Achieving Financial Critical Mass (FCM)

Posted on Mo 09 Juni 2008 in misc • 2 min read

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    I left work late on Friday because I got distracted running Monte Carlo simulations on our 401k accounts. I'm on a quest to refine my retirement plan of achieving Financial Critical Mass, something I heard about from Bob Brinker many years ago.

    Financial Critical Mass is defined as the capital you need in your retirement accounts that will continue to grow after you retire and start withdrawing from it. In other words, your living off the interest of your investments. The trouble is trying to find the right mix of funds of stocks, with the right mix of contributions and savings to pull it off.

    Most of my time after work was spent looking on the Internet for the median historical returns and standard deviation of those returns (no easy task) for the mutual funds and stocks we hold. Once I found them, I plugged them into the retirement example spreadsheet that came with Risk Amp and ran the simulations.

    The result of my simulations are promising but I did identify some holes in my 401k strategy. For one, we're not saving enough with our 401k's alone; we must start contributing to our Roth IRA's again. Second, we're not being aggressive enough with our investments; I need to identify more funds with higher historical returns to add to our investment pool.

    Although my market timing model helps me a great deal when it comes to making a higher return at the end of the year, I can do more to supercharge the returns on our account.

    So what's the first part of the new strategy now? First I'm going to schedule a monthly deposit of $200 into my Roth IRA and then add to my Noble Corp (NE), ExxonMobil (XOM), General Electric (GE), and Emcore Group (EME) positions!