- How Has Covid-19 Affected Your FIRE Journey? Part 3 - June 4, 2020
- How Has Covid-19 Affected Your FIRE Journey? Part 2 - May 29, 2020
- All the Ways Travel Screws You Up - May 25, 2020
Hi friends, our inbox has been exploding with reader cases and since we’re in isolation anyway, I thought it would be a good time to pick one.
This one comes to us from a New York primary care doctor, who, before we get started, I just want to extend my sincerest thanks. Fighting the COVID-19 pandemic on the front lines, coping with mask shortages, and a medical system stretched to the brink, they’re fighting this unrelenting virus day in and day out, We salute you, brave soldiers of medicine. Thank you for saving our lives.
(note: e-mail has be edited for clarity and brevity)
I’m 31 and a Chinese-American. I DEVOURED your book in a day!! I am SO inspired by you guys and want to follow exactly in your footsteps!!
I’m a primary care doctor yearning to be an artist/blogger who lives all over the world, and I’d love to hit FIRE as soon as possible, ideally by age 35. I’m single, but I’m actively searching for a partner, and would love to world-school 1-2 children.
I’m doing freelance/contract MD work which can bring in $180k a year if I’m willing to work full-time, maybe $250-300k if I hustle and am willing to work in other states (I am).
I’ve lived frugrally my entire life, with living expenses of about $24k/year, or $2000/month, but I try to keep it to $1500 if I can. I’m currently in NYC paying $920 for rent + utilities. I do enjoy and splurge on food and activities/experiences though, so that adds around $500-1000/month.
I took a year off in 2019 to travel living off my savings $1000-1500/month in Europe, Morocco, and visiting friends, but I also made no income off my blog/freelance art/writing and online coaching attempts during that time. I can so relate to your entrepreneurial attempts!! But I hate learning about business/marketing, so I’d rather set up my FIRE safety net and then do whatever I want!
I have no debt thanks to my family (but as a result they act like they own me. They as rags-to-riches immigrants also, who think that FIRE is me resigning myself to a poor person’s life forever), and I don’t have any assets.
I have all my life savings thus far $110k sitting in a Marcus bank account right now and I’m just PARALYZED regarding how to invest it.
I have an additional $19k in a Roth account I’ve been building over the past 3 years with a financial advisor who’s taking 1%.
I keep hearing there’s a crash coming and have been waiting to buy low (more like procrastinating though, to be honest…), but then it hasn’t happened for so long, and I’ve heard that “Time in the Market is more important than TimING the Market.”
So I want to start investing $100k of my money in Index Funds before April 1, 2020 (before the next time I have to pay my financial advisor!)
He recommended I don’t buy all at once though, since they may be currently sitting at an all-time high. He said I should space out my buying over a few months at least, ideally 6. Or would losing out on the returns make this a bad idea?
I started a brokerage account with Vanguard. Because I’m a 1099 contractor, I don’t have access to a 401k/403b, but I’m considering either a SEP IRA or an i401k. Which of those do you recommend?
I can contribute more to an i401k (25% of my income + an additional $19k), but they don’t allow ETF trading, only mutual funds, but the Vanguard person I spoke with over the phone said mutual funds can be index funds as well (which was really confusing to me!! Do they just have higher MERs then, since they are more actively managed than ETFs? Is that higher rate worth it if I get to contribute an additional $19k/year?)
Theoretically… I realize I could achieve FI now with my situation, couldn’t I?! Page 266 of your book said the portfolio size would only need to be $89k if I lived in Thailand and earned $10K/year with living expenses of $13,560. I already have $100k, so I could set up a portfolio of $100k with a withdrawal rate of $4000 each year, if I lived in Thailand for some of the time and worked as an independent contractor doctor in the US 3-6 months each year making $45-90k (housing included sometimes with the gigs so I can still keep my monthly expenses down to $1100).
I don’t want to limit myself to only certain countries though, and this means I won’t get to avoid taxes as optimally, but I could do it, right?! And then slowly grow my net worth by putting whatever extra I don’t need into the portfolio each year?? I love the idea of working towards a more robust FI while getting to travel/live my dreams rather than buckling down in an office full-time for the next 3-5 years to hit $500k first.
Thank you so much!
Things have escalated quickly since we received this email, namely all the travel restrictions that have been put in place because the pandemic, and the S&P 500 down 25% from its all-time high in February.
We still have nomadic American and Canadian friends currently hunkering down in Taiwan, Thailand, and Sri Lanka, waiting for the restrictions to be lifted. So the nomadic life is still possible at a time like this, but it’s definitely geo-arbitrage on hard mode.
Given that NomadMD has the option to do freelance/MD work let’s see if her plan of nomadic life + side hustle will work out.
|Income (Net):||$120433 (estimated)|
Wait, what? You’re paying $920/month including utilities for rent in NYC? And you’re also a doctor? Wow. Now I’ve seen everything. I guess when your parents are bad-ass rags-to-riches immigrants, a small amount of hardship like cutting back expenses isn’t that big of a deal.
I can also relate to her itch to become an artist and travel the world. But remember, get rich first, then become an artist. Get the order wrong and you’ll be developing a taste for cat food. And with her earning potential and insane savings rate of 80% (that’s higher than our all-time high savings rate of 72% by the way), she’s doing a phenomenal job with her finances!
Since she only needs $24,000 to become FI in NYC, that’s $600,000 to become FI.
In fact, if we Math Shit Up, she’ll be FI in…
|Year||Starting Balance||Annual Contribution||Return (6%)||Total|
Less than 5 years!
That’s assuming she doesn’t get any salary increase (which is pretty unlikely for a doctor) or inflate her costs. Plus, a 6% return is average across long investment periods of 10 years, but her runway is pretty short in this case.
The good news is she’s at the beginning of her FI journey, and with the stock market on sale she can DCA into the market and pick up some deals with her $110K of savings, just like we did in 2008. By procrastinating until April 1, she’s inadvertently timed the market well. For the record, accidental market timing is the only type of market timing we endorse.
FIRE her Advisor?
She currently has 19K in a Roth being invested by an advisor charging a 1% fee. While that’s not the highest fee I’ve seen and he was right in telling her to DCA her investments, I’m leery of financial advisors, especially ones that take advantage of doctors.
You see, financial advisors LOVE doctors. Doctors earn a buttload of money but have almost no time what-so-ever to manage their finances.
This is where financial advisors ride in to “save the day”. This is why we know of many doctors with advisors who charge 2%+ on their investments and when you peel back the curtain, they’ve just invested them in these esoteric funds and bleeding them dry with high fees or churn their accounts with active trading.
The last time Wanderer got a checkup from his doctor in Toronto, as soon as he mentioned the word “FIRE”, his doctor immediately perked up. Apparently said doctor’s peers have a FIRE group that gets together periodically to help each other with finances. After they found out their advisors had invested them into shitty actively managed funds with high fees, they banded together, binged all the FIRE blogs and books, and decided to learn how to invest on their own.
So, should NomadMD fire her advisor?
Well, after I put in her actively managed portfolio (94% equity/6% bonds-cash split) into portfolio visualizer and compared it against our investment workshop portfolio with the same allocation, I got this:
Portfolio 1 in blue is her actively managed portfolio, and portfolio 2 in red is our passive index portfolio. As you can see, it tracked pretty well, until 2019 when her portfolio started lagging.
She’s paying an advisor an actively managed portfolio 1% to underperform? Yeah, now we know why so-called “expert” financial advisors love doctors.
Readers, if you’re with a financial advisor, do yourself a favour and use Portfolio Visualizer to evaluate their performance (can you believe this awesome tool is free?!) Compare it with the index and see if it’s worth the 1% fee. Do NOT just trust them. Remember, no one cares about your money more than you do.
Future Nomadic life + work part time
NomadMD says she’s 31 and ideally, would “love to hit FIRE as soon as possible, ideally by age 35”.
At her current savings rate, if she manages to keep investing as the market recovers, she could potentially become FI at around 35 or 36, which is pretty much on target.
However, given that she doesn’t plan to stop working and wants to bring in around $45-$90K by working part-time for half of the year and living nomadically for the rest, she could reach partial FI sooner. However, it’s not clear how long the travel restrictions will be in place. Once it’s safe to travel again, she could start by practicing local arbitrage by living in a less expensive place than NYC—though at her current spending of only $24,000 a year, I’d say she’s already doing well, despite living in one of the most expensive cities in the world.
At the low end of her estimate, with a part-time salary of $45,000, she would have a take home income of $34,488 in a high tax state like NY. If she continued to contribute $13,000/year to her 401K, she’d be able to net $24,351, just enough to cover her expenses, while growing her portfolio toward full FI.
In this partial FI scenario, she’d have to keep working part-time at $45K/year, putting the savings toward her portfolio and get to full FI in:
|Year||Starting Balance||Annual Contribution||Return (6%)||Total|
But if she buckles down and continues working full-time, earning $180K gross, she’d be able to become full FI in 5-6 years.
So, put your head down and keep working full-time to get to full FI in 5 years? Or go down to part-time now, live the nomadic life, and slowly inch toward full FI in 15 years? The choice is hers. Personally, unless there are health issues at stake, I would pick the buckle down and work 5 years toward FI option. It took us 8.5 years to get to FI, so if she can do it in less than half the amount of time, I think it’s way better bet than the slow burn option.
What about taxes?
She also wants to know whether she should open SEP IRA or i401K? Since we weren’t freelancers, we don’t have experience with either. Best to consult an accountant about this. If any of our freelance/entrepreneur readers have experience with either, feel free to comment below.
Partial FI now or wait?
I would say this is less of a financial question and more of a health-related issue. Since NomadMD’s expenses are so low and she has no debt or dependents, even if she went down to part time now, she’d be able to live off her part-time income and still save some money. But if she enjoys working full-time, it would be a good idea to put all those years at med school to good use, work for a few years building up her portfolio. Especially given the buying opportunity right now in the stock market, she has the advantage of picking up deals with her large arsenal of cash. We don’t exactly know when the bottom is, so instead of timing it and relying on emotions, split up that money into chunks and DCA into the market.
And again, as NomadMD is in NYC right now and therefore the epi-center of the COVID-19 outbreak in the US, stay safe, and thanks for everything you do. Let’s all get through this together.
What do you all think? What would you do in NomadMD’s situation?
UPDATE: NomadMD has given me permission to share her blog, where she writes about life as a doctor/artist. If you want to see her perspective on covid-19, click here.
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