Modigliani-Miller theorem

Financial Independence/Retire Early -- Learn How!
peteyperson
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Post by peteyperson »

Hey Chips,

I had hoped for something more specifically in response to what I had said in my post. Your stories I was already familiar with working in the IT industry, indeed my father was the original PR guy for Windows 1.0 in the UK <g>.

I'm sure others were amused however! :lol:

Petey
therealchips wrote: I trust you are amused.
therealchips
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Location: Henderson, Nevada, USA

Platitudes, bromides and generalities.

Post by therealchips »

Sorry, Petey. There are an ocean and a continent, and two generations between us, and I do not know in what fields your education and ambitions lie. I don't have much to say that would be relevant to your situation. Generalities and platitudes are all I have to offer. Here are some:

Marriage and family responsibility may delay your FIRE ambitions by a decade or two. (That is, unless you marry a rich widow . . . ) Alimony or a ruinous divorce can postpone FIRE indefinitely. As I recall, the marks of the millionaires in Millionaire Next Door included avoiding divorce and having spouses agree on whether and how to achieve wealth. There is an amazing story in that book about a man who told his wife one morning that he was transferring some of his millions, produced during the marriage, into her name alone. She said "Thank you, dear. I appreciate that. I really do." and went back to clipping grocery coupons. Evidently, they did not quarrel about LBYM.

I like your idea of taking time in "seeing America". A time period such as you might allocate to "seeing Europe" would be appropriate. (I was surprised in Amsterdam in talking with a young Dutchman to find he had never been south of the Alps, and near Zurich to find a Hungarian woman who had not been west of Switzerland, as easy as those trips are with Europe's rail system.) There are no currency exchange or passport problems within the US, and most of it speaks English. I think our consumer prices are lower, in large part because our sales taxes are less than VAT, but also because our retail sector is so much more efficient. We Yankees get worked up about some building being "old" or "historic" if it is two or three centuries old; bear with us. In the London Museum, I saw an Asian with so little respect for European antiquities that he rubbed his hand on the Rosetta Stone. (Maybe it was only a replica on display. I'd like to think so.)

I would be glad to hear from anyone that his career offers much more satisfaction than simply preparing him for FIRE. We spend so much time working that, ideally, that effort provides great psychic rewards, too, and some sense of being part of something significant. While working, I had the satisfaction of knowing that I contributed to important tasks, including American defense and ultimately the liberation of Eastern Europe. Of course, my contribution was not critical, but that's not the point.

It's promising that you have learned so much about FIRE while still so young. You must have seen computations showing how important to the retirement stash it is to start the accumulation phase early. (Yeah, and I went broke in my thirties, but still managed to leave the rat race at age 53.) One calculation I saw said that the first decade of retirement savings contributed more to the ultimate retirement stash than the next three decades combined. That depends on investment results, of course.

Here ends the collection of random thoughts.
He who has lived obscurely and quietly has lived well. [Latin: Bene qui latuit, bene vixit.]

Chips
peteyperson
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Posts: 525
Joined: Tue Nov 26, 2002 6:46 am

Re: Platitudes, bromides and generalities.

Post by peteyperson »

Hey Chips,

I'm equally aware that marriage and possible divorce can be an issue. I know Seattle Pioneer from the Fool boards has a sizeable stash which would have been very different perhaps if he had ever married. Other than saving twice as much that you need to cover the possibility of losing 50% and further saving additionally to be able to buy out her share of the home without needing to sell it, I don't see a way to avoid it. Pre-nups aren't valid here and are only used as an advisory to the court system, they are free to ignore it. Owning a business adds an additional layer of risk with marriage, losing partial control of the business to a third party, perhaps an acrimonious one would be still worse. Being 32 now, I don't expect to have to really consider the implications until my mid to late 30s.
It is all very good to say the millionaires in the book avoided divorce but if it happens it happens, I don't know that you can avoid it by design other than avoiding marriage to preclude the possibility altogether.

Having a family like you say may delay things. I don't like the idea of having teenagers about the place nearer 60 than 50, but the way life is playing itself out it looks rather like that. People here, especially women, are delaying the second stage of their lives for one of more money, staying single and playing the field longer and being more independent. So I think we're now breeding a generating of adults who will need to work till 60 or beyond to support a late stage family. Not quite sure what to make of that but I fit into that to some extent being that my focus in on the business and a relationship is distant second right now.

My plans do very much extend to European travel. I start a beginner Spanish language course next month. First language exposure since basic French at school. So many European destinations speak Spanish along with various possible FIRE retirement spots doing so too, it made sense to try it out. I also wouldn't want to move abroad and not speak the language. Several TV shows here cover Brits moving to Spain and none of them spoke the language. A couple took lessons while there but they all moved into Brit expat areas where the Spanish locals spoke English to get their business in the shops like they do in Spanish holiday resorts. I would rather have much more independence than that and also I think property outside of those kinds of areas may be more affordable as they are bought by the locals themselves. If you don't know the language fluently, you don't have that option. So trying out Spanish is in part to make vacations in Europe more enjoyable, be able to go off the beaten track without much problem with communication but also to acclimatize myself to the future options. Greece is another possible destination but the language is very difficult and written language uses a different alphabet.

One idea with the States is to rent a place for three months and use that as a base to see one state really well or simply travel around extensively. I would ideally like two vacations, one a simple by the beach kind and another where you're travelling around seeing the sites over a much broader range of locations. I don't understand people who take the same vacation to the exact same place each year. There's so much to see.

I think FIRE planning for people now in their 30s will be much more difficult. Many here saved for 20 years in highly favourable market conditions which delivered the kind of return to put them over the top. It would not be unfair to say that without such a return many would not be in such a position and would have FIREd significantly later, perhaps 10 years or more later. Between 84 and 95, for instance, saw a 500% increase in returns. Looking ahead a similar 20 year timeline for people like myself and BenSolar, the returns aren't expected to be that good in the future and the cost of living, property, cars, insurance, food etc has risen way above inflation. With higher base costs and far far lower expected returns that received by the last 20 years FIRE saving period, the road is far steeper. We'll need to put away so much more cash to deliver the same result that compounding will matter little, pure cash generation and retention will be what its all about. Given that, planning to fund 2 people from one salary in order to allow for a marriage but be able to not be ruined by a possible divorce would need an extremely high income over 20 years to do it. That is why I went self-employed. Figured I'd lose money and suffer for a few years but have a better chance in the long run.

P.S. I'm familar with Americans and their need to see old buildings. Ur kind of famous for that here, that and being easy to spot on the tube (underground metro) for being very overweight, wearing bright non-matching clothing and talking loudly. Not everyone looks like that but it seems that way - No offense. Americans are so easy to spot!

Petey
therealchips wrote: Sorry, Petey. There are an ocean and a continent, and two generations between us, and I do not know in what fields your education and ambitions lie. I don't have much to say that would be relevant to your situation. Generalities and platitudes are all I have to offer. Here are some:

Marriage and family responsibility may delay your FIRE ambitions by a decade or two. (That is, unless you marry a rich widow . . . ) Alimony or a ruinous divorce can postpone FIRE indefinitely. As I recall, the marks of the millionaires in Millionaire Next Door included avoiding divorce and having spouses agree on whether and how to achieve wealth. There is an amazing story in that book about a man who told his wife one morning that he was transferring some of his millions, produced during the marriage, into her name alone. She said "Thank you, dear. I appreciate that. I really do." and went back to clipping grocery coupons. Evidently, they did not quarrel about LBYM.

I like your idea of taking time in "seeing America". A time period such as you might allocate to "seeing Europe" would be appropriate. (I was surprised in Amsterdam in talking with a young Dutchman to find he had never been south of the Alps, and near Zurich to find a Hungarian woman who had not been west of Switzerland, as easy as those trips are with Europe's rail system.) There are no currency exchange or passport problems within the US, and most of it speaks English. I think our consumer prices are lower, in large part because our sales taxes are less than VAT, but also because our retail sector is so much more efficient. We Yankees get worked up about some building being "old" or "historic" if it is two or three centuries old; bear with us. In the London Museum, I saw an Asian with so little respect for European antiquities that he rubbed his hand on the Rosetta Stone. (Maybe it was only a replica on display. I'd like to think so.)

I would be glad to hear from anyone that his career offers much more satisfaction than simply preparing him for FIRE. We spend so much time working that, ideally, that effort provides great psychic rewards, too, and some sense of being part of something significant. While working, I had the satisfaction of knowing that I contributed to important tasks, including American defense and ultimately the liberation of Eastern Europe. Of course, my contribution was not critical, but that's not the point.

It's promising that you have learned so much about FIRE while still so young. You must have seen computations showing how important to the retirement stash it is to start the accumulation phase early. (Yeah, and I went broke in my thirties, but still managed to leave the rat race at age 53.) One calculation I saw said that the first decade of retirement savings contributed more to the ultimate retirement stash than the next three decades combined. That depends on investment results, of course.

Here ends the collection of random thoughts.
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BenSolar
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Re: Platitudes, bromides and generalities.

Post by BenSolar »

peteyperson wrote: I think FIRE planning for people now in their 30s will be much more difficult. Many here saved for 20 years in highly favourable market conditions which delivered the kind of return to put them over the top. It would not be unfair to say that without such a return many would not be in such a position and would have FIREd significantly later, perhaps 10 years or more later. Between 84 and 95, for instance, saw a 500% increase in returns. Looking ahead a similar 20 year timeline for people like myself and BenSolar, the returns aren't expected to be that good in the future and the cost of living, property, cars, insurance, food etc has risen way above inflation. With higher base costs and far far lower expected returns that received by the last 20 years FIRE saving period, the road is far steeper. We'll need to put away so much more cash to deliver the same result that compounding will matter little, pure cash generation and retention will be what its all about.


Hi Petey :D

I agree that returns from the here and now don't look favorable. But, for me, with options like directly held real estate and it's potentially high returns, and REITs that return 5.5% in dividends, I think that some fair amount of appreciation of the current stash is reasonable to expect.

More importantly, though, while the current investment environment isn't very promising, I don't expect that to continue forever. I'm thinking that within 10 years we will see a much more promising environment. So, we work to build the stash now and over the next years, then at some point we will be excellently positioned to reap the rewards of an extended bull market. I see it as planting seeds in the spring before the weather is warm enough to promote fast growth. But, the seeds sprout and start their slow growth, meanwhile the rain is falling and it is warming up, before you know it things are growing gang-busters.

For you, specifically, if we can assume that your business succeeds, then in 5 years or so you will be piling money in, the investment environment may at that time already be much improved. You could find yourself with a high income pouring money into cheap investments for the next 10 years and then be done with it!

I think it is way to pessimistic to think that the markets will continue with their overvalued state for the rest of our investing lives. We, too will benefit from affordable stock prices at some point in the next decade or so.

That's my story and I'm sticking to it! 8)
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
peteyperson
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Joined: Tue Nov 26, 2002 6:46 am

Re: Platitudes, bromides and generalities.

Post by peteyperson »

This is very much my plan.

If saving & investing over 2 decades, I'm assuming money for investments will start small and build slowly as some profits can be released from the business. As you say this may well time well with performance but still it means compressing the time period for asset accumulation due to business ownership and the typical new business cycle of early investment, expansion, consolidation and steady profitability 5-10 years out. Given both the investment horizon and performance expectations it will be 10-15 years of actual accumulation where investment returns will be a minor consideration. Compounding usually works over 30-40 years, the timeline hardly allows for such benefits starting mid 30s and wanting to retire in mid 50s.

Petey
BenSolar wrote: For you, specifically, if we can assume that your business succeeds, then in 5 years or so you will be piling money in, the investment environment may at that time already be much improved. You could find yourself with a high income pouring money into cheap investments for the next 10 years and then be done with it!
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