What's new?

 Well, what IS new, after all? 

I'm retired is what's new, mostly. After a long interval of looking, applying, interviewing and trying, I came to the conclusion that retired is the place to be. 

Now, there is a back story that will make it a more rational choice. in 2020, when everything shut down, so did I. Depression, with catatonia; the big sleep, of sorts. I checked out, entirely. No motivation to anything. Not even getting up, eating or drinking. 6 months of sleep, essentially. The only problem; I was 2/3 of the way to starving to death. I wasn't quite a scarecrow, but back to sophomore in high school weight. Increasing alarm on the part of family brought me to help in the form of ECT treatments. 25 of those put me back in the land of the living, with some side effects. When I gathered enough sense to begin to think for myself, I remembered my LTD policies. I applied and was accepted for benefits. The short version is, I can't go back to being a general surgeon for multiple reasons, so I qualify as completely disabled. That means enough disability income to replace a teacher's salary, anyway. It pays our bills. And, we don't really need access to the retirement funds. So, I'm not compelled to seek other employment. I am left with time to figure out "what's next?". I'm working on that with an executive coach. Depression is a bitch, and it doesn't just magically go away. It can be manageable, which it is, for the most part. Motivation is the big issue and I am much more a thinker than a doer these days. Side effects did not resolve completely. I am left with a word finding issue and some blocks of memory loss. Mostly I get along without too much difficulty. 

Living in the moment is a new skill, one that isn't learned instantly. I probably knew how once, about 50 years ago. I'm getting better at it, but I slip easily back into the state of free floating anxiety about the fact that I should be doing something gainful, only without an obvious objective. So, I practice assertive change in thought patterns, meditation and whatever way I can think of to get free of the urge to "go". 

I have experienced COVID in a significant way, also impacting my pathway towards a new equalibrium. I've had the acute form twice, roughly a year apart. In each case, I contracted the virus at the end of a vaccination interval. After recovery, I then got my booster, twice. I experienced many months of trailing symptoms, putting me in the Long COVID category, experienced by perhaps 10% of all who have had the acute infection. First there was POTS (positional orthostatic tachycardic syndrome). The second round added nausea/vomiting to the other symptoms, so I decided to rule out life threatening coronary disease with a cardiology consult and nuclear cardiac scan. Recently, I began experiencing muscle soreness and cramping after modest exertion. Instead of recovering like one would expect, it persisted and worsened. I stopped the statin I was taking. Thus far, this hasn't changed my status. There's a syndrome called PEM (post exertional malaise) which behaves alot like ME/CFS (Myalgic encephalomyelitis/chronic fatigue syndrome), that has been associated with long COVID. This raises all kinds of suspicions, but there aren't routine diagnostic tests for these entities, so my approach is to excercise patience and see what transpires over time. This stuff threw me off my pathway towards equanimity, however, and I had to both receive and embrace the physical phenomena as well as the mental/emotional effects of having been "sidelined". 

All this experience has reinforced the fact that I am in retirement from my former career as a clinician and surgeon. It doesn't mean I'm done with meaningful engagement in the public square, but it does mean that until the inspiration strikes and the opportunity presents itself, I am in a sabbatical mode, reading, studying, meditating, corresponding and working with the coach to help chart the path into the unknown. 

I am no longer much of a saver, just a bit from my 0.05FTE position as medical director of the laser services business. I defer about 20% of my modest stipend, adding up to a few thousand dollars each year into a basket of mutual funds. The bulk of my life savings is distributed between IRAs that roughly follow my dividend growth objectives, but with some additional diversity recommended by the investment advisors. I could reclaim my role as independent manager of my retirement portfolio, but some irrational relationship constraints keep me attached to the advisors, as significant cost each year. Since I can't resolve the opposing positions of hiring expertise versus trusting my own investment sense, I have kept the advisors. I think I'll begin building a parallel set of accounts to give me something useful to do and scratch my investment strategy itch. 

My wife and I are in between the contributor and the recipient phase in our retirement assets. We are both earning income on a part time basis, contributing to 401k accounts to take advantage of the employer match, but also supplementing our monthly income stream with modest distributions from the IRAs. I am taking episodic distributions from my Roth IRA to support a sizeable remodeling project on our home. My hope is that the current market performance will maintain the corpus of our retirement assets during this interval and once our remodeling project is complete, we'll have lower expenses and will begin the planning for "downsizing". The first phase of downsizing will be simply to resume renting out our ADU in the basement and reducing our financial footprint, once we're able to move back into the main floor of our home. We have one significantly increased line item in the expense ledger; college tuition. That'll be with us another 3+ years. 

I think we'll be ready to leave the current home about when Alex graduates from college. That gives us 3+ years to upgrade, enjoy and wait for a better interest rate environment to exchange residences. That also means age 67 for each of us, perhaps the right time to apply for our SSI benefits and kiss employment goodbye. 

When I started this journal, I didn't know how I would be prepared for retirement. I had no timeline,  certainly didn't believe I would leave my surgical career earlier than late 60's, even 70's. Life turned out differently. Still, we have enough saved and working for us to be secure and meet our obligations. God is good, thus far we enjoy reasonably good health and look forward to where we'll land when the boy is fully fledged.

Time marches on...

 It is November 10, 2022; 

two days past the national mid-term election, with a few outstanding races still undecided as the last ballots are counted, with control of Congress on the line. As far as I can tell, the financial markets have paid almost no attention whatsoever. We're in a new era this year; inflation is back with a roar. The federal Reserve is doing what it has done previously to get it under control; raise interest rates. There has been a correction in the stock market, the word recession is increasingly being used amongst the forecasters even as employment is at historic highs and personal discretionary spending remains robust. 

My wife and I excercised what is known as a 72t early and substantial distribution from retirement assets, a program that avoids the early withdrawal penalty from 401k, IRA assets, starting in 2019, I believe. This coming year, we will no longer be obliged to make that withdrawal, but in the interim we went from high-earning to middle-class average yearly earned income, so we'll probably continue to withdraw at some rate. We are also past the magic age of 59.5, so there won't be penalties regardless. And, we have funded Roth IRAs, opened a joint expense account to which we both contribute a portion of our earned income and distributions. Our boy will graduate from high school this year, has college plans and will take a big piece of our cash flow with him to college. I'm not complaining, only understanding that we will make substantial changes in our financial practices coming up soon. 

At this time, there doesn't seem to be a reason to change our basic investment strategy or expectations, other than to anticipate that capital gains are not assured by any means, and capital losses don't mean we have to sell and buy treasury bills.

Yet another pivot, but no change in overall goals.

So, I did it.  

 I recalled that account from the advisor who took a walkabout from the service I wanted him to provide. I sat on the cash for several weeks. Then, slowly, I dusted off my old routine, began reading about the status of the market, began looking for fairly valued/undervalued dividend paying, dividend growth equities. Over several weeks, I got back to fully invested. I still have a lot more cash in a bond fund that I haven't touched; more on that later. 

As a preface for the following, I should mention that I am on the cusp of returning to work. After a long and thorough search, I now have three, count'm three, opportunities in front of me. I am pursuing all in parallel, assuming that one or even two could fall through. I have the real prospect of returning to the kind of earnings I once had with quite a bit less effort than I expended back then.

 I also had a follow-up conversation with the advisors who hold the other half of our retirement assets. I put the screws to them to explain in more detail how their services distinguish them from average, and why I should continue to pay them for overseeing my accounts.  Frankly, they did a good job of it. And, wonder of wonders, I decided to go ahead and consolidate all of our liquid assets under their management. In one sense it seems exactly opposite of my thoughts only a few months ago, but then, I am returning to work, and the single most productive use of my time is in doing what I know best, functioning as a physician. I was also able to get a good  look at performance of the funds, which convinced me that the account performance far outweighed the management fees. 

I intend to continue to be an interested and engaged participant in the management of our assets. I have principles I'd like to see tested and validated. After all, it's my money. I'm not resistant to the advice of professionals. I simply want to understand the source of their recommendations. So what about the bond fund? I think I'll handle that issue through dialogue; it represents only about 10-15%of the entirety of the asset base, but a big enough chunk to make a measurable difference in growth/earnings if deployed into other asset classes. Which ones?  let's see what the experts say.

Principles;

1) Our retirement assets are a business. We are the owners of that business. 

2) The business will eventually need to pay our expenses, without eroding it's basis. I'm not interested in a shrinking business. I'd like it to maintain itself, taking inflation into account. Better yet, I'd like to see it grow. 

3) Success in our business is not determined by benchmarks. It is determined by an acceptable level of performance according to several metrics. As a conglomerate, each component needs to perform at minimal levels, or that component should be sold and replaced. 

a. Earnings and earnings growth; Positive earnings yearly, earnings yield of 5%+, and 6-7% earnings growth is a good target. 

b. Dividends and dividend growth; across the portfolio an average of 3% dividend yield, and 5+% dividend growth are thresholds for holding, consideration of sell/replace. 

c. Quality; credit rating, presence or absence of volatility. I like steady-Eddy companies. Cyclical is not my thing. 

d. Diversity; look for diversity across market sectors. I'm not all that interested in international holdings as a class for diversity sake. I feel like 50 individual holdings is more than enough to insure against a total meltdown in one or another component of the conglomerate. Diversity in asset class (healthy component of real estate) as well as earnings methods. sales, services, rents, debt service, etc.

e. Valuation;  important at purchase, potentially useful at a point of re-balancing, otherwise it can be ignored as long as other metrics are holding up. 

f. Growth;  growth is good, but there's nothing wrong with a company that is highly profitable and rewards it's owners in a slow-to-no growth sector. I can achieve growth in my position with reinvestment. 

The overall goal is steady and growing income, with reinvestment as appropriate, depending on the need for cash to cover expenses. We don't require "rich" to be secure and content. Our goal is "enough" and a secure, growing asset base and stream of income. I don't see a time when we should sell the business.

I'm taking the plunge, hiring myself...

So;

Another few weeks of deep reflection have yielded some movement in the retirement investing arena. I'm moving back to personally managing my retirement assets. Incrementally, I might add. 

The why's; I have always been somewhat uncomfortable with the cost of professional advisors under either commission or AUM methods of compensation. I just can't get comfortable with how much of the asset performance they charge. Recently, one of my advisors spun out of control, in my assessment. He blurred the lines between advisor, friend, potential business associate;  began "pitching" a new set of relationships, dangled a potential business proposition hidden behind an NDA, making me increasingly uncomfortable. In addition, he became difficult to pin down to an actual meeting. I scheduled and rescheduled, couldn't seem to capture his time. I looked carefully into what I was receiving in the way of management expertise, became convinced that I can duplicate this easily without a broker/dealer relationship and initiated transfer of my assets, notified him of my decision. Now, I'm just waiting for the funds to show up in my Fidelity account. The other half of my retirement assets are with another adviser, but with the identical AUM format. It's much easier to schedule time with him, but I'm not sure I am receiving any more value for the fees. So, we'll meet and review the whole situation in a week or two. 

Behind the why's;  in a few short years, I went from short on time/long on income to short on income/long on time. Asset management fees are costing at least 10% of my prior take-home pay after taxes and retirement account deferrals. I can no longer offset those costs with additional contributions, at least for the time being.  

What will I do with those assets?  I intend to remain fully invested, with a bias towards dividend/distribution paying investments, diversification across sectors, a modest, focused micro/small-cap exposure, tilt towards value versus growth, exposure to real estate investment. I'm going to look very hard for alternatives to a big position in bond funds to anchor the value against market corrections.  I want an average of 3% dividend yield, reinvested via DRIP, 12% total yield if possible, although I'll be satisfied with 7-8% with high quality companies. I have several reliable sources of research; it won't be difficult to sleep well at night, and I'll be paying myself between 10-20k in expense reduction. That's worth 80-160 hours of labor at my prior earnings capacity. We'll see if I actually spend that many hours managing/monitoring the accounts in the next 12 months. I'll do my best to avoid simply comparing total yield to big market benchmarks as a means of measuring performance. If I'm to have an income producing "business" whose capital assets are equities, I need to deliberately build that business and manage it according to capital value, income generation, expense control, reinvestment for growing income. I will have to become comfortable trading "advisory expertise" for investment of my own time/labor in running the business. 

Am I being prudent? Am I being impulsive? Am I responding to frustration/boredom? Is this "right" for me and my family? All good questions... right now, I'll engage with 50% of our retirement portfolio and reserve judgement on the other adviser pending our upcoming meeting. 

 

Courage, Change and other weighty concepts

 There are times and events in one's life that call forth the need for courage. Often, something has changed, is about to change, and a response is required that takes courage. For me, things changed when burnout/depression destroyed my career. In retrospect, things needed to change, I reacted poorly to the need to adjust to change and I was the architect of my own demise. So, the circumstances changed dramatically, and not in a way that I would have planned, had I been on my toes rather than on my heels. 

I didn't lack courage in the resistance to change. I put up a spirited, prolonged resistance. It wore me down, in addition to the usual daily burdens of a busy surgical practice. And, I lost the trench war. Then I lost even more. My alternative solutions also failed, for the most part. So, I went into hibernation. Now I'm out of hibernation, re-assessing every aspect of my life, my values, opportunities, ways to step forward into the future. Turns out, this takes courage as well. 

Courage and motivation go hand in hand. It's hard to show courage when one lacks motivation to take action. Sometimes it takes courage to sit on one's hands, let other parties show their hand, let transient things pass, not react to every stimulus. Courage may partner with patience too.  What are the values that drive deliberate and successful response to change? Let's give it a try...

1) Courage

2) Motivation

3) Patience

4) Persistence

5) Optimism

6) Humor

7) Self-respect, respect for others

8) Forgiveness 

Maybe there are more; I'll keep an open mind about this list. 

With respect to preparedness for retirement, its useful to think about what has changed, what remains the same over time.

What is the same?

    a) need/desire for security

    b) need for confidence in the plan

What has changed?

    a) expected "retirement" date

    b) lifetime earnings expectation

    c) personal/professional identity

    d) potential for further moving/downsizing 

    e) goals/aspirations in career/public life

One aspect of my current status of "in-between" is re-evaluation of my relationship to money, our accumulated assets, our advisors. 

I have allowed our insurance advisor to morph into wealth manager for roughly half of our retirement assets. I have split our corpus of retirement assets and placed the other half with another advisor. These  advisors both follow a similar model; they are brokers for other entities that actually do the investment management. So, what are the broker's responsibilities? There is certainly a component of attention to "comprehensive". How well that is done, how that fits the view of the customer (me) is part of the question. Have they heard me? Have they addressed/answered the persistent questions I have about the philosophy of managing our assets? Perhaps it would have made sense to split the assets a different way; i.e. use an advisor for Kathleen's accounts and keep my accounts "self-managed".  Or, search harder for an advisor with a style that synches with my interest/need for a hand in the architecture of the financial plan. 

What would I like to see in our investment portfolio? 

1) would like to see, clearly, the assets produce cash-flow into the accounts; that means interest and dividends. Since interest is nearly non-existent, it means dividends/distributions. I want to see 3-4% cash flow in distributions,  growing by 7-10% in dollar amount yearly. 

2) I would like to see diversification across asset classes, excluding bonds/bond funds/cash equivalents

3) I would like to find a suitable substitute for bonds, for the reasons they are normally included in asset allocation

4) I  would like to see certain principles applied in active management; attention to valuation, dividend policy,  a low beta, recession/correction resistant industry, etc. 

Is there something fundamentally wrong with either the asset allocations or the investment strategies of my current managers. No, not really. So, why am I vaguely dissatisfied with the arrangements I have. Partly, it's the nature of the relationship. I don't hear them thinking, I don't get to think along with them. There is less interaction/engagement than I'd like to have. There is an opacity to the whole thing that I don't like.

From a technical standpoint, I am continually losing access to the websites that record our assets. It's a username/password issue, and it's very frustrating. Also, the reporting on the websites is not all that easy to understand. 

So, where should I show courage and effect change? Do I simply demand more service? Should I seek out and hire a new/different advisor? Should I simply call the funds back to Schwab or Fidelity and save the advisor fees?

 

Independence Day?

 It's July 4; 

Thankfully, for whatever reason, I'm not hearing any noise yet to suggest to me or my hounds that random explosions could be occurring all around us. It's hot, dry and I live in a suburban forest, which could easily combust with adequate provocation. 

Independence Day; what does that mean, beyond the strictly historic definition. 

Are we, am I, independent? If so, from what?  Seems to me, I (we) are far more dependent, or inter-dependent than we are independent. As a nation, we boast of our independence. We crave it, believe in it, define our national character by it. But, in order to have a future, we'll have to embrace the fact that our border has little to do with what we need to do to secure a future for ourselves. The underlying forces that define the conditions under which we live do not respect borders. We are both dependent and interdependent on how we embrace changes needed to preserve a world in which we can all live.

An underlying theme of this series of messages has been financial independence in retirement. How sad it would be, after all this time and effort, if I could not support myself and my wife in retirement,  after we launch our son into the world in a very few years hence. 

In our working/producing years, we pay our way mostly by earnings, measured by the size of our paychecks. One goal shared by most earners is to earn in excess of one's basic expenses, so as to accumulate assets, or wealth. If one earns enough and socks away enough earnings, then retirement has far fewer worries. Most of us will not earn enough to put enough away in cash-equivalents to secure a 30+ year retirement. The excess earnings must also earn. Wealth generation is about owning a growing pile of assets. Security in retirement is about the ability to collect cash from those assets, or turn them into cash at a rate that will last to our last breath or beyond. That is financial independence. 

One can define financial independence as the point where one no longer needs to generate earnings by one's labor; i.e. the ownership of adequate assets that their earnings covers one's expenses. Buried under that simple definition are alot of "if's". One is independent IF;

1) Assets are larger than one's current and future expenses

2) Expenses do not grow in excess of assets and/or income derived from them

3) Timeline to one's own demise is equal or shorter than planned

4) One does or doesn't need or desire that assets remain at the date of one's death. 

Couples need to take "last to die" into account. Some expenses are fixed, others are variable, many tend to increase, at least at the rate of inflation if not more. The ideal wealth management strategy is to own enough assets of a sort that generate passive income, that those assets grow in value in excess of one's living expenses and the rate of inflation, so that one isn't tasked with accurately estimating the timeline to death. There's always philanthropy as a means of dispensing with excess assets when they are no longer needed. 

One needs to turn assets into cash flow when no longer laboring to earn wages. The dominant paradigm is to "invest" in a broad spectrum of asset classes, aim for the highest possible value, then turn assets into cash towards the end of life. A different approach could be to acquire assets that generate cash, hopefully growing amounts of cash such that one doesn't need to divest of assets in order to cover expenses. Personally, I like this idea far better than simply piling up assets. I would prefer to own assets that generate a growing stream of income. That's just me. I can choose to take passive earnings as cash to pay expenses, re-invest in additional assets, give away to causes that are meaningful to me, support my heirs while I am still alive, spend a little "mad-money" now and again. I'm past the point in life where I need to accumulate more stuff; in fact I need to steadily off-load the excess stuff I already own that doesn't enhance my life now and into the future. 

I have a wife and one son. For my wife and I, "last to die" is meaningful. Almost certainly, she will outlast me. We have accumulated enough assets to sustain us if we behave reasonably. She is substantially protected by a permanent life insurance policy I purchased many years ago which will substantially recharge her assets on the date of my death. She has a similar policy, albeit somewhat smaller, that could do the same for me if my life extends past the end of hers. We don't have the goal to turn our son into a trust-fund baby. Still, at a point further into his life, I'd like to relieve him of the worry about adequate retirement assets. That'll be the subject of our estate plan, provided residual assets remain after we're both gone. There are others we could also include in that plan. We both have siblings who have had less financial success than us. We have nieces and nephews, grand-nieces and nephews, eventually may have grandchildren. There are institutions to which we owe some of our success in life. 

I may re-enter the workforce, provided I can find an acceptable means to do so. If not, we have entered the consumption phase of our adult lives and must make our retirement assets work for us. This puts more emphasis on the nature of those assets; I fundamentally don't like selling assets to pay expenses. That'll be the subject of my attention in retirement investing going forward. I guess I should pay some particular attention to how distributions from our retirement accounts are taxed to understand the difference between dividends/interest and sales of shares/capital gains.

Here we are,  already at mid-year, a short 9 days from the official start of summer. I have been "awake" for 8 months, anchored mostly at home in pandemic associated isolation. Since being vaccinated in April, I am increasingly getting out in public and I've been engaged along several fronts in preparing to re-enter the public square. I have been paying more specific attention to retirement assets, due to my need to occupy my time, my lower overall income and a re-emergence of my interest in investing as a topic of interest now that I'm not working at a day job. So, I'm considering the possibility of returning to self-management of my IRAs. Why would I do this, having split our assets in half and employed two professional money management firms about 2 years ago?  

Several features of professional management don't sit very well with me. First is reliance of funds and funds of funds for diversification. I know this runs against the common wisdom, but even no-load low fee funds bleed off fees, and include low performers within their investment portfolios. I personally think that one can make choices amongst equities based on principal, which can better serve the individual investor's needs, even if the total return may be different (i.e. less) than indexed funds. 

Second, advisor fees. both of my advisors take approximately 1% of assets under management. That's with or without much work. 1% of assets under management is somewhere between 3 and 10% of total return/year. That's not peanuts. Over a few decades, the difference adds up to very substantial differences in overall portfolio performance. 

Third; the asset allocation models, even "aggressive" approaches, includes fixed income classes such as bond index funds, whose performance is currently pretty poor. I think there are alternatives that can provide non-correlated performance to the SP500 or total market index fund returns. In today's environment, holding assets in bonds is about like having a savings account. If inflation increases, interest rates rise and bond prices drop. Bond prices are unlikely to rise much further, as bond interest rates are near zero, so there's barely any upside at all to holding bonds. They are a "hedge against inflation" but don't do much to enhance portfolio performance. 

Fourth, I'm not a fan of harvesting dividends and selectively reinvesting them; perhaps it makes more sense in a fund-based investing scheme, since the investor can't adjust individual holdings weighting, but it tends to obscure the overall performance of pieces of one's asset allocation. When I own individual equities, dividend reinvestment is a decent fraction of an individual holding's performance, and it isn't obscured by purchases made from another holding's dividend payout. I much prefer DRIP investing, which allows me to clearly see total performance of a given holding. An increasing share count is very meaningful when one wants to build a portfolio that can produce enough cash to support distributions in retirement, and DRIP is a really good way to grow a position. Every distribution results in a larger position (number of shares) irrespective of what price is doing. 

 Building cash within a portfolio assists with rebalancing strategies which may or may not be on a quarterly basis, reducing the amount of buying or selling of equities to carry out the rebalancing. Building cash is also helpful if one is living off of distributions. Once one has a portfolio large enough to safely cover living expenses out of total return with some margin of error, precisely matching or beating the market is no longer so important, but it certainly is useful to attempt to continue growing the asset base, i.e. earning more than one is withdrawing. 

 I have some compunction about kicking the advisors to the curb; however I think there must be a compensation scheme that is more performance-based than AUM. Perhaps I should research that topic a bit before taking any major moves away from professional management. After all, I wouldn't expect any of the managers to switch to self-serve surgical care, and I am paid for my work, even if complications occur. I do my best and a portion of the outcome is out of my hands. Likewise the money managers...

I'll be revisiting this topic periodically as the months go along. If I'm successful in defining and executing on my plans for an encore career, the incentive to self-manage retirement assets could easily reverse itself again. 

What a difference a few years makes!

 Today is Saturday, April 24, 2021. 

I am opening my blog for the first time since 2019. 

Really...

The last entry was in 2019. I can remember precisely where I was the last time I attended to this hobby. I read the most recent post. I had a plan, was executing it to my own satisfaction, and then life happened. Where do I find myself today? How does it relate to the original motivation and primary subject of the narrative? 

I am in transition. I am re-examining ALL of the assumptions I acquired and relied upon to build the life and strategy for personal satisfaction with my career as well as financial freedom. To keep the interim story brief, it involves a personal breakdown, a mental health crisis and the long and winding path to get back to a place where I can function in the world. This all happened precisely concurrent with, but not because of, the COVID 19 pandemic. In early 2020, I hit a wall with burnout, then depression, and essentially "checked out" for 7 months. I "awoke" to find myself in a set of Depends and a Foley catheter, at home. I got free of the Depends and catheter, completed some intensive psychiatric intervention lasting all the way into February, and am continuing on a pathway of gradually reconnecting with family, friends, former coworkers and colleagues, carefully examining how I got to that place of incapacity and exploring "what's next". Enough about that...

Where does 2021 find us with respect to financial stability and independence? Many moons ago, starting in 1989, I purchased 3 consecutive personal disability policies. Together they add up to about 1/3 of my peak monthly take-home pay. They are sufficient to cover my mortgage, health insurance for my myself and family, and major monthly expenses.  We are in the 3rd of 5 years under the 72t "early retirement distributions" or "equal and substantial distributions". My wife went back to work to cover a sudden and unexpected gap in staffing in our co-owned laser treatment business, has just dialed back from full time to part time after just over a year with her finger in the dike for that business, which motored through the pandemic-associated isolation of 2020-2021 with only a slight hiccup last year. In the current status, that business provides us with perhaps $4000/month of passive and active income. We are operating on a total of approximately $17,000 per month in cash flow, which is more than enough to meet all obligations. We carry just under $1,000,000 of total debt( ughhh..) and our retirement assets continue to grow even though we are taking 3% of the corpus in yearly support and our contributions have dropped dramatically since 2017, the last year of my burn surgery practice. 

Where would I like to be?  I would like to be debt free. I would like to figure out "what's next" with respect to dominant professional activity and income. These two are not necessarily directly related, but may be if the right opportunity(s) comes along. I am actively investigating options, but without great urgency, as being disabled from the standpoint of practicing general surgery has afforded me time to figure out how I'll use training, knowledge, experience and skills in something other than full time clinical practice as a surgeon. There are a number of things that I miss greatly about my former career and life, but many things that clearly contributed to exhaustion and breakdown, things I don't wish to carry anymore. 

How has my personal experience, the performance of our retirement assets effected my attitude towards retirement investment?  First;  I could actually now "be" retired. I might "un-retire", but the right circumstance may not evolve to bring me back to earning a wage adequate to fully support our current obligations. Second; Our retirement assets have proven themselves capable of supporting a modest draw and have still grown satisfactorily.  Third; nothing has changed with respect to the value of a dividend growth approach to equity investing. Will I return to self-directed investing. In spite of substantial management fees, it's not likely that I will fire the managers at this point. I have a Roth IRA still under self direction in a Fidelity account that doubles as an emergency fund, since I can withdraw from it without penalty or tax obligation if absolutely necessary. I did, in fact, draw on it when we loaned our business the purchase price ($55,000). The business is paying it back via a 5 year note at 6% interest. 

For 22 years, I maximized pre-tax 401k investing. That asset now provides nearly 1/3 of our monthly net income.  For 27 years and counting, I have contributed to a whole life policy that is now mature. Premiums are paid from the investment returns from the cash value. All insurance premiums are paid from passive income. The disability policies are paying the taxable equivalent of a 6 figure salary, projected to last until age 65 and beyond. The transition from savings contributions to savings distribution is a reasonably complex, unexpectedly early development. I believe I have 7-12 years of remaining useful professional life, health and motivation allowing. Sometime in the next 12-15 months, I need to figure out that issue, as it will directly effect how we behave once the 72t distribution phase comes to term. 

Nothing has fundamentally changed in the mathematics of dividend investing with DRIP as a means of generating a growing flow of passive income. DI/DRIP survived and thrived through the Great Recession a decade back. We're in a hyper-growth, possible bubble phase on Wall Street, without any current sign of runaway inflation, YET...The government continues to spend our children's tax money, but the emphasis is on recovery from the pandemic and infrastructure investments, which are both good for the economy in the short and long term, as long as we keep a wary eye out for early signs of overheating and and inflation. My personal objective is to find meaningful public engagement(s) that allow, even emphasize, wellness as a primary benefit of the commitment. No nights, no weekends, health benefits and intrinsic joy in participation are the first screening factors in my search. 

 until next time..!

Decending into the winter of 2019

The weather has turned. the light is short, the mornings cold, it's wet more than it's dry. I harvested the last of the tomatoes, ripe and green. A season has turned. A member of the family died the other day, my wife's father, a patriarch,  after 87 long years on this earth. He left modest material wealth, but had an out-sized impact on his family, among my wife of 20+ years. A transition into or out of this life is a time to reflect on temporal versus eternal values.  We are stewards in our time on earth; stewards of our relationships to others, of the material assets we acquire and cultivate, stewards of the efforts we make in shaping the world around us. When it's time to go, we don't even take the clothes on our back, rather leaving it all behind for others to carry on, to pick through, to discard. Much of the material items we collect are meaningless to the next person. A fraction become keepsakes to spouses, children and close friends. A bunch of what we have is completely replaceable, similar if not identical to something collected in the next house down the lane, and the next and the next. They are the tools and accessories of our lives, nothing more.

Financial assets can be closer to eternal, if memorialized carefully.  Wills and estates, trusts and directives can influence the world after our passing. In this case, a modest financial estate remains to K's mother to carry her forward. The investment asset allocation is diverse, with both income and growth, equities, bond funds and cash equivalents. It produces far less income than it could, looks more like an entity designed to be passed on to the next generation that used to sustain the generation that collected it. I have raised my concern about de-risking it into investments that have less reactivity to market conditions and produce more real and present cash flow. It will or will not happen, based on steps taken or not taken between the beneficiary and her children. I have said my piece.

The assets held by me and my wife are now 90% professionally managed. It was necessary, although painful to relinquish control, but now I spend more time working on other projects and less time obsessing over whether I have made mistakes in my thinking and strategy. I worried far more about what I did not know than what I knew. I am paying a good piece for the peace of mind, but the reasons for taking that step were sound.

The 72-t provision in the tax code allows one to take retirement distributions without penalty on a sustainable basis over 5 years or until after 591/2, which ever comes later. We're committed until 63 1/2. We'll receive 60k per year. it is dedicated to paying all insurance premiums, paying interest and principal on a secured line of credit, and then paying off consumer debt. At the same time, I now am employed and will be receiving pension benefits, a HSA account and the option to defer compensation if the cash flow allows. In other words, I'm back in the world of the qualified plan. That's a comforting place to be after 2 years where the tide was going out, rather than coming in.

Things are looking up on the employment front. I have been offered a very attractive 1 week/month opportunity to re-enter acute burn surgery in a "turnaround operation" in another state. I have accepted. There will be air-commuting. I just received an official offer to teach at the graduate level starting in July of next year, with the actual curriculum starting in January 2021. I have indicated interest in pursuing that position as well. I will have to drop something, as trying to do it all will have me over-subscribed, but this is akin to improving the quality of a portfolio by ranking holdings according to credit and debt ratings. I am trading lower quality activities for higher quality ones.  Quality and pay are not the same. I may accept lower pay for better work. Predictability, health benefits, retirement benefits and doing what I love the best are the markers of higher quality work. Pay is important, but secondary to those values.

I am onto a new value-generation plan with our real estate assets;  2 lots, 1 home, an unofficial accessory dwelling unit, an unofficial cottage, a yurt;  the new concept is constructing a compact residence on our second lot, moving in and then refitting the main house into 3 units; basement ADU, main floor dwelling and upstairs flat, extending over new garage.  I am guessing that would add another $500,000 in costs to the house, bringing the debt carriage slightly over a million dollars, but in return there would be 4 income producing units in addition to the main house;  cottage, ADU,  upstairs flat and second house on second lot. one could produce nearly 5k of cash flow per month without much trouble.  Carefully curated (single adults, older, stable income, quiet, etc), it could be an idyllic means to enter retirement with only modest carrying costs. We currently carry $2500 of $4000 in mortgage.  I would hope we'd carry no more absolute cost and a smaller fraction of the total, therefore adding value as renters pay down the debt. 5-10 years of that and we'd enter true retirement in a much more stable state. That's a fine vision, in my opinion, and we have the help we need to do that work; great architect in near retirement, great builder in near retirement, perfect property, house with good bones. What's not to like?

The Roth IRA is chugging along;  all dividend-growth, nothing performing at less than 10% per year and 3-4% DRIP, so the basis is expanding even as the valuations are increasing. I'd like to get back to maximizing the Roth IRA contributions as well as deferred comp, but we probably need more cash flow to do it. At this point I'm not willing to dial back my maker-lab business, which sucks cash at 6-8k/month. it's a huge drag on our spendable cash. It either has to convert to partial self support within another 6-8 months, or I'll begin to squeeze the burn rate.  As long as my health holds up, I'll be able to work at the current pace for another 5-8 years easily. that will take our son out of high school, part or completely through college and that'll be a time to consolidate assets and down-size our obligations considerably.

I'm liking the outlook, even if the economy goes south. We're in good shape to survive a down-draft at this point in time.

So, how's it feel?

3 months into the new strategy;

all I have left in my own management is my Roth IRA, with about $170k in equities. So, I check things far less often. I get periodic account statements from both of my money managers; about what you would expect. Not particularly informative data on the portfolios, have to drill down to see if anything of interest is happening. Most people want that; minimal interaction. I'm an odd duck; I really like the alternative focus of dividend growth, dividend and distribution payments, growth in free cash flow in the portfolio. That's far more comforting to me than watching valuations. On the other hand, I worry less with someone else calling the shots.

Our lives have changed dramatically;

now, I work on the road 13-18 days/month. I'm a glamper; drive the motorhome to the worksite, plug in and set up housekeeping next to the hospital. I get paid to be there, to work over and above the baseline number of hours that come with the contract. I get paid federal mileage rate to get to and from the assignments; about double what it costs in fuel. I get paid a daily housing stipend (average hotel rate in the community), sweetening the locums pot by about 10%. I spend a lot of time on my laptop, corresponding, catching up on reading, waiting for the ER to call. I deal with some loneliness, but more often I like the solitude. My dog, my wife, even my boy, perhaps, are happier to see me after I've been gone a while. And, I make better use of my time at home, knowing I'll be pulling out again soon.

Working 0.8FTE doing rural acute care surgery brings in about 2/3 what I earned as a full time (overtime, actually) burn surgeon. What's sweet is that my time at home is unencumbered by a call schedule. On locums, I'm on call, always. There's no ambiguity about my purpose. Also no commute to the hospital, because I'm there in the parking lot, or very close by in the neighborhood. Full water tank, 20 amps of 110AC power and I'm good for 10 days. At "home" in the RV, there's the radio, CD player, the computer, my ukulele/songboosks, the e-bike, walking. I don't turn the television on.

Our financial situation has turned around dramatically as well. After 6 months of no income and then 8 months of 0.25-ish work for pay, I'm up to 0.8 fte and rising. The pay rate isn't what I could earn as a burn surgeon, but no matter. We're covering expenses and making progress against debt accrued in the transition.

What did that transition entail?  in anticipation of my semi-elective/semi-compulsory retirement, we sold the trophy home, bought the rural enclave with it's lodge-style, venerable old and creaky house.
We remodeled the ground floor for the inlaws;  40k expense for 18k/year of household support; pretty nice return on investment in addition to the very important social benefits to them and us of having them under our watch in their dotage. Even in the 9 months that they've been with us, we can see the steady march towards full time assisted living. We put up the yurt for the maker lab (12k+miscellaneous appointments). We put up the tiny-house Cottage for my design studio partner (60k)

The scar treatment business cost 82k in lasers, $3500 in monthly expenses;  I think we're about half way to break even, maybe a bit further. I'm certainly not bringing anything home, but the clientele is growing by hook and crook. Lets say it nets me -2k/month. 

The maker lab is costing $7k/month, mostly salaries, and some supplies, equipment and IP costs. That's the big sucking sound at the moment, but I can see steady progress towards viable products.

With 10.5k business expenses each month and another 7k in bare necessity household expenses, there's my financial life. I have about 200 days/month worth of scheduled work in locums, should net out about 300k and with huge business tax write-offs, essentially no taxes. I'm about to sign on to a 0.6FTE direct contract that will raise my pay, add benefits and 10% contribution to a pension plan; a major step towards financial stability for us, albeit a bit of a long commute to central Washington for 10 days each month.

We have 60k coming out of IRAs to cover insurance premiums and payment on our secured line of credit, also paying down high interest debt.

Then there's the Untattoo Parlor, the most unexpected gift bestowed upon me by my late friend and protoge, GV MD.  I have much to be grateful for to GV, who was a friend to me from the day I met him as an intern, over nearly 20 years of friendship.  He was such a positive person, enthused about life and it's opportunities. He was the most encouraging of all my colleagues as I washed out of my high-pressure career. He invited me to join him in a joint venture, co-locating practices and was to also house the maker space and be one of the design studio customers for his hand-joint-replacement practice-to-be. When he abruptly died last year, he left behind a growing side-business in laser tattoo removal. I put my finger in the dike for his business partner/life partner as a stand-in medical director, and 16 months later, we are 30% owners in the business, also taking home salary(kathleen) and medical director stipend (Nathan) as well as collecting some surgical fees for earlobe repairs that come through that business.  We count 2k+ monthly against a 16k investment; a huge return on investment, in addition to satisfying part time work for Kathleen. This has made a vast difference in the tenor of our relationship at home, where money stress was causing great tension in the house.

The combo of 1.5k/mo household support from the in-laws, 5k/month in household support from the IRAs and another 1-2k/month from K's hours lasing tattoos pretty much pays household expenses now. My earnings cover business expenses, health insurance and some other miscellaneous costs. God has been good to us, giving us both the opportunities and the health and energy to be able to hold it together through some rough waters these last 2 years.

What do I look forward to?  As the laser scar treatment business grows, I'd like to travel a bit less to work. I like locums, don't imagine quitting any time soon, but collecting more work closer to home is a great advantage and I'm working on that. I look forward to seeing the laser tattoo removal business grow, and to co-locating the two laser businesses. It will make a great deal of sense from a labor and expense standpoint. We have every indication that our partner is a solid business partner and we have mutual dependencies that make the combo of these businesses a great fit.  I look forward to more activity with my university connections, designing widgets and working to get them into the health care environment. I look forward to more time to do medical missions work in Africa, Haiti, where-ever the opportunities take me.  I look forward to watching my son grow and thrive, to renewing the depth and breadth of the relationship with my wife as we get past the many distractions that this huge transition has put in front of us.

While it seems that I've drifted a bit from the primary subject of this blog, in fac, everything we are doing is directly indirectly about securing our financial future, just not solely in the context of salting away more cash in the IRA/ qualified plan realm. We'll get back to that task, but right now we're building value in our wholely and jointly owned businesses. More on all that to come...

Big shift in strategy

What would motivate me to make a big shift in strategy?
longest bull market in modern history is one possible reason. The real reason is simplicity.

May 1st;  a traditional day for protest, demonstration, renewal, transformation.

My transformation is two-fold;  focus on those things most necessary to make my start-up businesses successful, and live in the present.

I spent 12 years learning to manage my own retirement portfolio. I did a reasonable job of it. I know the drill. But, this is, perhaps, the most complex time in my adult life in a couple of decades. Why? I'm doing stuff for which I don't have prior experience. It's taking a lot of time. I need a break from managing retirement assets. So,  our retirement assets are split roughly in half, and placed with two professional managers. It hurts my heart to watch the professional management fees flow out the door, but I am weeding out the majority of my financial reading, spending far less time managing the in-box as the inflow gets simpler and simpler, giving me less distraction as I focus on my businesses. One can only manage so much complexity.

I am truly tired of ruminating over the past and what happened to me. I have an eye on the future, but mostly on the present. What needs doing now? Today, tomorrow, next week.

I have created 4 streams of revenue;  The largest is locums, about 0.5 FTE and worth perhaps $14k/month. The next is medical directorships, which together should be worth another $1500/month. A third is the partial retirement distribution at about 5k/month. 20k/month gets us to about 2/3 of what had been our past experience had been. It's far more than we should actually need to survive. However, the laser scar and design studio cost about $8000/month, so we're still scraping along.  It'll all work out, I believe. More attention to the present is the key.

Thank God It's 2019

What a hellava year was 2018. I entered 2018 in semi-volunteer, semi-forced retirement. Burnout in all-caps. Silly me, even burned out, I made the common minimizing assumptions that surgeons do when it comes to their own limitations and vulnerabilities; "it isn't that bad, I'll be over it in a couple of months".

I didn't anticipate being out to pasture 10 years before standard retirement age. You don't erase 31 years of imprinting in 12 short months.

I was near catatonic for a couple of months. My first halting efforts and collecting myself and beginning to pick up the good pieces of my shattered career were met with an unexpected tragedy that re-set my course through the end of the year. However, I accrued 2 significant relationships as a result of that tragedy that could figure strongly in my future and they were entirely unexpected. They consist of the medical directorship of two small businesses relating to the treatment of skin with lasers.

I was able, with assistance of old friends and colleagues, to establish two start-up businesses. I was able, with the assistance of savings accrued over years, to achieve a major transition for my wife's parents, bringing them in from a remote community to live in an attractive apartment on our ground floor. By all measures, this has been a resounding success, reducing stress, allowing us to participate in their lives and vice-versa in their final decade together.

Due to the unexpected turn of the screw, one business is sited on my home property, and my business partner is newly domiciled in a "tiny house" cottage on the property, keeping business carrying costs to a minimum for that enterprise.

I was able to find a most ideal sub-let for my laser scar treatment practice, which is wheezing to life in spite of my 58 year-old antipathy for the virtual world in the form of EHR, Fax, LAN, VoIP telephony, and the integration of them all.  Best of all, I am coming to terms with managing a schedule internally and slowly losing the free floating anxiety of "where should I actually be this moment?; what am I forgetting?; I must be getting behind on something...". My cell is my pager and it almost NEVER rings.  I signed up to do locums and found out that the basic practice of surgery is still the beautiful thing it was when I started, devoid of any obligations beyond caring for patients and the rudiments of documentation. I hate to admit it, but being employed and not an owner of the enterprise makes surgery like going to summer camp. However, were I employed full time by a large corporation, I'm sure all of the S**T that drove me to distraction previously would magically reappear in the form of productivity targets, patient satisfaction surveys, "do more with less".

Money is tight. I eat what I kill. business start-ups are like baby birds; they eat a lot, they tend to poop in the nest (that's the mistakes I have made) and there is no early payback. I spent money in 2018 like a drunken sailor and earned a fraction of what I spent. However, this is a time where the old moniker "it takes money to make money" is absolutely true. The alternative would have been to simply find some uninspiring day-job, bring home a paycheck and lament the loss of the little autonomy I already had in my previous practice.

So, what about the retirement portfolio;  it peaked, just like everything else in this country with the "Trump effect" of tax reduction and general economic recovery, then it hiccup-ed loudly in the last 3 months, like every other market based portfolio in America.  I tapped my Roth contributions to the tune of about 60k for living expenses in the last two months of 2018 and we're nearly broke in January 2019. So, we tightened our belts, began making hard decisions on priorities, began liquidating non-core assets (there goes the convertible car-toy) and are making plans to survive to either profitability int he businesses or a more modest retirement than we anticipated.

So, we are consolidating all the accumulated qualified plans, supplemental plans from 30+years of employment into IRAs and pursuing the Federal tax code 72-t provision for taking equal and substantial distributions from our traditional IRA retirement assets for 5 years. We're both 58 1/2, so we'll obligatorily take those distributions until we're 63 1/2 under the provisions of the tax code.  This is what savings are for; to tide you over in times of transition or into retirement. Our emergency cushion was not adequate to carry us through this profound of a transition, but I think a professional advisor would look at our decisions and agree that they were overall a prudent course of action. If I could hit the reset button, i would have simply tackled some of it in sequence rather than in parallel.

I have decided to move the traditional IRA component of our assets into professional management, with a dividend and growth focus. We will deposit the distribution into a wealth management account, pay all life, disability, homeowners and auto insurance premiums directly from this account before accepting residual distributions for household expenses. This will take a great deal of pressure off of me to generate revenue while my businesses are becoming established. Because of the start-up costs and things like accelerated depreciation on equipment purchases, I will have plenty of tax protection for 2018, 2019 and perhaps beyond. I will be contributing fully to Roth IRAs, essentially moving 12k per year from the tax deferred to the tax free side of the IRA balance in a time when my personal taxes are about as low as they ever will be. This is a MAJOR silver lining in the cloud of reduced earnings during this career transition.

I haven't changed much in my portfolios. I sold some lower performing equities in my Roth accounts to take the previously mentioned distributions. I have slowly improved the credit quality of the portfolio, but only as much as was possible by adding new contributions. I don't tend to sell equities. I have mainly used purchases to nudge the portfolio one direction or another. I have used the brokerage synthetic DRIPS for all holdings. I suspect that the professional managers of our traditional IRA accounts will move to a selective reinvestment program, insofar as I will be drawing down these accounts to some degree anyway, meaning there will be trading activity

I may never "recover" if I were to compare uninterrupted earning power to retirement in my former career, versus what I will achieve on this higher-risk pathway I am on. However, the transition needed to happen regardless, as my spirit was withering in that place and there's no better pathway to an early grave than chronic unhappiness and unremitting stress. I dream a lot more, lately. I have more time for my son. My wife and I are working through the obligatory stress of living in the same space a much greater fraction of the daylight hours now. I had to pick up some domestic chores that were previously excused by my long work hours.

Although 2018 was a singularly complex and stressful year, alot of that stress was the "good" stress of repositioning our real and intellectual assets to better serve our goals, and having laid down a huge "bad" stress of the full time surgical practice. What I didn't anticipate was the effect of "anniversaries" on my state of wellness. Around both the anniversary of the decision to break the partnerships and then the date I turned in my keys, I fell into temporary funks that were pretty significant and lasted about 4 weeks each. I was blindsided by this phenomenon. I'm hoping it won't echo down the years over and over. I have thought on several occasions that it would have been better to set my calendar for a 6 month sabbatical and then pick up the pieces than the way I did it. Woulda, coulda, shoulda....

The blog continues to be a very personal effort, accessible with effort by the public, but without any consistent readership, which suits me just fine...

More to come,  when the muse finds me.

Monday Monday, or hitting the wall

Another season, another post.

We're halfway into the fall academic term. I am  10 1/2 months past full time surgery practice. Time has passed, efforts have been underway for some months now, the season is turning towards winter and I am still looking for the upswing in business. Start-ups are hard work, need plenty of working capital and need to be nurtured like infants, to adulthood. I'm 250k into it, need another 50k at least to get over the hump. The easy money has been spent, now I have to dip into slightly less "ready" reserves.

Simply stated, tap some Roth IRA funds.  Ow, that hurts! I worked really hard to build up meaningful balances in my Roth accounts when they became available. They are not the majority of my retirement holdings, but are the most versatile, in my opinion. However, all other withdrawal of assets come with penalties, or taxes plus penalties for some time into the future, so the Roths are in the spotlight.  I rarely sell an equity once I've bought it. However, I have held onto some positions that have not performed all that well. So, for the first time, I am selling companies that; pay dividends but have not appreciated in value adequately, pay dividends but have lost value for one reason or another, pay dividends below my 3% threshold for core positions and have had substantial capital gains, but are not my core holdings. One has 59 days to reverse a withdrawal of contributions from a Roth IRA, after which one can only contribute at limits prescribed by law. It's highly unlikely that my fortunes will change dramatically in 59 days, so I have to face the equivalent of a 2.5-3% reduction in the value of my retirement assets to mobilize what I need to take me past the new year.

What takes the sting out a bit is that I have resisted pruning the portfolio of laggards in the total return category because what I value most is cash flow created by dividends and dividend reinvestment. Provided there aren't dividend cuts, I'll hold an attractive dividend paying stock even if it is not appreciating to expectations, because I know that the reinvestment produces compounding regardless of what is happening with valuation. So the need to tap into contributions represents an opportunity to weed out the holdings. It means that a smaller corpus will continue to generate dividends and the portfolio will appreciate at a greater rate, even if from a reduced basis.

So, I used my charter life membership access to FASTGraphs and weeded out the most overvalued,  those with the lowest dividend and those whose growth in valuation had stalled or turned negative.
That pruned the portfolio by about 1/3. I have done that in the most recent of my Roth accounts that holds mostly contributions and the lowest fraction of earnings. I double checked the cost basis to assure that I didn't approach the threshold of accessing earnings to avoid penalty. Since I won't be able to replace that cash, I'll need to start contributing, both I and the wife, so we can replace those contributions as soon as possible.

We all know a correction is coming, sooner or later. Generally I just ride them out and wait for recovery. While we're not at the market peak (that was a few weeks back), we're still richly valued and its not a bad time to "take profits", taking care not to dip into earnings.

now it's late, and there are other things to do, so enough said on the first raid on retirement assets. May it never be needed again. ptui!

Well into transition

Here it is, already July. I looked back at the pre-termination post, realized that things have turned out pretty much like I hoped with the transition. Not that it wasn't stressful, mind you. Leaving early and coming home late papered over a whole raft of deferred maintenance on relationships and exposed some character traits in me and my family that we hadn't experienced from one another before.

So, how is this transition going from the standpoint of ultimately planning for retirement?

Well, I am about to open my laser scar practice; grand opening in about a month. I found the space in April, and starting a solo practice has a lot of details in it; fortunately former coworkers have come alongside to help, in whom I have a great deal of trust, so that's a feel good thing. My oldest and bestest friend agreed (he must be as foolish as I am) to uproot himself from a comfortable existence in the bay area and become my partner in a start-up maker design/prototype business. He gets a modest stipend, free lodging, equity stake and space for his own engine shop. I get a ton of help, motivation, enjoyment and the ability to leave town and earn money, knowing that he's minding the store. This summer we have 5 young employees; 3 alumni from student projects and two new students. They're humming along making stuff, a sight to behold. The ground floor remodel is about to begin. A 20ft yurt has been erected under the trees on my property. A studio/cottage/tiny-house on a  double-axle trailer is under construction. Money is flowing like water. I am now actively working remotely, a week or two at a time, at fine wages, the only drawback being that I can't be at home where all the excitement is ongoing. I'll do this about half-time until local businesses require my full time attention. Hopefully they will supplant the income I produce on the road as well.

I'm thinking that another 9 years is my working horizon, many less. By then, my boy Alex should be approximately through with college. By then, hopefully we'll have completed a renovation of the entire place, and we'll have the main residence, ADU, garage-over studio and the tiny-house, plus the yurt. My wife and I can move into smaller digs and let someone else utilize the larger dwelling space. We may be able to garner enough income to cover the entire cost of the mortgage, or I may cash out some assets and pay it way down. Life happens while you make plans, so it's all speculation.

With no new money flowing into my retirement accounts, I have been sitting on my hands. I am thinking about increasing the "quality" of my portfolio. It's pretty wide, could possibly be a bit deeper. I have a large-cap bent in the bigger accounts, a small-cap dividend-paying value bent in the smaller accounts. cash flow is growing moderately. in all of those accounts, I may have as many as 75 different holdings. They are distributed between Roth and traditional IRA accounts, with one little qualified plan ticking along with TIAA CREF for nearly 25 years now. My wife has a qualified plan and two supplemental plans that we have not converted, purely due to the inconvenience of having to figure out how to do it. Valuations have eased, meaning the portfolio's value is being driven by dividend reinvestment primarily. I'm going to keep my eye on that number; growth in cash flow, as the primary indication that I can reach the amount of income I need by the time I'm really done with working for wages. I'm a total return investor with a dividend focus; I want my holdings to pay me now and I will decide what to do with my cash. Right now,  I'm happy to turn each company's payments back into a larger stake. Later, some of it will pay the bills.

As the pain of a deteriorating experience in hospital-based surgery begins to fade into the background, I can say that all the work of discernment was worth it. I made it out alive, through the valley of the shadow of death and back up to a place where I can see the horizon again.  I'm still mourning the loss of a few relationships, but those that matter most are either intact or dormant and will emerge at some point down the line.

I think that's about enough summation for now. The shadows are getting longer and I need to get on the bike and ride a bit.

Where's the love?

Let me avert my eyes for a few precious moments from the horror show that is our public discourse.
Why can't we simply label the swamp of all swamps to be too toxic to enter at this juncture and simply turn away.

I'm glad to see someone has finally pricked the balloon that was not a bubble, according to my sources.

I am 5 weeks into the "in between". Somewhere in between the chronic downer that was the last few years and the fear and excitement of what may come next. Mainly I am tired. I wonder how long it takes for the mind to heal after years of overdrive? probably more than 5 weeks, I'm finding.

the crazy upswing and the recent downdraft left me feeling, um, not much at all. I'm glad to see prices moderate a bit. No new money to invest, so the DRIPS are the whole show at the moment.

I checked last year's overall results;  My valuation is up 15%, not nearly in sync with the market valuation, and I'm happy with that. More exciting is a 13% increase in cash payments in my IRAs. I haven't done the comparison on the 401k. I think what matters more is performance during a bear market. I don't have to rely so very much in capital gains; I will continue to focus on the rate of increased dividend payments as a means to project my date of emancipation from daily labor for wages.

no inspiration other than to say, I'm sitting on my hands once more...
time for bed...

Merry Merry Happy Happy

Someone once said the the only thing you can count on, other than death and taxes, is change.
No s**t, Sherlock.

This 2017 retrospective touches on the toughest year, bar none, in my adult life.  In spite, and as a result of furious effort, endless hours, at least 3 advisors and many nights of poor sleep, I am on the verge of being unemployed for the first time in 30 years.

It's not all bad, because I'm precisely where I need to be, but the compulsion to "transform in place" rather than lock the door and throw away the key on a deteriorating set of relationships cost me an incalculable amount of gray hair and general misery.

Looking forward, all is good. The key is not to fight to preserve something from the past, rather take what is there and craft something new with it.  I have a great set of plans, some of which will probably fail spectacularly, but no matter; I'm in it for the fun, not the money or the fame.

Something I learned, perhaps for the first time in a very profound way, is that the place I am happy is directly at the bleeding edge of innovation. My kind of innovation doesn't require a lifetime of computer science. I am a "low tech" kind of guy, but there are endless places one can make improvements that all add up to "grease"; smoother, simpler, more efficient products and processes when one puts one's mind to work.

So, what has charged me up for the last several years as my primary wage earning work has become less and less fulfilling and the environment in which I work became a hostile place for me? Innovation. Innovation in thinking about burn prevention in far away places. Innovation in how we replace skin after a major burn. Innovation in how we take the principles of burn care to places who could never afford how we do it. Innovation in treating scars with lasers. I have come to accept that I'm a frustrated inventor, engineer in the disguise of a surgeon. Starting in January, I'll earn a salary on short term surgical assignments out in the periphery and spend most of my time developing an independent laser scar treatment program, designing widgets in my mini-maker lab and pursuing the burn prevention objective in Africa.  These are all things I am passionate about, have enjoyed doing in the recent interval and have nothing to do with the pressure cooker environment of an inpatient burn center.

How are the finances going to work out? God will provide...Seriously, I believe that. I also can't sit on my duff waiting for a check. We sold and bought a house this year, reducing monthly costs 20%. We will refurbish and invite the inlaws into the ADU and reduce costs another 20%.  I will fund IRAs, but no more qualified plan for the time being.  I'm on a virtual scavenge hunt to purchase the tools I need in the pre-owned market to keep costs down. I will have to ratchet back my life insurance costs again. I will need to work for wages 7-10 days per month to allow me to pursue the other items in the remaining time. It will be a grand adventure!

As much as I abhore everything about our national government at this point, I imagine the tax bill that just passed will benefit me. I intend to expense everything I can through the new business, drive my taxable income down to precisely what cannot be invested in the business.

Our overall retirement savings are in good shape; we have passed the point where savings can provide us a sustainable income from dividends/distributions/interest payments only. It's a bit scary not shoveling more at it, but I don't think we'll be missing out on round-the-world cruises for the lack of more retirement savings, since we weren't planning on that anyway.
I haven't seen a thing worth changing about my portfolio lately; the last bolus of money entering the qualified plan comes sometime in early 2018. If I invest anything outside of a tax free/deferred environment, it will be purchasing tax-free muni's or something similar. I think it's more likely I will invest in the opportunity to share ground with others who need housing in a beautiful place ( my new spread).

more reflection next time...

The higher they fly...

Who knows how and why the stock market behaves as it does?
We have a hot mess in the White House, A lunatic at the helm, but we have record low( if you massage the numbers correctly) unemployment and equity markets continue to escape gravity in spite of threats of rising interest rates, sinking dollar, federal policy chaos.

The fact is, value should follow earnings first and foremost. Clearly some equities have performance to back up their evaluaton. The market still shows signs of overvaluation with many equities at historic valuations, hardly deserved by enlightened management.

Still, I remain fully invested, adding to my own holdings more often than adding new equities.
I am collecting over 50k in dividends for the first time this calendar year. Were I to fold my small TIAA/CREF account to my IRA and then figure out the impact of my wife's retirement accountants on our potential dividedend/distribution were they rolled into such an account. I would do this rapidly, but the companies that hold her retirement funds put up considerable barriers to transferring money out of their clutches.

The portfolio won't generate enough dividend income to support us at this juncture, but the cash flow is growing considerably year by year. Circumstances at work make me want to quit yesterday, except for that uncomfortable issue about tuition, home mortgage and health care coverage.

it still seems that the best strategy is hands under the weight of ones own backside.  I have augmented a few positions that are available at a bargain and will continue this as funds come in until all positions are deemed fully invested and worm castings, compost and tea are available for routine use.  At that point I'll either swap a few or capitulate and use funds to round out the whole.

more to come...

Nathan Kemalyan

Memorial Day reflections;

What a wonderful thing!.. 3 day weekend, sun is shining, nothing on the agenda that takes me away from my beautiful acre, other than things to whip it into shape.

The  holiday also afforded me the chance to think about the people in my life who have given of themselves to serve this country;  My father and paternal grandfather, great uncle, maternal uncle, niece and nephew. My family has not lost a member to war in the last several generations to my knowledge, for which I am grateful to God, and my heart goes out to those who have. Making that supreme sacrifice for this big, conflicted, messy and hugely aspirational country drives me to my knees in humility for their courage. The fact that I am sitting so smugly in my recliner gazing out on the beauty of it marks what I owe them for their service.

What a winter and spring it has been, both personally and in the public square. I have been way too self-absorbed over the last 2-3 years, trying to sort out what is nothing short of a midlife (well, a little later than midlife) crisis regarding my work and the environment in which I work. I think I may finally be coming around the final turn, understanding in retrospect that this has been a period of discernment that will take me to the last big chapter in my professional life. It has been very hard-won insight and it includes mourning what I will leave behind as I step into the next chapter.
I will earn less money and a lot more joy where I am going. My biggest uncertainty is how to maintain essentials like health insurance for my family and keep expenses covered while pursuing the path of my passion for improving access to the benefits of health improvement and low-tech/hi-tech solutions for the poorest people on earth.

The status of my financial security is a subject of endless amazement and amusement. In spite of what seems like utter chaos at the highest levels of government and international relations, the market chugs along, delivering increasing earnings, lower unemployment, doggedly persistent high valuations, broadly speaking, and the rising number of pundits piling on to the prediction game for a coming bear market.

In my multinational holdings, aside from tax policy that traps money abroad, a stagnant domestic market is balanced by robust emerging market. Some valuations have corrected very significantly.
While I remain focused on cash flow from dividends and new contributions, I have been able to view all this with less anxiety than in years past. I am becoming increasingly comfortable in this mode of investment, understanding my portfolio to be a business that generates revenue, rather than a pot of gold that grows and shrinks. In fact, the overall trend is solid growth, but this is better measured in share counts and dividend cash flow than in valuation.

What have I done over the last 5 months with new contributions?  I have added to a few positions in the 401k, added a few selected positions in the industrial/business support area. Not much more.
A few of my positions have appreciated to the point that they occupy twice the weight of the average position. However, I have never fully accepted the rationale behind "rebalancing". I"m more content to follow the "never sell" advice of some of the voices I listen to in my reading. I am a "rarely sell" person. I keep track of the gross cash flow month by month which informs me a basic level that the strategy is working. I don't monitor as closely as I should, i.e. looking at growth trends or early warning signals for trouble in a business. That can be my next big task, becoming more deliberate and efficient in higher level surveillance.

Here's hoping that Twittler doesn't drag us into a war...

Ciao

I guess it's not a bad dream after all

I woke up the other morning in a cold sweat. The Chief Narcissist is about to become our president. Either America has lost it's marbles, or there are nearly 50% of the public who have no sense of outrage when their chosen leader tramples all over the concept of simple decency. Today at the Sunday service, our Rector emphasized that it is our task to be in the world acting as the body of Christ, actively promoting the values of love, charity, patience, advocacy, long-sufferage in a time when even our leaders threaten the welfare of many amongst us.

It blows my mind that the markets have responded with about 8% rise over the last 10 weeks as a result of the election. What do these people think this man is going to do? Maybe there will be some elements of tax relief, or rollback in regulations, but I doubt our currency is going to become less valuable and our exports to explode any time soon. The world is too unstable a place for people of means to bet on Russia, China or any other large economy to safeguard their personal investments.
Even if the money is in offshore banks, they are still bidding up American institutions, real-estate, American based multi-nationals. European governments  are requiring private depositors to PAY to keep their money safe with negative interest rates.

In spite of all the craziness and the bitter aftermath of the election, it hasn't hurt my investment performance. I'm thrilled to see the portfolio do what it was designed to do; outperform in flat and declining markets like most of last year, and spin off increasing dividend payments that can be reinvested. I like the capital gains as well, although they blunt the effect of the DRIP on number of shares and overall dividend payments.

After the KMI debacle, there have been no gross melt-downs in the portfolio. The smallpcap weighted 401k has experienced more volatility than my IRAs that are pumped full of blue-chip dividend paying  large-cap stocks. However, it finished nicely in the positive and had a much greater leap in dividend payments, even accounting for the added investment contributions. I sold Johnson Controls after several years of holding it. It was the last of the battery storage companies I bought out of personal interest, but not on the DGI plan. I have redeployed that cash to better prospects. The 401k is sitting on several sizeable unrealized capital losses, but the dividend performance remains strong, and my holding period is infinite unless something drastic happens with my portfolio, apart from some failure in a company's fortunes.

I'm going to have to liquidate some holdings, as I will be in need of bridge financing to move to a new home. I'll probably use this time to clear out some of the laggards and leave the portfolio with its strongest performers. I'll take a loan from the 401k and a short term loan from my IRA to complete the down-payment, then repay them out of the proceeds of the sale of the current home

So what did I learn in the last 4 months? Mostly how to sit on my hands. I deployed some new cash in the 401k and switched some equities into the 401k by selling in the IRA and purchasing in the 401k to allow me to redeploy assets in the 401k. I improved the quality of that portfolio in the process.

Having built out the equities in my portfolio to the degree of diversity I want, now my task is to progressively improve the quality of the holdings, finding companies with higher credit ratings, lower volatility, slanted towards defensive sectors and low- to mid-cap values if I can find them with an adequate pedigree. This results rather low trading frequencies, mostly limited to deploying new money in the 401k.

Using DRIPs halves the amount of purchasing I would otherwise be doing, as all dividends are automatically reinvested. There are no brokerage fees on those reinvested dividends, so my account maintenance fees are truly tiny. Were I invested in funds, between the fund managers and the retirement account manager, I'd be shelling out between 5-10k in management fees every year. My new contributions to the 401k result in about 4-5 purchases per year, so the total cost of investing runs roughly around $100 per year.

I have an associate who pays $6000 per year for an advisor to tell him which funds to buy in his retirement plan. He buys funds individually, so he doesn't get a large institutional class of funds. I'm guessing those funds cost him another 5-10k per year.

At this point in time, I probably spend 2-4 hours/ week reading about investing and checking in on my holdings. That makes 100-200 hours/year. I'm paying myself somewhere between $50-100/hour by self-directing an individual equity portfolio.

Since dividends tend to be more predictable than stock price, I continue to focus on building share count, understanding that the dividend per share is paid whether or not the shares are at a yearly high or yearly low.  The primary effect of price is on how many additional shares I can buy at each dividend payout.

This year I'll expect to collect 3+% more shares on the positions I own, and another 3-4% in new contributions. That secures 6-7% growth in the portfolio. Additional growth will come from capital appreciation and dividend growth. I will be thrilled if the portfolio grows by 10% in value of which 7%  will come from deploying dividend dollars to reinvestment. Any capital gains will be welcome.

October Madness

October  Madness;

I just finished watching the second presidential debate, a glorious mudfest if there ever was one.
I'm thinking that the only way the public will get to hear what each candidate thinks about the issues is to put them in separate rooms and not allow either to hear what the other said. Perhaps they could then each read the others statement and craft a rebuttal,  which neither would hear until they read the debate transcript later. The whole thing is madness; presidential election politics turned into the grandest of charades.

Funny thing, after several years, I have only paid passing attention to my portfolio over the last few months. I looked tonight to see that prices on the higher yield holdings have moderated a bit (not a lot, however). Some cash has built up in my qualified plan, as I haven't just immediately deployed it. I'm wondering if a fat pitch will come along from somewhere. I still check the blogs, but nothing particularly appeals to me, so I'm now doing what others have done, sitting on cash. I wish I could sell puts in the qualified plan, but I'm not allowed.

The summer swoon didn't happen. September didn't bust me. October hasn't yet. I wonder what the election handicappers are saying will happen depending on which candidate is elected. What happens if neither gets enough votes to clinch it and the minor party candidates can't get a majority either?

This is another time where sitting on one's hands doesn't seem like such a bad thing to do. The dividends roll in,  dividend growth happens, DRIP happens, compounding happens, new money waits for good opportunities. Seems like a good way to ride through the roller coaster of national political housekeeping season.