A little discouraged with earnings, is it really this slow?

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dratkinson
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Re: A little discouraged with earnings, is it really this slow?

Post by dratkinson » Tue Jul 23, 2019 7:29 pm

BH A little discouraged with earnings, is it really this slow?


Gathering information by rereading your posts.
--You're ~27, single (recently out of a relationship),
--living in Texas (no state income tax),
--current income $61K (22% fed tax bracket, after standard deduction),
--expected raise to $85K (22% fed tax bracket…) or $100K+ (24%+ fed tax bracket…).



Recommended books. What I wish I'd known in my 20s.
The Only Investment Guide You’ll Every Need, Andrew Tobias. General personal finance topics.
The Bogleheads’ Guide to Investing. Overview of wise retirement investing.
Date… or Soul Mate, Warren. Priceless if it helps avoid bad relationship/marriage/divorce.



TLHing. It's not a requirement so you don't have to do it. And it's not something we get to do often, since we only get the chance when the market dips. Haven't had many opportunities since 2009.

But when we do get the chance to TLH, it's easy to learn and there will be many current topics as others are learning too. So you can follow along, then. Or not. Your choice.



Saving a lump sum in cash. In bank/CU savings/CDs? Earning 2-3%? Eroded by inflation? Then taxed as ordinary income, every year, at your highest fed tax rate (22-24%)?

Wouldn't you rather have a better chance against inflation, by having untaxed dividends, and untaxed growth and paying only 15% fed tax on any growth when you sell? How? Dividends from municipal bond funds are fed-tax exempt. 15% is the LTCG tax rate on investment growth when sold in the 22-24% fed tax brackets. (You don’t have to worry about state income tax.)

Data point. During a market correction:
--Equities can lose 50-90%. (Lost 40% in 2008-2009.)
--Bonds can lose 5-15%. (Don't sweat owning good bonds.)

As bond fund prices fluctuate much less than equities, and if I wanted to save a lump sum for a future need, then I'd fill my taxable account with investment grade muni bonds, instead of insured, low-yield, taxable cash in a bank.

Which bonds? I can tolerate more risk so I'd use VWLTX (Vanguard's long-term national muni fund). Why?
--The after-tax return will be higher than TBM in the 15%+ tax brackets.
--The dividends are tax-exempt and don't add to your AGI (won't bump you into higher fed tax bracket).
--Any profit can be deferred and taxed at LTCG rate when you sell.
--Any loss can be TLHed (written off your fed tax return).


Disclosure. I've owned munis since 2008. I did TLH VWLTX/VWLUX for the first time in 2018. Had to sell ~$75K to get a ~$3K TLH for the year. So during that market correction, VWLTX's share price lost ~4% (=3/(75+3)). Not too bad, and much better than equities lost. (I also used the TLH proceeds to rebalance into equities when the market was low... so a win^2 after the market recovered. Whoo hoo! Or should I say, Yee haw!)

VWLTX. Higher after-tax income than savings/CDs/TBM due to TE (tax exempt) dividends + dividends don't add to AGI + taxed at 15% when sold + more stable than equities. By comparison, saving a lot of cash in a bank/CU is not that appealing.

I do keep 1yr of living expenses in savings/CDs/TE mmkt as the 1st tier of my EFs, just to avoid the Sch D hassle of withdrawing small sums. After that I have many years in munis as an extended tier of my EFs, home projects, new car, dry powder fund.



Forum advice. VWLTX is not for folks with a short time horizon (<5yrs) or low risk tolerance (can't tolerate a 15% drop). The forum recommends VWITX (IT national muni) for those who use munis and are in at least the 30% effective fed tax bracket. So if you have a low risk tolerance, short time horizon, and in 22-24% fed tax brackets (new tax code), it's probably better to use something other than munis.


On the other hand. I violated the forum's advice by using VWLTX while in the top of the 15% fed tax bracket (old tax code). Why? Because I was trying to stay in the 15% fed tax bracket a little longer, so all of my LTCG distributions would be taxed a 0%. This meant I had to use muni funds for my bonds, because TE dividends don't add to AGI (won’t bump me into next tax bracket). And only VWLTX produced more after-tax income than TBM in 15% fed tax bracket.

I was able to tolerate any 15% (muni) bond price drop because I over funded my muni EF to ~120% (=1/(1-.15)) of the planned need.

Plan for the worst, hope for the best. Worst case from using VWLTX: I stayed in the 15% tax bracket a little longer, earned more after-tax income than from TBM, had enough for the planned need (from over funding), and I would write off any loss on my fed tax return.



Baseline for fixed income planning. As TBM is the preferred bond fund of the 3-fund portfolio, can use it as a baseline when planning your fixed income investments. If your major fixed income investment (bonds, savings, CDs) doesn't out-perform TBM, then use TBM.

TEY (taxable-equivalent yield). To use munis, you'll need to learn to compute a muni's TEY.

A muni fund's TEY = muni fund's SEC yield / (1 - your fed tax bracket).

Compare a muni's TEY to a taxable bond’s SEC yield, and to savings/CD’s APY. Choose the fixed income investment with the highest TEY, SEC yield, or APY to produce more after-tax income.



Recommended book. Read before investing in bonds in taxable. So you'll know what to expect.
The Only Guide to a Winning Bond Strategy You'll Ever Need, Larry Swedroe.



Should you save a lump sum of money as cash in the bank, or bonds in a taxable account? Your choice.

Which bonds should you use in your taxable account? Your choice.

Why? You’re the only one who must be satisfied with your answer.



Edit. Grammar, typos, completeness.
Last edited by dratkinson on Wed Jul 24, 2019 11:51 am, edited 2 times in total.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.

JBTX
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Re: A little discouraged with earnings, is it really this slow?

Post by JBTX » Tue Jul 23, 2019 7:50 pm

achen9291 wrote:
Sat Jul 20, 2019 5:08 pm
I started saving the Boglehead way at age 22 right out of college in May 2014, I spent that year paying off all debt so the total year invested was low. In 2016 I got laid off and was only able to save a certain amount. 2018 I switched jobs and it stunted my 401k slightly from the Max but I was still able to save $25k last year.

The Age Column, red colors represents the years I was unable to max out my retirement accounts across all accounts. The green represents the years I was able to max IRS limits for all accounts. 401k/IRA is in VTTSX (Vanguard Target Retirement 2060) funds, and HSA is in FSKAX (Fidelity Total Market Index Fund)

Basically it took me 5 years to reach 100k in strictly retirement funds and as of now I have about $109k invested on my own dollars. but my current portfolio is sitting at ~$135k. So in the last 5.5 years the compounding only appears to have gained $26.3k. I'm I on track?

Image
You can get more as cc rate results with an IRR function on a spreadsheet but over 5 years your average contributions were about $55k. $26k divided by 5 years = $5k per year. 5/55 is almost 10%. That math isn't exactly right but you are probably in the 8-9% range which isn't bad at all.

As to not being able to max out retirement accts to the statutory maximum , very few people have that opportunity.

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whodidntante
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Re: A little discouraged with earnings, is it really this slow?

Post by whodidntante » Tue Jul 23, 2019 8:08 pm

You're not doing so badly. I know people whose net worth seems to go down every year, in spite of a decent income.

tesuzuki2002
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Re: A little discouraged with earnings, is it really this slow?

Post by tesuzuki2002 » Tue Jul 23, 2019 8:11 pm

I didn't really begin to see traction until my NW was around $700K... Now I can't slow it down.. LOL!!!

Keep piling money in there... You will see the fruits of your labor...

Silence Dogood
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Re: A little discouraged with earnings, is it really this slow?

Post by Silence Dogood » Tue Jul 23, 2019 8:39 pm

OP, I like your chart! I should try doing something similar.

I'm about a year older than you. I agree that it can feel slow-going at times, but my hope is to save as much as I can by age 30 (in case, for example, my spouse and I decide to have children).

Basically, my goal is to save enough by age 30 that if I don't make any additional contributions I will still be able to comfortably retire by age 60.

Keep up the good work - you're doing a great job! Here's hoping that starting early will help us in the long run!

:sharebeer

vipertom1970
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Re: A little discouraged with earnings, is it really this slow?

Post by vipertom1970 » Tue Jul 23, 2019 11:09 pm

I predict you will hit 1 million dollars at around the age of 52 assuming you max out every year. My 401k hit 1million after 24 years but I was 100% in growth funds with no bond until the age of 50. You are doing much better then me at your age.

bigtex
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Re: A little discouraged with earnings, is it really this slow?

Post by bigtex » Wed Jul 24, 2019 4:56 am

Silence Dogood wrote:
Tue Jul 23, 2019 8:39 pm

Basically, my goal is to save enough by age 30 that if I don't make any additional contributions I will still be able to comfortably retire by age 60.

:sharebeer
And how much do you estimate you need to save by 30 to make that happen?

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LiveSimple
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Re: A little discouraged with earnings, is it really this slow?

Post by LiveSimple » Wed Jul 24, 2019 5:14 am

Just keep adding, compounding works and it is like grass grow, but grows !!!!

VAslim16
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Re: A little discouraged with earnings, is it really this slow?

Post by VAslim16 » Wed Jul 24, 2019 6:32 am

stocknoob4111 wrote:
Sat Jul 20, 2019 5:53 pm
you're 27 with a $100K+ net worth and are discouraged? Please don't be, you're way way ahead of most people in the country! Now, if you were 67 with $100K then it would be discouraging. Trust me, you're ahead... when I was your age I had a negative net worth :oops: I've recovered nicely and doing quite OK for my age (mid 40s) but I could've done so much better if I had some sense in my 20s.
Yeah man you are doing a good job. It took me till age 37 to hit 100K. I wish I could have my 20s back. Well done and keep it up.

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Brianmcg321
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Re: A little discouraged with earnings, is it really this slow?

Post by Brianmcg321 » Wed Jul 24, 2019 6:35 am

The first million is the hardest.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.

Silence Dogood
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Re: A little discouraged with earnings, is it really this slow?

Post by Silence Dogood » Wed Jul 24, 2019 6:41 pm

bigtex wrote:
Wed Jul 24, 2019 4:56 am
And how much do you estimate you need to save by 30 to make that happen?
I should be more clear. I don't actually intend to stop contributing to retirement accounts after the age of 30, I'm just hoping to front-load my savings to make it easier for my spouse and I to pursue other life goals. For example, if we decide to have children, it's possible my spouse will prefer to work part-time or not at all. Or perhaps even if we don't have children, maybe one (or both) of us would like to pursue a different, possibly lower paying, career. Basically, I want to keep our options open. I feel like front-loading our savings now will give us more options (and more freedom) in the future.

I do have a number in mind, but I feel a little bit reluctant to share it here (I neither want to "humblebrag," nor discourage others, nor detract from the OP's post). Do you have a suggestion for how much I should save by 30, given my goals?
Last edited by Silence Dogood on Sun Jul 28, 2019 10:32 pm, edited 1 time in total.

majiaknight
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Re: A little discouraged with earnings, is it really this slow?

Post by majiaknight » Wed Jul 24, 2019 7:17 pm

I think you're doing great. Starting from your current $135K to add $2K/M (or $24K/Y) w/ est. 6% annual return and compounding, it only takes 9 years to reach half million at 36 year old. If you are lucky enough to find someone w/ similar financial condition to get married, your future family is very likely to reach the most difficult first $1M milestone before 40s. :beer

Is it too ideal? Maybe yes, but I'm one of the lucky guys. My wife and I both started late to get our 1st jobs in high tech after graduate school, and we reached the $1M milestone in mid-30s.

dboeger1
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Re: A little discouraged with earnings, is it really this slow?

Post by dboeger1 » Wed Jul 24, 2019 7:20 pm

Silence Dogood wrote:
Wed Jul 24, 2019 6:41 pm
bigtex wrote:
Wed Jul 24, 2019 4:56 am
And how much do you estimate you need to save by 30 to make that happen?
I should be more clear. I don't actually intend to stop contributing to retirement accounts after the age of 30, I'm just hoping to front-load my savings to make it easier for my spouse and I to pursue other life goals. For example, if we decide to have children, it's possible my spouse will prefer to work part-time or not at all. Or perhaps even if don't have children, maybe one (or both) of us would like to pursue a different, possibly lower paying, career. Basically, I want to keep our options open. I feel like front-loading our savings now will gives us more options (and more freedom) in the future.

I do have a number in mind, but I feel a little bit reluctant to share it here (I neither want to "humblebrag," nor discourage others, nor detract from the OP's post). Do you have a suggestion for how much I should save by 30, given my goals?
My situation sounds shockingly similar to yours. I'm currently 28 with about $200k net worth (probably a little more now, haven't checked in a month or so), and I also have a number in mind to hit by 30 (well, 32 in my case, but my wife will be 30). For me, that number is $400k. The reason I chose that number is similar to yours, I would like to have a foundation of financial security before we start having children. It's important to me because I remember my father struggling very much financially during my high school years, not even due to anything he had control of, but due to medical bills when my mother became ill and passed away when I was in 8th grade. Before then, we were pretty well off, lived in a nice house, and had what could almost be considered an upper middle class lifestyle. After, we nearly wrestled with poverty for years, and when I eventually went off to a top-tier university that I busted my butt to get into and witnessed many of my peers who had been groomed for success by wealthy parents from early childhood, I basically vowed I wasn't going to bring children into this world unless I felt extremely confident I had the means to support them.

Anyway, I don't have any specific advice. I just thought I'd chime in because it sounds like we're in a similar boat. I don't think $400k is a realistic target for many people by 32. I was fortunate not to have any student debt, and despite having been laid off at one point and out of work for 18 months, we eventually got back on track when my wife more than doubled her pay by switching companies. If it weren't for having dual high incomes, the $400k would have definitely been out of the question. We also live in a very high cost of living area.

chevca
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Re: A little discouraged with earnings, is it really this slow?

Post by chevca » Wed Jul 24, 2019 7:22 pm

I wish I had a time machine to go back to when I was 27 and just start saving/investing. Let alone $100k and no debt! Don't be discouraged, OP. You're doing great! Many of us, like me didn't even start until we were almost 40. I predict that 20 years from now you won't be discouraged by the "slow" growth of your portfolio in your 20s.

usagi
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Re: A little discouraged with earnings, is it really this slow?

Post by usagi » Thu Jul 25, 2019 1:24 am

achen9291 wrote:
Tue Jul 23, 2019 11:00 am
My yearly expenses so far for this year is 24k but I"ve been overspending in some areas (spending for a girlfriend earlier in the year which I just broke up with since I didn't see her long term for marriage it would have been alot of hurt and prob decrease my wealth since she loves to travel).
Congratulations, you are way ahead of your peers.

I clipped the quote from you above because you instinctively sidestepped the biggest impediment most people face to financial stability: spousal selection. Finances is also one of the leading causes of divorce, which is assuredly a financial disaster. Keep your head about you when entering into relationships and make finances one of the cornerstones when selecting a mate.

You will also likely want to get NOLO's guide: Prenuptial Agreements - How to Write a Fair & Lasting Contract

Url: https://store.nolo.com/products/prenupt ... -pnup.html

This link might sketch out the legal environment on prenups for you:

https://www.nolo.com/legal-encyclopedia ... -agreement

If you become versed in the topics above, it can only aid your selection process.

Money is not the only thing, but it is easier when you and your mate move in lockstep toward a common goal and share the same sentiments when it comes to spending, saving, and investing. It takes a lot of strain off the relationship allowing you to concentrate on your relationship and family.

Realize, since you are way ahead of your peers, you may have ability to shape a potential mates view on finances.

All the best to you.

lomarica01
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Re: A little discouraged with earnings, is it really this slow?

Post by lomarica01 » Thu Jul 25, 2019 11:13 am

did not read all the posts but you are doing better than great. here is a suggestion, calculate out your expected account balances until the year 2045, don't forget to included increased contributions amounts as you get pay raises over the years. You will most likely find the total balances will be so high due to compounding growth that it will amaze you. Then in 2045 you will have to worry about paying all the taxes when you start taking the money out. Like many others on this forum it is a good problem to have. Be patient and realize you are doing this in great bull market, just wait until you get a 35% drop which will happen at some point.

final advice
use a Roth 401k/457/ira while you are young and making the smallest income of your lifetime
keep your debt low, save and pay cash for cars
use a balanced approach in investing ie you do not need to max out everything in tax deferred accounts

Sandi_k
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Re: A little discouraged with earnings, is it really this slow?

Post by Sandi_k » Sun Jul 28, 2019 1:22 pm

Your expectations are too high. Accruing $100k before age 30 is a great accomplishment! From my history:

- Didn't get to $100k in savings until age 38 (prioritized buying a house instead)
- Didn't have a salary above $60k annually until I was 35.
- I have NEVER been cushy enough to have maxed out my retirement accounts: 403(b), 457 and IRA. I have a mandatory pension contribution of 8%, so I aim for 20% of gross salary to retirement accounts, and that's what I do.

Your savings rate is the most important thing you can control, going forward. In addition, make sure that you are keeping an eye on investing fees. Lastly, good job on being careful with your spousal selection (although, a passion for travel should not be, in and of itselv, a deal-breaker...EXPENSIVE travel, maybe!) ;)

Pat yourself on the back! My 82 year old mother has ~ $100k in her accounts, and that is it!

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achen9291
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Re: A little discouraged with earnings, is it really this slow?

Post by achen9291 » Sun Nov 24, 2019 3:42 pm

Hi All,

I'm updating this thread with some updates since my last post. I was making $61k in September and ended up getting a promotion making $81.6k in October, I then started a new job this week in November which now pays $120k. I'm still in Texas and in a new 24% tax bracket. I'm turning 28 in January and will max out the Roth IRA during that time. I think I should still be okay to max the Roth IRA for 2020 being under salary limit? The 401k for 2019 is already maxed.

I don't have access to the new 401k yet until mid January but it is with ADP, I'm not exactly sure how good the funds will be yet so I'm holding off on any roll overs for the 401k and HSA in Fidelity. The fact that the new 401k is in ADP instead of the traditional Fidelity or Vanguard makes me believe the funds/expense ratios may not be good. There is also no match. I'll update the thread when I find out what those funds may be.

The market has been doing well in the last few months. My retirement account values are at $150k currently. I'm wanting to start a taxable account for the new income, but I've been having the urge to save for my dream car in 2020 and tackle that goal before I invest into taxable for anything else.

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Re: A little discouraged with earnings, is it really this slow?

Post by Dottie57 » Sun Nov 24, 2019 4:19 pm

achen9291 wrote:
Sun Nov 24, 2019 3:42 pm
Hi All,

I'm updating this thread with some updates since my last post. I was making $61k in September and ended up getting a promotion making $81.6k in October, I then started a new job this week in November which now pays $120k. I'm still in Texas and in a new 24% tax bracket. I'm turning 28 in January and will max out the Roth IRA during that time. I think I should still be okay to max the Roth IRA for 2020 being under salary limit? The 401k for 2019 is already maxed.

I don't have access to the new 401k yet until mid January but it is with ADP, I'm not exactly sure how good the funds will be yet so I'm holding off on any roll overs for the 401k and HSA in Fidelity. The fact that the new 401k is in ADP instead of the traditional Fidelity or Vanguard makes me believe the funds/expense ratios may not be good. There is also no match. I'll update the thread when I find out what those funds may be.

The market has been doing well in the last few months. My retirement account values are at $150k currently. I'm wanting to start a taxable account for the new income, but I've been having the urge to save for my dream car in 2020 and tackle that goal before I invest into taxable for anything else.
You’ve done a great job op. I had to wait til I was 40 to hit 100k.

I would slow down on the dream car. Put half your extra into taxable and half into the car fund. In your life you will have many cars - all of which have needs for maintenance and fuel needs. Just remember cars are consumables.

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Christine_NM
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Re: A little discouraged with earnings, is it really this slow?

Post by Christine_NM » Sun Nov 24, 2019 4:36 pm

If you are distracted by shiny objects like dream cars, you will be back here complaining about market return when the important thing is savings rate. Figure the cost of the car to be the its price compounded out to age 65 or whatever.
16% cash 48% stock 36% bond. Retired, w/d rate 2.85%

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achen9291
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Re: A little discouraged with earnings, is it really this slow?

Post by achen9291 » Sun Nov 24, 2019 5:23 pm

Dottie57 wrote:
Sun Nov 24, 2019 4:19 pm
achen9291 wrote:
Sun Nov 24, 2019 3:42 pm
Hi All,

I'm updating this thread with some updates since my last post. I was making $61k in September and ended up getting a promotion making $81.6k in October, I then started a new job this week in November which now pays $120k. I'm still in Texas and in a new 24% tax bracket. I'm turning 28 in January and will max out the Roth IRA during that time. I think I should still be okay to max the Roth IRA for 2020 being under salary limit? The 401k for 2019 is already maxed.

I don't have access to the new 401k yet until mid January but it is with ADP, I'm not exactly sure how good the funds will be yet so I'm holding off on any roll overs for the 401k and HSA in Fidelity. The fact that the new 401k is in ADP instead of the traditional Fidelity or Vanguard makes me believe the funds/expense ratios may not be good. There is also no match. I'll update the thread when I find out what those funds may be.

The market has been doing well in the last few months. My retirement account values are at $150k currently. I'm wanting to start a taxable account for the new income, but I've been having the urge to save for my dream car in 2020 and tackle that goal before I invest into taxable for anything else.
You’ve done a great job op. I had to wait til I was 40 to hit 100k.

I would slow down on the dream car. Put half your extra into taxable and half into the car fund. In your life you will have many cars - all of which have needs for maintenance and fuel needs. Just remember cars are consumables.
That's true.. I currently have 10k EF + 40k cash. I'm still trying to figure out come January what to do with it. Maybe I can put all 40k into taxable and then any extra income, like you said split half and half.

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Wiggums
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Re: A little discouraged with earnings, is it really this slow?

Post by Wiggums » Sun Nov 24, 2019 5:31 pm

You are doing great. Keep contributing the max and with time in the market, your account will grow and grow.

Keep up the great work!

lakpr
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Re: A little discouraged with earnings, is it really this slow?

Post by lakpr » Sun Nov 24, 2019 5:32 pm

achen9291 wrote:
Sun Nov 24, 2019 5:23 pm
That's true.. I currently have 10k EF + 40k cash. I'm still trying to figure out come January what to do with it. Maybe I can put all 40k into taxable and then any extra income, like you said split half and half.
<< sorry deleted a sentence here, I confused you with someone else >>.

Is your future income going to be much higher than current income? If so, I suggest you contribute to Roth 401k once you get access to the 401k plan in Jan 2020. In fact, I suggest you try to max Roth 401k and Roth IRA through the next 6 years (Roth IRA first, then the Roth 401k up to your ability), even if you find yourself in the 24% bracket or higher depending on when you start earning the big bucks. Given your young age, there will be PLENTY of future years earnings to fill the traditional 401k after 2025, when the existing tax brackets are set to revert to 2017 levels (higher tax rates and narrower income bands). Consider now through 2025 as government-sponsored, Roth-on-sale years.

Edited to add: Just now noticed that you are in Texas, that's great because there is no state income tax to worry about either. I really do encourage you to stick to Roth 401k for the next 6 years. Even at 24% bracket. I normally do not advise people to go the Roth 401k way, I am more of a Traditional 401k guy. But I think you are only 29 now, when 2025 rolls around you will be 34, and you will have at least 25 more years of expected earnings. In 2026, when income tax rates jump to at least 25% or 28% at your expected income, you can switch to Traditional 401k.

HomeStretch
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Re: A little discouraged with earnings, is it really this slow?

Post by HomeStretch » Sun Nov 24, 2019 5:46 pm

Congratulations on doubling your salary!

At this point, the most significant factor in your portfolio growth is your savings rate. Your salary increase means you will have ~$40k more per year in net pay. You can either continue to spend like you are still making ~$60k and save the extra $40k per year, or you can significantly upsize your spending by buying a “dream car” (which will cause a significant increase in your personal property taxes and insurance).

To grow your portfolio and stay on the path to early financial independence, consider saving the extra $40k and deferring the purchase of a “dream car” until you hit a seven-figure portfolio or increase your salary so much that you can cash flow the car one year while still saving 25% of your salary.

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1789
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Re: A little discouraged with earnings, is it really this slow?

Post by 1789 » Sun Nov 24, 2019 6:03 pm

David Jay wrote:
Sat Jul 20, 2019 6:00 pm
I made my first retirement contribution at age 30. You are way ahead of me. Congrats.
You beat me on it. I was 32 years old
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

KingRiggs
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Re: A little discouraged with earnings, is it really this slow?

Post by KingRiggs » Sun Nov 24, 2019 6:07 pm

Gotta ask - what's your dream car? Sometimes rewarding yourself spurs you on to greater heights...If 401k and Roth are maxed, maybe saving towards that car isn't so crazy...You're only young once!
Advice = noun | Advise = verb | | Roth, not ROTH

inbox788
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Re: A little discouraged with earnings, is it really this slow?

Post by inbox788 » Sun Nov 24, 2019 6:43 pm

achen9291 wrote:
Sat Jul 20, 2019 5:08 pm
...I spent that year paying off all debt...
In 2016 I got laid off...
2018 I switched jobs...
...I'm I on track?
You're doing fine! Your math is off. Debt being paid off doesn't directly add to earnings, but good job. I assume being laid off hampered earnings. Hopefully the job switch was beneficial towards earnings, but even if not, beats another layoff.

Focus on remaining debt-free, full employment, savings/investing, and compounding interest/earnings and you'll see how fast your investments can grow.

And the investing weather has been good lately, which we've all been lucky to avoid, so don't be discouraged by some storms in the short term and keep focused on your long term plans.

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achen9291
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Re: A little discouraged with earnings, is it really this slow?

Post by achen9291 » Mon Nov 25, 2019 1:06 am

KingRiggs wrote:
Sun Nov 24, 2019 6:07 pm
Gotta ask - what's your dream car? Sometimes rewarding yourself spurs you on to greater heights...If 401k and Roth are maxed, maybe saving towards that car isn't so crazy...You're only young once!
1997 Toyota Supra TT 6spd. Unfortunately it would cost 50-60k and I'd like to stay in the 50s range.. if I were to get one.

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EhMerman
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Re: A little discouraged with earnings, is it really this slow?

Post by EhMerman » Mon Nov 25, 2019 12:58 pm

Just want to say I was feeling almost exactly like you in 2016. I was 28, living in Texas and felt discouraged that my savings far outweighed my returns from 2010-2016. It took me about 4 years to save my first $100k and my returns over that time was something like $2200.

Thankfully I received many encouraging responses (viewtopic.php?f=1&t=195616) like you're getting here.

Keep it up, it definitely gets easier from here. Biggest things that helped me so far were keeping expenses pretty steady and going after those promotions like you're doing.

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Re: A little discouraged with earnings, is it really this slow?

Post by stoptothink » Mon Nov 25, 2019 2:58 pm

achen9291 wrote:
Mon Nov 25, 2019 1:06 am
KingRiggs wrote:
Sun Nov 24, 2019 6:07 pm
Gotta ask - what's your dream car? Sometimes rewarding yourself spurs you on to greater heights...If 401k and Roth are maxed, maybe saving towards that car isn't so crazy...You're only young once!
1997 Toyota Supra TT 6spd. Unfortunately it would cost 50-60k and I'd like to stay in the 50s range.. if I were to get one.
Are you not interested in the new ones? Could easily get one brand new for the same price as a mint MKIV that is 20+ years old.

9liner
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Re: A little discouraged with earnings, is it really this slow?

Post by 9liner » Mon Nov 25, 2019 3:04 pm

To maybe put things into perspective for you, I had about 1/2 of that at your age. Through diligent and consistent savings, I have accrued about 650k in retirement assets by age 39. You are well ahead of most of your peers. Don't get discouraged. I really didn't start seeing the true magic of compound interest until I crossed over the $500k mark.

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Re: A little discouraged with earnings, is it really this slow?

Post by HomeStretch » Mon Nov 25, 2019 3:09 pm

achen9291 wrote:
Mon Nov 25, 2019 1:06 am
KingRiggs wrote:
Sun Nov 24, 2019 6:07 pm
Gotta ask - what's your dream car? Sometimes rewarding yourself spurs you on to greater heights...If 401k and Roth are maxed, maybe saving towards that car isn't so crazy...You're only young once!
1997 Toyota Supra TT 6spd. Unfortunately it would cost 50-60k and I'd like to stay in the 50s range.. if I were to get one.
At your age and low portfolio value, your savings rate is the largest factor in your portfolio growth. With a net salary increase of ~$40k per year, buying an expensive car like this now (along with higher taxes and insurance) is guaranteed to keep you discouraged about your portfolio growth for at least the next two years.

If you are really serious about growing your portfolio, now is the time to look away from the shiny toy, LBYM and save your net salary increase.

Reamus294
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Re: A little discouraged with earnings, is it really this slow?

Post by Reamus294 » Mon Nov 25, 2019 3:33 pm

achen9291 wrote:
Sun Nov 24, 2019 3:42 pm
Hi All,

I'm updating this thread with some updates since my last post. I was making $61k in September and ended up getting a promotion making $81.6k in October, I then started a new job this week in November which now pays $120k. I'm still in Texas and in a new 24% tax bracket. I'm turning 28 in January and will max out the Roth IRA during that time. I think I should still be okay to max the Roth IRA for 2020 being under salary limit? The 401k for 2019 is already maxed.

I don't have access to the new 401k yet until mid January but it is with ADP, I'm not exactly sure how good the funds will be yet so I'm holding off on any roll overs for the 401k and HSA in Fidelity. The fact that the new 401k is in ADP instead of the traditional Fidelity or Vanguard makes me believe the funds/expense ratios may not be good. There is also no match. I'll update the thread when I find out what those funds may be.

The market has been doing well in the last few months. My retirement account values are at $150k currently. I'm wanting to start a taxable account for the new income, but I've been having the urge to save for my dream car in 2020 and tackle that goal before I invest into taxable for anything else.
Great update and keep it up. Just a piece of advice, you may find that your dream car in a few years will be different from your current dream car. I know mine has been.

To help with discouragement and make sure I am on the right track, I keep a spreadsheet similar to yours and project what I'll have in the future with the current savings rate. I also project out future retirement expense as best I can. It helps keep my retirement/financial independence expectations in check, helps avoid lifestyle creep, and helps me spend less now. As an example, I'm showing you should have about $2 mil at age 50 if you continued on the same path ($6K Roth, $18.5K 401K, $3K Health/Taxable) and 7% interest each year, which is hopefully conservative.

FrugalConservative
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Re: A little discouraged with earnings, is it really this slow?

Post by FrugalConservative » Mon Nov 25, 2019 3:51 pm

You are kicking butt. Nice work. Don't get discouraged.

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"Dream Car in 2020" ?

Post by Taylor Larimore » Mon Nov 25, 2019 4:15 pm

achen9291 wrote: I've been having the urge to save for my dream car in 2020 and tackle that goal before I invest into taxable for anything else.
achen2991:

In my opinion, you may be making a big mistake. An automobile is used to get from point A to point B in reasonable comfort. Almost any car will do this. Below is a post I made on the subject:
The $1,124,176 Car.
Post by Taylor Larimore » Wed Mar 22, 2017 7:23 pm

Bogleheads:

One of the easiest ways to save money is buying an inexpensive car. I'll explain:

The automobile industry spends billions of dollars each year (General Motors alone spends over $3.4 Billion annually) in their marketing attempts to sell us more car than we need. We forget that a car is primarily to get from point A to point B. Nearly all new cars do that in reasonable safety and comfort.

The savings from buying a less expensive car are enormous. For example, Edmonds give the estimated five-year True Cost to Own of automobiles sold in the United States. Using Edmonds, I compared The True Cost to Own of a new 2017 BMW 340 4-door sedan with a new 2017 Toyota Corolla 4-door sedan (a Toyota similar to one I happily owned). The results are shocking.

The BMW sedan costs $51,467 with a 5-year True Cost to Own of $59,424.

The Toyota Corolla sedan costs $18,628 with a 5-year True Cost to Own of $24,592.

Buying the Toyota saves $34,832 ($59,424 -$24,592) in five years or approximately $4,918 per year.

If, instead of buying a fancier car, you invest your $4,918 annual savings in a Roth IRA at 7% for 40 years (age 25-65) You will have $1,124,176.00 tax-free for your retirement.

Think about it.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

ef11
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Re: A little discouraged with earnings, is it really this slow?

Post by ef11 » Mon Nov 25, 2019 4:51 pm

Congrats on your progress, I started just like you right out of college. I remember hitting my first $100,000 and now at 30 (with some inheritance and lots of saving/investing) I am over the $700,000 mark. Focus also on growing your income and you can be in my shoes or better.

Just keep at it. Save as much as you reasonably can while enjoying life, and invest correctly.

Stay disciplined IF there is a big downturn...it will be the first you or I have ever faced while having significant money at stake, but just buy as much as you can while it is cheap and stay the course.
45% Vang Inst 500 IDX ER .01% | 10% Vang Inst Ext Mkt ER .04% | 25% ACWI EX US IMI NL R ER .10% | 10% Vang Total Bond Market ER .03% | 10% Fidelity MSCI Real Estate ER 0.084%

chevca
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Re: A little discouraged with earnings, is it really this slow?

Post by chevca » Mon Nov 25, 2019 5:43 pm

achen9291 wrote:
Mon Nov 25, 2019 1:06 am
KingRiggs wrote:
Sun Nov 24, 2019 6:07 pm
Gotta ask - what's your dream car? Sometimes rewarding yourself spurs you on to greater heights...If 401k and Roth are maxed, maybe saving towards that car isn't so crazy...You're only young once!
1997 Toyota Supra TT 6spd. Unfortunately it would cost 50-60k and I'd like to stay in the 50s range.. if I were to get one.
I'd vote to leave that as a dream for now. And, I'm a car guy, so I get it. But, that's a lot for your stage right now. Find something more reasonable to scratch that itch and get that one later.

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achen9291
Posts: 310
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Re: A little discouraged with earnings, is it really this slow?

Post by achen9291 » Mon Nov 25, 2019 8:10 pm

stoptothink wrote:
Mon Nov 25, 2019 2:58 pm
achen9291 wrote:
Mon Nov 25, 2019 1:06 am
KingRiggs wrote:
Sun Nov 24, 2019 6:07 pm
Gotta ask - what's your dream car? Sometimes rewarding yourself spurs you on to greater heights...If 401k and Roth are maxed, maybe saving towards that car isn't so crazy...You're only young once!
1997 Toyota Supra TT 6spd. Unfortunately it would cost 50-60k and I'd like to stay in the 50s range.. if I were to get one.
Are you not interested in the new ones? Could easily get one brand new for the same price as a mint MKIV that is 20+ years old.
I've been wanting the old ones for over a decade and had been gradually saving a lump sum of cash for it. I'm aware that they cost the same price.. I didn't like how the new one was built w/o a manual.
Reamus294 wrote:
Mon Nov 25, 2019 3:33 pm
achen9291 wrote:
Sun Nov 24, 2019 3:42 pm
Hi All,

I'm updating this thread with some updates since my last post. I was making $61k in September and ended up getting a promotion making $81.6k in October, I then started a new job this week in November which now pays $120k. I'm still in Texas and in a new 24% tax bracket. I'm turning 28 in January and will max out the Roth IRA during that time. I think I should still be okay to max the Roth IRA for 2020 being under salary limit? The 401k for 2019 is already maxed.

I don't have access to the new 401k yet until mid January but it is with ADP, I'm not exactly sure how good the funds will be yet so I'm holding off on any roll overs for the 401k and HSA in Fidelity. The fact that the new 401k is in ADP instead of the traditional Fidelity or Vanguard makes me believe the funds/expense ratios may not be good. There is also no match. I'll update the thread when I find out what those funds may be.

The market has been doing well in the last few months. My retirement account values are at $150k currently. I'm wanting to start a taxable account for the new income, but I've been having the urge to save for my dream car in 2020 and tackle that goal before I invest into taxable for anything else.
Great update and keep it up. Just a piece of advice, you may find that your dream car in a few years will be different from your current dream car. I know mine has been.

To help with discouragement and make sure I am on the right track, I keep a spreadsheet similar to yours and project what I'll have in the future with the current savings rate. I also project out future retirement expense as best I can. It helps keep my retirement/financial independence expectations in check, helps avoid lifestyle creep, and helps me spend less now. As an example, I'm showing you should have about $2 mil at age 50 if you continued on the same path ($6K Roth, $18.5K 401K, $3K Health/Taxable) and 7% interest each year, which is hopefully conservative.
I'm still trying to figure out how to project IRR and get numbers of future earnings. I know it's not rocket science but it's confusing to me on how I could using my spreadsheet above.

Thanks to everyone else for the sound wisdom. I probably should have invested all this money years ago instead of slowly save up 40k in cash so far for this car. The values would have been higher. I know I should probably dump it all into taxable now since I have it, but I'm thinking I'll wait until January when I max out the roth IRA, I'll put the remainder into taxable.

Also I don't have an HSA any longer so my current one is sitting in Fidelity. Should I roll that over somewhere or can i leave it in Fidelity?

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Re: A little discouraged with earnings, is it really this slow?

Post by arcticpineapplecorp. » Mon Nov 25, 2019 9:08 pm

In this Michael Kitces article he shows the standard advice to get to $1 million over 40 years (from 25-65) is invest $300 a month and earn 8% CAGR for 40 years. https://www.kitces.com/blog/is-save-for ... nt-advice/

but if you look at the chart you see:

Image
As the chart reveals, while it is true that the client has accumulated $1,000,000 by the end of the 40-year time horizon, it’s notable that after 30 years, the client still has less than $450,000! And of course, at that point the impact of a marginal $300/month of savings is fairly negligible; the client will succeed because of the investment returns. With an assumption of “just” 8% in growth, the classic rule of 72 means the client will double her wealth in 9 years.
so whereas it took 30 years to get to $500,000 it then only takes 9 years to get the other $500,000.
Last edited by arcticpineapplecorp. on Mon Nov 25, 2019 9:19 pm, edited 2 times in total.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: A little discouraged with earnings, is it really this slow?

Post by HomeStretch » Mon Nov 25, 2019 9:09 pm

achen9291 wrote:
Mon Nov 25, 2019 8:10 pm
Also I don't have an HSA any longer so my current one is sitting in Fidelity. Should I roll that over somewhere or can i leave it in Fidelity?
Fidelity is a good place to leave your HSA as it has no-fee HSAs.

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Re: A little discouraged with earnings, is it really this slow?

Post by abuss368 » Mon Nov 25, 2019 10:07 pm

I never wasted hard earned money on cars. They just never did it for either of us. We purchased reasonable priced cars and have held for 10 -12 years.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: A little discouraged with earnings, is it really this slow?

Post by dharrythomas » Mon Nov 25, 2019 11:06 pm

The way this works is that for years your contributions swamp your earnings and it doesn’t feel like you’re making progress. Then you hit the inflection point on the compound interest curve, even with larger contributions, your earnings and market fluctuations swamp your contributions.

You cannot skip the bottom part of the compound interest curve unless you are going to take a great deal of risk, enough that it probably won’t work.

Reamus294
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Re: A little discouraged with earnings, is it really this slow?

Post by Reamus294 » Tue Nov 26, 2019 9:19 am

achen9291 wrote:
Sun Nov 24, 2019 3:42 pm

I'm still trying to figure out how to project IRR and get numbers of future earnings. I know it's not rocket science but it's confusing to me on how I could using my spreadsheet above.
I just keep it simple and multiply the beginning balance and half of the contributions for the year by .07, or whatever interest rate you want, to determine the interest for the year. It's not perfect, but these are just estimates.

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Re: "Dream Car in 2020" ?

Post by Outer Marker » Wed Nov 27, 2019 12:16 am

Taylor Larimore wrote:
Mon Nov 25, 2019 4:15 pm
achen9291 wrote: I've been having the urge to save for my dream car in 2020 and tackle that goal before I invest into taxable for anything else.
achen2991:

In my opinion, you may be making a big mistake. An automobile is used to get from point A to point B in reasonable comfort. Almost any car will do this. Below is a post I made on the subject:
The $1,124,176 Car.
Post by Taylor Larimore » Wed Mar 22, 2017 7:23 pm

Bogleheads:

One of the easiest ways to save money is buying an inexpensive car. I'll explain:

The automobile industry spends billions of dollars each year (General Motors alone spends over $3.4 Billion annually) in their marketing attempts to sell us more car than we need. We forget that a car is primarily to get from point A to point B. Nearly all new cars do that in reasonable safety and comfort.

The savings from buying a less expensive car are enormous. For example, Edmonds give the estimated five-year True Cost to Own of automobiles sold in the United States. Using Edmonds, I compared The True Cost to Own of a new 2017 BMW 340 4-door sedan with a new 2017 Toyota Corolla 4-door sedan (a Toyota similar to one I happily owned). The results are shocking.

The BMW sedan costs $51,467 with a 5-year True Cost to Own of $59,424.

The Toyota Corolla sedan costs $18,628 with a 5-year True Cost to Own of $24,592.

Buying the Toyota saves $34,832 ($59,424 -$24,592) in five years or approximately $4,918 per year.

If, instead of buying a fancier car, you invest your $4,918 annual savings in a Roth IRA at 7% for 40 years (age 25-65) You will have $1,124,176.00 tax-free for your retirement.

Think about it.

Best wishes.
Taylor
Sage financial advice, but I might buy the car. I just might. My perspective has been changed by a few life changing events. I was incredibly frugal and once saved nearly half my income. I regret some of that foregone consumption. I gave away more than half of that savings in a divorce. You really can't predict these things.

At then end of the day, the whole point of having money is enjoying it. A BMW and a Corolla are not the same thing. I like my BMW. Mine did not cost $51,000, but it was exactly what I wanted. Six speed manual. Sport tuned suspension. I enjoy it every day. Bought new in 2007, and I intend to drive it into the ground. It's the oldest car in the company garage. If you're a "car guy" you can reduce expenses by doing minor maintenance yourself. My "total cost to own" is no where near the Edmunds estimate. And, if the OP is buying a 1997 rocket, it is fully depreciated and possibly on the upswing. OP has had a 50% wage increase is is thinking about *saving* for the car rather than taking out a long term interest bearing loan. This seems reasonable.

I've resigned myself to working a lot longer than the early retirement I'd planned at 50. I am not foregoing any more ski trips or scuba diving with my girls. And, I am going to buy a new (used) airplane again as soon as I can afford it. Money pit. But you can't put a price on it. I will turn the wrenches on it as well. When I am finally ready to retire and sail around the world, it may be on a boat that is 10 feet shorter than I'd like. But, I'll enjoy the other rides along the way...

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Re: "Dream Car in 2020" ?

Post by spae » Wed Nov 27, 2019 5:19 am

Outer Marker wrote:
Wed Nov 27, 2019 12:16 am
And, if the OP is buying a 1997 rocket, it is fully depreciated and possibly on the upswing.
A collector's car that sells for more than it originally sold for in 1997 is not fully depreciated if OP is planning on driving the car. Just the opposite. It has a higher depreciation cost than the car had in 1997 or than a modern car with similar performance.
I like my BMW. Mine did not cost $51,000, but it was exactly what I wanted. Six speed manual. Sport tuned suspension. I enjoy it every day. Bought new in 2007
A 1997 Supra isn't a sporty car by today's standards.

A 2017 Civic type R is $35k new and it will beat any street legal unmodified car you could get in the 90s for under $100k and many that cost more than $100k with lower deprecation costs than a 1997 Supra to boot. Looking at Nürburgring times, a Bugatti EB110 is within spitting distance and a Lamborghini Diablo GT isn't all that close. The Bugatti originally sold for $350k in 1995 dollars and the Lamborghini sold for $309k in 1999 dollars. A heavily modified 750HP Supra gets close but is still slower than a stock 2017 Honda Civic.

A stock 1997 Supra puts up numbers closer to a 2008 Cobalt SS, a car you can get for $7k used. Now there's a car that's mostly depreciated.
A BMW and a Corolla are not the same thing.
You're right that a 2007 BMW with "sport tuned suspension" and a Japanese economy compact car aren't the same thing. A stock Civic type R is faster than a stock 2007 or earlier BMW on the track unless you have one the 6 GTRs made to satisfy homologation rules. There was some controversy around the GTRs since none were actually sold, I doubt too many people are driving those around. The M3 CSL E46 is in the same league, but still slower and the normal models aren't in the same league as a Japanese economy compact car.

If OP is looking for a sporty car, cars improve rapidly enough that it doesn't make sense to buy a $50k car and "drive it into the ground". Buying a used car and replacing it every 5-7 years will get them a better "sport tuned suspension" for a lot less money.

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Re: "Dream Car in 2020" ?

Post by Outer Marker » Wed Nov 27, 2019 6:25 am

spae wrote:
Wed Nov 27, 2019 5:19 am
Outer Marker wrote:
Wed Nov 27, 2019 12:16 am
And, if the OP is buying a 1997 rocket, it is fully depreciated and possibly on the upswing.
A collector's car that sells for more than it originally sold for in 1997 is not fully depreciated if OP is planning on driving the car. Just the opposite. It has a higher depreciation cost than the car had in 1997 or than a modern car with similar performance.
I like my BMW. Mine did not cost $51,000, but it was exactly what I wanted. Six speed manual. Sport tuned suspension. I enjoy it every day. Bought new in 2007
A 1997 Supra isn't a sporty car by today's standards.

A 2017 Civic type R is $35k new and it will beat any street legal unmodified car you could get in the 90s for under $100k and many that cost more than $100k with lower deprecation costs than a 1997 Supra to boot. Looking at Nürburgring times, a Bugatti EB110 is within spitting distance and a Lamborghini Diablo GT isn't all that close. The Bugatti originally sold for $350k in 1995 dollars and the Lamborghini sold for $309k in 1999 dollars. A heavily modified 750HP Supra gets close but is still slower than a stock 2017 Honda Civic.

A stock 1997 Supra puts up numbers closer to a 2008 Cobalt SS, a car you can get for $7k used. Now there's a car that's mostly depreciated.
A BMW and a Corolla are not the same thing.
You're right that a BMW and a Japanese economy compact car aren't the same thing. A stock Civic type R is faster than a stock 2007 or earlier BMW on the track unless you have one the 10 GTRs sold to satisfy homologation rules. The M3 CSL E46 is in the same league, but still slower and the normal models aren't in the same league as a Japanese economy compact car.
Haha. spae, you're taking me a little too literally. I'm not saying the car is a good investment. Or making any specific recommendations on what the best/fastest car is for the buck. Just that OP's dream car, at a little more than the recent net annual salary increase, is an affordable splurge. I'd say the same thing if it was OP's "dream" to spend a month in Australia.

Many, many people buy too much car and get talked into it and offered ridiculously long term loans they can't afford. My fiancé is case in point with a newish SUV she can't afford. Doesn't give a damn about the car. Her mom told her to buy new on credit, and she struggles to make her payments and is not able to save. She read Millionare Next Door and wishes she'd bought a used Civic. We're now on the same page with finances and she coaches her spendthrift mom.

That is not the case here. OP has a "dream car" and is well enough along to appreciate that it is a splurge, and relates directly to the overall financial picture. Taylor is one of the true Wise Men, and I am personally grateful for the advice he has given me. On this small point, I have a different opinion, but he is 100 percent right you can save a ton of money by buying an inexpensive, reliable car and treating it as "just transportation." But, if its "your thing" and you make a considered decision (not on the show room floor on a whim) that you want it and can afford it, while continuing to save for long term goals, I think that's okay.

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Re: A little discouraged with earnings, is it really this slow?

Post by ddurrett896 » Wed Nov 27, 2019 8:13 am

achen9291 wrote:
Sat Jul 20, 2019 5:08 pm
Basically it took me 5 years to reach 100k in strictly retirement funds and as of now I have about $109k invested on my own dollars. but my current portfolio is sitting at ~$135k. So in the last 5.5 years the compounding only appears to have gained $26.3k. I'm I on track?
Dude you're killing it! I didn't see your salary but maxing out your 401K (or close) and maxing your Roth IRA is impressive.

As far as progression goes, it's like a snowball rolling down hill. As it rolls, it becomes larger and larger picking up more and more snow. There will be a point where it picks up more snow (interest) than you are adding.

If you didn't invest another dollar with a balance of $100,000, at a 6% return you would have $1,000,000 at age 65. Now imagine continuing to invest for the next 30 years :shock: :moneybag

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