What’s Next?

Many of you have been asking what we will do with our money now that we are debt free minus the house.

This is also something I’ve asked myself.

In the short term, I plan on saving every penny to build up an emergency fund of three to six months of living expenses. This will also allow me to see what plays out in the European debt crisis this year. Also, I will be changing jobs and could use the emergency fund in case I am left unemployed or underemployed.


After that…

It is past time for me to begin investing for retirement, and I’m hoping that my large monthly contributions to a personal pension plan will help me eventually catch up to where I need to be.

I’ve written before about the Permanent Portfolio, and at this time I am giving serious consideration to following Harry Browne’s famous asset allocation plan.

If you recall, the Permanent Portfolio is simply placing the money you can’t afford to lose, the money you will need for retirement, into four asset classes for proper diversification during all types of markets: 25% in stocks, 25% in cash, 25% in gold and 25% in bonds (Treasuries).

This type of portfolio needs no broker and only requires a yearly rebalancing. I’ve seen charts and studies that showed the Permanent Portfolio returned over a 20 year period between 8 and 10 percent. That’s more than enough to satisfy me. The truth is, you  have to be disciplined and happy with measured returns rather than jumping to the next big thing in hopes of large returns.

For the stock portion of the portfolio, I’d do a low-cost no load index fund from Vanguard, either the Vanguard 500 or their Total Stock Market fund. I’d also buy another fund to give international exposure, maybe fifteen percent of the stock portion.

The cash portion might as well be kept in your bank savings account where you can get it, and along with the gold, keep a portion at home in case the power is out and the banks are closed.

I believe that US government bonds can be purchased for a low-cost directly from Vanguard.

The gold would most certainly be in the form of bullion coins, whatever is the best price. In the event of domestic turmoil, a large sum of internationally-recognized money could be easily carried to a safer country.

I would also like to keep a small “casino account” for the purposes of speculating with short-term trades. This would be money that I could afford to lose. This is not a priority for me, and in fact, it is more likely that I will enjoy the autopilot approach of the Permanent Portfolio enough to not even want to speculate.


A Boglehead’s Approach to Investing

I’m currently reading the Bogleheads Guide to Investing. The Bogleheads are an online community of people who follow Vanguard founder John Bogle’s approach and advice for saving, which advocates the use of no-load, low fee funds that track the performance of an index, like the Standard and Poor 500 stock market index.

I admire their do-it-yourself ethos and willingness to be helpful to new investors. I will definitely be lurking about in their forums for months to come.

In the meantime, I’ll be acquiring cash and acquiring knowledge.


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38 thoughts on “What’s Next?

    • Michelle I wouldn’t consider yourself behind in retirement investing at all. Very few people have anything saved up at your age.

      John that investing plan sounds good, although I don’t see the point of keeping 25% in cash. To me that seems like way too much to be sitting there losing value to inflation.

      • Actually Michelle, there are several reasons for the cash sitting in there.
        1) safety net that ensures a very stable portion of your account
        2) cash for purchasing stocks/bonds while waiting for funds to be transferred into the account
        3) if/when one becomes somewhat comfortable with the stock market and working with dividend stocks, they could always temporarily purchase some dividend stocks for say 6 months, and grow their portfolio a little faster (obviously one would have to keep a closer eye on that portion of the portfolio).

  1. Sounds boring. I’m glad I still have debt….way more exciting! 😉 <—possibly the mad jealousy speaking.

    Sounds like you have an amazing plan. Be sure to have a little bit of fun, too, John!

  2. I agree with Michelle! Make sure to have fun–weren’t you the one who wrote a post on what you’d do with a million dollars? 😉

    Savings are so important-I have all but drained mine being unemployed for four months but I was SO SO glad I had it. And now that I am working-some of the money has been used to build the site. Have I told you how much I love the new look? No, really. I do!

  3. I love retirement savings – every time I put some money away toward it, I think about how much time in retirement it will buy me. Congrats on being debt free and good luck!

  4. I don’t think you’re really at the point where you’d want to implement defensive investing. 25% cash? 25% gold? No thanks. When you’re 60 and retired and can stomach a 25% loss but not a 50% loss, then go for it. But when you’re trying to build wealth? Doesn’t seem like the prudent choice.

  5. What a great question to wonder, “What to do without debt?”. Love that you have a plan. I love Vanguard. They are easy to work with and have super low costs. It will be fun to follow your journey from this point on.

  6. Congratulations! You are now discovering what too few people go through: nothing less than a change in your identity, from a debtor to an investor.

    There is nothing in between, is there?

    This identity shift is a lot more profound than anybody anticipates. This is when you realize how easy it was, in a way, to pay off debt. Now it’s different. Now you have choices you never had. You also have temptations to slack off and spend more.

    For example, simple logic says when you pay off your car, you keep putting that amount into a car fund. You’re used to living without that money, and this car will need t be replaced soon, so it should be a no-brainer. Yet how many people do you know have done that?

    So many people can’t handle this identity transition, and simply fall back into debt, for no other reason that it feels more comfortable managing your life around “making payments.”

    • You might want to consider looking at a few dividend type of stocks. While the price may fall, a lot of them seem to be somewhat cyclical, such as SDRL, AGNC, etc. Of course there are the PG and other much more comfortable paying dividend stocks.

      Full disclosure: I have owned and may purchase additional stocks mentioned. And in my particular case, I happened to set the buy/sell points at very good points to achieve over 20% in a year. And NO, that isn’t for the faint of heart. 🙂

  7. Have you given any thought to real estate investing? The Permanent Portfolio theory is interesting and the returns certainly do nice over the last 20 years (probably in large part due to the major increase in Gold over that time). If it were me I’d stray away from the 25% in cash and put 10-15% of that into stocks and leave the cash savings at only 10% or something.

    Good luck learning all that you can!

  8. I like how you opened this conversation on what’s next by talking about building an emergency fund of 3 to 6 months. Good idea. Personally, I lean toward the 6 months timeframe more than 3 month. Regardless, an emergency fund is a big deal and for me anyway, was a priority to fund.

  9. Nice new site design! I have never heard of Harry Browne’s asset allocation, but the mix is intriguing! I would not suggest buying bullion directly, but rather investing in an ETF that invests in gold – only because buying physical gold has some serious drawbacks on the purchase mark-up and re-sale discounts.

    The Bogleheads book sounds interesting. I am a big fan of Vanguard. As much as I’d like to, it really seems unlikely that you can out pace an Index Fund for very long, which only fuels the argument for low cost funds like the Bogleheads suggest.

  10. Congratulations! Planning and saving for retirement can be exciting too. 25% sounds like a lot to keep in cash, but looking forward to hearing how it goes.

  11. How often are you going to add to the portfolio? The main reason to use a Vanguard index fund is cost. If you aren’t going to add to it much, switch to an ETF instead and save even more. The Vanguard Index 500 fund can’t compare to Barclay’s IVV (S&P 500 portfolio) which buys the same stocks.

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