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Financial Freedom, Financial Independence, Investing, Retirement, Wealth

Flip of a Coin: How I Decided to Own A $250K 401(K) Vs A $250k Mortgage

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This is not a post for the faint of heart. So some of you out there may need to do what you did when the nurse swabbed your arm with alcohol right before she gave you the Covid-19 shot, turn your head away and close your eyes!

It was years ago, but I had to make a call. I had to make an executive decision. Would I like to buy a $250,000 home or become a 401(k) Quarter of a Millionaire.

It was almost like flipping a coin. Do you choose heads or tails?

Heads and be a $250k homeowner.

By the way, home values over 30 years have risen about 4% on average but stocks have been able to return 10% over that same time period.

Now back to the coin toss.

Tails and have $250k, that’s right a quarter of a million bucks, in your 401(k).

I chose not to go with the path of least resistance, which is the American dream of being a homeowner, and to put my money in stocks. Best decision I ever made.

After watching the housing crash or 2008-09, it dawned on me to put some money into businesses that pay you dividends instead of a mortgage that you have to pay. Missing even a single payment on a mortgage and never being able to catch up could put you on the short list to foreclosure. Nobody wants that.

Fast forward 10 years later and Covid-19 is not only derailing retirement savings but also increasing the likelihood that many renters will be evicted.

According to CNBC, 20% of renters in America are behind on rent and owe an astounding $57.3 billion. The average amount owed by each renter is $6,000 and they are a minimum of three months behind.

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Once you get that far in arrears, rental companies and landlords are quick to start the eviction process.

Especially, mom and pop landlords that cannot afford the losses. They depend on this income to pay their own bills and fund their retirements. I knew after watching millions of Americans lose their homes to foreclosure in 2009 that I did not want to be in that predicament.

Therefore, I made the conscious decision to keep fixed low housing costs and to put my money into stocks. I put my money into index funds because they consist of thousands of stocks. All those businesses are not going to go bankrupt at the same time so it gives your money some security as opposed to putting all your money in one stock and then you lose everything.

The S&P 500 and other indexes will remove any stock that is not meeting its standards. Therefore, you do not have to do this on your own with stock picking. This also insures that your money stays invested in firms with a good balance sheet as the ones that are not pulling their weight are dropped from the index. Thus, you do not lose all your money as you would being invested with only one stock or placing your bets in speculative investments like cryptocurrency and bitcoin.

I actually know someone who says they invested all their money in bitcoin and lost all of their money! What were they thinking? If you are going to invest in bitcoin, then it with money, you can afford to lose and only invest more than 5% of your savings. That is all the risk that is adequate with bitcoin, in my opinion.

Not enough to money to become a bitcoin millionaire, but also not enough to lose your life savings, your home and all your possession in case you bet the farm on a losing investment.

Let us learn from the recently deceased creator of McAfee software founder who invested $25 million in Lehman Brothers bonds and lost every penny after they collapsed and went bankrupt in 2008.

You can read more about the demise of Lehman Brothers in my post called Don’t Trust the Commission-Based Advisor in Wall St Cubicle 23

I decided to just put my money into the VTSAX because it includes the total stock market. Want some Tesla stock? Drop some money in the VTSAX. It will only cost you $107.

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Instead of buying stocks one by one, you can just get them all for one price. That way you do not have to pay $685 for one share of Tesla.

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Don’t even get me started on the S&P 500. One share in this stock will set you back $4,267.

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If you have that kind of money just burning a hole in your pocket, then be my guest and buy some. However, if you want a piece of the whole market then just start buying the VTSAX.

I sleep like a baby knowing that my money just can’t fall to zero because the every stock in the fund will not blow up overnight. Even if businesses tank, the fund will correct this by replacing them with a better stock, and I still keep making my money.

I think of it like this, a home you have to feed but your 401(k) feeds you.

As a homeowner, you cannot realize gains until you sell. Therefore, you must feed the beast until you do!

take my money gif - Flywheel Coworking

Considering that most American homeowners only stay in their homes for an average of 9 years, all the money spent on maintenance and repairs is burnt if you are foreclosed on. However, according to Fidelity, many 401(k) millionaires keep their accounts for open for 20-30 years to amass that type of fortune. That means people are holding on to stocks longer than homes!

Therefore, on my path to millionaire status, I decided to go for stocks over real estate. Don’t get me wrong, you can make a fortune in real estate, but you have to maintain the property until you sell. I can make my fortune in index funds simply by breathing and automatic investing.

Seeing and listening to the stress of homeownership versus the ease of index investing I think I made a good choice going with stocks. My low housing costs allow me to invest more. This also allows you to pay off debt faster and travel more. However, it is always your call. This is just my 2 cents.

I mean who wouldn’t want to be a Quarter of a Millionaire. I’ll take that any day of the week over being broke!

And just so you know, if you let that money sit and ride it out in the market, you would have $1,000,000 in 14.5 years with a 10% return. That is without adding another cent.

How many homes that were bought for $250k do you think will be worth one million in the same amount of time? None.

I have no problem at all with being a 401(k) millionaire. None whatsoever!

Budgeting, Financial Independence, Investing

3 Financial Lessons From Eating Ketchup

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3 Financial Lessons From Eating Ketchup

Full Disclosure: This post is hot off the presses and written by fellow blogger Dr. Breathe Easy Finance This is Part 1 of a 2-part collaborative post with yours truly 😉

This post is on a lighter note but don’t skim over it, I put my heart and soul into it. Kidding. But I tried to make it exciting.

Origin of this post – My beef against ketchup and fries

The human habit and interest never ceased to amaze me. I posted an article that I thought would be very helpful for people on how to budget their money to live the life they want.

It was a well-researched post with multiple points and topics covered. We covered a lot of ground in that one article  – 10 reasons to budget, 8 steps to create a successful budget, 5 risks of not managing your money, 4 tools to manage your money including our free budget template and to cap it off, we discussed the money habits of millionaires.

I tweeted the post, what happened?  Crickets. 2 likes after 24 hours.

That same day, I saw a post about fries and ketchup. Literally, some guy eating few fries with a huge amount of ketchup.

What happened? 23,000 retweets (well including me), not even counting the likes and comments.

Well I retweeted to point out that entertainment sells much more than finance tips that actually helps people.

But then, my own tweet took a life of its own and got lots of comments and retweets. So I gave up.

Not really, my friend Miriam (from Greenbacks Magnet) and I decided to write a blog post about ketchup and fries. She picked fries, I picked ketchup.

I think a simple approach to life is best. If ketchup and fries is what people want to see, we will give it to them.

To better prepare you for this post, check out this very scientific video about why ketchup is so hard to pour. 

Seriously though, the ketchup bottle has bested even the strongest men and women of this world.

Literally, 1.7 million views on this 3 minutes video. See what I am saying?

I originally promised a 12 financial lessons from eating ketchup, but I decreased it to 3 just for you my readers, to spare you the agony. You came here for the ketchup anyways, not financial advice right. 

3 Financial Lessons From Eating Ketchup

1. There is a sweet spot for everyone in personal finance – Find yours

Based on your goal in life and your philosophy, there is a sweet spot that you are comfortable with. Stick to it and don’t let people try to knock you off your financial mission statement.

If you feel like 30% bonds is where you are comfortable with and you have done your due diligence and researched, then stick to it.

Since I don’t do half jobs, I dived deep into every article I write. I came across an article about the Heinz ketchup bottle and how it could be a nightmare getting the ketchup out when it gets clogged.

I am not much of a ketchup guy, so this was news to me. You do not understand how many forums are discussing this and how frustrated people get.

Don’t even bother asking how many curse words and punching, kicking has occurred because of this phenomenon.

Finally, a spokesman from Heinz revealed the secret. It was almost like Heinz intentionally made people struggle first and after a few years, they felt bad about it and finally said – you have been doing it wrong for years. Imagine that!

A Heinz spokesman said: “To release ketchup faster from a glass bottle, here is a little secret from Heinz.

“The sweet spot to tap on the Heinz bottle is the 57 on the neck. All you need to do is apply a firm tap where the bottle narrows, and the ketchup will come out easier.”

It turns out that all the years of frustration that people experienced, banging the bottom of the bottle, cursing, yelling, throwing the bottle across the room, punching and kicking the bottle and getting nowhere – the answer was simple and it’s been there in front of us all this time. New York Post even wrote about it.

You already have your financial mission statement, why don’t you reread it and reassure yourself. Stick to your sweet spot, it will save you a lot of head banging, kicking and screaming. 

2. Ketchup cannot make up its mind whether its solid or liquid – Keep your finances simple.

This one is even more fun. Who knew lots of scientist’s study ketchup.  I mean, I would not be surprised if ketchup is being researched more than some diseases. Osler–Weber–Rendu syndrome for example.

Keep your finances simple. This is what I do. Instead of using 72 different funds in my portfolio, I started with the 3 funds portfolio.  Also that’s why I wrote about my 12 toddler steps to personal finance. I agree, it’s not perfect, but it gives me the general guideline to follow.

Throughout my fellowship training and first 6 months of my real job, I focused mainly on paying off my loans. Simple enough, that I paid the loan off faster than I expected.

There is an Australian researcher, Anthony Stickland, who made it his life mission to solve the ketchup flow problem.

Dr. Stickland, a senior lecturer at the department of chemical and biomolecular engineering at the University of Melbourne in Australia, literally developed step-by-step instructions that should help your ketchup flow much nicely.  In that instruction, there are lots of physics theories involved.

3. Don’t just jump into investments because an authority figure recommends it – The ketchup cure

I learned this from my short encounter with cryptocurrency investing. So I watched some YouTube video and also followed some big names on twitter at the time.

Many times, they promote a coin for people to buy – for example, John McAfee will tweet about coins, and then people rush to buy it, artificially inflate the price of the coin.

Then a pattern started to emerge, few hours after, there would be a huge dump in the coin. It turned out he got paid to promote those coins. I also believed he bought the coin right before, then dump the coin after people buy up and he would benefit from the promotion.

This might not apply to other investments as bitcoin and other cryptocurrencies are not regulated.  However, you get the point. 

Ok as promised, the story of the ketchup cure –

Apparently, ketchup used to be a medicine around 1835 and it was sold as tomato pills. A genius doctor at the time spearheaded the project. Dr. John Cook Bennett, the medical department president at Willoughby University in Ohio.  The pill was sold as cure for illness ranging from diarrhea, jaundice, indigestion to rheumatism.

Conclusion 

While this might have been a funny or unfunny version of my venting, there are some things I felt need to be addressed.

  1. Human nature loves entertainment than something serious, even if it will improve our lives. 
  2. You can relate finance to anything, just gotta be creative
  3. There is a sweet spot for everyone in finance – just like the 57 spots for ketchup bottle
  4. Keep your finance simple – don’t be hot or cold. Pick a strategy and stay the course
  5. Don’t jump into any investment without doing your due diligence – Ketchup cure did not work – no magic formula for investing. 

Part 2 will be released later today by Miriam. Will be adding it later.