The earlier you start investing, the more time you give your portfolio to compound. A 29-year-old man is taking this insight to heart and currently has a $330k net worth. The individual is aiming for financial independence in the next 15-20 years and has their capital spread across several ETFs.
The 29-year-old man has acknowledged that he has a higher risk tolerance since he is younger. While his portfolio is simple, that’s not necessarily a bad thing, but is it enough to become financially independent in 15-20 years? These are some of the details to consider.
The Portfolio
The Redditor has 10 holdings in his portfolio. More than half of the funds are allocated into two ETFs that capture the total stock market and large-cap stocks. He also has 10% of his total assets in a Bitcoin ETF.
The investments reflect the Redditor’s desire to take risks, but they aren’t high-risk, high-reward plays. These ETFs hold on to reliable companies that have plenty of growth opportunities and a long history of results.
My only two critiques are the portfolio’s exposure to bonds and real estate investment trusts. Bonds underperform the stock market during good times and don’t belong in a 29-year-old’s portfolio. Granted, bonds only make up 2% of total assets, but it’s still too much.
REITs are in a similar situation. While real estate offers great tax advantages, you lose them if you buy REITs. Furthermore, any dividends are treated as ordinary income, which results in higher tax rates than qualified dividends. Luckily, the Redditor has only put 5% of his total assets in a REIT ETF.
Retiring In 15-20 Years
It’s impossible to tell if a $330k net worth is enough to retire in 15-20 years. We still have to know how much the Redditor earns and invests each year. If we assume an annualized 8% growth rate for the entire portfolio, the Redditor will end up with $1.5 million after 20 years, assuming no additional investments.
The Redditor has a brokerage account and a Roth IRA. We can assume the Redditor will make regular contributions to both accounts to get closer to retirement. However, it’s also important to consider the Redditor’s annual expenses.
If he lives well below his means and continues that lifestyle in retirement, it’s more feasible for him to retire in 15-20 years. An area with a higher cost of living will make it more difficult for him to retire in that amount of time.
Pushing The Retirement Year Back
While it’s good to build a large nest egg before retirement, it’s especially important if you want to retire before turning 50.The Redditor’s timetable puts him in retirement when he is 44-49 years old. The earlier you retire, the more difficult it is to have your money outlast you.
Plus, some people get incredibly bored after they retire. Work gives people purpose, and taking it away from them can result in a gradual decline in the quality of your life. Instead of retiring in 15-20 years, the Redditor should view that time frame as an opportunity to get more flexible. For instance, the Redditor can work a part-time job or pursue flexible remote opportunities instead of retiring completely.
If the 29-year-old views financial independence as doing work that offers more flexibility and fulfillment instead of a high-stress job, he can make the money last even longer.
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