Help me Plan my Financial Future! [Long] (1 Viewer)

[Jason L.]

I wanted to get some feedback from the HTF regarding a new phase of my financial life.

I am 33 3/4 years old. I have never been married and have no kids. Pretty much zero responsibility – not even so much as a Chia Pet! I have been overseas working in Kuwait and Afghanistan for over 2 years. The money I have made here has forced me to re-think my plans as I have gone from Spender/Saver to Major Saver. I need help with short-term and long-term strategy.

The Breakdown

I currently have [$60,439] amount sitting in an Orange ING Savings account earning 2.60 percent that I haven’t figured out where to put.

I wanted to create an “emergency savings” stash – like every financial planner recommends, and I wanted to maximize the earnings. I have started putting $1000 each month into a 5-year CD with Orange ING. Eventually I would have $60,000 saved [5 Years x 12 months x $1000] saved and hopefully it would never be touched. Since a new CD would be renewed each month, the interest rate would rise and fall and match whatever the current rate is. Currently my CDs are earning 4.00% – 4.25% and the total amount so far is $8,000 [8 months x $1000]

I currently have [$5,342] amount earning nothing which will stay that way for the time being.

Total [$73,398]

I have a contract that ends in late August of this year. If I complete the contract [and I don’t see why I wouldn’t] that total would probably be at least $125,000. I live the life of a monk out here, and there is only so much you can take. If I can stay an additional 6 months, I might be able to save close to 200k.

I have a Secret Clearance, which is the only thing that separates me from being another mediocre, unemployed, System Administrator back in the US. I have no idea how long I will do this type of work. I could move on to other overseas positions, get a position stateside, or do something entirely different. I will definitely be taking A LOT of time off [perhaps more than a year] once I leave here.

I have a condominium back home that is fully paid off, and I could get $105,000 for it. That amount is what I would get for it, not what I would be asking.

No car payment. Car sits in garage collecting dust and is worth maybe 2-3k.

No other debts.

The only mandatory expenses I have right now are property taxes [$2,100 for 2004] and HOA dues for the condo [$219/month or $2628/year] – for a total of $5,728 for 2004. These have already been paid off, and I won’t have to pay them again until the end of 2005.

I have somewhere between 15-16k in an IRA. I have already made the maximum contribution for 2004 [$3,000] and 2005 [$4000]. My current employer has no retirement savings plan. I have not paid my taxes yet, but I should owe roughly $1,200.

I have a degree in Math/Economics. I have subscribed to BusinessWeek magazine since I was 15. I worked on a stock trading desk and in the back office for two discount brokerage firms many years ago. All this means that I am not afraid of making my own decisions [although I am very rusty as in the past I concentrated on paying off my mortgage as quickly as possible]. I have no fears about picking individual stocks, if I choose to. It also means I have a MAJOR distrust of any financial consultants, advisers, retail stockbrokers, etc. I believe that they are always much more interested in making money off of you, than making money for you.

I am quite frugal [must be my ¼ German blood]. I don’t spend money on $9 Chocolate Martinis, 70$/month cell phone bills, 6$ Frappuchino Lattes, or $400/month car leases. I have no vices other than free Internet Porn. I can’t see myself blowing my money away. I like to put my money in things that appreciate than things that depreciate.

While am overseas, I don’t have the ability to make complicated transactions – ex. sell my condo.

Short Term Thoughts:

1.I have only had the Orange ING account since August. I have been adding to it every two weeks. While it is a good short term place to park my cash, I am at the point where I am looking for better than 2.60%. I was thinking of putting it in some sort of Vanguard Index Fund – possibly their S&P 500 fund or combination of other Index Funds.

I have heard people give rave reviews to the book “The Coffeehouse Investor”. While I haven’t read it, I generally subscribe to their way of thinking – which is to invest in Index funds over a range of stock and bond funds with low fees because almost all market gurus cannot beat this performance over the long term. Don’t worry about beating the market and take time to enjoy life.

2.I’m not sure on whether to get rid of my “CD Ladder Theory” already. First, it will take another 4 1/3 years to fully fund this. It is also somewhat burdensome having to go through all this maneuvering. 4.00% – 4.25% isn’t that great. I’m sure there are some municipal bond funds that do better than this. I think there are some stocks that have dividend yields around this amount. Since I am very frugal, I’m not sure if I see myself needing a separate “emergency cash” fund. If I were to put this in some Vanguard fund(s), I could always take out cash if I needed it, right?

Long Term Thoughts:

1.I am not a big fan of working. I try to do as little of it as possible. I want to put in my 40 hours and take off. I have no desire to be a manger or be responsible for anything. I generally feel that most Americans lead very unhappy lives in their miserable little jobs they hate while getting a sorry-ass 2 weeks a year in vacation where they are stressed out trying to cram in as much stuff to make up for this sorry amount. I could go on about this, but see either Gary Dee, Patrick Swayse’s rant in Point Blank, American Beauty, or Fight Club.

So that is why I am overseas. To get a little taste of adventure and save big bucks so I am not indebted to “THE MAN” and do whatever it is I want to do.

I feel like I have been given a Golden Opportunity to do something with this money so I can set myself up long-term and let my money work for me while I continue my Peter Pan-like existence - To avoid being another working schmuck.

I don’t want to open my own business because of the commitment involved and the fact that I have seen so many businesses go bankrupt.

The only investment vehicle [besides stocks, etc.] I see worthwhile is rental property because of its tremendous leverage. Dallas isn’t a sellers market – the demand isn’t that great, houses are cheap, and there is plenty of land to build on. I would have to look for “tight” rental markets like NYC/Boston, DC/Northern Virginia, West Coast, etc. There are certain areas where you could rent out a doghouse and people will rent it because they have no choice. I would need to hire a property manager because I don’t plan on doing any work myself. There are some inherent risks to rental property, however:

a)It is not a liquid investment.
b)The housing bubble could collapse – although I wouldn’t be doing this for several years from now.
c)House ownership is at an all time high.
d)Trouble renting the place outbad tenants

 

[Colton]

" have no vices other than free Internet Porn." LOL! You're honest.

That's alot of money ... do you have a beneficiary?

- Colton

 

[Philip Hamm]

Here's my advice. Don't take your own advice or the advice of people on an internet chat board.

Get a good recommendation, hire a professional financial advisor and take their advice.

 

[Holadem]

As someone who has to be a "working schmuck" due to the particular circumstances of my life, I would say be grateful for your freedom, do your thing, but a little humility wouldn't hurt. Life has a way of throwing you curve balls when you least expect them.

--
H

 

[Joe Szott]

Financial Advisor. I didn't even read your whole thread, that's too involved to be answered by a message forum about home theaters.

There are other financial threads to look into in this forum search for them. Beyond that, you really just need to get the help of a professional. It will be worth the charge to put your money to work int he right way for you.

 

[Colton]

Guys, take the time to read his post. He doesn't trust financial advisors in a BIG WAY:

"I have a MAJOR distrust of any financial consultants, advisers, retail stockbrokers, etc. I believe that they are always much more interested in making money off of you, than making money for you."

- Colton

 

[AjayM]

He may have a distrust for financial advisors, but he needs to find one that he does trust. Dumping money into index funds is all well and good but you still need to diversify a portfolio in order to make your money work best for you (and to survive the swings).

And yes a financial advisor is much more interested in making money off of you than making money for you (that is their job afterall). But a good one will realize he can make a lot more money by making you a lot more money, that whole shear a sheep thing you know.

If you want to find a good one, talk to some people who are successful and find out if they can make any recommendations, get a list together and go talk to them and make an informed decision.

You are at a fairly fortunate spot right now, you obviously can't retire right now, but getting your money to work for you can certainly change the way you approach your "working" life from here on out.

 

[StephenK]

Financial advisors, are first and foremost, salespeople, who's first goal is maximizing profits for their firm. That doesn't mean they don't give you sound advice, most do, but never assume they are working for you. BTW, in case it matters, I've been working in financial services for 18 years and I'm currently upper mgmt for a brokerage.

However, it is worthwhile to speak to a few to find out various options/plans/strategies that you may not have considered.

I am NOT a broker/analyst/or CFA, so this is purely my personal opinion. I would rethink the CD ladder. Remember, by investing in a 5 yr CD, while you may think you're protecting yourself against rate changes by keeping a rolling maturity going, remember you are always 5 YEARS behind the rate curve. I might consider shortening the tenor to 1 to 2 year maturities. Also, broad based index funds, (with low fees) are probably good safe bets.

Good luck.

 

[Micah Cohen]

Hey, I read the whole post, as I too am this age and hate like hell this whole "work" thing. Whoever thunk it up should be kilt.

Here's where you get smart in your post:


Let me just say this: because of buying inexpensive (not cheap, not slum) rental property, and taking the time and care to place good renters in them, I have a safety net that is about to allow me to "retire" from this "work" thing. If I had known four years ago what I know now about buying rental properties, I'd have starved and saved and bought 80 more.

- Do not be afraid of buying rental property.
- Buy property in your neighborhood, or near your neighborhood.
- Be patient and find the deal, which will be apparent when you are patient and watch the market closely for two weeks.
- Use the services of a trusted realtor, both to keep tabs on the market and do your paperwork, and to do credit checks and field calls from potential renters.
- Do not be afraid of being your own manager. Tenant calls, says the toilet is broken, you call a plumber. Roof leaks, you call a roofer. Need to update electric, call an electrican. Ask around, find a stable of trusted experts, and you will never be caught up short, and you will save the 10% you'd pay some slacker to do all this stuff anyway.
- Be the kind of landlord you always wanted to rent from, and you will have good tenants who take care of your property and pay them off for you.

Real Estate is the key. All the other things, stocks, bonds, CDs, whatever, are great. But real estate is the key to the 'Merican Dream. Start now. (I mean, get back safe and sound, and start then.) I'm happy to share my experience with you.

Soon, I plan to be on a beach somewhere. "Looking good, Louis!"

MC

 

[Mort Corey]

I agree with adjusting your CD ladder to shorter terms as interest rates appear to be heading higher. At present, in many areas, rental property PE ratios are way out of whack. Purchasing a house for $360K that you can rent for $1.5-2.0K per month is not a good return. Hang on to your cash for a little while....things might get interesting in the not too distant future (or not).

Mort

 

[AjayM]

I'd agree on the "caution" with real estate, lots of people are not saying good things about the future real estate market, everything from doom and gloom of a big bubble burst to something as simple as a stall in the market (with sub inflation level gains). Down here and in many other places real estate picked up where the tech bubble stopped.

Either way, plenty of research and asking the right questions in front of the right people will certainly get you down the right path, and it doesn't matter if the path is real estate, stocks, bonds, stamps, whatever.

Andrew

 

[Eric_L]

I could answer your question, but considering the insult you generally gave me for my chosen profession, I really feel no motivation to share it.

That said, I will sympathize, because I agree that the level of professionalism in my field has been terribly scarce. The good news is that it is getting better. Where a couple years ago it was about only 3 in 10 were any good, today it is closer to 50/50. If only there were such odds among car mechanics!

Funny thing is, most people think little of going to a mechanic without even doing a background check or and interview and often spend thousands on a broken car, yet when it comes time to 'fixing' a portfolio those same people want to peer up their advisors arse with a flashlight then bitch about paying a $50 commission. Those people end up usually with what they deserve – a crappy portfolio slapped together at a discount or online brokerage – looking like a car repaired with Ford, Toyota and GM parts held together with duct tape. The advice received for free is most often worth the price.

Sure, you can get a book and fix your own car, or even post on the internet and ask someone to walk you through it, but you're kidding yourself if you really believe you can do a better job or even comparable job to a qualified and experienced professional. Same goes for your portfolio. Just because you worked in a chop-shop (hell, even Sears had some trouble in the past) does not mean that every mechanic is a hack.

Any good mechanic should be more interested in making money than fixing your car - would you expect them to want to do it for free?? Duh! That does not mean they won't do a good job for you if you pay them fairly then get out of their way.

I too supervise a fair number of people. I am proud of the job they do for their clients and am pleased with their level of professionalism, integrity and generosity. I have seen them spend over an hour with a new young investor helping them get started for a commission that wouldn't even pay for lunch that day. What goes around comes around and they know it. They learned their business ethics from the person who trains them - me. Anyone who would disparage their own employees ethics has not got far to look for the cause imho.

My advice for you (and don’t expect financial advice from a real professional online – SEC prohibits this)
1)Do your homework and find an advisor you can work with – there are websites with information on how to select one.
2)Learn that your investment brilliance is NOT on par with Peter Lynch, Ben Graham or Warren Buffet. Take advice.
3)Make investments, not bets - be it on a stock or the yield curve.
4)$60,000 isn’t that much. $200,000 won’t even get you very far at 34 yrs old. Realize that.
5)Find a job you can enjoy and look forward to doing. The pay will follow.
6)Real estate is not just an investment – it’s a job.
7)Never forget that there is a very strong correlation between reward and risk but not the other way around – and that applies not just to money.
8)Know where you’re going BEFORE you leave.
9)Make decisions based on your comfort with the risk, not the greed of the reward.
10) Determine the average and your chance of hitting it. Then figure out what you can do to beat the average without changing the odds.

Good luck.

 

[Philip Hamm]

Great post Eric_L.

 

[Joe Szott]

So an independant financial advisor works for what firm? There are plenty of honest advisors out there, as a rule of thumb if you worry about them selling you sometihing, go to an non-corporate advisor. You pay them by the hour or a lump sum to asses your situation. It isn't free, but nothing in life is and these people need to eat too.

Just find one you trust when you get back home, there are honest ones out there just use your head and check them out. It's not like you won't have the time to find a good one during your 12+ months off.

 

[Jason L.]

Thanks for all of the replies - except for Eric L, who offered no real advice except to scare people into thinking that everyone MUST NEVER handle their own money and has to have a Financial Scammer, err, Financial Planner.

My current thinking is this:

1. Thanks to Colton's sage advice, I need to draw up a will - and based on current events - a living will.

2. After contacting Vanguard [who holds my IRA money], they told me that with a taxable account I can transfer money to and from my checking account without penalty. Based on this, I am chucking my whole CD ladder, and will be moving my money in this direction since I won't need a separate stash of cash for emergencies.

3. I'm going straight Index funds all the way. I think I will start out this week with 25k in their basic S&P 500 Index fund. Then I will add on to it in different funds. My outlook is long-term so I will have the majority of my funds in a variety of US Equities, plus a smattering of International Equities, Bond Funds, and REITs.

4. Do some reading on rental property and decide if I want to go that route in the future.

P.S. ING Direct just bumped up their rates to %2.80

 

[Joe Szott]

Yeah for Jason!

 

[Philip Hamm]

I would tell you why that's not a good idea, but since the information came from my financial advisor I'm sure you would discard it.... :p) And how about insurance? Got that covered? Not overcovered are you? You'd hate to pay for insurance you don't need, right.

 

[Drew Bethel]

Insurance for what? Life, disability, medical, etc?

 

[Philip Hamm]

All of the above.

 

[Jason L.]

One dilemma I have is what to do with Dividends and Capital Gains on a taxable mutual fund.

If I elect to reinvest both of these, that means I will have many different small purchases of the particular fund over time, which is great - except when it becomes time to sell.

Then it will be a major pain in the ass to figure out what my capital gains will be trying to match up all these small purchases over the years.

I can't even begin to think what will be involved when it is time to cash out my taxable account and go over 40 years worth of purchases! [shudder]

I am thinking about doing one of the following:

1. Sending Dividends and Capital Gains to my Bank Account, and then purchasing additional fund shares in "round lots" at certain times when I have sufficient funds to invest.

2. Sending Dividends and Capital Gains for all of my funds to a "central fund" which will house all of these small transactions. This way, I only have one problem fund from a paperwork perspective.

Am I making too much of this problem? Is this less difficult than I make it out to be? Are there computer programs that handle this for you?

Ideally, I would like to reinvest Dividends and Capital Gains, but I worry about the hassles I would face trying to figure out my capital gains when it is time to sell.