What Can You Control?

When Mr. Ms. Liz takes me on a particular grueling mountain bike ride, my mantra is: “What can I control? Speed and Attitude.” Because once I’ve committed to a ride, that’s truly all I can control.

The same mantra works when thinking about our investments and our financial goals.

Last week was terrible for the stock market. The S&P 500 went down 3.7% to 2,762. People . . . are . . . freaking . . . out.

The last time the S&P closed close to 2,762 was way back in January on the 11th. What were we doing on January 11th? Celebrating. Yes, celebrating that the S&P 500 was up 3.5% for the year.

So this same result, separated by two and a half weeks produces a completely different reaction. Freaking out . . . or celebration. Interesting huh?!

I’m writing this on the morning of February 5th, the S&P 500 is up 3.3% for the year. If the market continued at this pace, we’ll finish the year 34% ahead. I’m not suggesting that would happen, but if it did, we’d all be patting ourselves on the back for what brilliant investment strategists we are.

But, instead we are freaking out. And who knows, it may continue to plummet and turn into a true bear market. If you read last week’s post, you know I’m staying the course. Continuing to invest aggressively for a retiree.

How do I sleep at night? Not great, thanks for asking but my poor sleep habits aren’t due to concern over my investments. My cash cushion helps me sleep. 15% of my invested assets are sitting in CD’s and cash. That 15% represents 7 years of my current spending. This is my dry powder if the market tanks.

I laid out my drawdown plan in this post: How I’ll Fund My Retirement. I intend to live on that cash when the market drops 10% from it’s all time high and replenish it when the market returns to the high. With this cash, I won’t have to sell when the market is low. Because you don’t really lose anything unless you sell.

This cash cushion reduces my speed but improves my attitude. And, yes, with the market performing as it has since I retired, I would have been way better off to be fully invested. I just did the calculation and it made me a bit sick to my stomach–two more years of expenses would have been covered. But the stress wouldn’t have been worth it.

So how are you feeling? Are you freaking out? If you truly are, this may be a good time to reassess your risk tolerance. That’s just a fancy way to say maybe you have too much in the stock market. Because if it scares you too much, you’re likely to do something unwise. Like sell your investments when they are down and then you really lose.

Do a quick gut check. Take the total amount you have invested in stocks and stock mutual funds and multiply it by 35%. That’s how much you’d lose in a typical bear market. Could you keep on keeping on? Or would you sell?

If you’d sell, you have too much in the stock market. Google risk tolerance questionnaire and look for one from Vanguard or Charles Schwab. Answer the questions and it will suggest a more appropriate asset allocation for you.

I have to admit, the thought of losing 35% makes me sick.

But I wouldn’t have to change how I live. I’m sure I’d cut some expenses. Just like I did when we were in the great recession though our earnings weren’t impacted much. A bit less eating out, a bit less traveling, more careful shopping etc.

And I know I wouldn’t sell. Because I’ve been through it before. Here’s the chart for my entire investing history–1990 to today:

S and P my history

You can barely see the blip that was last week. I’ll stay invested because I’m convinced the market always goes up. Over the long term, it always has.

All I can control is speed and attitude.

Did you do the 35% downturn calculation? How did it make you feel? Do you need to change anything so you can sleep at night? Tell me about it in the comments!

I was going to update this after Monday’s continued sell off but the answer remains the same. I’m keeping on keeping on. If you’re freaking out, do the gut check and take a risk tolerance quiz. If it gives you a recommendation significantly different from where you sit today, start working out how you can get your investments to align better with your risk tolerance. Seek out a real expert–a fee only financial planner who meets the fiduciary standard. You don’t want to lose sleep over your investment allocation.


Investing is risky, this reflects my opinion and is for entertainment purposes only.  Proceed with caution, do your research and seek professional advice if necessary.

Photo credit: Mr. Ms. Liz in the McDowell Sonoran Preserve, Scottsdale, AZ

Should I Sell Now???

January 2nd, 2017 I published an article titled The Stock Market Seems Really High . . . Should I Sell?

It’s gone up 18.5% since then including dividends. Since I have 6% built into my long-term plan, I’ve seen three years of returns in the last year. And that doesn’t count January of this year–I’m up another 5% just this month.

Should I have sold? Clearly No.

Should I sell now? Who knows.

I’m not selling. I always stick to my plan–even in the terrible downturn in the great recession, I’ve always stuck to my plan.

The reasons the market seemed really high a year ago have worsened.

The Price/Earnings ratio is pushing 27 where the historical mean is closer to 16. This compares the price of a stock to it’s most recent 12 months earnings.

The Schiller Price/Earnings (aka CAPE Ratio) ratio is pushing 35 where the historical mean is closer to 17. This compares the price of a stock to it’s most recent 10 years earnings. There’s only one other time this indicator has been higher.

And I’m sitting tight. It feels a bit scary, but not as scary as you might think.

Here’s what takes the scary out of this stock market for me:

First, and most importantly, my expenses are low enough I can continue my current lifestyle even if the market drops 35%. And if it’s even worse, I have fallback plans for my fallback plans.

Second, we’re seeing the impact of tax reform–corporate tax rates went from 35% to 21%. This one change boosts corporate income 21.5%. When a corporation made a dollar pretax in 2017, they kept 65 cents; now with a dollar pretax income, they’ll keep 79 cents. That 14 cent difference represents 21.5% more earnings. That’s huge.

Third, corporations are using tax reform as an excuse to increase wages. And I say hallelujah. The disparity in the opportunities for the working class and the investing class is concerning to me. I believe we all benefit from working class folks earning a livable wage. And we all benefit as these wage increases are immediately turned into spending which increase corporate earnings and the cycle repeats.

Fourth, there are few good alternatives to stock market investing. Interest rates paid on bonds and cd’s remain at historic lows. The historic means for the P/E and Cape ratios referenced above, reflect times when these rates were much higher.

But here’s the real reason I’m not getting out of the market:

I’m not smart enough to know when it’s time to get back in. I’d dare to suggest you aren’t either.

So we sell today and the market continues to rise. Do we decide we were wrong and jump back in a rising market?

So we sell today, and are geniuses–our timing is spot on perfect. The market tanks tomorrow–it drops 10%, do we get back in? How about when it drops 20%? . . .

And in the meantime, our money is earning 2% if we’re lucky, we’re probably not even keeping up with inflation.

OK I’m not selling but I did do one little tweak. 

My careful readers know I’m a huge fan of VTSAX–Vanguard’s Total Stock Market Index Fund. With the exception of some legacy investments that would create a large tax bill if I sold, everything was in VTSAX.

But earlier this month I moved about 15% of my invested assets to VTIAX which is Vanguard’s Total International Stock Index Fund. With our stock market so frothy, I thought it made sense to have a bit of international exposure. Especially since the value of our dollar is declining against foreign currencies.

So that’s it, I’m staying on track but with a little tweak. How about you?? Are you making any changes to your investments?


Investing is risky, this reflects my opinion and is for entertainment purposes only.  Proceed with caution, do your research and seek professional advice if necessary.

Photo credit Ms. Liz from our back deck.

How Income Taxes Work and My $0 Tax Bill

Taxes seem really complicated. So complicated that a reader asked me to write about how they work so here goes.

No, not all CPA’s are tax experts. Though I had to have an understanding of how taxes worked in order to pass the exam, my work has never involved income taxes. But, we’ve always done our own taxes, even when they were complicated by business sales and rental property.

Even if you hire someone to do your taxes, no one cares about your money as much as you do, so you need to be at least a bit knowledgeable about them.

I use Turbotax. I buy it at Costco in late December/early January when it goes on coupon special. I like answering all of their questions and making sure I’m getting it all right. The Federal e-filing is free and the process is super straight forward. There is an extra $20 charge for e-filing the state return but I still do it because it’s just so easy.

I use last year’s software to get an idea how our current year will pan out. I make a copy of last year’s return and replace the numbers with estimates for the current year. With Obamacare subsidies and the 15% bracket limits, earning an additional $1 of income can cost thousands in additional taxes and premium credit paybacks. So being able to play with my current year’s numbers is important. I know last year’s software won’t be completely accurate but it will be close.

Do you really know how much you are paying in federal income taxes? Continue reading “How Income Taxes Work and My $0 Tax Bill”

You Got a FAT Raise, Now What?

So you got a promotion and a FAT raise, now what?

First of all, congratulations!  You must be kicking butt at this work thing and you should feel really good about your accomplishment.

So celebrate a little.

But don’t buy anything you’ll still be paying for after this amazing feeling wanes.

And it will wane quicker than you think.  Our emotions revert to our baseline quickly–both after good events and bad.

Celebrate with people who love to celebrate YOU.  Have a special meal, spend a bit extra on your drink of choice, maybe go away for the weekend.  Make it special.

But don’t go crazy.  Because your real test after a promotion, isn’t whether you can succeed in your new role–obviously you can.  Your real test is how much of that FAT raise you can use to create the future you want for yourself.

So once you wipe that smile off your face?  What do you do? Continue reading “You Got a FAT Raise, Now What?”

Little Things Can Make a Big Difference

I hold too much cash.  16% of my invested assets and 13% of my spendable net worth is sitting in cash.  Over five years of my expenses.  Not the smartest thing because it will lose value to inflation.  But it helps me sleep at night.

My drawdown plan says if the stock market is 10% below the 10 year high I’ll be spending that cash to support myself.  Right now, I’m selling mutual funds for that.

I hold cash because I don’t like bonds right now.  This “safe” investment has a lot of risk for which we don’t get rewarded.  As interest rates go up, and they will, the value of the bonds will go down.  I accept a lot of risk in my stock portfolio because the upside warrants the risk.  I won’t accept risk in a bond portfolio when they aren’t paying me enough to do so.

So my cash was plugging away earning 1.3%.  Inflation in my area is running at 3.1%.  I was losing 1.8% of value each year.  Too much.

I started investigating CD rates on bankrate.com and nerdwallet.com.  Their best five year CD rates are 2.35%.  Even better, a bank I currently have a money market account with is also offering 2.35%.

With CD’s, there’s a penalty for early withdrawal.  It’s generally expressed in terms of the period of time you will lose interest.  At my bank, a CD of more than a year has a 180 day interest penalty.  They take away six months of your interest earnings if you take out the money early.

In the past, I didn’t want to lock my money up in a CD because we may buy an RV or the stock market may tank and I’ll need that money to support myself.  But if I buy a CD, am I really locking that money up?  Or should I just look at the early withdrawal penalty in terms of a breakeven point?

I can leave my money in a money market account earning 1.3% or I can move it to a five year CD and earn 2.35%.  The difference on $99,000 is $1,039 a year, or $86 a month.  This is a significant amount of money to me.

So I calculated the breakeven point.  As long as I keep the money in the CD for at least 14 months, I’m better off in the CD.  I’m almost certain I can do that.

My bank made it incredibly easy to open the cd, it took about 3 minutes on-line and I was all set.  A quick little tweak and I’m over $1,000 ahead.

So then I looked for other tweaks.  Another of my money market accounts was only paying .6%.  I transferred that money to the money market account offering 1.3%.  That gets me another $420 per year–$35 a month.

Now I’m $1,459 ahead–over $120 a month.  Almost $7,300 over five years.  It took more time to write about it than it took to implement it.

Then I told Mr. Ms. Liz he should do the same . . . hopefully he will.  Then he can take me out to dinner 🙂

What quick little things can you do to improve your finances?

Photo credit – SA we met a two year she-moose biking the Village to Village Trail, Beaver Creek Colorado


Your Retirement Questions Answered

When people find out I write a financial independence/early retirement blog, they sometimes take a breath and start peppering me with questions.  I thought it may be helpful to y’all if I answer the questions I get asked most often.

How much should I contribute to my retirement?

If you want to retire at a typical age then 15% of your gross salary before taxes and benefits.  This 15% can include your company match.

At my last job, the company matched 25% of my contributions up to 6% of my salary so that worked out to a 1.5% total match.  If I wanted to retire around my full retirement age for Social Security, then I should have contributed 13.5% of my money.

If you want to retire early, you should be contributing 15% to your retirement and saving outside of your retirement accounts as well.  How much depends on your expenses and risk profile.  Run a few calculators, or build a spreadsheet and figure it out.  Here’s a calculator from Vanguard.

What if I started late or don’t have much saved now? Continue reading “Your Retirement Questions Answered”

Social Security Is My Bond Portfolio

My Dad is an Investor.  I say Investor with a capital I because I remember him studying investments in his home office (aka my brother’s former bedroom) for hours when I was a teenager.

He’s the first early retiree I knew.  So when he shared a bit of his investment philosophy with me, I listened.

In spite of being in his late 60’s at the time and retired with no significant pension, he continued to be invested very aggressively and held very little of his investments in bonds.

He said Social Security was his bond portfolio.

This approach worked well for him.  He’s now in his late 70’s and running out of money is not even possible (he was also the first frugal person I knew!).  Though he recognizes he would have been better off investing in index funds and saving the hours he pored over investment reports.

I’ve followed in his footsteps on many things and I’m following him on this one too. Continue reading “Social Security Is My Bond Portfolio”

My Visit With Warren Buffett

The typical investor has no business investing in individual stocks.  Most of my investments are in Vanguard index funds–VTSAX is my favorite.  Until recently, I owned only two individual stocks.  I also own some managed funds (which carry higher fees) but I would move all of my investments to VTSAX if I could do it without paying taxes on my gains.  You can learn more about my investment philosophy here.

A few months ago I broke one of my cardinal rules. I bought another individual stock–BRK–Berkshire Hathaway.  I bought it only because I wanted to go to the annual meeting and see Warren Buffett (world’s 2nd richest person) and his partner, Charlie Munger talk about investing and life.  A trip to Omaha doesn’t sound all that exciting but this annual meeting is a real spectacle–more about that later. Continue reading “My Visit With Warren Buffett”

Fees Matter . . . A Lot

Do you know how much you are paying in mutual fund fees?  You should, because fees matter . . . a lot.

When you hear people talking about mutual fund fees, they are usually talking about the expense ratio.  This is the percentage charged against the earnings of your fund each year.  These fees pay the operating costs of running the fund and, usually, return a bit of profit to the company running the fund.

My focus in this article is going to be on this expense ratio. Continue reading “Fees Matter . . . A Lot”

You Should Leave A Job With More Than Just Memories

When I retired, I rolled my 401k balances over to IRA accounts with Vanguard.

My company’s 401k plan was a good one.  They even offered my favorite Vanguard fund (VTSAX). But all 401k plans have fees in addition to the underlying fees of the funds where the money is actually invested.  This is because of the reporting requirements, paperwork and account holder support that 401k funds provide.  Those services cost money so each quarter I’d see some of my money disappearing to pay those fees.

With Vanguard, I pay the underlying fees of the funds and nothing else.

Converting my account was easy.  They even assigned an account rep. who monitored the transition and kept me updated on its progress.

I think the account rep. thought I was crazy. Continue reading “You Should Leave A Job With More Than Just Memories”