Author Archives: thefinancialjourneyman

About thefinancialjourneyman

Deciding to be free: My Journey toward financial independence

Knoebels Amusement Resort

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If you live in the Northeast and enjoy amusement parks, you should consider visiting Knoebels Amusement Resort.  My wife and I recently had the opportunity to visit this gem of a park located in Elysburg, Pennsylvania for a family outing.  Knoebels Amusement Resort is a wonderful park nestled in the Endless Mountains in Central, Pennsylvania.  Knoebels is located about 13 miles off Interstate-80.  It is about a 3-hour drive from New York City, a 2-hour drive from Philadelphia, a 4.5-hour drive from Washington D.C., and a 6-hour drive from Boston.

Most amusement parks are no longer a frugal option for families to enjoy.  The average cost for a general admission ticket to enter a popular theme park ranges from $80 to well over $100.  Some parks now require reservations to go on rides.  They charge to park, there are extra costs for shows, and the prices for refreshments are astronomically expensive.

Knoebels Amusement Resort is a throwback to the amusement parks of the past.  It is the largest free-admission park in America.  You can buy tickets for the rides that you want to go on or you can buy a pass that allows unlimited access to all the parks rides.  Parking is free.  All the many different shows and exhibits are also free.

Food

There is a picnic grove that is free to use if you decide to bring your own food.  The picnic grove has free electricity.  There are coin operated gas stove tops to rent or you can bring your own grill.  Refrigeration is available if reserved.  Pets are allowed.  Coolers are allowed.  Alcohol is not allowed at the picnic grove because it is a family friendly environment.

There are many different dining options.  The Alamo Restaurant offers entrees, sandwiches, and gluten free options.  The Nickel Plate Bar & Grill serves alcoholic beverages as well as great burgers and hot wings.  There are also many different snack stands around the park if you want to grab something quick to eat while you are on the move.  There is a Nathans Hotdog Stand, Cesari’s Pizza, an ice cream shop, and even a Starbucks.

The cost of food sold at the park is reasonable as well as very tasty.  The New York style pizza at Cesari’s was delicious.  A large cheese pizza only cost $17.

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Rides

Knoebels opened in 1926.  It has been family owned for over 90 years.  Many of the rides at Knoebels have won awards.  Knoebels was voted by The Travel Channel as one of the Top-10 family friendly parks in America.  Knoebels currently has a 4.5-star rating based on over 1,800 reviews on Tripadvisor.com.

There is no shortage of rides at Knoebels.  There are currently more than 60 rides.  New rides are added almost every year.

There are rides for every age group.  There is a carousel from 1913 that is fun for almost everyone.  There is a spooky, yet family friendly Haunted Mansion Dark Ride that was featured on the Discovery Channel.  Knoebels is also famous for its two wooden roller coasters named the Twister and the Phoenix.  The Phoenix wooden roller coaster is consistently ranked by Amusement Today magazine as one of the best wooden roller coasters.  I found the Phoenix to be intense.

My wife and I are not hard-core when it comes to rides.  Our favorite ride is the Scenic Skyway.  The Scenic Skyway is a 14-munute ski-lift that climbs a mountain next to the park.  This ride is great if you are into seeing panoramic mountain views.  It is a nice ride to take some photographs.

Camping

Knoebels has a large campground with a few options.  The campground is ideal for visitors who want to stay and enjoy the park for more than one day.  There are campsites for tents as well as campers.  There are also rustic Cozy Log Cabins as well as the Eagles Roost Units that offer more amenities.   The campground is open from April 15th to November 1st.

Golf

If golf is your game, a quarter of a mile from the park is the Three Pond Golf Course.  The Three Pond Golf Course is an 18 hole, par-71 course, that is broken into two 9-hole courses.  There is a discount to play this course for those who are staying at Knoebels Campground.

Swimming

If you want a break from the great rides, go for a swim to cool down.  There is the gigantic Crystal Pool as well as a kiddie pool if you want to swim or relax poolside.  You can purchase a daily pass or even a pass for the whole season.  Group discounts are also available.

Shopping

If shopping is your passion, there are many different shops to browse around in.  There is the General Store that specializes in old fashion country charm.  The park has a variety of different apparel shops that specialize in Knoebels hats, shirts, and other souvenirs. There are even different media stores to have custom photos and videos made from your visit.

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Attractions

Knoebels has other fun attractions.

Have you ever seen a Bald Eagle?  There are currently two at the Bald Eagle Preserve.  There are daily educational sessions at 2 pm.

Knoebels also has a few museums.  There is a Carousel Museum with 50 carousel figures that date back to 1870.  The mining museum has tools and artifacts from Pennsylvania’s rich mining history.  There is even a Knoebels Museum that provides a detailed history on the park.

If you are looking for a cool place to hang out, enjoy a round miniature golf under the shaded pine trees.

There are also many arcades, a Laser Command game with a full obstacle course, multiple theaters, and other fun activities.

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Conclusion

There is truly something for everyone at Knoebels Amusement Resort.  We had a great day.  The rides were fun and reasonable.  The food was tasty and affordable.  The park was not overly crowed like many of the big theme parks.  It is simply a nice park that provides affordable family fun.  In our group, everyone from the kids, to the parents, to the seniors had a great time at the park.

Have you ever been to Knoebels Amusement Resort?  If you have, please share your experience in the comment section.

The Power of a Dual Income Couple


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Albert Einstein said that compound interest is the 8th wonder of the world.  He who understands it will earn it, and he who doesn’t will pay it.  If compound interest is the 8th wonder of the world, then I feel that the power of a dual income couple is the 9th.  Being in a dual income couple can be a powerful wealth building partnership if managed correctly.

At my first full-time job, I worked with a guy named John.  John trained me when I first started at the company.  He and I became friends and we would often have conversations during lunch hour.

John was more than 20 years older than me.  He and I would talk and he would give me advice about life.  He told me that his wife was a stenographer and they lived off her salary.  They used her salary to pay their mortgage, car payments, buy groceries, and all their other expenses.  He said that they saved all the money he earned from his position.  They invested all his earnings and were planning on retiring in 20 years when they were both age 60.

I was a young man at the time and never heard of living off one salary.  This was just around the time that I was getting interested in personal finance.  It truly did sound like an ingenious plan.

When my wife and I got married, this was the basic strategy that we planned on using.  In my own experience, I have found that being in a two-income household has many financial advantages.  Here are some tips on structuring a plan to get the most out of a dual income household:


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Salaries

Start by analyzing both salaries and identify the higher of the two.  Use the higher of the two salaries for paying all the reoccurring monthly expenses including housing, food, insurance, recreation, miscellaneous expenses, and child care if you have children.  Set a goal of one day being able to use the lower of the two salaries to pay these expenses.  This can be done by focusing on reducing expenses, career growth, and even side jobs.

You might be thinking that living on one salary would be impossible.  It might not be easy, but it is defiantly doable.  Check out the Story about Liz who was featured on budgetsaresexy.com.  Liz provides for a family of five people while also saving to reach early retirement (FIRE).  Liz is also the author of the blog Chiefmomofficer.org.

 


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Debt

Before you start savings and investing, you want to analyze your debt.  If you are part of a dual income couple that has a debt, first work on paying that down.  If need be, take a few years of using the lesser of the two salaries to pay down your debt.  Start by paying off all credit cards, auto loans, and any personal loans that you might have.

Next, pay down your student loans and mortgage.  Once you are left with only student loans and a mortgage, pay them down to debt-to-income ratio (DTI) of under 15%.  After your debt-to-income level (DTI) is at a manageable level of under 15%, the higher of the two earners can work towards reducing the (DTI) even further.

To calculate your Debt-to-Income Ratio, see the formula below:

Debt-to-Income Ratio = Monthly Debt Payments/Monthly Income x 100

Example: $1000 in Monthly Debt Payments/$4000 in Monthly Income x 100 = DTI of 25%

Savings

When you are in the paying down debt stage, you should also contribute to a 401K if there is an employer match.  You want to contribute to get the max amount of what your employer is matching.  To do otherwise would be to refuse compensation.

Now it is time to start saving and investing.  First establish an emergency fund of 3-6 months of expenses in a FDIC insured savings account.  Second, max out both 401K accounts to take advantage of tax deferred savings.  Third, max out both Roth IRA accounts to grow that portion of your savings in a tax-free account.  Forth, use any additional savings to invest in broad market ETFs in a taxable account.

 


Conclusion

No matter if you are newly married or have been in a dual income couple for many years, you too can take advantage of the powerful wealth building capabilities that you have been blessed with.  My wife and I have been following this approach to reach financial independence for almost ten years.  Our savings rate is over 50% because we have learned to live on one salary.

One last note, I ran into my old co-worker John last summer after not seeing him in many years.  I was having breakfast at a local diner one Saturday morning and John was there with his wife.  We had a brief conversation.  He told me that he is retiring next year and moving from Pennsylvania to Texas where his wife has family.  It appears that he truly did follow the simple yet profound approach to reach financial independence that he introduced to me a long time ago.

Please remember to check with a financial professional before you ever buy an investment and to read my Disclaimer Page.

Investing in Your 20s – It’s the Chance of Your Lifetime

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No matter how old you are, it is never too early to start investing. Whether you are in high school, college or just finished school, now is the time to start putting money toward securing your financial future. The good news is that it is easy to start investing no matter how much you have to invest, what your risk tolerance is or what your goals may be.

How Do You Start Investing?

The first step to becoming an investor is to find a broker to trade with. Most brokers allow you to make your own trades online in a matter of seconds. They will also have access to charts, analysis and news to help you make informed trading decisions.

Some brokers also offer training courses that help new investors learn the basics of investing as well as how to use the charts and tools that they offer. The broker that you choose depends partially on how much help that you want or need making investment decisions as well as how much that you have to invest at the moment.

How Much Do You Need to Start Investing?

Some brokers such as Charles Schwab will allow you to start investing with no minimum balance. Therefore, you can start contributing to an index fund with as little as $1 if that is all you had to invest or all that you wanted to put in for now.

Newer brokers such as Betterment or Motif require anywhere from $100 to $300 to get started whereas some mobile investing apps have no limits. If you invest with Fidelity, Vanguard or similar brokers, expect to need at least $1,000 to gain access to their stock or mutual fund offerings.

Why Should I Start Investing Today?

Compound interest is one of the most exciting concepts that you will ever learn. It is also the reason why you need to start putting money into the market today no matter how much or how little you have to get started with.

Let’s say that you bought stock worth $100 at age 30 and earned the historical average return of 11 percent per year. When you were 60, that $100 would be worth $2,289. However, if you put that $100 into the market when you were 20, you would have $6,500 by age 60 assuming an average 11 percent return.

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What Should I Know About Broker Fees and Capital Gains Taxes ?

It is important that you account for taxes and fees whenever you make an investment decision. When you first start investing, you will likely look to buy and hold a stock or index fund for many years. This is because most brokers charge a fee of $5 to $8 for each trade that you make. If you only have $100 in an account, that $8 may represent your return for an entire year.

When it comes to taxes, it is important to note that you only pay tax on the profit that is made on a given investment. Your profit is any gains above your cost basis, which is the price of the security plus any fees paid to buy or sell it. Therefore, if you bought a stock for $10 and paid $5 to buy it, your cost basis is $15. If you sold the stock for $20, you would pay capital gains taxes on $5.

If you are in the 10 percent tax bracket, you pay nothing in federal capital gains taxes. However, you may be required to pay state taxes on all capital gains. If the money is held in a traditional IRA, you don’t pay capital gains taxes while securities are in your account. Instead, you pay ordinary income taxes on any money that you withdraw when the withdrawal takes place.

Should I Open a Roth IRA or 401k Instead of a Traditional?

When you invest in a traditional IRA or 401k, you get a tax deduction in the year that the contribution is made. However, if you choose to open a Roth account, you use after-tax dollars to contribute to your account.

The benefit is that the money in your account grows free from capital gains taxes. Furthermore, it is not subject to income taxes when it is withdrawn because the money was already taxed.

Ideally, a person will invest in both a traditional and Roth IRA or 401k to reduce their tax burden both today and in the future. As a Roth IRA is subject to income limits, it may be best to contribute to a Roth 401k as there are no income limits and contribution limits are higher. A 401k is a retirement account provided by an employer, and those who are self-employed may open one on their own.

If you are serious about securing your financial future, you should start investing as soon as you have a few extra dollars to do so. Those who aren’t sure what their financial goals or timelines are may benefit from speaking with a financial adviser. This person may be able to help you create short and long-term goals as well as different investment strategies to make it easier to meet them.

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Giving Stocks as a Gift

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When I was growing up in the 1980’s, it was common to receive an EE Government Savings Bond for a gift.  My relatives would get them for me for my birthday, when I received a sacrament at church, or for a holiday gift.  At the time, I would have much preferred a video game or almost anything other than a savings Bond.

Looking back, my relative’s choice in gifts had my best interest in mind.  An EE Government Savings Bond was a prudent gift idea at the time.  Video games, toys, or even cloths wear out.  An investment, however, will grow in value.  It will provide the recipient with an even greater gift in the future.

As a Personal Finance Blogger, I have reflected on those EE Bonds that I received and wished that they were shares of individual stocks or a S&P 500 index fund that has a historical rate of return of 10%.  Many of these EE Government Savings Bonds that were purchased for me in the 1980’s had an interest rate of 6%.  Today, however, EE Government Savings Bonds only pay 3.5% if you hold them for 20 years.  I often wondered why more people do not buy shares of stocks or mutual funds as gifts for their young relatives or even other adults?  The best answer to that question is that it was once complicated to set up an investment account for another person.

There is now an easy way to purchase shares of stocks or ETFs as a gift for other people and even children under the age of 18.  The company that made this possible is called StockpileStockpile allows people to go online and purchase a gift card that is redeemable for shares of a publicly traded stock or an ETF.

Physical gift cards are sold in values of $25, $50, and $100.  E-gift face values can be any dollar amount up to $1000.  There are gift cards for shares of Facebook, Google, Nike, Amazon, and many other companies.  My favorite option is that there are gift cards for shares of ETFs from Fidelity, Charles Schwab, and Vanguard.

There are different ways to purchase gift cards from Stockpile.  A physical gift card can be purchased online or off the gift card rack at supermarkets or other retail stores.  There is the option to purchase an e-gift.  There is also an option to purchase stocks or ETFs for yourself.

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Stockpile makes it easy for a minor to be able to own shares of stock or ETF.  If a gift card is purchased for a minor, an adult must be named on the account with them.  Minors can place trade that go to a parent/adult for approval.  The minor simply is named as the beneficiary until they reach the age of 18.

After reviewing Stockpiles website, the fees are fair considering the option of being able to now give the gift of stocks to another person with ease:

For an e-gift of stock: $2.99 for the first stock + $.99 per additional stock + credit/debit card fee

For a physical gift card: $4.95 to $7.95, depending on the face value of the gift card

For yourself: If you pay with cash, trades are only $.99, If you use credit $.99 plus 3%

For those who receive the gift card: Free to redeem, link to a bank account, switching to a different stock when redeemed, or re-gifting

After doing some research, Stockpile has received mostly strong reviews.  Consumer Reports, a source that I trust, stated that merging stocks and gift cards was a good idea and that it can have an impact on Kids.  Reuben Gregg Brewer from Seeking Alpha gave Stockpile a less favorable review because of the fees compared to what brokerage houses now charge.  Those brokerage houses, however, do not offer the ease of being able to simply gift a few shares of a stock or ETF to another adult or minor.

In my opinion, I like that Stockpile makes it easy to give the gift of stocks or ETFs to others.  A close friend of mine is expecting to have his first daughter in the next few weeks.  I purchased a gift card for the Vanguard 500 ETF as a gift for his daughter.  It will not mean anything to their little girl after she is born, but I bet she will be happy when she turns 18 and takes ownership of those shares.

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Early Retirement Portfolio & Plan

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Thank you for reading part-4 in my series on asset allocation.  In my last post, I wrote about our current balanced-growth asset allocation.  That is the asset allocation that we plan on maintaining until we retire in 2028.

In this post, I will be considering the future.  This post is about how I foresee our assets being allocated at the time of retirement.  I use the word foresee because it is what I am anticipating.  As I stated in my previous post, I don’t have a crystal ball.  Nobody can predict the future, but this is what I am optimistically forecasting.

At the time of retirement, I will be age 52 and my wife will be age 60.  At age 60, my wife will draw a Pension equal to 70% of her last annual salary.  The Pension technically has a cost of living adjustment (COLA), but there has not been an adjustment in over 15 years.  Moving forward, we are not going to count on any COLA adjustments.

By 2028, we plan on having about 50 years of annual living expenses in investable assets.  To come up with that amount, I have run our figures on many different financial calculators including AARP, Charles Schwab, and Fidelity that take future projected growth of different asset allocations into account.  The 50 years of living expenses is based on what we currently have saved, the amount we plan on adding to our savings, as well as projected market performance.

The asset allocation that we plan on using at retirement will be 50% invested in stocks and 50% invested in bonds/cash:

S&P 500 Index Fund – 32%

Extended Market Index Fund – 8%

Total International Stock Market Index Fund – 10%

Intermediate Term Bond Fund – 32%

TIPS Fund – 10

Cash – 8%


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At retirement, we are planning on withdrawing only 1.8% per year from our portfolio.  Based on the Vanguard Monte Carlo Nest Egg Calculator, our success rate is projected to be 100%.  We also have a greater than 100% projected success rate on Firecalc.com and the Trinity study.

Between the pension and withdrawing 1.8% from our portfolio, we will have $112K per year to live on.  Just based on simple math, if we are taxed at 25%, we would have $7K per month to live on.  That would be more than double of what we live on now with less expenses.

For the first 10 years of retirement, we plan on withdrawing from our taxable account.  When my wife is age 70, we will be forced to withdraw from her Traditional IRA because of Required Minimum Distributions (RMD).  At that point, we will still be 8 years away from having to withdraw from my Traditional IRA.  We might never have to touch our Roth IRA accounts.  If we do use our Roth IRA accounts, it might just be to withdraw extra money without causing us to go into a higher tax bracket.

We are currently planning on being flexible when it comes to Social Security.  Our goal is to take it when my wife is 70 and I am 62.  We are, however, keeping the option open of taking it early based on retiring during a prolonged market correction. Otherwise, the amount that we will collect will compound 7% annually for every year my wife waits between age 62 and 70.

For some people, this plan might seem too conservative.  For me, being a little on the conservative side is important.  That is because I am retiring at a young age.  I have to plan on being able to fund a retirement of at least 35 years for both my wife and myself.

For me, I don’t see it as being overly conservative.  I see it more as being flexible.  By only planning on a 1.8% withdrawal rate, we have a great amount of flexibility.  If we had to increase it to 2.8%, our success rate only falls to 98% on the Vanguard Monte Carlo Nest Egg Calculator.  If my wife had to work two more additional years, her pension would jump to 80% of her last annual salary.  Also, I will most likely still work part-time because I want continue to take advantage of my catch-up contributions in my retirement accounts.

That is how our future plan looks.  It is over 11 years from now.  I don’t want to get too excited.  Between now and then, we will work hard, save, invest, take care of our health, and enjoy every day.

Also, please check out the following links from some of the top personal finance blogs to learn about the #Drawdown Strategy Chain:

Anchor: Physician On Fire: Our Drawdown Plan in Early Retirement

Link 1: The Retirement Manifesto: Our Retirement Investment Drawdown Strategy

Link 2: OthalaFehu: Retirement Master Plan

Link 3: Plan.Invest.Escape: Drawdown vs. Wealth Preservation in Early Retirement

Link 4: Freedom is Groovy: The Groovy Drawdown Strategy

Link 5: The Green Swan: The Nastiest, Hardest Problem in Finance

Link 6: My Curiosity Lab: Show Me The Money: My Retirement Drawdown Plan

Link 6:    My Curiosity Lab:  Show Me The Money: My Retirement Drawdown Plan

Link 7: Cracking Retirement: Our Drawdown Strategy

 

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Balanced-Growth Portfolio

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Welcome to Part-3 of my series on asset allocation.  In my last post, I wrote about Adding Bonds To Reduce Volatility in the portfolio that my wife and I held for the past ten years.  In this post, I am going to write about our new asset allocation.  This is the allocation that we will hold until we reach early retirement (FIRE).

As a Financial Independence (FI) blogger, I have always been a portfolio nerd.  The Lazy Portfolios made popular by Paul B. Farrell on marketwatch.com and his book The Lazy Person’s Guide to Investing have always been something that I have enjoyed following.  It is interesting to analyze the performance of famous portfolios like the Coffeehouse Portfolio, Yale’s Unconventional Portfolio, the Second Graders Starter Portfolio, as well as others.

The portfolio that I would like to introduce to you is what I call The Sweet Dreams Portfolio.  The portfolio is named after what it provides for us.  It is a portfolio that allows us to sleep well at night in spite of all the scary headlines that can easily cause nightmares from the sensationalized financial and political media.

This portfolio has a balanced-growth asset allocation.  Based on the Vanguard portfolio allocation model, a portfolio made up of 60% stocks and 40% bonds is classified as a balanced portfolio.  Vanguard classifies a portfolio of 70% stocks and 30% bonds as a growth portfolio.  The Sweet Dream’s portfolio is 65% stocks and 35% bonds.  The Sweet Dreams portfolio is made up of the same funds that we used in our previous asset allocation.

The Sweet Dreams Portfolio:

S&P 500 – 38%

Extended Market Index Fund – 11%

Total International Stock Market Fund – 16%

Total Bond Market – 35%


You might be asking, why not just use the total stock market instead of using a S&P 500 and an extended market fund?  The answer to that question is that these are the options that my wife and I have available in our 403B accounts.  A total stock market fund has the same market weighted allocation of a 4:1 ratio and can be used in place of those two funds.

You might also be asking, why don’t I have the names and ticker symbols listed for these funds?  Again, the answer is based on what we have available for investment options.  Our Roth IRA’s and taxable funds are invested with Vanguard.  My 403B has index funds from Fidelity.  My wife’s 403B plan has index funds from Charles Schwab.  This asset allocation can be created with index funds from any of those companies.

In my first two posts in this series, I wrote from a position of experience.  In those two posts, I was able to look back at how my asset allocation performed over long periods of time.  Those posts were also about how I responded during different market conditions.

The Sweet Dreams Portfolio is a brand new asset allocation model for us.  There is no such thing as a crystal ball that I can use to see into the future.  We can only look backwards at how an asset allocation performed during different market conditions.

Over the past 10 years, The Sweet Dreams Portfolio returned an average of 6.34% per year.  The largest one year loss was in 2008 with a -24% loss.  An initial investment of $10K would have grown to nearly $20K if re-balanced annually.

Over the past 20 years, The Sweet Dreams Portfolio returned an average of 6.91%. The worst one year loss over the period of 20 years was still in 2008.  An initial investment of $10K would have grown to more than $38K if re-balanced annually.

At the age of 40, I still have a long investing horizon.  It is not as long as others because of our goal to retire in less than 12 years.  We are comfortable with the 65% invested in equities for growth.  We are also comfortable with the 35% invested in bonds to use as a re-balancing tool during market corrections.  Ultimately, we are comfortable with the thought of having restful nights and sweet dreams as we work toward our next goal on this financial journey.

Please keep an eye out for the 4th and final part of this series.  The final post in this series will be about how we plan on structuring the asset allocation of our retirement portfolio when we reach early retirement (FIRE).  The final post will also include how we plan on funding our retirement based on investment withdrawal rates, pensions, and Social Security.

Please remember to check with a financial professional before you ever buy an investment and to read my Disclaimer page.Shop HeartlandAmerica.com Today!

Bonds to Reduce Volatility

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During the first ten years of my investing career, my asset allocation was solely invested in stocks.  From 1997 until 2007, my portfolio returned 8.5%.  I wrote about that period in my first post of this series 100 Percent Invested in Stocks.  In this post, I will write about how adding bonds to my portfolio reduced volatility during the decade that followed.

By the year 2007, my portfolio had five years of positive returns.  At that time, I was reading a good amount of Jack Bogle’s writings on asset allocation.  He suggested holding (100 – your age) in stocks.

After investing for 10 years, it made sense for me to reduce the volatility of my portfolio.  However, I still was focused on aggressive growth because I had the goal of retiring early.  I felt an asset allocation equal to my age in bonds was too conservative.

Another factor that I had to consider was that I was newly married.  Prior to getting married, my wife and I decided to manage all our finances together.  We sat down and evaluated how we wanted to invest our money after we were married.

At that point, I was 30 years old and my wife was 37.  We decided on adding 25% of our portfolio to bonds.  It was close to equaling (110 – our average age) in stocks.

This is how our new asset allocation looked:

S&P 500 Fund – 43%

Extended Market Index Fund – 13%

Total International Stock Market Index Fund – 19%

Total Bond Market Index Fund – 25%

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My second decade as an investor was equally as volatile as my first decade. In 2007, our portfolio was off to a solid start by returning over 10%.  Then 2008 came.  That was the beginning of the great recession that resulted from the subprime mortgage bubble bursting.  In 2008, our portfolio had a loss of more than -30%.  If I had my original asset allocation of 100% invested in stocks, we would have lost more than -40%.

Just as during the dot.com bubble and the three years of negative returns that followed, we just kept investing and moving forward.  We stuck to our normal schedule of dollar cost averaging.  We also stuck to our plan of semi-annual rebalancing.

Fortunately, the market bottomed out in March of 2009 and one of the greatest bull markets began.  By the middle of 2010, we had recovered all of our losses. From 2009 to 2016, our portfolio averaged over 10.5% annually.

That 10.5% return did not occur without volatility.  During this period, there were peaks and valleys along the way.  There were budget crises, polarizing politics, debt-ceiling debacles, federal government shutdowns, and threats of austerity.

Over the course of those ten years, our portfolio had an average return of 5.24%.  If we were invested in 100% stocks the average return would have only been 5.58%.  By adding 25% in bonds, there was almost zero impact on growth.  The bonds did help to reduce volatility.

If you are not comfortable with having 100% of your portfolio invested in stocks, consider adding some bonds to your allocation.  Bonds are susceptible to interest rate increases, currently have low yields, and do not hold up as well as stocks during periods of inflation. Bonds do, however, reduce volatility when the stock market is in decline.  That is the main reason why they have an important role in our asset allocation.

Please keep an eye out for Part-3 in my series on asset allocation.  In Part-3, I will write about the balanced-growth asset allocation that we will hold until we reach early retirement (FIRE).

Please remember to check with a financial professional before you ever buy an investment and to read my Disclaimer page.

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100 Percent Invested in Stocks

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Purity You Can Taste

Do you think you have the risk tolerance to invest 100% of your portfolio in equities?  I had an asset allocation of 100% invested in equities for over 10 years.  At this stage in my life, However, I no longer have the need or desire to have that asset allocation.  That was how my portfolio was invested when I reached my first milestone of Saving $100,000 by age 30.

This is the first of a 4-post series about my asset allocation.  This series on asset allocation is about my asset allocation at different points in my investing career.  The series is based on where I started, what happened, where I am at now, and were I will be heading based on age and risk tolerance.

My investing career began in 1997.  This was a time Alan Greenspan referred to as a period of irrational exuberance.  The stock market was soaring.  The S&P 500 had an average return of over 15% per year from 1989 to 1999.  If a person invested $100 in the Vanguard 500 Index Fund (VFINX) in 1989, it would have grown to $692 by 1999.

In 1997, I purchased my first mutual fund.  My first fund was the Vanguard 500 index fund (VFINX).  This was the only investment that I owned from 1997 until 2000.  I would purchase at least $500 worth of this funds shares per month.  Over that 3-year period, the Vanguard 500 averaged a return of nearly 20% per year.

In 2000, as the result of my savings and market returns, my portfolio was large enough to add more funds.  To improve my diversification, I wanted to add small caps and international stocks to my asset allocation.  I added the Vanguard Extended Market Index Fund (VEXMX).  By adding the Vanguard Extended Market Index fund to my portfolio, I could replicate the total stock market because I already owned the Vanguard 500 Index Fund.  The third fund that was added was the Vanguard Total International Stock Market Index Fund (VGTSX) for international exposure.

My asset allocation was:

Vanguard 500 Index Fund – 60%

Vanguard Extended Market Index Fund – 15%

Vanguard Total International Index Fund – 25%


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As far as equities are concerned, my new portfolio was diversified.  It contained every major publicly traded U.S. and international stock.  In my mind, I was ready for the new century and another decade of 20% annual returns.

It did not take long for things to change for the worse.  In March of 2000, the dot.com bubble burst.  On September 11, 2001, New York City and Washington D.C. were attacked by terrorists.  By 2003, the U.S. was fighting two wars in Afghanistan and Iraq.  Those unfortunate events drove the U.S. economy into an extended recession.

As the result of those events, the stock market posted losses for three consecutive years.  The average annual  return on my portfolio was a loss of -16%.  In other words, if I invested $100 in January or 2000, it was worth $61 by January of 2003.

How did I handle the prolonged recession and market contraction of the early 2000s?  Honestly, I stayed the course.  I dollar cost averaged the same amount of money into my investments every month.  My goal was to reach financial independence, so I rode out those volatile markets and took advantage of buying equities at a reduced price.  I would, however, feel unnerved when I paid attention to the media.  Fortunately, I was too busy working and going to college to become obsessed with the media.  I honestly do not remember ever feeling overly panicked during this period.

My patience did ultimately pay off.  By sticking with my allocation, I was rewarded handsomely between 2003 and 2007.  Over the course of those next five years, my portfolio had an average return of more than 16% per year.

During my first 10 years as an investor, my portfolio returned slightly more than 8.5% per year.  This asset allocation, however, was extremely volatile.  The best year returned 34% and the worst year had a loss of -20%.

An asset allocation of 100% invested in stocks is not suited for every investor.  It worked for me because I was young and able to dollar cost average when the market was both up and down.  This type of volatility does cause many investors to sell low and buy high.  That is a losing game if you want to reach financial independence.  If you cannot honestly handle a -40% drop in the value your portfolio, then a portfolio made up of 100% stocks might be too aggressive for you.

There is a simple solution if the volatility of a portfolio invested in 100% stocks causes you to feel insecure.  Add a percentage of bonds to your portfolio that matches your risk tolerance.  In my next post, I will write about how adding bonds to my asset allocation reduced the market volatility of the next decade.

Please remember to check with a financial professional before you ever buy an investment and to read my Disclaimer page.

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Become a Nurse

 

It's simple and only we have it!

 

If you want a meaningful career that pays well and offers stability, consider becoming a nurse.  No matter if you are a traditional student or an adult learner who is planning on going back to college, becoming a nurse is an excellent career to consider.  Nursing is a growing field.  One great benefit of this field is that it allows you to earn while you learn.

To become a Licensed Practical Nurse (LPN), most programs are only 18 months long.  These degrees can be obtained at vocational school or community college.  In most states, after a nursing student finishes the Intro to Nursing or Nursing 101 class, they can sit for their states Certified Nursing Assistant (CNA) License.  This allows a nursing student to work as a CNA while they are still in nursing school.  Working as CNA will allow you to earn a wage that is higher than what other unskilled jobs pay.  It also allows you to gain experience and develop your bedside manner as a care giver.

Once you become a LPN, there are many job opportunities.  Many hospitals don’t hire LPNs anymore. Never the less, there are many job opportunities in home health care, long term care, school districts, and in primary care offices.  The average wage for a LPN is more than $22 per hour.

While you are working as a LPN, it is a smart career move to become a Registered Nurse.  To become a RN, only an Associate’s Degree is required.  This degree can be earned at most community or Junior Colleges. Becoming a RN will give you the opportunity to work in a hospital.  There are a vast amount of different nursing positons including ICU, Med-Surge, ER, and Pediatrics.  The average wage for a RN is almost $32 per hour.

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If you are interested in a Bachelors Degree in Nursing (BSN), most hospitals will provide tuition reimbursement or assistance towards the degree.  Earning a BSN allows a nurse to advance into a specialist or management position.  With a BSN, a nurse can work as a Facility Educator, Case Manager, or become an Administrator. The average salary for those positons range from $72K to well over $100K.

There are also advanced degrees in nursing.  A nurse can go to graduate school for a Masters in Skilled Nursing (MSN) or even a Ph.D. program.  An advanced degree gives a nurse the credentials to teach at a university.  An advanced degree is also required to become a Nurse Anesthetist or a Nurse Practitioner.  Both of those positions have an average annual salary of over $104K.

Another benefit of becoming a nurse is the stability and variety of career options that it offers.  Due to the aging Baby Boomer population, the demand for nurses is more than almost any other profession.  The demand is projected to grow by 16% annually up to 2024.  Also, if you are not interested in working in a hospital setting, you can work for a law office auditing files, the government conducting surveys of facilities, in health care marketing, or in the insurance industry.

It does, however, take a special person to become a nurse.  A person must have compassion for others. There is little room for error, so one must provide excellent care.  Also, you must be reliable because patients are counting on you.  If you feel that you meet those qualifications, consider becoming a nurse.  It is rewarding on many levels.

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London on a Budget

 

 

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In August, my wife and I are traveling to London for our 10th wedding anniversary.  In the past, we have avoided traveling to London because it is one of the most expensive cites in the world.  In October of 2016, as the result of the uncertainty surrounding Brexit, we were able to book a trip to London for an amazing price.  We managed to book our trip for only $2,500.  That price included airfare from New York and 7 nights at a 4-star hotel in Kensington.

The first major part of planning the trip is complete.  Now we have to work on establishing a budget.  We will have to budget for food, guided tours, as well as having money for enjoying the city.

Food:

My wife and I are foodies, so exploring the eclectic flavors that London offers is exciting.  Now we need to create a budget for our meals.  When booking the trip, we selected a hotel that included a daily breakfast.  That would save us about $140 for the week.

For lunch, we are going to budget for $30 per day.  We are just planning for sandwiches or kebabs.  We are satisfied with eating lunch at street vendors.

For dinner, we are going to budget for $40 per evening.  Our dinners will mainly consist of going out for Indian or Chinese food.  We also would like to visit a pub for a traditional British meal.  We don’t drink alcohol, so that will save us money.

We will bring our own snacks from home.  We will pack almonds, jerky, protein bars and other snacks. That will cost about $50.  While in London, we will buy fruit or beverages for our hotel room.  We will budget $50 for the snacks and drinks we buy in London.

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Guided Tours:

The next section of our budget is for guided tours.  We are planning on enjoying two full day guided tours.  A large part of our budget will be spent on these tours.

Our first tour is to Windsor, Stonehenge, and Bath.  My wife is excited to see the English countryside.  This tour will cost a total of $202.

Our second tour is an anniversary gift to my wife.  It is a one day guided tour of Paris.  It includes the Eurostar passes, Eiffel Tower, Louvre Museum, and Seine River Cruise.  This tour will cost $620.  It is pricy, but it is a special occasion.

Pocket Money:

The rest of our vacation will be spent exploring London.  We will visit all of the tourist hot spots.  I want to go to Piccadilly Circus.  My wife wants to see Big Ben.  We will also go on a bus tour of the city.  I have gone on bus tours in other cities and you do get a good feel for a city that way.  We will budget about $400 for roaming around the city.

We don’t tend to buy too many souvenirs when we travel.  We do buy street art when we find something we like.  A painting is a souvenir that lasts forever.  We will budget $300 to be safe.

Total Budget:

Our total budget adds up to about $2100.  That is most likely on the high side.  It is our 10th anniversary, so I am not going to focus too much on the budget.  This trip is just about having fun and celebrating our special occasion.   I am  happy, however, with the thought of enjoying a fun filled week in London for under $5K total.

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