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Sunday, September 25, 2016

The Dark Fears

Posted by Tim Stobbs on August 24, 2016

I’m now finally towards the end of my long goal to save enough money to retire early at some point in the next year or two.  So on the one hand, I do fully admit to being a bit excited by that idea.  On the other hand I notice little bursts of fear and doubt surfacing periodically that for a moment crush that excitement in a burst of negative emotions.

Of course I think to myself: Dude, what’s your problem? You should be thrilled to be this close to done.

Yet those dark fears that I don’t spend much time thinking or talking about still bubble up.  Some of those thoughts include: Do I have enough money saved? What if I forgot something in my calculations? Can I actually pull the trigger at the end or will I fall to saving for one more year? Or even worse, if things go really well could I change my plan and pull it earlier than I’m planning? Should I save a bit longer and just don’t worry about some part time work?

Then after those thoughts burst through my head I remind myself that doubt is normal.  Hell even fear is completely normal in the case.  I’m planning to alter the single biggest part of my week days and leave full time work and the career I have always know for a completely uncharted area of my life.  So yes, fear is perfectly normal.

Yet acknowledging the fear as normal doesn’t make it go away.  So instead of avoiding these thoughts I have decided to spend some time in them looking at those questions in detail and trying to determine some idea of what that uncharted part of my life will look like.

In effect, I’m down into the weeds for a while looking at:

  • How exactly will I take the money out of the investment accounts to live on? Monthly, every quarter or yearly?  Which accounts do I use first?  How do I keep our income tax to a minimum?
  • I’m also looking at fears.  So I retire and the stock market tanks immediately – what do I do?  How much of a reduction in the markets do I tolerate prior to using that plan B?
  • What if I fail at retirement?  At what point do I go back to work full time?
  • What if I fail at writing fiction? Do I keep at it or switch to non-fiction? Or do both?
  • What else do I want to do with my life?  I’ve gained over 25 additional years without work, so what exactly do I want to accomplish with it?

Some of those are easier to answer by just writing up an investment plan that includes what do do when the stock market drops 5%, or 10% in a year.  I’ve also created a fairly detailed model of the first five years of retirement and stress tested various scenarios so I can see what happens if I don’t do any work at all during that time.

But even as I look at some of those questions I’ve come to realize something important.  You can’t always know everything in advance.  Some questions can’t really be answered in advance of that uncharted area of life.  I don’t really know what I will accomplish in the next 25 years of my life and well that isn’t that much different that most people.  I can’t know everything that could go wrong in the next 25 years with the stock or bonds markets. I can’t know government policy that will make things better or worse for me.

But I do know that I’ve learned to be more flexible about things.  I have managed to handle of lot of stressful situations in my life such as a 10 week premature baby, or working several jobs at once.  Yet I found a way to make it all work and I’m not about to really lose that skill set all of a sudden.

So in the end, I do think things will work out.  After all, why I’m considering all these dark thoughts I seem to forget something equally important: what if things turn out better than I expect?  After all I’ve been saving for over 10 years now towards this goal and I’ve consistently beaten my targets (hello, the title of the blog of free at 45, but I’m now looking at leaving before 40).  If I earn some extra money I will likely save it, since that is a really hard habit to get out of.  I’ve never spent everything I have earned and I really don’t think that will change in my retirement.

What are some of your dark fears about your retirement plans and how do you deal with them?

Cherry Day

Posted by Tim Stobbs on August 5, 2016

Happiness is an odd emotion.  Some days you have to go through something painful or unpleasant to arrive at being happy.  Having done several things that take some effort to complete for example National Novel Writing Month, I get that the pain while doing something can often result in something that makes you happy in the long run.

Then of course I also get a reminder of this lesson every year during our annual cherry day.  Cherry day? Yes, cherry day.  At my house I have a sour cherry tree in the backyard that most years gets lots of cherries growing on it and every year we pick the majority of the tree (there are some branches you just can’t reach safely even with a ladder) and then pit several hundred cherries (it could be a thousand, for my sanity I have never counted them).

So you might be asking why on earth anyone would put in about 20 man hours of labour into this annual event?  Well after a very long day, my wife and I put at least four large freezer bags full of cherries in the freezer which later on in the summer or fall I will take out, defrost and then make sour cherry wine.

Now after doing this for about six times now I have managed to produce a very good bottle of wine.  Actually a friend of ours commented it was just as good as a local winery that also makes something similar and that cost around $20/bottle.  So given my raw fruit is free other than our labour and the cost of the sugar and yeast is minor, my costs are around $1 or $2 per bottle.  So technically there is some degree of cost savings to doing this labour every year.

Yet that isn’t the real reason I do it.  In fact, the money savings is sort of secondary.  The fact we go through this labour every year is the satisfaction of making a good bottle of wine from the very fruit that grows in my backyard.  In sort, the results result in enough happiness that both my wife and I agree that we keep doing this every year.  Of course it helps that there is something very enjoyable about opening a bottle that contains the very taste of summer in the middle of December.

Of course this is likely why I can save as much as we have towards our retirement, I fully understand the idea that a bit of work today can go a long way to being happy in the future.

So what do you do that takes some effort that results in something that makes you happy?

The Stock Market Yo-Yo

Posted by Tim Stobbs on August 25, 2015

I sort of laughed at some of the media stories on Monday based the the sharp drop off of many stock markets…reading the articles you would swear the world had just shifted on its axis a few degrees.  Yet then on Tuesday the markets spiked back up and the media then sounds all positive about everything.  Do you know what I did during all of this….nothing.

Yes, I didn’t sell anything and I didn’t buy anything since I had already moved around $10,000 into the markets last week.  I noticed the market was down a bit and we needed to shift over some cash into ETF’s (Exchange Traded Funds) in our RRSP accounts.  I bought some US stock index ETF and my wife had a bit more cash so she did the same US ETF and also picked up some Canadian index ETF.  So we missed the bottom…so what?  We aren’t stock market timers anyway.

I think the problem most people have with this big swings down is they feel the need to do something…when in fact when you are down the answer is usually to buy something rather than sell anything.  Selling just locks in your losses while buying can provided an option to load up on some good investments on the cheap.  Yet if you don’t have cash handy the right answer should be chanting to yourself: this too shall pass.  Because in fact, in the stock market on a whole, just about everything does pass at some point or another.

I’m not saying this isn’t easy to do the first few times.  Being active in managing my own investments does make you want to do something when these big things occur, but in fact a lot of the time the right way to approach things is doing nothing.  Sit on your hands if you have to but don’t login to your trading accounts…that just gets way to tempting to do something.  Instead, pick up a good book and distract yourself for a while.  See if the one day drop or spike is turning into a longer term trend and then decide if you need to make any adjustments according to your plan.

Yes, your plan.  You know your highly emotional at this point and perhaps you already planned for this by writing out your investment objects and plan.  Pardon…objective and plan?  Yes you know that one page document you know you really should have written out ages ago that outlines when you buy and sell things when were rational rather than your current emotional state.  See if you put in anything for drops of less than 5%…likely you didn’t which means you previous rational self is reminding you to keep sitting on your hands.  No trading for you.

In my case it would look something like this:

“Invest the money into your trading accounts approximately once a month…do not let it build up in the chequing account (you may get delusions that you are rich otherwise).  Our investments are broken into three buckets: pension, RRSP and TFSA.  Pension is the long term money and invested in the second most conservative option available from my plan provider.  The RRSPs are in index based ETFs.  The current ideal ratio is about 40% in bonds, the rest even split between Canada, US and world. Only rebalance about once or perhaps twice a year.  TFSAs are the high risk investments in individual stocks.  Seek out mature companies providing monthly billing services that pay dividends (ideally Canadian -remember that the US doesn’t recognize TFSA yet as a tax shelter and you will pay tax on US dividends).  Target average payout from TFSA accounts is 5%.  So some high risk ones are allowed if they are balanced off by lower risk ones. When you max out contribution room in all RRSP and TFSA then consider adding taxable accounts. You may only borrow to invest from the Line of Credit if you have put the money back in less than three months.”

That’s it…notice I have nothing about market drops in there.  It doesn’t prevent me from shopping a downturn, I just need to have the money into the accounts to do it or be able to put there in a short period of time.

So how do you handle these downturns or upswings?