October 6, 2025 • 31 mins
The source provides an extensive case study of James Carter, a millennial who successfully achieved Financial Independence, Retire Early (FIRE) by age 41 after leaving his high-pressure marketing job. The episode explains that James achieved this goal through disciplined stock market investing, strategic financial education, and a commitment to a frugal lifestyle that allowed him to maintain a high savings rate. Key steps included building a diversified portfolio of index funds, individual stocks, and dividend stocks, maximizing tax-advantaged accounts like 401(k)s and Roth IRAs, and employing strategies like dollar-cost averaging to navigate market volatility. Ultimately, James reached his target portfolio of $1.2 million, enabling him to retire early and live off passive income derived from his investments.
“If you don't find a way to make money while you sleep, you will work until you die.”
Warren Buffett
“If you don't find a way to make money while you sleep, you will work until you die.”
Warren Buffett
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome back to the deep Dive. Today, we're looking at
something that feels almost like a modern legend for a
lot of people, financial independence, retire early.
Speaker 2 (00:09):
You know, fire, yeah, fire. It often sounds great, doesn't it,
But maybe only for like tech millionaires or lottery winners exactly.
Speaker 1 (00:17):
But the story we're digging into today, well, it's about
someone who took a pretty average income and used discipline
stock market investing to build a well the very specific roadmap.
Speaker 2 (00:28):
And that's what this deep dive is all about. We're
focusing entirely on the system used by James Carter. He's
a former marketing manager based in Seattle. And get this,
he managed to retire comfortably at just forty one. That
was back in twenty twenty three.
Speaker 1 (00:42):
Forty one. And the really striking part is where he started.
Not some huge salary.
Speaker 2 (00:46):
Right now, not at all. He was earning about eighty
five thousand dollars a year, respectable, sure, white collar job,
but you know, not executive level money.
Speaker 1 (00:53):
And he turned that into a one point three million
dollar portfolio in what thirteen years?
Speaker 2 (00:57):
Thirteen years? Yeah, it just showed you the sheer power
of sticking to a plan consistently investing.
Speaker 1 (01:04):
So our mission today isn't just the usual save more
invest wisely advice. We want to get into the real details.
Speaker 2 (01:11):
Right, the actual percentages he used, the specific funds he picked,
the tax strategies, all the nitty gritty stuff.
Speaker 1 (01:17):
So if you've ever thought financial freedom was out of reach,
this deep dive should show you it's more about structure
and consistency than anything else.
Speaker 2 (01:26):
It really proves it's possible.
Speaker 1 (01:28):
Okay, so let's rewind. Where did this all began? For James?
What was the spark?
Speaker 2 (01:32):
Well, picture this, He's twenty eight years old making that
decent eighty five k salary, but he's in Seattle tech marketing, which.
Speaker 1 (01:41):
Isn't cheap even back then, and that salary probably felt stretched.
Speaker 2 (01:45):
Exactly, more like just getting by than really getting ahead.
And he described himself as feeling completely burned out, just
ground down by the long hours, the commute, the.
Speaker 1 (01:55):
Whole thing that sounds familiar for a lot of people
in demanding jobs, that feeling that you're just running on
a treadmill.
Speaker 2 (02:01):
Right, and that burnout became the catalyst. It made him
question everything, like why trade so much of your life,
your energy for a paycheck that doesn't even bring fulfillment.
He started seriously doubting that whole work till your sixty
five path.
Speaker 1 (02:14):
So that dissatisfaction led him somewhere specific it did.
Speaker 2 (02:18):
Around twenty ten, he stumbled onto the Fire movement, mostly
through online forums and blogs.
Speaker 1 (02:23):
Wow, the early fire community.
Speaker 2 (02:25):
On this okay, and suddenly there was a concrete alternative.
He set a goal retired by forty five, and the
key was having enough passive income to cover all his
living costs.
Speaker 1 (02:34):
Okay, ambitious goal. What was he starting with capital wise?
Speaker 2 (02:38):
Pretty typical actually, about twelve thousand dollars in savings and
you know, whatever little he had in his four oh
one k at the.
Speaker 1 (02:43):
Time, not much, so the money wasn't there.
Speaker 2 (02:46):
Yet, No, but the commitment was Instantly. He knew he
needed a plan, but first he needed knowledge. He basically
decided to become an expert.
Speaker 1 (02:53):
And he didn't just dabble. The sources say he treated
financial education like a second job.
Speaker 2 (02:58):
Totally evening weekends, just immersing himself in learning about investing,
personal finance, economic principles, not just hot stock tips, but
the real fundamentals.
Speaker 1 (03:10):
That level of dedication is pretty impressive. It explains his
reading list.
Speaker 2 (03:13):
Oh absolutely, And what's fascinating is how he balanced different philosophies.
He read Benjamin Graham's The Intelligent Investor. That's the bible
of value investing, right, finding solid companies trading below their
intrinsic worth.
Speaker 1 (03:26):
Okay, so that's the active approach picking stocks, right.
Speaker 2 (03:30):
But then he also read Burton Malciol's A Random Walk
Down Wall Street, which basically argues the opposite, that trying
to beat the market consistently is really hard, maybe impossible,
and broad diversification through index funds is the way to.
Speaker 1 (03:44):
Go, So active versus passive.
Speaker 2 (03:46):
He studied both sides exactly, and he didn't just pick one.
He sort of synthesized them. That combination became central to
his actual investment strategy. Later on.
Speaker 1 (03:55):
Interesting, and there was another book.
Speaker 2 (03:56):
Your Money or Your Life, Yeah, Ricky Robin and Joe
Dimin Is that one's less about how to invest and
more about the why.
Speaker 1 (04:03):
The mindset piece.
Speaker 2 (04:04):
Yeah, it reframes money as your life energy. It makes
you think about how many hours of your actual life
you trade for every single thing you.
Speaker 1 (04:11):
Buy that sounds potentially life changing, It can expending directly
to your time.
Speaker 2 (04:16):
It really does, and that understanding is what fuels the
next crucial step finding the money to invest.
Speaker 1 (04:22):
In the first place, because all the investment knowledge is
useless without capital. You need fuel for the.
Speaker 2 (04:28):
Engine precisely, and this is where James made a radical shift.
He realized the fastest way to generate that fuel was
to drastically cut his spending.
Speaker 1 (04:37):
Okay, the frugality piece. This is often where people struggle
with fire.
Speaker 2 (04:41):
It's tough. The logic is simple, though. The less you
spend each year, the smaller your retirement nest egg needs
to be. And crucially, the more money you free up
right now to invest and get that compounding started.
Speaker 1 (04:53):
So how drastic are we talking? The source says he
got his annual expenses down to thirty thousand dollars.
Speaker 2 (04:58):
Thirty thousand dollars, yes, in Seattle, even back in twenty ten,
that seems incredibly low.
Speaker 1 (05:05):
How did he even manage that? Was he living on
ramen noodles?
Speaker 2 (05:08):
Well, maybe some ramen was involved, but seriously, it required
major sacrifices. He focused on the big stuff, housing, transport.
Speaker 1 (05:16):
Food, so specific changes.
Speaker 2 (05:18):
Moved to a much smaller apartment, probably further out from
the city center, big cut and convenience there sold his
car completely.
Speaker 1 (05:25):
Wow, no car in Seattle, that's a commitment.
Speaker 2 (05:27):
Biked everywhere, used public transport, and then just ruthlessly cut
discretionary spending, eating out, fancy coffee, new clothes, gadgets, big vacations,
all pretty much gone. That thirty dollar k was a
hard ceiling.
Speaker 1 (05:39):
Okay, so it was extreme, but look at the numbers.
Earning eighty five k games gross even after taxes, let's
say that's maybe sixty K sixty five k take home pay,
spending only thirty dollars.
Speaker 2 (05:52):
You see it right there. His savings rate shot up immediately.
We're talking nearly fifty percent of his income, maybe even
slightly more depending on exact taxes.
Speaker 1 (06:01):
That's huge.
Speaker 2 (06:02):
It's the bedrock, full stop. Half his paycheck every single
month was now available to pour into investments. That's the
kind of capital infusion you need to really make compounding
work its magic.
Speaker 1 (06:11):
Early on, if he'd said, say a more typical fifteen
or twenty percent, the.
Speaker 2 (06:15):
Timeline stretches out by years, maybe even a decade longer.
That initial aggressive frugality directly bought him time later. It's
a direct trade off.
Speaker 1 (06:24):
Okay, So James's slashed his spending he's got this significant
chunk of cash freed up every month like serious investment fuel.
How did he actually deploy it? What was the plan?
Speaker 2 (06:34):
Right? This wasn't random. Starting around twenty eleven, he implemented
a very methodical strategy. We can call it his six
h thirty c blueprint six.
Speaker 1 (06:42):
Thirty two Sarah Okay, break that down for us.
Speaker 2 (06:45):
The elegance is in the balance. It blends that passive
market tracking approach he learned from Malchio with the active
value focused stock picking inspired by Graham.
Speaker 1 (06:54):
So let's start with the biggest slice, the sixty percent.
What was that?
Speaker 2 (06:58):
That was the core, the backbone of the portfolio. It
went into low cost, broadly diversified index funds and ETFs.
Speaker 1 (07:05):
So not sure and be the market here, just be the.
Speaker 2 (07:07):
Market pretty much for the majority of his money. The
goal was simply to capture the overall market's growth reliably
over the long haul, thanks stability diversification.
Speaker 1 (07:15):
What specific funds did he use?
Speaker 2 (07:17):
Examples The sources mentioned two q ones. First, the Vanguard
sm P five hundred ETF ticker symbol voo.
Speaker 1 (07:24):
Okay, Classic Choice tracks the five hundred biggest US companies,
super diversified.
Speaker 2 (07:29):
Very low cost exactly. That's the bedrock. But then interestingly,
he also invested in the Invesco QQQ trust ticker QQQ.
Speaker 1 (07:38):
QQQ right, that tracks the NAZAQ one hundred, so much
heavier on technology growth oriented stocks. Why pair that with
the broad stability of VOO.
Speaker 2 (07:46):
That's the subtle brilliance within the passive part. VOO provides
the safety net, the broad market exposure QQQ gives it
a bit more juice. It adds significant exposure to large
cap tech, which, especially during the twenty tens, was a
major engine of growth.
Speaker 1 (08:00):
So it tilted his passive sixty percent slightly more towards
growth than say a total stock market index.
Speaker 2 (08:05):
Fund, precisely a calculated risk to potentially boost returns within
that core holding while still being diversified across one hundred
large companies. And critically, both VO and QQQ are known
for having rock bottom expense ratio.
Speaker 1 (08:18):
The fees always important, hugely important.
Speaker 2 (08:21):
Over thirteen years, even tiny differences in fees compound into
massive amounts over time. He was laser focused on minimizing
those costs.
Speaker 1 (08:28):
Okay, that's the sixty percent. Now the next chunk, thirty percent.
This was the active portion.
Speaker 2 (08:34):
Correct This is where he put his value investing homework,
his GRAM principles into practice, strategic growth through individual stocks.
Speaker 1 (08:42):
So this required actual research digging into companies.
Speaker 2 (08:45):
Definitely no meme stocks or chasing hype. Here. He was
looking for companies with solid fundamentals, you know, strong balance sheets,
consistent earnings growth, a durable competitive advantage what they call
a moat.
Speaker 1 (08:58):
And the sources mentioned specific tools he used, like PE ratios.
Speaker 2 (09:03):
Yes, price to earnings ratio was one. Discounted cash flow
or DCF analysis was another. These are standard valuation metrics.
Speaker 1 (09:10):
Can you give us a quick sense of how he
might use PE? Just practically?
Speaker 2 (09:14):
Sure? The PE ratio is just the stock's current price
divided by its earnings per share. So let's say James
is looking at a great company, maybe like Apple, back
in twenty eleven or twenty twelve. If Apple's PE ratiow
was say twelve, but the average PE for similar tech
companies or its own historical average was closer to eighteen
or twenty, that.
Speaker 1 (09:32):
Lower PE suggests it might be undervalued relative to its
earnings power.
Speaker 2 (09:36):
Exactly, It's a signal, not the only factor, but a
key signal that the market might be pessimistic about the
company temporarily offering a chance to buy a quality asset
on sale. It helps avoid overpaying, which is crucial for
value investing.
Speaker 1 (09:50):
Makes sense, It's about informed decisions, not just gut feelings.
And did this pay off? Any examples of those stocks
he picked early on?
Speaker 2 (09:57):
The sources mentioned some big winners early positions in tech
giants like Apple and Microsoft, which obviously had incredible growth,
But he balanced that tech exposure with more stable, reliable
companies too, consumer staples like Procter and Gamble.
Speaker 1 (10:12):
Ah the stability factor, Yeah, companies people buy from even
in recession.
Speaker 2 (10:16):
Right, So growth potential from tech but also resilience from
consumer staples. A nice balance Within that thirty percent allocation, Okay.
Speaker 1 (10:23):
Sixty percent passive index funds, thirty percent active value stocks.
What about the last ten percent?
Speaker 2 (10:28):
The final ten percent went into dividend paying stocks. This
served a slightly different purpose dividends.
Speaker 1 (10:33):
So companies that pay out a portion of their profits
directly to shareholders, why specifically allocate ten percent just to those?
Speaker 2 (10:40):
Two main reasons? Really? First, it created a tangible, immediate
passive income stream even while he was still working and
saving aggressively.
Speaker 1 (10:48):
Ah. So cash hitting his account regularly exactly.
Speaker 2 (10:52):
He focused on companies with long histories of increasing their
dividends year after year think Johnson and Johnson, Coca Cola,
often called dividend aristocrats or dividend kings, and the second
reason psychological. James mentioned this himself. Seeing that actual cash
arrive regularly, even if it was small at first, made
(11:13):
the whole fire journey feel more real, more concrete. It
wasn't just numbers on a screen, it was actual income
being generated. And of course he reinvested those dividends right.
Speaker 1 (11:23):
Buying more shares which then generate more dividends. The compounding
effect within the dividend.
Speaker 2 (11:28):
Portion itself precisely so ninety percent focused on growth and
appreciation ten percent providing that steady income stream and psychological boost.
Speaker 1 (11:35):
And underlying this whole six H three D ten structure
was one key technique.
Speaker 2 (11:39):
Yes, dollar cost averaging DCA. This was crucial for discipline.
Speaker 1 (11:43):
Explain DCA quickly for us.
Speaker 2 (11:44):
It's simple but powerful. James invested a fixed amount of money,
remember that huge chunk from his fifty percent savings rate,
every single month, on the same day, no matter what
the market was doing, so.
Speaker 1 (11:56):
He didn't try to guess if the market was high
or low.
Speaker 2 (11:58):
Nope, he compled depletely, removed emotion and timing attempts. If
the market was up that month, his fixed dollar amount
bought fewer shares. If the market tanked, that same fixed
amount bought more shares at the lower price, automatically buying
low exactly. It enforces discipline, averages at your purchase price
over time, and ensures you're capitalizing on downturns instead of panicking.
(12:20):
It's like an automated behavioral coach for investing.
Speaker 1 (12:23):
Okay, so we've got the savings engine and the investment blueprint,
but there's another layer. James mastered taxes. Minimizing the tax
bite is absolutely critical, especially for fire seekers who need
every dollar working for them.
Speaker 2 (12:36):
Right, it's not just what you earn, it's what you keep.
So how did he optimize for taxes?
Speaker 1 (12:42):
He used the system to his advantage. Maxed out his
four to one K contributions every single year. That's pre
tax money going in, lowering his taxable income now and
crucially getting the employer match.
Speaker 2 (12:53):
Hey, absolutely, that match. The source mentions it was around
five thousand dollars a year for him, is literally free money.
You have to capture that if it's offered, and all
that growth in the four to one K is tax
deferred until retirement.
Speaker 1 (13:05):
Okay, four to one K maxed. What else?
Speaker 2 (13:07):
The wroth IRA max that out every year too, wroth Ira.
Speaker 1 (13:11):
That's after tax money going in. But the big benefit
comes later.
Speaker 2 (13:14):
Exactly, you contribute money you've already paid income tax on,
but then all the growth, all the earnings, and importantly
all the qualified withdrawals and retirement are completely one hundred
percent tax free.
Speaker 1 (13:26):
Tax free growth over thirteen years. That's a massive.
Speaker 2 (13:29):
Advantage, monumental especially for someone compounding aggressively like James. The
wroth was a key booster.
Speaker 1 (13:35):
But here's the catch with both the four one K
and the roth IRA. For someone eating for early retirement,
say at forty one, like James, generally you can't touch
that money without penalties until you're fifty nine and a half.
Speaker 2 (13:47):
Right, So that's the standard rule. Yes, there are some
complex exceptions and strategies like SEP or the Roth Conversion Ladder,
but fundamentally those accounts are designed for traditional retirement age.
Speaker 1 (13:57):
So if James retired at forty one, he had this
gap of almost two decades before he could easily access
that tax advantage money, how did he plan to bridge
that gap? Where did his living expenses come from in
those early retirement years.
Speaker 2 (14:10):
This is where the strategy gets fiery specific. His main
tool for funding those early years was his tax wule
brokerage account.
Speaker 1 (14:18):
Okay, a standard investment account outside of retirement plans, no
upfront tax breaks like a four to.
Speaker 2 (14:23):
One K correct, you invest after tax money. But the
huge advantage it offers is flexibility liquidity. You can access
the money whenever you need it without age restrictions or
the specific rules governing retirement accounts.
Speaker 1 (14:36):
So this taxable account was basically his funding source from
age forty one until maybe his late fifties. But wouldn't
selling investments in that account trigger taxes capital gains taxes?
Speaker 2 (14:46):
Yes, it would, and that's why he managed it very
carefully to minimize that tax drag. The key was focusing
on long term capital.
Speaker 1 (14:52):
Gains, the difference between short term and long term gains.
Speaker 2 (14:55):
Right in the US, if you sell an asset you've
held for less than a year, the profit is to
at as short term capital gain, usually at your higher
ordinary income tax rate. But if you hold it for
more than a year, he qualifies as a long term
capital gain, taxed at much lower rates currently zero percent,
fifteen percent, or twenty percent, depending on your overall income level.
Speaker 1 (15:16):
So James's strategy in the taxable account was buy and hold,
prioritize holding investments for over a year before selling.
Speaker 2 (15:23):
Absolutely. His plan for early retirement involved primarily selling assets
held long term to generate income, keeping his tax burdens
significantly lower during those withdrawal years. This account was the
essential bridge.
Speaker 1 (15:36):
That foresight about tax location and withdrawal strategy is really sophisticated.
It's not just about picking winners, not at all.
Speaker 2 (15:42):
Asset location is as important as asset allocation for long
term tax efficient wolf building.
Speaker 1 (15:47):
Okay, so he had the structure in place, but investing,
especially over thirteen years, is never a smooth ride. Did
he face any major market stress?
Speaker 2 (15:55):
Oh definitely. He didn't just get lucky with a call market.
He started investing right after the huge two thousand and
eight crash and almost immediately ran into the European sovereign
debt crisis around twenty eleven twenty twelve. Markets were very
volatile and later on there was significant turbulence like that sharp,
sudden market drop in late twenty eighteen, he definitely experienced
(16:16):
periods where his portfolio took significant hits.
Speaker 1 (16:19):
The sources mentioned seeing his portfolio drop by like ten
percent overnight. Sometimes that must be terrifying when it represents
years of extreme sacrifice.
Speaker 2 (16:28):
It would be for most people. The natural human instinct
in that situation is fear panic sell the thing it
goes lower, and.
Speaker 1 (16:35):
That locks in the loss turns a temporary paper decline
into a permanent, real loss of capital exactly.
Speaker 2 (16:41):
But this is where James's upfront education and his discipline
system really paid off. Remember Graham teaching him to view
the market as irrational sometimes.
Speaker 1 (16:49):
Right the manic depressive partner analogy.
Speaker 2 (16:51):
He internalized that he didn't see market dips as a
reason to panic sell. He genuinely viewed them as buying opportunities.
Speaker 1 (16:59):
Because the underling buying value of the companies in his
index funds, where the individual stocks he'd researched hadn't fundamentally
changed overnight just because the market freaked out.
Speaker 2 (17:08):
Precisely, his conviction was in the long term value, not
the short term price wings. So what did he do
during those dips?
Speaker 1 (17:15):
He stuck to the plan, kept dollar cost averaging he did.
Speaker 2 (17:20):
He kept investing that same fixed amount each month. When
prices were down ten percent, his money bought ten percent
more shares of those quality assets. He leaned into the volatility.
Speaker 1 (17:31):
And the diversification helped him stomach it, presumably absolutely.
Speaker 2 (17:34):
Knowing that sixty percent was in broad index funds and
the thirty percent was spread across different quality companies meant
no single company collapsing could wipe him out. That structure
provided the psychological buffer needed to stay the course, let
the portfolio recover and ultimately benefit from buying low. It's
all connected.
Speaker 1 (17:50):
So James weather those market storms through discipline. But the
next phase post twenty fifteen or so was about adding
rocket fuel to the process, not just saying, but earning more. Right.
Speaker 2 (18:02):
Phase one was extreme frugality to generate initial capital. Phase
two was about increasing income significantly while still maintaining that
financial discipline.
Speaker 1 (18:12):
He got promotions at his marketing job, right. Yeah, his
salary went up quite a bit.
Speaker 2 (18:16):
Yeah, jumped up to one hundred and twenty thousand dollars
a year. A nice raise. But here's the crucial part.
He largely avoided lifestyle inflation.
Speaker 1 (18:24):
That temptation must have been huge. You've been living super
frugally for years. Suddenly you have an extra thirty five
thousand dollars a year coming in.
Speaker 2 (18:31):
Yeah.
Speaker 1 (18:31):
Most people would immediately upgrade their car, their apartment, their vacations.
Speaker 2 (18:35):
It's the natural impulse. But James made a very conscious choice.
He did allow his lifestyle to improve slightly. The sources
say his annual expenses rose from that rock bottom thirty
dollars up to around forty k.
Speaker 1 (18:47):
Okay, so a little bit more braiding room, maybe slightly
better food. Maybe he took an actual vacation occasionally.
Speaker 2 (18:52):
Probably something like that, a sustainable level of comfort. But
the key is that was only a ten dollars increase
in spending, while his income jumped by thirty five. The
vast majority of that raise went straight into investments.
Speaker 1 (19:03):
He didn't stop there either, did he He added another
income stream.
Speaker 2 (19:06):
He did, leveraging his marketing skills. He started a freelance
consulting side hustle that brought in an extra twenty thousand
dollars a year.
Speaker 1 (19:13):
Wow. Okay, so let's add that up. One hundred and
twenty K from the job, twenty K from consulting. That's
one hundred and forty thousand dollars total annual income.
Speaker 2 (19:21):
One hundred and forty K income and still only spending
forty K year.
Speaker 1 (19:25):
So one hundred thousand dollars being saved and invested annually.
What does that do to his savings rate?
Speaker 2 (19:30):
It's skyrockets. One hundred dollars saved out of one hundred
and forty K income. That's over his seventy percent savings rate.
Speaker 1 (19:37):
Seventy percent. That's incredible.
Speaker 2 (19:39):
This is where the whole process goes into hyperdrive. You've
got massive amounts of new capital flooding in regularly, and
your existing large portfolio is hopefully generating strong market returns
and compounding on itself. The growth becomes exponential, not linear.
Speaker 1 (19:53):
And the portfolio milestones reflect that acceleration definitely.
Speaker 2 (19:56):
By twenty twenty, when he was thirty seven, his portfolio
hit eight hundred thousand dollars. That last push from say
eight hundred K to over a million tends to happen
much faster than the first hundred k thanks to the
power of compounding on a larger base. He was clearly
on the fast track.
Speaker 1 (20:09):
So as he saw that one million dollar mark approaching
and then passing it, his focus shifted towards the actual
exit exactly.
Speaker 2 (20:16):
He started meticulously planning the endgame. The core calculation here
was the famous four percent rule.
Speaker 1 (20:23):
Right, the four percent safe withdrawal rate. Can you recap
that for us?
Speaker 2 (20:26):
The rule, based on historical market data, suggests that if
you withdraw four percent of your portfolio's value in your
first year of retirement and then adjust that withdrawal himount
upward each year for inflation, there's a very high probability,
like over ninety five percent historically, that your money will
last for at least thirty years.
Speaker 1 (20:42):
Okay, So James knew his target annual spending in retirement
would be around that forty thousand dollars mark he'd settled.
Speaker 2 (20:48):
Into, Right, so he just worked backwards. What portfolio size
do you need so that four percent of it equals
forty thousand dollars.
Speaker 1 (20:54):
Forty thousand dollars divided by point zero four that's one
million dollars. Oh wait, he aimed higher.
Speaker 2 (20:59):
He targeted one point two million dollars. So one point
two million dollars times four percent is forty eight thousand
dollars per year.
Speaker 1 (21:05):
So building in a buffer forty eight k withdrawal potentially
against forty K expenses.
Speaker 2 (21:09):
Smart, very smart, cause you breathing room for unexpected costs
or slightly lower market returns. So one point two million
dollars became his FI number, his financial independence target.
Speaker 1 (21:18):
Once he had that target clearly in sight, did he
make any adjustments to his investment strategy shifting gears from
pure growth.
Speaker 2 (21:27):
Yes, some crucial refinements as he got closer. He was
transitioning from the accumulation phase to the preservation and withdrawal phase.
Speaker 1 (21:34):
What kind of changes?
Speaker 2 (21:35):
First, he started gradually increasing his allocation to assets that
reduce volatility. That meant more dividend stocks, continuing that income stream,
but also adding high quality shorter term bonds.
Speaker 1 (21:47):
Bonds lower expected returns than stocks generally, but much less
volatile exactly.
Speaker 2 (21:52):
Less fluctuation smooths the ride, which is really important when
you start taking money out of the portfolio instead of
putting it in. Second, he made a conscious effort to
diversify internationally.
Speaker 1 (22:02):
Okay, moving beyond just US socks and bonds. Right.
Speaker 2 (22:06):
He added funds like the Vanguard foots All World x
US ETF ticker VEU. This was a hedge against the
risk of the US market underperforming. For a prolonged period.
Smart move for long term retirement stability makes sense.
Speaker 1 (22:20):
Don't keep all your eggs in one geographic basket either.
Speaker 2 (22:22):
Any other key refinements, yes, perhaps the most important one
for mitigating early retirement risk. He built up a substantial
cash reserve.
Speaker 1 (22:30):
Cash just sitting in a savings account not invested.
Speaker 2 (22:34):
How much an amount equal to two full years of
his planned living expenses. So, based on the forty dollars
expense target, that's eighty thousand dollars in cash or very
safe liquid equivalents like money market funds, held completely separate
from his main investment portfolio.
Speaker 1 (22:51):
Eighty thousand dollars in cash. Why what does that achieve?
Speaker 2 (22:56):
It directly combats sequence of returns risk. That's the danger
that I'm major. Market crash happens right at the beginning of.
Speaker 1 (23:02):
Your retirement, because if the market drops thirty percent in
year one and you have to sell stocks to live,
you're selling way more shares at depressed prices, potentially crippling
your portfolio's ability to ever recover.
Speaker 2 (23:13):
Precisely, with that two year cash buffer, James doesn't have
to sell stocks if the market crashes in his first
or second year of retirement, he just lives off the
cash reserve, giving.
Speaker 1 (23:22):
The market time to potentially recover before he needs to
touch his invested assets again.
Speaker 2 (23:26):
Exactly. It buys him time. It decouples his living expenses
from short term market volatility right when he's most vulnerable.
That two year buffer is a critical piece of defensive
planning for early retirees.
Speaker 1 (23:38):
And so all that planning, all that discipline, it led
to the finish line. In twenty twenty three, YEP.
Speaker 2 (23:45):
James Carter pulled the plug on his corporate job age
forty one, four years earlier than his original goal of
forty five, and.
Speaker 1 (23:52):
The portfolio value when.
Speaker 2 (23:53):
He retired it had actually surpassed his target. It was
valued at one point three million dollars.
Speaker 1 (23:58):
So even more bufferthan planned. And he made one more
move to really solidify things.
Speaker 2 (24:04):
He did a geographic one. He moved out of expensive
Seattle to a significantly lower cost of living city, still
on the Pacific Northwest, but much more affordable.
Speaker 1 (24:12):
What do they do to his expenses?
Speaker 2 (24:14):
Drop them even further down from the forty thousand dollars
he was living on to just thirty five thousand dollars
per year in his new location.
Speaker 1 (24:20):
Okay, so let's check the math again. One point three
million dollar portfolio, the four percent rule would suggest a
safe withdrawal of about fifty two thousand dollars a year,
and he only needs thirty five thousand dollars exactly.
Speaker 2 (24:31):
He's got a huge margin of safety. Now his lifestyle
is comfortably funded by a combination of those dividends he
built up, harvesting some capital gains strategically from the taxable account,
and controlled withdrawals likely well below the four percent rate. Initially,
it's a very secure setup.
Speaker 1 (24:48):
And what does retirement look like for him at forty one?
Is he just sitting on a beach?
Speaker 2 (24:52):
Huh? Not? According to the sources, it's not about idleness
for him. He's actively volunteering for causes he cares about.
He's dedicating seririas time to his hobbies hiking, photography, and
he's apparently mentoring others interested in personal finance.
Speaker 1 (25:06):
So he didn't retire from something. He retired to something.
Speaker 2 (25:09):
That's a great way to put it. The goal wasn't
just escaping the job. It was dating autonomy, trading work
dictated by an employer for activities driven by personal passion
and purpose.
Speaker 1 (25:19):
Okay, So, stepping back from James's specific story, what are
the big actionable takeaways here for you the listener? What
can we learn from this thirteen year journey?
Speaker 2 (25:27):
I think there are five really clear essential lessons that
come through. First, educate yourself continuously.
Speaker 1 (25:34):
Don't just blindly follow advice. Understand the why exactly.
Speaker 2 (25:39):
James didn't outsource his financial future. He put in the
work those evenings and weekends studying Graham Malkiel tax rules.
That knowledge replaced fear with informed decision making. That's foundational, okay.
Speaker 1 (25:52):
Lesson one, continuous education. What's number two?
Speaker 2 (25:56):
Live below your means? This is the absolute prerequisite. It's
not so, but it's essential.
Speaker 1 (26:01):
That ability to achieve the high savings rate, especially early on.
Speaker 2 (26:05):
That fifty percent rate was the accelerator pedal. You simply
cannot build significant wealth quickly if you're spending everything you earn.
Finding ways to free up capital is job.
Speaker 1 (26:14):
Number one, got it?
Speaker 2 (26:15):
Lesson three, Diversify and stay discipline. Yeah, the sixty thirty
ten strategy provided balance, and the dollar cost averaging provided
the discipline.
Speaker 1 (26:22):
Don't pan excel, drink downturns. Maintain that long term view right.
Speaker 2 (26:25):
Treat Dips's opportunities. Have faith in your diversified holdings and
stick to your automated investment plan. That consistency through volatility
is key.
Speaker 1 (26:34):
Okay.
Speaker 2 (26:34):
Number four, maximize tax advantages. Use every tool available the
four to one K match the tax free growth in
a roth IRA, managing for long term capital gains in
a taxable account.
Speaker 1 (26:46):
Minimizing that tax drag makes a huge difference over decades.
Speaker 2 (26:49):
A massive difference to your net returns. Don't ignore the
tax implications and.
Speaker 1 (26:54):
The final lesson number five.
Speaker 2 (26:56):
Plan for the long term, but mitigate short term risks.
James his success wasn't luck. It was methodical planning over
thirteen years, but critically it included specific tactics to handle
potential problems like that two year cash buffer to survive
an early market crash.
Speaker 1 (27:12):
So think decades ahead, but have concrete plans for near
term storms.
Speaker 2 (27:16):
Precisely patients and strategic planning, not get rich quick schemes.
Speaker 1 (27:21):
No, we do need to add a dose of reality here.
James executed flawlessly, but were there external factors that helped?
Speaker 2 (27:26):
Oh? Absolutely, we have to acknowledge that while his discipline
was incredible, luck certainly played a role. As the sources point.
Speaker 1 (27:32):
Out specifically the market environment during his main accumulation phase.
Speaker 2 (27:37):
Yes, he was investing heavily during basically one of the
longest and strongest bull markets in US history, particularly from
twenty ten through twenty twenty. The wind was definitely at
his back.
Speaker 1 (27:48):
Does that diminish his achievement?
Speaker 2 (27:50):
Not at all. His planning and discipline allowed him to
fully capitalize on those favorable conditions. But it's important context.
Someone starting today might face different market headwinds. Good planning
helps you succeed regardless, but strong market returns certainly accelerate
the timeline, and James's story, while specific really taps into
a much larger trend, especially among millennials.
Speaker 1 (28:12):
Yeah, this desire for financial independance isn't just a niche
thing anymore.
Speaker 2 (28:16):
Is it not? At all? The source mentioned a twenty
twenty three Bank Trout survey something like fifty four percent
of millennials now say achieving financial independence is a major goal.
Speaker 1 (28:25):
Wow, over half. What's driving that? Do you think? It?
Speaker 2 (28:28):
Seems to be a real shift in priorities, less focus
on the traditional corporate ladder climb. Maybe some disillusionment after
seeing parents struggle through recessions and a much stronger desire
for flexibility, autonomy, controlling your own time. It's less about
status symbols, more about life.
Speaker 1 (28:44):
Control, and the tools to pursue this are more accessible
now too, right.
Speaker 2 (28:48):
Hugely more accessible. Think about it. Twenty years ago, investing
often meant high commissions, needing a broker, less information. Now
you've got online brokerages with zero commission trades and less
financial information online, and crucially, the explosion of low cost
ETFs that make diversification incredibly easy and cheap.
Speaker 1 (29:08):
So the barriers to entry for implementing a strategy like
James's are much lower.
Speaker 2 (29:12):
Today, significantly lower. Anyone with a smartphone and a few
dollars can start investing in a diversified portfolio instantly.
Speaker 1 (29:19):
But then this is a big butt. Just because the
tools are easier doesn't mean the process is easy, which
brings us back to sacrifice exactly.
Speaker 2 (29:27):
That's the crucial counterpoint. While the market is open to everyone,
achieving fire, especially early fire like James did, still requires
that extreme discipline, particularly around spending and saving that.
Speaker 1 (29:39):
Fifty percent or even seventy percent savings rate that involves
making hard choices consistently for years.
Speaker 2 (29:46):
It's not for everyone, No and we have to be realistic.
Life happens. People have medical emergencies, family obligations crop up,
they have kids, they might lose a job. Any number
of things can derail a plan that requires such a
high savings rate.
Speaker 1 (29:59):
So James's story is maybe an example of what's possible
under ideal conditions and with perfect execution.
Speaker 2 (30:05):
I think that's fair. It's a powerful demonstration of the
stock market as a wealth building engine when fueled by
discipline and a solid plan. But it also highlights that
resilience and careful planning are paramount because life rarely goes
exactly according to plan. It's inspiring, but also requires acknowledging
the significant commitment involved. Hashtag tactag autruiz.
Speaker 1 (30:23):
So wrapping up James Carter's path from feeling burned out
in a marketing job earning eighty five thousand dollars to
retiring at forty one with one point three million dollars,
it really is a remarkable case study in financial discipline
turned into actual freedom.
Speaker 2 (30:39):
It truly is a clear blueprint showing how structured saving
and investing consistently applied over time can lead to extraordinary
results even from a relatively average starting point.
Speaker 1 (30:50):
It demonstrates that financial independence isn't necessarily about hitting some
magical jackpot, but about methodical execution.
Speaker 2 (30:57):
And that brings us to a final thought for you,
the listener, It's something Jameson's self touched upon after retiring.
He said something like, I'm not rich, but I have
enough and that's what matters.
Speaker 1 (31:05):
I have enough. That's interesting, it really is.
Speaker 2 (31:07):
So if the ultimate goal of financial independence, as James lived,
it isn't about endless luxury or buying super yachts, but
about reaching this point of enough enough money to free
up your time for purpose, for passions, for volunteering, for family.
How do you personally define that benchmark? What does enough
truly look like for you,
Welcome back to the deep Dive. Today, we're looking at
something that feels almost like a modern legend for a
lot of people, financial independence, retire early.
Speaker 2 (00:09):
You know, fire, yeah, fire. It often sounds great, doesn't it,
But maybe only for like tech millionaires or lottery winners exactly.
Speaker 1 (00:17):
But the story we're digging into today, well, it's about
someone who took a pretty average income and used discipline
stock market investing to build a well the very specific roadmap.
Speaker 2 (00:28):
And that's what this deep dive is all about. We're
focusing entirely on the system used by James Carter. He's
a former marketing manager based in Seattle. And get this,
he managed to retire comfortably at just forty one. That
was back in twenty twenty three.
Speaker 1 (00:42):
Forty one. And the really striking part is where he started.
Not some huge salary.
Speaker 2 (00:46):
Right now, not at all. He was earning about eighty
five thousand dollars a year, respectable, sure, white collar job,
but you know, not executive level money.
Speaker 1 (00:53):
And he turned that into a one point three million
dollar portfolio in what thirteen years?
Speaker 2 (00:57):
Thirteen years? Yeah, it just showed you the sheer power
of sticking to a plan consistently investing.
Speaker 1 (01:04):
So our mission today isn't just the usual save more
invest wisely advice. We want to get into the real details.
Speaker 2 (01:11):
Right, the actual percentages he used, the specific funds he picked,
the tax strategies, all the nitty gritty stuff.
Speaker 1 (01:17):
So if you've ever thought financial freedom was out of reach,
this deep dive should show you it's more about structure
and consistency than anything else.
Speaker 2 (01:26):
It really proves it's possible.
Speaker 1 (01:28):
Okay, so let's rewind. Where did this all began? For James?
What was the spark?
Speaker 2 (01:32):
Well, picture this, He's twenty eight years old making that
decent eighty five k salary, but he's in Seattle tech marketing, which.
Speaker 1 (01:41):
Isn't cheap even back then, and that salary probably felt stretched.
Speaker 2 (01:45):
Exactly, more like just getting by than really getting ahead.
And he described himself as feeling completely burned out, just
ground down by the long hours, the commute, the.
Speaker 1 (01:55):
Whole thing that sounds familiar for a lot of people
in demanding jobs, that feeling that you're just running on
a treadmill.
Speaker 2 (02:01):
Right, and that burnout became the catalyst. It made him
question everything, like why trade so much of your life,
your energy for a paycheck that doesn't even bring fulfillment.
He started seriously doubting that whole work till your sixty
five path.
Speaker 1 (02:14):
So that dissatisfaction led him somewhere specific it did.
Speaker 2 (02:18):
Around twenty ten, he stumbled onto the Fire movement, mostly
through online forums and blogs.
Speaker 1 (02:23):
Wow, the early fire community.
Speaker 2 (02:25):
On this okay, and suddenly there was a concrete alternative.
He set a goal retired by forty five, and the
key was having enough passive income to cover all his
living costs.
Speaker 1 (02:34):
Okay, ambitious goal. What was he starting with capital wise?
Speaker 2 (02:38):
Pretty typical actually, about twelve thousand dollars in savings and
you know, whatever little he had in his four oh
one k at the.
Speaker 1 (02:43):
Time, not much, so the money wasn't there.
Speaker 2 (02:46):
Yet, No, but the commitment was Instantly. He knew he
needed a plan, but first he needed knowledge. He basically
decided to become an expert.
Speaker 1 (02:53):
And he didn't just dabble. The sources say he treated
financial education like a second job.
Speaker 2 (02:58):
Totally evening weekends, just immersing himself in learning about investing,
personal finance, economic principles, not just hot stock tips, but
the real fundamentals.
Speaker 1 (03:10):
That level of dedication is pretty impressive. It explains his
reading list.
Speaker 2 (03:13):
Oh absolutely, And what's fascinating is how he balanced different philosophies.
He read Benjamin Graham's The Intelligent Investor. That's the bible
of value investing, right, finding solid companies trading below their
intrinsic worth.
Speaker 1 (03:26):
Okay, so that's the active approach picking stocks, right.
Speaker 2 (03:30):
But then he also read Burton Malciol's A Random Walk
Down Wall Street, which basically argues the opposite, that trying
to beat the market consistently is really hard, maybe impossible,
and broad diversification through index funds is the way to.
Speaker 1 (03:44):
Go, So active versus passive.
Speaker 2 (03:46):
He studied both sides exactly, and he didn't just pick one.
He sort of synthesized them. That combination became central to
his actual investment strategy. Later on.
Speaker 1 (03:55):
Interesting, and there was another book.
Speaker 2 (03:56):
Your Money or Your Life, Yeah, Ricky Robin and Joe
Dimin Is that one's less about how to invest and
more about the why.
Speaker 1 (04:03):
The mindset piece.
Speaker 2 (04:04):
Yeah, it reframes money as your life energy. It makes
you think about how many hours of your actual life
you trade for every single thing you.
Speaker 1 (04:11):
Buy that sounds potentially life changing, It can expending directly
to your time.
Speaker 2 (04:16):
It really does, and that understanding is what fuels the
next crucial step finding the money to invest.
Speaker 1 (04:22):
In the first place, because all the investment knowledge is
useless without capital. You need fuel for the.
Speaker 2 (04:28):
Engine precisely, and this is where James made a radical shift.
He realized the fastest way to generate that fuel was
to drastically cut his spending.
Speaker 1 (04:37):
Okay, the frugality piece. This is often where people struggle
with fire.
Speaker 2 (04:41):
It's tough. The logic is simple, though. The less you
spend each year, the smaller your retirement nest egg needs
to be. And crucially, the more money you free up
right now to invest and get that compounding started.
Speaker 1 (04:53):
So how drastic are we talking? The source says he
got his annual expenses down to thirty thousand dollars.
Speaker 2 (04:58):
Thirty thousand dollars, yes, in Seattle, even back in twenty ten,
that seems incredibly low.
Speaker 1 (05:05):
How did he even manage that? Was he living on
ramen noodles?
Speaker 2 (05:08):
Well, maybe some ramen was involved, but seriously, it required
major sacrifices. He focused on the big stuff, housing, transport.
Speaker 1 (05:16):
Food, so specific changes.
Speaker 2 (05:18):
Moved to a much smaller apartment, probably further out from
the city center, big cut and convenience there sold his
car completely.
Speaker 1 (05:25):
Wow, no car in Seattle, that's a commitment.
Speaker 2 (05:27):
Biked everywhere, used public transport, and then just ruthlessly cut
discretionary spending, eating out, fancy coffee, new clothes, gadgets, big vacations,
all pretty much gone. That thirty dollar k was a
hard ceiling.
Speaker 1 (05:39):
Okay, so it was extreme, but look at the numbers.
Earning eighty five k games gross even after taxes, let's
say that's maybe sixty K sixty five k take home pay,
spending only thirty dollars.
Speaker 2 (05:52):
You see it right there. His savings rate shot up immediately.
We're talking nearly fifty percent of his income, maybe even
slightly more depending on exact taxes.
Speaker 1 (06:01):
That's huge.
Speaker 2 (06:02):
It's the bedrock, full stop. Half his paycheck every single
month was now available to pour into investments. That's the
kind of capital infusion you need to really make compounding
work its magic.
Speaker 1 (06:11):
Early on, if he'd said, say a more typical fifteen
or twenty percent, the.
Speaker 2 (06:15):
Timeline stretches out by years, maybe even a decade longer.
That initial aggressive frugality directly bought him time later. It's
a direct trade off.
Speaker 1 (06:24):
Okay, So James's slashed his spending he's got this significant
chunk of cash freed up every month like serious investment fuel.
How did he actually deploy it? What was the plan?
Speaker 2 (06:34):
Right? This wasn't random. Starting around twenty eleven, he implemented
a very methodical strategy. We can call it his six
h thirty c blueprint six.
Speaker 1 (06:42):
Thirty two Sarah Okay, break that down for us.
Speaker 2 (06:45):
The elegance is in the balance. It blends that passive
market tracking approach he learned from Malchio with the active
value focused stock picking inspired by Graham.
Speaker 1 (06:54):
So let's start with the biggest slice, the sixty percent.
What was that?
Speaker 2 (06:58):
That was the core, the backbone of the portfolio. It
went into low cost, broadly diversified index funds and ETFs.
Speaker 1 (07:05):
So not sure and be the market here, just be the.
Speaker 2 (07:07):
Market pretty much for the majority of his money. The
goal was simply to capture the overall market's growth reliably
over the long haul, thanks stability diversification.
Speaker 1 (07:15):
What specific funds did he use?
Speaker 2 (07:17):
Examples The sources mentioned two q ones. First, the Vanguard
sm P five hundred ETF ticker symbol voo.
Speaker 1 (07:24):
Okay, Classic Choice tracks the five hundred biggest US companies,
super diversified.
Speaker 2 (07:29):
Very low cost exactly. That's the bedrock. But then interestingly,
he also invested in the Invesco QQQ trust ticker QQQ.
Speaker 1 (07:38):
QQQ right, that tracks the NAZAQ one hundred, so much
heavier on technology growth oriented stocks. Why pair that with
the broad stability of VOO.
Speaker 2 (07:46):
That's the subtle brilliance within the passive part. VOO provides
the safety net, the broad market exposure QQQ gives it
a bit more juice. It adds significant exposure to large
cap tech, which, especially during the twenty tens, was a
major engine of growth.
Speaker 1 (08:00):
So it tilted his passive sixty percent slightly more towards
growth than say a total stock market index.
Speaker 2 (08:05):
Fund, precisely a calculated risk to potentially boost returns within
that core holding while still being diversified across one hundred
large companies. And critically, both VO and QQQ are known
for having rock bottom expense ratio.
Speaker 1 (08:18):
The fees always important, hugely important.
Speaker 2 (08:21):
Over thirteen years, even tiny differences in fees compound into
massive amounts over time. He was laser focused on minimizing
those costs.
Speaker 1 (08:28):
Okay, that's the sixty percent. Now the next chunk, thirty percent.
This was the active portion.
Speaker 2 (08:34):
Correct This is where he put his value investing homework,
his GRAM principles into practice, strategic growth through individual stocks.
Speaker 1 (08:42):
So this required actual research digging into companies.
Speaker 2 (08:45):
Definitely no meme stocks or chasing hype. Here. He was
looking for companies with solid fundamentals, you know, strong balance sheets,
consistent earnings growth, a durable competitive advantage what they call
a moat.
Speaker 1 (08:58):
And the sources mentioned specific tools he used, like PE ratios.
Speaker 2 (09:03):
Yes, price to earnings ratio was one. Discounted cash flow
or DCF analysis was another. These are standard valuation metrics.
Speaker 1 (09:10):
Can you give us a quick sense of how he
might use PE? Just practically?
Speaker 2 (09:14):
Sure? The PE ratio is just the stock's current price
divided by its earnings per share. So let's say James
is looking at a great company, maybe like Apple, back
in twenty eleven or twenty twelve. If Apple's PE ratiow
was say twelve, but the average PE for similar tech
companies or its own historical average was closer to eighteen
or twenty, that.
Speaker 1 (09:32):
Lower PE suggests it might be undervalued relative to its
earnings power.
Speaker 2 (09:36):
Exactly, It's a signal, not the only factor, but a
key signal that the market might be pessimistic about the
company temporarily offering a chance to buy a quality asset
on sale. It helps avoid overpaying, which is crucial for
value investing.
Speaker 1 (09:50):
Makes sense, It's about informed decisions, not just gut feelings.
And did this pay off? Any examples of those stocks
he picked early on?
Speaker 2 (09:57):
The sources mentioned some big winners early positions in tech
giants like Apple and Microsoft, which obviously had incredible growth,
But he balanced that tech exposure with more stable, reliable
companies too, consumer staples like Procter and Gamble.
Speaker 1 (10:12):
Ah the stability factor, Yeah, companies people buy from even
in recession.
Speaker 2 (10:16):
Right, So growth potential from tech but also resilience from
consumer staples. A nice balance Within that thirty percent allocation, Okay.
Speaker 1 (10:23):
Sixty percent passive index funds, thirty percent active value stocks.
What about the last ten percent?
Speaker 2 (10:28):
The final ten percent went into dividend paying stocks. This
served a slightly different purpose dividends.
Speaker 1 (10:33):
So companies that pay out a portion of their profits
directly to shareholders, why specifically allocate ten percent just to those?
Speaker 2 (10:40):
Two main reasons? Really? First, it created a tangible, immediate
passive income stream even while he was still working and
saving aggressively.
Speaker 1 (10:48):
Ah. So cash hitting his account regularly exactly.
Speaker 2 (10:52):
He focused on companies with long histories of increasing their
dividends year after year think Johnson and Johnson, Coca Cola,
often called dividend aristocrats or dividend kings, and the second
reason psychological. James mentioned this himself. Seeing that actual cash
arrive regularly, even if it was small at first, made
(11:13):
the whole fire journey feel more real, more concrete. It
wasn't just numbers on a screen, it was actual income
being generated. And of course he reinvested those dividends right.
Speaker 1 (11:23):
Buying more shares which then generate more dividends. The compounding
effect within the dividend.
Speaker 2 (11:28):
Portion itself precisely so ninety percent focused on growth and
appreciation ten percent providing that steady income stream and psychological boost.
Speaker 1 (11:35):
And underlying this whole six H three D ten structure
was one key technique.
Speaker 2 (11:39):
Yes, dollar cost averaging DCA. This was crucial for discipline.
Speaker 1 (11:43):
Explain DCA quickly for us.
Speaker 2 (11:44):
It's simple but powerful. James invested a fixed amount of money,
remember that huge chunk from his fifty percent savings rate,
every single month, on the same day, no matter what
the market was doing, so.
Speaker 1 (11:56):
He didn't try to guess if the market was high
or low.
Speaker 2 (11:58):
Nope, he compled depletely, removed emotion and timing attempts. If
the market was up that month, his fixed dollar amount
bought fewer shares. If the market tanked, that same fixed
amount bought more shares at the lower price, automatically buying
low exactly. It enforces discipline, averages at your purchase price
over time, and ensures you're capitalizing on downturns instead of panicking.
(12:20):
It's like an automated behavioral coach for investing.
Speaker 1 (12:23):
Okay, so we've got the savings engine and the investment blueprint,
but there's another layer. James mastered taxes. Minimizing the tax
bite is absolutely critical, especially for fire seekers who need
every dollar working for them.
Speaker 2 (12:36):
Right, it's not just what you earn, it's what you keep.
So how did he optimize for taxes?
Speaker 1 (12:42):
He used the system to his advantage. Maxed out his
four to one K contributions every single year. That's pre
tax money going in, lowering his taxable income now and
crucially getting the employer match.
Speaker 2 (12:53):
Hey, absolutely, that match. The source mentions it was around
five thousand dollars a year for him, is literally free money.
You have to capture that if it's offered, and all
that growth in the four to one K is tax
deferred until retirement.
Speaker 1 (13:05):
Okay, four to one K maxed. What else?
Speaker 2 (13:07):
The wroth IRA max that out every year too, wroth Ira.
Speaker 1 (13:11):
That's after tax money going in. But the big benefit
comes later.
Speaker 2 (13:14):
Exactly, you contribute money you've already paid income tax on,
but then all the growth, all the earnings, and importantly
all the qualified withdrawals and retirement are completely one hundred
percent tax free.
Speaker 1 (13:26):
Tax free growth over thirteen years. That's a massive.
Speaker 2 (13:29):
Advantage, monumental especially for someone compounding aggressively like James. The
wroth was a key booster.
Speaker 1 (13:35):
But here's the catch with both the four one K
and the roth IRA. For someone eating for early retirement,
say at forty one, like James, generally you can't touch
that money without penalties until you're fifty nine and a half.
Speaker 2 (13:47):
Right, So that's the standard rule. Yes, there are some
complex exceptions and strategies like SEP or the Roth Conversion Ladder,
but fundamentally those accounts are designed for traditional retirement age.
Speaker 1 (13:57):
So if James retired at forty one, he had this
gap of almost two decades before he could easily access
that tax advantage money, how did he plan to bridge
that gap? Where did his living expenses come from in
those early retirement years.
Speaker 2 (14:10):
This is where the strategy gets fiery specific. His main
tool for funding those early years was his tax wule
brokerage account.
Speaker 1 (14:18):
Okay, a standard investment account outside of retirement plans, no
upfront tax breaks like a four to.
Speaker 2 (14:23):
One K correct, you invest after tax money. But the
huge advantage it offers is flexibility liquidity. You can access
the money whenever you need it without age restrictions or
the specific rules governing retirement accounts.
Speaker 1 (14:36):
So this taxable account was basically his funding source from
age forty one until maybe his late fifties. But wouldn't
selling investments in that account trigger taxes capital gains taxes?
Speaker 2 (14:46):
Yes, it would, and that's why he managed it very
carefully to minimize that tax drag. The key was focusing
on long term capital.
Speaker 1 (14:52):
Gains, the difference between short term and long term gains.
Speaker 2 (14:55):
Right in the US, if you sell an asset you've
held for less than a year, the profit is to
at as short term capital gain, usually at your higher
ordinary income tax rate. But if you hold it for
more than a year, he qualifies as a long term
capital gain, taxed at much lower rates currently zero percent,
fifteen percent, or twenty percent, depending on your overall income level.
Speaker 1 (15:16):
So James's strategy in the taxable account was buy and hold,
prioritize holding investments for over a year before selling.
Speaker 2 (15:23):
Absolutely. His plan for early retirement involved primarily selling assets
held long term to generate income, keeping his tax burdens
significantly lower during those withdrawal years. This account was the
essential bridge.
Speaker 1 (15:36):
That foresight about tax location and withdrawal strategy is really sophisticated.
It's not just about picking winners, not at all.
Speaker 2 (15:42):
Asset location is as important as asset allocation for long
term tax efficient wolf building.
Speaker 1 (15:47):
Okay, so he had the structure in place, but investing,
especially over thirteen years, is never a smooth ride. Did
he face any major market stress?
Speaker 2 (15:55):
Oh definitely. He didn't just get lucky with a call market.
He started investing right after the huge two thousand and
eight crash and almost immediately ran into the European sovereign
debt crisis around twenty eleven twenty twelve. Markets were very
volatile and later on there was significant turbulence like that sharp,
sudden market drop in late twenty eighteen, he definitely experienced
(16:16):
periods where his portfolio took significant hits.
Speaker 1 (16:19):
The sources mentioned seeing his portfolio drop by like ten
percent overnight. Sometimes that must be terrifying when it represents
years of extreme sacrifice.
Speaker 2 (16:28):
It would be for most people. The natural human instinct
in that situation is fear panic sell the thing it
goes lower, and.
Speaker 1 (16:35):
That locks in the loss turns a temporary paper decline
into a permanent, real loss of capital exactly.
Speaker 2 (16:41):
But this is where James's upfront education and his discipline
system really paid off. Remember Graham teaching him to view
the market as irrational sometimes.
Speaker 1 (16:49):
Right the manic depressive partner analogy.
Speaker 2 (16:51):
He internalized that he didn't see market dips as a
reason to panic sell. He genuinely viewed them as buying opportunities.
Speaker 1 (16:59):
Because the underling buying value of the companies in his
index funds, where the individual stocks he'd researched hadn't fundamentally
changed overnight just because the market freaked out.
Speaker 2 (17:08):
Precisely, his conviction was in the long term value, not
the short term price wings. So what did he do
during those dips?
Speaker 1 (17:15):
He stuck to the plan, kept dollar cost averaging he did.
Speaker 2 (17:20):
He kept investing that same fixed amount each month. When
prices were down ten percent, his money bought ten percent
more shares of those quality assets. He leaned into the volatility.
Speaker 1 (17:31):
And the diversification helped him stomach it, presumably absolutely.
Speaker 2 (17:34):
Knowing that sixty percent was in broad index funds and
the thirty percent was spread across different quality companies meant
no single company collapsing could wipe him out. That structure
provided the psychological buffer needed to stay the course, let
the portfolio recover and ultimately benefit from buying low. It's
all connected.
Speaker 1 (17:50):
So James weather those market storms through discipline. But the
next phase post twenty fifteen or so was about adding
rocket fuel to the process, not just saying, but earning more. Right.
Speaker 2 (18:02):
Phase one was extreme frugality to generate initial capital. Phase
two was about increasing income significantly while still maintaining that
financial discipline.
Speaker 1 (18:12):
He got promotions at his marketing job, right. Yeah, his
salary went up quite a bit.
Speaker 2 (18:16):
Yeah, jumped up to one hundred and twenty thousand dollars
a year. A nice raise. But here's the crucial part.
He largely avoided lifestyle inflation.
Speaker 1 (18:24):
That temptation must have been huge. You've been living super
frugally for years. Suddenly you have an extra thirty five
thousand dollars a year coming in.
Speaker 2 (18:31):
Yeah.
Speaker 1 (18:31):
Most people would immediately upgrade their car, their apartment, their vacations.
Speaker 2 (18:35):
It's the natural impulse. But James made a very conscious choice.
He did allow his lifestyle to improve slightly. The sources
say his annual expenses rose from that rock bottom thirty
dollars up to around forty k.
Speaker 1 (18:47):
Okay, so a little bit more braiding room, maybe slightly
better food. Maybe he took an actual vacation occasionally.
Speaker 2 (18:52):
Probably something like that, a sustainable level of comfort. But
the key is that was only a ten dollars increase
in spending, while his income jumped by thirty five. The
vast majority of that raise went straight into investments.
Speaker 1 (19:03):
He didn't stop there either, did he He added another
income stream.
Speaker 2 (19:06):
He did, leveraging his marketing skills. He started a freelance
consulting side hustle that brought in an extra twenty thousand
dollars a year.
Speaker 1 (19:13):
Wow. Okay, so let's add that up. One hundred and
twenty K from the job, twenty K from consulting. That's
one hundred and forty thousand dollars total annual income.
Speaker 2 (19:21):
One hundred and forty K income and still only spending
forty K year.
Speaker 1 (19:25):
So one hundred thousand dollars being saved and invested annually.
What does that do to his savings rate?
Speaker 2 (19:30):
It's skyrockets. One hundred dollars saved out of one hundred
and forty K income. That's over his seventy percent savings rate.
Speaker 1 (19:37):
Seventy percent. That's incredible.
Speaker 2 (19:39):
This is where the whole process goes into hyperdrive. You've
got massive amounts of new capital flooding in regularly, and
your existing large portfolio is hopefully generating strong market returns
and compounding on itself. The growth becomes exponential, not linear.
Speaker 1 (19:53):
And the portfolio milestones reflect that acceleration definitely.
Speaker 2 (19:56):
By twenty twenty, when he was thirty seven, his portfolio
hit eight hundred thousand dollars. That last push from say
eight hundred K to over a million tends to happen
much faster than the first hundred k thanks to the
power of compounding on a larger base. He was clearly
on the fast track.
Speaker 1 (20:09):
So as he saw that one million dollar mark approaching
and then passing it, his focus shifted towards the actual
exit exactly.
Speaker 2 (20:16):
He started meticulously planning the endgame. The core calculation here
was the famous four percent rule.
Speaker 1 (20:23):
Right, the four percent safe withdrawal rate. Can you recap
that for us?
Speaker 2 (20:26):
The rule, based on historical market data, suggests that if
you withdraw four percent of your portfolio's value in your
first year of retirement and then adjust that withdrawal himount
upward each year for inflation, there's a very high probability,
like over ninety five percent historically, that your money will
last for at least thirty years.
Speaker 1 (20:42):
Okay, So James knew his target annual spending in retirement
would be around that forty thousand dollars mark he'd settled.
Speaker 2 (20:48):
Into, Right, so he just worked backwards. What portfolio size
do you need so that four percent of it equals
forty thousand dollars.
Speaker 1 (20:54):
Forty thousand dollars divided by point zero four that's one
million dollars. Oh wait, he aimed higher.
Speaker 2 (20:59):
He targeted one point two million dollars. So one point
two million dollars times four percent is forty eight thousand
dollars per year.
Speaker 1 (21:05):
So building in a buffer forty eight k withdrawal potentially
against forty K expenses.
Speaker 2 (21:09):
Smart, very smart, cause you breathing room for unexpected costs
or slightly lower market returns. So one point two million
dollars became his FI number, his financial independence target.
Speaker 1 (21:18):
Once he had that target clearly in sight, did he
make any adjustments to his investment strategy shifting gears from
pure growth.
Speaker 2 (21:27):
Yes, some crucial refinements as he got closer. He was
transitioning from the accumulation phase to the preservation and withdrawal phase.
Speaker 1 (21:34):
What kind of changes?
Speaker 2 (21:35):
First, he started gradually increasing his allocation to assets that
reduce volatility. That meant more dividend stocks, continuing that income stream,
but also adding high quality shorter term bonds.
Speaker 1 (21:47):
Bonds lower expected returns than stocks generally, but much less
volatile exactly.
Speaker 2 (21:52):
Less fluctuation smooths the ride, which is really important when
you start taking money out of the portfolio instead of
putting it in. Second, he made a conscious effort to
diversify internationally.
Speaker 1 (22:02):
Okay, moving beyond just US socks and bonds. Right.
Speaker 2 (22:06):
He added funds like the Vanguard foots All World x
US ETF ticker VEU. This was a hedge against the
risk of the US market underperforming. For a prolonged period.
Smart move for long term retirement stability makes sense.
Speaker 1 (22:20):
Don't keep all your eggs in one geographic basket either.
Speaker 2 (22:22):
Any other key refinements, yes, perhaps the most important one
for mitigating early retirement risk. He built up a substantial
cash reserve.
Speaker 1 (22:30):
Cash just sitting in a savings account not invested.
Speaker 2 (22:34):
How much an amount equal to two full years of
his planned living expenses. So, based on the forty dollars
expense target, that's eighty thousand dollars in cash or very
safe liquid equivalents like money market funds, held completely separate
from his main investment portfolio.
Speaker 1 (22:51):
Eighty thousand dollars in cash. Why what does that achieve?
Speaker 2 (22:56):
It directly combats sequence of returns risk. That's the danger
that I'm major. Market crash happens right at the beginning of.
Speaker 1 (23:02):
Your retirement, because if the market drops thirty percent in
year one and you have to sell stocks to live,
you're selling way more shares at depressed prices, potentially crippling
your portfolio's ability to ever recover.
Speaker 2 (23:13):
Precisely, with that two year cash buffer, James doesn't have
to sell stocks if the market crashes in his first
or second year of retirement, he just lives off the
cash reserve, giving.
Speaker 1 (23:22):
The market time to potentially recover before he needs to
touch his invested assets again.
Speaker 2 (23:26):
Exactly. It buys him time. It decouples his living expenses
from short term market volatility right when he's most vulnerable.
That two year buffer is a critical piece of defensive
planning for early retirees.
Speaker 1 (23:38):
And so all that planning, all that discipline, it led
to the finish line. In twenty twenty three, YEP.
Speaker 2 (23:45):
James Carter pulled the plug on his corporate job age
forty one, four years earlier than his original goal of
forty five, and.
Speaker 1 (23:52):
The portfolio value when.
Speaker 2 (23:53):
He retired it had actually surpassed his target. It was
valued at one point three million dollars.
Speaker 1 (23:58):
So even more bufferthan planned. And he made one more
move to really solidify things.
Speaker 2 (24:04):
He did a geographic one. He moved out of expensive
Seattle to a significantly lower cost of living city, still
on the Pacific Northwest, but much more affordable.
Speaker 1 (24:12):
What do they do to his expenses?
Speaker 2 (24:14):
Drop them even further down from the forty thousand dollars
he was living on to just thirty five thousand dollars
per year in his new location.
Speaker 1 (24:20):
Okay, so let's check the math again. One point three
million dollar portfolio, the four percent rule would suggest a
safe withdrawal of about fifty two thousand dollars a year,
and he only needs thirty five thousand dollars exactly.
Speaker 2 (24:31):
He's got a huge margin of safety. Now his lifestyle
is comfortably funded by a combination of those dividends he
built up, harvesting some capital gains strategically from the taxable account,
and controlled withdrawals likely well below the four percent rate. Initially,
it's a very secure setup.
Speaker 1 (24:48):
And what does retirement look like for him at forty one?
Is he just sitting on a beach?
Speaker 2 (24:52):
Huh? Not? According to the sources, it's not about idleness
for him. He's actively volunteering for causes he cares about.
He's dedicating seririas time to his hobbies hiking, photography, and
he's apparently mentoring others interested in personal finance.
Speaker 1 (25:06):
So he didn't retire from something. He retired to something.
Speaker 2 (25:09):
That's a great way to put it. The goal wasn't
just escaping the job. It was dating autonomy, trading work
dictated by an employer for activities driven by personal passion
and purpose.
Speaker 1 (25:19):
Okay, So, stepping back from James's specific story, what are
the big actionable takeaways here for you the listener? What
can we learn from this thirteen year journey?
Speaker 2 (25:27):
I think there are five really clear essential lessons that
come through. First, educate yourself continuously.
Speaker 1 (25:34):
Don't just blindly follow advice. Understand the why exactly.
Speaker 2 (25:39):
James didn't outsource his financial future. He put in the
work those evenings and weekends studying Graham Malkiel tax rules.
That knowledge replaced fear with informed decision making. That's foundational, okay.
Speaker 1 (25:52):
Lesson one, continuous education. What's number two?
Speaker 2 (25:56):
Live below your means? This is the absolute prerequisite. It's
not so, but it's essential.
Speaker 1 (26:01):
That ability to achieve the high savings rate, especially early on.
Speaker 2 (26:05):
That fifty percent rate was the accelerator pedal. You simply
cannot build significant wealth quickly if you're spending everything you earn.
Finding ways to free up capital is job.
Speaker 1 (26:14):
Number one, got it?
Speaker 2 (26:15):
Lesson three, Diversify and stay discipline. Yeah, the sixty thirty
ten strategy provided balance, and the dollar cost averaging provided
the discipline.
Speaker 1 (26:22):
Don't pan excel, drink downturns. Maintain that long term view right.
Speaker 2 (26:25):
Treat Dips's opportunities. Have faith in your diversified holdings and
stick to your automated investment plan. That consistency through volatility
is key.
Speaker 1 (26:34):
Okay.
Speaker 2 (26:34):
Number four, maximize tax advantages. Use every tool available the
four to one K match the tax free growth in
a roth IRA, managing for long term capital gains in
a taxable account.
Speaker 1 (26:46):
Minimizing that tax drag makes a huge difference over decades.
Speaker 2 (26:49):
A massive difference to your net returns. Don't ignore the
tax implications and.
Speaker 1 (26:54):
The final lesson number five.
Speaker 2 (26:56):
Plan for the long term, but mitigate short term risks.
James his success wasn't luck. It was methodical planning over
thirteen years, but critically it included specific tactics to handle
potential problems like that two year cash buffer to survive
an early market crash.
Speaker 1 (27:12):
So think decades ahead, but have concrete plans for near
term storms.
Speaker 2 (27:16):
Precisely patients and strategic planning, not get rich quick schemes.
Speaker 1 (27:21):
No, we do need to add a dose of reality here.
James executed flawlessly, but were there external factors that helped?
Speaker 2 (27:26):
Oh? Absolutely, we have to acknowledge that while his discipline
was incredible, luck certainly played a role. As the sources point.
Speaker 1 (27:32):
Out specifically the market environment during his main accumulation phase.
Speaker 2 (27:37):
Yes, he was investing heavily during basically one of the
longest and strongest bull markets in US history, particularly from
twenty ten through twenty twenty. The wind was definitely at
his back.
Speaker 1 (27:48):
Does that diminish his achievement?
Speaker 2 (27:50):
Not at all. His planning and discipline allowed him to
fully capitalize on those favorable conditions. But it's important context.
Someone starting today might face different market headwinds. Good planning
helps you succeed regardless, but strong market returns certainly accelerate
the timeline, and James's story, while specific really taps into
a much larger trend, especially among millennials.
Speaker 1 (28:12):
Yeah, this desire for financial independance isn't just a niche
thing anymore.
Speaker 2 (28:16):
Is it not? At all? The source mentioned a twenty
twenty three Bank Trout survey something like fifty four percent
of millennials now say achieving financial independence is a major goal.
Speaker 1 (28:25):
Wow, over half. What's driving that? Do you think? It?
Speaker 2 (28:28):
Seems to be a real shift in priorities, less focus
on the traditional corporate ladder climb. Maybe some disillusionment after
seeing parents struggle through recessions and a much stronger desire
for flexibility, autonomy, controlling your own time. It's less about
status symbols, more about life.
Speaker 1 (28:44):
Control, and the tools to pursue this are more accessible
now too, right.
Speaker 2 (28:48):
Hugely more accessible. Think about it. Twenty years ago, investing
often meant high commissions, needing a broker, less information. Now
you've got online brokerages with zero commission trades and less
financial information online, and crucially, the explosion of low cost
ETFs that make diversification incredibly easy and cheap.
Speaker 1 (29:08):
So the barriers to entry for implementing a strategy like
James's are much lower.
Speaker 2 (29:12):
Today, significantly lower. Anyone with a smartphone and a few
dollars can start investing in a diversified portfolio instantly.
Speaker 1 (29:19):
But then this is a big butt. Just because the
tools are easier doesn't mean the process is easy, which
brings us back to sacrifice exactly.
Speaker 2 (29:27):
That's the crucial counterpoint. While the market is open to everyone,
achieving fire, especially early fire like James did, still requires
that extreme discipline, particularly around spending and saving that.
Speaker 1 (29:39):
Fifty percent or even seventy percent savings rate that involves
making hard choices consistently for years.
Speaker 2 (29:46):
It's not for everyone, No and we have to be realistic.
Life happens. People have medical emergencies, family obligations crop up,
they have kids, they might lose a job. Any number
of things can derail a plan that requires such a
high savings rate.
Speaker 1 (29:59):
So James's story is maybe an example of what's possible
under ideal conditions and with perfect execution.
Speaker 2 (30:05):
I think that's fair. It's a powerful demonstration of the
stock market as a wealth building engine when fueled by
discipline and a solid plan. But it also highlights that
resilience and careful planning are paramount because life rarely goes
exactly according to plan. It's inspiring, but also requires acknowledging
the significant commitment involved. Hashtag tactag autruiz.
Speaker 1 (30:23):
So wrapping up James Carter's path from feeling burned out
in a marketing job earning eighty five thousand dollars to
retiring at forty one with one point three million dollars,
it really is a remarkable case study in financial discipline
turned into actual freedom.
Speaker 2 (30:39):
It truly is a clear blueprint showing how structured saving
and investing consistently applied over time can lead to extraordinary
results even from a relatively average starting point.
Speaker 1 (30:50):
It demonstrates that financial independence isn't necessarily about hitting some
magical jackpot, but about methodical execution.
Speaker 2 (30:57):
And that brings us to a final thought for you,
the listener, It's something Jameson's self touched upon after retiring.
He said something like, I'm not rich, but I have
enough and that's what matters.
Speaker 1 (31:05):
I have enough. That's interesting, it really is.
Speaker 2 (31:07):
So if the ultimate goal of financial independence, as James lived,
it isn't about endless luxury or buying super yachts, but
about reaching this point of enough enough money to free
up your time for purpose, for passions, for volunteering, for family.
How do you personally define that benchmark? What does enough
truly look like for you,
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