Should I change careers?

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LovingLife
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Should I change careers?

Post by LovingLife » Sat Apr 28, 2018 8:03 pm

Potential career changer here and am concerned about the level of risk I’d be undertaking.

I am considering quitting my job to invest in the market. Most of my net worth has been created not from investing in stocks, but from investing in private companies, as well as the income from that job. My current job requires VERY long hours and there isn’t enough time to both do my day job *and* study investments carefully enough to be comfortable buying them in large quantities. I’m also not enjoying my particular job anymore and moving to another firm in the industry wouldn’t fix the problem.

Stats:
• Age: late 30s. Spouse is within a few years of my age. 2 kids both pre-k, plan to have 1 more in the next 2 years. MCOL area.
• Annual income: $1-1.5 million (varies by year)
• Current net worth: $11-12 million, but with a wide band around that figure. Worst case it’s probably around $8 million and at best around $18 million.
o Cash equivalents: $4 million (CDs/money market)
o Face value of private loans I’ve made to small business at high interest rates that will mature in the next 2-3 years: $1 million (excluding present value of future interest payments). Some chance the small businesses try to avoid principal repayment, and since my loans are not registered securities, I would be forced to litigate to recover, but it's likely I'd win.
o Retirement (both taxable and non-taxable/deferred): about $800k. I don’t plan to touch this money until RMDs are necessary.
o 529s: about $300k (I superfunded early on)
o Charitable donor advised funds: about $250k, not counted in our net worth
o Real estate: own our home and don’t count the equity in our net worth. It’s in the right neighborhood and of a size where we wouldn’t need to move again. No debt whatsoever besides the mortgage on this property.
o Investments in various private companies from seed/angel investing to later rounds to mature companies: currently valued at approx. $6 million, but these are highly illiquid and speculative and could end up being worth anywhere between $2 million (if liquidated) to $12 million (if all the stars aligned).

Expenses: we live on about $200k after tax, of which approx. $50k is charitable donations. If pressed, we could cut our living expenses to $150k.

My question: am I taking too much risk by quitting? While my current numbers may seem good, there are many scenarios where this plan blows up, since I plan to put the capital at risk by buying and holding a very concentrated basket of stocks (8-15 in total) for the next couple of decades with low turnover.

I have only $4 million of liquid capital (excluding retirement and education tax deferred/free assets and obviously illiquid assets) and if I’m a lousy stock picker, or the market collapses and I’m down 30-50%, based on other posts I’ve read here, I don’t think anyone is saying that a person in their late 30s with 4 dependents can rely on $2-3 million to retire. To worsen matters, we’d be pulling out $150-200k/year from those depressed numbers to live on, which will further eat into the shrunken corpus. Not to mention that in a down market, none of those illiquid investments will ever be saleable (as happened in 2008), so no cash will be generated from them when most needed.

Anyone here retire young with a similar plan and then regret it? Any other approaches that do not rely on taking extraordinary risk with my capital but still allow for the possibility of it to grow to much larger amounts?

Thank you.

am
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Re: Should I change careers?

Post by am » Sat Apr 28, 2018 8:22 pm

Seems to me with 150k expenses and your networth, you can do anything you want with your life.

drk
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Re: Should I change careers?

Post by drk » Sat Apr 28, 2018 8:34 pm

LovingLife wrote:
Sat Apr 28, 2018 8:03 pm
I am considering quitting my job to invest in the market. Most of my net worth has been created not from investing in stocks, but from investing in private companies, as well as the income from that job. My current job requires VERY long hours and there isn’t enough time to both do my day job *and* study investments carefully enough to be comfortable buying them in large quantities.
Imagine someone came to you with that as their pitch. Would you invest millions of dollars in them?
LovingLife wrote:
Sat Apr 28, 2018 8:03 pm
My question: am I taking too much risk by quitting? While my current numbers may seem good, there are many scenarios where this plan blows up, since I plan to put the capital at risk by buying and holding a very concentrated basket of stocks (8-15 in total) for the next couple of decades with low turnover.
Yes, this is a bad plan. If you put your worst-case net worth ($8 million) into a diversified 60/40 portfolio, you could safely withdraw more than your expenses ($160k) at a 2% rate in perpetuity. Why would you put a substantial amount of that at risk in order to play around with stocks?

Edit: here is a relevant New York Times article about investing mistakes that doctors make.

TravelGeek
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Re: Should I change careers?

Post by TravelGeek » Sat Apr 28, 2018 8:47 pm

How much of your income is derived from your regular (long hour) job?

pink
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Re: Should I change careers?

Post by pink » Sat Apr 28, 2018 8:49 pm

drk wrote:
Sat Apr 28, 2018 8:34 pm
Yes, this is a bad plan. If you put your worst-case net worth ($8 million) into a diversified 60/40 portfolio, you could safely withdraw more than your expenses ($160k) at a 2% rate in perpetuity. Why would you put a substantial amount of that at risk in order to play around with stocks?
+1. Besides the "for fun" factor, why put your net worth at more risk than you have to, if it is already more than enough to provide sufficient income in perpetuity for you and your family? Just the 2% dividend yield on a total stock market index is more than enough.

quantAndHold
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Re: Should I change careers?

Post by quantAndHold » Sat Apr 28, 2018 8:51 pm

If you quit your job, struck out on your own, then blew up, could you get a job and go back to work?

veindoc
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Re: Should I change careers?

Post by veindoc » Sat Apr 28, 2018 9:08 pm

pink wrote:
Sat Apr 28, 2018 8:49 pm
drk wrote:
Sat Apr 28, 2018 8:34 pm
Yes, this is a bad plan. If you put your worst-case net worth ($8 million) into a diversified 60/40 portfolio, you could safely withdraw more than your expenses ($160k) at a 2% rate in perpetuity. Why would you put a substantial amount of that at risk in order to play around with stocks?
+1. Besides the "for fun" factor, why put your net worth at more risk than you have to, if it is already more than enough to provide sufficient income in perpetuity for you and your family? Just the 2% dividend yield on a total stock market index is more than enough.
Would you be using your own money? When I first read your post, I had assumed you were planning on starting a venture capital company. But upon reading other people's comments and reading your post again, I'm not quite sure what your plan is once you quit your day job. If it is to perform risky investments with your retirement money then I agree with the others. Play with other people's money, leave your savings alone for the benefit of you and your family.

TallBoy29er
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Re: Should I change careers?

Post by TallBoy29er » Sat Apr 28, 2018 9:12 pm

is this for real? with a worst case of $8 M, and needing $150k, well, ...

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Watty
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Re: Should I change careers?

Post by Watty » Sat Apr 28, 2018 9:15 pm

am wrote:
Sat Apr 28, 2018 8:22 pm
Seems to me with 150k expenses and your networth, you can do anything you want with your life.
Many athletes and lottery winners have had ten times as much(or more) and managed to blow it.

Instead of being using your own money as a guinea pig while you try to learn more about investing another option would be to go back to school if necessary and get the background to get a job as an investment manager where you can have someone mentor you and you could get experience using other people's money. :D

It would be good to do more research about your prospects of being successful at investing though. Few investment managers have been able to beat a comparable index funds over the long term and so it is pretty optimistic to think that you will be able to.

SR II
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Re: Should I change careers?

Post by SR II » Sat Apr 28, 2018 9:17 pm

Do what you want, LovingLife.

Chris K Jones
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Re: Should I change careers?

Post by Chris K Jones » Sat Apr 28, 2018 9:20 pm

If this is real and not a joke, you can do whatever you want. Anything.

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Watty
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Re: Should I change careers?

Post by Watty » Sat Apr 28, 2018 9:22 pm

am wrote:
Sat Apr 28, 2018 8:22 pm
Seems to me with 150k expenses and your networth, you can do anything you want with your life.
Many athletes and lottery winners have had ten times as much(or more) and managed to blow it.

Instead of being using your own money as a guinea pig while you try to learn more about investing another option would be to go back to school if necessary and get the background to get a job as an investment manager where you can have someone mentor you and you could get experience using other people's money. :D

It would be good to do more research about your prospects of being successful at investing though. Few investment managers have been able to beat a comparable index funds over the long term and so it is pretty optimistic to think that you will be able to.

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BolderBoy
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Re: Should I change careers?

Post by BolderBoy » Sat Apr 28, 2018 10:08 pm

LovingLife wrote:
Sat Apr 28, 2018 8:03 pm
... since I plan to put the capital at risk by buying and holding a very concentrated basket of stocks (8-15 in total) for the next couple of decades with low turnover.
This is the only part of your plan that gives me the willies. Instead of trying to find the needles in the haystack, why not just buy the entire haystack thereby guaranteeing that you include the needles (winners)?

Look in the forum wiki for "three fund portfolio" and see if it wouldn't suit you even better.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

PhilosophyAndrew
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Re: Should I change careers?

Post by PhilosophyAndrew » Sat Apr 28, 2018 10:45 pm

Choosing to invest in a few stocks is considerably more risky than a Boglehead portfolio of diverse index funds.

You don’t need to take this on extra risk — a straightforward Boglehead portfolio will secure your financial future.

By all means retire from your current stressful role if you wish. If you don’t wish to retire, find a new occupation that doesn’t put your nest egg in unnecessary risk.

Andy.

SrGrumpy
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Re: Should I change careers?

Post by SrGrumpy » Sat Apr 28, 2018 10:59 pm

The best way to make money, in your case, would be to use other people's money.

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sat Apr 28, 2018 11:01 pm

drk wrote:
Sat Apr 28, 2018 8:34 pm
LovingLife wrote:
Sat Apr 28, 2018 8:03 pm
I am considering quitting my job to invest in the market. Most of my net worth has been created not from investing in stocks, but from investing in private companies, as well as the income from that job. My current job requires VERY long hours and there isn’t enough time to both do my day job *and* study investments carefully enough to be comfortable buying them in large quantities.
Imagine someone came to you with that as their pitch. Would you invest millions of dollars in them?

I’d consider it if they had a decent track record and were hungry to prove success. I wouldn’t if they were simply using this new occupation as a way to fill their time.
LovingLife wrote:
Sat Apr 28, 2018 8:03 pm
My question: am I taking too much risk by quitting? While my current numbers may seem good, there are many scenarios where this plan blows up, since I plan to put the capital at risk by buying and holding a very concentrated basket of stocks (8-15 in total) for the next couple of decades with low turnover.
Yes, this is a bad plan. If you put your worst-case net worth ($8 million) into a diversified 60/40 portfolio, you could safely withdraw more than your expenses ($160k) at a 2% rate in perpetuity. Why would you put a substantial amount of that at risk in order to play around with stocks?

Not to get too philosophical, but I believe life is about more than the status quo...I don’t want to simply peel off $160k every year to live. I also don’t believe that markets are always efficient, so if one can invest carefully, it isn’t necessarily playing around with stocks, it’s investing in companies.

Edit: here is a relevant New York Times article about investing mistakes that doctors make.
Thanks for this excellent article. One key difference is that I evaluate companies, while doctors evaluate humans, so it’s easier for them to make bad investment decisions. Doesn’t mean I wouldn’t too, but they are more likely to do so. I’ve seen it happen first hand with physician friends.

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sat Apr 28, 2018 11:04 pm

TravelGeek wrote:
Sat Apr 28, 2018 8:47 pm
How much of your income is derived from your regular (long hour) job?
About 80%. The rest comes from interest and dividends.

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sat Apr 28, 2018 11:10 pm

quantAndHold wrote:
Sat Apr 28, 2018 8:51 pm
If you quit your job, struck out on your own, then blew up, could you get a job and go back to work?
Almost certainly, but at a massive compensation discount that I’m estimating will be 30-70%, lower seniority, and with a massive blow of one’s ego.

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sat Apr 28, 2018 11:14 pm

veindoc wrote:
Sat Apr 28, 2018 9:08 pm
pink wrote:
Sat Apr 28, 2018 8:49 pm
drk wrote:
Sat Apr 28, 2018 8:34 pm
Yes, this is a bad plan. If you put your worst-case net worth ($8 million) into a diversified 60/40 portfolio, you could safely withdraw more than your expenses ($160k) at a 2% rate in perpetuity. Why would you put a substantial amount of that at risk in order to play around with stocks?
+1. Besides the "for fun" factor, why put your net worth at more risk than you have to, if it is already more than enough to provide sufficient income in perpetuity for you and your family? Just the 2% dividend yield on a total stock market index is more than enough.
Would you be using your own money? When I first read your post, I had assumed you were planning on starting a venture capital company. But upon reading other people's comments and reading your post again, I'm not quite sure what your plan is once you quit your day job. If it is to perform risky investments with your retirement money then I agree with the others. Play with other people's money, leave your savings alone for the benefit of you and your family.
Yes this would be exclusively using my own money. If I built a decent track record and wanted to manage money for others, that would happen down the road, but the scenarios where my plan blows up would be where my performance is bad or the market is bad for the first few years when I’m trying to get established.

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sat Apr 28, 2018 11:19 pm

SrGrumpy wrote:
Sat Apr 28, 2018 10:59 pm
The best way to make money, in your case, would be to use other people's money.
True, and I am considering bringing in outside investors in time, but for some initial period, I’d invest my own money only.

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sat Apr 28, 2018 11:25 pm

PhilosophyAndrew wrote:
Sat Apr 28, 2018 10:45 pm
Choosing to invest in a few stocks is considerably more risky than a Boglehead portfolio of diverse index funds.

You don’t need to take this on extra risk — a straightforward Boglehead portfolio will secure your financial future.

By all means retire from your current stressful role if you wish. If you don’t wish to retire, find a new occupation that doesn’t put your nest egg in unnecessary risk.

Andy.
How much risk is “too much risk?” Cashing in my chips after I’m down 50% and going back to get a regular job?

I don’t wish to retire in the traditional sense, but I do wish to work for myself. The other things I could do working for myself would be starting a non-investment company (the sort of stuff peddled on Shark Tank), which I think would involve more risk since that’s not my area of knowledge. At least investing in stocks is tangentially related to what I already do and I already know how to analyze financials and businesses and I’ve read a fair amount on portfolio management.

GCD
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Re: Should I change careers?

Post by GCD » Sat Apr 28, 2018 11:29 pm

LovingLife wrote:
Sat Apr 28, 2018 8:03 pm
I am considering quitting my job to invest in the market. Most of my net worth has been created not from investing in stocks, but from investing in private companies, as well as the income from that job.

o Cash equivalents: $4 million (CDs/money market)

Expenses: we live on about $200k after tax, of which approx. $50k is charitable donations. If pressed, we could cut our living expenses to $150k.

My question: am I taking too much risk by quitting?
So how much net worth is from investing and how much is from the job? Is it 90/10 or 10/90? I'm curious because I'm wondering if you are the next Warren Buffett or something. I'm not being snide, maybe you're really good. But remember that the stock market has been doing great the last 9 years, the 3rd longest bull market in history. A lot of people became day traders in the 90s in that great market and thought they knew something and they really didn't. They got a rude awakening in 2000. So the question only you can answer is; how much of your net worth is from investing and how much of your investing success is due to the overall easy investment atmosphere of a long term bull that hasn't busted yet?

With that said, you clearly have the capacity to make money. In cash alone you have over 26 years of living expenses. It would seem if you had a bad decade you could just find another great job and start working again. Or if your investment skill is dependent on a bull market you could ride it out. The Great Depression only lasted a decade or so.

But in full transparency, you really shouldn't listen to me. It sounds like your wealth was created by you, not inherited. Which means you have been far more successful than me. So kudos! :sharebeer Do what you think is best.

Edit to add: you answered some of this in your subsequent posts while I was typing. So refer to my last paragraph if there is any confusion. ^^

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sat Apr 28, 2018 11:36 pm

Watty wrote:
Sat Apr 28, 2018 9:22 pm
am wrote:
Sat Apr 28, 2018 8:22 pm
Seems to me with 150k expenses and your networth, you can do anything you want with your life.
Many athletes and lottery winners have had ten times as much(or more) and managed to blow it.

Instead of being using your own money as a guinea pig while you try to learn more about investing another option would be to go back to school if necessary and get the background to get a job as an investment manager where you can have someone mentor you and you could get experience using other people's money. :D

It would be good to do more research about your prospects of being successful at investing though. Few investment managers have been able to beat a comparable index funds over the long term and so it is pretty optimistic to think that you will be able to.
I already studied investing in school, I then just happened to get into private investing rather than stock investing.

I agree that it’s optimistic to think I will be able to beat the market, but is it a bad outcome to only match or slightly underperform if I’m not able to beat over the long term? The key is to not terribly underperform. The way I look at it, as long as I can avoid permanent underperformance, the risk of slight underperformnace with my retirement money is the cost of the premium on an option that allows for outperformance, managing large amounts of others’ money, etc. But without paying that “premium,” I’ll never get to purchase and later exercise the option.

drk
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Re: Should I change careers?

Post by drk » Sat Apr 28, 2018 11:42 pm

LovingLife wrote:
Sat Apr 28, 2018 11:01 pm
drk wrote:
Sat Apr 28, 2018 8:34 pm
LovingLife wrote:
Sat Apr 28, 2018 8:03 pm
I am considering quitting my job to invest in the market. Most of my net worth has been created not from investing in stocks, but from investing in private companies, as well as the income from that job. My current job requires VERY long hours and there isn’t enough time to both do my day job *and* study investments carefully enough to be comfortable buying them in large quantities.
Imagine someone came to you with that as their pitch. Would you invest millions of dollars in them?
I’d consider it if they had a decent track record and were hungry to prove success. I wouldn’t if they were simply using this new occupation as a way to fill their time.
Even a decent unrelated track record? Keep in mind that investing in the stock market isn't like a business, where hunger can make the difference. This endeavor would involve going up against hundred-billion-dollar operations aiming to squeeze out every ounce of alpha in the market using their decades of experience and unmatched access to company data. It won't reward you for putting in more effort.
LovingLife wrote:
Sat Apr 28, 2018 11:01 pm
drk wrote:
Sat Apr 28, 2018 8:34 pm
LovingLife wrote:
Sat Apr 28, 2018 8:03 pm
My question: am I taking too much risk by quitting? While my current numbers may seem good, there are many scenarios where this plan blows up, since I plan to put the capital at risk by buying and holding a very concentrated basket of stocks (8-15 in total) for the next couple of decades with low turnover.
Yes, this is a bad plan. If you put your worst-case net worth ($8 million) into a diversified 60/40 portfolio, you could safely withdraw more than your expenses ($160k) at a 2% rate in perpetuity. Why would you put a substantial amount of that at risk in order to play around with stocks?
Not to get too philosophical, but I believe life is about more than the status quo...I don’t want to simply peel off $160k every year to live. I also don’t believe that markets are always efficient, so if one can invest carefully, it isn’t necessarily playing around with stocks, it’s investing in companies.
Thanks for this excellent article. One key difference is that I evaluate companies, while doctors evaluate humans, so it’s easier for them to make bad investment decisions. Doesn’t mean I wouldn’t too, but they are more likely to do so. I’ve seen it happen first hand with physician friends.
Obviously it's your money, and you're free to do with it as you please, but this seems foolish. Pride goeth before destruction and all that. Go spend unrestricted time with your spouse and kids. You'll find hobbies. Maybe you could start a business that uses your actual expertise.

moneywise3
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Re: Should I change careers?

Post by moneywise3 » Sun Apr 29, 2018 4:14 am

You have to have gotten your initial funds from parents/inheritance. Unless you are a Bill Gates alike.

msk
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Re: Should I change careers?

Post by msk » Sun Apr 29, 2018 4:32 am

Looking back over many decades of successful stock picking and currently having a higher NW than you quote, I would advise as follows:
You need circa $200k spending money. A 100% stocks portfolio of $4million can support that, on average keeping up with inflation, forever. And if there is a protracted, major market fall, you can still live on $150k. Hence, place $4million in VT (worldwide stocks).
Play with the rest of your money and make oodles more :greedy

From my decades of experience, I would say that, looking back, there was a certain, non-zero degree of cleverness in making my investment choices, but there was also a lot of luck. But as the saying goes, if you do not buy a ticket, you cannot win a lottery. Nevertheless I would urge a bit of humility when it comes to future investments. The luck side may dry up following some unforeseeable collapse. Hence, place $4million in VT and continue your life's game at a pace that's fun rather than work.

denovo
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Re: Should I change careers?

Post by denovo » Sun Apr 29, 2018 4:46 am

Could you describe your day job in more detail, I am wondering how applicable that experience is to stock picking?
"Don't trust everything you read on the Internet"- Abraham Lincoln

PhilosophyAndrew
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Re: Should I change careers?

Post by PhilosophyAndrew » Sun Apr 29, 2018 6:07 am

LovingLife wrote:
Sat Apr 28, 2018 11:25 pm
How much risk is “too much risk?” Cashing in my chips after I’m down 50% and going back to get a regular job?

I don’t wish to retire in the traditional sense, but I do wish to work for myself. The other things I could do working for myself would be starting a non-investment company (the sort of stuff peddled on Shark Tank), which I think would involve more risk since that’s not my area of knowledge. At least investing in stocks is tangentially related to what I already do and I already know how to analyze financials and businesses and I’ve read a fair amount on portfolio management.
Only you can decide which assset allocations you wish to maintain should you become a Boglehead investor. My recommendation was to avoid unnecesssary risk to your nest egg altogether by keeping your financial capital invested in some Boglehead portfolio using whichever allocations you prefer. This would allow your capital to meet the financial needs you have identified for the rest of your life.

Choosing to risk your financial capital in either of the ways you have described strikes me as unwise because those choices could lead to depletion of your capital before you die. Why assume that unnecessary risk? Assuming that you will take one of those paths but change direction once you have lost an acceptable amount seems imprudent compared to pursuing a meaningful life path that avoids the possibility of those prospective large losses.

If you don’t wish to retire, what meaningful work can you find that doesn’t risk your financial capital? There are many choices that you could make that would not do that; I recommend working hard and creatively to identify exampes thst could lead to a meaningful life for you.
You state that, among other reasons, emotional desires related to ego satisfaction, drive you to risk your nest egg. This suggests to me that you have not yet explored deeply enough less-risky options that could satisfy you.

Andy.
Last edited by PhilosophyAndrew on Sun Apr 29, 2018 6:40 am, edited 1 time in total.

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jharkin
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Re: Should I change careers?

Post by jharkin » Sun Apr 29, 2018 6:16 am

$11m by age 30?

I really went into the wrong field...


Serious, give notice tomorrow, spend all your time being Dad. You can put that money in CDs and forget about it for life.

lostdog
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Re: Should I change careers?

Post by lostdog » Sun Apr 29, 2018 7:29 am

You've won the game. Stop playing.

You don't need to take risk with your money anymore. Go 60/40 and go enjoy your life as a Dad and find some hobbies you enjoy. Throw your ego out the window. Life is short .

Congratulations! :sharebeer
Vanguard Total World Equity Index - The rational portfolio

YCkid
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Re: Should I change careers?

Post by YCkid » Sun Apr 29, 2018 7:50 am

Congrats! I'd suggest set up a 5M 3fund bh portfolio(3% generates 150k) first, then do whatever you want with the rest. If I were in your shoe I'll put another 1M in CD for extra caution.

TravelGeek
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Re: Should I change careers?

Post by TravelGeek » Sun Apr 29, 2018 9:36 am

LovingLife wrote:
Sat Apr 28, 2018 11:36 pm
I already studied investing in school, I then just happened to get into private investing rather than stock investing.

I agree that it’s optimistic to think I will be able to beat the market, but is it a bad outcome to only match or slightly underperform if I’m not able to beat over the long term? The key is to not terribly underperform.
Let’s say you can actively manage your investments and manage to only slightly underperform the market. Is that success? You’d have to factor in the cost of your labor (investment work), which is the loss of your salary from your current job. Which apparently is 80% of your annual income of $1-1.5 million.

If I were you, I would ty to figure out what “enough” is for my needs and stop working when I reached that point. And then not gamble with what I have.

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sun Apr 29, 2018 9:12 pm

GCD wrote:
Sat Apr 28, 2018 11:29 pm
LovingLife wrote:
Sat Apr 28, 2018 8:03 pm
I am considering quitting my job to invest in the market. Most of my net worth has been created not from investing in stocks, but from investing in private companies, as well as the income from that job.

o Cash equivalents: $4 million (CDs/money market)

Expenses: we live on about $200k after tax, of which approx. $50k is charitable donations. If pressed, we could cut our living expenses to $150k.

My question: am I taking too much risk by quitting?
So how much net worth is from investing and how much is from the job? Is it 90/10 or 10/90? I'm curious because I'm wondering if you are the next Warren Buffett or something. I'm not being snide, maybe you're really good. But remember that the stock market has been doing great the last 9 years, the 3rd longest bull market in history. A lot of people became day traders in the 90s in that great market and thought they knew something and they really didn't. They got a rude awakening in 2000. So the question only you can answer is; how much of your net worth is from investing and how much of your investing success is due to the overall easy investment atmosphere of a long term bull that hasn't busted yet?

With that said, you clearly have the capacity to make money. In cash alone you have over 26 years of living expenses. It would seem if you had a bad decade you could just find another great job and start working again. Or if your investment skill is dependent on a bull market you could ride it out. The Great Depression only lasted a decade or so.

But in full transparency, you really shouldn't listen to me. It sounds like your wealth was created by you, not inherited. Which means you have been far more successful than me. So kudos! :sharebeer Do what you think is best.

Edit to add: you answered some of this in your subsequent posts while I was typing. So refer to my last paragraph if there is any confusion. ^^
About 50% from salary/income and the other 50% from investing, but of that latter 50%, the vast majority was from investing in private businesses, and only a tiny fraction from stock investing, because I haven’t had time to really focus on it, so I invested only tiny amounts in stocks (outside of retirement accounts).

ps I think the stock market took a lot longer than 10 years to recover after the Great Depression, more like 25 years? Less accounting for dividends and deflation, but stilll.
Last edited by LovingLife on Sat Aug 18, 2018 1:02 am, edited 1 time in total.

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sun Apr 29, 2018 9:18 pm

drk wrote:
Sat Apr 28, 2018 11:42 pm
LovingLife wrote:
Sat Apr 28, 2018 11:01 pm
drk wrote:
Sat Apr 28, 2018 8:34 pm
LovingLife wrote:
Sat Apr 28, 2018 8:03 pm
I am considering quitting my job to invest in the market. Most of my net worth has been created not from investing in stocks, but from investing in private companies, as well as the income from that job. My current job requires VERY long hours and there isn’t enough time to both do my day job *and* study investments carefully enough to be comfortable buying them in large quantities.
Imagine someone came to you with that as their pitch. Would you invest millions of dollars in them?
I’d consider it if they had a decent track record and were hungry to prove success. I wouldn’t if they were simply using this new occupation as a way to fill their time.
Even a decent unrelated track record? Keep in mind that investing in the stock market isn't like a business, where hunger can make the difference. This endeavor would involve going up against hundred-billion-dollar operations aiming to squeeze out every ounce of alpha in the market using their decades of experience and unmatched access to company data. It won't reward you for putting in more effort.
LovingLife wrote:
Sat Apr 28, 2018 11:01 pm
drk wrote:
Sat Apr 28, 2018 8:34 pm
LovingLife wrote:
Sat Apr 28, 2018 8:03 pm
My question: am I taking too much risk by quitting? While my current numbers may seem good, there are many scenarios where this plan blows up, since I plan to put the capital at risk by buying and holding a very concentrated basket of stocks (8-15 in total) for the next couple of decades with low turnover.
Yes, this is a bad plan. If you put your worst-case net worth ($8 million) into a diversified 60/40 portfolio, you could safely withdraw more than your expenses ($160k) at a 2% rate in perpetuity. Why would you put a substantial amount of that at risk in order to play around with stocks?
Not to get too philosophical, but I believe life is about more than the status quo...I don’t want to simply peel off $160k every year to live. I also don’t believe that markets are always efficient, so if one can invest carefully, it isn’t necessarily playing around with stocks, it’s investing in companies.
Thanks for this excellent article. One key difference is that I evaluate companies, while doctors evaluate humans, so it’s easier for them to make bad investment decisions. Doesn’t mean I wouldn’t too, but they are more likely to do so. I’ve seen it happen first hand with physician friends.
Obviously it's your money, and you're free to do with it as you please, but this seems foolish. Pride goeth before destruction and all that. Go spend unrestricted time with your spouse and kids. You'll find hobbies. Maybe you could start a business that uses your actual expertise.
You make an excellent point that hunger can move the needle in a business, but the stock you bought doesn’t know or care if you’re hungry. However, someone who is hungry can do more meticulous work upfront to only invest in stocks with a large margin of safety, and the portfolio should allow the winners to more than offset losers by a margin of as much or more than the index’s gains over time.

I’d also note that it’s a related track record, albeit not a direct one.
Last edited by LovingLife on Sun Apr 29, 2018 9:59 pm, edited 1 time in total.

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sun Apr 29, 2018 9:23 pm

moneywise3 wrote:
Sun Apr 29, 2018 4:14 am
You have to have gotten your initial funds from parents/inheritance. Unless you are a Bill Gates alike.
My parents gave me all the love in the world (which in my view is the most important thing one can give their children), but absolutely nothing financially. They made it known early not expect an inheritence since they didn’t have that kind of money to pass down. I’ve helped them out a few times in recent years when they were in a pinch financially.

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Re: Should I change careers?

Post by LarryAllen » Sun Apr 29, 2018 9:23 pm

I am envious you can live so modestly. I wish I could do that. As long as you can keep that standard of living you can do whatever you want. Congrats on your success!

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sun Apr 29, 2018 9:28 pm

msk wrote:
Sun Apr 29, 2018 4:32 am
Looking back over many decades of successful stock picking and currently having a higher NW than you quote, I would advise as follows:
You need circa $200k spending money. A 100% stocks portfolio of $4million can support that, on average keeping up with inflation, forever. And if there is a protracted, major market fall, you can still live on $150k. Hence, place $4million in VT (worldwide stocks).
Play with the rest of your money and make oodles more :greedy

From my decades of experience, I would say that, looking back, there was a certain, non-zero degree of cleverness in making my investment choices, but there was also a lot of luck. But as the saying goes, if you do not buy a ticket, you cannot win a lottery. Nevertheless I would urge a bit of humility when it comes to future investments. The luck side may dry up following some unforeseeable collapse. Hence, place $4million in VT and continue your life's game at a pace that's fun rather than work.
Thanks msk. What attributes of your stock picking strategy do you think helped you succeed over the decades?

Also, I’m not sure if I was clear on this point but I have only $4 million liquid. The rest is in retirement accounts/529 that are invested in BH-style low cost indices. The larger illiquid portfolio can’t be used today to invest in the market. Those investments will be liquidated to generate cash over the next 2-6 years, and that cash can then be invested in stocks or however else I choose. So until then I don’t have more than $4 million to freely invest.

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sun Apr 29, 2018 9:37 pm

denovo wrote:
Sun Apr 29, 2018 4:46 am
Could you describe your day job in more detail, I am wondering how applicable that experience is to stock picking?
I have to be very careful here to not say anything that might reveal my identity in case my employer sees this thread.

I evaluate private companies (everything from early stage startups to mature companies to infrastructure deals to some real estate). I’ve got well over a decade of studying financial statements, evaluating management teams, buying low and trying to sell high. The biggest discrepancy is that I haven’t done this directly with stocks, and haven’t had to deal with the emotional roller coaster of holding (or doubling down) when the market or my stock tanks. With private assets, they aren’t likely to sell anyway in a bad environment (think of how difficult it was to sell your home at any reasonable price in 2008) so you just hold your nose and wait out the bad environment. I’ve been good in the past about ignoring the crowd and doing the most opportune thing, but haven’t tested if I’ll have that same mettle when it comes to stocks.

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sun Apr 29, 2018 9:39 pm

jharkin wrote:
Sun Apr 29, 2018 6:16 am
$11m by age 30?

I really went into the wrong field...


Serious, give notice tomorrow, spend all your time being Dad. You can put that money in CDs and forget about it for life.
I’m much closer to 40 than 30. I had much less at 30, but was still doing fine at that age.

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Re: Should I change careers?

Post by LovingLife » Sun Apr 29, 2018 9:41 pm

YCkid wrote:
Sun Apr 29, 2018 7:50 am
Congrats! I'd suggest set up a 5M 3fund bh portfolio(3% generates 150k) first, then do whatever you want with the rest. If I were in your shoe I'll put another 1M in CD for extra caution.
Please see my recent clarifying post - I don't have $6 million liquid today, only $4 million.

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sun Apr 29, 2018 9:49 pm

TravelGeek wrote:
Sun Apr 29, 2018 9:36 am
LovingLife wrote:
Sat Apr 28, 2018 11:36 pm
I already studied investing in school, I then just happened to get into private investing rather than stock investing.

I agree that it’s optimistic to think I will be able to beat the market, but is it a bad outcome to only match or slightly underperform if I’m not able to beat over the long term? The key is to not terribly underperform.
Let’s say you can actively manage your investments and manage to only slightly underperform the market. Is that success? You’d have to factor in the cost of your labor (investment work), which is the loss of your salary from your current job. Which apparently is 80% of your annual income of $1-1.5 million.

If I were you, I would ty to figure out what “enough” is for my needs and stop working when I reached that point. And then not gamble with what I have.
No, that won’t be success, but as long as I lose only a reasonable amount, I’d gain valuable insight. It would have taught me I’m not a good stock picker and now I can go about the rest of life not wondering if I would have been a great one. And that would be a successful experiment.

I already had enough for our financial needs a while ago, which is why I’m now thinking of giving up my job to try this. By some of the arguments I’ve read here, no one should ever become an entrepreneur after they’ve already money enough money to last their lives. I respectfully disagree.

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Re: Should I change careers?

Post by GibsonL6s » Sun Apr 29, 2018 9:54 pm

It sounds like to me you have a large portion of your net worth in private companies or venture capital deals since you say you are worth 8-18 but liquid 4. Is this correct. If so you have a "track record" that is not printed as we say. So the reality is you could be worth more or less and be better or worse at this than you think.

If I were in your shoes I would work until you have enough money to ensure a comfortable life. This is either through saving more or realizing on your investments. At that point if you want, you can "seed" a fund to do what you are doing. Meaning put 1% or 2% of the capital in and taker fees and a promote to make the investments. The reality is if you can't attract investors you shouldn't be investing like this as more than a hobby.

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sun Apr 29, 2018 9:57 pm

PhilosophyAndrew wrote:
Sun Apr 29, 2018 6:07 am
LovingLife wrote:
Sat Apr 28, 2018 11:25 pm
How much risk is “too much risk?” Cashing in my chips after I’m down 50% and going back to get a regular job?

I don’t wish to retire in the traditional sense, but I do wish to work for myself. The other things I could do working for myself would be starting a non-investment company (the sort of stuff peddled on Shark Tank), which I think would involve more risk since that’s not my area of knowledge. At least investing in stocks is tangentially related to what I already do and I already know how to analyze financials and businesses and I’ve read a fair amount on portfolio management.
Only you can decide which assset allocations you wish to maintain should you become a Boglehead investor. My recommendation was to avoid unnecesssary risk to your nest egg altogether by keeping your financial capital invested in some Boglehead portfolio using whichever allocations you prefer. This would allow your capital to meet the financial needs you have identified for the rest of your life.

Choosing to risk your financial capital in either of the ways you have described strikes me as unwise because those choices could lead to depletion of your capital before you die. Why assume that unnecessary risk? Assuming that you will take one of those paths but change direction once you have lost an acceptable amount seems imprudent compared to pursuing a meaningful life path that avoids the possibility of those prospective large losses.

If you don’t wish to retire, what meaningful work can you find that doesn’t risk your financial capital? There are many choices that you could make that would not do that; I recommend working hard and creatively to identify exampes thst could lead to a meaningful life for you.
You state that, among other reasons, emotional desires related to ego satisfaction, drive you to risk your nest egg. This suggests to me that you have not yet explored deeply enough less-risky options that could satisfy you.

Andy.
Andy, the most meaningful life path I can imagine is one where I invest in stocks, working for myself and able to make my own schedule to be there for kids games and dinners and bedtime. I already volunteer in my free time and would get bored doing that full time at this age. Maybe 20-30 years from now, but not now. Investing is something I thoroughly enjoy and that’s partly what makes someone good - ie doing something they love.

denovo
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Re: Should I change careers?

Post by denovo » Sun Apr 29, 2018 10:04 pm

LovingLife wrote:
Sun Apr 29, 2018 9:37 pm
denovo wrote:
Sun Apr 29, 2018 4:46 am
Could you describe your day job in more detail, I am wondering how applicable that experience is to stock picking?
I have to be very careful here to not say anything that might reveal my identity in case my employer sees this thread.

I evaluate private companies (everything from early stage startups to mature companies to infrastructure deals to some real estate). I’ve got well over a decade of studying financial statements, evaluating management teams, buying low and trying to sell high. The biggest discrepancy is that I haven’t done this directly with stocks, and haven’t had to deal with the emotional roller coaster of holding (or doubling down) when the market or my stock tanks. With private assets, they aren’t likely to sell anyway in a bad environment (think of how difficult it was to sell your home at any reasonable price in 2008) so you just hold your nose and wait out the bad environment. I’ve been good in the past about ignoring the crowd and doing the most opportune thing, but haven’t tested if I’ll have that same mettle when it comes to stocks.
Ok, why not try to send out your info and work for a investment company or hedge fund that is long on stocks and see how you do? That way you have a salary and you're not betting your entire life savings.
"Don't trust everything you read on the Internet"- Abraham Lincoln

Minty
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Re: Should I change careers?

Post by Minty » Sun Apr 29, 2018 10:10 pm

No offense, OP, but I am very hesitant. Lending to or taking positions in private companies is an entirely different thing than trading securities. For example, with securities, at least at the numbers you are talking, you cannot get your calls returned from executives (or get their personal guarantees on loans), cannot protect your investments by obtaining security interests in specific assets, and cannot get a board seat or change policy. Also, as others have said, the level of competition with other investors is orders of magnitude higher.

On the other hand, why not set a vacation and use it to try it out? Do some research and see if there are some public securities that you are confident in.

Or if you want more time and independence, why not hook up with a money person or smaller shop and do what you are doing now, half time? You've developed a lot of expertise, it sounds like, why not use it?

Best of luck, whatever you do!
Core Four with nominal bonds and TIPS.

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Re: Should I change careers?

Post by LovingLife » Sun Apr 29, 2018 10:15 pm

GibsonL6s wrote:
Sun Apr 29, 2018 9:54 pm
It sounds like to me you have a large portion of your net worth in private companies or venture capital deals since you say you are worth 8-18 but liquid 4. Is this correct. If so you have a "track record" that is not printed as we say. So the reality is you could be worth more or less and be better or worse at this than you think.

If I were in your shoes I would work until you have enough money to ensure a comfortable life. This is either through saving more or realizing on your investments. At that point if you want, you can "seed" a fund to do what you are doing. Meaning put 1% or 2% of the capital in and taker fees and a promote to make the investments. The reality is if you can't attract investors you shouldn't be investing like this as more than a hobby.
Good point that some of my track record hasn’t printed yet, but many deals have. Keep in mind that the unrealized illiquid portfolio had a cost basis I had to fund - about $3 million of my own cash funded that basis, and that cash came primarily from realized winners on other deals. To tie it to my initial post, I bought $3 million of basis that today is worth $6 million with a worst case of $2 million and best case of $12 million. Also, some of my $4 million liquid also came from winning investments.

I’m already at a stage where I think I can ensure a comfortable life. The $1 million of retirement /529 should be worth $7 million 25 years from now. The illiquid investments if terrible should still dribble out about $2 million and once I invest those proceeds, the $2 million should grow too. Meanwhile, the $4 million liquid I wasted away if I’m a bad stock investor should be down to $2 million, and now having my fingers burned, I’d invest it in the index and it too would grow. So in 25 years, I’d still have a secure retirement, even if my plan blows up. And if my plan works, well, that’d be why I did all this. Thoughts?

LovingLife
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Re: Should I change careers?

Post by LovingLife » Sun Apr 29, 2018 10:33 pm

LarryAllen wrote:
Sun Apr 29, 2018 9:23 pm
I am envious you can live so modestly. I wish I could do that. As long as you can keep that standard of living you can do whatever you want. Congrats on your success!
Thank you, but I don’t think we live particularly modestly. We live in a big home, drive nice cars, eat out whenever we please, travel, and give a lot to charities. I’ve even gone through phases in the past where I spent money on total frivolities such as an AMEX Centurion card and wildly overpriced designer clothes. By doing these things young, I was able to get much of it out of my system early. I also view a high savings rate as a huge margin of safety, which has given me the luxury of contemplating my original question.

Right now we mostly want to nest and be a close, loving family (which frankly doesn’t require a lot of spending) and I want to continue pursuing my favorite activity - investing - but while working for myself.

msk
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Re: Should I change careers?

Post by msk » Mon Apr 30, 2018 12:28 am

LovingLife wrote:
Sun Apr 29, 2018 9:28 pm
msk wrote:
Sun Apr 29, 2018 4:32 am
Looking back over many decades of successful stock picking and currently having a higher NW than you quote, I would advise as follows:
You need circa $200k spending money. A 100% stocks portfolio of $4million can support that, on average keeping up with inflation, forever. And if there is a protracted, major market fall, you can still live on $150k. Hence, place $4million in VT (worldwide stocks).
Play with the rest of your money and make oodles more :greedy

From my decades of experience, I would say that, looking back, there was a certain, non-zero degree of cleverness in making my investment choices, but there was also a lot of luck. But as the saying goes, if you do not buy a ticket, you cannot win a lottery. Nevertheless I would urge a bit of humility when it comes to future investments. The luck side may dry up following some unforeseeable collapse. Hence, place $4million in VT and continue your life's game at a pace that's fun rather than work.
Thanks msk. What attributes of your stock picking strategy do you think helped you succeed over the decades?

Also, I’m not sure if I was clear on this point but I have only $4 million liquid. The rest is in retirement accounts/529 that are invested in BH-style low cost indices. The larger illiquid portfolio can’t be used today to invest in the market. Those investments will be liquidated to generate cash over the next 2-6 years, and that cash can then be invested in stocks or however else I choose. So until then I don’t have more than $4 million to freely invest.
I was very lucky to be present at the launch of a new micro stock market when very few local people had any clue as to stock evaluations. I managed to pick a few that had P/E <10 but were obviously growing very fast. I think 3 went bankrupt and one kept growing. I kept adding all my savings into that one for a few years until the market recognized it as worthy of a higher P/E. By the time it got to a P/E of 13 I had put into that one stock about $800k and it had appreciated to $3.5million. Sold off $2.5million in order to diversify and still have $1+ million. I also made a million or two in opportunistic Real Estate. Thenceforth I diverted the proceeds into SPY and BRK. Both wonderful these past 30 years :moneybag Moral? You cannot repeat your past successes. Each opportunity is unique. Just like in Real Estate. Diversify as soon as you start getting nervous. My advice to you remains to put a very large chunk of your liquid assets into VT asap to assure you of a comfortable future no matter how badly your illiquid investments fare, or how well. Over confidence is dangerous but it's the minimal requirement if you dream of getting into 9 figures Net Worth. Good luck, but no need to be overly BH-conservative. You are still young.

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jharkin
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Re: Should I change careers?

Post by jharkin » Mon Apr 30, 2018 5:47 am

LovingLife wrote:
Sun Apr 29, 2018 9:39 pm
jharkin wrote:
Sun Apr 29, 2018 6:16 am
$11m by age 30?

I really went into the wrong field...


Serious, give notice tomorrow, spend all your time being Dad. You can put that money in CDs and forget about it for life.
I’m much closer to 40 than 30. I had much less at 30, but was still doing fine at that age.
Even so, Im 42 and you already have more than I could possibly ever save unless future medical advances let me live and work to 120 and the current bull never ends.


As everybody said, you won the game. Seems to me your biggest concern is whether or not you will feel fulfilled if you give up your powerful career.

You have lots of options, I would keep that money in a safe boglehead portfolio (like 60/40 or even 50/50), carve out a small slice - say 10-20% - as fun money to speculate in stocks, and then make a decision whether to work just based on what you want to do with your time.

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Re: Should I change careers?

Post by lostdog » Mon Apr 30, 2018 10:06 am

jharkin wrote:
Mon Apr 30, 2018 5:47 am
LovingLife wrote:
Sun Apr 29, 2018 9:39 pm
jharkin wrote:
Sun Apr 29, 2018 6:16 am
$11m by age 30?

I really went into the wrong field...


Serious, give notice tomorrow, spend all your time being Dad. You can put that money in CDs and forget about it for life.
I’m much closer to 40 than 30. I had much less at 30, but was still doing fine at that age.
Even so, Im 42 and you already have more than I could possibly ever save unless future medical advances let me live and work to 120 and the current bull never ends.


As everybody said, you won the game. Seems to me your biggest concern is whether or not you will feel fulfilled if you give up your powerful career.

You have lots of options, I would keep that money in a safe boglehead portfolio (like 60/40 or even 50/50), carve out a small slice - say 10-20% - as fun money to speculate in stocks, and then make a decision whether to work just based on what you want to do with your time.
+1. A very good compromise to keep the best of both worlds.
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