My New Hobby, Investing (to Sail/Cruise)

[CloudDiver]

So I may be a little late to the party (I'm almost 40), but since the beginning of this year I've started Investing and made it a primary focus; i.e. 'pay yourself first'.
Now let me say up front how this is related to Sailing. Easy thing to get out of the way, we all know Sailing/Cruising is expensive so it needs to be funded sustainably. Second, I do well in my job and can afford nice things but I am by no means a 1%er or even a top 10% income earner so planning is required. Third, as much as I love all the great YouTube channels out there that share their cruising experiences and keep all us all hungry to experience the same lifestyle, I probably don't have the on-camera charisma or the patience/desire to film everything then publish and expect to grow a sustainable enterprise from my sailing adventures. So for me, achieving my sailing/cruising goals will require disciplined financial planning.

(Post Edit: I started this thread as a way to document my thoughts and share my experiences so far on this journey. It's not just a narrative though, comments and participation from interested members are encouraged and appreciated.)

 

[jssailem]

That sounds like very sensible thinking.

 

[Sailm8]

Buy low, sell high.

 

[jssailem]

There is no fun in that @Sailm8.

 

[CloudDiver]

So I 'll start with what I was doing in the past, and what I have changed;
- I do have 401K that I have been contributing to for several years (like many people).
- I do have a defined benefit portion of my retirement plan that I will be vested in by next year.
- I do have a partial pension from active duty military service that pays me now.

So here is what I have changed;
- Several years ago I got laid off from a very high paying job in solar energy. It took almost a year to get my follow on job and during that time I almost went under. I had to withdraw the balance of my 401K to get by (huge mistake in retrospect). So basically I had to start all over in 2014 with a zero balance. What I do now is contribute 15% of my income and my employer matches 5%, so I am close to maxing out the $18.5K of annual tax-exempt contributions. By next year I will reach the max contribution.
- My 401K is placed in aggressive funds, small and large cap stock index. I will diversify closer to retirement age, but for now I need aggressive growth. I have averaged about 14% over the last 4 years.
- I have stuck with my job because I have a defined benefit portion of retirement that I will be vested in by next year (5 year vesting period). This plan allowed me to 'buy back' my years in active duty service, so I have 16 years total. It was worth the pain to add a minimum of $1200 per month of retirement income, it will be more if I stay longer.
- I opened a Roth IRA with Vanguard. I used to think I didn't need a Roth (boy was that silly). I will max out the $5500 per year contributions.
- I have a personal stock portfolio with E-Trade. I have been buying dividend stocks only. this is mostly for fun and I won't be buying any risky growth stocks. So far it hasn't made me rich, its only been 4 months... but I have managed to save a bunch of money that is still making a better return than a savings account.

 

[BigEasy]

Hard to beat the return of S&P500 index from Vanguard over the long haul! Simple, low cost strategy, to dollar cost average over time to even out the peaks & valleys.

 

[jssailem]

Sounds like a reasoned plan. Key for mutual funds is to limit the fees Vanguard is a champion of low fee funds.
Access to a defined benefit plan in this day and age is rare. The buy back indicates it is a Civil Servant employer and we all expect the government will be here for a few more years. So a good place to have a DB plan.
The E-Trade investment choice implies your willing to take taxable dividends each year. Is that true?
14% is more than respectable.

 

[Will Gilmore]

So I may be a little late to the party (I'm almost 40),

Sounds, actually, about right.
I met a guy in his late 60s who was telling me how, from his first pay check, he started setting aside $5 a week and retired early with enough money to have whatever he needed. I was about 21 at the time and didn't take the hint. My retirement isn't going to happen so, I'm investing in a homestead to support me. My wife and I didn't start investing actively until our early 50s. Most people I know don't have that guy's discipline but think farther ahead than I do, so 40 is about right.

By the way, paying yourself first means different things. For my wife and I, it means travel young. I think retiring onto a sailboat is actually a pretty good plan.

When the time comes for more healthcare and someone to take care of me, I'll break some international maritime law, sail where I'm not wanted, get arrested, maybe in some Scandinavian country where they treat their prisoners like human beings, and let the system take it from there.

I admire your forward thinking and self-discipline, I wish I had it. Best of luck.

- Will (Dragonfly)

 

[CloudDiver]

So here comes the ugly part... and I'm throwing this out there because I want everyone to know I a flawed human being like the rest of us and maybe this will help others avoid these pitfalls.
Here is what I did wrong, mostly in the past, which has motivated me to correct my course;
#1. I wasted a CRAP LOAD of cash... As a young officer in the military I was living like a Rockstar. I partied and chased women, bought expensive toys, and din't think about the future much when I had the discretionary income that could have really grown.
#2. I missed a HUGE opportunity to invest 10 years ago. Not the kind of 'oh if I had known Netflix or Bitcoin would have blown up I would have invested'... not like that. None of us have crystal balls to see the future, so I don't beat myself up about that. I do kick myself because in 2006 I sold my condo in Hawaii and made a cool $125K tax free. I SHOULD have invested all of it, but I didn't. I paid some debt down and I also made a down payment on my new house plus about $20K in necessary landscaping upgrades (retaining walls and other concrete work). The investment in my home was good, but the rest of the cash was burned up over several years of buying race bikes, partying in Vegas, and other such debauchery.
#3. I was saving in my 401K at the time, but only 10% of my income. I had not considered a Roth IRA and wasn't investing elsewhere either. I also could have funded a 'rainy day' cash reserve and 'hidden it' in a Vanguard money market account at 3%: This a cash account that is relatively easily to access in an emergency, but not as easy or tempting if it were in a savings account. Had I put about $15K in such an account, years later when I was laid off from First Solar I could have used that instead of cleaning out my 401K! Doh!

These were HARD lessons in retrospect; what is even more bitter is that I understand them now but had no clue about such things when it mattered (I would have made better choices). So looking at this played out in my life has motivated me to move in the right direction. I'm just under 40 and I still have time to steer the right course.

 

[JamesG161]

Buy Apple stock. I did and should rename my boat "iPhone" or "Steve Jobs"
Jim...

PS: I did buy, the year Jobs told of his dream of the first smartphone the iPhone ≈2002

 

[CloudDiver]

Sounds like a reasoned plan. Key for mutual funds is to limit the fees Vanguard is a champion of low fee funds.
Access to a defined benefit plan in this day and age is rare. The buy back indicates it is a Civil Servant employer and we all expect the government will be here for a few more years. So a good place to have a DB plan.
The E-Trade investment choice implies your willing to take taxable dividends each year. Is that true?
14% is more than respectable.

Yes, I'll pay the capital gains on whatever I make. At this point its still a very small portfolio and my returns will be low enough for a long time to keep me in the 15% tax bracket. Enough of my income is taxed sheltered that I won't have any issues keeping my tax liability as low as it can possibly be.
The only reason I have averaged 14% in my 401K funds over the last 4 years is because 2 of those years saw 20% gains in the stock market. There will be market corrections as we have seen the DOW drop from 26K to 24K since January. I only expect to average 8% to 10% over the next 20 years. I always use a conservative 7% as an expected return in planning tools.

 

[CloudDiver]

Buy Apple stock. I did and should rename my boat "iPhone" or "Steve Jobs"
Jim...

PS: I did buy, the year Jobs told of his dream of the first smartphone the iPhone ≈2002

Yes, I have 15 shares now. Boy I wish I had bought in 2002... you have seen 2 splits since then, 2:1 in 2005 and 7:1 in 2014 plus you have collected dividends since 2012. That is one of my big regrets, see post above about mistakes. I had $125K in my pocket in late 2006... didn't buy a single stock other than my 401K contributions.

 

[CloudDiver]

So now I will mention what ( I think) I was doing was right BEFORE I stated investing more actively;
- As I said before I have a 401K with employer matching... that's a good thing.
- With my employer I also have a defined benefit pension, that made it worth sticking with them although I might have been able to make better money in the private sector.
- I bought a house in 2008, after the housing bubble had popped. I still live in it, 10 years now, and have a nice cushion of equity. I also rent two rooms to coworkers, added income.
- I have practiced some restraint in my lifestyle. Before I left the military I dropped the gold card like I was some kind of baller (but really wasn't). I will say that I need bought really expensive luxury vehicles or Rolex watches... so I was living within my means (for the most part) and carried little debt. When I got laid off from my job in 2013 I really cut back and started living like a stingy bastard. Even though my salary has more than doubled since 2014 I have retained many of those stingy habits (I drive up Chevy truck that has been paid off for the last 4 years, resisted the urge to buy a new one).

 

[JamesG161]

a CRAP LOAD of cash

I did too, but well spent on Beer and Women...
The rest of my money was WASTED.
____
It is never too late. If you bought, say Apple, ≈4 years ago, 100 shares ≈$7500, now worth ≈$19,000.

Little by little...
____

2 splits since then, 2:1 in 2005 and 7:1 in

I have 14 x times my initial investment

Jim...

 

[CloudDiver]

So going off the last post, I 'll tell you what I have changed related to what I was doing right before;
- I increased my contributions to my 401K. I was only doing 5% before. I bumped it up to 10% a year ago and this year I went to 15%. I will go to 20% by next year and this isn't counting the 5% employer match.
- At a minimum I am staying with my job until I vest next year and I will have a combined 16 years. I will probably stay for another 2 years since it will augment the total income in the equation (high tenure) and I will have 18 years total. After that I will start looking at the private sector and choose my destiny.
- I'm keeping my house for at least another 5 years. I could reasonably plan to keep it until it is paid off and then have the rental income, that is a definite possibility. Another realistic goal is to sell in the next 4 to 7 years when my equity is at or over half the value of the house. The logic here is that caring out that susbtantial amount in the immediate future will probably make more money in the long term invested into my dividends portfolio rather than continue paying interest for another 15 to 20 years. I will, however, lose the tax shelter aspects... so strategy is important when I come that bridge.
- I'm keeping my "stingy sailor" attitude. The last three times I have gotten a pay raise I have increase investment rather than increasing spending on 'stuff'. I have realized that I just don't need more material things and it makes me happier to invest in my future than to buy cool new toys. I don't have to show off for anyone... someday I'll have enough money for a fancy sports car if I want it and by then I won't have a lick of guilt when I buy it!

 

[CloudDiver]

One thing that really got the brain working: By the recommendation of a friend I read this book;
https://www.amazon.com/Simple-Path-...rds=the+simple+path+to+wealth+by+j.l.+collins

This is a fantastic read for everyone, wether you are a seasoned investor of a total newbie. There is no complicated financial language in this book that is not explained in easy to read terms. This book really wet my appetite to make a sound plan and follow through with it. Since then I have been reading the recommend blogs from the book and reading other books too.

 

[CloudDiver]

Here are the new things I am doing as of this year to augment my strategy and a little about why;
- I already mentioned the progressive increases to my 401K contributions. My goal is to max out the allowable $18,500 per year for single tax filers. When I am over 50 I will be allowed to save $6K more. Hopefully I will be semi-retired by then but I plan on still being able to contribute all the ay up until age 65. In J.L. Collin's book he recommends that you invest 50% of your take home income. That is a lot! This author lives in New Hampshire and purchased his home long before prices went out of control, much easier for him than someone living in Southern California. For me, I am close to a 25% savings rate. I hope to reach 35% in the next 2 years. If I can reach 40% I think I will 'made it'.
- Also previously mentioned was opening a Roth IRA with Vanguard. Like the 401K I want to max out the annual allowable contributions. This won't be easy, but is possible with discipline. For anyone who doesn't have a Roth IRA, but you do have a 401K, I wouldn't beat yourself up about NOT having a Roth until you have maxed out the annual contributions. Once you do that and still have investable income, then open a Roth in addition to your 401K. I should take my own advice and not worry about the Roth until I have maxed the 401k for this year, I'm close but not quite there yet. Well, there are other considerations for having both even if you can't max out either in a given year (but at least think you will in the near future). Probably too long in the tooth to get into all those pro's and cons here, but needless to say I have both account types and I'm doing my best to fully fund both from this year into the foreseeable future.
- I am buying Dividend stocks and Drip investing in my Etrade portfolio with my remaining disposable income. Now, this isn't thousands every month, I ain't paid THAT much. But it is a few hundred when I can swing it. I am not buying risky growth stocks, just solid companies that pay a reasonable dividend. The goal is to build a monthly dividend income that will eventually replace my full-time employment income. That is a BIG goal, and it will take several years and many other co-dependent strategies that will augment the speed of its growth. I have learned patience (the hard way) and I feel like I have a solid understanding of risk mitigation. I think can work for anyone if you have the patience, discipline, and desire to allow it to work over time. You can't rush it!

 

[JamesG161]

I have 14 x times my initial investment

Correction...
28 times my initial investment in ≈ 14 years. Or it doubled every year.
Jim...

PS: Hmmmm what was Neptune's method of renaming a boat, without a curse?

 

[CloudDiver]

So here are a couple things I am doing that are non-investment actions but ultimately help the entire effort:
- Getting rid of my STUFF. This is totally practical, especially for someone planning to live aboard a small space. I am sick of being OWNED by my STUFF. It is incredible how much clutter can accumulate in one person's household over 15 years. I have looked around at all this stuff and just said to myself "You don't NEED most of this. In reality, you don't even WANT most of this."
Since NOV of last year I have probably removed a few metric TONS of stuff from my house (no joke, I didn't actually weigh it but I eyeballed it and it was A LOT). First, I donate things I don't need to charity. If it's not something of real value that I could sell, but it would be helpful to someone in need I will donate it to Goodwill. Mostly things like clothing, linens, furniture, housewares etc. Second, I recycle. I HATE throwing things in the landfill. If it is just stuff too worthless to even donate I take the time to load up my pick-up truck and take it to the city recycling center and sort it out. All this is free except my time and gas to get there. They take scrap metal, electronic, plastics... just about anything can reasonable be recycled. Third, I did get a dumpster. I felt pretty bad about the notion of these things going to the landfill, but I was a breaking point of having to get rid of lots of junk and it was too daunting of a task to sort it all out for recycling or donation. Overall it was still a smaller volume of junk than I had ultimately donated, recycled, or sold. No, I'm not a hoarder in the process of reform, but I did have a live in family member who was leeching from me for almost two years (not paying rent), so I finally got the courage to remedy that situation... but lots of 'junk' was left behind by the vacating party.

 

[CloudDiver]

So carrying on with the above action of getting rid of stuff... here is the fun part. SELLING stuff!
It seems that I have accumulated a significant amount of 'stuff' that has real value. Definitely not worth more than half of what I paid for it, but still worth plenty that would be better served invested. For example, I am no longer racing motorcycles for the foreseeable future so I am offloading the support and safety equipment that I have (and its a bundle). When it comes to value, what is all that stuff worth sitting in my garage or hanging in my closets? I'll tell you, its worth ZERO dollars in storage. So I'm selling it since I know I am not getting any personal value from it. Everything I have set to list on flea-bay and creeps-list is written into a spreadsheet with the expected used values I can sell it for and if I can get fair market value for it the total isn't peanuts, its in the thousands. rather than having this potential value sitting in my garage collecting dust I'd rather have it sitting in my portfolio collecting interest!