10 Year Plan

[10FOTurkey]

Good Afternoon All,

I’m about to start investing for the first time and I have a ton to learn. I’ve been researching a lot and am starting to formulate my strategy. I wanted to post here to get additional feedback.

Married 38 / spouse 34
3 kids - 1 3 5
Living Expenses $175k/year

We run a business in a stable industry and the business is growing, but for rough and hopefully conservative figuring, I’m going to say $1.5MM annual cumulative income post tax. The business will be debt free Jan 1, 2025, and we are personally debt free. We have around $1.5MM in real estate, none of it income generating.

Over the next 5 years, my goal is to invest $100k/Month into primarily equities. I want the highest returns possible for this money without taking any extreme risks. The portfolio contributions would be $6MM by Jan 1 of 2030, plus whatever value it gains during that time.

Years 5 through 10 I would start a second and separate portfolio. I would invest $75k/Month, this time in slightly more secure investments. At the end of this 5 years, contributions would be $4.5MM plus whatever return was gained during the 5 year period. I would also be adding $20k/month to the first pool during this period, boosting contributions in that portfolio another $1.2M to $7.2M total.

At the end of this 10 years, so Jan 1, 2035, I would have 2 portfolios, first one with contributions of $7.2MM and second with contributions of $4.5MM. The goal would be to never pull anything out of the first portfolio ever. It’s purpose is to sit there and compound. The purpose of the second portfolio would be to produce income for living expenses. Not saying I’d retire at this point, I’d be 47, but I would want to see if we could sustainably live off the income at that amount.

For those doing the math, my contributions plus living expenses don’t quite add up to the $1.5MM projected annual income, so any excess I may direct to other investments such as precious metals, real estate, etc.

Is this a crazy plan? Or does it make logical sense? I’m good at making money but it’s time for my money to go to work. I can’t predict the future but I like having a plan in place that I can try to follow. If the plan makes some level of logical sense to you guys here, where would you direct money in the first 5 years and then in the next 5? Would it be wise to have money across multiple platforms to keep from being centralized in one spot? It seems Fidelity, Schwab, and IBKR come highly recommended. Also I don’t think I want an advisor, this is something I want to do myself. I’ve met with several and I don’t know as it’s a fit for me. I like to be fairly hands on.

Thanks all, fire away.

Steven

[BolderBoy]

I want the highest returns possible for this money without taking any extreme risks.

You realize that these are mutually exclusive objectives, right? Risk/Reward and all that...

Obviously you should max out your retirement plan opportunities (401k, tIRA) before concentrating on your non-retirement account.

You've got some reading to do. The wiki has lots of good info. Pay attention to tax efficiency (proper placement of assets).

Look for the "Three Fund Portfolio" in the wiki. You don't have to do all three, I do two of the three.

[carminered2019]

OP, you are making it way too complicated with 2 different portfolios.

[10FOTurkey]

[quote=10FOTurkey post_id=8058434 time=<a href="tel:1727740000">1727740000</a> user_id=208446]I want the highest returns possible for this money without taking any extreme risks.

You realize that these are mutually exclusive objectives, right? Risk/Reward and all that...

Yes; I think I phrased that all wrong… I want the highest return that is attainable without being excessively risky… so not the highest return available bar none in the market, but the highest return at a reasonable level of risk if that makes sense. I’m young so sticking all my money in a T bond is not super appealing for the long haul at this point in life.


Obviously you should max out your retirement plan opportunities (401k, tIRA) before concentrating on your non-retirement account.

Everyone says to do this but I don’t follow why. I own the business so if I match 401k it’s literally my own money matching… and theoretically people will be at a lower tax bracket when they go to take this out… but locking it away and being penalized to move my money out early is not appealing to me if I want to do so ethi g different with it? There are also major limits on what I can put in… forgive my naivity, maybe I am missing fundamental elements of this?

You've got some reading to do. The wiki has lots of good info. Pay attention to tax efficiency (proper placement of assets).

I certainly will, thank you.

Look for the "Three Fund Portfolio" in the wiki. You don't have to do all three, I do two of the three.

I’ve read on the 3 fund approaches, both traditional and more modern versions… I would presume this forum leans toward the more traditional 3 fund approach… do you mind sharing which 2 you do?

[/quote]

[10FOTurkey]

OP, you are making it way too complicated with 2 different portfolios.

Don’t be afraid to hit me over the head with a hammer… I can handle it haaa… do you recommend going into 1 portfolio for ease of management? Or for other reasons that I’m missing… thank you

[Nubomb]

Rough quick math seems like you are leaning towards a 60/40 Asset allocation. Figure out your risk tolerance, set an allocation strategy and what you want to invest in and stick to it over that 10 year period and well beyond.

[10FOTurkey]

Rough quick math seems like you are leaning towards a 60/40 Asset allocation. Figure out your risk tolerance, set an allocation strategy and what you want to invest in and stick to it over that 10 year period and well beyond.

Yes this is roughly the idea I’m going for; slightly different approach versus a 60/40 in a single portfolio… 60 in one portfolio that starts sooner and 40 in another portfolio that’s complete 5 years later… and then like you say beyond that hopefully.. picking my allocations is one area I may need some help.

[JS-Elcano]

The portfolio contributions would be $6MM by Jan 1 of 2030, plus whatever value it gains ... or loses ... during that time.

At the end of this 5 years, contributions would be $4.5MM plus whatever return was gained ... or lost ... during the 5 year period.

I would also be adding $20k/month to the first pool during this period, boosting contributions in that portfolio another $1.2M to $7.2M total, or whatever it is after possible losses.

My additions to your projections are in red. Investments can go up, but they can also go down, the latter of which you did not consider in your projections.

[10FOTurkey]

[quote=10FOTurkey post_id=8058434 time=<a href="tel:1727740000">1727740000</a> user_id=208446]
The portfolio contributions would be $6MM by Jan 1 of 2030, plus whatever value it gains ... or loses ... during that time.

At the end of this 5 years, contributions would be $4.5MM plus whatever return was gained ... or lost ... during the 5 year period.

I would also be adding $20k/month to the first pool during this period, boosting contributions in that portfolio another $1.2M to $7.2M total, or whatever it is after possible losses.

My additions to your projections are in red. Investments can go up, but they can also go down, the latter of which you did not consider in your projections.
[/quote]

You are absolutely correct in the short term. But long term with proper investing, if there is still a functioning economy, my returns should be positive, not negative.

[knowledge]

I don't see the point of two separate taxable accounts. Money is fungible, and money with the same tax status and same ownership is exactly the same. So it's fine to separate into two separate accounts, if that mental compartmentalization makes you more likely to succeed, but there's no logic for it.

You are absolutely correct in the short term. But long term with proper investing, if there is still a functioning economy, my returns should be positive, not negative.

Whenever I hear or read things like this, I immediately think we're due for a pullback. There are instances in history with long periods of negative returns with a functioning economy. Things don't need to collapse for your portfolio to be negative even after 20 years.

But your sentiment is right, in the long run, you should have positive returns.

[10FOTurkey]

I don't see the point of two separate taxable accounts. Money is fungible, and money with the same tax status and same ownership is exactly the same. So it's fine to separate into two separate accounts, if that mental compartmentalization makes you more likely to succeed, but there's no logic for it.


Thanks, I understand where you’re coming from… I think like you say it’s more of a mental separation but absolutely not required, and probably creating extra work for myself haa. But I do kind of like the distinct line between the two for some reason.

You are absolutely correct in the short term. But long term with proper investing, if there is still a functioning economy, my returns should be positive, not negative.

Whenever I hear or read things like this, I immediately think we're due for a pullback. There are instances in history with long periods of negative returns with a functioning economy. Things don't need to collapse for your portfolio to be negative even after 20 years.

But your sentiment is right, in the long run, you should have positive returns.

20 years of negative returns would be rough, but hopefully my dollar cost averaging over 10 years helps smooth things out if we were to have something bad like that. I guess I’d be buying at a discount for a long time, which is also ok as long as we bounce back someday. I’m all game for the rollercoaster but in all honesty I hope we don’t see a recession of that magnitude. But who knows what the future holds.

[RonBurgAM]

Obviously you should max out your retirement plan opportunities (401k, tIRA) before concentrating on your non-retirement account.

Everyone says to do this but I don’t follow why. I own the business so if I match 401k it’s literally my own money matching… and theoretically people will be at a lower tax bracket when they go to take this out… but locking it away and being penalized to move my money out early is not appealing to me if I want to do so ethi g different with it? There are also major limits on what I can put in… forgive my naivity, maybe I am missing fundamental elements of this?

Two advantages come to mind:
- You should be able to make pre-tax contributions to a retirement account. In the 37% bracket, every 100k "costs" you only 63k. And as a business owner, you might be able to set up a SEP which is up to 69k per year. It's not much compared to the numbers you are tossing out, but it is something.
- Retirement accounts are great places for Total Bond funds. You will struggle either way to find tax-efficient placement of bond/fixed income, but this is again at least something.

I'm sure there are others here that can be more specific. Hope that helps.

Ron

[10FOTurkey]

Obviously you should max out your retirement plan opportunities (401k, tIRA) before concentrating on your non-retirement account.

Everyone says to do this but I don’t follow why. I own the business so if I match 401k it’s literally my own money matching… and theoretically people will be at a lower tax bracket when they go to take this out… but locking it away and being penalized to move my money out early is not appealing to me if I want to do so ethi g different with it? There are also major limits on what I can put in… forgive my naivity, maybe I am missing fundamental elements of this?

Two advantages come to mind:
- You should be able to make pre-tax contributions to a retirement account. In the 37% bracket, every 100k "costs" you only 63k. And as a business owner, you might be able to set up a SEP which is up to 69k per year. It's not much compared to the numbers you are tossing out, but it is something.
- Retirement accounts are great places for Total Bond funds. You will struggle either way to find tax-efficient placement of bond/fixed income, but this is again at least something.

I'm sure there are others here that can be more specific. Hope that helps.

Ron

Thank you Ron for these points to consider!

[Nubomb]

Rough quick math seems like you are leaning towards a 60/40 Asset allocation. Figure out your risk tolerance, set an allocation strategy and what you want to invest in and stick to it over that 10 year period and well beyond.

Yes this is roughly the idea I’m going for; slightly different approach versus a 60/40 in a single portfolio… 60 in one portfolio that starts sooner and 40 in another portfolio that’s complete 5 years later… and then like you say beyond that hopefully.. picking my allocations is one area I may need some help.

So you don’t need to do it in two different portfolios but it’s semantics. I think I get what your trying to do, be aggressive early on like someone starting out in there 20’s and glide path down to less risk as one continues to gets closer to retirement. The problem is your horizon is only 10years and a lot can happen in such a short time span. You are basically going 100/0 to 20/80 instantly (with new money) at an arbitrary 5 year mark. What happens if the market tanks and stays down for the first 5 years? Are you going to change your plans or stick to them and only invest 20% of new money into stocks?

Figure out your risk tolerance. If your truly inclined to take on risk, I would do 80/20 or 70/30. Stocks go down, rebalance into stocks. Stocks go up, maybe let it drift if you plan to change AA after 5years to less risky for new money.

[majiaknight]

IMO your idea is similar to Christine Benz 3-bucket strategy:
https://www.morningstar.com/personal-fi ... allocation

[10FOTurkey]

So you don’t need to do it in two different portfolios but it’s semantics. I think I get what your trying to do, be aggressive early on like someone starting out in there 20’s and glide path down to less risk as one continues to gets closer to retirement. The problem is your horizon is only 10years and a lot can happen in such a short time span. You are basically going 100/0 to 20/80 instantly (with new money) at an arbitrary 5 year mark. What happens if the market tanks and stays down for the first 5 years? Are you going to change your plans or stick to them and only invest 20% of new money into stocks?

Figure out your risk tolerance. If your truly inclined to take on risk, I would do 80/20 or 70/30. Stocks go down, rebalance into stocks. Stocks go up, maybe let it drift if you plan to change AA after 5years to less risky for new money.
[/quote]


You were able to elaborate my plan in better words than I could. Thank you for the recommendations, I will take them into account as I refine the strategy I want to go with.

[10FOTurkey]

IMO your idea is similar to Christine Benz 3-bucket strategy:
https://www.morningstar.com/personal-fi ... allocation

I gave the article a read, definitely some similarities in the logic behind the plan.

Thanks!