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hocus2004
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PostPosted: Wed Feb 02, 2005 2:33 am    Post subject: Reply with quote

You think this is low risk because your writing will earn it's keep....

There is risk in my plan. It certainly is not a zero risk plan. I don't even think it is a low-risk plan. It is probably a moderate risk plan.

There are different types of risk, though. You are mixing them all together and that confuses things. You need to specify what are the particular risks that you are concerned about, and then assess what are the odds of that factor becoming a problem, and then what are the possibilities available to you to deal with it. If you have ways of dealing with it, the "risk" on the particular element of your plan is not that big a risk at all in overall terms.

There are many different elements of my plan that contain risk. What I say is that the overall plan makes sense. It is not risk-free, but nothing in this life is. Overall, it is a sensible approach.

The way to test that is to compare it to an alternative. Look at the intercst approach. Is that risk free? Raddr did a standard deviation analysis to see how likely it is that today's valuations will have zero effect on long-term returns, as intercst presumes in the approach that he advocates. He found that there is a one in 740 chance that this assumption will prove out.

Now, that's risk! Putting your entire life savings down on an assumption that has only a one in 740 chance is extreme high risk. I think that anyone who follows the intercst approach, knowing what we know about it today, needs to have his or her head examined.

But people talk about the intercst appoach on these boards, don't they? We permit that, don't we?

My argument is that, if we permit discussion of that high-risk approach, we should permit discussions of plans that appear to come with far less risk attached too.

Don't ever let anyone mislead you into thinking that I believe my plan is "100 percent safe" or any such nonsense. Never would I say such a thing. But compared to most of the alternatives that I have seen, I think that my approach does not too bad in a reasonable risk assessment analysis.

In any event, it should be up to other community members to decide. What I object to is the deception that is used to discredit my approach. Intercst and his Goon Squad put up deceptive posts about my plan on a regular basis. Does that help anyone come to a better understanding of it? I say no. If there is some legitimate questioning about it, I think that is fine. But I fail to see any possible good that can come from further deliberate deception, either at this board, at the raddr board, at the Early Retirement Forum, or at the Motley Fool board. I say that there is no place for that junk in our community.

I am confident that if community members are permitted to hear honest and informed descriptions of my approach, that a good number will respond well to it. Certainly that has been the case in the past. Remember, intercst knew what my plan called for back in the days when he said that any book that I wrote on the subject was sure to become "the Bible of the Retire Early movement." Do you really believe that the fact that I proved that he got the number wrong in the REHP study was not the reason why he now says that I am "mentally ill." It's an awful big coincidence that I was the only poster in the community specifically cited in the board FAQ on the day before I asked some questions about the methodology of the study and that after I pointed to statements by William Bernstein that the study is "highly misleading" I suddenly became "mentally ill. That's an awful, awful big coincidence, Petey.


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hocus2004
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PostPosted: Wed Feb 02, 2005 2:43 am    Post subject: Reply with quote

You are dependent on the $10,000 in investment return [I think you mean earnings here], but at some point one will be unable to work and you will then have to be dependent on the investments to deliver.

That is indeed so. At some point I need to have the $10,000 coming in from another source. Probably by age 70 or so.

I have many years in which to cover that gap. Some of that additional money may come from Social Security, for which both my wife and I are eligible. I am not one of those who say that that should be counted as zero. I don't count it as a big number, but I don't need a big number to fill the gap in my plan.

Say that Social Securty really turns out to be zero. Another option would be for my wife and me to move to a smaller house or a house in a less built-up area after our kids are grown. We could probably pull a good amount of cash out of the house. That might cover a good part of the gap.

If neither of those things work, in all likelihood I am going to be able to cover the gap with earnings from my writing business that go above the $10,000 figure. Anything that I earn above $10,000 can go straight into savings, remember, All of my other costs of living are already covered.

It is important to underatand that this $10,000 number is a minimum earnings expectation. I believe that the number is going to be bigger than that, and anything above that I can use to fill the gap. It is hard for me to believe that I will not be able to fill it in 25 years. I mean, come on. There is such a thing as being too risk-averse, you know?

I earned $125,000 in my last year of corporate employment. If I were saying that I expect to earn $125,000 with my writing, then I would be with you, that would be an extreme high-risk supposition. But I am not doing that. I took a figure that is less than one-twelth of what I earned in corporate employment. I think that is reasonable. I think that I will be able to meet that number, and that in some years I will be able to top it.

Is this a risk-free assumption? No. Is this a reasonable assumption? Yes.


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hocus2004
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PostPosted: Wed Feb 02, 2005 2:55 am    Post subject: Reply with quote

What happens if that doesn't work out?

I have lots and lots of back-up options available to me, Pete. Remember the 40 binders of material that I gathered in the days when I was putting together my plan? A number of those are devoted to the question of what I would do to earn the $10,000 per year if the writing business did not pan out.

For most of them, I have done some research and I have done some analysis of my skill set and whether this particular option would be a good fit for me and so on.

I recommend that all aspiring early retirees following this approach do something along these lines. The time to examine your options is not when you are desperate. The thing to do is to prepare in advance.

I didn't put my plan together over the course of a weekend, Pete. I spent years examining all of the approaches that I could learn about from every source that I could find. Then I put the best elements of each into my binders. And then I aggregated the entire thing to create the best possible plan for me.

That doesn't mean that it is going to work. But I did all that any reasonable person could be asked to do.

You say above that you don't think the financial systems are going to fail. I agree. But I don't think that there is going to come a day when someone who earned $125,000 in corporate life is not going to be able to come up with any means of bringing in $10,000 per year. It just doesn't make sense to me that that would be so.

It seems to me that you are applying one standard of risk to investing and a totally different standard to using an expectation of earnings from work. You are saying that investments will always come through, and that earnings may not.

I think that in both cases it depends on the particulars. Someone planning on seeing a six-figure income from freelance writing is asking for trouble. Someone who assumes that changes in valuation levels are going to have zero effect on long-term returns is asking for a lot of trouble. People who use reasonable assumptions for their investments and for their income from work they do will probably do more or less OK in the long run.


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hocus2004
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PostPosted: Wed Feb 02, 2005 2:58 am    Post subject: Reply with quote

What then happens if your new job at a lower payscale is now breakeven salary and you cannot save anything from the job?

Breakeven is $10,000, Pete. Every penny above that can go into savings.

$10,000 per year is minimum wage. It is not legal to pay me less than that.

I think you are reaching. A lot.


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hocus2004
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PostPosted: Wed Feb 02, 2005 3:14 am    Post subject: Reply with quote

the difference is that with adequate diversification, a 2% dividend stream and some cash put aside, one can afford to ride out return bumps in the road. You aren't dependent, reliant on smooth returns each and every year to get the results you need.

That's the situation that I am in today, Pete.

I haven't earned a penny since Soapbox.com closed up shop in February 2001. I have a higher level of financial independence today (in inflation adjusted terms) than I possessed on the day that Soapbox.com closed up shop.

How did I pull that off? The value of my house (which I own in full) skkrocketed.

Can I count on that happening this year or next? I cannot. But I have a book coming out in a few months, and I expect to be generating an income stream from that for a long time to come. I have the ouline for a second book already written. I have plans to publish three Researh Reports on my web site. I have started work on some tape/CD sets.

Not all of these things are going to work out. Some of them probably are. I don't need a whole bunch of them to work out to cover the $10,000 nut. Anytime I do better than cover the nut, my level of financial independence goes up.

Every year, I redo my plan. Every year so far there have been some aspects of it that performed better than expected and some that performed worse than expected. My guess is that it is going to continue on like that.

Some years my house will do well, some years not so well. Some years my stocks (when I purchase them) will do well, some years not so well. Some years my writing business will do well, some years not so well.

You will not hear any objections to the idea of diversification from me. I am a big believer. I think that I am a heck of a lot better diversified than someone who has put everything in stocks and is hoping that perhaps for the first time in history prices will not revert to the mean. That is la-la land stuff. That is hoping, not planning.

Planning does not solve all of your problems. But putting together a plan teaches you things. One thing I learned is not to put all of your eggs in one basket. It is not safe to rely solely on work income to finance your lifestyle. It is not safe to rely soley on stocks. It is not safe to rely soley on real estate. It is not safe to rely solely on TIPS.

I like a nice well-babalanced combination of the above. That is what I think I've got.

If I learn that there is some way in which that is not so (and that has indeed happened already on a number of occasions) I will change the plan to bring it into better balance. I will change it every blessed year if I need to. That's why I am on the boards in the first place, to learn. That is supposed to be the point of this, is it not?

The idea should be to learn, not to tear down other approaches. Those who spend lots of energy tearing down other approaches do not help any of us, in my view. They do us all a good bit of harm.


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hocus2004
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PostPosted: Wed Feb 02, 2005 3:29 am    Post subject: Reply with quote

It is largely untested after all.

That's so. It is largely untested.

Tell me which approach discussed on these boards is NOT largely untested. I would like to take a look at that approach.

ALL OF THIS STUFF IS LARGELY UNTESTED. That is why it is too early in the game for us to be adopting dogmas and then launching vicious smear campaigns against posters who don't adhere to them.

Do people think that intercst descended from heaven? I am here to tell you that he did not. He makes mistakes just like all the rest of us. My personaln assessment is that he makes more mistakes than most.

You have as much in the way of qualifications to talk about this stuff as intercst does, Pete. So does JWR1945. So does Wanderer. So does BenSolar. So does FoolMeOnce. So do hundreds and hundreds of others.

So why is it that we all have to walk around on little cat feet when intercst comes into the room and we have to always be saying "Thanks, intercst!" and "We never could have done it without you, intercst!" and "I can't get over how you invented the idea of early retirement, intercst!" and all of this other sickiening stuff? What's all that about?

That is at heart what the May 13, 2002, post was really all about. It was a declaration of independence for our board community. All of this stuff is untested. So I want to hear what everyone who has studied the question has to say about it.

I spent thousands of hours building up the Motley Fool board so that I would access to lots of different viewpoints on how to retire early. All of those people are now gone because of intercst. And I spent thousands of hours building up this place for the same reason. Now we have a hard time finding a quarum because of the damage done by intercst supporters. I am saying that we need to put an end to the nonsense.

Intercst knows a few things about early retirement. Fine. If he were able to post responsibly, we would all be happy to hear what he has to say. But when he threatens the success of the entire community, we are all in our rights to ask him to knock off the funny business. If he fails to respons, we are in our rights to go to the site administrators where he posts and ask that he kindly be removed so that the rest of us can have our conversations in peace. That's my take.

I agree that my ideas are untested. One of the ways we test them is in discussion on the boards. REASONED discussions. Deception does not have a place. Intimidation does not have a place. We should be testing all sorts of ideas, and we should be doing so in reasonable ways. That means no intercst and no intercst-type posting practices.


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hocus2004
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PostPosted: Wed Feb 02, 2005 3:38 am    Post subject: Reply with quote

The level of income achievable is untested.

It is untested, but it is not unresearched. The $10,000 number did not pop into my head in a dream. I researched how much freelance writers in various sorts of circumstances generally earn.

The $10,000 number is a number very much on the low side for someone writing about the sorts of topics that I write about. My expectation is that the real-world number will end up being a good bit higher.


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hocus2004
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PostPosted: Wed Feb 02, 2005 3:45 am    Post subject: Reply with quote

Last time round your costs consumed most of the income the Soapbox piece brought in. This is what you told me.

If I said that, I said wrong. Is it possible that I said that early on, before I had too much revenue coming in? Perhaps I was just trying to be modest? I don't know. But, if I said that, I said wrong.

I sold a little over 5,000 copies of the "Secrets of Retiring Early" report in a little over six months. There were 1800 individual sales. On most of those I earned $6 per copy. There were 3,500 sales made in a bulk deal for distribution to seminar participants. On those I earned $1.20 each.My total revenue was somewhere in the neighborhood of $15,000.

I had very little in the way of direct costs. Now, the hours consumed writing and promoting the report, that was a big number. If you calculated an hourly rate, the number would not be big. But the revenue figure certainly makes the idea that I can bring in $10,000 per year with my writing business appear to be a reasonable one.

The $15,000 was brought in over six months. Make that a year, and you have $30,000. I was planning to publish three reports per year (I was close to finsihing two follow-ups went Soapbox.com was shut down). So after a few years, I would have had six revenue streams in place. The reports wouldn't continue to produce at the same rate after they got old, but it is hard for me to see how you could look at those numbers and not see support for the idea that I am capable of generating $10,000 per year with my writing.


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hocus2004
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PostPosted: Wed Feb 02, 2005 3:52 am    Post subject: Reply with quote

I would be careful when going down such a route and especially if there existed the implicit suggestion to others that this might be one way to go. I think it is quite risky.

OK. You're allowed to think that it is risky and to say so. There's no harm in that. If it causes people to direct more scrutiny to he idea, that's very much to the good.

I am certainly intending to make a suggestion that it is a good way to go for people in the right circumstances. It's not good for all. But it's good for some. I certainly have obtained an extremely positive reaction to the idea in the days before the Smear Campaigns, so I intend to keep at it. And I also intend to keep at the business of trying to shut down the Smear Campaigns so that those interested will be able to make sense of the idea without all of the noise and distortion brought to the table by the DCMs.


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hocus2004
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PostPosted: Wed Feb 02, 2005 3:55 am    Post subject: Reply with quote

It's somewhat of a " life's a journey and I'm going down this path and I'm going to make it work " statement.

I like that statement. That sounds right to me.


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hocus2004
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PostPosted: Wed Feb 02, 2005 4:06 am    Post subject: Reply with quote

Most people need more security than that, particularly the ladies. Women tend to be more cautious investors, more cautious planners. I think it would be a hard sell.

I think my plan is ten times safer than the intercst approach of bet it all on stocks and hope that you get lucky. I acknowledge that there is risk to what I did, but I think that the risks are reasonable ones.

The SWR question is a good illustration of the differences between the two approaches. Both intercst and I did SWR analyses to test the safety of our plans. Intercst found a methodology that backed up his preconceptions and he jumped at it and he permits no questioning of it now.

I took the other route. I studied the issue in more depth and found the flaws in the conventional methodology studies. Then I made an assessment of what the true risks of stock investing really are. I think that is the better approach and the more realistic approach. I think that that is the approach that is more likely to pay off in the long run.

Read the "About This Board" post at the SWR board if you want to get a sense of how big a payoff you can get from doing a more in-depth analysis instead of just jumping at any idea that seems to back up your preconceptions. That post shows that those willing to look at what the historical data says can attain safe retirements many years sooner than those using the conventional methodology studies. In some cases, it might be decades sooner. We are not talking small numbers. The payoff for getting the number right is a big one.

I now can take all of JWR1945's research into account in constructing modifications of my plan. And the hits just keep on coming! People say that discussion boards are a waste of time, but I don't buy it. Read the JWR1945 research, study it until you understand it, work through the implications, and you can see hundreds of thousands of dollars coming your way that would not have been there had you not gone to the effort.

Discussion boards CAN be a waste of time. They can also be a wonderful learning resource. It all depends on whether the posting rules are administered in a reasonable manner or not. Boards that are administered in a reasonable manner are a godsend to the aspiring early retiree, in my view.


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hocus2004
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PostPosted: Wed Feb 02, 2005 4:08 am    Post subject: Reply with quote

The problem with the non-traditional way is that one can easily quit with inflated ideas of what is possible income wise, then get stuck and have to go back where the options are not as expected.

I agree that that would be a mistake. You want to avoid doing that.


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karma
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PostPosted: Wed Feb 02, 2005 5:58 am    Post subject: Reply with quote

Quote:
Flying certificate, dive instructor,


We have a close friend who took up sky diving in retirement. Now his goal is to climb the 10 highest peaks in Colorado. He's well on his way. That's what is so great about early retirement. You can do these time-consuming physical things before your body gives out. Smile

karma


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peteyperson
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PostPosted: Wed Feb 02, 2005 9:40 am    Post subject: Reply with quote

Well this does paint a different picture. I would have more confidence with that level of initial income as well as the seminar deal. That demonstrated that there was a paying market for what you are writing.

I too have an interest in writing. I'm working up to it slowly and not making a fuss about it. So I think I'm going to be fiscally cautious but creatively adventurous. I'm not in your kind of position, so perhaps I'm tending to be more wary.

Today I moved to a more diversified portfolio structure in order to simplify the management & level of ongoing thinking involved in my portfolio structure, and have a common stock exposure more inline with the DFA/IFA asset class split. I want to be able to dial back on my investment learning time in order to be able to put some real focus on my writing interest that I've been toying with but have yet to really commit to. Don't really want to say much more about that on a public forum though.

Petey
hocus2004 wrote:
Last time round your costs consumed most of the income the Soapbox piece brought in. This is what you told me.

If I said that, I said wrong. Is it possible that I said that early on, before I had too much revenue coming in? Perhaps I was just trying to be modest? I don't know. But, if I said that, I said wrong.

I sold a little over 5,000 copies of the "Secrets of Retiring Early" report in a little over six months. There were 1800 individual sales. On most of those I earned $6 per copy. There were 3,500 sales made in a bulk deal for distribution to seminar participants. On those I earned $1.20 each.My total revenue was somewhere in the neighborhood of $15,000.

I had very little in the way of direct costs. Now, the hours consumed writing and promoting the report, that was a big number. If you calculated an hourly rate, the number would not be big. But the revenue figure certainly makes the idea that I can bring in $10,000 per year with my writing business appear to be a reasonable one.

The $15,000 was brought in over six months. Make that a year, and you have $30,000. I was planning to publish three reports per year (I was close to finsihing two follow-ups went Soapbox.com was shut down). So after a few years, I would have had six revenue streams in place. The reports wouldn't continue to produce at the same rate after they got old, but it is hard for me to see how you could look at those numbers and not see support for the idea that I am capable of generating $10,000 per year with my writing.


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hocus2004
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PostPosted: Wed Feb 02, 2005 10:14 am    Post subject: Reply with quote

That demonstrated that there was a paying market for what you are writing.

Thanks for saying that, Petey. That's exactly how I feel about it. What I liked about the Soapbox.com concept is that it was no BS. It wasn't that people were saying that your stuff was good. People were putting money on the table. People don't do that lightly. So I do think that the Soapbox.com experience counts for something.

The way that I had intended to play it was just to build on the Soapbox thing. I was going to start with one report, then two, then three, and so on. Things got off to a great start, so it was a disappoitment when Soapbox was taken down.

I could have then tried to sell the reports on another site. I decided that the market for reports was too limited. I elected to blow the thing up to book length and see if I could tap into a bigger market. This way was a slower way. It meant that there was some time without income. In the long run, though, I think it is better. The book becomes a sort of credential that I think may open some doors down the line.

I too have an interest in writing. I'm working up to it slowly and not making a fuss about it. So I think I'm going to be fiscally cautious but creatively adventurous.

That makes perfect sense. There is no question that it is a highly competitive field. I wish that I were good at something else, you know. There are hundreds of things that would provide more of a guaranteed income scheme. My situation is that I believe that this is what I am good at, and so I just am stuck with it.

I know that some see the writing thing as glamourous. I don't do it for the glamour. I just happen to be good at it, like some are good at numbers and some are good at building things and some are good at selling. It's not the putting together of words that I see myself as being particularly skilled at. I think that my skill is in coming at things from a different angle. Also, I like the marketing side. I don't write just to sell, but I like to think about how to generate sales. I don't write just as an academic exercise. I want to connect with people, and that is what marketing is in essence.

Don't forget that I have spent my whole life in the field of journalism. I have a certain knowledge base that I am working from. That doesn't mean that you couldn't make use of the general concept in some other way. You mght well want to be cautious. That makes sense. But as you test whether you are able to bring in any money, you can toy with the idea of incorporating an income-from-work element into your plan. It could be less than mine, or you could limit it just to paying for extras that it wouldn't really hurt you to do without.

Still, having that element in a plan can make a big difference. Counting that $10,000 reduced my saving target by $250,000. That's a bunch of years of saving. Those who have skill sets of a more practical nature can probably assume a work-income element of more than $10,000. So I think that in the right circumstances it can be something that helps.

It's not for everyone! There's nothing wrong with doing it the other way. But I have communicated with a good number of people who want to do something that would bring in some income anyway. For those people, it can make the whole thing work a little easier and faster and better.

It's not such a bad thing to keep one foot in the working world either. There are some ways of looking at this from which it could be argued that my approach is less risky rather than more so.

Anyway, thanks for all the back and forth. It makes me clarify my own thinking to come up with answers to so many questions. The reason why I responded to so many is that you were making reasonable points,. You were asking the sorts of questions that I think a lot of people have in their minds. So I think it is a constructive thing to make an effort to deal with as many of them as possible.


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karma
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PostPosted: Wed Feb 02, 2005 12:55 pm    Post subject: Reply with quote

One of the silliest things I thought I would do when I retired was to get the house completely straight. All the clutter would be gone, and would never get that way again.

I also thought I'd spend more time at museums and such, but somehow I just don't get to it. I think I need some sort of plan that forces me out of the house once a month to do something - anything - different. In fact this being non-tourist season, I may hit the Smithsonian. I understand they have new exhibits there - and I haven't been in at least 5 years. Seems like a plan.

You can get stuck in a rut, even when you're retired.

karma


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peteyperson
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PostPosted: Thu Feb 03, 2005 2:21 am    Post subject: Reply with quote

Hi Rob,

I agree with what you have said. My only caveat is that it does reduce your need for a further $250k in savings, but it also requires you to keep working forever and that may not be practical. It requires the ability to either do that or have the new job earn more than you need so you can add to savings or failing that, your old job at whatever rate one can achieve and saving money there. All of these alternatives mean far slower saving rates and depending on one's previous income levels a drop of 20% in income due to skills going rusty etc could be the difference between what you spent previously and what you saved (net of taxes). This could leave you unable to save, then reliant on your existing nest egg $250k short and needing to wait for existing investments to compound up enough. Thus, it depends then on how far along you were and what savings rate after tax you had as to what level of risk is involved if needing to return to work facing the above conditions. One could end up backed up between a rock and a hard place.

The opportunity costs are simply that one could have stayed in corporate employment and acquired directly the extra $250k in a few short years. This would compare well in time spent to achieve the goal if the dream didn't work out and one could not save much more (or anymore). You might spend 5 years pursuing and then abandoning the dream and then it might take 10-15 years more to add enough savings/compounding to reach your goal. This sample 20 year plan compares poorly to the 5 years needed to stay on whereupon one would have had the freedom to pursue the goal without financial constraints for as long as one desired.

This is really what I meant all along, so I hope that is more concise and clearer. Clearly one can choose to quit the corporate employment if one feels one can make a go of it at $10,000 income a year even if one eats into the capital invested for several years while the plan comes together (in this case while the book is written if it could not be written before quitting). This adds to the risk level somewhat. So it is a layed risk strategy in terms of what your fallback positions are if it does not work out for the best. The risk is also reduced the higher savings rate on your previous income you had, if you spend 90% of that then you have little wriggle room if your income falls if returning. I just am wary of people taking such a decision and not realising the pitfalls to it. I am all for being able to afford to write san other jobs. That is a luxurious position I would like to work my way towards <smirk>.

Petey
hocus2004 wrote:
That demonstrated that there was a paying market for what you are writing.

Thanks for saying that, Petey. That's exactly how I feel about it. What I liked about the Soapbox.com concept is that it was no BS. It wasn't that people were saying that your stuff was good. People were putting money on the table. People don't do that lightly. So I do think that the Soapbox.com experience counts for something.

The way that I had intended to play it was just to build on the Soapbox thing. I was going to start with one report, then two, then three, and so on. Things got off to a great start, so it was a disappoitment when Soapbox was taken down.

I could have then tried to sell the reports on another site. I decided that the market for reports was too limited. I elected to blow the thing up to book length and see if I could tap into a bigger market. This way was a slower way. It meant that there was some time without income. In the long run, though, I think it is better. The book becomes a sort of credential that I think may open some doors down the line.

I too have an interest in writing. I'm working up to it slowly and not making a fuss about it. So I think I'm going to be fiscally cautious but creatively adventurous.

That makes perfect sense. There is no question that it is a highly competitive field. I wish that I were good at something else, you know. There are hundreds of things that would provide more of a guaranteed income scheme. My situation is that I believe that this is what I am good at, and so I just am stuck with it.

I know that some see the writing thing as glamourous. I don't do it for the glamour. I just happen to be good at it, like some are good at numbers and some are good at building things and some are good at selling. It's not the putting together of words that I see myself as being particularly skilled at. I think that my skill is in coming at things from a different angle. Also, I like the marketing side. I don't write just to sell, but I like to think about how to generate sales. I don't write just as an academic exercise. I want to connect with people, and that is what marketing is in essence.

Don't forget that I have spent my whole life in the field of journalism. I have a certain knowledge base that I am working from. That doesn't mean that you couldn't make use of the general concept in some other way. You mght well want to be cautious. That makes sense. But as you test whether you are able to bring in any money, you can toy with the idea of incorporating an income-from-work element into your plan. It could be less than mine, or you could limit it just to paying for extras that it wouldn't really hurt you to do without.

Still, having that element in a plan can make a big difference. Counting that $10,000 reduced my saving target by $250,000. That's a bunch of years of saving. Those who have skill sets of a more practical nature can probably assume a work-income element of more than $10,000. So I think that in the right circumstances it can be something that helps.

It's not for everyone! There's nothing wrong with doing it the other way. But I have communicated with a good number of people who want to do something that would bring in some income anyway. For those people, it can make the whole thing work a little easier and faster and better.

It's not such a bad thing to keep one foot in the working world either. There are some ways of looking at this from which it could be argued that my approach is less risky rather than more so.

Anyway, thanks for all the back and forth. It makes me clarify my own thinking to come up with answers to so many questions. The reason why I responded to so many is that you were making reasonable points,. You were asking the sorts of questions that I think a lot of people have in their minds. So I think it is a constructive thing to make an effort to deal with as many of them as possible.


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hocus2004
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Joined: 10 Jun 2004
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PostPosted: Thu Feb 03, 2005 3:16 am    Post subject: Reply with quote

The opportunity costs are simply that one could have stayed in corporate employment and acquired directly the extra $250k in a few short years.

That's correct. I saved over $80,000 in my last year of corporate employment. So in my case it would have meant staying at the corporate job three additional years.

You can make a case for staying the three years. My original intent was to stay about half of that, about another 18 months. I speeded up the transition a bit because of the opportunity that came up with Soapbox.com. If I wanted to stay at the accounting firm, I wouldn't have been permitted to use my real name on the reports that I published at Soapbox.com and I wanted to start getting my name out there. That was definitely a factor.

I don't find fault with anyone who waits the three years. In my mind, though, there is an opportunity cost of spending those three years in the non-fulfilling job. The Soapbox experience taught me new things and so did the experience of writing the book. I didn't want to put those learning experiences off for too long. We only get so many years and you never know for sure how many you have left.

There's no question but that there is a trade-off that needs to be examined. In my case, I had already spent nine years in the non-fulfilling job, and I felt that that was enough. But I certainly think that a reasonable case can be made for going the other way. Going the other way would leave you with a higher level of financial independence (and thus with a greater chance of making the dream work out) but with a smaller number of years left to live the dream.


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peteyperson
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Joined: 26 Nov 2002
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PostPosted: Thu Feb 03, 2005 12:40 pm    Post subject: Reply with quote

Yes, this is always the trade off. Time for money and how many years are left to enjoy it. I like the idea of learning about investing because it can cut down the time to reach financial independence and provide more motivation to earn more to get there sooner to whatever degree achievable. This is partly why I am happy to live simply, enjoying treats occasionally and not having a high consumption lifestyle. For me it comes down to focusing on what I get the most pleasure from and spending on that. I recently got rid of my mobile phone. This is unthinkable for most people who have one stuck to their ear most of the time. I disliked having one more thing to remember to carry around, one more thing to recharge, and one more expense each month. Someone just 30 years ago would not understand whosoever could be so important as to need a phone with them wherever they go. I find it occasionally inconvenient more for other people than for myself, but that doesn't compel me to buy another phone. A bit like Warren Buffett when he was sitting have a meal with some folks who were drinking a very expensive bottle of wine and when offered some covered his glass and said he's rather take the cash! I didn't take that as a man who thinks only of money, but just someone who knows what they like and spends on that.

Petey
hocus2004 wrote:
The opportunity costs are simply that one could have stayed in corporate employment and acquired directly the extra $250k in a few short years.

That's correct. I saved over $80,000 in my last year of corporate employment. So in my case it would have meant staying at the corporate job three additional years.

You can make a case for staying the three years. My original intent was to stay about half of that, about another 18 months. I speeded up the transition a bit because of the opportunity that came up with Soapbox.com. If I wanted to stay at the accounting firm, I wouldn't have been permitted to use my real name on the reports that I published at Soapbox.com and I wanted to start getting my name out there. That was definitely a factor.

I don't find fault with anyone who waits the three years. In my mind, though, there is an opportunity cost of spending those three years in the non-fulfilling job. The Soapbox experience taught me new things and so did the experience of writing the book. I didn't want to put those learning experiences off for too long. We only get so many years and you never know for sure how many you have left.

There's no question but that there is a trade-off that needs to be examined. In my case, I had already spent nine years in the non-fulfilling job, and I felt that that was enough. But I certainly think that a reasonable case can be made for going the other way. Going the other way would leave you with a higher level of financial independence (and thus with a greater chance of making the dream work out) but with a smaller number of years left to live the dream.


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Oliver
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Joined: 04 Dec 2002
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PostPosted: Thu Feb 03, 2005 4:17 pm    Post subject: Reply with quote

hocus2004 wrote:
Look at the intercst approach. Is that risk free? Raddr did a standard deviation analysis to see how likely it is that today's valuations will have zero effect on long-term returns, as intercst presumes in the approach that he advocates. He found that there is a one in 740 chance that this assumption will prove out.

Now, that's risk! Putting your entire life savings down on an assumption that has only a one in 740 chance is extreme high risk. I think that anyone who follows the intercst approach, knowing what we know about it today, needs to have his or her head examined.


Unusual finding. Could you provide a link to the analysis?

Oliver


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