Comments on: How I became financially independent in 5 years – Part IV – the investments http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html Becoming debt-free is the first step to building a better world. Financial independence is the second. Doing what YOU want is the third. Thu, 09 Feb 2012 00:07:08 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: The Magic of Compound Interest is Vastly Overrated « Simple Living in Suffolk http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-35626 The Magic of Compound Interest is Vastly Overrated « Simple Living in Suffolk Fri, 23 Dec 2011 00:29:22 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-35626 [...] than it is now ) and I did not have the energy to analyse this myself, until I came across this post by ERE which showed that there was a way to beat the tyrant of compound interest that is supposed to save [...] [...] than it is now ) and I did not have the energy to analyse this myself, until I came across this post by ERE which showed that there was a way to beat the tyrant of compound interest that is supposed to save [...]

]]> By: Jacob http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-22005 Jacob Thu, 28 Apr 2011 14:05:41 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-22005 @Robert - It's better for people to write it themselves with methods they're familiar with. My first method used a fortran program. I use a spreadsheet now. My wife uses another spreadsheet that she made. They look quite different. It's hard to write a generic one that'll fit everybody without introducing a lot of superfluous stuff. @Robert – It’s better for people to write it themselves with methods they’re familiar with. My first method used a fortran program. I use a spreadsheet now. My wife uses another spreadsheet that she made. They look quite different. It’s hard to write a generic one that’ll fit everybody without introducing a lot of superfluous stuff.

]]> By: Robert http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-22003 Robert Thu, 28 Apr 2011 08:17:08 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-22003 I don't suppose you ever got around to writing that net worth spreadsheet and have it to publish here? I don’t suppose you ever got around to writing that net worth spreadsheet and have it to publish here?

]]> By: Jacob http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-20212 Jacob Fri, 31 Dec 2010 20:03:50 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-20212 @Chris - Right around when I turned 30. It's been a while since then, but back then I had around $150k and monthly expenses under $500. I kept working until I was 33. The surplus money means my portfolio is in a runaway mode---I spend less than my passive income and the surplus gets reinvested. I should reach $1M before I turn 50. There's a huge benefit to starting early. @Chris – Right around when I turned 30. It’s been a while since then, but back then I had around $150k and monthly expenses under $500. I kept working until I was 33. The surplus money means my portfolio is in a runaway mode—I spend less than my passive income and the surplus gets reinvested. I should reach $1M before I turn 50. There’s a huge benefit to starting early.

]]> By: Chris Parsons http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-20211 Chris Parsons Fri, 31 Dec 2010 19:42:40 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-20211 This may be more information than you want to share, but at what amount and at what age did you become financially independent? And does this assume you continue to spend at your current levels for the rest of your life? This may be more information than you want to share, but at what amount and at what age did you become financially independent?

And does this assume you continue to spend at your current levels for the rest of your life?

]]> By: Jacob http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-18249 Jacob Fri, 26 Nov 2010 17:22:38 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-18249 @Pete - Not currently though I never exclude anything. Besides, it's pretty easy to find a cheap place in the US as well. @Pete – Not currently though I never exclude anything. Besides, it’s pretty easy to find a cheap place in the US as well.

]]> By: Pete http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-18242 Pete Fri, 26 Nov 2010 07:22:31 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-18242 Have you thought about the possibility of moving to a much cheaper country once you don't have a day job anymore to dramatically lower living expenses? Even if you only wanted to live overseas for 5 years, you could dramatically grow your principal by much lower withdrawls. Have you thought about the possibility of moving to a much cheaper country once you don’t have a day job anymore to dramatically lower living expenses? Even if you only wanted to live overseas for 5 years, you could dramatically grow your principal by much lower withdrawls.

]]> By: Jacob http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-9092 Jacob Sun, 31 Jan 2010 17:32:51 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-9092 @Gameplan - In my experience, the debt collection does not work all that well. The rating system is not guaranteed, and doing taxes for multiple loans gone bad is a major hassle. @Gameplan – In my experience, the debt collection does not work all that well. The rating system is not guaranteed, and doing taxes for multiple loans gone bad is a major hassle.

]]> By: Gameplan http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-9090 Gameplan Sun, 31 Jan 2010 09:12:06 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-9090 Hi Jacob, I wonder whether you have used Zopa to create a stream of passive income. I wrote about my experience with it in my blog http://www.mysipp.net/create-income-become-a-bank/ So far I have been really impressed with the returns I am getting (around 8%). I have had no bad debts in the last year despite the economic environment. Worth a go? Hi Jacob,
I wonder whether you have used Zopa to create a stream of passive income. I wrote about my experience with it in my blog http://www.mysipp.net/create-income-become-a-bank/
So far I have been really impressed with the returns I am getting (around 8%). I have had no bad debts in the last year despite the economic environment. Worth a go?

]]> By: newcents http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-9060 newcents Thu, 28 Jan 2010 23:09:52 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-9060 For me, real estate investing is where it's at. Putting down no money on a property that's 100% occupied and cash flowing at the day of closing means unlimited returns. You can hire a property manager so you're not getting the clogged toilet calls or manage it yourself to net even more. Just like index funds, you've got to do your research and have a real passion to keep learning. Even today you can get away with putting $100 dollars down and buy a property with 110% financing. Look at FHA 203k and 203b loans. You can buy one house a year as owner-occupied. If you're flexible you can keep buying houses with the intent to rent them in a year (look for what is the best investment in your market-probably bread and butter homes). A couple I know owns 33 houses, they manage them all themselves, and they have full time 8-5 jobs!! The cash flow you develop from one property provides you with the money to buy the next (if you even need a deposit to purchase at all). For me, real estate investing is where it’s at. Putting down no money on a property that’s 100% occupied and cash flowing at the day of closing means unlimited returns. You can hire a property manager so you’re not getting the clogged toilet calls or manage it yourself to net even more.

Just like index funds, you’ve got to do your research and have a real passion to keep learning. Even today you can get away with putting $100 dollars down and buy a property with 110% financing. Look at FHA 203k and 203b loans.

You can buy one house a year as owner-occupied. If you’re flexible you can keep buying houses with the intent to rent them in a year (look for what is the best investment in your market-probably bread and butter homes). A couple I know owns 33 houses, they manage them all themselves, and they have full time 8-5 jobs!! The cash flow you develop from one property provides you with the money to buy the next (if you even need a deposit to purchase at all).

]]> By: Jacob http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-8494 Jacob Sat, 02 Jan 2010 06:17:49 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-8494 @FS - I decided to retire from my career five years after graduating. I just did not see myself doing the same kind of research for the rest of my life. I was, however, able to do so three years after, but decided to give my career another chance. Moneywise, It would have been better to go out with an undergraduate or even gone to trade school. @FS – I decided to retire from my career five years after graduating. I just did not see myself doing the same kind of research for the rest of my life. I was, however, able to do so three years after, but decided to give my career another chance. Moneywise, It would have been better to go out with an undergraduate or even gone to trade school.

]]> By: Financial Samurai http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-8485 Financial Samurai Sat, 02 Jan 2010 05:42:47 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-8485 Hi Jacob, Nice story. Wondering if you decided to retire after 5 years work before deciding to get your PhD, during, or after? Would it have been easier to save the extra 4 years of school if you knew you'd retire instead? Just wondering your thought process. ThnX! Hi Jacob,

Nice story. Wondering if you decided to retire after 5 years work before deciding to get your PhD, during, or after?

Would it have been easier to save the extra 4 years of school if you knew you’d retire instead? Just wondering your thought process.

ThnX!

]]> By: erzebet http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-6993 erzebet Wed, 07 Oct 2009 10:11:26 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-6993 i usually read your blog but this series of posts was wondeful to read! i have identified so much with you! i didn't like robert kyosaki's book because he undervalues education; i know it is not a guarantee for money but it made me much happier than anything else! for the moment i save money in bank accounts because i do not have a real job to invest more; i still have 2 years for my second college and have to finish the master for my first one. i never valued spending money going out and i'm glad i did; i spent my money on books and Certificates of Deposit since i was in high-school. meantime i got very passioned by robotics and i wouldn't understand this field at all if i didn't read a lot which i still have to do. thanks again for taking your time to write this blog! i usually read your blog but this series of posts was wondeful to read! i have identified so much with you! i didn’t like robert kyosaki’s book because he undervalues education; i know it is not a guarantee for money but it made me much happier than anything else! for the moment i save money in bank accounts because i do not have a real job to invest more; i still have 2 years for my second college and have to finish the master for my first one. i never valued spending money going out and i’m glad i did; i spent my money on books and Certificates of Deposit since i was in high-school. meantime i got very passioned by robotics and i wouldn’t understand this field at all if i didn’t read a lot which i still have to do.
thanks again for taking your time to write this blog!

]]> By: George http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-6553 George Wed, 02 Sep 2009 17:06:21 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-6553 @Eric - You don't get something for nothing! The higher SWR rate studies make a tradeoff - more volatile income to generate a higher initial rate. One of the studies even recommends a 10% drop in income whenever the market goes down. I think most people prefer a steady income, gradually increasing with inflation, to one that has downs in addition to ups. Also, SWR studies for age 50-60 is a little different than age 30-40. You might be able to gamble more at age 30-40, but you also have to be able to recognize more quickly when you don't have enough and return to the workforce because, you absolutely don't want to run out when you're 75 with another 15-20 years ahead of you! @Eric -

You don’t get something for nothing! The higher SWR rate studies make a tradeoff – more volatile income to generate a higher initial rate. One of the studies even recommends a 10% drop in income whenever the market goes down.

I think most people prefer a steady income, gradually increasing with inflation, to one that has downs in addition to ups.

Also, SWR studies for age 50-60 is a little different than age 30-40. You might be able to gamble more at age 30-40, but you also have to be able to recognize more quickly when you don’t have enough and return to the workforce because, you absolutely don’t want to run out when you’re 75 with another 15-20 years ahead of you!

]]> By: Jacob http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-6551 Jacob Wed, 02 Sep 2009 16:07:36 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-6551 @Eric - I think the precision of the SWR calculations is so bad that the real SWR can not be known. I think previous SWR studies indicate that if you throw bonds in there, your portfolio becomes safer but has a short lifespan. This may be even more true for the near future where I expect stocks to linger and bonds to suffer from inflation. One could argue that if you're a better investor, you could also increase yuor personal SWR --- the 4% is merely the SWR for some doing as well as the market but no better and no worse. @Eric – I think the precision of the SWR calculations is so bad that the real SWR can not be known. I think previous SWR studies indicate that if you throw bonds in there, your portfolio becomes safer but has a short lifespan. This may be even more true for the near future where I expect stocks to linger and bonds to suffer from inflation. One could argue that if you’re a better investor, you could also increase yuor personal SWR — the 4% is merely the SWR for some doing as well as the market but no better and no worse.

]]> By: Eric http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-6550 Eric Wed, 02 Sep 2009 16:00:29 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-6550 Jacob, Following the discussion above, I wanted to suggest looking more into how the "Safe Withdrawal Rate" (SWR) could be potentially increased. My preliminary research has indicated that through increased diversification (e.g. into bonds and other asset classes not correlated with each other) one might achieve lower volatility without lowering returns substantially. Thus one would be able to increase the SWR without additional worry about depleting assets during bad years. I believe 3% and 4% are only "rules of thumb" and some material I have read has indicated rates as high as 5% might be sustainable into perpetuity. Matched with the variable withdrawal strategy you alluded to, I think this could allow people to become FI faster. Let me know what you think. Eric Jacob,

Following the discussion above, I wanted to suggest looking more into how the “Safe Withdrawal Rate” (SWR) could be potentially increased. My preliminary research has indicated that through increased diversification (e.g. into bonds and other asset classes not correlated with each other) one might achieve lower volatility without lowering returns substantially. Thus one would be able to increase the SWR without additional worry about depleting assets during bad years. I believe 3% and 4% are only “rules of thumb” and some material I have read has indicated rates as high as 5% might be sustainable into perpetuity. Matched with the variable withdrawal strategy you alluded to, I think this could allow people to become FI faster.

Let me know what you think.

Eric

]]> By: Jacob http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-6279 Jacob Fri, 14 Aug 2009 18:45:27 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-6279 @boo - I was not affected as much as the market/index as I was not heavily concentrated in financials and real estate. I bought a bunch close to the bottom though. Also I do not rely on a total return approach and so I do not have to sell stock to get an income from my portfolio. @boo – I was not affected as much as the market/index as I was not heavily concentrated in financials and real estate. I bought a bunch close to the bottom though. Also I do not rely on a total return approach and so I do not have to sell stock to get an income from my portfolio.

]]> By: boo http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-6278 boo Fri, 14 Aug 2009 18:41:33 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-6278 I'm curious were you not affected at all by the Oct, Nov 2008 market fall? I’m curious were you not affected at all by the Oct, Nov 2008 market fall?

]]> By: Jacob http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-6109 Jacob Thu, 06 Aug 2009 02:17:23 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-6109 @summerboy - To become a good investor, you need to read a lot. I recommend starting with the books in this post. http://earlyretirementextreme.com/2009/08/startup-curriculum-for-finance-economics-investing.html There is generally no strategy that will last forever and so following "proven strategy" tends not to work. I would say try to find a strategy that is compatible with you and one that you believe in enough so as not to abandon it when the market moves against you. @summerboy – To become a good investor, you need to read a lot. I recommend starting with the books in this post. http://earlyretirementextreme.com/2009/08/startup-curriculum-for-finance-economics-investing.html There is generally no strategy that will last forever and so following “proven strategy” tends not to work. I would say try to find a strategy that is compatible with you and one that you believe in enough so as not to abandon it when the market moves against you.

]]> By: summerboy http://earlyretirementextreme.com/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html/comment-page-1#comment-6108 summerboy Thu, 06 Aug 2009 02:10:06 +0000 http://earlyretirementextreme.com/2008/02/how-i-became-financially-independent-in-5-years-part-iv-the-investments.html#comment-6108 Hi Jacob, I am truly inspired by your story. I too want to achieve freedom from the routine 8 to 5 job by saving and investing. I am currently 27 yrs old and going to be married soon. We have already combined our finances and have built up a net worth of somewhere between 150k-200k. Together we are able to save around 57% or our net income each year. Yet I have not been able to produce a significant stream of passive income. I have generally invested only in index funds (equity,reit and bonds), but I want to start investing in individual stocks. Would you be able to point to some proven strategies that you have used to become a succesful investor in individual stocks? Thanks for sharing your incredible story with all of us Hi Jacob,

I am truly inspired by your story. I too want to achieve freedom from the routine 8 to 5 job by saving and investing. I am currently 27 yrs old and going to be married soon. We have already combined our finances and have built up a net worth of somewhere between 150k-200k. Together we are able to save around 57% or our net income each year. Yet I have not been able to produce a significant stream of passive income. I have generally invested only in index funds (equity,reit and bonds), but I want to start investing in individual stocks. Would you be able to point to some proven strategies that you have used to become a succesful investor in individual stocks?
Thanks for sharing your incredible story with all of us

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