Retire by 35

Just an update on a few recent actions I have performed:

• Contacted the HOA and found a way to billpay the HOA fees. Set up automatic online payments to pay the fees. Now everything related to the condo expenses (mortgage, prepay, HOA, electricity, internet) are automated except the property tax payment that I distribute once a year. One less worry during my TDY.
• Set up automatic contributions for my Roth IRA in 2010. I will contribute $1,000 per month from April to August 2010 to max it out.
• Revised the Goals for 2010 to add on one additional goal: Construct a Prototype of a product idea I have.

It’s that time of the year to tally the results and see if I attained the goals I set out in the beginning of CY 2009.

• Buy real estate property in 2009 or start a business. Look at two to three properties per week and brainstorm two to three business ideas per week. Property can be a single family house, condo, or townhouse. Check – Bought a condo in April 2009.
• Save $50,000 in 2009. This includes stocks, mutual funds, 401k, cash, real estate, checking, savings. Check – Calculated the difference between my net worth from 1/1/2009 to 12/31/2009 and just barely squeaked past this goal. Increased net worth by $50,759.
• Get laser eye surgery in 2009. Check – Got the procedure done in February 2009.
• Complete CPA certification in 2009. Check – Got the certification in June 2009.
• Complete will for parents in 2009. After discussion with parents, replaced with adding name onto deeds. Check – got documentation done in September 2009.
• Open up a RenMiBi account (chinese currency) in 2009. Fail – Did not open an account, but did get around $6k in RMB stashed away.

Overall I think I did pretty good in attaining the goals for 2009. There was only one that I failed to complete but at least it was ameliorated by the hoarding of RMB.

I was a non-believer before but am definitely a believer in the power of setting Specific, Measurable, Attainable, Relevant, Time-Bound Goals now. Seriously, it is “if you write it, it will get done.” Here’s hoping that the Goals for 2010 will have as high a success rate as 2009!

Happy New 2010 Year!

• $20 – Ching Xen Guan (treated my mom)
• $4 – McDonald’s (2x sausage egg mcmuffins)
• $12 – The Hat (pastrami dip & gravy fries)
• $50 – Webcam (for Bae to talk on Skype)
• $6 – L&L Hawaiian BBQ
• $30 – KTV @ Energy
• $16 – JJ Cafe and Bakery

Total: $138

Recently I have been fascinated by the asset allocation method of the Permanent Portfolio. This portfolio was created by Harry Browne back in the 1970s and truthfully the results of it has been amazing while the simplicity of it is dumbfounding. The basic premise of the Permanent Portfolio is to have various asset classes that perform well under all economic circumstances. There are only four economic situations that the United States is in one time or another: prosperity, inflation, deflation/depression, and recession. And for each of these situations, there is an asset class that excels under it, respectively: stocks, gold, long-term treasury bonds, and short-term bills/cash. The excelling asset class has almost always increased many times over compared to the other asset classes that might be falling. Thus, if you have all four, you encompass the entire market while also making a positive return.

But you might be wondering why do we need these four asset classes that perform differently under different economic circumstances. The explanation is simple: We don’t know what is going to happen in the future. The talking-heads on television don’t know what is going to happen in the future. Everyday we hear conflicting stories about impending deflation, runaway inflation, or struggling green shoots. The truth of it is, we just don’t know. We don’t know what is going to happen 1, 5 or 10 years from now. No one can accurately predict tomorrow and hindsight is 20/20. So the best strategy is to plan for all economic circumstances as if they might come to roost. So we dab 25% into stocks in case of prosperity. We throw another 25% into gold to hedge against runaway inflation. We allocate 25% into long-term treasury bonds in the situation of impending deflation. And if we have the transitionary state of recession, we will have 25% in cash/short-term bills to keep us worry-free at night.

At first glance, this might seem crazy. I sure thought so. The Permanent Portfolio advocates putting 25% of your investments into each of the four asset classes: stocks, gold, long-term treasury bonds, and short-term bills/cash. Wha??? 25% of your investment into the commodity Gold??!! Yea, that’s how I reacted too. But it is important to reflect that the strength in this portfolio allocation method is the unity of the four asset classes. When one falls, another will inevitably rise, offsetting the difference while also exceeding it into the positive return territory. You cannot think of each asset class individually, rather you need to think of it as one entire package that works together. Take out one, and we are leaving ourselves vulnerable to that corresponding economic condition.

In addition, a luring aspect of the Permanent Portfolio is the fact that it was created a long time ago, it is not some theory that was backtested and invented a year ago. For the last thirty or so years that it has been in existence, the results are astounding. The annualized returns have been around the 9.5% range with very minimal volatility (the greatest drop was 6% back in 1981). So with this asset allocation you can get pretty good returns while not have gut-wrenching rollercoaster rides.

After doing numerous research about this on the boglehead forums, listening to Harry Browne’s radio recordings, and reading about it in various informative websites, I believe this allocation method is sound. I just makes sense. I’ve tried counter-arguments but cannot come up with a scenario in which this doesn’t work. If you really think about it, if anything really bad happens to the market, is the typical stock/bond allocation method going to cut it? No I don’t think so — October 2008 sure taught us that lesson very well. So if we cover all our bases and rebalance every once in a while, this portfolio will help keep us sane. Currently I have been reorganizing my investments to correspond to the Permanent Portfolio. Unfortunately I cannot buy real gold and only the ETF GLD. Also, I am buying the Vanguard Long-Term Treasury fund for the long-term bond portion. I will give updates on how this is going on a yearly basis. And if you want more information, check out the website CrawlingRoad.

These are the finalized goals for 2010 – fresh out of the proverbial oven:

Money/Savings

• Save $60,000 in 2010. This includes stocks, mutual funds, 401k, cash, foreign currencies, real estate, checking, saving, etc… Clarification: This includes both increasing assets and decreasing liabilities because either way it ups the net worth. Note: This is also $10k greater than my goal in 2009 and I think I can accomplish it with the TDY overtime.
• Max out the retirement accounts: $5,000 for Roth IRA and $16,500 for 401(k). Note: Roth IRA will be the best thing invented since sliced bread once the tax hikes begin.
• Exchange $5,000 USD into one of the BRIC currencies. Note: BRIC should continue to appreciate against the dollar when inflation fully hits.
• Continue to save money from June 2009 – December 2010 and use it to put another 20% down on a real estate property before December 2011. Note: This pushes the previous deadline to buy the real estate property from June to December because I want to give myself some more leeway time in choosing the “right”, reasonable, and profitable property.

Work

• Perform a TDY in a place I have never gone before. Note: This will be completed by July 2010 because Kuwait is definitely a place I have never gone before. Very excited!!
• Apply for a higher promotion position after my work anniversary in September 2010 or apply for another TDY position after I complete my TDY in July 2010. Note: I should either minimize expenses/fight lifestyle inflation or work on the other side of the equation: increasing income.
• Join my company’s Guest Instructor Program. Note: I will do this as soon as the announcements to apply comes out for 2010.
• Transfer to my location of choice in the company. Note: I will put in my request to transfer in June 2010, a month before I am returning from Kuwait to California.

Personal

• Take and pass the Real Estate Agent exam. Note: I will bring various pdfs and start reading about this when I go on TDY. There is nothing else really to do there besides work work and more work, so I might as well bring some reading material. I want to take the test in October 2010 so I can use the license to buy the real estate property for Goal #2 and pocket part of the commission.
• [ETA on 1/5/2010] Construct a Prototype of a product idea I have. Note: I have had this product idea for the last year or so but never acted upon it. I think it is time that I try to create a prototype of the product. I will get a lot of help in the creation of it through services such as eLance. With the globalized marketforce that we have now, I can get an engineer in India create a draft of it and then send the schematics to China to build a prototype and ship to all the way to my California door. It’s amazing how a laptop can harness the entire division of an R&D enterprise.

Yesterday I got the mail for my parents and saw their monthly Time Warner internet bill. Intrigued, I pulled open the envelope and was shocked to learn that they were paying $48.99 per month for cable internet. That was only internet. No phone or cable television. Right away, I found Time Warner’s customer service number and called them up. I knew my parents were being overcharged and so as politely as I could, I asked if it was possible to downgrade the plan to a more basic model (and thus lower the monthly bill) or if there was any way for them to keep the service but cut the cost. I told them that we were a loyal long time Time Warner customer and would like to stay with Time Warner if possible. I brought up the fact that Verizon was also offering service in our area and would be cheaper (though I didn’t mention that it would be slower too). The customer representative also chimed in that they would like us to stay with Time Warner. After a few minutes of searching, she said they would be able to lower our bill to $29.99 per month for 12 months starting now and whether that sounded good. Never to look a gift horse in it’s mouth, I snatched up the deal and said that’s great! I reconfirmed the deal she gave us, said thank you, and hung up the phone. All in all, it took less than ten minutes and in one phone call I was able to save my parents $228 over the period of one year. I need to remember to do this again next year when the deal expires.

Merry Xmas!!

• $3 – Albertsons (bottle of spaghetti sauce)
• $20 – Five packs of Korean Sushi (+100 pieces of sushi for Christmas potluck)
• $2.50 – McDonalds (two double cheeseburgers… good snack for IMAX Avatar movie watching :D)
• $5.50 – Ten Ren (large hot honey milk green tea)
• $41 – Target (after Christmas sale – bought lots of nuts and other stuff)
• $35 – Gap (after Christmas sale – bought two thermals and one cargo pants)
• $20 – Godiva (after Christmas sale – for Bae)
• $9 – L&L Hawaiian BBQ (shared w/ Bae)
• $20 – Korean BBQ

Total: $156

Spent a little more this week cause of all the after Christmas shopping. Seriously, December is one of the most financially deadly times of the year. On a side note, I am getting excited about the TDY and travelling to Kuwait. It was a nice surprsie to find out that shipping stuff to APOs is counted as domestic shipments (which cuts down on the shipment price yet boosts the amount of stuff you can ship!).

This post is not about external reactions to poor people, but how people react when they think they are poor.

Case Study #1: A person believes they are poor and as a result they cut frivolous spending. They cut out the fat and only keep the bare necessities until they can save up some money and have more flexibility in the choices they make. They learn the techniques of Dave Ramsey: they pay off high credit card debt, they build up an emergency fund, they start paying things in cash, they keep track of their budget, they buy only used cars, and eventually they have enough capital to buy a house. Because they defined themselves as poor in the beginning, they work towards saving money so that they have a reasonable amount of money and end up no longer feeling poor but rather creating wealth. This person has a long-term view towards life and is able to resist the attraction towards instant gratification.

Case Study #2: A person feels poor because they feel deprived of all of the objects in life they see other people possessing. They believe they are entitled to the big house, fast cars, expensive toys, and luxurious vacations because their friends/neighbors have them. They put all those things under “needs” and cannot separate them from the “wants” in life. The person might make more money than the person in Case Study #1 but lives in a perpetuous cycle of paycheck to paycheck in order to pay the minimums on their credit card debt, lease payments on their new car, and Option ARM mortgages on their underwater 3.5% down FHA mortgage loan. If the person lost their job then they would not have enough to survive for more than a few months; since there is not enough padding in their savings to do so. They live in the here and now and are not concerned with the future. As soon as they exchange one slightly used shiny object for another shiny object, they are attracted to another slightly newer shiny object. There is no talk of retirement because that is too far off in the distant future to even contemplate. Besides, they plan on living off of Social Security (hah!) when the time comes. Because they feel poor in the beginning, they are constantly working to alleviate that feeling through material purchases that put them further in the hole. To this person, spending is essentially a sign of wealth.

In both case studies, the person feels that they are poor but their reactions to their situations are wildly different. One has an attitude of dogged perseverance while the other is one of entitlement. The single most important thing to know is that changing your attitude can change your life. Which attitude will you choose?

Getting around to the end of the calendar year. Gonna be posting up my Goals for 2010 soon, just need to brush it up and finalize them.

• $6 – Work Cafeteria (Monte Cristo + Fries = WAY too fattening, split up the sandwich into two meals eventually)
• $6 – Carl’s Jr w/ coupon (Original $6 dollar burger + fries + drink)
• $7 – Work Cafeteria (Beef Stroganoff + Salad + Biscuit)
• $9 – L&L Hawaiian BBQ
• $7 – Carl’s Jr w/ coupon (Breakfast burrito + Sourdough breakfast sandwich + 2 hashbrowns + coffee)
• $12 – Knott’s Merry Farm Parking (entrance was free – went with County folk)
• $1 – Ikea meatballs
• $10 – Japanese Hair Dye Product (DIY @ home is much cheaper and basically the same results as salon)
• $8 – LA Convention Center Parking (went to Pan-Asian Expo)
• $15 – Natural Flower Extract
• $23 – Aijisan Ramen Bowls (their 40th anniversary so only $5 a bowl)
• $11 – Bath & Body Works (coupon to get $13 free item w/ $10 purchase!)

Total: $115

Yesterday a friend of mine was lamenting about how she couldn’t afford new stuff because she was poor. She isn’t actually poor, she lives comfortably enough but just can’t afford all of the niceties she sees other people buying (eg. 46″ Sony Bravia 1080p 120hz LCD TV). That irked me so I climbed onto my soapbox and told her: “Being able to spend money doesn’t actually mean that you are wealthy. It only means that you are spending money and becoming relatively poorer compared to before. In reality, not spending money and saving/investing it means that you are wealthy because you actually have money.”

I think too many people have been brainwashed into thinking if you act like you are rich and buy all the stuff that rich people buy then you really are rich. Newsflash: If you act like you are rich and buy all the stuff that rich people buy then you really are poor since you will no longer have any money once you buy all the stuff that makes you seem rich. It’s what the South calls “Big hat, no cattle”. It’s why people chide about “Keeping up with the Joneses”.

Yet, consumers will keep on consuming, believing that spending money is a sign of wealth. This is not all that surprising considering most of society’s idols are popstars sporting millionaire dollar bling and flashy sleek Lamborghinis. In a society that worships external possessions over the most irreplaceable resource of all — time – it is no wonder nobody pays to the mundane millionaire next door driving the used Toyota, living in his paid for residence, and retired in his mid-forties. Sometimes I just think our society is backwards in so many ways. Alright, I’ll get off my soapbox now.