Prospero:

Our revels now are ended. These our actors,
As I foretold you, were all spirits, and
Are melted into air, into thin air:
And like the baseless fabric of this vision,
The cloud-capp'd tow'rs, the gorgeous palaces,
The solemn temples, the great globe itself,
Yea, all which it inherit, shall dissolve,
And, like this insubstantial pageant faded,
Leave not a rack behind. We are such stuff
As dreams are made on; and our little life
Is rounded with a sleep.

Shakespeare

Annualized Rate of Return / Emerson

The charts measuring the actual dollars or net worth accumulation over time is actually not a very good measure of success. The best way to accurately measure or track capital gains is to determine the actual annualized gains over time by individual funds and overall portfolio. This should be measured against the annualized gains of the index fund to fund and by portfolio to portfolio.

This can be done but it will be labor intense for historical data as I will have to determine all purchases and dividends over the past several years. Maybe I’ll just go back a couple years and go forward from there. Anyways it still takes time and I’m busy such that I will have to find time before the end of this year. Yes work and classes (continuing education for professional development in my field) as well as time for exercise keep me busy. Not to get too far off the subject but a wise man once said to me:

“It seems I never have enough time to do the things I want. That’s probably because life is never going to meet my expectations. Life is the one with expectations for me to meet.”

Then he closes the letter with:

“What lies behind us and what lies before us are tiny matters compared to what lies within us.” Emerson

Certainly for food for thought. So getting back to the point, relative comparison between indexed to actual annualized gains period over period is the most logical way to measure performance over time. Hopefully life will give me the time to do it. Actually I’ll probably have to make time.

Socioeconomic Class

I don’t recall the exact data. However I recall reading an article stating something to the effect of the top 3% of the domestic population controlling something like 60% of the American wealth. The gist of the article was to point out that only a select few affluent people controlled the vast majority of the American wealth.

Although I don’t have the data to support my logic, I do know the information is available. I just don’t have the time to do the research for now. However I will keep this in mind for future postings and when I do run into such supportive data, I will be sure to post the reference material.

Again although I don’t have factual statistical data to back up my claim, I know I will find it later. Approximately 95% (again it's not so much the accuracy of the numbers but the gist of the idea) of the American population born into poverty or middle class will more or less live and die in the class from which they were born. What’s interesting is that 95% of the population from this class are optimistic and believe they will be the exception rather then the rule. The reality is that the odds are really stacked against them. There are certainly the 4% or 5% that in fact break out of the mid to low socioeconomic class from which they were born into but this is the exception rather then the rule.

How is lower socioeconomic class defined? It might be defined as little to no asset accumulation and living hand to mouth paycheck to pay check and in some cases off of government subsidies. They can also have a home with a mortgage and possibly a hundred thousand dollars in the bank. The point is at the end of the month, they have no income savings at all.

Middle class might be defined as earning decent wages possibility combined wages in excess of $100,000 for a family of 4 with a mortgage and some home equity built up. Although they earn higher wages with some home equity built up and possibly several hundred thousand dollars in the bank, they’re still generally living hand to mouth pay check to pay check at risk of losing a sizeable chunk of any assets they’ve accumulated in the event one or both working members of the family loose their job. They may or may not have any money for savings at the end of the month. And they’re just a short stones throw away from asset depletion.

The truly wealthy do no have to work and can live an opulent life style without having to worry about complete wealth depletion. These days that would probably mean at a minimum several million for the genuinely penny pinching frugal person and 10 million for qualifying as financially independent. The truly wealthy have in excess of 100 million or more and are not worried about working.

The point of this blog is can a working stiff be he white or blue collar from a low to mid socioeconomic class achieve some semblance of financial stability and security. Obviously financial independence as defined above is wealth in excess of $100 million. The bottom rung of the threshold for a small degree of financial security is approximately $3 to $4 million in liquid capital.

The question at the end of the days is is it possible for a working stiff such as myself from a low to mid socioeconomic class be capable of getting some degree of financial security. The reality is that the odds are stacked against me. I am clearly in the 95% category where I think I am the exception. Or maybe the only difference is that maybe I know the odds are stacked against me but that I’m willing to make an effort to see if I can somehow manage to achieve the 4% category stated above.

This blog is documentation of that journey.

I am staking my personal pride on this goal. If I succeed, kudos to me. If I fail, I am setting myself up for some pain and hurt to my personal pride and ego. Wish me luck.

World's Best Places to Retire

Here's an article by MNS Money staff about an ideal location to retire.

US retirees looking for lives of comfort at bargain-basement prices might do well to look at a sunny, sophisticated city near the equator. The best place in the world to retire, according expatriate lifestyle magazine International Living, is sunny, cheap, cosmopolitan and 8,000 feet high in the Andes.

Cuenca, Ecuador's third-largest city, is a well-preserved colonial city of cobblestone streets and dramatic period architecture, with modern suburbs, shopping and all the comforts American retirees might expect. Yet they can live there -- and well -- for about $17,000 a year, the magazine says. (Visit Bing for a photo gallery of Cuenca.)

The editors cited Cuenca's intense greenery, year-round fruits and vegetables, inexpensive health care and some appealing benefits for retirees, including half-price airfares and big discounts on other expenses such as taxes, utilities and entertainment.

But it was the glorious weather and affordable real estate that sold Ron and Donna Carlson of Camas, Wash., who expect to move full time to Cuenca by the end of 2010.

"We bought a 4,000-square-foot penthouse apartment in Cuenca with fantastic views and all the amenities we could want," Ron Carlson says. "We paid far less for it than we would have elsewhere. And we have the world's best weather."

Cuenca is almost on the equator but at 8,000 feet elevation. "The weather is perfect year round," said Kent Zimmerman, a U.S. expat who lives in Cuenca. "There are flowers everywhere, green grass and rushing rivers. The elevation sounds high (it's about the same as Aspen, Colo.), but studies continually show how healthy it is for you. It's so energizing, you feel 10 years younger." (Check the current weather in Cuenca.)

Here is International Living's monthly budget for a couple in Cuenca:

Expense	Cost
Rental of a luxury two-bedroom apartment	$500
Utilities (including phone, Internet and cable television)	$150
Maid (twice a week)	$60
Groceries	$275
Maintenance and fuel for one car	$140
Clothing	$70
Entertainment (two people dining out eight times a month)	$200
Health care (four doctor visits per year for two people, divided by 12 months)	$20
Total	$1,415

It seems the cost of living is fairly low. I have a coworker from Ecuador who has been to Cuenca. He confirmed the low cost of living and real estate was correct. He stated that breakfast, lunch, and dinner cost him approximately $5.00 total. However this figure may be 5 to 10 years old. Also he stated that law enforcement is very tight and that the crime rate is very low due to stringent law enforcement policies. He believes the strict enforcement of the law stems from the local populace knowing they're local economy depends on foreigners from all over the world coming to retire in Cuenca and they want to ensure that no one disturbs the peace.

I've always been intrigued by the idea of traveling and living in foreign places all over the world. Unlike the article above, I would not want to tie up my capital and stay in one location for retirement. I have always had an adventurous spirit and tended to be a bit of a wonderer. It's been in my blood until now, I can't deny it, and I don't see it changing anytime soon. It is who I am. I would much prefer to live there for about a year renting a simple cheap apartment. Based on estimated cost provided, I believe $300 per month would be more then adequate. It would provide ample time to see all the sights, meet interesting people, and learn about the regional history, culture , and heritage. One year would be enough time to really get to know the place. After that, I would move on to another country and repeat the same process. The regional sights, sounds, palettes, smells, customs, tradition, language, and experiences would all be another new and exciting learning experience. So this is one approach.

Although one can't help but wonder if a person could keep oneself preoccupied and content with a sense of purpose in life without working. I can certainly be content living on $17,000 a year without having to skimp on life's amenities. The question is could I find a sense of purpose and fulfillment in some worthwhile pursuit in semi-retirement? On this question, I believe I can. Although I can't really identify exactly what that would be, given the time and the situation to ponder, I'm certain I can find a meaningful purpose that makes life worth living.

To dream of a day when I can pursue that passion which I love and would gladly do it for free yet get paid for it as an afterthought rather then feeling the crushing burden of having to earn a day's wages, that is the crux of self actualization. That is the essence of having a meaningful purpose driven life. Some have it. Most don't.

Personal Musings

Well, now that my investment strategy has been posted, it's kinda like watching grass grow. I will track and post monthly updates on the status of the investment accounts.

Other than that, postings will cover whatever comes to mind really. Some will be focused on personal finance, musings, humor, poetry, and just things.

Robert Frost

Robert Frost (1874–1963). Mountain Interval. 1920.

1. The Road Not Taken

TWO roads diverged in a yellow wood,

And sorry I could not travel both

And be one traveler, long I stood

And looked down one as far as I could

To where it bent in the undergrowth;

Then took the other, as just as fair,

And having perhaps the better claim,

Because it was grassy and wanted wear;

Though as for that the passing there

Had worn them really about the same,

And both that morning equally lay

In leaves no step had trodden black.

Oh, I kept the first for another day!

Yet knowing how way leads on to way,

I doubted if I should ever come back.

I shall be telling this with a sigh

Somewhere ages and ages hence:

Two roads diverged in a wood, and I—

I took the one less traveled by,

And that has made all the difference.

Personal Financial Goals

I stated in an earlier post that I would post my financial goals and objectives. The combination of objectives, goals, and strategy is the foundation upon which to build a financially secure future. The process of wealth accumulation takes time and as such life goes on and should be taken into consideration. Another aspect to consider in this pursuit is emotional IQ. Sometimes life has a way of wearing people down or taking mysterious twists and turns. Financial accumulation should be based on a solid foundation of emotional stability and security. So anyways, here it is:

As it relates to my financial goals:

Financial Objectives:

Be able to retire early, care for the family, travel, and enjoy the finer amenities of life while maintaining a modest but comfortable standard of living.

Financial Goals:

• In the year 2012 three years from now have $500,000 in home equity and $1 million in liquid equity investments.
• In the year 2017 eight years from now have a home paid for free and clear of any encumbrances and $2.5 million in liquid equities.
• In the year 2019 then years from now have a home paid for free and clear of any encumbrances, $4 million in liquid equities, and go into semi retirement.

Financial Strategy:

• Continue to work, save, and invest in the equities market via a proven and well-diversified asset allocation model.
• Continue to maintain the rental home for an additional 5 years.
• Maximize both 403(b) and 401(k) company sponsored contribution benefit plans.
• Invest $25,000 minimum annually and rebalance the portfolio at this time.
• Continue with military reserve program until attainment of terminal rank and maximize points for retirement.
• Be budget conscience and frugal for the next three years until attainment of 1^st phase of financial goal.

Personal Maxims:

• Establish a sense of personal spiritual inner peace and awareness. Acknowledge God’s presence ever mindful of all his many blessings in this life and beyond.
• Maintain a healthy emotional awareness of self and others by being considerate and empathic to other peoples plight. We are all God’s creatures.
• Lead an active, meaningful, and purpose driven life to achieve a sense of accomplishment and contribution to the larger community.
• Maintain a healthy life style through nutritious diet and physical exercise.
• Be grateful for all of life’s goodness and revel in the moment.

2010 The Best Year to Die?

As pointed out by By Jeff Schnepper, MSN Money, the federal estates tax is reduced to zero in 2010.

My kids had just sat me down and given me the bad news: I was going to die. They couldn't tell me what was going to do me in. But I was clearly a goner.

The only thing they could guarantee was the year: 2010. Anytime during the year was OK with them. And they would be financially, if not emotionally, devastated if I was still around Jan. 1, 2011.

Not that they don't care for me. "It's not personal, Dad," my son Josh said. "It's just business -- good tax planning."

The amount of assets that escaped federal estate taxation increased from $675,000 in 2001 to $3.5 million in 2009. That's in addition to anything left to a spouse. Rates dropped from a maximum of 55% in 2001 to a maximum of 45% this year.

The best part was scheduled for 2010. The then-Republican-controlled Congress decided that the heirs of anybody who died during 2010 would pay zero in estate tax!

But on Jan. 1, 2011, the estate tax exclusion reverts back to $1 million, and the maximum rate climbs back to 55%.

Strange. It’s a good thing we have our accountants and attorneys to do our taxes and estate planning. I think we'd be lost without them. The tax legislations that are passed from year to year continues to evolve and grow while taking mysterious twists and turns until you can’t see the forest through the trees. I suppose there may be some logic in the eyes of the legislatures who passed the it. But I for one am certainly mystified by it.

Roth & No Taxes!

Here’s an article by Michael Rubin, About.com, about 2009 Roth IRA Income Limits:

While you can receive unlimited income and still be eligible to contribute to a regular IRA, the same is not true of a Roth IRA. For the year 2009, married individuals who file jointly can contribute $5,000 ($6,000 if 50 or older) to a Roth IRA if their modified adjusted gross income (MAGI) is below $166,000. If their MAGI is between $166,000 and $176,000, then they can contribute some amount less than their full limit. If their income exceeds $176,000, they are not eligible to contribute to a Roth IRA for 2009. In 2008, this phase-out range is $159,000 to $169,000.

For single individuals, this Roth IRA phase-out limit is lower: $105,000 to $101,000 and $116,000.

The beauty of Roth IRA is that although the initial contribution is after tax dollars there is no capital gains tax on future profits. We’ve all heard the quote about two certainties in life being death and taxes. Well it appears there is an exception to this rule.

The idea that we can defer capital gains taxes is quite an incentive. First I need to figure out the difference between AGI and MAGI. Assuming I qualify, I would certainly intend to take advantage of it. In past years, I’ve written this off as I assumed my MAGI exceeded limitations. However, I think I will check with the CPA this year just to be sure.

2009 Sept LT Graph

I spent the past few days plowing through the spreadsheets, charts, and graphs from 2007. It's a little more polished and refined for posting. So here is a snap shot of how the portfolio has performed the past couple years. It's been a difficult journey to say the least.

One of the keys to my strategy is to continue to purchase equities in the 403(b) and 401(k) monthly through thick and thin. This is easily accomplished through the company sponsored program and adhered to like clock work.

As for the $25,000 plus dividends, this transaction is conducted once per year. Ideally it should be rebalance at the time of purchase and roughly at about the same time period each year. Although I try to adhere to the timing principle, I'm not as constant as I should be.

Another factor to consider is that the strategy with the $25,000 after tax dollars is what I would consider the minimum. There may be years where I put in less but more then make up for the difference in the following year. Some years I may put in significantly more then the minimum. Over the long haul, my intent is to outperform the minimum goals I've set in the criteria.

Long Term Strategy

As I was reviewing my previous postings and my historical files, I realized that sometime in 2007 I had created a realistic long term target growth projection going out 7 years. The projections are based on actual year end balance in 2005. Assumptions were as follows:

1. Equities annual growth rate of 12%.

2. Real estate annual appreciation rate of 6%.

3. Annual contributions of $16,000 in each of 403(b) and 401(k).

4. After tax annual contributions of $25,000 into the brokerage account.

Assuming the above criteria is applied to 2005 year end balance, I should accumulate approximately $1.5 million by the end of 2012.

So that's my plan and I'm sticking to it. Obviously 2008 was a lean year with a double knockout in real estate and equities. However 2009 seems to have recovered some ground and we'll see at the end of 2012 how all this pans out. With a little luck, I expect to be fairly close.

2009 is as of Sept.

Financial Goal 2010

Upon reviewing my own post, it appears that I set a goal in early 2006 of reaching $1.5 million by 2010. That means I have about a year and 3 months left to attain that goal. Looking back now, I may have had some lofty goals. Depending on how the market pans out over the next year, I will be luck to hit $1.1 if that. However given where I started and where I'm at now relative to the precipitous drop in the stock market, it all seems relative.

I think it's important to clearly define specific goals and objectives. Once this is defined then, a detailed strategic plan on exactly how to achieve the objectives goals should be planned out. For the most part it appears I did that in 2006. The only problem is that I may have been a tad overly optimistic in some of my projections. But as stated in the original post, I may or may not exceed the original goal but that at a minimum I would be in the ball park. Well I believe this will hold true at the end of 2010. In a separate posting, I will redefine my goals and objectives over the next 5 years and detail the specific strategy.

Asset Allocation

This is the asset allocation model for the brokerage account I locked into in the 1st quarter of 2007. Now all I do is rebalance this once a year. The time between the end of 2008 and the beginning of 2009 was very difficult. The portfolio went down by 50%. Before the market bottomed out in 2008, I believe the high was around $550,000 and it went down to just above $250,000. By adding about $90,000 around mid 2009, I was able to significantly lower the dollar cost average per share. The combination of capitalized tax deferral, annual rebalancing, and 12 year time horizon should help this portfolio pay off in spades in due time.

September 2009

Some time back on Feb 07, I decided to utilize DFA funds for my brokerage portfolio. That means that I now pay a advisory funding fee of .75% just to access to the funds. The fee takes a toll but the more I research the strategy the more I'm convinced that I'm on the right path.

Brokerage: $513,000

403(b): $116,000

401(k): $ 49,000

Real Estate: $200,000

Total N/W $878,000

It's been a painful past couple years but the portfolio seems to be recuperating.

Life Goes On

Fast forward to Oct 2009, and I'm back. Life goes on. I will be updating my investment performance shortly. 2006 seemed like many years ago and then it feels like it was just yesterday.

NEW BEGINNING

Today was my last day of activation in the military. I took the 4 hour drive home from Iowa back to Chicago with all my trash. I plan on taking the month of June off of work and will return to my civilian job in July. It's nice to be done with this and moving on. I will still be doing my reserve commitment of one weekend per month but it's good to be done with active duty.

My wife and I will be traveling to Northern California next week for a few days to meet family and friends. Other then that I don't have anything specific planned. I may take a motorcycle trip around Lake Michigan. It may be a solitary ride, which is great for personal reflection, or I may have a friend who is interested in doing the ride with me. The ride would consist of traveling through small towns and stopping by various interesting taverns for a beer here and there. It's a way of meeting some interesting people along the way.

Last week my 1stSgt and I took a motorcycle trip between Dubuque, Galena, and Elizabeth City Illinois on Hwy 20. For any motorcycle enthusiast, this is a great stretch of road for motorcycling. It seems May is prime time as all the green foliage is full bloom and the weather is very accommodating.

From Elizabeth City we took Hwy 84 South to Savanna, Illinois and stopped by the Iron Horse Saloon. It has an interesting motorcycle museum as well as some interesting patrons. One of the locals offered his phone number in case we needed any mechanical help with our motorcycle. He stated that he had all the tools needed to fix any mechanical problems and that he would offer his tools or his assistance at no cost with the exception of installing a new motor. He seemed rather genuine in his generosity.

We then stopped by Poopys just down the road from Iron Horse and had another round. An interesting place where motorcycle riders hang out to have a beer and chat with other motorcycle enthusiast. They also have a motorcycle accessories retail store with the full line of motorcycle clothing and things. All in all, it was an interesting place.

From there we drove down to Davenport, Iowa to look for Players club. I believe this is one of those girly club bars. However after reasonable effort to find this place, we were unable to find it and decided to call it a day and drove back to the reserve center. I think we put in approximately 360 miles that day. It was great.