Archives for June 2014

Early Retirement Lesson #1: Savings Rate

June 11, 2014 By Jonathan Ping 61 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

I’ve now spent nearly 10 years and 10,000 hours actively reading, thinking, and writing about money and the pursuit of financial freedom. I’ve still got a few years until early retirement but I can finally see the finish line. I’ve been meaning to summarize some of the lessons I’ve learned over time, as I’d like to make something more permanent that I can share with my everyone including my own kids.

In retirement planning, your “number” is usually defined as the amount of money you’ll need to retire. Something like a million dollars, like I used as a goal when starting this blog. Well, I was wrong. Your savings rate is the most important number!

If you take your annual income, your annual spending, and your annual investment returns, most people will admit that they have the most control over the first two. Your income minus your spending equals your savings. Your personal savings rate is thus the percentage of your after-tax income that you can save (and invest) each year:

savingsrate

I’ll leave the details out, but with some accounting equations and rough assumptions you can determine the number of years until your savings can create enough income to support your expenses.

savingsrate2

Rule of thumb: If you start at zero, you will need a 50% savings rate to retire in 15-20 years. You will need a 30% savings rate to retire within 25-30 years.

I’ve found that the math really does work out this way. You will need to save nearly half your income on a regular basis in order to retire early. Most people will never do this. But it is possible. My net worth was negative $30,000 in 2000. My wife’s was zero. Over the last 10 years, we have saved over 50% of our income every single year except for one year where I quit my job and went back to school. More tips on how it can be done in future posts.

If you want financial freedom, you must calculate and focus on your savings rate.

Filed Under: Retirement
Last updated: February 8, 2018
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

How Often Should I Rebalance My Investment Portfolio? Less Than You Might Think

June 9, 2014 By Jonathan Ping 8 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

An important tenet of portfolio construction is rebalancing your portfolio to maintain your desired risk profile and also provide the best risk-adjusted returns. The next question is usually – Okay, so how often do I rebalance? Well, this Vanguard article targeted at financial advisors answers that question (found via Abnormal Returns).

Longer answer:

Our 2010 study looked at the performance of portfolios that used rebalancing strategies based on various time intervals, allocation thresholds, and combinations of both. The time-based portfolios were rebalanced monthly, quarterly, or annually, while the threshold categories were rebalanced when allocations deviated by a predetermined minimum (in this case 1%, 5%, or 10%) from their target allocations. The “time-and-threshold” strategy combined periodic monitoring with predetermined minimum rebalancing thresholds. […] We found that no one approach produced significantly superior results over another. However, all strategies resulted in more favorable risk-adjusted portfolio returns when compared with returns for portfolios that were never rebalanced.

vgrebal

Short answer: It doesn’t matter, as long as you do it regularly and without emotion. Rebalancing every month was no better than rebalancing just once a year.

Personally, I try to rebalance whenever I make my monthly share purchases by buying underweight asset classes, but I will only sell and create a taxable event once a year if things are really out of whack. The more common problem is that you are afraid to rebalance because that usually means buying whatever has been getting crushed and selling what has been rising. If you haven’t done it recently, that probably involves selling some stocks and buying some bonds. Like the shoe company says, just do it!

Filed Under: Investing
Last updated: June 9, 2014
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Early Retirement Portfolio Update – June 2014 Income

June 6, 2014 By Jonathan Ping 17 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

There is an ongoing investing debate as to whether you should focus on income or total return. I personally believe that you should focus on total return but realize that income is a critical part of that total return. If you want to live off the income produced by your portfolio, you should make sure it is stable and will grow with inflation. Reaching for yield via riskier stocks or lower-quality bonds is dangerous.

A quick and dirty way to see how much income (dividends and interest) your portfolio is generating is to take the “TTM Yield” or “12 Mo. Yield” from Morningstar quote pages. Trailing 12 Month Yield is the sum of a fund’s total trailing 12-month interest and dividend payments divided by the last month’s ending share price (NAV) plus any capital gains distributed over the same period. SEC yield is another alternative, but I like TTM because it is based on actual distributions (SEC vs. TTM yield article).

Below is a close approximation of my most recent portfolio update. I have changed my asset allocation slightly to 60% stocks and 40% bonds because I believe that will be my permanent allocation upon early retirement.

Asset Class / Fund % of Portfolio Trailing 12-Month Yield (6/5/14) Yield Contribution
US Total Stock
Vanguard Total Stock Market Fund (VTI, VTSAX)		 24% 1.74% 0.42%
US Small Value
WisdomTree SmallCap Dividend ETF (DES) 		3% 2.48% 0.07%
International Total Stock
Vanguard Total International Stock Market Fund (VXUS, VTIAX) 		24% 3.08% 0.74%
Emerging Markets Small Value
WisdomTree Emerging Markets SmallCap Dividend ETF (DGS) 		3% 3.39% 0.10%
US Real Estate
Vanguard REIT Index Fund (VNQ, VGSLX) 		6% 2.72% 0.16%
Intermediate-Term High Quality Bonds
Vanguard Limited-Term Tax-Exempt Fund (VMLUX) 		20% 3.25% 0.65%
Inflation-Linked Treasury Bonds
Vanguard Inflation-Protected Securities Fund (VAIPX) 		20% 1.74% 0.35%
Totals 100% 2.49%

 

As you can see, the overall weighted yield is roughly 2.5%. This means that if I had a $1,000,000 portfolio balance today, it would have generated $25,000 in interest and dividends over the last 12 months. Now, 2.5% is lower than the 4% withdrawal rate often recommended for 65-year-old retirees with 30-year spending horizons, and is also lower than the 3% withdrawal that I prefer as a rough benchmark for early retirement. My ideal situation is to get by with just spending this 2.5% in income every year. The paranoid part of me likes the idea of just spending the dividends and interest while not reaching too far for yield. That way, theoretically if I owned say 1% of GE or ExxonMobil, if I never sold shares I’d keep owning 1%.

So how am I doing? Using my 3% benchmark, the combination of ongoing savings and recent market gains have us at 85% of the way to matching our annual household spending target. Using the 2.5% number, I am only 71% of the way there. We’ll have to see how much full retirement appeals to me once I reach my goal at a 3% withdrawal rate. I’m not opposed to working part-time if the work is interesting to me, so I’m keeping my options open.

Filed Under: Investing, Retirement
Last updated: August 9, 2018
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Early Retirement Portfolio Update – June 2014 Asset Allocation

June 5, 2014 By Jonathan Ping 6 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

I want to get back to doing quarterly updates to our investment portfolio, which includes both tax-deferred accounts like 401(k)s and taxable brokerage holdings. Other stuff like cash reserves (emergency fund) are excluded. The purpose of this portfolio is to create enough income on its own to cover all daily expenses well before we hit the standard retirement age.

Target Asset Allocation

aa_updated2013_bigger

I try to pick asset classes that will provide long-term returns above inflation, regular income via dividends and interest, and finally offer some historical tendencies to balance each other out. I don’t hold commodities futures or gold as they don’t provide any income and I don’t believe they’ll outpace inflation significantly. In addition, I am not confident in them enough to know that I will hold them through an extended period of underperformance (and if you don’t do that, there’s no point).

Our current ratio is about 70% stocks and 30% bonds within our investment strategy of buy, hold, and rebalance. With low expense ratios and low turnover, we minimize our costs in terms of paying fees, commissions, and taxes.

Actual Asset Allocation and Holdings

1406_actualaa

Stock Holdings
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
WisdomTree Emerging Markets SmallCap Dividend ETF (DGS)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard High-Yield Tax-Exempt Fund (VWAHX, VWALX)
Stable Value Fund* (2.6% yield, net of fees)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
US Savings Bonds

Changes
I joined the exodus out of PIMCO Total Return fund earlier this year after their recent management shake-up. It actually coincided with my 401(k) allowing a self-directed brokerage “window” with Charles Schwab that allows me to buy Vanguard mutual funds, albeit with a $50 transaction fee. But my 401k assets are finally large enough that the $50 is worth the ongoing lower expense ratios. I’m buying more REITs and TIPS in order to take advantage of this newly-flexible tax-deferred space. I’m still holding onto my stable value fund, but I may sell that position as well in the future.

I think I mentioned this elsewhere, but I am now accounting for my Series I US Savings Bonds as part the TIPS asset class inside my retirement portfolio. Before, they were considered part of my emergency fund. They offer great tax-deferral benefits as I don’t have to pay taxes until they are redeemed. I don’t plan on selling any of them for a long time, at least until my tax rate is much lower in early retirement.

Filed Under: Goals, Investing, Retirement
Last updated: June 5, 2014
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Book Review: The Four Pillars of Investing

June 4, 2014 By Jonathan Ping 13 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Update: Yanking this one from waaaay back in the archives! Today (6/4) only, the Kindle eBook version of The Four Pillars of Investing is only $1.99. I read this book nearly 10 years ago, and I still have my hardcover copy sitting on my bookshelf. One of my favorites.

My original review published on December 26, 2004:

4pbookWhile A Random Walk Down Wall Street was more of a primer on investing in general, The Four Pillars of Investing by William Bernstein focuses on forming your portfolio. The four pillars are investment theory, history, psychology, and finally investment business.

The book uses statistics and research to support it’s conclusions, which are (briefly and in my opinion) that:

  1. Markets go up and down, but timing it is hard if not impossible, and any success one may have is basically luck.
  2. As risk increases, so does the return. (Ex. Small-cap stocks vs. Large-cap stocks.)
  3. Yes, many actively-managed mutuals fund beat the market every year, but there is no way that you could pick them ahead of time. This year’s winners are just as likely to be next year’s losers. Stick with index funds with the risk-return profile that you desire.
  4. Brokerage firms and stock brokers make their money on commissions and spreads. Most mutual fund companies are similar in that they make their money from fees, without actually being very good at market-beating returns.
  5. Proper diversification in low-expense ratio products can bring you the best chance to keep your money and make it grow.

The book is pretty easy to read, with minimal math. I also briefly browsed Bernstein’s previous book, The Intelligent Asset Allocator, which has a similar focus but is very heavy in the math department. I’d read this book first and see if you thirst for the mathematical underpinnings. I didn’t.

Filed Under: Book Reviews
Last updated: April 25, 2019
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Amazon Student: Buy $50 in Gift Cards, Get $10

June 3, 2014 By Jonathan Ping Leave a Comment
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

azdadAmazon Student is running a gift card promotion where if you buy $50 or more of selected gift cards by June 15th, you’ll get a free $10 gift code by June 30th. Give them as Father’s Day gifts or use them yourself. (The $50 card with a faux wood grain box looks pretty nice, actually.) This offer is only good for Amazon Student members with a free trial or paid membership to Amazon Prime. While supplies last.

You’ll need an .edu email address to join Amazon Student. Got one? Sign up now and get a 6-month free trial of Amazon Prime 2-day shipping and then 50% off after that.

Filed Under: Deals & Offers
Last updated: June 3, 2014
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Citibank Checking Billpay and Mobile Check Deposit $100 Promotion

June 3, 2014 By Jonathan Ping 5 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Citibank is running a $100 bonus promotion good for existing checking account customers. You have to first enroll in the offer by 7/31/14, and then you can earn $10 per month for doing each of the following activities from 6/1/14-12/31/14:

  • Online bill payment
  • Mobile check deposit
  • Outgoing Popmoney person-to-person money transfer

So you could technically get $30 a month, but the total possible bonus over the entire 7 month period is only $100. I don’t think this promotion is juicy enough to warrant opening a new Citi checking account, but it’s a pretty easy $100 if you already have one. Bonuses arrive within 60 days after a month with qualifying activity, and will only get reported on a 1099-MISC if you earn over $600 in miscellaneous taxable income from Citibank in a year.

Filed Under: Banking, Deals & Offers
Last updated: June 3, 2014
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Oyster App Review: Personal Finance and Investing Books

June 2, 2014 By Jonathan Ping 4 Comments
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

oysterssWouldn’t a Netflix for books be neat? You could borrow all the books that you wanted to read and then return them when you’re done. Oh wait, they already invented it and called it a library.

But seriously, what if you wanted it all available 24/7 on your iPhone or iPad, and you don’t want to wait if someone else has checked it out already. Enter the new eBook subscription app Oyster. For $10 a month (first month free, iPhone/iPad + Android app added as of 6/17/14) they’ll let you read all the books you want from their catalog of 500,000+ books. That sounds good me as I buy about a book per month on Amazon as it is. The question is if Oyster’s library is big enough for my personal reading habits. I couldn’t find a way to search through their entire collection without an active subscription, so I signed up for a trial (credit card required).

As I mainly read business, personal improvement, and personal finance books these days, that is going to be the focus of my review. I decided to compile a list of notable books that I have read or want to read first, and then check Oyster to see if they have it in their library.

William Bernstein’s Recommended Reading List for Young Investors

5 Recent Bestsellers

5 Personal Favorite Financial Books

Conclusion

Oyster has been steadily increasing the publishers participating in their service, but it looks like they still have a way to go. They do have a pretty good showing in older, popular, well-reviewed books. The problem is that these are exactly the type of books that are readily available in most libraries. On the other hand, they are weak in recent business bestsellers, which is where they could provide me with the most value and convenience (I’d like to just browse and skim many of these first). I read that they will not have it if the book was released within the last 3 months. They also don’t have enough depth to carry some of the better books in the early retirement niche.

I won’t be paying $10 a month for this as I only read about a book a month (cost $10-$15) and Oyster probably won’t have it in their library. I will note that on a user-experience basis, actually reading the books and navigating around the app has been pretty easy.

Alternatives to Oyster include Scribd and the Amazon Kindle Lending Library which boasts 350,000+ titles. The latter is free if you already have both a Kindle (any model) and an Amazon Prime subscription.

Filed Under: Book Reviews, Reviews
Last updated: April 25, 2019
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

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