Category Archives: Saving and Investing

Strive for FI or Take it Easy?

credit: Link Hoang

credit: Link Hoang

One topic that I’ve been obsessed about is the concept of reaching financial independence (FI) at an early age. It’s not about not working. It’s about spending time doing things that you want to do with your time. One obstacle that I face is that I live in a high cost of living city in NYC. Yes, I realize this is a decision that my family has made as moving to a lower cost area would definitely speed up our journey to early FI. However, we have no plans to leave the area because our family and friends are here.

I’ve always been a frugal person and a good saver. When I got my first job, I immediately signed up for my employer sponsored retirement plan. I also opened an IRA account thanks to the encouragement of my father. However, after reading stories of regular people reaching FI in their 30s and 40s, I started wondering if I could do it as well. While I had saved a good amount in retirement accounts, especially when compared to my peers, I was no where close to FI. I had to turbo-charge my savings and investing rate if I wanted to get there. I started to max out my 457 contributions and I increased my wife’s contributions. I also increased our contributions to each of our Roth IRA accounts as well. My wife and I are naturally frugal. Always have been. We had no consumer debt and never did. We were living well within our means, but having an audacious goal like early retirement/financial independence really motivated us to go from ordinary savers to extraordinary savers.

Saving Fatigue

Brandon from the Mad Fientist talked about how there were some dark times in his road to FIRE. He wrote that he went from being frugal to depriving himself and isolating him and his wife during his pursuit of FIRE. I am not facing that dark time. I am just uncertain whether early FIRE is attainable. And if it is not, would I be better off loosening the purse strings and coast to semi-early FIRE at age 55. If I was certain that I could hit FIRE, then by all means I’d push to get there. It’s hard to keep motivated when a goal is almost 10 years away. It’s even harder if you don’t know for sure if you’re reach it.

I’m already on track for semi-early retirement!

In my previous post, I wrote that I will have a pension at around age 55. I have no doubt that I would retire at that point. Actually, as a frugal family, I think we would be able to retire on the pension alone. But I wouldn’t want to do that. We save a good amount in our 457 plans as well as in our Roth IRA plans. Even if we loosen the purse strings, we would still save for retirement in these accounts. There is a calculator on my 457 provider’s website which tells you whether you are on track for retirement based on how much you think you’ll need, how much you’ve saved, and what you’re contributing to your retirement accounts. It tells me that not only am I on track for retirement at age 55, our savings rate exceeds what we’ll likely need in retirement. Of course, these are only estimates and being a bit risk averse, I’d prefer to overfund. Chances are if I don’t hit FI in my mid 40s, I’ll likely stick it out until age 55. Those golden handcuffs get stronger as the lure of a fully funded pension and subsidized health benefits might be too hard to pass up.

What would change if we ditched the early FI goal?

Many in the frugal and FIRE blog space write about value-based spending and intentional living. They write that if they came upon some extra money, they wouldn’t change anything with their spending. I have written that living a rich life doesn’t have to be an expensive life. That still remains true. But I would be lying if I said, my financial choices wouldn’t change one bit if I had an extra thousand dollars coming in each month.

No, I wouldn’t suddenly buy a fancy car or go out to expensive 5-star Michelin rated restaurants. That’s just not me. I’m never going to be a spendthrift wasting money on frivolous things. I do think that I would like to move to a bigger place at some point as we will likely outgrow our 850 square foot apartment. Housing is expensive here in this high cost of living area. This is the main area in our budget which would expand if we decided to loosen the purse strings. I’d be more likely to take on a higher mortgage or rent payment if early FI wasn’t the goal. I’d also be more likely to splurge on travel and entertainment activities too. And we’d be okay financially. We just wouldn’t be able to reach financial independence in our 40s.

Will I still want to retire early in 10 years?

Of, course I would, right? At first, it sounds like a silly question, but something that still needs answering. The main reason I’m obsessed with FIRE is because I feel like I have no time. My work days consists of a long commute as well as driving the baby to and from grandma’s for childcare purposes. By the time, I get back, it’s dinner time, bath time for the kids, and some household chores. When we wake up the next day, it’s the same routine. On the weekends, we try to run some errands while also making sure we do something fun with the kids. We also try to visit our parents. Many parents with grown children tell me not to miss these precious moments. Mr. Money Mustache and his wife retired early to rise their son together without the shackles of the 9 to 5 job. I’d love to have that freedom as well.

A lot can change in 10 years. By that time, my kids will be in the pre-teen to teenage years. Will they even want to spend that much time with good old dad? I haven’t really fleshed out what I would be doing in early retirement as it seems still far away. Sure, I’d love to spend more time on this blog, but would this blog still even exist? I would like to volunteer, spend more time with my wife, and travel. But, I have a decent amount of vacation days from my employer and my job isn’t too stressful. Is the extra freedom worth taking off my golden handcuffs? Would I enjoy spending a little more in the present rather than saving a whole lot for early FI?

So should I put the pedal to the metal and strive for FI or just take it easy?

Related posts: Just as I was facing this dilemma, I read some blog posts related to this issue. The blogger at Bayalis is the Answer said that you can’t fail at fire, because no matter what, you’ll get somewhere that is worth going. Likewise, Matt from Optimize Your Life, wrote that he is saving for FI because it gives you options even if you haven’t fully reached financial independence.

The Urge to Swing for the Fences

20060825 Barry Bonds follow through

When I was a kid, I used to collect basketball cards. It was a fun hobby, but I had also read stories that a Michael Jordan rookie card was worth hundreds of dollars. And how other cards of Hall of Fame players from older generations were worth even more. I thought of my basketball cards as somewhat of an investment. I was hoping that I’d get a rookie card of a future Hall of Famer and that it would be worth hundreds or thousands of dollars 10 years or maybe 20 years from now. I bought a Shaquille O’Neal rookie card thinking he was a sure fire superstar and that it would be worth a lot in the future. I even paid $10 for it and that was a lot of money for me when I was a 12 year old. It was okay though, because I wanted to hit a homerun with this investment. I’m pretty sure it’s not worth hundreds or thousands of dollars since there was such a large supply for sports cards from that time period.

Back in May 1997, stock in Amazon debuted at $18 a share. If I had invested $10,000 in Amazon at that time, it would be worth $4.8 million which is a 48,197% return! When I first started investing in the stock market, I wanted to hit a home run. I wanted to buy the next Amazon and become filthy rich. While I was still in high school in 1997, I could have picked up shares of Amazon for pretty cheap after the tech bubble burst in 2000. If only I could go back in time!

In a recent post, I wrote that I am lucky that I’m a bad stock picker, because if I had hit a couple of homeruns, I’d be more incline to disregard index investing and swing for the fences. When I was in my investing infancy, I didn’t want stocks that were well established and growing slowly. Sure, in the back of my mind, I knew that slow and steady wins the race. The tortoise beats the hare, right? But I was young and impatient. An annual 10 percent return on my measly $1000 stock portfolio would result in a $100 increase. That amount of money is not game-changing. I wanted to buy a hot stock that would triple, quadruple, and continue skyrocketing. Not only was I picking individual stocks, I was focused on cheap stocks in industries that had a chance of growing enormously like in tech and biotech.

Fortunately, even though I was swinging for the fences, I was still pretty risk averse and hated to part with my money. I could only bare to put my excess cash into investing this way. This was after contributing to my retirement plans and saving an emergency fund. I was probably better off increasing my retirement contributions rather than picking individual stocks, but when you’re young, retirement seems so far away. I figured my savings rate was sufficient so I set aside some money to try to hit a homerun.

Now that I’m older and more experienced, I have realize that consistently hitting singles is better than always trying to hit a homerun. Many homerun hitters often strike out a lot. I didn’t want to live with the feast or famine, boom and bust mindset. However, even with the knowledge that I’ve attained, I do like to try and swing for the fences now and again. It is almost like setting aside money to blow on something fun so you don’t feel like you are depriving yourself. Some investors need fun money to blow on investments otherwise it might drive them nuts. If I didn’t have the outlet to “invest” money in things that are a little riskier but have the potential for higher returns, I might be more inclined to tinker with my portfolio too much. It is hard to leave it alone as I often want to optimize.

When I read personal finance blogs, I feel like many of them are ultra-disciplined and just put ALL their money in passive index funds. Is it just me that has this urge to hit a homerun? What do you do to keep yourself from taking too much risk in your investments? How much of your portfolio do you keep in individual stocks or other alternative investments which are more speculative?

Would You Invest in a Movie?

photographed by Carol M. Highsmith

photographed by Carol M. Highsmith

Years ago when I had just finished college, a childhood friend of mine, who had studied film, told me about his dream of directing his own film and a possible storyline he was working on. Of course, he would need some to raise some money to produce this movie. I didn’t have much money at the time, but I promised to help financially support his life long dream and he offered a cameo role and my name in the credits. He also pointed out that if his film made a lot of money, I’d also get to reap the benefits of my investment.

My friend mentioned the independent film, The Blairwitch Project, which had a budget of about $22,500 and made $248 million. That is a return on investment of 4,344.4%! Basically, for every dollar the original producers put in, they made $43.4 bucks. Other low budget independent films that made amazing returns include Napoleon Dynamite ($400,000 budget, $46 million gross), Slumdog Millionaire ($30 million budget, $611 million gross), and My Big Fat Greek Wedding ($5 million budget, $368 million gross). My friend still works in the movie business, but he hasn’t yet gotten the chance to produce his own film. When I promised that I would invest money in his dream, I had no illusions that I’d strike it rich being a film investor, I was just supporting a friend. It was pretty cool to hear about the amazing returns of independent films that made it big though.

Recently, an associate producer reached out to me to tell me about an opportunity to invest in an upcoming Christmas movie she was working on. Obviously, she contacted me because I have this blog as a platform and she figured I could spread the word. She probably doesn’t know that this blog has a very very very small audience. Sorry! Nevertheless, I found the concept of investing in a film fascinating and decided to check it out.

Crowdfunding a Movie?

A few years ago, diehard fans of Veronica Mars raised $5.7 million dollars through a Kickstarter campaign to help get that movie made. In return, some received T-shirts and tickets to the red carpet premier. Donate $10,000, and you might get a speaking role in the movie! At the time, the platform was not allowed to have those fans share in the potential profits of the movie. They were donors, not investors. Non-accredited investors were not allowed to invest in startups and to be an accredited investor, a person must demonstrate an annual income of $200,000, or $300,000 for joint income, for the last two years with expectation of earning the same or higher income, or had a net worth of over a million dollars. Apparently, the government assumes that if you make that income or have that net worth, you must be a sophisticated investor. However, in May 2016, Title III of JOBS Act was enacted, allowing ordinary folks to invest in startups via crowdfunding.

The Christmas Movie

Okay, back to the Christmas movie which is looking to raise money for the film via equity crowdfunding. They claim that their movie is the first feature length narrative film to give the public an opportunity under the new rules to invest in it. Here’s a brief synopsis from the Start Engine crowdfunding site about the movie with the title “I’ll Be Next Door For Christmas”:

I’ll Be Next Door For Christmas is a warmhearted, upbeat comedy about a family that’s crazy for Christmas. Except for the 16-year-old daughter — her family’s over-the-top Christmas celebrations have made her life miserable. When her out-of-state boyfriend decides to visit for the holidays, she’s determined to spare him her family’s Christmas obsession, so she hires actors to play her parents and stages a fake Christmas dinner in the empty house next door. What could go wrong?

Will the movie be profitable?

I have absolutely no idea. I don’t know the first thing about the movie industry. The storyline sounds like it’ll be a fun movie, and maybe it’ll replace Elf as the go to comedy on Christmas day? The team that is working on the film isn’t filled with unknowns and amateurs, actually, they are pretty distinguished. David Willis, the director, was a writer for network TV shows like “Cybil” and “Caroline in the City,” and between the entire team, they have an Oscar and 4 Emmys. Christmas movies are an interesting niche and I guess if it catches on, it’s possible that it can continue to generate revenue every Christmas. Also, crowdfunding investors want to see it succeed and will probably help spread the word which might increase the popularity of the film

The Investment

With a minimum investment of $100, you’ll own a share of the revenue participation rights. According to the sharing agreement, investors will receive 100% of the company’s adjusted gross proceeds up to the repayment amount of 100% of their investment, and 50% of the adjusted gross proceeds thereafter.

Would you invest in a movie? What do you think about the story line of this Christmas Movie?

Disclosure: Since the minimum investment is $100, I will likely invest in the film. I am not saying it’s a good investment, but it would be cool to say that I invested in the making of this movie. This is a pretty risky investment and I don’t plan on earning a large return, and I’m fine with losing my initial investment. It would also be fun to see how the investment goes and I can keep everyone updated after the movie comes out (if it actually does come out).

Disclaimer: Nothing in this post should be construed as investment advice. You should always do your due diligence when making an investment, as all investments come with risks. This post is only for informational and entertainment purposes

Good Thing I’m a Bad Stock Picker!

stock-market-board
Andrew Hallam, author of the book Millionaire Teacher, “crushed the market indexes” investing in individual stocks, but decided to sell all of those stocks, worth over $700,000, and put all that money into a total stock market index. He explained that he came to the realization that a big part of his success was due to luck even though he said that he researched companies more than anyone he knew, ordering five to 10 years worth of annual reports, and scrutinizing them from back to front. He pointed to Bill Miller, who ran a mutual fund which beat the S&P 500 for 15 straight years until the Great Recession at which time, the fund lost dramatically compared to the S&P 500. Hallam reasoned that if someone as smart as Miller, with the access to research and information that he had, could fail, then who was he to think that he could continue beating the market.

I’m not sure most people would have the self-awareness and humility to realize their limitations when they’ve been so successful. We’re humans and sometimes facts don’t matter. We often suffer from recency bias. “I’m beating the market, I must know what I’m doing when it comes to picking stocks!” It doesn’t matter that the facts and data show index investing consistently beats active investing. Sometimes investing in a bull market is dangerous because everyone thinks they’re smarter than they really are.

Back in the spring of 2000 when I was still in college, everyone and their mother was investing and making money in tech stocks. Everyone thought they were expert stock pickers and everyone was glued to CNBC. I opened a stock trading account so that I wouldn’t miss out on this money making opportunity. It was not a lot of money, but it was a lot of money to me at the time. I bought some internet stocks that were recommended by analysts which I had never heard of. I also bought well known stocks like AT&T (they were soon offering a wireless IPO and IPOs were hot!). Yes this is AT&T wireless. To you youngsters who don’t know a time without cellphones, wireless phones were a big deal back then and this stock would no doubt be a big deal (so I thought). About one month after I opened my stock trading account, the internet bubble burst and my stocks came crashing down. I lost 50% of the value in the account.

After the internet stock bubble bust, I was a little weary but I didn’t totally give up on stocks. Fortunately, when I started working, I kept most of my investments in mutual funds, and most of them were in low cost index funds. The lure of investing in individual stocks kept calling me though, because hitting a homerun with an individual stock was much more exciting than the slow gradual returns of index funds. However, I was always a little risk averse. Probably because of what I experienced during the internet stock bubble bust. That’s probably a good thing.

I invested in some winners. I purchased Nokia stock at $14. It made the most popular cellphones at the time and I loved my Nokia phones. The stock price went up to the $40 range and I held on to it…even as it went all the way down to the single digits. Around the time before the Great Recession, I held stocks in Starbucks. They were rapidly expanding and everyone had to have their daily grande non-fat caramel machiatto frappucino. However, I sold my shares in Starbucks for a small loss after the Great Recession hit, thinking the stock price would drop. Who’s going to pay $5 for coffee when the economy was in the tank and we’re in a recession? The price of Starbucks stock would eventually double and then triple from the price I sold it.

“Don’t forget that your incredible success in consistently making each move at the right time in the market is but my pathetic failure in making each move at the wrong time. … … I don’t know anyone who can do it successfully, nor anyone who has done so in the past. Heck, I don’t even know anyone who knows anyone who has timed the market with consistent, successful, replicable results” – John Bogle

I was having a conversation with a friend who thinks that he’s pretty knowledgeable when it comes to investing in the stock market. He has made some profitable investments. However, he has also often kept a lot of money in cash because he didn’t have the time to do the necessary research. He currently is staying out of the stock market because he believes that there is too much uncertainty, especially in the political arena. He said this months ago, but the stock market has still be roaring upwards. He might ultimately b e correct in his prediction, but his timing is off. You not only need to know what company to invest in. You also have to have the timing right as well when it comes to buying and selling. You have to be right about all three, which is why being a great stock picker is difficult. Do you think you can do that?

Not All Turnkey Rental Investments are Created Equal

Credit: freedigitalphotos.net

Credit: freedigitalphotos.net


I hesitate to use the word “turnkey” because there is no clear definition of what it means. Sometimes I refer to my real estate investment as a turnkey investment, but that isn’t exactly accurate. Generally, a turnkey property is defined as a house that has been fully renovated and is ready to be rented out. The company that sells this turnkey property usually also manages the property for the investor. The goal is for the management company to handle the day-to-day operations of the property, it takes a fee, and you, the investor gets to sit back and have the remainder of the rent sent to you. This is mostly true for my investment except the first part.

The Hybrid Turnkey Approach

The company I worked with first acted as my realtor in bidding on the foreclosure. Then it acted as a project manager in hiring and managing the contractors in making renovations to the property. The property I purchased ultimately appraised for about $10,000 above the purchase price plus the renovation costs. If you were to buy a pure turnkey investment property, the company would have purchased the property at a foreclosure or short sale, made the renovations, and then marketed the property to potential investors. The key difference is that I purchased the property at the distressed price, whereas an investor of a turnkey property will purchase at fair market value. The turnkey company is a business and needs to make a profit so that is understandable. And I am not saying that buying a rental property at fair market value is unwise, I would just prefer to have some more equity from the start.

I was talking to another newbie long distance rental property investor, just like I am, and he purchased a property for about $55,000, which rents for $850 a month. Sounds like a good deal, right? However, he mentioned that the property he eventually purchased did not appraise for the agreed upon purchase price. Apparently, this is not uncommon in some turnkey investment properties. Appraising a house is not an exact science. It can be pretty subjective. An appraiser will compare the property you are looking to get a loan for and compare it with similar houses that were sold near that property. Generally, a property’s condition is not taken into account so it can be unfair to compare a newly renovated turnkey investment property to a property which has not been renovated.

He said that he was able to negotiate the price lower which made it a “steal” of a deal in his eyes. (Sometimes the seller won’t budge and the investor will have to put a higher down payment to get the deal done) His opinion is that the bottom line is what the cash-on-cash returns are and what his net monthly cash flow each month will be. Granted, those are incredibly important factors but I think it is short-sighted to only look at the numbers and nothing else. And it is definitely what I looked at when I decided to make my investment. But one thing that is also important when making an investment is to have an exit strategy. What if you want to sell the property? Will there be demand by other investors or by those seeking to purchase it as their primary residence? Will you have to take a loss when you sell it? I don’t want to be overly critical of his investment because he might just be a steal of a deal. I just don’t want to take that risk.

Cash flow is #1 but appreciation potential also matters

When investing in rental real estate, cash flow is important. Living in NYC, I hear many people talk about investing in properties here, even though there will be negative cash flow each month. They assume that because of the high demand in NYC, there will be great appreciation and they can then sell it for a much higher price. I’m not going to lie, the appreciation that I’ve seen in some neighborhoods in NYC are pretty impressive. I’m not taking that risk though. What if there is another downturn in the housing market? Will you be able to sustain paying the mortgage, property tax, insurance and for the upkeep. Also, NYC is pretty tenant friendly, so what will happen if your tenant doesn’t pay rent and it takes a long time to evict them?

While I invest for cash flow because appreciation can sometimes be hard to predict, the appreciation potential of the property and the market is still important. The newbie investor I spoke to bought a property that doesn’t appear to be in the greatest of neighborhoods. The numbers will look great because the property is very cheap compared to the what it will rent for, but numbers aren’t everything. You might end up with a property that is hard to sell or that you’re forced to sell at a loss. You might be dealing with more headaches involving the tenants.

Generally, when investing, money is made on the purchase so I would prefer to buy a property at distressed sale prices and fix it up to “force” appreciation. Once again, I’m not saying not to pay market price for a turnkey property or that I wouldn’t do it. I just prefer this route if possible. If I feel a market has a lot of appreciation potential, I would be more likely to pay fair market value.

What do you look for when you’re investing in real estate?