Flex your financial muscle

I have previously written about financial independence because it is my goal.  

I have always been thrifty; yet, in my early years no one told me that I could be more financially disciplined and more purposeful with my money. These days, however, I look around my house and instead of stuff, I see money I could have invested. I see days of freedom I would never recover.

How am I going to get rid of all the material junk? This is another question that frightens me. One day, I would like all my belongings to fit in two suitcases. And then a reasonable bank account would propel me into my adventure.

Luckily, some young people today are well aware of what they can achieve financially and how they can achieve it. Some of them even preach it online (see below)! Therefore, my child does not have to follow the road of extreme slavery that describes my everyday life.

For the past three or four years, I have listened to various podcasts on early retirement and financial independence; however, with time, these became a bit repetitive and boring.

Eventually, I switched to videos on investing. At this point, I do not need the impetus that is constantly drummed up in podcasts. All I need is to know more about the tools and the detailed implementation of a successful personal financial plan.

Here are some of the useful (and entertaining) video resources I have found in the past months:

Personal finances, taxes, investing: Money and Life TV with Mike the CPA

Investing, dividends, passive income: Joseph Carlson 

Investing, real estate, practical advice: Graham Stephan

Investing, passive income: Andrei Jikh

If you have kids, let them watch Graham Stephan and Adrei Jikh. After all, peer-to-peer advice is ranked higher than parent-to-child! 

I wish you profitable watching!

A weekend of no cooking

I have deposited so many jars of frozen soup in my freezer that this weekend I am not cooking.

Since the weather is dismal, I cannot enjoy my free time by walking and gardening (in March "gardening" in zone 5, U.S., means sprucing up and cleaning the yard). The garden is in fact covered by three feet of snow.

So, I have plenty of time to surf the net and I freshen up on my financial/investment/frugality knowledge by visiting my favorite blogs and discovering new ones.

I have previously written about a few financial independence blogs that I always read (here, here, and here), but since then I have discovered many others that I love reading.

Here are a few of these new (to me) blogs:

Wallet Hacks
The Green Swan
Tawcan
Slowly Sipping Coffee
Our Next Life
Retire Before Dad
Retire by 40
Freedom Is Groovy

This morning I was reading the latest post of Wallet Hacks on CAPE as a measure of whether the stock market is over-priced.  (By the way, find more on CAPE and other neat info here).

I was happy to find out that the recent changes I made with my employer-sponsored retirement portfolio might make sense. I do not have a financial advisor, so validating my financial behavior is a bit difficult since I do not trust myself too much. Anyway, back in December 2016 I got way too stressed by the stock market going up and up, and decided that I need to switch most of my assets in my major pre-tax investment account to bonds.  My asset allocation back then was 80% in equities, 10% in real estate, and 10% in bonds. 

In the early days of January 2017 I did the reshuffling. Currently, my asset allocation reads:

Equities: 34.10%
Fixed income: 65.90%

Also, all my automatic contributions from my salary are set to buy only bonds, and in particular, VBTLX.

I also have a small after-tax investment account with a discount brokerage company. I did a tremendous overhaul of the account last year by selling some "mistakes" acquired more than eight years ago and also cashing on some lucky strikes. The sold stocks were all stocks in individual companies that paid no or low dividends.  My current after-tax portfolio is oriented to dividend stocks only, and since I hate picking companies, in addition to 10 or more individual companies, I started buying ETFs for dividends (VNQ, VYM, VTI). I am not planning on buying more of these ETFs this year due to the current exorbitant prices.

Anyway, when I take all my investments into account, the allocation is close to 1:1 between equities and bonds. This brings me some peace of mind, since my job is highly unstable, I am old (not revealing yet how old...) and I need to protect my retirement assets in case I need them in 5 -10 years from now. None of this reasoning applies to younger than me people  - if your horizon is more than 10 years of investing, go for equities.

A nifty tool that allows you to play different allocations for your retirement is the Vanguard retirement nest egg calculator.

Another switch in my financial plans is to pile up some cash this year.  So, whatever is left after all my taxes and automatic deductions to the employer-sponsored retirement account (investing in VBTLX now), I will stash into an online savings account with 0.75% interest rate. I may need this cash, if my job suddenly disappears and I am still not qualified to access the pre-tax retirement money without penalty.  In case of emergency, I also do not want to start selling my small after-tax portfolio.  After I reach my desired number of $ in cash, if the CAPE is still below 30, I may go back to buying VYM.

Anyway, I digressed. 

I was about to tell you what my favorite Internet sites on personal finances are. 

In addition to the sites mentioned above, I am currently reading two Europe-based bloggers:

The Frugal Cottage 
From cents to retirement 

Finally, the sites I visit almost every week are:

Financial Samurai
Fifighter
Digital Nomad Quest

The authors of all these blogs are way much younger than me, but I guess by reading them I relive my life in a different way. Only if I could start my life again, but with the financial knowledge I have today!

I hope it is not too late for you.

How to build a portfolio after age of 36

At my advanced age, I am desperately trying to create a retirement portfolio that can carry me over bad times. 

Considering that I started to work late (at 32, after obtaining my PhD degree), and was not eligible to participate in the measly University retirement plan until age of 36, building retirement funds has required perseverance and mindfulness (instead of frugality).  This period is mostly limited to the past four years, when we, as a family, finally found ourselves free of debt and mortgage-free. 

These four years have been a mad rush/frantic attempt to compensate at least in a minuscule way for all the lost decades of low stipends or fellowships. The pitiful financial situation has been compounded by the fact that both, my husband and I, are PhDs (OK, I know it is hilarious, but do not laugh too much).

Obviously, by starting to invest late in life, we do not have too much time for capital growth.  Also, we cannot observe the traditional financial advice. For example, I am not sure whether to keep up with the advice on asset allocation that the years till retirement (i.e., the years of investing) should determine the equities:bonds ratio in the portfolio. 

Currently, my best paid years and my increased ability to invest suddenly coincide with a time that I consider "close to retirement" for many reasons (in addition to our age, continuous employment is never guaranteed).  So, according to the commonly dispensed wisdom, at this time my asset allocation should include a healthy portion of bonds. 

If I oblige to this wisdom, I would entirely skip the aggressive stage of building a portfolio (i.e., the time when one invests 100% in stocks). The question is, considering the specifics of my retirement investment saga, should I consider bonds or not? Obviously, my return will go down by investing a percent of the funds in bonds, but would not a cushion of 20-30% bonds in the portfolio improve the situation in any financial downturn in the future?

Plagued by thoughts of my profound financial ignorance, I have been trying to read more on who weathered the largest stock market crashes and how. In this process I found a summary of the 10 biggest market crashes in the U.S.: Stock Market Crashes of 1930, 1937, 1906, 1929, 1919, 1901, 1973, 1939, 1916, 2000.

The largest crash was between 1930 and 1932, and during this time the stock market loss exceeded 86%. The estimate was that to recover $10,000 invested prior to this crash would have taken 22 years.  

On the other hand, according to this webpage, if one had continued investing $1,000/year in the stock market even after the Great Depression, the recovery time would have been 7 years.

I am aware that everyone in retirement should maintain enough cash to cover approximately three years of a stock market downturn (i.e., leave the stock and investments to heal), but how about having enough savings to cover seven years, plus additional funds to invest each year? This seems onerous to impossible to achieve.  

There are already too many bugaboos in our lives, and a life without hope is not worth living. Therefore, I hope that the current built-in U.S. financial mechanisms would prevent a prolonged downfall of the stock market in the future.  

I also hope that by doing my best now (i.e., by investing as much as I can, and by building healthy lifestyle habits), no matter what happens in the future, I would be able to look back without regrets.

Actionable
Keep reading J Collins and his stock series and maintain your health. In short, fight for your freedom.