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Guest Post by Daydreamer

Raptors, today I have a guest post from Daydreamer.  The two of us have been chatting by email, sharing inspiration and investing strategies.  I asked him to write a short case study for the edification of the group.  He welcomes comments on his position and approach to help refine his thinking.  Thanks for helping raptors!

music selection: “Wildflowers” — Tom Petty


Hi, I’ve always been somewhat against the traditional way of living, as in theres got to be a better way to live my life.  Not that I’m unhappy  but if I could have more freedom and more independence from the norm it would be nice.  This was only multiplied by the fact that both of my parents never got to enjoy their retirement.  I’m 38 yrs old now and have had a few financial setbacks.   Two separate times I had to cash out my IRA which yes its big no no but life happens.  When I was younger I took most of the money that my parents had left me and paid off my house so that I only had a 25k mortgage.  Looking back I should have invested that money as I had a pretty low interest rate.  Fast forward 11 years I am happily married (both with blue collar jobs) and have three sons 15, 14, and a 4 yr old.  We sold the house a year ago which freed up the equity I had in it, and moved to my wife’s home town and paid off our cc debt.  My financial stance as of right now not including my wife’s IRA is as follows.

Company IRA.      =     $32,000
Savings.                =     $50,000
Brokerage act.     =     $59,000

Inherited IRA.       =   $109,000

(Cant touch until 59.5yrs, my day was smart lol)
Manditory Inherited IRA payment
Approximately.    =        $2,500/yr
Mortgage total     =  $136,000
Auto loan.             =     $21,000
Auto loan.             =     $14,000
Cottage expense =       $2,500/yr.
My plan for now is as follows.
Max out my company IRA yearly as long as I can.  As of next week I will up my pre tax contributions and use some of my savings to supplement the amount taken from my check.
The cottage is paid for and I share ownership with my sister.  It is an association of multiple cottages and no income can be made in renting.  We’ve thought about selling it but I would never be able to afford another one so the plan is to keep it.  The manditory IRA payments cover most of the related expenses.
I recently managed my brokerage account to reflect the following.
All holdings to be no more than 5% of my portfolio
Have a trailing stop loss of no more than 20%  but I expect it will be between 10%and 15%
Fixed income of 40% to 70%
Currently have $8,500 on the sidelines.
I have never traded options or bonds and am currently learning how to trade options.  This may take a while until I feel confident enough to execute.  Hopefully as my savings grows smaller I can take cash from my brokerage account and put it into my company IRA to keep it maxed out.
My current goals are in the works.  If things work out in my favor I will be able to retire early.  The age that would happen is still a mystery.  The second would be to be able to be semi retired and work part time or full time with my own woodworking/metalworking business building furniture ect.  Above all if anything fails I want to make sure that after we retire we can live comfortably without worrying about running out of money and at the end of my life I have something to leave our kids like my parents left me.  Any questions, comments or suggestions would be appreciated.  Thanks for reading!

Lizard King’s comments: Priority number one is an emergency fund sufficient to cover six months of expenses.  Never know when you or the SO could become unemployed.  Second priority is to max out company tax advantaged accounts (the money isn’t stranded until retirement age.  You can read up on how to withdraw substantial portions penalty free here.)  I like that you are predetermining your asset allocation with respect to a healthy mix of fixed income.  Markets are volatile and fixed income adds ballast that is very emotionally soothing during crashes.  Don’t rush options trading.  When you are ready, start with just one contract at a time.  Learn what your personal emotional reaction is going to be to getting called and/or assigned.  Adjust accordingly.

Hope the lizards playing the home game have a lot to offer you.


Devour your prey raptors!

{ 7 comments… add one }
  • financialfreedomsloth August 28, 2018, 1:00 pm

    I would make getting rid of the car loans (except if they are lower than 2%) priority one, even before the emergency fund. (I would also take a long and hard look at the necessity of the second car. Bike, electrical bike and motorcycle are all cheaper options than a car.)

    With the car payments gone, the monthly expenses are lower and thus the emergency fund will need to be lower as well 😉

    Then yes, funding the IRA.

    And after that, build up the brokerage account and determine which type of investor you want to be: indexer, stock picker, dividends, options … and start reading up for the direction chosen. All have their pro’s and cons and the biggest deciding factor is more a question of personality than ability (which you can learn from reading a lot and experience …)

  • Daydreamer August 28, 2018, 5:27 pm

    Thanks for the comment FFS and LK. I figured someone would say somthing about the auto loans lol. My auto loan is 2.84% apr. I’ll take a look at getting rid of mine for one that won’t require a payment. Another big plus would be the lower insurance. We do need two cars but at least freeing up one payment would be a good start. Another question is what should I hold our emergency fund in? Just a high yield savings? As far as my company IRA I currently just have the target 2040 fund. I was thinking when the market turns bearish I could transfer over to the 2020 fund to save some losses. Or should I just stick with the 2040 fund? I was reading some mr money mustache posts and he had mentioned using Betterment for investing. I was thinking of holding part of my taxable account with them with a 60/40 stock/bond ratio which is conservative but I think they recommended a 80/20 ratio or even 90/10. Not very precise questions but any feedback would be appreciated. In the meantime I’ll look into eliminating at least one car payment. Thanks for the feedback!

    • The Lizard King August 28, 2018, 7:07 pm

      “High yield” savings is fine right now. Or even just cash. I keep about 10k in checking and only about 50 in a passbook savings just to keep the account open. Interest rates on savings and even time deposits are trivial right now. Not even worth worrying about in my opinion.

      If you are targeting a 2040 retirement, a 2040 fund is fine. You will recover from any market downturns by then. Personally, I look at the fact that consumer debt is higher than it was during the 2008 crash after you consider student, auto, and credit card debt, and I expect the next crash to be bigger as a result. But the 2008 crash was mostly recovered by 2010. If the next one takes 5 years to recover, you will still be fine. For accounts you manage personally, follow a stop loss policy…

  • Daydreamer August 29, 2018, 12:33 am

    Thanks for the info! That makes things easy. Well easier lol.

  • DrMike August 29, 2018, 3:34 am

    Depending on the rates, you could think about paying down the mortgage in addition to the auto loans. Mortgage interest is only deductible to the extent that you actually itemize and exceed the standard deduction, if I recall. I’d leave the 2040 fund alone rather chantry to time the market. Just having a game plan and having paid off the cc debt probably puts you ahead of most.

  • Daydreamer September 4, 2018, 3:41 pm

    Thank you for the feedback Dr. Mike. I will look into our mortgage as well. Like you said I will keep my IRA in the 2040 fund for now. Thanks for the confidence boost !

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