situation as techcrium as far as income and savings go. I'm also 26 and will make somewhere around $46-48k this year and will save just over $20k in a combination of contributions to 403(b) and Roth, as well as short term cash savings. It's definitely not easy, especially when I look at my friends spending carelessly on cars, trips, electronics, and hobbies. Being debt free has allowed me to do this, and while I basically live paycheck to paycheck as far as my expenditures go I at least know that I am increasing my net worth substantially compared to my peers who are spending more than they make.

As far as your investment strategy techcrium. I think you've been exceptionally lucky, as have I, to have started in a great bull market after the 2008-09 downturn. Your net worth is almost twice mine. I think you've got an incredible opportunity to dial back the risk and still create substantially sizable wealth, especially when compared to your current earnings. I would kill to be able to double my net worth and keep up with what I'm doing, would hate to see you lose it. Just some food for thought.

Nonetheless, good luck!

-Will
daave
Posts: 258
Joined: Thu Nov 07, 2013 6:28 pm

Re: Evaluate my finances. Young guy.

Post by daave »

techcrium wrote:Salary: 45K per year
techcrium wrote:As well, for my job field, IT, it is fairly easy to land a job.
I think your biggest priority at this stage should be improving your salary. What kind of IT work do you do? Corporate IT/helpdesk? Sysadmin? Programming? Web development? There a plenty of IT jobs that pay a lot more than 45K, though depending on your background/experience you might need to do some additional study or gain some experience beyond work first.

Consider that mid-level software engineers at the big tech companies (AMZN, FB, GOOG, IBM, MSFT, etc.) are making $200K+/year, and even startups who focus more on the equity side than the salary are offering base pay of $100K+ in silicon valley. Do you think this is the kind of work you could grow towards?

I think increasing your salary, and putting half or more of any raise you get towards savings, will be the most reliable way of improving your chances of retiring early.
placeholder
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Re: Evaluate my finances. Young guy.

Post by placeholder »

daave wrote:Consider that mid-level software engineers at the big tech companies (AMZN, FB, GOOG, IBM, MSFT, etc.) are making $200K+/year
Those are not typical salaries for software engineers around the country.
daave
Posts: 258
Joined: Thu Nov 07, 2013 6:28 pm

Re: Evaluate my finances. Young guy.

Post by daave »

placeholder wrote:
daave wrote:Consider that mid-level software engineers at the big tech companies (AMZN, FB, GOOG, IBM, MSFT, etc.) are making $200K+/year
Those are not typical salaries for software engineers around the country.
No, but collectively they provide jobs to more than 200,000 engineers, and they're having trouble finding enough qualified employees. I think building up one's skills to have a shot at one of these many available roles isn't out of reach for plenty of people who are currently in lower-salaried tech jobs. Just an idea for the OP to consider.

Edit:
- Even shooting for half-way between $40K and one of those $200K jobs would still allow a huge increase in the OP's savings rate. The time investment needed to get there could well be one of the most productive uses of his human capital.
- If you're interested in specifics about steps to take towards landing one of these jobs, feel free to PM me with your resume. I typically interview 2-3 candidates each week at once of the aforementioned companies, and can hopefully provide some helpful pointers.
Topic Author
techcrium
Posts: 166
Joined: Sun Mar 24, 2013 12:09 am

Re: Evaluate my finances. Young guy.

Post by techcrium »

techcrium wrote:Age: 26

Assets:
$185 000 in equities (stocks/etfs/funds)
$5 000 in cash

Debt:
$18 300 at 1% interest credit card
$35 000 at 3% interest from a close relative for 3 years
$26 000 at 3% interest for margin with brokerage

Networth:
$110 000

Salary: 45K per year

Est. Savings per year: 20K

Stock market has been roaring in the last 2 years. I am up 40% last year and already up like 10% this year.
Just as an update:

Age: 29

Assets:
$380,000 in equities
$5,000 cash
$20,000 value of pension

Debts:
$28,000 at 1.5% interest credit card
$47,000 at 3% interest from a close relative for 1 year
$3,000 at 0% interest for margin with brokerage (when monthly interest is under $10, nothing is charged)

Networth:
$327,000

Salary: 59K per year
Est. Savings: $22K + (Employer Pension worth $12K per year)

Looking back, I'm glad I am overleveraged.
User avatar
HomerJ
Posts: 21282
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Re: Evaluate my finances. Young guy.

Post by HomerJ »

techcrium wrote:
techcrium wrote:Age: 26

Assets:
$185 000 in equities (stocks/etfs/funds)
$5 000 in cash

Debt:
$18 300 at 1% interest credit card
$35 000 at 3% interest from a close relative for 3 years
$26 000 at 3% interest for margin with brokerage

Networth:
$110 000

Salary: 45K per year

Est. Savings per year: 20K

Stock market has been roaring in the last 2 years. I am up 40% last year and already up like 10% this year.
Just as an update:

Age: 29

Assets:
$380,000 in equities
$5,000 cash
$20,000 value of pension

Debts:
$28,000 at 1.5% interest credit card
$47,000 at 3% interest from a close relative for 1 year
$3,000 at 0% interest for margin with brokerage (when monthly interest is under $10, nothing is charged)

Networth:
$327,000

Salary: 59K per year
Est. Savings: $22K + (Employer Pension worth $12K per year)

Looking back, I'm glad I am overleveraged.
A couple of things.

Good job getting a large pay raise... That's a solid way to build wealth as an IT person. Keep working on your IT skills.
You borrowed MORE money from the close relative? Ugh.
Looking back, I'm glad I am overleveraged.
Glad it worked out for you, but you are confusing outcome with strategy. That's just like someone who left the casino as a winner stating, "Looking back, I'm glad I bet it all on black". Doesn't mean it was a great idea.

You are now probably in the top 2%-5% of all 29-year olds. Might want to cut back on the leverage and lock in your gains. You're doing great.

I'm worried you might start thinking you are a genius instead of lucky. Be careful.
Topic Author
techcrium
Posts: 166
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Re: Evaluate my finances. Young guy.

Post by techcrium »

HomerJ wrote: Glad it worked out for you, but you are confusing outcome with strategy. That's just like someone who left the casino as a winner stating, "Looking back, I'm glad I bet it all on black". Doesn't mean it was a great idea.

You are now probably in the top 2%-5% of all 29-year olds. Might want to cut back on the leverage and lock in your gains. You're doing great.

I'm worried you might start thinking you are a genius instead of lucky. Be careful.
Actually if you evaluate my portfolio just like any company, you will see that I am very deleveraged compared to my OP.


In my OP, I had $190K assets with $80K borrowed

that represents debt-to-asset ratio of 42%

Today I have $385K assets with $78K borrowed

that represents a debt-to-asset ratio 20%

My assets have grown substantially, while my debt has remained more or less the same. If I wanted to, I could pay back my relative right now and take the rest on as margin debt...but he wants to back in 1 year from now so I will hold onto it then.

If my calculations are right...if the stock market dropped more than 80% suddenly, only then would I be forced to liquidate into nothing.
BW1985
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Re: Evaluate my finances. Young guy.

Post by BW1985 »

techcrium wrote:
Looking back, I'm glad I am overleveraged.
Well yeah, because it worked. If we hit a recession I doubt you'd be glad you did it.
Chase the good life my whole life long, look back on my life and my life gone...where did I go wrong?
aristotelian
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Re: Evaluate my finances. Young guy.

Post by aristotelian »

What credit card do you have that only charges 1% interest, just out of curiosity?

I don't know why your relative would loan you money to gamble on the stock market. I would never, ever loan money to a family member or friend for that purpose.

Keep in mind that if there is a 2008 type of event, your equities value goes down to $200k and that wipes out 2/3 of your net worth. Are you sure you want to allow that to happen? 100% equity is defensible at your age but I would still be inclined to begin diversifying while the market is at an all time high and you should probably begin to rebalance anyway.

Anyway, glad it worked so far.
Choy
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Re: Evaluate my finances. Young guy.

Post by Choy »

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Last edited by Choy on Tue Feb 07, 2017 11:20 am, edited 1 time in total.
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HomerJ
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Re: Evaluate my finances. Young guy.

Post by HomerJ »

techcrium wrote:My assets have grown substantially, while my debt has remained more or less the same.
One other thing that concerns me is what are you invested in? Doesn't appear to be the broad market, but it looks like you picked some individual stocks that have done very well. So the broad market doesn't have to go down substantially for you to be in trouble, just the individual stocks.

And an individual stock dropping 50% or 80% or 100% is FAR more likely than the broad market doing so.

I know you probably won't listen, but many of us have been where you are... where we thought we could pick stocks by studying the financial statements in our off-hours or using some kind of screening process or screening software to find potential winners.

It may work for a while, especially in an up market, but I would highly suggest that you lock in some of your gains instead of gambling with all 100% of it.

Good luck to you.
cantos
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Re: Evaluate my finances. Young guy.

Post by cantos »

I'm confused why the OP is posting here. This is not the Reddit investing forum. Check the testosterone/boasting.

Bogleheads are not impressed by gains made in speculative investing. He is obviously making all his money from speculative investing or someone is gifting him hundreds of thusands dollars. Bogleheads advice has already been given 3 years ago. Stop the gambling and get into index ETFs.

I advise reading the Bogleheads wiki.
Topic Author
techcrium
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Re: Evaluate my finances. Young guy.

Post by techcrium »

HomerJ wrote: One other thing that concerns me is what are you invested in? Doesn't appear to be the broad market, but it looks like you picked some individual stocks that have done very well. So the broad market doesn't have to go down substantially for you to be in trouble, just the individual stocks.
aristotelian wrote:What credit card do you have that only charges 1% interest, just out of curiosity?
I don't know why your relative would loan you money to gamble on the stock market. I would never, ever loan money to a family member or friend for that purpose.
cantos wrote: Bogleheads are not impressed by gains made in speculative investing. He is obviously making all his money from speculative investing or someone is gifting him hundreds of thusands dollars. Bogleheads advice has already been given 3 years ago. Stop the gambling and get into index ETFs.

I advise reading the Bogleheads wiki.

Where in my posts did I say I was speculating or timing the market? I honestly don't know how you were able to assume that...


I like how you allude to my gains as "gambling" yet you have no idea what index funds or ETFs I bought.

Stop the gambling and get into index ETFs
The majority of my investments are broad index ETFs...
cantos
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Re: Evaluate my finances. Young guy.

Post by cantos »

techcrium wrote:
Where in my posts did I say I was speculating or timing the market? I honestly don't know how you were able to assume that...

I like how you allude to my gains as "gambling" yet you have no idea what index funds or ETFs I bought.

The majority of my investments are broad index ETFs...
Now we're getting somewhere. Let's hear about how you went from $180k to $380k in 3 years for a 100%+ gain, on savings of $20k a year, on broad index ETFs. Specifics please!
Topic Author
techcrium
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Re: Evaluate my finances. Young guy.

Post by techcrium »

cantos wrote:
techcrium wrote:
Where in my posts did I say I was speculating or timing the market? I honestly don't know how you were able to assume that...

I like how you allude to my gains as "gambling" yet you have no idea what index funds or ETFs I bought.

The majority of my investments are broad index ETFs...
Now we're getting somewhere. Let's hear about how you went from $180k to $380k in 3 years for a 100%+ gain, on savings of $20k a year, on broad index ETFs. Specifics please!
Those are values for CAD. So 3 years ago the exchange rate was 1 = 1.2 or something and today it is 1 = 1.3

So let's just create a simple example for you:

Now, if you simply just look at QQQ...3 years ago it was $86 and today it is $126

So using our example...$180K+20K (I actually dumped another 20K during beginning of year) would turn into 293K. Add the currency gains: $320K

Now, if you continue to add my annual savings rate + include dividend reinvestment into this...you would find that it is pretty close to $380K


Very simple math here.
corgimom11
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Re: Evaluate my finances. Young guy.

Post by corgimom11 »

Okay, I'll bite. I can relate somewhat. I am personally 28 years old and have a net worth roughly equal to yours. Mine would be much larger if I didn't get hit by the luxury car bug. I'm correcting that but I digress..

I echo the sentiments of starting to diversify what you've been able to harvest thus far via equities.

Not sure what you would do in the event of a recession, but you should start to physically prepare for that.

To give you some other data points, at a rough $325,000 net-worth for me (28) and my husband (31):

Our income is over 3X yours.
My assets are roughly double yours. I hold a considerable amount in cash while I divert much of that to debt reduction (and having an extra large emergency fund due to my highly variable income) & maximizing our tax advantaged spaces.
I hold around 25% of my net-worth in home equity, with only roughly half in total in equities.

My mantra has always been to take the fortune I've been given and try to "set ourselves up for life," if you will. That is not skyrocket high equities, but merely:

1. First and above all, maximizing all tax advantaged retirement spaces
2. Making our mortgage go away as soon as humanly possible

I feel like my future self in 25-30 years will be very glad that I did it.
aristotelian
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Re: Evaluate my finances. Young guy.

Post by aristotelian »

techcrium wrote:
aristotelian wrote:What credit card do you have that only charges 1% interest, just out of curiosity?
I don't know why your relative would loan you money to gamble on the stock market. I would never, ever loan money to a family member or friend for that purpose.

Where in my posts did I say I was speculating or timing the market? I honestly don't know how you were able to assume that...


I like how you allude to my gains as "gambling" yet you have no idea what index funds or ETFs I bought.
The stock market is gambling. Even ETFs. Don't kid yourself thinking otherwise. I do it myself, but never with other people's money.
Topic Author
techcrium
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Re: Evaluate my finances. Young guy.

Post by techcrium »

aristotelian wrote: The stock market is gambling. Even ETFs. Don't kid yourself thinking otherwise. I do it myself, but never with other people's money.
By that logic, you are saying every single person here is essentially gambler?
aristotelian
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Re: Evaluate my finances. Young guy.

Post by aristotelian »

techcrium wrote:
aristotelian wrote: The stock market is gambling. Even ETFs. Don't kid yourself thinking otherwise. I do it myself, but never with other people's money.
By that logic, you are saying every single person here is essentially gambler?
Of course. The stock market is risky. But most of us risk our own money.
Topic Author
techcrium
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Re: Evaluate my finances. Young guy.

Post by techcrium »

aristotelian wrote:
techcrium wrote:
aristotelian wrote: The stock market is gambling. Even ETFs. Don't kid yourself thinking otherwise. I do it myself, but never with other people's money.
By that logic, you are saying every single person here is essentially gambler?
Of course. The stock market is risky. But most of us risk our own money.
Of course, I am using my own money or the bank's money.

Think of it like this:
$380
-$47 loan from relative

To this:
$380
-$47 margin from bank

I can pay off my relative right now and borrow from the bank instead but incur a slightly higher interest rate with the bank (3.5% vs. 3%). I benefit by lowering my interest payment. He benefits because he is not using the money right now and he is earning better interest rate than typical savings account (which pays 2% tops)
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HomerJ
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Re: Evaluate my finances. Young guy.

Post by HomerJ »

techcrium wrote:The majority of my investments are broad index ETFs...
Ah, my apologies... For some reason I thought you had made those gains in one year.

Nice work. I still think you should retire the debt. You're in great shape going forward; there's no need to play around with debt and leverage.
Topic Author
techcrium
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Re: Evaluate my finances. Young guy.

Post by techcrium »

HomerJ wrote:
techcrium wrote:The majority of my investments are broad index ETFs...
Ah, my apologies... For some reason I thought you had made those gains in one year.

Nice work. I still think you should retire the debt. You're in great shape going forward; there's no need to play around with debt and leverage.
Thanks for the advice and fair enough.

I will check back into this thread in 3 years time....perhaps 2020 and hopefully you are still around in the forums.
Kingtriton10
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Re: Evaluate my finances. Young guy.

Post by Kingtriton10 »

Keep it up :thumbsup
cantos
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Re: Evaluate my finances. Young guy.

Post by cantos »

techcrium wrote: Those are values for CAD. So 3 years ago the exchange rate was 1 = 1.2 or something and today it is 1 = 1.3

So let's just create a simple example for you:

Now, if you simply just look at QQQ...3 years ago it was $86 and today it is $126

So using our example...$180K+20K (I actually dumped another 20K during beginning of year) would turn into 293K. Add the currency gains: $320K

Now, if you continue to add my annual savings rate + include dividend reinvestment into this...you would find that it is pretty close to $380K


Very simple math here.
Impressive one-fund investing. Keep it up and you'll hit your retirement target!
Maverick3320
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Re: Evaluate my finances. Young guy.

Post by Maverick3320 »

OP,

Great job. You're not going to get a lot of sympathetic responses here, but a smart guy like you already knew that. I suppose if I went on investingonmarginboaststories.com and gave them my boring retirement plan, I'd face some fun questions as well.

All we ask is that you keep us updated every few years on how your portfolio is doing. You're taking more risk than most of us, and either way - whether you come out ahead or not - your journey will be a learning experience for us (and hopefully for you). Please don't be that guy that beats the market for years and tells us about it and then drops off the face of the earth when the market has a correction.
Topic Author
techcrium
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Re: Evaluate my finances. Young guy.

Post by techcrium »

As an update: I am glad I didn't listen to anyone about having lots of debt. Right now, my debt is completely manageable that it would take a 85% market crash for me to become insolvent and get margin calls. I am considering increasing margin debt but interest rates are a little high...

Assets:
$610,000 in equities (stocks/etfs/funds)
$45,000 federal pension (I plan to cash this out upon retiring early)
$5 000 in cash

Debt:
$31 000 at 1.5% interest credit card
$43 000 at 3% interest from a close relative
$2 000 at 3% interest for margin with brokerage

Networth:
$584,000

Salary: 71K per year

Est. Savings per year: 23K
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djpeteski
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Re: Evaluate my finances. Young guy.

Post by djpeteski »

techcrium wrote: Wed Jun 20, 2018 2:26 pm As an update: I am glad I didn't listen to anyone about having lots of debt.
Most people don't lose on the first round or two of musical chairs either.
MotoTrojan
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Re: Evaluate my finances. Young guy.

Post by MotoTrojan »

techcrium wrote: Wed Jun 20, 2018 2:26 pm As an update: I am glad I didn't listen to anyone about having lots of debt. Right now, my debt is completely manageable that it would take a 85% market crash for me to become insolvent and get margin calls. I am considering increasing margin debt but interest rates are a little high...

Assets:
$610,000 in equities (stocks/etfs/funds)
$45,000 federal pension (I plan to cash this out upon retiring early)
$5 000 in cash

Debt:
$31 000 at 1.5% interest credit card
$43 000 at 3% interest from a close relative
$2 000 at 3% interest for margin with brokerage

Networth:
$584,000

Salary: 71K per year

Est. Savings per year: 23K
To be clear, you’re 100% NASDAQ?
Topic Author
techcrium
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Re: Evaluate my finances. Young guy.

Post by techcrium »

djpeteski wrote: Wed Jun 20, 2018 3:05 pm
techcrium wrote: Wed Jun 20, 2018 2:26 pm As an update: I am glad I didn't listen to anyone about having lots of debt.
Most people don't lose on the first round or two of musical chairs either.
I'm really not sure how that analogy applies. Like if the music stops = market crashed? If the market crashes 85%, then I might be on the verge of financial ruin...but at that point, I would believe the whole world would be in financial ruin too...
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sergeant
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Re: Evaluate my finances. Young guy.

Post by sergeant »

OP, thanks for the update and good for you. I would think two or three times about cashing out of the federal pension at early retirement. Please update your holdings as it appears you have added some stocks and funds that you didn't have last year. Good job increasing your wages and continuing to save.
For the ashes of his fathers, And the temples of his gods. | Pensions= 2X yearly expenses. Portfolio= 40X yearly expenses.
grkmec
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Re: Evaluate my finances. Young guy.

Post by grkmec »

OP, nice update. I don't have an issue with your debt level. It is only ~1x your gross income and very cheap cost of capital. Nothing wrong with magnifying your returns with some leverage as long as you understand the risks you are taking and have a plan to manage the downside risks.
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Darth Xanadu
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Re: Evaluate my finances. Young guy.

Post by Darth Xanadu »

techcrium wrote: Wed Jun 20, 2018 2:26 pm As an update: I am glad I didn't listen to anyone about having lots of debt. Right now, my debt is completely manageable that it would take a 85% market crash for me to become insolvent and get margin calls. I am considering increasing margin debt but interest rates are a little high...

Assets:
$610,000 in equities (stocks/etfs/funds)
$45,000 federal pension (I plan to cash this out upon retiring early)
$5 000 in cash

Debt:
$31 000 at 1.5% interest credit card
$43 000 at 3% interest from a close relative
$2 000 at 3% interest for margin with brokerage

Networth:
$584,000

Salary: 71K per year

Est. Savings per year: 23K
Is this still the same 3-year loan from close relative? Or a new loan?

Nice annual savings rate. The leverage and the debt would bug me but others have different views and you seem to be handling it just fine thus far.
jibantik
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Re: Evaluate my finances. Young guy.

Post by jibantik »

techcrium wrote: Wed Jun 20, 2018 2:26 pm As an update: I am glad I didn't listen to anyone about having lots of debt. Right now, my debt is completely manageable that it would take a 85% market crash for me to become insolvent and get margin calls. I am considering increasing margin debt but interest rates are a little high...

Assets:
$610,000 in equities (stocks/etfs/funds)
$45,000 federal pension (I plan to cash this out upon retiring early)
$5 000 in cash

Debt:
$31 000 at 1.5% interest credit card
$43 000 at 3% interest from a close relative
$2 000 at 3% interest for margin with brokerage

Networth:
$584,000

Salary: 71K per year

Est. Savings per year: 23K
600k net worth, still haven't paid back a close relative :shock:
Topic Author
techcrium
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Re: Evaluate my finances. Young guy.

Post by techcrium »

jibantik wrote: Wed Jun 20, 2018 4:44 pm
600k net worth, still haven't paid back a close relative :shock:
They are happy with the interest structure and have no need for the money right now; I am happy with continuing to use the money to invest.

I think it is a win-win for both parties.

I think I am different than most people on this forum (and most people in general) in that I don't view debt as chain and shackles in a prison cell. I view my finances as a balance sheet like any accountant. On 1 side I have assets, and on another side I have liabilities. When we renegotiate the interest rate and it becomes too high for my liking, I will pay off the loan. Or if the debt is suddenly recalled due to retirement/big purchase.
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HomerJ
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Re: Evaluate my finances. Young guy.

Post by HomerJ »

techcrium wrote: Wed Jun 20, 2018 4:46 pmI think I am different than most people on this forum (and most people in general) in that I don't view debt as chain and shackles in a prison cell.
You've never been through a recession with a ton of money on the line.

Sorry to be that old guy with experience grumbling at the young guy who has only seen one side of the coin so far. :)
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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techcrium
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Re: Evaluate my finances. Young guy.

Post by techcrium »

HomerJ wrote: Wed Jun 20, 2018 5:44 pm
You've never been through a recession with a ton of money on the line.

Sorry to be that old guy with experience grumbling at the young guy who has only seen one side of the coin so far. :)
That's cool. It's not like I haven't seen declines...my portfolio went down almost $70,000 in the span of 2 weeks in early February and I didn't really bat an eye.

What if my portfolio went down $300,000? I would imagine I can handle it well, though I don't really know as it hasn't actually happened yet...

And again, my debt to equity ratio is now 14% a huge farcry from my OP which was almost 90%. Going by pure percentages, I've actually deleveraged a ton.

Edit: Upon researching your older posts, I do have respect for you in the sense that you told people to stay the course in 2009 when everyone thought the economy was going to get worse.
md&pharmacist
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Re: Evaluate my finances. Young guy.

Post by md&pharmacist »

HomerJ wrote: Wed Jun 20, 2018 5:44 pm
techcrium wrote: Wed Jun 20, 2018 4:46 pmI think I am different than most people on this forum (and most people in general) in that I don't view debt as chain and shackles in a prison cell.
You've never been through a recession with a ton of money on the line.

Sorry to be that old guy with experience grumbling at the young guy who has only seen one side of the coin so far. :)
So Homer, why put so much on the line in the stock market. Maybe OP should re-balance risk exposure? Maybe he will not feel so good when the next major correction occurs given the maturity of this bull.

Perhaps someone should have cash positions to invest/diversify in...oh I don't know...maybe their personal business or commercial real estate or something. Then they'll have a really good income to serve as a great cushion too. Now why didn't I think of that?
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sergeant
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Re: Evaluate my finances. Young guy.

Post by sergeant »

md&pharmacist wrote: Wed Jun 20, 2018 6:56 pm
HomerJ wrote: Wed Jun 20, 2018 5:44 pm
techcrium wrote: Wed Jun 20, 2018 4:46 pmI think I am different than most people on this forum (and most people in general) in that I don't view debt as chain and shackles in a prison cell.
You've never been through a recession with a ton of money on the line.

Sorry to be that old guy with experience grumbling at the young guy who has only seen one side of the coin so far. :)
So Homer, why put so much on the line in the stock market. Maybe OP should re-balance risk exposure? Maybe he will not feel so good when the next major correction occurs given the maturity of this bull.

Perhaps someone should have cash positions to invest/diversify in...oh I don't know...maybe their personal business or commercial real estate or something. Then they'll have a really good income to serve as a great cushion too. Now why didn't I think of that?
Homer is telling him to lower risk! Not sure why you came here to call him out. Please keep your situation in your thread.
For the ashes of his fathers, And the temples of his gods. | Pensions= 2X yearly expenses. Portfolio= 40X yearly expenses.
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HomerJ
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Re: Evaluate my finances. Young guy.

Post by HomerJ »

md&pharmacist wrote: Wed Jun 20, 2018 6:56 pm
HomerJ wrote: Wed Jun 20, 2018 5:44 pm
techcrium wrote: Wed Jun 20, 2018 4:46 pmI think I am different than most people on this forum (and most people in general) in that I don't view debt as chain and shackles in a prison cell.
You've never been through a recession with a ton of money on the line.

Sorry to be that old guy with experience grumbling at the young guy who has only seen one side of the coin so far. :)
So Homer, why put so much on the line in the stock market. Maybe OP should re-balance risk exposure? Maybe he will not feel so good when the next major correction occurs given the maturity of this bull.

Perhaps someone should have cash positions to invest/diversify in...oh I don't know...maybe their personal business or commercial real estate or something. Then they'll have a really good income to serve as a great cushion too. Now why didn't I think of that?
I agree with you md&p. I think the OP is doing great, and should pay off the debt. He's young enough to stay fully invested in the stock market if he feels he can handle the next downturn, but you give good advice too. Perhaps he should lower his stock risk a bit, and put some money in bonds or CDs, or maybe even a rental property.

But not because I'm predicting the stock market is going to crash soon. Just because he's well ahead of the game now, and his need or willingness to take risks may have changed.

I always suggest one should set an Asset Allocation assuming the market could crash tomorrow. Because it could. If you're young, that might still mean 100% in stocks. If you're close to retirement, that might mean 40% in stocks. It doesn't matter what you think is going to happen. The risk is always non-zero.

If you are 2 years from retirement and almost have made your number, you would be foolish to be 100% in stocks, even if you think the stock market is going to do great. Because you might be wrong. Pick an AA based on YOUR financial situation, not based on what you think the market will do.

I've never been against you holding cash to modify risk. I've been against you ignoring your cash position when calculating returns.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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techcrium
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Re: Evaluate my finances. Young guy.

Post by techcrium »

HomerJ wrote: Wed Jun 20, 2018 7:29 pm
If you are 2 years from retirement and almost have made your number, you would be foolish to be 100% in stocks, even if you think the stock market is going to do great. Because you might be wrong. Pick an AA based on YOUR financial situation, not based on what you think the market will do.

I've never been against you holding cash to modify risk. I've been against you ignoring your cash position when calculating returns.
That's exactly what I'm doing...I young, not married, no kids, long career life left, high risk tolerance....and based on my situation, my asset allocation is 115% equities.
KingFriday
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Re: Evaluate my finances. Young guy.

Post by KingFriday »

Nicely done on increasing your income and continuing to save! Also, well done effectively de-leveraging.

I'm relatively new to the game, and I feel I'm relatively risk tolerant (only 100% equities). I'm so glad your strategy has worked for you. My concern is for those who may follow your example. Or, those you may pass your example on to.

I continue to save, and I continue to invest aggressively. If there was a huge market downturn this year, I would see my balances tumble. For now, I don't care. I have significant income ahead of me, and I can continue to save through the downturn. More importantly, at no point in my investing history was I at a point where I could have been wiped out by market forces alone.

It's true, my net worth is smaller than yours. It's true, your strategy has worked very well for you. I would argue that, in broad terms, you were heavily leveraged at the right time. Therein lies my discomfort. My strategy: save 20% of my income (currently a goal I'm not meeting), pay off debt (aggressively if >6%, as agreed if lower, especially at something like 3%), invest in broad-market low-cost funds, and stay the course regardless of market whims. My strategy will work for any 20 or 30-whatever y/o, regardless of where we are in the market cycle when they start saving. I contend that your strategy can be poorly timed. I'm not saying you were trying to time the market. I'm just saying that there was a point in your investing history where, if there was a large downturn, you would have been wiped out.

I worry about the 20-whatever y/o who was where you were several years ago getting wiped out for no good reason at some undetermined time in the future. It wasn't you, it may not be the next person, but it'll be someone.
frugalmama
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Re: Evaluate my finances. Young guy.

Post by frugalmama »

techcrium wrote: Wed Jun 20, 2018 4:46 pm
jibantik wrote: Wed Jun 20, 2018 4:44 pm
600k net worth, still haven't paid back a close relative :shock:
They are happy with the interest structure and have no need for the money right now; I am happy with continuing to use the money to invest.

I think it is a win-win for both parties.

I think I am different than most people on this forum (and most people in general) in that I don't view debt as chain and shackles in a prison cell. I view my finances as a balance sheet like any accountant. On 1 side I have assets, and on another side I have liabilities. When we renegotiate the interest rate and it becomes too high for my liking, I will pay off the loan. Or if the debt is suddenly recalled due to retirement/big purchase.
I see debt that way too...leverage. Businesses use leverage all the time. However, I'm also aware that most small businesses (much like individuals) fail due to cash flow problems so it is important not to take on more risk than you can truly handle. I have stayed the course since I first started investing as I don't feel emotionally attached to my $ and I do leverage myself sometimes so I understand where you are coming from. The key is understanding the risk and knowing how you would manage a worst possible scenario IMO...because that scenario could hit.
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djpeteski
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Re: Evaluate my finances. Young guy.

Post by djpeteski »

techcrium wrote: Wed Jun 20, 2018 3:33 pm I'm really not sure how that analogy applies. Like if the music stops = market crashed? If the market crashes 85%, then I might be on the verge of financial ruin...but at that point, I would believe the whole world would be in financial ruin too...
If you take any kind of class that involves risk management, motorcycle safety and SCUBA are two examples, they will go over how accidents (where people get hurt) occur when a number of events occur. Perhaps the motorcycle wreck occurred because the bike needed new brakes, had under inflated tires, the driver was not 100% paying attention, and a person pulled out in front of them. In that case it is easy to blame the person pulling out in front of you, but one has to be prepared to take responsibility for the actions they take.

In the end, I hope that things work out really well for you and it seems like you are paying attention. However, please recognize that you are exposing yourself to significant risks.

Could your credit card interest shoot up to 23% overnight? Yup.
Could you lose your job? Yup.
Could your relative demand that you repay in full immediately? Yup.
I feel like you understand, at least somewhat, the compounding risk of buying on the margin. Interest rates could change and you could have a call at a horrible time to sell.

The IT field is not bullet proof and is actually highly susceptible to a recession. You could lose your job. One of the first areas that companies tend to cut, because it is so expensive, is IT when times get tough. Myself I found myself very under/unemployed for about three years after the twin towers came down. It was not until 2016 I was making the kind of money that I was making in 2001.

When you fiddle with debt, you are playing a game of musical chairs.
beebog
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Re: Evaluate my finances. Young guy.

Post by beebog »

techcrium wrote: Tue Feb 07, 2017 2:25 pm I can pay off my relative right now and borrow from the bank instead but incur a slightly higher interest rate with the bank (3.5% vs. 3%). I benefit by lowering my interest payment. He benefits because he is not using the money right now and he is earning better interest rate than typical savings account (which pays 2% tops)
It is not really comparable at all. Your relative could get a 2% risk free and insured return. Instead they are taking on tremendous risk and only getting an additional measly 1% in return for it. You are willing to take the risk of a 85% loss because you have the opportunity of gains it affords you. They are taking on that same risk, more actually, and get nothing for it.

You could argue that even if you lose 85%, you would still be committed to paying it back, but that doesn't ring true since you don't do that under rosy conditions. You will when you are distressed?

Perhaps it doesn't really matter. Perhaps your relative can easily afford to take that risk and doesn't care about the return. Perhaps they are planning to leave all their money to you anyway, so it is irrelevant. All fine scenarios. But presenting this as a good idea without those qualifiers and saying you are helping them out is just incorrect.
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