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March 10, 2014

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Thank you...I needed this! Your story is so encouraging to me. I am starting over again at age 48 and sometimes feel discouraged. I have put together a plan and although I don't think I will reach a million in my investments, I do feel it will be "enough" for me. I have set up my expenses well below my means (less than 25%) and have started my surplus savings in the last 2 years. It feels very slow right now but I know I have to be patient for my money to accumulate and grow.

Congratulations on your investment acumen. Could you share what your investment strategy was from 2005 to 2010? You wrote that you had on average a 33% return and you invested in low cost etf. I did the same and had a 20% loss of investment by end of 2009.

thanks

I'm curious to see what the quiz you gave your wife looked like.

I'm in my twenties and have been dating someone long enough that I am thinking of our future together. Financial-wise, I think we have similar inclinations toward frugality (she didn't balk too much at my idea of living in a van to reduce living expenses) so I'm not worried about it personally, just curious.

I really like the 4 steps, especially the clear words that you use to describe them. And its an impressive turn-around these last 10 years!

I calculate your spending at ~$75k/year (spending minus the payroll taxes)......that seems like it would be tight with $2M of assets. How did you calculate that as a "number?"

As you transition going forward towards the semi-retirement do you expect your investment mix to shift, from what I think is 100% equities?

Nice profile.

Joe- you misinterpreted the stat I was providing. I was illustrating what % of our net worth growth came from income savings ( margin surplus) and investment income. So for the period 2005-2010 It was 67% and 33% respectively. My point was to show how over time the latter becomes more significant. My actual ROI over the period 2005-2009 was 5.6%. Yes, I lost 43% in 2008 but I gained 45% in 2009.

BB- I didn't keep a copy of the quiz, but it was a series of multiple choice questions concerning things like what is our approximate annual spend budget, net worth, ROI, income margin, debt ratio, etc. My intent was for her to become more aware of our financial performance and position so that she would maintain buy-in and be an informed partner. It takes two to tango when it comes to marriage finances.

M- great question and I hope I have the courage to stay the course of 100% equity invested well thru (not to) retirement. I use a 10 year investment horizon and I expect to live thru at least 2 more after I turn 65. Stocks will generally outperform bonds over a 10 year cycle so that is where I plan to stay and continue to ride the ups and downs.

Wow! I think we should make this a quote and plaster it everywhere: "A household’s wealth accumulation plan is only as strong as the weakest household member."

It's completely true. I found this out the hard way. If you don't get with a frugal spouse/partner, you won't accumulate wealth.

Awesome profile summary. I'm 34 and get discourage sometimes because it feels like we started so late but this gives me some optimism. I'm also in healthcare and the next role is my progression is president/VP, so it resonated with me even more because of that.

Right now I'm in a financial role but I know I have good management and leadership skills (very different). What is your career advice to someone looking at making that transition from a specialized role like finances to a broader leadership role like VP/president?

Like the way you hammer the point of "surplus margin." I also like the idea of staying heavy equities. Thanks for your profile.

M22:

I love the four steps--

"Work the Income"-- Totally agree.

"Manage the Margin"- Totally agree again.

"Save the Surplus"- Absolutely.

"Ride the Market"-- On this one---I agree only to a point.

Your portfolio is 100% equities at 58 years of age ?

Although it seems to working for you so far, I am a huge advocate of asset allocation and diversification. I think you are taking on more risk than I could stomach. I have a balanced portfolio of stocks and bonds that includes(i) USA and International exposure (ii) small, mid and large cap stocks, (iii) various durations and types of bonds (long, short, municipal etc..) and (iv) bonds rated from AAA to junk.

I have always believed that diversification can actually increase your return while reducing your risk.

Check out this article:
http://seekingalpha.com/instablog/3452-scotts-investments/2153-must-read-article-for-this-week-1-paul-merriman

I cannot argue with your results. You have done a fantastic job so far and I congratulate you on that. I am a little younger than you with a similar net worth and I am just as interested in preservation that wealth at this point as I am in growing it.

My rule #1 is: Don't lose it.

All --the link below is the 2013 update to the article I posted in my previous post.


http://www.merriman.com/PDFs/UltimateBuyAndHold.pdf

@Mark
You have hit the nail on the head with your comment.

I first met my wife when I was 15 and married her when I was 21 and we have now been together for 57 years. It didn't take long before my family and other relatives liked her as much as I did. She came from the same background as me and both of our fathers were firemen. I have an interesting story to tell.

On special occasions the firemen would empty out the large appliance room and hold a dance for all of the family members. On one such occasion at this dance a neighbor's daughter about the same age as my girlfriend had just lost her mother so I thought it would be a nice gesture on my part to dance with her a few times. I guess I overdid it and my girlfriend abruptly left in a huff. After a day or two I was trying to figure out how to patch things up when the front doorbell rang. I answered it and my girlfriend was there. Her first statement was "Thank you so much for sending me the beautiful flowers". The problem was that I hadn't sent her any flowers and was very confused. However I used the opportunity to make amends for my prior behavior. After she had left I found out that it was my mother that had sent her the flowers, of course I didn't tell her that until much later.

Coming from the same background we were both frugal and both were strong savers. If we hadn't been we would never have been able to save the $450 that we needed to emigrate to Canada where I had a job offer, and then 2 years later move first to Denver, and then to Silicon Valley, where jobs were waiting for me. This was the Cold War days when defense spending was very high, aerospace companies were doing a lot of hiring and jobs were easy to get. In fact one of the first things my employer required me do before I could work on classified projects was to file a "Declaration of Intent" with the court that I would become a US citizen after 5 years.

Very encouraging and the four steps are great!

1. Work the income
2. Manage the margin
3. Save the surplus
4. Ride the market

I think these four steps will lead me on the right track. I'm in my mid-20's and currently planning and preparing for the future. This is a good thing to follow.

MITM- my advice to you is to emerge yourself into the budget and budget variance process of your organization. That will get you involved in all aspects of the organization. Become knowledgable with performance benchmarks within your industry and use this knowledge to help drive improved results. Knowledge is power and fiscal challenges permeate throughout every department within an organization, so your fiscal acumen becomes extremely valuable to department heads and administration. You can use this knowledge and skill to climb the executive ladder. Another suggestion is to seek your MBA or healthcare license if that is applicable in your State. Leadership and fiscal awareness are assets that should enable your executive growth. Good luck!

@mark

That isn't entirely true. You can be married to someone who does not share your frugal views, but still accumulate wealth. It is just infinity more difficult. I'm living proof.

Thanks for your very inspiring words! I must take the 4 steps as a guide: Work the income, manage the margin, save the surplus and ride the market. I think living below your means will be on step 3. Sometimes when we think that we have an income and it's okay to buy unimportant things, will really mislead us to become financially stable.

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