How my wife and I saved up $1M by age 30 and became FI!

[freedomwithbruno]

Hey Zalo! Basically at the end of each month, we check the portfolio balance, calculate what the monthly 3% of it is, and that is how we set our budget for the next month. So for example when the market dropped in January, we calculated a tighter budget for February, etc. All in all, we haven't been too affected by market changes. One thing we did do - on our way driving up from Costa Rica, we did choose to camp more than Airbnb specifically to save money!

[drh177]

Another remark is that a lot of your investments seem to be managed by Vanguard - I would have sliced these into two $250K tranches and have these tranches managed by 2 different asset managers just in case one of them defaults (because if that happens the Federal insurance will kick in and guarantee the whole $500K, however in the present situation you could lose $250K because only the first tranche would get covered - assuming all your investments are made in the same assets category https://en.wikipedia.org/wiki/Federal_D ... orporation).

Just wanted to follow up on the concern regarding the failure of Vanguard as an asset manager. My belief is that this could NEVER happen.

One of the very cool things about Vanguard, and what makes it uniquely aligned with its clients, is that it is actually owned by its funds. So the value of Vanguard as a company goes up when its funds increase in value, and the value of Vanguard goes down when its funds lose value. Since much of Vanguard's asset base is in index funds, the only way for it to fail would be for a full market failure or some strange mass exit from its funds (which would drive the price below net asset value, eventually leading to arbitrage, leading to price rebound, and restoring value).

[IlliniDave]

Zalo, one's capital assets can go down (or up) in value irrespective of withdrawal strategy. Like it or not, a "dividend investor" still has a total return, and when the market dips significantly so will his portfolio value. Spending only dividends preserves the number of shares owned, but not the capital value.

[julien]

Just wanted to follow up on the concern regarding the failure of Vanguard as an asset manager. My belief is that this could NEVER happen.

One of the very cool things about Vanguard, and what makes it uniquely aligned with its clients, is that it is actually owned by its funds. So the value of Vanguard as a company goes up when its funds increase in value, and the value of Vanguard goes down when its funds lose value. Since much of Vanguard's asset base is in index funds, the only way for it to fail would be for a full market failure or some strange mass exit from its funds (which would drive the price below net asset value, eventually leading to arbitrage, leading to price rebound, and restoring value).

Hmm that is not what I had in mind.
Legally, of course, since you are the owner of the underlying funds, you should remain the owner of these funds regardless of what happens to Vanguard as an entity, i.e., theoretically, you should be right in stating that only a market failure could lead to your ruin.
Practically, however, you overlook the fact that malpractice - e.g. massive funds embezzlement, hacking, etc. - could result in the company going bankrupt.
And in this case, your portfolio would be insured only up to the amount of your national guarantee (some kind of Federal insurance on deposits I guess - I am not American and thus not familiar with the US specifics).
This is not a true problem if you only deposited $100K. But it's a whole different story if your deposits amount to $1M.
This is "small probability / disastrous impact" kind of risk that I would absolutely would not want to take!

[The Old Man]

http://www.mymoneyblog.com/exceeding-si ... imits.html

This discussion falls under the SIPC (Securities Investor Protection Corporation). This is the securities industry equivalent to the FDIC (Federal Deposit Insurance Corporation). The basic protection for each entity is $500 K. Many firms also purchase additional protection in addition to the basic protection.

[RealPerson]

Vanguard has purchased additional insurance up to $49.5 million per customer. https://investor.vanguard.com/investing ... protection

The aggregate insurance is $250 million. No sure what happens if the aggregate is exceeded, i.e. how the coverage gets divided between high net worth customers. If your assets exceed the $500k by far, but are less than $49.5 million, would you move investments away from Vanguard? Seems like a very remote risk but with potentially serious consequences.

[julien]

Vanguard has purchased additional insurance up to $49.5 million per customer. https://investor.vanguard.com/investing ... protection The aggregate insurance is $250 million. No sure what happens if the aggregate is exceeded, i.e. how the coverage gets divided between high net worth customers. If your assets exceed the $500k by far, but are less than $49.5 million, would you move investments away from Vanguard? Seems like a very remote risk but with potentially serious consequences.

Also, let's not forget the scenario where your account is simply hacked and the insurance refuses to pay - challenging your behaviour or simply refusing to acknowledge the hacking event.
Of course these are all low-probability events, but with a potentially disastrous outcome.

[userqname]

Its not clear to me that SIPC protects against loss from hackers accessing your funds. Only insolvency of your brokerage. What protections are there for this, assuming you've already got strong passwords, two factor authentication, etc.?

[julien]

Its not clear to me that SIPC protects against loss from hackers accessing your funds. Only insolvency of your brokerage. What protections are there for this, assuming you've already got strong passwords, two factor authentication, etc.?

This is precisely my point. Diversifying your asset managers would be the very first, obvious step to mitigate this risk.
And very much like the election of Trump, this never happens to you until it does happen!