Generation-X' Journal

Where are you and where are you going?
Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Sun Jan 17, 2016 2:03 am

Construction Time Again

Since the start of the journey 3 years ago, applying the methods behind the idea of early retiremnet and observing the changes has been quite encouraging.

Just by saving more and spending less, I've been able to increase my networth by a third in just under 3 years. And I'm not hardcore ERE.

The method is quite effective, so long as there is consistent income. It can also be trying at times as well.

I've allowed outlets in transportation and miscellaneous spending so that transition could be at a reasonable pace and it has worked out well - things feel balanced.

I can predict reliably where I will be in time and how long it will take me to get there. It's all a matter of routine.

And as is the human nature, the million dollar question is, how can I improve this? How can this be done better, faster?

I've given this some thought, and conditions are now emerging to integrate a new component to strengthen the foundation - it's time to add self sustaining cashflow of my own.

The intent is, any savings achieved from this point on, will be used to build this cashflow.

The upcoming market correction will be utilized, however severe the correction may be. No leveraging will be utilized, whether it's buying on margin, mini futures, options or currency exchange.

The bias will be long.

Both Debt and Equity instrument will be used. Debt meaning, loaning out money for interst. Equity meaning, participating in a business and collecting shared profits with other owners (dividends).

Currently, half the networth is invested in debt instrument at 6% and it will remain there until a decision is made to cash it out. Rest will remain cash to provide liquidity and safety net.

All future savings, both taxed and deferred will be invested in equities as the market undergoes the correction - naturally, the intent is to buy close to the bottom as much as possible.

The companies to purchase have already been selected. If company does not have dividends, then that company will not be purchased.

The goal moving forward, will be to create a cashflow that will mirror at least half the cashflow provided by pension - idea being, this will cut down the time to retirement by half.

The process will continue even after retirement, into perpetuity.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Sun Jan 17, 2016 3:34 pm

Looking at Equity as a cash flow vehicle

Participating in equities requires monitoring. Many factors are not controllable.

Nowadays people don't invest but they gamble - they simply bet long or short on the entire market, sector or a company.

For the masses, they preach buy and hold index funds using flashy words like dollar cost averaging and passive asset allocation. What they don't tell you, is that it's been done before - whether one owns 20 bellwether stocks or 500, it doesn't matter. For bellwether concept to work, the value of the index, as average, must always move higher. Reality has a funny way of ensuring this does not happen.

What's probably the most important in looking at equities as an investment vehicle is the valuation - to know when to buy. Buy them when it's cheap. Don't buy them when it's expensive. Why pay $50,000 for a new Corolla when it can be had for $5,000? There are times to invest and for most mortals, this happens maybe once or twice in their life time.

Equally important, is what to buy.

-to be continued
Last edited by Generation-X on Sun Jan 31, 2016 3:17 am, edited 2 times in total.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Sun Jan 31, 2016 3:02 am

Problem in investing in stocks today is clarity. A proper analysis of the balance sheet on huge corporations often requires much knowledge and information - not practical for an individual investor. Relying on company such as Valueline is just as effective as relying on Moody's and S&P ratings. (not preferred)

Various methods, such as index funds, sector funds, value investing or playing the casino on futures or options are all based on a simple methodology of buy low, pray then sell high (whether one's long or short). Different ideas of valuation are really prayers to add conviction and confidence so that one can actually push the button to place the order. Repeatability is limited. Success depends on many uncontrollable variables and chance. It's essentially playing casino with the market.

How can one make the process of investing consistent and predictable? This is the crux of the problem. The answer, as it turns out, is fairly straight forward.

If one looks at the historical creation and evolution of stock exchanges by Andrew Beattie (http://www.investopedia.com/articles/07 ... istory.asp), at first the idea arose out of need by merchants to reduce risk by unloading them - i.e. they traded promissory notes (bonds) amongst each other and to public in exchange for some medium of value. As trades became global toward India, Asia and Africa, group of investors pooled money and funded each trade for its proceeds. At first, the group would dissolve after a successful trade and another would form. Then East India Companies began issuing stocks which provided proof of ownership in the company and entitled the owners with dividends - based on all proceeds received from all successful trades. This is what modern stock is based on.

-to be continued.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Sun Jan 31, 2016 5:21 am

A quick thought on negative interest rates -

Europe, Japan and even Canada are engaging in negative interest rate policy to prop up economies.

Both Bernanke and Yellen have stated that negative interest rate policy is an option to be considered.

This will probably cause rise in interest rates as banks will be reluctant to pass on the expense to the customers and instead raise rates to cover the expense, having an opposite effect than what the Fed desires.

On the other hand, eventually, as banks pass on the expense, then it will make sense to withdraw cash from banks as I have no intention of paying them to hold my cash. My mattress will do just fine. ( the look on the face of the teller when I ask for $100,000 in cash will be priceless. [ I have done this before, in 2008 for lesser amount. Three nice young ladies helped in counting the bills ] )

I will borrow, borrow and borrow at fixed interest rate as soon as possible and buy a home as the housing market will bubble due to foreigners purchasing US properties with cheap money from outside while mortgage rates move higher in conjunction with housing prices, locking out American home buyers. And if rates truly go negative, banks will send me monthly checks for borrowing their money on top of that! (not likely)

Precious metals will rise and so will its ETF's because current safe haven is USD at near zero when everyone else is negative. If USD goes negative, then flight to precious metals will be inevitable.

Stock market will bubble and one will be forced to participate and ride the lies until the truth is revealed bursting the bubble.

If 0% loan is a reality (not likely), I will load myself with debt as much as possible and hold until rates rise again. As a matter of fact, I will leverage the loans to sustain payments to each other (zero sum game). If negative loan is a reality, even better, I will load up on negative interest debt and retire.

At some point, all these built up bubbles will have to burst, globally.
Last edited by Generation-X on Thu Feb 04, 2016 5:49 am, edited 1 time in total.

toto123
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Re: Generation-X' Journal

Post by toto123 » Sun Jan 31, 2016 11:19 am

Generation-X wrote:I will borrow, borrow and borrow at fixed interest rate as soon as possible and buy a home as the housing market will bubble due to foreigners purchasing US properties with cheap money from outside while mortgage rates move higher in conjunction with housing prices, locking out American home buyers. And if rates truly go negative, banks will send me monthly checks for borrowing their money on top of that! (not likely)

Precious metals will rise and so will its ETF's because current safe haven is USD at near zero when everyone else is negative. If USD goes negative, then flight to precious metals will be inevitable.

Stock market will bubble and one will be forced to participate and ride the lies until the truth is revealed busting the bubble.

If 0% loan is a reality (not likely), I will load myself with debt as much as possible and hold until rates rise again. As a matter of fact, I will leverage the loans to sustain payments to each other (zero sum game). If negative loan is a reality, even better, I will load up on negative interest debt and retire.

At some point, all these built up bubbles will have to burst, globally.
At which point in time will you start getting into these positions? On the day when US interest rates cross zero? Or later? Will you wait for a price confirmation of real estate before purchasing US properties?

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Sun Jan 31, 2016 2:45 pm

toto123 wrote:
Generation-X wrote:I will borrow, borrow and borrow at fixed interest rate as soon as possible and buy a home as the housing market will bubble due to foreigners purchasing US properties with cheap money from outside while mortgage rates move higher in conjunction with housing prices, locking out American home buyers. And if rates truly go negative, banks will send me monthly checks for borrowing their money on top of that! (not likely)

Precious metals will rise and so will its ETF's because current safe haven is USD at near zero when everyone else is negative. If USD goes negative, then flight to precious metals will be inevitable.

Stock market will bubble and one will be forced to participate and ride the lies until the truth is revealed busting the bubble.

If 0% loan is a reality (not likely), I will load myself with debt as much as possible and hold until rates rise again. As a matter of fact, I will leverage the loans to sustain payments to each other (zero sum game). If negative loan is a reality, even better, I will load up on negative interest debt and retire.

At some point, all these built up bubbles will have to burst, globally.
At which point in time will you start getting into these positions? On the day when US interest rates cross zero? Or later? Will you wait for a price confirmation of real estate before purchasing US properties?
The post was meant to be sarcastic toward the Fed if anything and not toward those experiencing this already. ( I noticed that you're from Canada )

I think their rationale is something along the lines of forcing literally everyone in the world to pay up (tax) to revive the world economy. But we've already been experiencing negative interest rates for well over 8 years now at -3%, factoring in inflation in real terms.

IMO, there will be serious political consequences for politicians and certain person(s) in the Fed, if they try to implement this policy. It's one thing to not receive interest (perceived as even money) but to pay for having your money in the bank? No self-respecting American will tolerate that. I think at first, they'll start withdrawing and then, they'll start the political process of recalls and impeachment, eventually throwing out the policy makers in the Fed. It's already been done before here in California, when Gov. Davis was thrown out after CA electricity crisis - when people had to endure 2-300% increase in electricity rates due to government regulation. Americans are finicky that way - so implement away at your own peril.

If Yellen is a self-preserving woman, I think she will try to raise interest rates as much as she can before bringing it down again to save some bullets to be used later. This will probably be the better move to make, albeit for the wrong reasons.

Also, US economy, in my opinion, is not as weak as other world economies at present.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Thu Feb 04, 2016 6:38 am

Historically, there have been two ways to invest money (gambling is not investing fortunately):

Debt instrument generates cash flow by interest on money loaned out - so called bonds.
Equity instrument generates cash flow by running a venture with other investors and receiving share of the proceeds proportional to amount invested, called dividend on a stock.

It's interesting to note that interest on a bond is usually fixed - therefore generated cash flow is predictable and constant, so long as the borrower keeps on paying interest to the bearer of the bond. This is where story ends with bonds - stable and boring, but gets the job done. Larger cash flow requires a lot of money.

Dividends, on the other hand, can change depending on the proceeds. If there are many successful ventures, proceeds will be higher and so will the cash flow. In addition, the face value of the stock, which entitles the bearer with right to proceeds, will rise. It's like having a bond with interest that changes by rising dividends or rising face value of the stock or both. Therefore cash flow is not predictable nor constant.

But what if the direction of the cash flow can be guessed and with high likelihood?

-to be continued

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Thu Feb 11, 2016 4:56 am

It appears that market is slowly making up its mind and we are now approaching a critical juncture.

Global economy is in the pits - Europe, Japan, Russia, Brazil and now China is slowing. China's housing crisis have begun unfolding. US businesses have begun layoffs and closures. There is a looming world war in the middle east. Oil is tanking.

Well, nothing new really - same old stuff, just with different names and places.

Let's see if market moves up.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Thu May 05, 2016 2:55 am

The market moved up.

Unfortunately, the apparent formation of double bottom on the Dow, signifying a rally, isn't materializing.

The beauty of all this, is that it does not really matter.

Accumulation of savings continues, and like a tigress lying in wait, she will act, when the opportunity presents itself - having prepared herself for that moment.

About half of net worth is earning 6% interest. The other half, lying in wait. In the mean time, I'm accumulating.

** On a side note, even if the market collapses, the process takes years and being able to see clearly through that process to call the bottom takes patience.

Even if opportunity never comes, the routine savings, not having debt and living below one's means will be more than enough - in fact, it's the foundation.

I think I'm getting it. May not be hardcore ERE, but better ERE-light than never. :)

Augustus
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Re: Generation-X' Journal

Post by Augustus » Fri May 06, 2016 12:17 am

So why stay in California? I fled 2 years ago. I'm near a college town out of state where you can rent an older, but entirely serviceable apartment for 400 a month. It's also biking distance to a business district. If you were so inclined you could rent one, and sublet a room and probably reduce rent to 100 or 200 per mo.

Also, did you sell the car? SoCal has an obsession with cars, I can't count the times I got made fun of for having a high income and driving a used late model civic. The financial ironies still boggle my mind, since i was more successful and had more assets, and was getting lectured by people with less about my poor decisions. My point is you can buy a used civic for 5k that will last another 10 years, why pay 4800 per year for several years to accomplish the same thing?

Very interesting journal, youre definitely more ballsy than I am.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Sun Jul 10, 2016 7:48 am

Update 7/16

Decided to remove certain asset type as its value was hard to calculate precisely.

Actual net worth is higher but this super conservative estimate will be good enough.

This is year 1 (2016) since the savings plan was conceived. 5 months left in year 1.

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Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Sun Jul 10, 2016 8:36 am

Augustus wrote:So why stay in California? I fled 2 years ago. I'm near a college town out of state where you can rent an older, but entirely serviceable apartment for 400 a month. It's also biking distance to a business district. If you were so inclined you could rent one, and sublet a room and probably reduce rent to 100 or 200 per mo.

Also, did you sell the car? SoCal has an obsession with cars, I can't count the times I got made fun of for having a high income and driving a used late model civic. The financial ironies still boggle my mind, since i was more successful and had more assets, and was getting lectured by people with less about my poor decisions. My point is you can buy a used civic for 5k that will last another 10 years, why pay 4800 per year for several years to accomplish the same thing?

Very interesting journal, youre definitely more ballsy than I am.
Thanks for the compliment. I will likely remain in CA while socking away but once retired, I will probably relocate to a state with no income tax.

Question is when to move away - due to tax consequences.

Since most of my savings will be taxable, it makes sense to aim for a lifestyle that's under 15% tax bracket or better yet, under $10,300 per year (personal exemption + standard deduction limit), IF retiring with just savings.

I will utilize Roth IRA conversion ladder along with qualified dividends to keep taxes low. If I can stick to $2000/mo. budget, then retirement is possible sometime in year 3 or year 4 ( $2000 x 12 x 25 = $600,000).

If I wait to receive pension, then I will likely shift to Roth 401k in lieu of traditional 401k, starting in year 5.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Tue Jul 12, 2016 4:25 am

One thing about pension - it's a catch-22. Perpetual ordinary income stream guarantees taxation for life.

Roth conversion ladder immediately gets wiped out. Benefits of qualified dividends disappear by 2/3 in the very first year that pension becomes available (in my case).

All of pre-tax savings become a ripe target for taxation, which faces mandatory distribution starting at 70 1/2 - further compounded by additional income from social security (which can be delayed for 3 years but in exchange for 20% higher ordinary ss income).

And yet if there isn't enough income from pension, it could become difficult to make ends meet. It's hard to balance tax and inflation against supposedly perpetual flow of ordinary income (and taxes that come with it).

Adding salt to injury is the healthcare coverage - which only comes with pension. And coverage only lasts from retirement to age 65 when medicare takes over.

The million dollar question is, how can I have the cake and eat it too? - Is there a way to receive health coverage and yet nullify pension income, so that I can benefit from Roth conversion ladder and qualified dividends without incurring real loss?

Is there a holding tank where I can sock away the pension income, nullifying it, while conversion takes place?

Hmmm. Scratching my head on this one.

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GandK
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Re: Generation-X' Journal

Post by GandK » Tue Jul 12, 2016 6:32 am

Generation-X wrote:The million dollar question is, how can I have the cake and eat it too? - Is there a way to receive health coverage and yet nullify pension income, so that I can benefit from Roth conversion ladder and qualified dividends without incurring real loss?
My pension can only be taken as annual payments. Not as a lump sum. But those payments can also be taken earlier at a lesser annual payout, which means the taxable income would be less. Can you go that route, maybe? Is retiring earlier a possible solution? :D

George the original one
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Re: Generation-X' Journal

Post by George the original one » Wed Jul 13, 2016 9:52 pm

Generation-X wrote:The million dollar question is, how can I have the cake and eat it too? - Is there a way to receive health coverage and yet nullify pension income, so that I can benefit from Roth conversion ladder and qualified dividends without incurring real loss?

Is there a holding tank where I can sock away the pension income, nullifying it, while conversion takes place?
Do you have to claim the pension upon your exit from work or can you put it off and have "gap years"? I'm doing the latter with my government worker pension. 5 years until I collect it.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Fri Jul 15, 2016 5:40 am

George the original one wrote:
Generation-X wrote:The million dollar question is, how can I have the cake and eat it too? - Is there a way to receive health coverage and yet nullify pension income, so that I can benefit from Roth conversion ladder and qualified dividends without incurring real loss?

Is there a holding tank where I can sock away the pension income, nullifying it, while conversion takes place?
Do you have to claim the pension upon your exit from work or can you put it off and have "gap years"? I'm doing the latter with my government worker pension. 5 years until I collect it.
I can delay the pension with "gap years" but then must give up paid-for healthcare until Medicare kicks in at age 65. This is a deterrent.

Naturally, what I would like to see happen in my desire for early retirement is to keep the healthcare while delaying pension income for maximum tax treatment of existing savings but that's not allowed for obvious reasons.

Curious, how are you dealing with healthcare in retirement? Will you be allowed to keep the healthcare after the "gap years"?

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Fri Jul 15, 2016 5:49 am

GandK wrote:
Generation-X wrote:The million dollar question is, how can I have the cake and eat it too? - Is there a way to receive health coverage and yet nullify pension income, so that I can benefit from Roth conversion ladder and qualified dividends without incurring real loss?
My pension can only be taken as annual payments. Not as a lump sum. But those payments can also be taken earlier at a lesser annual payout, which means the taxable income would be less. Can you go that route, maybe? Is retiring earlier a possible solution? :D
I wonder if I can convert pension contributions to after-tax?

George the original one
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Re: Generation-X' Journal

Post by George the original one » Fri Jul 15, 2016 6:35 pm

Generation-X wrote:Curious, how are you dealing with healthcare in retirement? Will you be allowed to keep the healthcare after the "gap years"?
I chose Obamacare tax subsidy. Managing the income via IRA conversions for our family of two so maximum tax subsidy is possible until pension is available, which means the silver plan is mostly paid for.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Mon Aug 01, 2016 7:12 am

Got a chance to take some time off from work and travel for a while. Simply amazing.

It really wet my appetite for retirement and travel. I would love to do this for a year or more and see the states - no set plans, just let the curiosity guide me.

As much as I enjoy the places that my vehicle is capable of reaching, one of the things I'm finding envious of is an all-night electric A/C on the Prius -

" ... The air conditioner runs off the batteries. The gas engine does come on intermittently to recharge the batteries when the air conditioner has drained them enough. The Prius' gas engine recharges its batteries like a generator recharges an RV's house battery. Only, in a Prius, the gas engine automatically turns itself on and off based upon its batteries' state of charge. Using the air conditioner to sleep, the gas engine comes on for about 5 minutes every 25 minutes or so ... using about 1/2 gal of gas for a night's sleep. "

Could have used that in that 120 degree heat.

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Last edited by Generation-X on Wed Aug 10, 2016 9:03 pm, edited 1 time in total.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Sat Aug 06, 2016 2:45 am

August 2016 Update

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Been focusing on maxing out retirement accounts this year and have made decent progress.

I also participate in voluntary savings program at work and have been able to amass reasonable savings. I particularly like this program because as wage increases, it's equally reflected in the accrued savings.

Looking at the chart, I should be able to clear $500,000 in two years or less (probably sooner). Or I can wait 4 years for a small pension of $2400/mo (net), healthcare and some retirement savings.

Current thought is to save like crazy in the next 4 years while minimizing tax as much as possible through tax deferred plans. However, once pension is achieved, I will be looking at switching to Roth401k retirement plan.

Pension is convenient because as long as it's solvent, there is almost no need to take risks in the market for cash flow. If I decide to keep the pension, then focus will be toward tax free savings vehicle such as Roth401K then converting this to Roth IRA upon retirement.

Since there is well over decade of basis established in Roth IRA, this will help negate 59 1/2 withdrawal requirement should I need access to Roth IRA for any reason.

Ultimately, deciding on pension or no pension and at what age to retire will be the key in successful transition.

It's a tough call.

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