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Author: whyohwhyoh Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5084  
Subject: FIRE mid-year update 2010 Date: 8/6/2010 8:36 PM
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A bit late, but here is a mid-year 6/30/10 update on our retirement goals....

--Net worth up 2% since 1/1/10. Now at 3.5 NW/baseAI at age 36.

Current Portfolio:
23% Picked Stocks
27% 401k Mutual Funds (75% S&P500 index fund)
40% California Real Estate (Our House Value*0.93-Mortgage)
10% Fixed Income (Cash Savings, Money Market)

2010 Notes so far:
Cruising along well this 6 month period. Working towards fully funding a 401k, and watching our mortgage principal slowly reduce. Housing market in our zip code has increased 7.5% over the past 12 months since we purchased, which is a large portion of our net worth, although I only allowed a 3% annual growth in my calculations above. Just moved some stocks around adding large XOM purchase, with 3 top holdings now (BMY, XOM, SBUX). Should build up a nice cash reserve targeting 15% of net worth by the end of the year via some substantial bonuses.

My latest mental game concerning FI is to monitor when we will hit the $500,000 net gain on our home. We would need a ~70% gain from our purchase price. I figure if we can get lucky with a house market recovery over the next 6 years along with continued savings etc. I could hit a NW/AI of 8, which would give us the financial independence needed to be able to make the decision on whether or not to take a pause from the workforce. Go buy a small house in France and chill for a few years. Dreaming.

2009 Update: NW/AI=3.6
http://boards.fool.com/Message.asp?mid=28279332

2008 Update: NW/AI=3.7
http://boards.fool.com/Message.asp?mid=27349532

2007 Update: NW/AI=5.3
http://boards.fool.com/Message.asp?mid=26243566

2006 Update: NW/AI=4.6
http://boards.fool.com/Message.asp?mid=24999370

2005 Update: NW/AI=3.7
http://boards.fool.com/Message.asp?mid=23507890

2004 Update: NW/AI=2.5
http://boards.fool.com/Message.asp?mid=21842676

2003 Update: NW/AI=1.4
http://boards.fool.com/Message.asp?mid=20380221
--
whyohwhyoh
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Author: Rocannon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4885 of 5084
Subject: Re: FIRE mid-year update 2010 Date: 8/7/2010 8:26 AM
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whyohwhyoh,

I could hit a NW/AI of 8, which would give us the financial independence needed to be able to make the decision on whether or not to take a pause from the workforce. Go buy a small house in France and chill for a few years. Dreaming.

I was wondering why NW/AI of 8 was a magic number for you. I found an old thread which describes why you use NW/AI:

http://boards.fool.com/Message.asp?mid=24999370&sort=who...

When I first saw your number, I thought to myself: hm, if I quit my current job and took a job paying $30K/year, I'd have a NW/AI of 11 or so. But I wouldn't feel financially comfortable taking a pause at this point (although I have been thinking of doing this, comfortable or not).

Would you care to go into why the factor 8 is special? Does that just represent a particular amount of money that you'd feel comfortable with living off of for a while? Also I'm wondering if you know about any of the legal implications of buying a house in France, tax issues or whatever? I don't, but I'm curious - I've thought of living abroad, but never seriously considered buying property with the assumption that it's more trouble than it's worth.

Rocannon

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Author: whyohwhyoh Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4888 of 5084
Subject: Re: FIRE mid-year update 2010 Date: 8/7/2010 12:19 PM
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Nothing magic about 8 NW/AI, but I have seen this number mentioned several times in the past as an FI number (not necessarily FIRE). And yes this just represents a particular amount that would make me feel comfortable to pause from the workforce.

I am thinking we can live comfortably at a 50% paycut (after downsizing), so our number would be 16 NW/AE (annual expenses). And again, we may just continue on and not pause from the workforce, but it is nice to at least feel like one has the option, and not feel stuck.

And concerning France or Europe in general, I'd likely rent not buy to be more mobile. We have dual US/French citizenship, and my children speak French, so it would be natural for us to take a few years off there. My French is poor, and they have near zero jobs in my line of experience, so it would be tough to find a good paying job there.

--
whyohwhyoh

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Author: VikingErik Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4890 of 5084
Subject: Re: FIRE mid-year update 2010 Date: 8/8/2010 5:08 PM
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Current Portfolio:
23% Picked Stocks
27% 401k Mutual Funds (75% S&P500 index fund)
40% California Real Estate (Our House Value*0.93-Mortgage)
10% Fixed Income (Cash Savings, Money Market)


I'm wondering why you subtract the mortgage from the real estate value? You are still exposed to the real estate market for 100% of the house's appreciation or depreciation in value regardless of the mortgage. It complicates the accounting, but I think a truer picture would be to include the entire house value (*0.93 if you like to figure for the selling costs of turning it liquid), letting the portfolio sum to over 100%, then the mortgage is essentially a short position in a fixed-income asset which pays your mortgage's interest rate.


Nothing magic about 8 NW/AI, but I have seen this number mentioned several times in the past as an FI number (not necessarily FIRE).

NW/AI is sketchy in the first place. AI shouldn't be a denominator as Rocannon points out. Reducing AI causes NW/AI to increase, which is silly, having less income doesn't put one in better financial shape. NW/annual expenses makes a lot more sense, since ultimately that's what determines when you can retire. When NW > AE * life expectancy + a margin of safety, that's retirement.

Anyway, that was nitpicky. Sounds like you're doing great overall.

- Erik

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Author: whyohwhyoh Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4893 of 5084
Subject: Re: FIRE mid-year update 2010 Date: 8/9/2010 2:36 PM
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Appreciate the feedback. I think I will switch to NW/AE going forward, as it is a better representation of retirement and financial independence. Ten years ago AI was not much larger than AE, but it has spread and will going forward. Splitting out house value from mortgage does better show the exposure (good or bad) to the housing market. Although could be confusing to some people (hopefully not to anyone on this board).

So summary would look something like this

NW/AE=6.3 ... NW/AIbase=3.5
Current Portfolio:
23% Picked Stocks
27% 401k Mutual Funds (75% S&P500 index fund)
10% Fixed Income (Cash Savings, Money Market)
170% California Real Estate (Our House Value*0.93)
-130% Mortgage 4.875% fixed 30yr

--
whyohwhyoh

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Author: yttire Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4894 of 5084
Subject: Re: FIRE mid-year update 2010 Date: 8/9/2010 5:04 PM
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-130% Mortgage 4.875% fixed 30yr

Lets say your loan is for $250,000

Your monthly payment is $1,323

Now lets say you refinance to a 15 year fixed loan at 3.96% (the current rate)

Your monthly payment is $1,844

You pay $500 more a month but shave off half the life of the loan.

Something to think about. That is what I did and my loan is now gone :)

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Author: whyohwhyoh Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4896 of 5084
Subject: Re: FIRE mid-year update 2010 Date: 8/9/2010 7:36 PM
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Now lets say you refinance to a 15 year fixed loan at 3.96% (the current rate)

I'll have to take another look at rates. Unfortunately my loan is non-conforming, so I don't get those nice advertised rates.

Also, rebates aren't as good as they used to be, so rates quickly head upward when trying to cover closing costs.

--
whyohwhyoh

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