Ether to FI: Obeying WCI’s Ten Commandments & Net Worth Update

Back in July, we met Ether to FI, an anesthesiologist, father, and husband just starting his career as an attending anesthesiologist.

Several months have passed, and the good Dr. E.T.F. has updated his net worth worksheet and written an excellent article detailing his compliance with the Ten Commandments of my business partner and mentor, Dr. Jim Dahle of The White Coat Investor.

As you may recall, E.T.F. has a goal to reach FI faster than I did (which was about 10 years into my career), and I’m rooting for him. He’ll benefit from a second household income and a wealth of online resources, most of which didn’t exist when I graduated from residency back in 2006. His goal number is $3.3 Million.

Enjoy the post, and be sure to stick around for the Net Worth Update below.


White Coat Investor, Did I Obey Thy Commandments?

 

One of my new colleagues asked me the other day, do you agree with the principles of the white coat investor?  I answered with a resounding “YES”.  That is like asking me if Jack Bogle is a saint, or if the stock series is helpful? YES and YES.  Starting this new journey with residency in the rearview, it is time to take stock of the E.T.F. household. How well does our reality compare with our aspirational selves? Dr. Dahle’s Ten Commandments provides a good outline to gauge our success on the road to Financial Independence (FI).

Let’s see if the E.T.F. household is obeying the Ten Commandments.

 

1) Thou Shalt Realize Thou Hast A Second Job

 

In my first post, I already self-identified as a personal finance nerd.  Evident by friends, family, and colleagues asking for advice.  I am not a financial advisor, and I did not stay at a Holiday Inn last night.  However, I love getting into the personal finance weeds.  I read or listen to at least 2 books a month.  I love financial podcasts.  I knew I had a condition when my one year old picked up headphones and said “Daddy”, as Mrs. E.T.F. just shook her head.

Check and check on this one.

 

2) Thou Shalt Do Continuing Financial Education

 

See #1.

I should start receiving Continuing Medical Education credits for my efforts.

[PoF: Two thirds of the talks at the WCI Financial Literacy conference, including mine, have been approved for CME. It’s full this year, but if all goes well, this may be the first annual conference.]

 

3) Thou Shalt Save 20% Of Your Income for Retirement Beginning the Day You Leave Residency

 

I was ruthless about this commandment. It is much easier to form a habit prior to establishing new lifestyle standards.  Mrs. E.T.F. and I decided on a household budget prior to the arrival of my 1st paycheck.  We direct deposited that amount into a checking account we call the “spending” account.  The rest of my income and Mrs. E.T.F.’s paycheck is direct deposited into a checking account at a different bank.

This is our giving/saving/extra investing/major expense account. Prior to the arrival of check 1, we did an annual budget for the 1st 12 months of attending life.  We spent everything on paper before the year began.  We also do a monthly budget based on the fixed amount deposited in the spending account.

Using the same idea, we maxed out all retirement accounts based on the monthly proportions starting with my 1st paycheck.  This is a combo for E.T.F. (Mandatory 403B + 127% matching + Voluntary Roth 403B + 457B + IRA’s for 2017 & 2018) and Mrs. E.T.F. (Voluntary Roth 403B + 457B + IRA’s for 2017 & 2018).  Mrs. E.T.F. also has a percentage of her salary directed into a mandatory pension account. This will provide around 70% of her salary after she retires in her early 50s.

I did not include the pension portion in my FI calculations. The pension alone would provide 70% of our yearly FI spending. I see this money as a bonus, that will probably be spent on giving, and taking my future grandchildren all over the world. Summers with grandpa and grandma are going to be very interesting.

Other savings and investing goals for the first year include increasing our emergency fund and depositing $40,000 into 529’s.  Our savings/investment rate based on gross income this year will be around 50%. [PoF: Next year, aim to meet the Live on Half Challenge based on take-home pay]

I am working hard to be the teacher’s pet.

4) Thou Shalt Insure Against Catastrophe

 

Offense wins games, but defense wins championships. Too bad most people only look at the box scores.

I grew up in a household that valued financial offense but played defense with blindfolds on. This meant you felt all the bumps in the road. I am doing everything in my power to avoid past potholes.

As residency was winding to a close, I used Set for Life Insurance to buy new life and disability policies to supplement the amount available from my new job. Mrs. E.T.F. has a private life insurance policy to supplement insurance through work. Her disability is the 60% of her base salary through work.

A year prior to starting my new job, I decided to increase my automobile and homeowner’s policy to the maximum coverages available. This did not change the price of the insurance because I also increased my deductibles to the maximum. The deductibles represent a small portion of our emergency fund, so that is a risk I am willing to take to ensure the insurance company covers a much larger bill.

The last addition to this piece de resistance was an umbrella policy. I also maxed this out with the same logic. Umbrella insurance is very cheap. There is something very comforting about insurance company lawyers sitting between me and those looking to make a quick buck.

Commandment 4 gets a star.

 

5) Thou Shalt Not Mix Insurance And Investing

 

I agree completely with this commandment. I have insurance, and I have investments. Never the two shall meet.

Check on this one.

 


You’re still not using Personal Capital? Track all your accounts in one place like I do.


 

6) Thou Shalt Favor A Passive Investing Approach

 

Our net-worth statement demonstrates we believe in passive investing in the E.T.F. household. Keeping expenses low is paramount. In a perfect world, Vanguard would be my provider of choice for all my investing. Since that fantasy world does not exist, I must use investments chosen by my job. Luckily, I still have some great low-cost options. My average expense ratio is .068 across all investments. Our goal is to get as close to zero as possible.

We are obeying this commandment.

[PoF: See Passive Income MD for more info on passive investments.]

 

7) Thou Shalt Hire Only Competent Advisors

 

As WCI stated, “by time you know enough to select a good financial advisor you know enough to do it yourself.”

We will continue to manage our finances ourselves, but will not rule out using a fee-only financial advisor on an hourly basis for specific questions.

Until then, PoF needs to keep up the output, I prefer free advice. [PoF: I can do that!]

8) Thou Shalt Minimize Expenses And Taxes

 

As stated in commandment 6, our average expense ratio is 0.068. There is always room for improvement, and I fully support the race to the bottom among mutual fund companies. Any company that lowers fees on a consistent basis is an organization I can support. Looking at you; Vanguard.

We are not maximizing tax sheltering because we are investing in Roth 403Bs. Early retirement aficionados probably are scratching their heads on this choice. Just a reminder, I am not retiring early, and one of my goals is to have an RMD problem with all the investing I plan on doing.

We will let the crowd score us on this one.

[PoF: I like to take every deduction possible, so the only Roth contributions are via the backdoor with Vanguard, but I can say with some confidence that I will be able to access tax-deferred contributions in a lower tax bracket after an early retirement.]


 

9) Thou Shalt Minimize Debt And Manage Necessary Debt Well

 

“I AM DEBT FREE!!!”

Sorry, I forgot I am not on the Dave Ramsey Show. We don’t have any debt and are not planning on acquiring any debt. We will see if the plans change with a house purchase.

Another star.

[PoF: Most people consider themselves to be “debt free” when they are free of consumer and student loan debt, but still carry a mortgage. Like you, I am 100% debt free, but I wouldn’t discourage you from taking out a reasonable mortgage if it makes sense for your family.]

 

10) Thou Shalt Protect Thy Assets, Plan Thy Estate And Stay The Course

 

We plan to keep playing strong defense, get professional help when its necessary, and ride the waves up and down. This journey is going to be long, but we plan on having fun the whole way through.

Talk to you guys sooner, rather than later, I will increase my writing frequency, expect bi-monthly updates unless something interesting happens.

 

Ether to FIRE Net Worth Update

 

[PoF: It’s been a good few months for E.T.F. and family. When we first checked in as he finished residency, they had a net worth of about $80,000. Between investment returns and new additions, they are easily on pace to double it this calendar year.

Here is the breakdown:

 

ETF portfolio

 

Since the summer, they’ve been able to add three accounts; her 457(b), and his voluntary and mandatory 403(b) accounts are all new.

They are currently 4.4% of their way to the $3.3M goal.

If they continue to follow WCI’s Ten Commandments, I expect them to reach 100% of their goal eventually.]

 

Are you breaking any of The Commandments? Do you think the E.T.F. family will reach their big, audacious goal of $3.3 Million within ten years? Sound off in the comment box below!



30 comments

  • Very inspiring! They should make it fine. I ended up at the goal but I meandered my way into it. I would have benefited from a specific plan like the one WCI suggests.

  • Wow I’m impressed by the 6% expense rate. #Goals

    Didn’t know about WCI commandments (need to visit his blog more often) but I agree with all them and I’m up to date with most of them 😊.

  • I am curious to know if the 457 plans E.T.F. decided to invest in are governmental 457 plans (or not) and how they view that investment vehicle if it is not a governmental 457?

    As a bit of a skeptic, it’s hard for me to trust part of my future (unless that’s just the cherry on top of the cake) to an institution’s/business’s financial well being and future.

  • hatton1

    Impressive!! The first million is the hardest.

  • Stephen Valder

    It took me 20 years, but like POF I didn’t have the examples when I finished residency in 1995.
    But I always maxed out all pretax retirement accounts, and maintained a living standard of about half of my income.
    Then I found MMM, and his insight that the major number isn’t what you have saved, it is what you spend. So I focused on budget, eliminating debt, got rid of timeshare (probably my only and biggest mistake).
    If you don’t focus on spending, you will never be FI.

    • Ether to FI

      I agree, in order to invest, you have to save, that means spending less. We are doing a pretty good job on this front.

  • Perhaps there should be a “Thou shall spend less in general” commandment, but I guess that’s kind of built into #3.

    Either way, that’s a pretty big jump in net worth already, so I don’t think you’ll have any problem reaching your goal as long as you stay disciplined.

    Happy Thanksgiving everyone!

  • JRog

    No bonds? Owning a percentage of bonds should be the 11th commandment. He’s too young to truly understand his risk-tolerance. In other words, he hasn’t lived through a market correction yet. Lots of great work on his part but he will get hammered when the next correction comes. Granted his investing horizon is very long but investing is behavioral as well.

    • Ether to FI

      JRog, I don’t feel young anymore. I am a contrarian when it comes to most things. I have been hoping for a market correction since the day I started working. I have a 40-year time horizon for employment, and likely will work longer. I am hoping 2008 repeats ASAP, so I can work more and throw extra into the market. One of the reasons for writing this posts is to maintain accountability. When the next correction arrives, you can watch my actions, because my words will ring hollow until it occurs. I will start incorporating bonds into my asset allocation in the next 15 years. Thanks for your comments.

      • Arkad

        I totally agree with this. I was 100% stocks for almost 20 years before I started slowing down. As long as you truly use a downturn as a buying opportunity and you have a long enough horizon, it can be a good plan.

  • Congrats on a great start to your financial life as an attending! Starting off on the right foot like this is so much better than wishing you had in retrospect, like happens to many. Lifestyle and spending is much more difficult to wind back and nothing makes up for the time factor in investing. Life will inevitably throw curve balls, but having this type of financial base makes them easier to weather. Thanks for sharing and hopefully it will inspire others – I think it will.

  • Weird? It actually works?

    What a contrast to the post I’m working on now about doctors in bankruptcy.

    • Ether to FI

      The myth, the man, the legend, read my post. This just made my Thanksgiving. Thanks for WCI site, and the inspiration it has been for me. Have a Happy Thanksgiving.

  • EnjoyIt

    I can only imagine where we would be financially today if I had the knowledge I have now back when I was a resident. We would likely be FI right now as compared ina few. Luckily we were always savers and understood the importance of paying down high interest rate debt.

    Our mistakes are:
    Buying too much house in a high property tax state.
    Investing in individual stocks back then
    Buying some gold coins.
    Buying a new German car (paid cash 3 years after residency)

    I think all the above adds up to at least $150k in mistakes. since we are dumb enough to still live in this house we will likely need an extra $600k to make us FI. The extra property tax and upkeep is about $12k per year which will require an addition $300k in investment assets to support at 4% withdrawal. Plus another $300k that we don’t get to invest because we choose to live in this monstrosity.

    You would think, why not sell the house? It is tough to decrease lifestyle creep. Plus I would rather work for a little more than to have to look for a new home that fits all our requirements and pay someone 6% commission on the home.

  • Gasem

    Excellent beginning

    I would make a couple of points, call them Commandment foot notes

    1. If that 3.3 mil is in today’s dollars you will need to have an actual 4.1M saved in 10 years because of inflation (I used 2.2% could be worse)

    2. You should consider adding some bonds within the next 5 years using some kind of glide path to enter them into the mix. The most important thing is to invest as aggressively as you can now. Every buck you invest at this stage of your career will be 8 bucks when you’re a geezer (like me). The funds you have chosen add very little diversity to the portfolio when you actually analyze the variance and co-variance. Bonds add a huge amount of diversity, and therefore dramatically decrease volatility. Here is the drill:

    If your stock fund drops 50% in a bear, you have to have 100% gain to get back to zero. If you have less volatility because of bonds you may only drop 30% and hence need only 60% to get flat. This happened to me in 2007-2013 The S&P dropped 45% from its 2007 high and took till 2013 to regain all its loss and get even. My more diversified portfolio was even by 2011 and was 18% ahead in 2013.

    3. I’m a big fan of post tax stocks, using a ratio least as much in value, as pretax networth. Once the taxes are paid, they are paid. If you hoose tax efficient stocks/ETF’s they add little to yearly cap gains. You joke about RMD, BUT once RMD hits you loose the ability to control your tax bite. If congress decides you pay 40%, you pay 40%. Pre-tax money is a nice fat little plumb sticking out there waiting to be plucked IMHO and the debt isn’t getting any smaller. Post tax stocks plus a little tax loss harvesting gives a lot of flexibility as to how you fund your life. I’m facing this exact RMD dilemma and my solution is to live on cash and Roth convert aggressively till RMD hits. I’d much rather give the government a dime on every buck, instead of a quarter or a half dollar.

    YOU get to live on what THEY let you keep. Good luck and congrats!

    • Ether to FI

      Gasem, I enjoy the free education from reading your comments.

      1. $3.3 mil is a goal for the next ten years, it’s not “my number” for retirement. As I replied to your last comment when I am in my 60s, my net worth better be eight figures or I have fallen off the bandwagon. I plan to work extremely hard over my career, but with that, I am not afraid to spend the money. This mostly will come in the form of travel for my family and extended family. I have a goal of visiting most countries in the world with my family in tow, that is not a cheap endeavor.

      2. I have such a long time horizon, that I see volatility as a good thing. When everything is on sale, I plan on increasing our investment amount. I am not a market timer, but there is nothing stopping me from taking extra calls in a downturn and throwing all that income into VTSAX. I will incorporate bonds into my investments in about 15 years. If I decide to retire sooner, I will incorporate bonds a lot sooner.

      3. We have similar ideologies when it comes to post-tax investments. I think we are in a low tax environment currently (I can hear the gasps from the audience). As I stated in an earlier post, I am a contrarian. We are a broke nation; since we will never cut spending, the only way to pay debts is to increase our national income aka increase taxes. Therefore everyone, enjoy these low taxes while the getting is still good. They are going up. In 1944, the top tax rate was 94%. 1932-1986 it was above 50%. This is the reason for my Roth contributions in the 403B’s.

      Thanks for your comments.

  • Mike

    What is your target asset allocation and why?

    No taxable account yet?

    • Ether to FI

      Our target asset allocation currently is 100% stock mutual funds. Our overall goal is around 70% U.S. and 30% weighted towards international. We are also tilted towards small cap and value when it’s available. I will break it down further:

      Retirement Accounts at work, which currently make up most of our contributions, we are aiming for the 70/30 split. 65% of our contributions in the U.S. is large cap through the S&P 500. 35% is a small-cap blend. The international allocation is split 50/50. 15% of the total contribution in developed markets, and 15% in international markets.

      IRA contributions at Vanguard is all small-cap value. This money will not be spent in our lifetimes (I hope). Therefore I am trying to maximize returns for my children and grandchildren who will inherit the proceeds.

      We will start making taxable account contribution in 18 months, I am currently investing that money towards other goals like my kids 529s which will get a major boost in 2018. Then I will just invest a set amount monthly in their 529s till it’s needed for college.

      The taxable account will be 50-70% VTSAX and 30-50% VFWAX when I start to invest.

      I did a lot of reading trying to figure out the ideal asset allocation for the U.S. to International split. There is a range of opinions, from 100% U.S. Large-cap (Jack Bogle) to 25% of the stock allocation (seen in JLC Stock Series) to the ratio of the U.S. market cap relative to the total world stock market to Vanguard Target Retirement 2055 Fund where the U.S. is 60% of the stock allocation.

      Using a deeply scientific approach, I stuck a wet finger in the air and went with a 70/30 split. I figure at the end of the day, I will be fine. I will focus on increasing my contribution amount every year and keep my expenses low.

  • jlo

    Sounds like a great start
    I am still not sure if I have reached FI at 51 years old even with a net worth of over 8 million if I count my house which is paid off.

    So many things can change and as we all know FI is a probability function and not an absolute.

    My net worth is based on a very long bull market and and I do not want to feel a false sense of security if/when it corrects.

    Having lived through 2008 when I was 5 years out of fellowship my words of advice are that you think you know your risk tolerance until you see 1/3-1/2 of your net worth evaporate. Even though it did not effect our day to day living as we spent less then I made by far during that time it hardly felt like an “opportunity”. I was an econ/finance major and feel very comfortable with market theory and modeling risk . However, we have all gotten very used to more green days then red days in the equities markets over the last few years and especially this year. It is easy to convince yourself you don’t need bonds when the equities market is rising.

    What really helped me in 2008 was having a modest bond allocation of 30% and then rebalancing into the equities allocation with bonds as the markets crashed.
    That was very hard and scary to move money from bonds to equities when both were down and I felt like I was buying into a market with no bottom in site. However, that is the power of diversification and rebalancing and I agree that bonds or rebalancing should be the 11th commandment. I think we were very lucky that things worked out they way they did after 2008 and the market recovered so rapidly. I am certainly not confident we have the leadership currently that would successfully navigate us out of a similar event.

    My wife and I do an exercise every 6 months where we model our portfolio with a correction of 50% in equities and 25% corrections in bonds. We write the number down and talk about what it would mean in terms of retirement, paying for our kids education, and how well we can sleep at night. It is really helped us define our real risk tolerance. Take your spreadsheet you posted and cut everything by 50%. That was 2008.

    • Ether to FI

      Hey jlo,

      When this market corrects, you and JRog owe me some commentary in my posts after the market correction. I have a set it and forget it mentality when it comes to investing, but I have never seen $1 million become $500k in a few days. This is the very reason I decided to share this journey, accountability partners. Thanks for the comments.

    • My wife and I do an exercise every 6 months where we model our portfolio with a correction of 50% in equities and 25% corrections in bonds. We write the number down and talk about what it would mean in terms of retirement”

      Great comment. I suspect that everyone who has only been investing within the last 7 years (myself included) has a much lower risk tolerance than they think they have.

      Think about your portfolio not in terms of how much you have currently, but in terms of how much you would have in the event of a significant correction. If that latter number scares you, add more bonds.

    • Joe

      Nice comment. I lived through the financial crisis which occurred one year after I left the workforce. My $8.3 million net worth toppled to $5.0 million in less than a year. I still felt OK at that point, didn’t change any long-term plans, but it definitely made me think about finances more. And you are absolutely right, after such a pummeling in the stock market, the last thing someone relying on passive income would be thinking would be to put more money in the market. You may also be out of ammunition by then if you put money in at 20% decline, 30% decline, 40% decline.

  • Ether to FI

    Hey Mike,

    Our target asset allocation currently is 100% stock mutual funds. Our overall goal is around 70% U.S. and 30% weighted towards international. We are also tilted towards small cap and value when it’s available. I will break it down further:

    Retirement Accounts at work, which currently make up most of our contributions, we are aiming for the 70/30 split. 65% of our contributions in the U.S. is large cap through the S&P 500. 35% is a small-cap blend. The international allocation is split 50/50. 15% of the total contribution in developed markets, and 15% in international markets.

    IRA contributions at Vanguard is all small-cap value. This money will not be spent in our lifetimes (I hope). Therefore I am trying to maximize returns for my children and grandchildren who will inherit the proceeds.

    We will start making taxable account contribution in 18 months, I am currently investing that money towards other goals like my kids 529s which will get a major boost in 2018. Then I will just invest a set amount monthly in their 529s till it’s needed for college.

    The taxable account will be 50-70% VTSAX and 30-50% VFWAX when I start to invest.

    I did a lot of reading trying to figure out the ideal asset allocation for the U.S. to International split. There is a range of opinions, from 100% U.S. Large-cap (Jack Bogle) to 25% of the stock allocation (seen in JLC Stock Series) to the ratio of the U.S. market cap relative to the total world stock market to Vanguard Target Retirement 2055 Fund where the U.S. is 60% of the stock allocation.

    Using a deeply scientific approach, I stuck a wet finger in the air and went with a 70/30 split. I figure at the end of the day, I will be fine. I will focus on increasing my contribution amount every year and keep my expenses low.

  • Bob Prince

    Thought the shot at Potus ability to navigate a future financial crisis was hilarious.

    The last POTUS hadn’t ever run a business in his life, while the current one made three fortunes in financial books, TV and real estate.

    Whatever his other short comings, in business, Obama is a first year chiropractic student and Trump is the dean at Harvard Medical School!

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