February Update

Dear readers,

I apologize for not having written in a while. I wanted to give everyone an update on where I am financially and what my current plans are.

As for the nest egg, I currently have $185,000 in cash after making my 2009 and 2010 nondeductible IRA contributions to my traditional IRA. I then converted my traditional IRA into a Roth IRA (yay for new law!). As a result, I have $105,000 in my retirement accounts (401(k) and Roth IRA).

I have not invested any of my non-retirement accounts — I’m waiting for a market correction after which I will slowly start investing so as to not catch a falling knife or buy into an overpriced market. It sounds good in theory, but we’ll see how it actually plays out. I did invest $5,000 of retirement money into UUP, which is a rather expensive ETF (0.75% expense ratio) that tracks the US dollar versus other foreign currencies. Due to the turmoil in Europe, this investment has done quite well for me in the last three months, going up 5%. I will probably sell this one soon.

I’m also trying to figure out a good asset allocation, while being tax-efficient. I’d like to invest 75% in stocks and 25% in bonds. To minimize taxes, most people suggest investing in bonds in tax-deferred accounts. However, I plan on retiring early and do not want my non-tax deferred accounts to get clobbered in the event of a stock market downturn. So I want to have a separate allocation of bonds for my non-retirement funds. I suppose I could invest 25% in a municipal bond fund, but my gut tells me states like CA will not be able to meet their debt obligations going forward. Others (like Jacob from ERE) suggest investing in dividend-paying stocks so a downturn does not hurt retirement cash flow as much.

In terms of savings, here is a summary of my expenses in 2009. I think I’m doing a good job. I’ve reset expectations regarding material goods, eating out, etc., which are reflected in the last few months of spending.

[IMAGE MISSING]

So that’s where I am on money. Work has been okay lately. I’ve been avoiding work more than anything else. I have more of a hakuna matata attitude these days. If I last five years and can save up my entire early retirement fund, then great. If I have to work like a madman to get to that point, then I cannot continue to sacrifice my current well-being for some future goal that may not materialize. If I get fired for not being super-motivated, then I don’t care either. Give me my three-month severance — I’ll go take a two month vacation in South America.

I have been getting somewhat concerned about a systemic failure of our financial system. Government spending is out of control. There isn’t enough money to pay off the government debt so spending our way out of this mess is not going to work. The government will have to print more money which will cause inflation. If a big bank fails, FDIC does not have enough money to pay people back. Even a big bank could not pay everyone their deposits right now because of the way banks are setup. It’s a fractional lending system, so a bank only has to hold on to ten cents of a dollar in deposits and can lend/invest the rest. If the 90% is loaned to a risky person or invested in a bad asset (e.g., junky mortgages), then that money is gone forever. Plus, the psychological affect of another big bank crisis — after TARP — will likely cause havoc in the markets and set new lows.

I’m all about limiting risk — I’m a lawyer right? The risk of a systemic meltdown is there…maybe 5% likelihood. What do I do to limit my risk in that situation? That’s what I’ve been thinking about. Food, fuel, gold, guns. Gosh, I’m starting to sound like a total whackjob. I’ve s-l-o-w-l-y started buying extra canned goods and should start buying water. I might stash this in a storage locker that I’ll need anyways in a few months. I dunno about fuel — maybe some matches and lighters to start? Gold…I dunno a few months ago I thought this was a huge asset bubble. It’s now $1,000ish/oz. Do I buy coins (which have a big premium) or bars and how much? Guns…before a few months ago, I had never fired one before. Now I’ve been to the range and feel slightly more comfortable with them, although not entirely. I will probably go to the range a little more often. I don’t feel comfortable owning one because I keep having these weird daydreams where I end up shooting myself by accident.

Sorry this post took a weird turn at the end. This is where I’m at in February 2010.

4 thoughts on “February Update

  1. I am a 36 year old doctor, also working toward early retirement. I started cuttting down my expenses last year and now I am down to $1500 per month. In 2009 I spent $23,900 which I hope to get down to $20,000 this year. My plan is to either quit my job next year or switch to part time, I have not decided which. So far my mortgage is paid off and my net worth is around $675,000. Please check out my budgets posted on my blog, gettingputtogether.word press.com
    I always find it interesting to compare my spending categories to others.

    • Wow! Those are impressive numbers, P.T. Sounds like you have a pretty safe withdrawal rate. I wish I had a paid off mortgage, but where I live, houses are still too expensive to even buy! Will check out your blog.

  2. Actually, I don’t think it’s all that nutty to stock up on a bit of extra water. Lots of things could happen to the local water supply or plumbing that have nothing to do with the economy, armageddon, etc.:) Water is so key to everything we do. I also keep an emergency cash fund at home – I’ve already needed it once when I didn’t have one, so I made sure to set one up right away.

    • Thanks for your comment. My building actually shut down the water for repairs last week. I generally drink tap, so I wished I had actually stockpiled some water!

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