$1M by 38 – checkup

$1M net worth by 38 is a general goal post I use to see if I’m on track for a decent early retirement.  I use this number for a bunch of reasons:

  1.  Certain projections show it is possible
  2. It’s approximately the same as the net worth of actual retired people I know (yes, they also have social security / pension income, but whatevs)
  3. It’s a nice round number
  4. 38 is not 40, so I can still pretend to be young.

Let’s say the condo is worth $400k (a recent sale supports this).  $48k of debt on it means $352k net.  Betterment balance is $138k.  That puts my net worth today at $490k.  I will turn 38 on Nov 6, 2022 (unless I’m dead, but I guess if I’m dead I won’t be able to correct myself, so meh… arguably being dead or not is still 38 years since my birth :-P).

Let’s say 5.5 years from now.  If I can save $6000 a month every month until then, that’s 66 months, $396k.  That’s $887k.

Allright, let’s make some simple assumptions.  They aren’t great assumptions, as I’ll explain, but let’s just do the calculation.

4% annual gain on condo would be $106k.  7% gain on $6k monthly is $155k.

$887k + $106k + $155k = $1.148M.  Okay, so those assumptions check the box.  I believe the stock market will return 7% over a long period of time, but it’s clear looking at the period 2000 through 2008 that when we’re talking about a time span of 7 years, there’s nothing close to a guarantee that the market will return that to passive investors.

Here are the factors working against me:

  1.  Shiller P/E ratio suggest -1.7% future returns on money invested now, not 7%.
  2. $6k a month invested will mean living like a hermit for the next 6 years, and that’s not attractive, so I should probably calculate it with $5k a month.
  3. 4% for the condo over the next 6 years probably also isn’t realistic.  The condo has already gained a ton of value, and the current (assumed) value of $400k, while low for the area, is still high compare to the median income in the area.  I know that my condo swings wildly during downturns.

If I believe the stock market is ripe for a significant drop in the next 6 years, then these assumptions are crap.  I do believe the stock market is ripe for a significant drop in the next 6 years.  Let’s look back at history:

  • The entire decade of the 1970s is a horror
  • Black Monday (1987)
  • Shitty economy in 1992 (dad was laid off)
  • Tech crash is 2000
  • Housing crash in 2008
  • It’s now 2017 and people say we’re in a bubble (especially tech), but no crash yet.

I am optimistic, so I believe even if I can’t get these returns from the housing or stock market, I could get them from something.  But to do that, I’d need to free up the money first (sell the condo, pay the realtor fees, figure out a better investment).

One strategy could be saving up money in bonds and then trying to purchase other condos in my area for (lots of) cash with the idea that when the economy comes back (later), I can cash out, and in the near term at least they would provide a cash flow from rents.  I don’t really believe the market will crash that hard though.  A 1 bedroom might be $250k minimum, and that’s most of the $396k tied into a very narrow deal.

The book I’m reading about psychology, it says that we try to minimize regret, and that we regret the actions we make that change the status quo, not really the actions we didn’t take to change the status quo.  I know I have a tendency to avoid changes in relationships and investments, and over time this has hurt me – staying too long in relationships that don’t work out, leaving my money with a loser investor for way too long.  I continue to try and collect meaningful data, but of course I don’t want to act on any part of the plan until I know where the money will land.  I write these blog posts to recognize the inaction as a choice so that it receives the same scrutiny as the action.


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