Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

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investor2019
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Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by investor2019 » Sat Jun 08, 2019 12:15 am

I'm 40 years old, left full-time employment about 1 year ago, currently earning about $5k to $10k/month through self-employment income, and have monthly expenses of ~$4,000 including insurance through COBRA ($1,700/month -- yikes!) and housing expenses of $1,300/month (my house is paid off 100% in full). I've saved ~$1.25 million ($1,050,000 in Brokerage account; $200k in IRA account). I currently have all of my money in cash, and have had it there on and off for the past several years with a day trade here and there. Ideally I would have kept everything invested over the years and kept adding to it monthly or on pullbacks so I wouldn't have such an issue (hindsight is 20/20). I want to get back into the market, but a bit hesitant near all-time highs. I'm deciding to wait for the next market correction/pull back if we get more China trade tariff news that rattles the markets. I've heard about the safe withdrawal rate of 4% preached by FIRE experts (e.g., Mr. Money Mustache). The thought of not having to work and taking 4%, the safe withdrawal rate, of $1.25 annually from my account if it were all fully invested would cover my monthly expenses making me financially free. I've been researching Vanguard funds which led me to here. I've read in many places to invest my money between VTI (Total Stock Market Index Fund) and BND (Vanguard Total Bond Market Index Fund). Having my money in only two funds, VTI and BND, with a 90%/10% allocation respectively seems simple enough but it only yields 2.07% (combined with aforementioned allocation), which means I would need to sell 1.93% worth of shares each year to hit the 4% safe withdrawal rate. If I invested in additional funds like VPU, VNQ, and VYM I could easily bring the yield to 2.5% while keeping 50% invested in VTI and 10% invested in BND and the remained 40% invested in these additional funds. I'm considering investing all of my money at once or $100k/month for the next 12 months. Please let me know the best way to get this money invested back into the market either DCA or all at once, and what asset allocation you would choose and why, and how you would recommend withdrawing the money to live off of (e.g., monthly/annually), and whether you would automatically reinvest dividends or let dividends go to a cash account when they are paid. Any guidance and recommendations would be greatly appreciated.

PS - Is there any point where introducing individual stocks is recommended?

mhalley
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by mhalley » Sat Jun 08, 2019 12:36 am

The 4% swr is meant as a guideline for a “normal” retiree, ie for someone that needs their money to last 30 years. There have been many gurus that state that returns going forward will not match those in the past, and the 4% rule should be decreased. Add on another 20 years, and you are def looking at a 3%, possibly 3.25% rule.
Look at the early retirement now swr posts.
https://earlyretirementnow.com/2016/12/ ... t-1-intro/
He discusses reaching for yield, glidepath, etc. Individual stocks are not verboten, but most don’t like them at all and the few that do would limit them to 10% of equities.
Looks like you still have not learned that you can’t time the market, you might be one of those that could benefit from going with vanguard pas.

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Tamarind
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by Tamarind » Sat Jun 08, 2019 6:08 am

You are waiting for the pullback. What did you think that was last week? You've clearly missed it and now stocks will rise forever. :twisted:

In seriousness, if we turn out to have been near all-time highs in retrospect 30 years from now, your retirement will have to come to an end pretty soon. Mine will also be delayed. Luckily for you, me, and all of us, the perception that stocks are as high as they can get has so far proved to be a behavioral illusion.

I would advise you to invest as much of your nest egg as you can emotionally tolerate as soon as possible. 100% would be best, but it needs to be an amount that you will never move to cash again. You don't get to safely withdraw 4% if you keep playing market timing games, because your expected return is reduced by exiting the market. I also recommend a service like Vanguard PAS for you, so you can keep your hands off your portfolio.

Also, please know that your withdrawal is not safer because most of it is coming from dividends. It's just 4% any way you take it, because you are still eating the growth of your portfolio. Instead of selling 4% of shares, you'll sell 2% and decline to buy 2% more, for example.

I don't think you have quite enough to retire for the rest of your life at your current burn rate. As pointed out above, 4% is safe for 30 years, not the 50-60 you are looking at. Research indicates that a portfolio less than 50% stock (like yours currently) has a very high rate of running out of money within 50 years. So you need to invest, and stay invested, and also reduce your burn rate.

What if you only worked enough to bring in $2000 a month? You could keep that up indefinitely as long as your expenses stayed at $4000. You can also cut your expenses some - for instance by switching to ACA once your Cobra ends. It's not cheap now because of your income, but once you are retired it would be much less expensive.

3-20Characters
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by 3-20Characters » Sat Jun 08, 2019 6:24 am

IMO, you weren’t ready to fire and you knew it somewhere in the back of your mind—which is why you went 100% cash. This is classic behavioral error stuff and you’ll have to sort out how you’re going to get through a potentially very long retirement with a reasonable aa. Since you’re earning money, you may need to expand on the idea of how to live on that income plus a minimum % withdrawal (maybe 2-3% or so?) to feel comfortable getting back into a proper longterm aa. There are many threads here about this topic to chew on.

Rus In Urbe
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by Rus In Urbe » Sat Jun 08, 2019 6:30 am

These are good insights and advice above. Yes, Vanguard PAS is perfect for someone like you. And yes, I agree you might want to do some part-time work for a while to stretch out the stash a little---by my way of thinking, you're not quite covered, but others may disagree. The older you get, the harder it is to stay in the workforce, so I would add some fudge factor in your planning.

Since you are 100% in cash and also leaning toward market timing, the indications are you are extremely loss-averse. Take that into account when you are lining up your investments. I recommend that you look into having some portion of your stash in CDs or even a 2% money market fund, which might keep you from panic-selling during an (INEVITABLE) future downturn, and think about the other money that is in the market as stuff you may not need for a longer time.

After you have been an investor for years and ridden the roller coaster up and down, it will finally hit home that you DON'T LOSE A DOLLAR IN A DOWNTURN UNLESS YOU SELL. Sorry for the shout, but really, it amazes me how many people, even on this board, don't seem to grasp this fundamental principle. The market goes down a day and you see some posts about "hey, I lost $100K yesterday"---- :oops: Well no, dopey, only if you sold your investments. You still own the same number of shares. Anyway, keep all this in mind as you ease yourself into the market.

IMHO, being 100% cash is extremely risky, but then, I've always been more concerned about missing out on stock market rises than fretting about downturns. That has certainly worked out well for us, and our tiny dollars :dollar have been in the market for a couple of decades, cloning themselves 24/7. :moneybag :moneybag :moneybag :moneybag Investing....it's a nice feeling.....

You can learn a lot from this board and from the sane advice from fellow Bogleheads. Good luck to you! :beer
I'd like to live as a poor man with lots of money. ~Pablo Picasso

LFS1234
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by LFS1234 » Sat Jun 08, 2019 7:30 am

investor2019 wrote:
Sat Jun 08, 2019 12:15 am
I've heard about the safe withdrawal rate of 4% preached by FIRE experts (e.g., Mr. Money Mustache). The thought of not having to work and taking 4%, the safe withdrawal rate, of $1.25 annually from my account if it were all fully invested would cover my monthly expenses making me financially free.
I've never understood the attraction of retire-at-40-and-never-work-again. There is a happy medium between being stuck in a stressful job which you do not like, and sitting around doing nothing productive for the next 40-60 years.

Personally, I would not allow myself to invade principal below traditional retirement age (if even then). I think a 90% allocation to stocks is wise at 40, but you have to be able to stay the course and you shouldn't allow yourself to withdraw more than the dividend yield of around 2%, which would give you around $25K/year to live on. The other $25K would need to be made up by labor income. In due course, your stock portfolio will grow and the dividends will rise, and at some point the additional labor income will not be necessary (if your expenses remain constant). Obviously, if you can add to your portfolio in the meanwhile, you can reach that position sooner.

I have known lots of lifestyle-oriented people who only do work they love and only do it when they feel like it. Some of these are hands-on, skilled craftsmen whose labor is always in demand. Others are highly educated professionals who can choose their clients and pick their projects. I have yet to run into anyone who hasn't been able to find a satisfactory work-life balance given their ability to take 26 weeks of vacation per year.

You now have the ability to take jobs primarily in order to do work which you find enjoyable and interesting, with and for people you enjoy interacting with. Pay is a tertiary factor, and you can still take months off to go hiking in the Himalayas or surfing in Costa Rica.

So my views in summary: consider a change in work/life balance but don't give up work entirely; invest primarily in stocks (VTI is probably fine), and don't touch your principal until you reach 65 unless you've received a terminal diagnosis prior to then. I think once you reach 65, you'll be very happy you did this. And most likely also quite well off.

Best of luck!

supersecretname
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by supersecretname » Sat Jun 08, 2019 7:48 am

investor2019 wrote:
Sat Jun 08, 2019 12:15 am
PS - Is there any point where introducing individual stocks is recommended?
No.

Health insurance is your biggest budget item. If you retire, poof, you only need 2300/month + insurance. Starting looking into ACA plans. With the low budget requirements, you would have low income and qualify for hefty subsidies. You'll probably only end up paying a few hundred a month, if that.

So, yes, your current balances could support 2500/month - but you need to start investing. Lump sum is the mathematically correct approach, but often not the optimal psychological one. So, DCA 100k/month over the next year (or even 50k over the next 24), and get your AA up to at least 60% stocks. I'd shoot for 75% since you do seem a bit risk averse.

When you do set up the DCA, make it automatic. Don't rely on yourself to actually make the buys since that will lend itself to market timing.

And not to knock bogleheads, but check out the MMM forum - it's a bit more in tune with your goals. I've seen posts here that even 3mil wasn't enough to retire early :shock

And congrats! I have similar numbers and am planning to exit early as well.

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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by cherijoh » Sat Jun 08, 2019 8:13 am

Tamarind wrote:
Sat Jun 08, 2019 6:08 am
Also, please know that your withdrawal is not safer because most of it is coming from dividends. It's just 4% any way you take it, because you are still eating the growth of your portfolio. Instead of selling 4% of shares, you'll sell 2% and decline to buy 2% more, for example.
+1

Chasing dividends has been a disaster for many investors in these once darling stocks.

petulant
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by petulant » Sat Jun 08, 2019 11:05 am

Why not just invest the money in stocks and keep working for a bit to feel more confident in your portfolio? If anything, you could drop your hours a hair and be fine.

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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by DanMahowny » Sat Jun 08, 2019 11:16 am

LFS1234 wrote:
Sat Jun 08, 2019 7:30 am
I've never understood the attraction of retire-at-40-and-never-work-again. There is a happy medium between being stuck in a stressful job which you do not like, and sitting around doing nothing productive for the next 40-60 years.
I retired 10 years ago at 42, and have no need to ever work again.

Why do you feel that one needs to have a job to be "productive"? That's pretty sad.

I enjoy a very productive and fulfilling life. "Sitting around" doesn't describe me, at all.

Work is an escape from freedom.
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by Shallowpockets » Sat Jun 08, 2019 11:56 am

I'm curious.
You have >$1m in cash now. Surely you did not acquire that in one fell swoop. So what the heck was going on with investing over the years as you accrued that? Why weren't you in the market at $500,000 or before. Surely at some point you must have realized you did not need all that money to live on in the present.
How long have you been not in the market? Your catch up now is almost impossible.

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investor2019
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by investor2019 » Sat Jun 08, 2019 3:01 pm

Thanks to those that have replied to my post.

A good portion of my savings to date, roughly 65% of it, came in the form of RSUs (restricted stock units) from my previous employer which appreciated greatly over the past 5 years. I had so much of my net worth in those RSUs, all other income went into a money market fund earning nominal interest. I have since sold all of my RSUs and now all of my money is in cash. Now I need to figure out a good asset allocation for the long-term.

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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by jabberwockOG » Sat Jun 08, 2019 4:23 pm

DanMahowny wrote:
Sat Jun 08, 2019 11:16 am
LFS1234 wrote:
Sat Jun 08, 2019 7:30 am
I've never understood the attraction of retire-at-40-and-never-work-again. There is a happy medium between being stuck in a stressful job which you do not like, and sitting around doing nothing productive for the next 40-60 years.
I retired 10 years ago at 42, and have no need to ever work again.

Why do you feel that one needs to have a job to be "productive"? That's pretty sad.

I enjoy a very productive and fulfilling life. "Sitting around" doesn't describe me, at all.

Work is an escape from freedom.
Exactly. Well said. More than a few folks imprisoned by their minds around here.

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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by jabberwockOG » Sat Jun 08, 2019 4:26 pm

investor2019 wrote:
Sat Jun 08, 2019 3:01 pm
Thanks to those that have replied to my post.

A good portion of my savings to date, roughly 65% of it, came in the form of RSUs (restricted stock units) from my previous employer which appreciated greatly over the past 5 years. I had so much of my net worth in those RSUs, all other income went into a money market fund earning nominal interest. I have since sold all of my RSUs and now all of my money is in cash. Now I need to figure out a good asset allocation for the long-term.
As others have posted use dollar cost average to get it into the market in next 10-12 months 100k at a time. Just pick a down market day once a month and don't look back to second guess. Use three fund portfolio and then leave it alone come hell or high water. You have plenty for a normal 30 year retirement but likely not enough to totally fund 50 years. Find part time or project related income or find ways to significantly lower cost of living.

Laika
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by Laika » Sat Jun 08, 2019 4:30 pm

Rus In Urbe wrote:
Sat Jun 08, 2019 6:30 am
you DON'T LOSE A DOLLAR IN A DOWNTURN UNLESS YOU SELL.
I generally agree with the comments in this thread, except for this point.

Who would say that a 10 year old beater car hasn't lost value just because it hasn't been sold yet? No, it's only worth what someone else will pay for it - the same as for stock.

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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by David Jay » Sat Jun 08, 2019 4:39 pm

Laika wrote:
Sat Jun 08, 2019 4:30 pm
Rus In Urbe wrote:
Sat Jun 08, 2019 6:30 am
you DON'T LOSE A DOLLAR IN A DOWNTURN UNLESS YOU SELL.
Who would say that a 10 year old beater car hasn't lost value just because it hasn't been sold yet?
While I don’t necessarily agree with Russ, you analogy is unworkable. The stock market has real earnings and real growth. Your used car has neither.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Laika
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by Laika » Sat Jun 08, 2019 4:46 pm

David Jay wrote:
Sat Jun 08, 2019 4:39 pm
Laika wrote:
Sat Jun 08, 2019 4:30 pm
Rus In Urbe wrote:
Sat Jun 08, 2019 6:30 am
you DON'T LOSE A DOLLAR IN A DOWNTURN UNLESS YOU SELL.
Who would say that a 10 year old beater car hasn't lost value just because it hasn't been sold yet?
While I don’t necessarily agree with Russ, you analogy is unworkable. The stock market has real earnings and real growth. Your used car has neither.
Analogies don't have to be precise to be useful.

Anyway, dividends suffered in the last downturn, and "real growth" isn't guaranteed.

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JasonF
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by JasonF » Sat Jun 08, 2019 4:59 pm

I think you would be well-advised to re-think any plans to completely stop working. First, your entire nest egg is in cash and you mentioned that you day trade here and there. My concern is that this behavior will haunt you repeatedly through your retirement as you vacillate between fear and greed and end up jumping in and out at the wrong times.

Second, as others have noted, the "4% Rule" has been historically based on a 30 year drawdown. You'll find conflicting sources arguing that a 30 year SWR is now 2-3% while others have shown that maintaining a 4% SWR over 30 years has historically also resulted in ending portfolios substantially larger than the beginning value. Research "Sequence of Returns Risk." Sure, the 4% SWR was just that - "safe" with no failures based on the backtested data. Still, it's a wise idea to have a margin of safety because the last thing you'd want to happen is find out 30 years from now your nest egg is depleted and you have to either find work or drastically cut your expenses.

Third, others have mentioned Vanguard's financial advisory product and I think that's a very good place to start. However, they won't (and no other firms I'm aware of) protect you from you. For example, it's 6 years from now and the market is imploding. Vanguard has you allocated 60/40 and although that's a moderate allocation, you're clamoring to get out. If you call and tell them to move you to cash (or an extremely conservative allocation), they'll likely oblige due to liability reasons. How would it work out for them in arbitration if there are phone records of you asking to sell stocks, they refuse to, and the market continues down and you end up realizing losses?

So the answer to all these issues is to educate yourself. Spend the next several months (or years) getting to know yourself as an investor. Realize that no firm or individual can save anyone from themselves and with that knowledge, develop and implement a financial plan and asset allocation that is based (in the immortal words of Larry Swedroe) on your need, ability and willingness to take risk.

At the moment, I would continue to pull in revenue and build a strong depth of knowledge. Your future self will be glad you did.

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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by 7eight9 » Sat Jun 08, 2019 7:12 pm

Laika wrote:
Sat Jun 08, 2019 4:46 pm
David Jay wrote:
Sat Jun 08, 2019 4:39 pm
Laika wrote:
Sat Jun 08, 2019 4:30 pm
Rus In Urbe wrote:
Sat Jun 08, 2019 6:30 am
you DON'T LOSE A DOLLAR IN A DOWNTURN UNLESS YOU SELL.
Who would say that a 10 year old beater car hasn't lost value just because it hasn't been sold yet?
While I don’t necessarily agree with Russ, you analogy is unworkable. The stock market has real earnings and real growth. Your used car has neither.
Analogies don't have to be precise to be useful.

Anyway, dividends suffered in the last downturn, and "real growth" isn't guaranteed.
Selling or not selling does not determine whether or not an investor has lost money in a stock/ETF/mutual fund etc. Any day the price goes down money has been lost. You are poorer than you were the day before. Maybe poorer than you were when you made the investment. And you will need a larger percentage gain to make up that loss (i.e. have a 50% paper loss - you have to enjoy a 100% paper gain to get back to even).

Whether the loss is realized or only on paper doesn't matter. It is a loss. One can be in denial about it and look at their portfolio as "shares" vs. "dollars" but "shares" don't pay bills. Eventually those shares will need to be converted into dollars. Markets are not guaranteed to recover in an investor's time frame, lifetime, or ever.
I guess it all could be much worse. | They could be warming up my hearse.

nix4me
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by nix4me » Sat Jun 08, 2019 9:00 pm

Congrats on FIRE.
Remember - people have been lied to for their entire lives thus all of the people telling you to work until you drop dead.

I think you should read the JLCollins book: A simple Path to Wealth.

It has the answer i would follow in your situation.

smectym
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by smectym » Sun Jun 09, 2019 3:28 am

investor2019, the paradox of investing is that the dogmas derived from experience of what, historically, has worked for most investors under conditions typical of recent history (and bogleheads by and large live and breathe the 1982-present gestalt) aren’t guaranteed to work for any individual investor first wading into a market subject, not to the historical past, but to the contingent, filled-with-surprises future.

And that’s why none of the givers of advice on this or any other boglehead string, especially me, can guarantee a profit or indemnify against loss if you follow our recommendations. We just don’t know what will happen next.

That said, a 40/40/20 (stock/bond/cash) allocation should pretty much insulate you from a wipeout. And tweak from there based on your risk tolerance. Ouch! The first brick already grazed my forehead

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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by JoeRetire » Sun Jun 09, 2019 5:13 am

investor2019 wrote:
Sat Jun 08, 2019 12:15 am
I currently have all of my money in cash, and have had it there on and off for the past several years with a day trade here and there. Ideally I would have kept everything invested over the years and kept adding to it monthly or on pullbacks so I wouldn't have such an issue (hindsight is 20/20). I want to get back into the market
Why?

With all your money in cash, what has changed to make you want to be in the market now?

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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by JTColton » Sun Jun 09, 2019 8:56 am

DanMahowny wrote:
Sat Jun 08, 2019 11:16 am
LFS1234 wrote:
Sat Jun 08, 2019 7:30 am
I've never understood the attraction of retire-at-40-and-never-work-again. There is a happy medium between being stuck in a stressful job which you do not like, and sitting around doing nothing productive for the next 40-60 years.
I retired 10 years ago at 42, and have no need to ever work again.

Why do you feel that one needs to have a job to be "productive"? That's pretty sad.

I enjoy a very productive and fulfilling life. "Sitting around" doesn't describe me, at all.

Work is an escape from freedom.
Beautifully stated, we construct our own prisons.

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DanMahowny
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by DanMahowny » Sun Jun 09, 2019 10:09 am

JTColton wrote:
Sun Jun 09, 2019 8:56 am
we construct our own prisons.
Brilliant.

That quote is one to remember. Very true.
Funding secured

nix4me
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by nix4me » Sun Jun 09, 2019 11:55 am

DanMahowny wrote:
Sun Jun 09, 2019 10:09 am
JTColton wrote:
Sun Jun 09, 2019 8:56 am
we construct our own prisons.
Brilliant.

That quote is one to remember. Very true.
Well said. Unfortunately we are bombarded with the wrong information starting when we are born.

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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by KyleAAA » Sun Jun 09, 2019 2:49 pm

3.5% is the highest you should go with a retirement that long, so forget the 4% number. There are no FIRE "experts" because nobody currently writing on the topic has actually managed a 50+ year retirement. At best they are a few years in and have made some assumptions they are comfortable with that may or may not pan out. "Being flexible " is all well and good but the math doesn't work at 4% regardless of how flexible you are.

It sounds like you probably have enough to retire with your desired expenses but you'll be cutting it close. If you continue with your self employment income for the next few years, that's a different story. Then you'd be golden. Either do that or cut expenses a bit.

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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by latak215 » Sun Jun 09, 2019 3:28 pm

F0r my 30 y/o daughter. who probably wii have as much wealth and earning potential as you do in a few years., we want to put 70% in bonds and 30% in high dividend stocks to lessen the impact of market downturn.we are considering vclt for bonds and vym for stocks as these etfs have options so we could raise additional revenue by selling out of the money covered calls during market euphoria.

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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by Rus In Urbe » Sun Jun 09, 2019 4:31 pm

Rus In Urbe wrote: ↑Sat Jun 08, 2019 7:30 am
you DON'T LOSE A DOLLAR IN A DOWNTURN UNLESS YOU SELL.
Laika » Sat Jun 08, 2019 5:46 pm
Who would say that a 10 year old beater car hasn't lost value just because it hasn't been sold yet?
To Laika---the difference between a 10 year old beater car and a share of stock (or many shares in an index fund) is that from the moment it is driven off the lot, a car constantly loses value over time (unless it is an antique or limited edition model). Whereas, businesses grow and their shares generally gain value over time (with ups and downs and occasional complete snuff-outs, which you don't worry about if you hold index funds and not individual shares). Rather than compare shares to a car, a better analogy might be holding a piece of mortgage-free real estate, a house, for instance; the real estate market can fall but you still own the house. Sure, you will feel a lot poorer but ONLY IF YOU SELL IT and lock in your loss, will you lose actual money. If you hold onto it and the real estate market recovers (and real estate generally appreciates over decades, at different rates depending on location), you may recover and make a gain. Feeling poorer is something to avoid if you want to be a steady, rational investor...it can lead you to act out of fear; that was my larger point.
7eight9 wrote:
Selling or not selling does not determine whether or not an investor has lost money in a stock/ETF/mutual fund etc. Any day the price goes down money has been lost. You are poorer than you were the day before. Maybe poorer than you were when you made the investment. And you will need a larger percentage gain to make up that loss (i.e. have a 50% paper loss - you have to enjoy a 100% paper gain to get back to even). Whether the loss is realized or only on paper doesn't matter. It is a loss. One can be in denial about it and look at their portfolio as "shares" vs. "dollars" but "shares" don't pay bills. Eventually those shares will need to be converted into dollars. Markets are not guaranteed to recover in an investor's time frame, lifetime, or ever.
To 7eight9---you sound as risk averse as the OP. :) My point is that downturns happen, and at such times, it is worth remembering that you hold exactly the same number of shares when their value soars or plummets. Thinking about shares has been (for me) a helpful way to weather the (inevitable) market downturns (using that logic, we bought more during the Great Recession and made out like bandits in the Great Recovery). If you want to call it denial, that's fine. I call it a strategy in logic to tamp down fear, and it works for me and helped us win the game big time. As an investor, I have worked toward putting us in positions in which we are able to chose the time to convert certain holdings into dollars strategically (whether because they have appreciated, or because they are depreciated to TLH, or to adjust AA, or whatever). If one can't choose the time to convert shares to dollars in order to "pay bills" (as you imply), then yeah, that's a bad position to be in. And, no, "markets are not guaranteed to recover"----but in my several decades of experience (1987, 2001,2008), the stock market has bounced back amazingly quickly (Thanks again, John Bogle, for showing us how to profit from the fear and greed of others!).

I still find this a logical, true statement: You don't lose a dollar in a downturn unless you sell.
Selling at the bottom is "locking in your losses."
If you don't lock in your losses, those values can continue to float----over time, eventually upward.
I'd like to live as a poor man with lots of money. ~Pablo Picasso

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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by Godot » Sun Jun 09, 2019 4:46 pm

DanMahowny wrote:
Sun Jun 09, 2019 10:09 am
JTColton wrote:
Sun Jun 09, 2019 8:56 am
we construct our own prisons.
Brilliant.

That quote is one to remember. Very true.
Freedom is knowing the size of your own cage.
“There is man in his entirety, blaming his shoe when his foot is guilty.” ― Samuel Beckett, Waiting for Godot

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investor2019
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by investor2019 » Sun Jun 09, 2019 4:52 pm

@"Rus In Urbe" and others, what Vanguard funds/ETFs do you recommend if I were to begin purchasing them this week? (e.g., VTI, BND, VYM, VCLT, VPU, VNQ, etc.)

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Tyler Aspect
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by Tyler Aspect » Sun Jun 09, 2019 10:57 pm

Assume you want a standard allocation of 60% stock / 40% bond for someone nearing retirement, a sample portfolio would be:

Taxable:
US Stock (ticker symbol VTI) 30%
Global Stock (ticker symbol VT) 30% (these two ETFs give 1/3 international, 2/3 US exposure)
Intermediate term bond ETF (ticker symbol BIV) 20%

Tax Deferred:
Total US bond market (ticker symbol BND) 20%
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by 22twain » Mon Jun 10, 2019 12:36 am

Tyler Aspect wrote:
Sun Jun 09, 2019 10:57 pm
Taxable:
US Stock (ticker symbol VTI) 30%
Global Stock (ticker symbol VT) 30% (these two ETFs give 1/3 international, 2/3 US exposure)
Intermediate term bond ETF (ticker symbol BIV) 20%
Why did you choose an overlapping VTI+VT combination instead of:

US Stock (VTI) 47%
Ex-US stock (VXUS) 13%

which cleanly separates the US and ex-US components, with the same proportions (rounded to the nearest % point)?
My investing princiPLEs do not include absolutely preserving princiPAL.

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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by smectym » Mon Jun 10, 2019 1:15 am

DanMahowny wrote:
Sun Jun 09, 2019 10:09 am
JTColton wrote:
Sun Jun 09, 2019 8:56 am
we construct our own prisons.
Brilliant.

That quote is one to remember. Very true.
Um, “we construct our own prisons” is bit of well-worn cliché, as no doubt the poster of the trite aphorism will happily acknowledge, and any cursory web search confirm. So: not “brilliant.” And is rigorous adherence to “bogleprinzip” a self-imposed prison? I say no.

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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by Tyler Aspect » Mon Jun 10, 2019 2:55 pm

22twain wrote:
Mon Jun 10, 2019 12:36 am
Tyler Aspect wrote:
Sun Jun 09, 2019 10:57 pm
Taxable:
US Stock (ticker symbol VTI) 30%
Global Stock (ticker symbol VT) 30% (these two ETFs give 1/3 international, 2/3 US exposure)
Intermediate term bond ETF (ticker symbol BIV) 20%
Why did you choose an overlapping VTI+VT combination instead of:

US Stock (VTI) 47%
Ex-US stock (VXUS) 13%

which cleanly separates the US and ex-US components, with the same proportions (rounded to the nearest % point)?
The overlap is intentional (one part global and one part US). Index funds are buy and hold styled, therefore the overlap is static in nature. It is easier to keep the value of two funds similar than having to break out a calculator each time to calculate a 13% versus 47% ratio.
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by deikel » Mon Jun 10, 2019 3:38 pm

I think part of your math is wrong:

you stated that the VTI BND mix you intended was 90/10 and that would give you 2.07 % /yr....that can not be right. Are you only looking at the dividends and payouts from the bond fund only ?

Even simple savings gives you 2 %, current money market gives you 2 %, bonds alone give you ca 2 % and dividends from the S+P500 should be slightly north of 2% - all rough figures and subject to change, but I think you are missing the actual stock increase over time....

Withdrawal rates usually assume that you are slowly consuming your principle, hence the 4% at 30 year retirement with a success marker being that you do not run out of money in year 30.

Depending on where you live, your COBRA might end soon, so start checking out ACA anyway. If you live in NY, you can enjoy another 18 months of NYCOBRA

Make yourself a conservative mix in your investment including savings accounts. You don't want to invest everything now, there is a dip of 40% and you panic sell....that is the one case you should avoid at all costs, everything else is secondary, so the question is when (not if) the stock market drops 40% and the bonds 15% - what mix do you need to know for 100% sure that you would not sell and still sleep well ? Given your text description, that is NOT 90/10 ....you can always revisit in 5 years, your retirement will be about 45 years long...
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Re: Moving from Rat Race to FIRE, Near All-Time Highs (Best Way to Invest Account Sitting in 100% Cash)

Post by 22twain » Mon Jun 10, 2019 4:03 pm

deikel wrote:
Mon Jun 10, 2019 3:38 pm
bonds alone give you ca 2 %
Total Bond Market (BND) paid me in the 2.8-2.9% range last month.
My investing princiPLEs do not include absolutely preserving princiPAL.

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