Josué's Journal

Where are you and where are you going?
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Josué
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Josué's Journal

Post by Josué » Thu Aug 25, 2016 6:31 pm

Hi!

I'm a male in my late 20s living in Europe, where I am pursuing a PhD degree. I've had a company job for a couple of years after I graduated with an engineering degree. Choosing to do a PhD was not a good financial decision but it allowed me to have a meaningful and intellectually challenging occupation.

My current FI status is 19.050€ in a savings account that pays 3.75% per year (before tax). I started saving money for ER around mid-2012, and this is the amount I managed to accumulate since then. As any European that's worth his salt, my debt is 0€.

My main goal is to reach 250.000€ in savings asap. I figure that I can live with 10.000€/year in retirement, especially after my partner also reaches the same FI point. I'm starting this journal to track my progress, remain motivated, and improve myself in areas in which I'm not good. I hope I can also contribute to the community somehow.

Taking inspiration from other journals (e.g. akratic's), here are some random facts:
- MBTI: INTP
- FI strengths: a technology degree, speak several languages (I encourage native speakers to correct my English), lived in 3 different countries (so far), enjoy frugality and efficiency
- FI weaknesses: 1 single income stream, little investing knowledge, low salary (at the moment)
- Status: In a relationship, have talked about having 1 kid by 2020

Current problems/open questions:
- I don't know how to invest my money. I've been studying the basics online but I still don't have a clear investment strategy or know how to take the first step. If I had to do it now I would invest mostly in dividend paying stocks because of regular income through the payment of the dividends. I am quite convinced of one thing: I don't want to invest in real estate.
- Should I stay in academia or leave to industry after I graduate?
- What will I do after I reach FI and don't need to work for money anymore? I want to reach FI in order to free myself from the need to work but I don't really know what I want to do. Right now I think that I will stick to whatever I am doing at that moment until I get bored or too stressed out with the job. I would like to find meaning in my life outside my job or my career (some hobby or occupation that I enjoy).

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Gilberto de Piento
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Re: Josué's Journal

Post by Gilberto de Piento » Fri Aug 26, 2016 8:05 am

Welcome!
I don't know how to invest my money.
Keep reading. See the book list here for books: http://earlyretirementextreme.com/wiki/ ... #Investing. I also like Common Sense on Mutual Funds by John Bogle which is not on the list.

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Josué
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Re: Josué's Journal

Post by Josué » Fri Aug 26, 2016 10:58 am

Hi Gilberto, thanks for the reference, I actually had that book already in my amazon wish list but now I know I should read it :)

vraxxos
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Re: Josué's Journal

Post by vraxxos » Fri Aug 26, 2016 6:43 pm

@Gilberto de Piento

I am not criticising you, but I wouldn't even start there. It's too long and too US centric.

Try this book instead, says the same thing, but in less pages - https://nebula.wsimg.com/a29db28416c040 ... oworigin=1

If that is too long for you, then I can distil it even further.
  • Invest regular and often (because market timing is bad)
  • Buy the index (because you are highly unlikely to outperform)
Literally, there is nothing more to it than that.

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Josué
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Re: Josué's Journal

Post by Josué » Fri Aug 26, 2016 6:59 pm

Thanks vraxxos.

Possibly I'm wrong, but my feeling is that index funds are not a good choice for ERE because, since they don't pay dividends (I think. Is this correct?) the 4% withdrawal will have to come from selling my participation in the fund no? Well now that I think of it maybe this is not a problem and it's just me who has the preference for collecting money every quarter in the form of interest.

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singvestor
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Re: Josué's Journal

Post by singvestor » Fri Aug 26, 2016 10:43 pm

Quite a few index funds pay dividends, but you have to keep taxation into account - are dividends taxed in your home country? How about capital gains?

And where do you manage to get a savings account that pays 3.75% pa? That is extremely high. Is it in Euros?

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Josué
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Re: Josué's Journal

Post by Josué » Sat Aug 27, 2016 12:57 pm

I need to check that. How is it in the US? Both are taxed?

My savings account is in Euros, yes. It's an account that I opened with a bank back in 2012, which they advertised as a 10-year savings plan. The interest rate will go up by 0.25% every year (up to a max of 4.5%) as long as I don't move money out of the account. There's also a limit to how much money I can transfer to that account, which I think is 2k€/month. This type of account does not exist anymore in that bank though.

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Viktor K
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Re: Josué's Journal

Post by Viktor K » Sun Aug 28, 2016 12:28 am

Josué wrote:I need to check that. How is it in the US? Both are taxed?
I think when you sell a stock, you get capital gains tax - either short or long-term depending on how long you held it. Long-term capital gains tax is pretty low. When you receive dividends they are taxed as ordinary income, and what percent you pay in taxes depends on your total income is for the year.

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Forskaren
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Re: Josué's Journal

Post by Forskaren » Sun Aug 28, 2016 1:18 am

Welcome, I am looking forward to reading your journal and see how it is going with your savings rate.

When it comes to taxes, it is not relevant to get information about the conditions in other countries unless you plan to invest there or move to that country. Tax code can be EXTREMELY different between different countries. Some incomes can be tax free up to a certain level. In some places, you have to claim manually taxes back by filling in many forms, in other places that is mainly automatic.

Some countries have a wealth tax that you have to pay on all assets except on certain favored assets. In some countries, it is legal to have special accounts where you pay no direct tax on capital gains or dividends. Instead, you pay a low tax calculated with a formula based on the whole capital and not your actual gains.

Retirements accounts is a whole other story…

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singvestor
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Re: Josué's Journal

Post by singvestor » Sun Aug 28, 2016 9:59 pm

Your savings account is a jackpot, you are incredibly lucky to be in that plan. Up to 4.5% of guaranteed interest is amazing and you should definitely max it out in my opinion. For a 12 month fixed deposit account in Germany it is really hard to find anything above 0.8% right now and you are getting 5 times that. Lucky you!

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singvestor
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Re: Josué's Journal

Post by singvestor » Sun Aug 28, 2016 10:00 pm

PS it very much depends in what country you are in and how the taxes are there.

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Josué
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Re: Josué's Journal

Post by Josué » Sat Sep 17, 2016 5:18 pm

I'm trying to figure out how often I should post here.

I moved to a new country for a few months and I've been splurging on eating out (like 20€/day on average). Since my last post, my savings account increased by 10€ :lol: which is the automatic amount that gets transferred every month from the current account.

I've realized that I fantasize with eating out because I feel that there's no way I could cook something as tasty as what I find outside. I never realized that I hate what I cook but I do. The other thing is that I'm sharing an apartment with the owner and I don't feel very comfortable with using the kitchen yet.

Current savings:
19.060€ (+0.05%) = 7.6% of goal savings

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Josué
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Re: Josué's Journal

Post by Josué » Sun Oct 02, 2016 10:29 am

I received a 1.000€ gift last month that I used to bump my savings!

Current savings:
20.000€ (+5%) = 8% of goal savings

I've been reading "The elements of investing", after vraxxos recommendation, and I like the idea of index investing. I'm wondering if a portfolio that combines index investing and dividend investing (e.g. Dogs of the Dow strategy) would give me good returns (6-7%).

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Josué
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Re: Josué's Journal

Post by Josué » Tue Nov 15, 2016 5:29 pm

I recently got a 50€ amazon gift card that I don't know how to spend. Any suggestions?

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FBeyer
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Re: Josué's Journal

Post by FBeyer » Wed Nov 16, 2016 4:49 am

If you don't NEED something, don't BUY something. That's my suggestion.

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Josué
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Re: Josué's Journal

Post by Josué » Sun Nov 20, 2016 1:32 pm

I don't feel that I need something, but I have to spend that gift card somehow otherwise I think it will expire...

I'm actually thinking about using it to buy Christmas presents for my family LOL

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Josué
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Re: Josué's Journal

Post by Josué » Sun Nov 20, 2016 1:36 pm

Quick update:
- Currently trying to save 3.000€ for vacation next year.

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Josué
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Re: Josué's Journal

Post by Josué » Sat Sep 30, 2017 6:03 am

After almost 1 year I'm back!

Quite a lot happened during this time, e.g.:
  • Defended my PhD thesis
  • Travelled quite a bit
  • Got a new researcher contract that pays much better than my PhD grant
  • Joined a gym
  • Opened an investment account
Savings-wise, it was a pretty bad year, with a lot of uncertainty due to the ending of PhD, new job and vacation.

Current status:
21.600€ (+8%) = 8.64% of goal savings

I have managed to save additional 1.500€ in a joint account with my GF, which we intend to keep increasing (we are starting to jointly save money to buy a house).

Even though I opened an investment account some 3-4 months ago, I still haven't started to invest, partly because only this month I have been able to save a considerable portion of my income. Another reason is that, since my savings account pays 4%, I'm not too motivated to take the risk of investing in stocks right now, as I prefer to max out that account. Also, of course, I'm still learning about investing, currently leaning towards ETF-based index investing. I might start playing a bit with investing from next month (100-200€/month).

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Josué
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Re: Josué's Journal

Post by Josué » Sat Sep 30, 2017 6:12 am

Oh, and I'm also a male in my early 30's now :lol: :D

MDFIRE2024
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Re: Josué's Journal

Post by MDFIRE2024 » Sat Sep 30, 2017 12:31 pm

Josué wrote:
Sat Sep 30, 2017 6:03 am
After almost 1 year I'm back!

Current status:
21.600€ (+8%) = 8.64% of goal savings
Great, that you are back. We haven't had the pleasure :-) So you are also an European. Great progress within a year (+8%)

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Josué
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Re: Josué's Journal

Post by Josué » Sat Sep 30, 2017 6:02 pm

Thanks! What platform do you use to invest? How does it work in Germany tax-wise?

liberty
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Re: Josué's Journal

Post by liberty » Sat Sep 30, 2017 6:38 pm

Why do you want dividend paying stocks/funds? If it's a taxable account you will just lose money from it, since you need to pay tax everytime dividend is paid instead of delaying until you want to spend the money.

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Josué
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Re: Josué's Journal

Post by Josué » Sun Oct 01, 2017 8:07 am

I'm still learning how to invest, I don't have a clear plan yet so I'm not saying I want that, I am only inclined towards it. The reason is that I could get the money without selling the underlying assets, i.e. it would be like a salary. I think this makes running out of money in the long term less likely. Feel free to educate me if you think otherwise :)

liberty
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Re: Josué's Journal

Post by liberty » Sun Oct 01, 2017 10:01 am

I will try to not make it complicated, so let's keep taxes and transaction costs outside for now:

The chance of running out of money is exactly the same whether the funds/stock pay dividends or not :) If a company earns $3 per share, they can choose to pay it out to their shareholders or keep it in the company. If they pay it out, the value of the stock (which is just a share of the company) decreases with $3.

By owning a non-dividend paying stock (or fund), you decide your own "dividend yield" by selling the portion you need every year. If you need 2% yield, sell 2% etc. The only disadvantage with this method is that you might need to pay transaction fee to your broker.

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Josué
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Re: Josué's Journal

Post by Josué » Fri Nov 10, 2017 8:26 pm

Current status:
  • 21.620€ in 4%/y savings account
  • 1.000€ in new broker account ready to be invested
= 9.05% of goal

+ 1.500€ in joint account with GF.

During the past few weeks I've been quite anxious about starting to invest in stocks. I think that 1) it's time I learned how to do it (starting from the basics like how to buy a stock through my broker) and 2) I may be losing money by having everything in the savings account instead of potentially earning more in the stock market.

So I've been trying to come up with a simple investment plan, that I can easily implement and maintain. My currently envisioned portfolio is looking like this:

Image

Where cash/bonds refer to my current cash savings (which I will turn into bonds once my bank stops paying me 4%/y).

The percentages will likely change over time, but I consider using this chart as a starting point to start buying ETFs for each slice.

For Europe I have listed the following, but not yet decided:
  • iShares STOXX Europe 600 UCITS ETF
  • iShares MSCI Europe UCITS ETF (Acc)
  • iShares Core EURO STOXX 50 UCITS ETF (Acc)
Possibly I will decide based on the TER.

For US, I only have:
  • iShares Core S&P 500 UCITS ETF (Acc)
And finally for emerging markets:
  • iShares Core MSCI Emerging Markets IMI UCITS ETF
At some point I was convinced that I wanted to buy iShares Core MSCI World UCITS ETF but currently I think that I'll benefit from having control over my exposure to each region of the world and buy ETFs accordingly.

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