30 Years old - Sitting on a quarter million?

Question

I just turned 30. I have a quarter million in cash/near cash and no debt. About $220k is in FDIC insured accounts earning a safe, but meager 5%. The rest is in mutual funds or cash-cash in a fire-proof safe.

I am single, no kids, and no debt. I can now reasonably save about $100k a year after taxes and living expenses.

I live in Utah, which is kind of like the American version of Nigeria (lots of fraud and swindlers prey on the, ahem, gullible sheeple in this state). As a result, I'm paranoid to turn over any financial control to third party $ managers.

How should I manage my nest egg? And at my current savings rate when can I retire and live off interest?

I figure at today's dollars I need $100k/year post-tax to live comfortably.

Answer 1

Congratulations on your success! Being 30 and having a quarter-million dollars is something very rare.

The most important thing is to diversify. There are a few reasons for this. Think of your portfolio as an engine... if all the pistons are up (or all down), the engine isn't going anywhere. You need some things to take over when other things aren't doing so well.

Also consider tax diversification. Make sure your investments are spread out so that you don't pay all taxes now, or all taxes on the withdrawal.

Real estate is a great market. Look into real estate investment trusts (REITs), which allow you to own a portion of a building. By being an owner, you move up the financial food chain (tenants pay secured creditors and overhead before paying dividends).

International investing is also a growing field. You should consider adding international stocks to your portfolio.

Obviously you know a good deal about money. And, with your fear about money managers, perhaps look to an independant investment firm that can offer you a wider range of asset allocations.

Make sure you understand what risks you are willing to take, and find someone who will share in your goals for success. There are good financial advisors out there (I work for some) who will take your interests (and not your checkbook) to heart and help keep you on a well-designed financial plan.

Best of luck, and again, great job!

Answer 2

If you want $100K annually, then you will need 2 million dollars in an investment account. That 2 million will provide you with the $100K in interest each year to live off.

A simple formula : Take any amount, divide it by 2 and then drop a zero.

We will do ONE MILLION for the example :
$1,000,000.oo divided by 2 = $500,000.oo DROP a zero = $50,000.oo.

$50 K will be the amount of interest made off one million annually.

You can check on line here for financial planners who will NOT steer you wrong... One site to check out is "www.ricedelman.com" . You can get their phone number there too and call them. If you trust no one by you, then definitely check out Ric's wed site. The company is based in Virginia but can help you where ever you are. They will refer you to someone in your own state that meets their criteria as a honest, respectable financial planner. I wouldn't go another day with out calling them !!!!

Answer 3

I'd recommend investing in a broad market indexed fund such as one that mirrors the Russel 2K - those are not actively managed and less likely to give you negative results based solely on poor choices by fund managers - pick one that has no-load and low fees - do your homework. They may not be flashy but they return on average better than 10% per year. As to when you can retire - there is the "Rule of 72" that shows that money invested today will take a given number of years to double based on the average earnings per year. The way you use it is to divide the number 72 by the expected average annual return to show the number of years for money invested today to double. Then use the number of years and double the outcome every multiple of that year. Example - 7.2% expected annual return - divide 72 by 7.2 resulting in 10(years) - money invested today would double every 10 years at 7.2% - at 5%, 72/5 = 14.4 years to double - I hope that does not seem too confusing

Answer 4

With your given info, you don't have to take on any additional risk. Even with a continued return of only 5%, with additional principal contributions of $100M per year, you'll have $2.8 million in 15 years, which would allow you to take out and live on over $100M per year in perpetuity (4.5% of principal per year). That's without taking inflation into account. Assuming 3% inflation, you'd need 20 years. But still, if you could retire at 45 or 50, that's a lot better than most.

Of course, if you take on a bit more risk in your portfolio - and I assume someone in your position would - then you'd be able to retire even sooner. You've got the luxury, though, of not having to even try to get bigger returns to still do well.

Answer 5

You don't need to turn your money over to anyone. It's better and cheaper to manage your money yourself, especially if you have trust/control issues. You just need some financial literacy.

1. Read up on personal financial planning.
2. The most significant way you can protect/grow your income is to shelter as much of it as possible from taxes, so max out any retirement accounts you qualify for.
3. Put your investments in balanced index funds--25% bond index; 25% international index, 25% REIT index, 25% US stock index. Or whatever asset allocation you're comfortable with. You don't need huge returns/risk to meet your goals, but you do need to diversify.
3. Keep one full year's expenses in cash since you obviously are very risk averse and security minded.
4. Since you can still afford to save after all that, I'd start funnelling money into regular old taxable accounts. Since you have so much excess income and assets, I'd start diversifying in other ways too--buy real estate or start a business for instance. Do some reading/research and see how you might like to diversify your portfolio and secure passive income sources for retirement.

As for when you can afford to retire, I'd keep working for awhile. I'd want to have around $5,000,000 in the bank in order to ensure after tax income of $100,000/yr for the rest of my life (due to rising inflation and life expectancies). Though you'd probably be ok with $3,000,000.

I recommend Vanguard for all your investing needs. You more than meet the minimum investing requirements, and they are a hugely well-respected investment company. They offer consistently low priced and well-performing investment products. Plus if you have more than $100,000, they will give you personalized, free advice and services. Their website is easy to navigate and informative.

Answer 6

congrats you are very rich you better watch out for the ladies now or the men what ever the sex.

Answer 7

Will you marry me?