Can you be well off following an index?

[bjl584]

I'm not saying retirement is impossible on index; I'm stating it may be impossible to retire early and live well (i.e. being above average since your index return may be considered average).

I don't dislike index, in fact, I quote their returns all the time. It is just something I've been thinking about.

Indexes need time to work.

If retiring early is your goal, then you probably need to take more risk than an index fund. Either invest in individual stocks, play the options markets, or start your own business.

[feh]

If retiring early is your goal, then you probably need to take more risk than an index fund.

Not necessarily. If you earn a good salary and save aggressively, it can be done (especially if your expenses in retirement are reasonable).

[LivingAlmostLarge]

SV2007 first off you made a combined family income of $360k/year. You know that's 1% of Americans and probably like 0.1% of world?

Second you know you spend a lot of money right? I mean Mr Money Mustache retired at 28 and 1 kid with $720k and a paid for house? He used index funds. You know there are many mustachian followers and bloggers who retire at 30 with $1M or much, much less. Off the top of my head Dr Doom, Frugalwoods, Freedom with Bruno ($1M that's it at 30), earlyretirementextreme, gocurrycracker, root of good (much less), Living a FI, retire by 40. Most are not invested in single stocks but indexes. Some have RE. I'm surprised you didn't see 97guns retired with $300k for almost 10 years i think his signature says 39 years old he retired.

I believe that the key is all these people have low expenses and NOT high retirement savings. Most barely touch $1M. They will tell you they travel a lot, eat well, and love it.

Third your reality of saving $3k/month is unreal. With the median salary being $51k that's not possible. Even if the median salary was $100k it's very difficult to save almost 50% of your salary after SS, Federal, state taxes, insurance, etc AND live on. Possible? Yes, easy? No.

And saving $72k/year is even crazier with people making much less than that. I am not stupid enough to think that it's the norm or possible for most people. You have to be making a lot of money to do it.

If we want to talk about saving percentages then it's equitable because it doesn't matter what you make. If the statement is saving 50% of your salary allows for early retirement = true. because you make less you LIVE on less period.

You're living expenses are potentially higher than what most people make in a year.

Feh nailed it. What he just said higher income + Low expenses = early retirement. Read all suggested blogs above for ABOVE average salaries + super low expenses = early retirement.

I can attest to this as well. So index investing has been fine for us.

Also Disneysteve point on money needed to retire is dead on. Singuy point about retiring later is also dead on.

[sv2007]

One thing I don't do is assume that my lifestyle works for everybody. This threat is merely a thought that crossed my mind. Perhaps many on this board likes to continue working full time, which is just fine. In fact, even a few years ago, that's how I felt.

But in case some that want to retire early, my posts may be able to help them.

Although I mark myself as "retired" on surveys (e.g. when you open a brokerage/bank account), I still take some contract work just to have enough earned income to max out our IRAs. I'm a very conservative person (maybe due to my terrible luck in life) so I still want to build my wealth in retirement; I accept a lower rate of course.

In fact, I'm debating whether to go back to work fulltime because retirement is kind of boring as I'm not able to do a couple of things I really wanted to do; plus I want to catch the wave on our next recession (everything goes in cycles). So much so, that perhaps it's driving our vacation spending higher unconsciously (as our are spending 2x our normal vacation budgets during the past 1.5 yrs).

Anyway, as I've said, if index is good for you then that's great. But for those willing to put in the time (and probably should also have an interest) and want to retire early, indx may not pull you thru.

[Jbone]

I'm confused. You contradicted yourself about 15 times. Are you taking this site seriously? Or are you here to troll?

[sv2007]

SV2007 first off you made a combined family income of $360k/year. You know that's 1% of Americans and probably like 0.1% of world?
.

The world doesn't really matter; it's just a way to make things sound better. How about minimum wage of $8-15? What's that compared to the world? It isn't a really useful number for day-to-day living in the USA.

As for top income earners; it is very easy for a dual income household (at least around here) with advanced degrees in higher-paid fields to make that much money. 2 doctors in the right speciality can pull in > $500k/yr; 2 sr software engineers can get > $300k; 2 engineering managers can get > $400k/yr (assuming an average company stock performance). These are numbers I'm very familiar with.

But I didn't really want to post our income; I think I get typed it as a response. It isn't that relevant to this thread; nor is my age, sex, height, what have you.

[sv2007]

I'm confused. You contradicted yourself about 15 times. Are you taking this site seriously? Or are you here to troll?

I don't troll sites.

Although, after reading the responses, I may have used numbers that may be too high for most people here. Then I get attacked, when those numbers are just examples, i.e. people can easily scale them down to whatever level they are comfortable with.

I'd like to share with people that early retirement is very doable because I think our situation is very duplicable because we've never really got lucky on anything in life. We are the slow and steady example (not that we picked it, just that our luck isn't that good).

Perhaps part of the problem is that everything I post is truthful which also means that I don't want to give away too much privacy; so sometimes, I may sound like I'm not being direct. However, I do believe I've supplied all that is necessary for either a direct answer or enough for anybody to expand upon on his/her own (which is the preferred way to derive at an answer anyway).

In a way, I find it kind of laughable when people invest a sizeable chuck their net worth into an index without understanding at least what that index means or why it does what it does or how that index reacts to changes in the economy. At the very least, one owes to him/herself to know the basics and at least know why the index came about and how it might change in the future. It is just basic common sense to me; sorry if I sound arrogant, but that's the thought that pops into my head after reading thread.

[corn18]

So tell us, specifically, how you got these great returns. I want to retire early and would like better than average returns. I've told you specifically how I'm doing my index investing. I have read all your posts and don't have a clue how you made $5M. Until you share more details, you are not helping anyone.

[sv2007]

So tell us, specifically, how you got these great returns. I want to retire early and would like better than average returns. I've told you specifically how I'm doing my index investing. I have read all your posts and don't have a clue how you made $5M. Until you share more details, you are not helping anyone.

I highly recommend you read the idiot's Guide to Getting Rich, it is almost a manual on how to become financially successful because it almost mirrored our experience. Another read I recommend is Cramer's Get Rich Carefully. Search for my book review thread; these are 2 books that I almost agree completely with.

Just to be clear, and I think I've already mentioned this before in other threads. Most of our wealth was in real estate rentals until recently when we sold off many to move into more passive income.

However, even during that time, we have sizeable stock investments in our IRAs and taxable accounts. And I have been individual stock picking since buying my first shares of 100 ? in 1995. Since I still hold ? in my IRA, I always comment that I still have my first stock pick. So, does having more money in the equity market will skew my return? I don't know; I know I can buy into the same companies without change since I buy cmpanies with large volumes, but would having a lot more money cause me to have different investment strategies? I don't know; hence, I want to be clear that our assets were mostly in RE until now.

As for real estate, we've never been very lucky. In fact, most of our rentals were our former homes that we just couldn't sell at the price want wanted when we moved out. Besides our first home, we paid cash for all later house (i.e. no mortgage); I'll get to that next. So we are accidental landlords in a way. It also worked out, for example, we didn't sell our CA houses when it appreciated 2x and now sold a few at 5-10x. Maybe it's luck? But we were earning good cash flow; and we only sold them because we didn't want headaches during retirement.

Now I think one of the things that help put us ahead a bit is company options. Although even here, we aren't very lucky because the startups I joins during the late 90's amounted to nothing. Our company options are thru large cap companies, i.e. anybody who does a good job working there will get the same results IF they followed what I did. So, at first we refi our CA house (since we couldn't sell it) and bought our next houses in cash (they were in Austin/Round Rock, a lower cost of living location); each time I leave a company, my options pretty much pays for another of our house. In the end we ended up with a bunch of houses in x,y, and one in z. Except for the first house, all have no mortgage.

Was that smart? In hindsight, no. If we had leveraged, then we would have increased our RE return by a lot. We used 0 leverage.

Now, even our slow and steady large company options were all that lucky. This company I joined was a major source of wealth for everybody, I finally joined in 2000 after seeing friends just get rich, and it's stock just kept going down, I was never able to cash in my initial few grants. But I worked hard and got new grants every year; and grants on top of that for doing special tasks; and grants when there's a majorish drop in stock price. So in a way, i earned those option $ the hard way.

Through out our relatively short professional live, we've lost a lot of money; some due to our own fault, others are completely unreasonable and unexpected. When I say a lot, think in terms of $100k-$1m on these incidents.

The next jump in our wealth is when we decided to speculate in RE; actually more of wife's hobby. Here, during the 2008 recession, we bought several houses in the x; at this time, we wanted to leverage but couldn't due to the tight mortgage loans; i.e. loan approval took too long at this time so we do cash offers. So in a way, we've been not very lucky in that even when we want to leverage, we can't. Then we sold the houses much too quickly (since we are retired and absolutely hated these cheap houses and the tenants they bring in); if we waited just a few months it'd be $2m more (but nobody can foresee the future, so we're fine with our decision. However, it is another example why we aren't very lucky.)

Finally, it is a relatively small amount, but I was able to protect our investment drop due to brexit by successfully hedging. It is the first time I did a large $ hedge; prompted by desire to keep my retirement money. I can say again, my investments did better than SP500; and now mostly have recovered. I can't say the same for my 401ks though.

If we have been earning SP500 and even being high wage workers, there's just no way to come to where we are. And BTW, (in another thread) I can't believe people can think SP500 is market risk; by its very definition, it is higher than market risk. (Another reason to beware of blinding trusting the penny wise, pound foolish things people do).

I will not give you specific stock advice. In fact, why would anybody blinding follow a quick adivce on buy this and that? You've got to put in the time and find out. I can offer fundamentals and check numbers/general guidance on stocks I know since I do that a lot on things you pick; it might make good discussions. Like recently, some people want to buy MO, but don't know why it heads in directions opposite of ,say, the SP500 on brexit.

I like to see people do well; it is why I'm here... and to get advice on some stuff too. Like different views on what makes a happy marriage. But I get a lot of insights into the thought processes of certain people here, which I find interesting.

[sv2007]

Indexes need time to work.

If retiring early is your goal, then you probably need to take more risk than an index fund. Either invest in individual stocks, play the options markets, or start your own business.

Individual stocks needs time to work, like 20 years. When I talk stock picking, I don't mean to pick 1 stock. I don't think anybody can sleep with 1 stock. You can still obtain a balance but with the best of the ones in the sectors you want with individual picks. SP500 isn't too bad in that it tries to pick performance, but it is balanced in multiple sectors, which some may not want entirely. Then there are sector ETFs (an index too) which just doesn't make a lot of sense for folks with time to look into the sectors.

[sv2007]

One thing I think may be overlooked is that; yes, if you don't have the time or interest in reading the financial pages, then index isn't too bad (although it would still pay to have the basic knowledges). Otherwise, with increased effort, there can be increased return (and I'm not even sure if the risk is higher than SP500, at least it can't be proven easily one way or the other).

Also, just a recommendation, I always tell people (individual investors/equity buyers) to at least understand the options market; it is another tool available that can complement the equity ownership. Life goes on fine just fine knowing positive numbers (as shown by human history prior to the discovery of negative numbers), but it was better to also know about negative numbers; just an analogy.

[corn18]

I had a suspicion that either a startup or options or both were part of your wealth. That's not easy or low risk to pull off. And since that funded all of your follow on wealth building activity, I am dubious that this is a model for the masses.

And the other big part is buying low and selling high in the SF real estate market? Oh how quickly we forget the 2008.

[sv2007]

I had a suspicion that either a startup or options or both were part of your wealth. That's not easy or low risk to pull off. And since that funded all of your follow on wealth building activity, I am dubious that this is a model for the masses.

There's no startup money in our wealth. The startups I joined didn't amount to much.

One thing I forgot to mention is early on, we lost $1m in options due to tax considerations. This caused us to always liquidate options immediately (or within a week) after leaving each company. Company options/RSUs are a big component in compensation in the tech industry because each year they pile up and you get new grants when stock prices fall. It was very hard for me to leave the company to retire due to the unvested options.

However, I also want to say that I have not been very lucky with my company picks; had I , instead, taken up on 2 job offers that I turned down, I would be having "my people" typing this post for me. So, pick any ok large cap and you can do well with options. I'm not like some people who get lucky and picks a good company at the right time (it is truely luck based on my experience).

This doesn't take away from the fact that no matter how well one is paid; if I didn't do anything with my option $ (or just put it into SP500), I'd not be retired at this time. Our stock and RE investments returns better than SP500; if I had just gotten the SP500 return, even at $70k/yr (which somehow people think it's impossible) investment, it's only $3m. $70k/yr saved isn't hard to do when you have a dual income family.

Tax is always a terrible thing; in fact, it is one of the reason why wife retired so early. Pretty much half of what she makes is gone. In a way, with the increase in cap gains tax just when I'm selling off property, again, luck isn't on my side.

[corn18]

I didn't realize you were talking about Jim Cramer. Since you so subtly jab at indexing calling it penny wise and pound foolish, I will try to be equally subtle when I say Jim Cramer is a shill.

[sv2007]

And the other big part is buying low and selling high in the SF real estate market? Oh how quickly we forget the 2008.

Do you think its lucky that we sold too early? Here's the deal, I told wife, not to worry about tax, as soon as tenants move out, we should sell (nobody can foresee the future). Turns out, if we waited just a couple of months, there's an extra $2m. Also, we didn't bother to space out the sells so our income has been incredibly high the years of my retirement (I really hate paying more taxes during retirement). Lucky or unlcuky? I'd say neutral, so not "lucky". The thing is, none of our wealth came from a lucky strike. it is from the slow and steady build up as mentioned in the book I recommend.

The key, now that it is in hindsight, is when our investment income became higher than our earned income. This put us into the good compound curve portion, which at the time I didn't know that the book has already analysed it for me. I've been learning things without the benefit of a guide. Once that's happened, money generation compounds; but you still must put that money to work or the compound rate is less. Fortunately, we've learned valuable lessons early on (another thing the book talks about that I'm just amazed that it matched us so well).

You can call us lucky, but in a way, that'll just defeat your own path to wealth because luck can be written off as a one-off thing. The things I listed, none is really lucky.

Lucky is when we dabbed into the property tax auction market in TX. There we were able to score returns in the 10x range, but the amount is pretty small (we treated it as a hobby) so it pretty much has no effect on our wealth. Although one of the buyer is still making regular payments to us (owner financed land sell).