Gilberto de Piento's Journal

[leeholsen]

from one skier to another, you might see if you can find cheaper ski wax on the internet; i know i did.(if you didnt try that already).

[Gilberto de Piento]

from one skier to another, you might see if you can find cheaper ski wax on the internet; i know i did.(if you didnt try that already).

Thanks! I'll check into it next time. I bought it at REI, I think it was about $20 for the brush and $10 for the wax (CH8 from Swix). Thankfully I don't go through much of it.

[Gilberto de Piento]

I just transferred $5875 from my checking into my savings (a weird number but it sets me up to invest 25% of what I already have saved plus new savings of $1500 per month across each of the four quarters of the next year).

I've only ever used actively managed funds (I don't use these any more) and index funds (my current method of investing and how I will continue to invest in my 457b) so I'm worried this will turn out to be a really bad idea. That said, I've done a lot of homework and I want to give it a shot.

I'll post the details of the strategy I'm using once the transfer clears and I make purchases and I'll also include the results in my monthly updates. Thanks for reading!

[Gilberto de Piento]

OK, so there was a change in plans as to how to invest for FIRE but I think I'm on the right track as a result. I have been doing a lot of reading and spending a lot of time thinking about more complicated methods of investing than the index funds I've used in the past. In particular I had seriously considered a Buffett type method, the What Works on Wall Street method, and The Little Book that Beats the Market method.

I went as far as setting up an account to buy the stocks with and decided it just wasn't for me. I'm just not convinced that I can pick individual stocks and beat a comparable index even though I'm a pretty smart guy who can think and do math.

Buffett obviously has done well for a long time. That said, he doesn't have a precise formula that I can follow and I don't think I have his intuition. The two books do have a formula. Unfortunately, What Works doesn't seem to be living up to the backtesting its based on. The mutual fund based on it is no longer associated with the author and isn't doing well. The Little Book based mutual fund is an absolute beast: http://quotes.morningstar.com/fund/fnsix/f?t=FNSIX. Maybe this is random chance, maybe the method really works. From what I can tell, the stocks held by the fund are the same as those recommended by the book's website: http://www.magicformulainvesting.com/.

What did I end up doing? Well, I either chickened out or made a smart decision. Time will tell. I transferred money into OptionsHouse with intentions of buying stocks based on the The Little Book Method. Then I had second thoughts and transferred the money to Vanguard and bought $10,000 worth of Vanguard Total Stock Index Admiral Shares (VTSAX).

This is somewhat comparable to the Vanguard target date retirement fund that my 457b is in except this is US stocks only, no international, no bonds. Eventually I'll diversify with international but for right now I only had enough money to buy the minimum required to get an admiral share (benefits: lower expense ratio, I get to sound big time by saying "Admiral Share").

One hidden benefit of this decision is forced savings. I can set the Vanguard account to pull money from my bank account every month and invest it. I'm going to set it to $1500 per month, a savings number that I have so far been unable to achieve, and figure out how to make it happen or go broke trying. In the immortal words of Dr. Ian Malcolm "Life, uh, finds a way." https://www.youtube.com/watch?v=SkWeMvrNiOM

Thoughts? Support? Laugh in my face for being a risk avoiding pansy?

[mxlr650]

From what I can tell, the stocks held by the fund are the same as those recommended by the book's website: http://www.magicformulainvesting.com/.

What did I end up doing? Well, I either chickened out or made a smart decision. Time will tell. I transferred money into OptionsHouse with intentions of buying stocks based on the The Little Book Method. Then I had second thoughts and transferred the money to Vanguard and bought $10,000 worth of Vanguard Total Stock Index Admiral Shares (VTSAX).

For magicformula to work, you need to invested in for long time (IIRC thats what the author also says in his later book) and any fortune you realize is just on paper till you sell. Still it is a great way to invest and I would totally do it if not for the time crunch I am in right now.

What is amusing is you decided to go from magicformula to VSTAX instead of VSGAX/VSIAX - BTW its your money afterall

[Gilberto de Piento]

Hi mxlr650,

Thanks for the response. I agree with your point about VSGAX/VSIAX (small cap growth/small cap value index funds). I considered small cap value as this apparently has had an outsized return over many years. Unfortunately it was a bridge too far for my Boglehead brain to be in just one part of the market. It was difficult enough to move into a total stock index from the safety of a checking account. I'm just not much of a risk taker!

At this point I think the most important things are to get the money invested and get my savings rate way up. I'll refine my investments as I go and maybe come back around to something more interesting.

[Gilberto de Piento]

Based on a suggestion from another thread I spent a lunch break putting together a spreadsheet so that I can model various possibilities for FIRE: https://docs.google.com/spreadsheet/ccc ... sp=sharing. I'm sharing this here in case others want to try it and also to hopefully get others to let me know if there are any logic or formula errors.

Notes:

• I work with data every day but not financial data. I know nothing about accounting.
  The spreadsheet is very rough - there may be logic or calculation errors.
  The cells in bold are settings that can be changed.
  The whole thing is probably wildly optimistic.
  I don't really understand inflation yet. It's supposed to account for inflation but I'm not confident it's right.

Since I'm mostly interested in what year I can FIRE the spreadsheet doesn't account for taking withdrawals. What I mean by this is that it allows you to see what year FIRE can take place but assumes the reader is smart enough to know that if withdrawals are taken from the FIRE or 457b assets in a given year the later year values are no longer accurate as money was taken out. Hopefully this makes sense.

I'll post about what I've learned from this later. Let me know if you see any errors or have thoughts on this.

[robby152]

It looks like your F and K columns have hard-coded values (36900 and 406750). What do those represent? Wouldn't you like everything to be editable (just like your other assumption cells like the tax rates). I don't know what those numbers represent, so I can't comment on them.

Your model properly accounts for inflation in column B (though it will be lumpy and not smooth). In columns C and H, you increase your savings with the inflation rate. That is OK (as it holds real savings constant), but isn't necessary to 'account' for inflation. You only need to do what you did in column B. In other words, you may want to increase your savings at a rate higher than inflation, which would go in column C. But, if your assumptions is that you will increase savings with increases in salary and that salary increases with inflation, it makes sense.

And, while this is obviously a big debate, you are using a 4% SWR for a long period, but based on the value of your assets. This means that your actual withdrawals could fluctuate depending on the market. If you can ratchet down expenses in 3-5 years of poor performance, then that is fine. But, you might want to list that as an assumption.

Also, what is your logic on withdrawals that are over $406,750 only being taxed at 20% federal?

[Gilberto de Piento]

Thanks for responding! I really appreciate it.

The 36900 and 406750 are intended to set the tax rate to the proper level for the amount of earnings. For example, if the FIRE earnings are 36900 or below, the capital gains tax is 0%. If it is 36901 to 406750 it is 15%. If it is 406751 or higher it is 20%. I hard coded these because they would only change if the law that sets tax brackets changes. I got this from http://taxes.about.com/od/Federal-Incom ... r-2014.htm.

Right now the same tax rate applies to all the earnings. Is this correct? Maybe the first 39600 is tax free and anything over that is taxed at 15%, like the marginal income tax brackets. This isn't clear to me from the websites I looked at.

Regarding inflation, I want to assume that my salary will increase to keep pace with inflation. I'm assuming I'll get paid more and then will be able to increase the amount I'm investing. It sounds like this is set up correctly.

Regarding 4% SWR, I'll be able to adjust expenses somewhat if the market tanks and I'm not planning on being totally "retired". I like working, I'd just like to have it be more on my own terms.

[fuyu]

"Right now the same tax rate applies to all the earnings. Is this correct? Maybe the first 39600 is tax free and anything over that is taxed at 15%, like the marginal income tax brackets. This isn't clear to me from the websites I looked at. "

Yup, I think you're forgetting to add the standard deduction and personal exemption though...

10% Tax Bracket Up to $8,925
15% Tax Bracket $8,926 to $36,250
Standard deduction $6,100
Personal Exemption $3,900
Total $46,250 instead of 36,900

[Gilberto de Piento]

Thanks! I've updated the spreadsheet to use apply the marginal rates. For now I used 36,900 and 406,750 as the breaks just to get the formula in place.

Are you saying that the break where 15% starts should be at 46,250 due to the deduction and exemption?

[fuyu]

Yup, because the standard deduction and personal exemption reduce your taxable income.

Sorry, I think the second your $.50 over 15% tax bracket, you lose the 0% tax rate on your qualified dividends and all of your qualified dividends become taxed at 15%. Are you assuming that all FIRE earnings will be from qualified dividends? This website (http://thismatter.com/money/tax/capital ... losses.htm) seems to show that you do get to use 0% tax rate up to your 15% tax bracket amount if your ordinary income is below the 15% tax bracket and 15% on the rest of the qualified dividends...

Didn't realize you were using 2014 tax numbers.

10% Tax Bracket Up to $9,075
15% Tax Bracket $9,075 to 36,900
Standard deduction 6,200
Personal Exemption $3,950
Total $47,050 instead of 36,900

[Gilberto de Piento]

January 2014

Help! I'm being attacked by black swans! This was going to be my best month and instead it was my worst due to unexpected expenses:

1. My cell phone used to be on a very cheap family plan with a relative. Without airing too much dirty laundry, the relative has become someone that I can't trust with money. I had to move on to a different plan. This cost $300! Why? First, I found out that the relative hadn't cashed my check for the previous six months so I had to send another $90 for that (after making sure the first check was cancelled). Then I bought a $100 phone and $100 worth of pay as you go minutes/texts/data from tracfone. I could have gone cheaper on the phone but being able to access data through wifi and occasionally through 4G will be useful and it sort of replaces my dying mp3 player. The $100 worth of minutes will save me money in the long run because they are cheaper than buying smaller amounts.

2. My car wouldn't start and needed repair. Fortunately/unfortunately it needed a fuel filter ($20) but it was two hours of labor to diagnose ($180). Ugh. And it hesitated to start once since then so I suspect I'm not out of the woods yet.

Alcohol & Bars 84.21
Auto 213.72
Bills & Utilities 37.93
Business Services 28.48
Cash & ATM 160
Charity 10
Doctor 5.11
Gas & Fuel 77.33
Groceries 323.8
Gym 41.15
Mobile Phone 300.98
Mortgage & Rent 940
Restaurants 18.36
Shopping 41.19
Sports 8.36
Television 44.99
Total -FI 2335.61

Paycheck 2919.71
Amazon 92.18
Google 194.01
CD 17.54
Checking 14.34
Pay from my dad for sharing Christmas gift expense from last month 200.64
Total +FI 3438.42

Net worth: $74,702.66
ERE assets: $24,378.54
Monthly savings rate: 32.07%

So the savings rate this month is the worst yet. Why?

1. There's $500 in black swan payoff money. That's not totally unexpected as something is bound to happen once in a while.

2. $84 in alcohol & bars, seriously? That's not as bad as it looks since I'll get $25 back from a rebate. I put on a ski race every year that requires a good amount of alcohol. People really enjoy it so this is borderline charity.

3. $200 Cash & ATM and Bills & Utilities are still a bit of a mystery. This month I'm going to track everything I buy with cash and see where it's going. I suspect mostly food but there are always a few random things, for example this month there was a $30 for a trail pass for skiing.

Leaving out the black swans I would have had a savings rate of about 45%. Next month!

Goals for February:
1. 50% savings rate.
2. Put $3000 (required minimum) in Vanguard in Vanguard FTSE All-World ex-US Index Fund Investor Shares (VFWIX) to diversify my FIRE assets.
3. Find a new job and relocate to a state that I think will better suit me.
4. Keep working on web development. This hasn't been going well, I'm just not excited about it anymore since I'm not learning anything new.
5. Learn Python to hopefully be more marketable and increase my income. Programmers seem to earn a lot more than I do and they actually produce something useful rather than reports that get skimmed and junked.

Also, I finally got around to reading Mister Money Mustache. That guy is living my dream in terms of location and lifestyle.

Thanks for reading!

[mxlr650]

Learn Python to hopefully be more marketable and increase my income. Programmers seem to earn a lot more than I do and they actually produce something useful rather than reports that get skimmed and junked.

Programming is a good trade if it is something you like to do more than other activities such as marketing, brand management, systems engineering, biz dev etc. If you are good with big pictures, collaboration etc, you should try out other functions which pay equally well.

While learning a new programming language is important, what really pays is domain knowledge. If you have not done already, pick a growing/lucrative domain (finance, telecom, enterprise verticals etc) and try to become an expert. Problem with just learning programming languages is that, the barrier to entry is too low and a dude with little or no money can learn it well and compete effectively from remote parts of the world. However if you have domain knowledge (along with software skills) there is very little danger that outsourcing can pose.

Location is another factor - for Internet technology companies there is very little alternative to being in bay area. Yea, there is RTP, Boston, Seattle, Austin, blah blah blah, but nothing comes close to SF bay. If it is something you can handle, move to SF bay, live cheaply, save for few years, and you will be able land lucrative remote gigs easily.

Good luck!

[Gilberto de Piento]

Hi mxlr650,

Thanks for the detailed response regarding programming. I didn't do a very good job of describing the details. Mostly what I do now is program, I program in R to analyze data and create reports.

I agree with everything you wrote. Right now, the language that I program in is only useful for data analysis and I'm specialized in a domain that is notorious for low pay. I'd like to both escape the low paying (and uninteresting) domain and learn a language that can be used for a wider variety of projects. I'll probably end up doing something "big data" as that would allow me to use my existing stats knowledge. I'll still need to pick a new domain as you indicated - I'm not yet sure what that would be exactly.

[George the original one]

Big data and "something interesting" smells like GIS to me... not sure how widespread Python is in GIS since ArcGIS products are de riguer.

[Gilberto de Piento]

Hi George,

I'm familiar with GIS but I won't be going in that direction. I'm sorry I can't provide more detail about my situation but I'd like to stay anonymous here for the time being.

[Gilberto de Piento]

Well, it's only the 10th of February and my savings for the month are already f#$&ed. I ended up having to pay in about $1000 for my federal taxes and only got back $200 from the state so I'm down an extra $800. I need to have my real job take out more in taxes next year so that this doesn't happen (assuming I continue to make side money). This is good problem to have since it means I'm making more money but it's frustrating to put a lot of work into making more and have the government take about 30% of it.

And the car wouldn't start again yesterday morning, though it did start later on in the day. I think it needs a fuel pump. I could fix it but I don't have anywhere to work on it (it was -10 outside this morning) so the repair will probably cost about $600 (on top of the $200 I already paid to have it misdiagnosed and "fixed" with a $20 fuel filter).

And the bank sent me a letter saying that my card was compromised. Thankfully nothing was stolen.

Oh well, it could be much, much worse, but I'm finally starting to understand where all the money goes. It is always some damned thing!

[archi]

Hi Gilberto,

How do you get that revenue from amazon and google ? (sorry if already asked / explained)

Thanks

[Gilberto de Piento]

Hi archi,

I haven't been working on it lately but about a year ago I was into building websites. Once you've got a website built you can become an affiliate with Amazon and Google (and thousands of other companies) and put their ads on your pages. You make small amounts of money when someone clicks through an ad and/or buys something. It works but it's risky - you can put a lot of work into a site and no one comes to it or no one clicks the ads or Google changes their search algorithm and suddenly you get no traffic.

Thanks for reminding me that I need to get back at this once I've got some other things taken care of.