Originally published: September 6th, 2015
What is DGI Adventure? It is my journey to financial independence, catalogued in real time, and published on the world wide innerwebs for all to read and (hopefully) enjoy. I owe an immense amount of credit to Jason Fieber (I think that’s his real name) of dividendmantra.com. He is the one who introduced me to the dividend growth investing strategy, and his website, documenting his own journey to financial independence, is my inspiration. While our paths may be similar, we differ on a number of philosophical points and approaches, so I don’t feel it is disingenuous to publish a similar journey. I don’t intend to compete with Jason. I only intend to offer a similar though slightly different perspective.
Who am I? I was born in 1983, so the cataloging of my journey starts when I am 32 years old. I am married with no kids. My wife and I make a very decent living in the great (and expensive) state of California. I am an only child and my parents have both passed; my father in 2000 when he was 47 years old, and my mother in 2012 at 66 years old. I realized in early 2013 after I lost my mother that I don’t want to be in a position where I have to work for a living for any longer than absolutely necessary. I decided that I want to “retire” when I’m 45. I put “retire” in quotation marks, because I can’t imagine not working at all. The point is not to just lie around all day and watch baseball (although that sounds pretty good for some of the time). The point is that whatever I’m doing at 45, I want to be doing it for its own sake, not because I need to do it to pay my bills. There’s a good chance that whatever I do will generate revenue for me. That’s great, but that revenue should be the dessert, not the main course.
At first I wasn’t 100% sure how I would get to be financially independent in 15 years. I don’t play the lottery, and I’m probably not going to found some disruptive technology company that will be sold for billions of dollars. I’d already gotten pretty much everything I can expect to inherit, which was no small amount: My mother had an annuity worth $190,000, which rolled into a “Benificiary IRA” in my name that is invested in a reasonably diverse mix of equity and bond mutual funds. I could liquidate the account anytime I want, as long as I’m willing to pay income tax on the withdrawal. I also inherited the house where my wife and I live, which according to the county assessor’s office is worth nearly $400,000, although I wouldn’t pay that much for it, and we still owe $210,000 on the mortgage. My grandfather gifted me $9,000 worth of mutual fund shares in 2011, which he called an “early inheritance”, and I have a moderate collection of gold and silver coins that he and my father had given me over the course of my life. I’ve never added up the value of the coins…there is maybe $10,000 worth at current commodity prices at the most. I’d put a little money ($5,000-ish) into 401Ks from previous jobs, but hadn’t contributed to my 401K since 2008 because my employer stopped offering a match during the financial crisis. In hindsight, that was probably not the smartest move, but I don’t have a time machine, so I’ll have to live with it. We don’t have any debt other than the mortgage.
So to be fair, I have a good head start. To be 32 and have a net worth over half a million dollars is not just a good start; it’s a damn good start. My wife is on board with doing (almost) whatever we need to in order to reach financial independence as early as possible, but with a few conditions:
1) She’s not willing to completely give up on current niceties.
2) She’s doesn’t consider it financial independence if we have to reduce our standard of living from our current level.
So that means to get there I have to make the most out of what we are able to save, and the end goal is a hell of a lot more than half a million dollars.
I spent most of 2013 thinking about this goal in very abstract terms, and honestly maybe not completely believing that I’d be able to achieve it. I had in my mind that the path involved making more money maybe by starting a business while I still held my current job, and then eventually growing the business to the point where it covered all of our income. I’d still like to start a business someday, and that will figure into the part of financial independence that isn’t just lying around watching baseball. I realized that owning a business where you’re reliant on that income is just as much if not more work as I do now.
In 2014 a few things happened:
- We got married and we combined finances. For the first time in either of our lives, someone else had a vested interest in how much money was in the bank account on any given day. A strong argument in favor of marriage is that two people can leverage their resources much better than one, but you can’t do that if you just spend money on whatever you want, and don’t make a plan. So we made a budget. As we took firmer control over our finances, I realized that we could live very comfortably and maintain a very strong savings rate.
- I realized that maintaining a high savings rate, and investing the savings is not a horrible strategy for getting to financial independence.
So in 2014 I got pretty interested in stocks. I subscribed to a couple stock picking services (for $200 a pop). I subscribed to the Wall St Journal and the Economist (nearly $800/year investment). I bought the Elliot Wave Principal by Frost and Prechter ($20). After some research I decided that I was smart enough and diligent enough to “beat the market”.
I am probably not smart enough and diligent enough to “beat the market”, although technically that remains to be seen.
In 2014 I was bouncing around between all kinds of different investing strategies. I made some money on options. I lost some money on options. I bought the GLD ETF. I bought gold miner stocks (AUY and ABX). I lost money on GLD. My account shows massive paper losses on AUY and ABX although I haven’t sold them yet. I bought Costco stock (COST) and I bought a biotech ETF (PJP) for some decent paper gains (haven’t sold those yet either). I bought an REIT that focuses on medically related commercial properties like senior living facilities (HCP). I bought an REIT that had a crazy high dividend about a week before it lost 30% of its value in one day when the company disclosed accounting irregularities (ARCP now VER) and then subsequently suspended it’s crazy high dividend. It’s supposed to resume a not crazy high but reasonable quarterly dividend of $0.1375/share in October 2015. If that dividend payment holds steady and the stock price stays where it is, it will take 4 years of dividends to make up for the paper losses I have on that stock.
It was in 2014 that I came across dividendmantra.com and Jason’s story. I started to follow his blog, but I wasn’t completely sold on his strategy of dividend growth investing. While his goals were similar to mine (his financial independence target is at 40 years old), his bar was too low in my opinion. He feels like $20K a year is plenty of income to be financially independent, and I guess it is if you’re a cheap ass who lives in Florida. My target is upper middle class in California…in the Bay Area no less. We’re not giving up our Warriors season tickets, and we like to go to fancy restaurants occasionally. My mortgage payment is roughly equal to his total monthly expenses. It’s not that I didn’t see the merit of dividend growth investing; I just didn’t see it getting me to where I wanted to be.
I can’t say exactly when that opinion changed, but it was sometime this year in 2015. I still don’t think $20K/year in dividend income is nearly enough for our particular situation. And there are plenty of elements of Jason’s philosophy that I just don’t agree with. But I’ll be damned if dividend growth investing doesn’t make a lot of sense. Through the course of my research, I quickly realized that short-term trading strategies are all red herrings, so I was leaning towards the church of “buy and hold” anyway. Buy and hold + actual cash money dividends (that grow with time) makes an awful lot of sense the more I think about it.
So here I am. Committed finally to a single investment strategy (with my own particular nuances…naturally). I’m not saving 5 times as much as Jason at the moment, so why should I expect 5 times as much dividend income in 2030? I probably shouldn’t. But I’m not mapping out the path of this journey with that much detail. At our current savings rate, assuming no raises, and a mere 5% annualized return on investments, I project to have $1.4M of liquidity in 2030 (we live in the house, and we don’t plan to sell it). If I can get 3% out of $1.4M we’ll be at $42K/year income.
I guess I’m counting on increasing our earnings power in that period of time while maintaining a constant standard of living and reducing our costs (paying down mortgage mostly). All that and doing a bit better than 5% average return and 3% income. $2.5M with a 4% income rate is $100K/year. An extra million bucks would make the difference…give or take. We’ll see. The good thing is both my wife and I really like our jobs, so it’s not the end of the world to work a few more years…assuming we’re still in these jobs at that point.
In the meantime, this is my journey. I hope you enjoy reading about it. I will never charge readers for the content I write. My strategy/approach is either going to work or it isn’t. The results, as they say, will speak for themselves.