I just became a millionaire at age 35, AMA (I've never made more than 150k annually)

There is nothing more diversified than owning a little bit of every stock. As for picking winners, that’s really hard, it takes consistently, watching, reading, and stressing about when to be in or out etc. Financial news is the same as political news - sensationalized to illicit emotion and reaction. I don’t need that negativity or worry.

This stock series convinced me 100% that index investing is my best choice. Now and then I go read it again to remind myself I’m on the right path.

facts and reason wrote:

@the long road

1. How often do you go out to eat at a restaurant?

2. What do you do when family members ask to borrow money?

3. How do you feel about the inheritance tax?

https://www.cnbc.com/2021/04/28/samsung-inheritance-lee-family-to-pay-over-10-billion-inheritance-tax.html

1). Kind of a lot to be honest. A few years ago it was really sparse and limited to cheaper places like pizza or Moes. Our eat out budget for a family of 5 was $150 for the month. Now that my salary covers maxing all tax advantages accts with left over we are less stringent. Probably average twice a week, with kids we stick to cheaper options, just wife and I we enjoy trying the trendy restaurants for a date night.

2) Family member has never asked. I would not loan money to them or anyone for that matter, you don’t want that changing your relationship. If there was a sticky situation that I felt compelled to help with I would gift the money.

3) I don’t really think about it. I don’t plan to ever make the kind of money that would be targeted by it. But since you asked Its kind of gross how much money some people have, so taxing that money makes sense to me.

Having all your money tied to the stock market is not Diversified

There's tons of things that are way more Diversified. Have you ever heard of bonds or real estate or commodities

Or cryptocurrency

There are investment outside of the stock market which would make your portfolio much more Diversified

With that said the stock market is a great investment but to have a hundred percent in a broad Index Fund is silly

Put most of your money in a small cap Index Fund it's almost guaranteed to outperform a broad market fund by a significant amount

And you don't have to follow the news to invest in Amazon it's kind of a pretty Stable Company that is not going away same thing with Apple

Silly says the guy who is not worth millions of $. I invite you to list your rate of return over the past 30 years and we will compare. We will then recalculate our net worths using the other's rate of return. Betting I am $1M ahead of where I would have been through diversification.

home equity doesn't count. not a millionaire

Of course it counts. Examples have been provided to show how silly it is not to count it. Here it is again.

Two neighbors each own houses worth $5M. One has no mortgage and has $1M in the bank.

The other has a $4M mortgage but has $5M in the bank. His mortgage is held by the same bank.

Your logic says that neighbor 1 has a net worth of $1 while neighbor 2 has a net worth of $5M net worth but if neighbor 2 calls the bank today to make a $4M payoff, his net worth drops to $1M according to your logic of not counting his equity.

No argument with your math, but that's not how people typically behave with their primary homes.

More likely scenario

You have a $5M house, 50% paid off, $500K in the bank.

I have a $1M house, 50% paid off, $500K in the bank.

You say, you have $3M and I have $1M.

I say, you have half a house and 500K, I have half a house and 500K.

I assume we have both decided on houses that fit our lifestyles and are each unlikely to downsize or trade up.

Ignoring value of bequeathal, this looks equivalent to me.

You are confused. You said to diversify more by going into a small cap index fund. A BROAD market index fund is WAY more diversified.

And being in a diversified broad market index fund, it also means you own shares in companies like Amazon and Apple, as well as real estate companies.

Net worth is net worth. We are both going to sell our houses and move to Arizona in 20 years most likely. I will sell my $5m house while you sell your $3m house and we both buy condos for $750k. Alternatively, we don't move and we both die in 50 years and leave our assets to our heirs. The IRS uses our homes in the calculation if estate taxes and my family inherits $5M at the sale of my house while your family inherits $3M. You logic is just flat out flawed or nobody would ever pay down a mortgage because it lowers their net worth. Silly logic. The most extreme example would be me owning my $5M house outright having the same net worth as my pool boy who is 18 and lives with his parents using your logic.

Guys the thinking on this thread is really disappointing , I mean you guys don't even understand basic investing

I said to diversify by going with some real estate ETF

In other words a broad Market index fund will crash if the market crashes

A real estate ETF will probably not....

It'll give you some diversity

Yes you own a little bit of real estate with a broad Market ETF but it is a minuscule amount and will not help you if the overall stock market crashes

I said that it's a better investment to go with a small cap versus broad Market ETF. Yeah it's slightly risky and less Diversified but my point is that it's over all proven to be a better return on money...

Put some, not all, in small cap ETF....

But my main point is that to have everything tied up in the stock market means that you will take a big hit if stock market crashes

You can diversify by having some of your money in Investments that will not crash if the stock market crashes such as real estate....

Anyway..... amazon has had a 1000x return in the last 22 years an index fund 5x.... so just because .001% is amazon is meaningless

10 k in amazon would be 10 million, vs 50 thousand!

I guarantee amazon beats an index fund 5, 10, 15, 20 year time periods... and considerably.... lucid and roku will crush it next 10 years by even more....

Of course a house with a mortgage counts as net worth. Let's say you had paid off $999,999.99 of a $1,000,000.00 house, meaning you owe 1 penny to the bank. You have a claim on the $999,999.99.

On paper, it's a horrible asset class compared to stocks. In fact, viewed from a historical perspective, a house has a negative real yield because taxes plus maintenance are higher than appreciation.

Stocks vs. House:

* Historical annual appreciation: ~10% vs. ~2.2%

* Past 10 yrs annual appreciation: 9.3% vs. 6.5%

* Annual carrying cost: 0% vs. ~4%

* Liquidity: High vs. low

Most people who say that they "profited" $1M because they bought a house for $500k and sold for $1.5M a decade later (something which is an anonolous increase you find in only a select few locales in the U.S.) conveniently forget that over that period they paid $100k in property taxes, $60k to replace the roof, $100k for the bedroom addition, $150k in HOA fees, $50k in attorney fees when they got sued by a pedestrian who slipped on the sidewalk in front of their house, etc.

But owning a house is a good idea from a lifestyle perspective. Renting may be better in monetary terms, but by the same token you could say that living in a van is better than renting a house. If you have kids, you don't want to potentially have to move to a different neighborhood every year. Most importantly, there's only a finite amount of space for building single-family homes in a zip code, and in popular areas that space is already used up. Let's say there's a house on a 1-acre lot, built 50 years ago. There will never be a new 1-acre lot allocated for a new house, because it's more profitable nowadays to squeeze 12 townhomes onto 1 acre. Thus the price of the house on the 1-acre lot is only going to increase, fast. If you want a house with an acre lot so your kids can have pool parties and a sport court and you can have a garden and rockery and one of those half-circle driveways that goes up to your front door, best to purchase one sooner than later. Same idea living in a nice neighborhood. That fact is that non-nice neighborhoods never become nice ("gentrified" doesn't equal nice) and nice neighborhoods don't usually become non-nice (extreme example would be like Detroit or Buffalo, where once-ritzy neighborhoods are abandoned). So locking into a house in a nice neighborhood can be a good life investment.

OP, in your early years, approximately how much were you investing into 401K and approximately what income?

What region of the country do you live? Do you live in HCOL, MCOL, or LCOL?

It seems like your spouse has similar mindset which is great. How much of the contribution came from your wife?

You’re stating that investing in broad market, you’ll be risking it when market crashes. Then, you bring up about investing in small caps as well as bring up about ROKU. ROKU has dropped over 50% from its high within the last 6 months. If you’re in broad market index, that kind of drop may happen in a decade. Or actually, it may not even happen in a decade. Yea, if you’re playing with some pocket change, losing 50% is not a big deal. And when you say to diversify and if you only buy little bit of ROKU, it doesn’t make that much of a difference with your portfolio if it goes up by a ton or if it tanks. So, by just being in broad index will perform similarly.

What is your net worth by the way? The way you give out investing info, you sound like you’re in your 20s or early 30s so I’m assuming you don’t have much skin in the game. My advice to you is to keep your investing strategy as simple as possible and stick to it. What’s important for you is to continue to increase your contribution so you get at least $100K. Then, you will start to see your investments take off.

Vegas dude wrote:

Net worth is net worth. We are both going to sell our houses and move to Arizona in 20 years most likely. I will sell my $5m house while you sell your $3m house and we both buy condos for $750k. Alternatively, we don't move and we both die in 50 years and leave our assets to our heirs. The IRS uses our homes in the calculation if estate taxes and my family inherits $5M at the sale of my house while your family inherits $3M. You logic is just flat out flawed or nobody would ever pay down a mortgage because it lowers their net worth. Silly logic. The most extreme example would be me owning my $5M house outright having the same net worth as my pool boy who is 18 and lives with his parents using your logic.

It’s a waste of time arguing with someone who absolutely doesn’t get that homes don’t count as your asset and net worth. It’s so ingrained in him that it’s an expense, and can’t be counted as your asset.

People have hard time if cars are your asset. Cars are technically your asset. It’s a depreciating asset and expensive to operate. However, it’s still an asset. If you have equity in your car and can sell to get cash from it, it’s your asset. It’s fine for people to not count towards as your net worth as its usually a small portion of their net worth. But everything that you own that you can technically can sell is your asset and part of your net worth.

This is the correct stance IMO. Very few people have a sense of their actual net worth as it is impractical to calculate what liquidating all of your furniture (for example) would net. That said, from a practical standpoint including large appreciating assets does make sense in my opinion. Especially if that asset comprises a basic human need that would normally appear in the expense column. Yes, you may not ever liquidate your home but eventually you will pay off your mortgage which will free up cash flow and expedite/enable retirement or other financial pursuits.

My wife and I use all liquid capital (cash, tax advantaged and non tax advantaged stock) and the equity in our home (although we apply a 10% tax on this) to evaluate our finances against our retirement plans. We exclude everything else (cars, others illiquid assets, college funds/kid's trusts etc.)

I probably considered a car an asset when it comprised 20% of my net worth. I sort of stick to that rule today for depreciating assets which is why I no longer count those things. They started comprising only 1%-2% of my net worth a long time ago.

millionaire ftw wrote:

OP, in your early years, approximately how much were you investing into 401K and approximately what income?

What region of the country do you live? Do you live in HCOL, MCOL, or LCOL?

It seems like your spouse has similar mindset which is great. How much of the contribution came from your wife?

Until 2016 I only contributed 4% in order to get my company match. My wife worked 2 years as a teacher and then switched to part time where there was no match. We had zero IRA, HSA, or 529 funds. November 2016 we had 70k in investments which were all 401k.

Live in Florida, no state income tax, cheaper area until 2019 moved to more expensive city maybe HCOL, not sure the ranking threshold.

Spouse has been very cooperative with the budgeting. Wife’s vanguard account balance is 130k. That’s rollover 401k and Roth IRAs. There was a point in 2018 where we were able to max both of our 401ks. But then we moved and she retired.

Don't do that.

Do not "Put most of your money in a small cap index Fund," Someone who did that 10 years ago would have underperformed the SNP 500 index by 75% and the Nasdaq by 370%..

That is not customary or generally accepted investment advice.

I do ascribe to the info about considering bonds and fixed income component to a total diversified portfolio strategy, however.

And btw, I looked at that investing series linked to above (J.L. Collins Investing Series) and that is a nice resource, at first glance.

Much discussion on whether to include home in calculations of net worth.

Here's the scoop: it depends on what you will use the calculation for.

If you simply want to know how much you have acquired, fine, use it.

On the other hand, if you are doing the calculation for RETIRMENT PLANNING, don't use it, and the reason is because it is presumed that even in retirement and in old age, you will need a place to live. So it is not a semi-liquid asset.

The better online wealth calculators have options to either include the residence or not, and they clearly spell out which is being considered for that specific calculation. Again, because the two figures may be used for differing purposes.

So, either is fine, it just depends on what you want the calculation to represent.