I messed up my FIRE plans

Retirement FIRE Wannabees
9

Hi thejusticier,

“I don’t quite get the talks about the marvels of compounding. You may have to start again many times before it actually takes hold into some sort of real accumulation. Some may never hit that escape velocity and will keep on fretting.”

Compounding, in this sense, is simply accumulating value over time. Each year of increase is piled on top of the previous.

In the classic sense, compounding is adding the payments (interest and dividends) back into the investment each time they are paid. Think about savings accounts and auto-investing dividends.

Your 2nd sentence above, “You may have to start again many times before it actually takes hold”, sounds like capitulation, selling everything to try something else for a while.

This is a sign of a lack of conviction in your investments. The person has doubts about the future and their investments.

This is why I always plan before I invest:

  1. What is my goal?
  2. What do I expect to happen?
  3. Why does this specific investment work toward my goal?
  4. What are the downsides of this investment?
  5. Why would I sell this investment?

Every time I invest cash, as a minimum I do this short list. It makes me more careful when I invest. It provides a focus for the long term. My expectations are “spelled out.”

Then I monitor the companies.

I had a couple of earnings disappointments recently. That may trigger a reduction in a position. The current downturn does not violate my sales guidelines since it would be for business reasons, not stock price.

As mentioned upstream, I manage our portfolio with 2 goals:

  1. Income
  2. Growth

The 2 groups of stock identify the portions with higher volatility and possibility of loss and the portion that is more protected.

Basically, if the growth portion drops 90%, we are still fine. The income side will continue to provide for our needs.

As of Friday’s close, our portfolio is:
Portfolio vs All Time High (11/09/2021): -45.15%

But our annualized (XIRR) return for the last 17 years is still above 20%:
XIRR since 2005: 20.58%

That is compounding.

Over that period, I maintained a long-term investment strategy. We had a few ups and downs but did not sell-out and switch investments.

Changing investment direction is quite often a ticket to disaster.

Does that help you?

Gene
All holdings and some statistics on my Fool profile page
http://my.fool.com/profile/gdett2/info.aspx

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