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|Subject: Re: Lost Decade Recap||Date: 12/6/2010 9:05 PM|
|Author: yttire||Number: 4906 of 5138|
Tell us how you’ve made out the past 10 years, how you’ve made adjustments, the disappointments, the victories etc…
When I started thinking about FIRE, I had two spreadsheets- the "moderate growth" spreadsheet and the "aggressive growth" spreadsheet.
The moderate growth spreadsheet had a rate of return of around 7.8% on investments. The aggressive growth spreadsheet had a rate of return of 15% on investments.
I stopped comparing the assets to the aggressive growth spreadsheet by 2004.
Our actual net worth compared to the moderate growth spreadsheet was doing extraordinarily well in September of 2007. We were about 6 quarters ahead of where we should have been.
Then, we started slipping backwards (but still ahead) until at the end of Dec 2008 we were official behind target by 3 quarters. Wow, that is quite a change of 9 quarters over a short time frame! Of course, there was a major stock market crash in the middle of that.
A high savings rate and decent returns of investment brought us back to being on track of March 2010, and today we have slipped "behind the curve" by about a month due to more conservative investing strategy and reduced savings to some degree. However, it is pretty amazing that we are within a month of the original target goal considering it is almost ten years later.
I am not optimistic we will "keep up with the curve". I am more conservative investing (a lot of money is in cash) and there have been unexpected curveballs. Serious illnesses with both the spouse and myself. The kids are more expensive than I expected with camps.
We paid off our house early rather than dump the money in the market, which turned out to be a stunningly good move, but also meant the expected yield was more like 5% rather than the demanded 7%. (which would have possibly been negative if it had actually gone in the stock market)
We have slipped off our tight budget. The wife's income is going to drop substantially soon. Thus, the expected savings rate will probably be lower than originally planned.
A really strong question in my mind is- what is the upcoming strategy? Should we be more aggressive in investing since we are so young and can afford more risk- giving at least a chance at "keeping up with the curve", or should we be more conservative given the poor economic outlook? I don't know, this question flips around in my head constantly- how much risk to have?
We may buy a new property with the accruing cash. This would both generate cash flow, and also serve as an inflation protection vehicle. It probably would not yield the 7.8% demanded by this spreadsheet. However, am I actually going to make any life decisions based on a spreadsheet of demanded yield? Please! Please?
Also, I have gotten raises larger than I anticipated, so to be honest, I am not sure how our savings compares with the projections of the spreadsheet, this would be good to figure out.
The spreadsheet figured on 2.5% inflation a year which is actually pretty close to what CPI has been over this time frame.
What was the original FIRE date? I was never clear on this to begin with.. would it be as soon as we were clearing $40k a year on a 4% yield along with the house paid off and colleges paid for (around the year 2018) or more than this, or less?
I think aiming for FIRE though has been a great exercise in eliminating wasted cash, thinking about what is valuable, and making choices.
Along the way I was offered a substantial pay raise for a LOT more hours. Having thought so carefully about what my money was for, and what I was saving for- I said no. I would rather chill out and relax with the kids than make a lot of money and pull in the date a year or two. I feel like I can make decisions like this more clearly with a clear goal of what the money is being saved for, where the money goes, and what money is about.
So my expectation is my future yield will be lower and the variance will be higher than I originally anticipated. I expect some more major losses in stocks or other investments, along with the tenacity to make up for lost ground here and there with substantial savings. Major stock losses are not as scary to me as they once were, because we are so diversified, and the asset base has grown so significantly. To be honest if half the money vanished we would still be better off than many many closer to retirement age people, so a few beans spilled here and there won't be the end of the world.
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