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January 31, 2013


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Wow. Paid for house, 525K, and can live off of ~24K year (much less without rental, though obviously no need to kick parents out of home ;-).

If you diversify that company stock (single company stocks lose >90% value all the time, the S&P 500 does not) and don't get into $40K vehicle lifestyle, you're pretty much FI now. Don't kid yourself if you do get the $40K car, it'll cost you a lot more than $40K, you've inflated your lifestyle and that will become a necessity from then on. But its easy for me to preach there, I don't care for cars beyond one that runs, dining out/entertainment/travel is my soft spot...

Instead of thinking retirement at 45, maybe start moving toward fewer hours sooner (IT consulting?) and doing that for longer. Though it sounds like you've already made a move in that direction with work/life balance, and if you really like your job its hard to beat that...

You rock

Maybe I missed this, but how did you accumulate $500K USD on your salary for a thirty-something?

Sounds like you're in great shape. I don't understand how though, as Mark said. I can't imagine buying a car that's more than 1 year's salary (including profit sharing!). That would not seem to be a good decision, regardless of assets. Unfortunate that there's no credible health insurance options, it seems like that's a large risk. I'm surprised you have a maid when your wife only works part-time. What about life insurance to take care of your family if something should happen to you?

At a 4% safe withdrawl rate, you have more than enough money to sustain your current lifestyle for the rest of your life without working. Diversify your investments and spend your time as you like, working or not. And don't give in to the hedonic treadmill of lifestyle inflation.

Responses from PI...

I have been planning to get rid of the entire stock & move to an index fund, but the problem is that the company is one of the better managed ones & very shareholder-centric, which is why the decision is being deferred. But I have to act...
I agree that $40K car is a 'want' and I don't think I would enjoy the associated lifestyle expenses. I've started looking out for $10K car that can handle a larger extended family OR spend $1K on my old car to keep it mobile for next 3-5 years.
I have not thought about the part-time work option, will explore that over the next decade.
Thanks for your kind words & helpful suggestions.

As I mentioned "I hit the ESOP lottery in my previous job" - I think I skimmed a net worth to the tune of 250K$ from that & a decent stock appreciation & avoiding a high-spending lifestyle (thanks to my wife) made up the rest...
I also enjoyed a stint abroad, but I don't think I had much savings (besides buying a car for cash) to show for that...

Unfortunately, Cars are expensive where I live, due to taxes & duties. I can see the stupidity staring at my face when you put it in context of my salary :)
Wife works because she loves to teach - I had to convince her to ask for a token amount instead of doing for free!!!
I think the maid expense might continue even if she stops working, mainly because it is part-time & affordable.
I'm sorry I missed the life insurance part: I had taken an insurance of about 60K$ after marriage & added 40K$ after we had a child. Currently they might seem moot, but I don't mind continuing as the expense is not major. In general, I think the assets should be able to take care of my wife & son in case of any eventuality.

PI stated that he hit the "ESOP lottery" and a major part of his net worth is in his former company's stock, which allowed him to take his current lower paying job.

PI, a $525k net worth + 100k house value (which should be included in assets unless your parents are immortal) at age 38 is incredible for India. In fact, it's higher than the average American. I would sell at least some of the company stock and diversify risk by investing in stock/bond index funds. An expensive car comes with expensive maintenance and insurance, but you also don't have to buy the cheapest car. Go for something in the middle (~$18k) to balance your wants/needs.

PI, I can understand about the impact of inflation in India,being an Indian myself :)( though currently residing abroad). Go for the time tested options , land and equity:)..Do let me know if you need any specific piece of advice.

PS:Please make sure you have a will ready , I have seen far too many cases where families have broken up due to lack of a will.

@Mark He made a bucketload of money off his previous employer's stock.

@PI Please diversify! That's the only hole in your armor that I can see. If I were you, I'd sell all your previous employer's stock in favor of broad indices ASAP. You have nearly enough capital to live off investment income already. By 45, you'll be completely made. Don't take the risk that your former bosses will ruin it.

PI- my advice is consider taking 30 - 50% of the single stock and put that into a basket of a few other things (gold, other stocks, bonds, etc) - this will help diversify what you have since it is such a high multiple of your expenses.

You are doing awesome, by global standards.


Your monthly expense looks great. Nice job keeping that down. I agree with everyone else and you should move some of that money in the single stock and diversify it. People have emotional attachment to their employer and hesitate to sell the stock. I sold my previous employer's stock last year and I'm very happy I did.
You are doing great!

I assume that ESOP = employee stock ownership plan ?
Or is it stock options?

Either way from the context its clear that Pi benefited greatly from growth of an employer stock program and thats a large % of his net worth.

Pi is doing very well. I would absolutely work on diversifying the stock assets. You can do it a little bit at a time to ease yourself into it. Maybe sell of 10% a month over the next 10 months or something like that.

Yes, PI is going great. PI, if you can't bring yourself to sell the company stock all at once, do it little by little. You really should sell all or most of it. Just do it a little at a time so it won't seem so drastic.

I salute you for keeping your expenses down. It's really kind of hard to do that when you start, but as they It'll get easier when you're used to it and the practices have been part of your system... I like your term 'diversify' it is better/best when you have more than one source of income.

I believe that your wife would find this website very interesting.
Khan Academy
The originator of this online system for teaching students various hard to grasp concepts (Salman Khan, a graduate of MIT and Harvard) has made a name for himself. A few of the most progressive schools in Silicon Valley have set up dedicated classrooms where the teacher and each student work with this innovative system on their own classroom computers and have had great success. Some while back the originator received a suprise phone call from non other than Bill Gates who invited him to his home in Seattle to learn more about the method and has now become big promoter of the method.

Dear PI, commendable. One more thing I would like to add, all the figures are to be multiplied by a factor of 3.5 if Purchasing power parity is considered. I think it should be considered as $1 USA is equivalent to $3.5 worth when you spend it in India.

Hats off to you for keeping the costs low. And you rightly said, the cars are very expensive in India. A basic hatchback costs around $8000.00 and if Purchasing power parity is considered its cost is equivalent to $25k plus. Gas too is quite expensive, its $5.15 a gallon (currency conversion) and $18 a gallon (Purchasing power parity)

Responses from PI...

thanks for the optimistic note. trouble is that there are no reliable studies on safe withdrawal rates relevant for retiring at 40-45 age group. i would like a setup where the assets are to a level such that withdrawal is inflation protected for enernity :)

thanks for the thumbs up. the reason i'm excluding the house in net worth is that we'll end up taking over that house at one point in future (i do not have plans to add more real estate to my list). i have already sold a significant part of the previous employer stock (initially to buy the remaining options, then to diversify my investments, later on to avoid taking loan on the house). over time, it has gone down from 90% of my net worth to 45% of my net worth & i intend to reduce it to around 15% over next few years. i'm inclining towards a 10K$ budget for the car, after sanity was knocked into me by Paul.

thanks for your advice. you are right - an unstable inflation rate does render many of the withdrawal rate calculators meaningless. i have a significant portion of assets in equity segment, however, i have tried to stay away from using 'land' as an investment option, primarily due to the fact that it is very difficult to diversify & it also ties up too much of one's net worth in one go. i am inclined to get a will done without the child's custody part & later revise it when i get the right set of professionals to assist.

thanks for your advice. i have been diversifying out of the previous employer stock over these years, but yet to reach an optimal level (10-15% of net worth). i like the thought of not letting earlier bosses have a greater influence on my life than current or future bosses :)

thanks, i have already pruned the holdings in previous employer stock to a great extent, but 'miles to go before i sleep'. thanks for your thumbs up!

thanks for the advice. i intend to continue acting upon on it till risk is low enough.

i meant stock options. i had to exercise the options by purchasing the stock on payment of pre-determined rates. i think it was sheer luck that i managed to increase the net worth without putting my money at stake, by rolling over the profits from each set to buy the next set...

point taken. i have been selling gradually whenever markets are euphoric, will continue to do so.

thanks for the thumbs up!

@Old Limey:
thanks for the tip. i had assumed it was acamedic in nature, but i do see some videos that would make an impact.

Wow, FMF blog goes global, someone from India actually reads and contributes to it. Interesting. I had also hit the ESOP lottery when working for Satyam. The stock appreciated to giddy levels. Like a fool I held on to it dreaming even bigger levels. Promptly over a couple of weeks, the stock crashes thanks to the CEO's revelation of corruption and my big dreams vanish! Alas, if I had only sold it in time and/or diversified. Anyway, good luck to you.

Wow- fascinating to read an entry from India. Thanks to FMF for sharing this, and for PI for writing it up.

To PI- congratulations on your success! You have created a strong position for yourself and you have a shot at preserving it. You stated that you were seeking a rationale for diversifying your stock holdings from your previous employer; here it is- you are trying to self-insure.

Read up on the volatility of single stocks versus larger diversified portfolios, and you will see why that large investment in your former employer is the biggest threat to your family's continued financial health.

I recommend moving 25% at a time if the idea of doing it all at once seems uncomfortable. If you want, leave 5-10% remaining in that one stock, but get the rest of the money out into broader indexes or a more diversified portfolio. But remember- you've seen tremendous gains with this one employer. What's the likelihood history will repeat itself? Lock in the gains by selling and diversify.

Responses from PI...

@Himanshu: Thanks for the thumbs up! I had a different notion about PPP, in effect I thought a factor of 5 was reasonable a decade ago, but inflation does seem to creep in steadily...

@AKS: I think the blog has global relevance because the basics of finance preached by FMF (spend less than you earn) holds good across the globe...

@PJinNC: Thanks for the encouragement. I have already dissolved almost 50% of the previous employer stock. Need to work out a firm plan to reduce it to 10% or so.

@FMF: Thanks for the wonderful opportunity & thanks to your readers for their thoughtful comments.
My key takeaways are:
- Come up with a plan to reduce single stock holding to 0% (or at least 10%) within 1 yr & stick to it.
- Decide to go for a car in 10K$ range to avoid inflating my lifestyle expenses
- Not be worried about my kid's condition as a potential financial issue (I'm glad no one noted that as an area of concern)

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