The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: RJC on December 18, 2018, 12:35:19 PM
-
I'm new to both this forum and Bogleheads but I've noticed some cross-forum discussions like the one below.
Do they have a valid point? How do you feel about their philosophy? Are the same folks on both?
https://www.bogleheads.org/forum/viewtopic.php?f=1&t=266780
-
Lots of different perspectives that's for sure! I'd run your own numbers and see what you're comfortable with.
-
Many valid points by the bogleheads. MMM's optimism is great for drawing people into the lifestyle, but it isn't the most realistic on many of the finer points, which the bogleheads did a good job of highlighting.
Even though I disagree with MMM on many of the fine details, it doesn't detract from the message at all. (Unless anyone here is drinking the Kool-Aid.)
-
I'm new to both this forum and Bogleheads but I've noticed some cross-forum discussions like the one below.
Do they have a valid point? How do you feel about their philosophy? Are the same folks on both?
https://www.bogleheads.org/forum/viewtopic.php?f=1&t=266780
As you've probably noticed from the responses on the Bogleheads forum, most members over there take a much more conservative approach with WR, and often early retirement is frowned upon (the classic argument being "if you retire early you're missing the best earning years of your life" along with "if you exit the workplace in your 30s, you will have difficulty ever finding a job if/when you want to work again".
Obviously this forum takes a different approach.
There's a great deal of fantastic information to be learned over there (I frequent both) and the financial analyses on Bogleheads typically are far more rigorous. But I find their pessimism and emphasis on very high NW off-putting. I've witnessed several debates where posters argued that a 2.5% WR was probably insufficient for a 40+ year retirement. To this day that leaves me shaking my head in shock. From the comments in that thread: "For myself, I plan on a 2% withdrawal rate and am very close to my number now." Many over there are in the high-spend/high-earn category, and often people's "FI" number on Bogleheads are in the $5-10MM range. Around here it's closer to $1MM in investments with more careful spending. Certainly there's a spread on both forums.
tl;dr - both have great information, but the approach of each is different.
-
Many valid points by the bogleheads. MMM's optimism is great for drawing people into the lifestyle, but it isn't the most realistic on many of the finer points, which the bogleheads did a good job of highlighting.
Even though I disagree with MMM on many of the fine details, it doesn't detract from the message at all. (Unless anyone here is drinking the Kool-Aid.)
Curious @Boofinator - what aspects of MMM do you find unrealistic and where do you disagree?
I certainly have my own opinions (MMM's rush to pay off mortgages, plus his overly rosy rental assumptions are two examples).
-
"US Stocks in Free Fall" is not nearly as fun as "Top is In."
-
Many valid points by the bogleheads. MMM's optimism is great for drawing people into the lifestyle, but it isn't the most realistic on many of the finer points, which the bogleheads did a good job of highlighting.
Even though I disagree with MMM on many of the fine details, it doesn't detract from the message at all. (Unless anyone here is drinking the Kool-Aid.)
Curious @Boofinator - what aspects of MMM do you find unrealistic and where do you disagree?
I certainly have my own opinions (MMM's rush to pay off mortgages, plus his overly rosy rental assumptions are two examples).
I agree with the general tenets. That's why I'm here. But let's pick through the article:
1) MMM puts his stake in the ground (or draws a line in the sand), saying its absolutely possible to make a chunk of money last a lifetime with no side hustles. I agree.
2) But then he quotes living off $40k, which was his starting amount (if subtracting home equity) ten plus years ago. Not that it isn't possible to be happy on this amount, but few are as frugal as MMM.
3) Then he gives three success scenarios, starting with being probably able to make it with 5%. Well, if the premise is you're guaranteeing no side hustle, though you could cut your expenses to something lower than what MMM was spending ten years ago given the fairly decent chance you run out of money, I don't think that is a recipe for success.
4) MMM uses a constant rate of return for stocks in his calculations. Since this has never actually happened, I don't consider it a good lynchpin for your retirement spending.
5) MMM says to get the big picture right and not sweat the small stuff, but neglects to mention his experience with sequence of returns, specifically the house business. He certainly wasn't comfortable with the giant losses in his business at the time owing to the housing market downturn. Now, of course, everything is small stuff for him.
6) He recommends not investing in bonds. When you are that close to the line of making it / not making it from an historical perspective, bonds (at the beginning of retirement) can decrease the sequence of returns risk.
7) He says that should the stock market crash, within a year or two, the market is back up. Try 16 years for the Great Depression, or 11 years with the DotCom bust. (And these are not inflation-adjusted; if you consider those dips, we have historically seen decades-long dips).
8) He says you can cut your lifestyle if needed below $40k per year. Not sure this comes with the happiness proposed.
9) What happens should an adverse life event bump up the cost of living to $50k per year?
10) To round it out to an even ten, he only considers historical U.S. returns. Past performance yada yada.
To conclude, a chunk of money is a perfectly good retirement plan. But if one were to go solely based off that article they could become very disillusioned with Mustachianism (or perhaps they'll get lucky).
My take: 5% is probably a good figure if you have side hustles planned (such as he did) or if you're FatFIRE and truly have plenty of fat to cut. If you don't have side hustles planned and plan on living on $40k in the U.S., you should probably be much more conservative in your planning (unless you truly don't mind living like a pauper for a few years; easier said than done).
-
Everyone loves to talk about the risk of portfolio failure, but no one (outside of a few here like sol, arebelspy and maizeman) seem to ever mention the risk of working too many years.
Time is what we all seek to buy back, and yet it seems like people won't bat an eye at one, two, or three "more years" in the work force. You don't get those years back.
It's a good counter argument to "early retirement wastes your best earning years." Well, it also wastes what are probably your healthiest years, too.
-
Everyone loves to talk about the risk of portfolio failure, but no one (outside of a few here like sol, arebelspy and maizeman) seem to ever mention the risk of working too many years.
Time is what we all seek to buy back, and yet it seems like people won't bat an eye at one, two, or three "more years" in the work force. You don't get those years back.
It's a good counter argument to "early retirement wastes your best earning years." Well, it also wastes what are probably your healthiest years, too.
I don't disagree. But then the question becomes, what are you retiring to? If your job is absolutely miserable, it's probably worth it to take some risk to get out. If your job is just a job, you enjoy your contributions in your field, and you get plenty of time off and with your friends and family, than working an extra year or two is no big deal. I fall in the latter category, so I probably have a more conservative lens than some others.
Honestly, if I retired tomorrow, I'm not altogether sure I would be happier. (Though at 5 a.m. I would most definitely be happier.)
-
Everyone loves to talk about the risk of portfolio failure, but no one (outside of a few here like sol, arebelspy and maizeman) seem to ever mention the risk of working too many years.
Time is what we all seek to buy back, and yet it seems like people won't bat an eye at one, two, or three "more years" in the work force. You don't get those years back.
It's a good counter argument to "early retirement wastes your best earning years." Well, it also wastes what are probably your healthiest years, too.
I don't disagree. But then the question becomes, what are you retiring to? If your job is absolutely miserable, it's probably worth it to take some risk to get out. If your job is just a job, you enjoy your contributions in your field, and you get plenty of time off and with your friends and family, than working an extra year or two is no big deal. I fall in the latter category, so I probably have a more conservative lens than some others.
Honestly, if I retired tomorrow, I'm not altogether sure I would be happier. (Though at 5 a.m. I would most definitely be happier.)
Yeah, I think there are quite few of us that actually like our jobs and are still enjoying these years while working full time. The previous poster seems to think those years are just "wasted" or "lost". I think some of the cubicle workers are so miserable, it feels like they just lost a another year of their life on the job, so they assume everyone else feels the same way.
-
I think you have a number of these wrong, like #5, considering MMM is a relentless optimizer, but I'll just tackle these two:
3) Then he gives three success scenarios, starting with being probably able to make it with 5%. Well, if the premise is you're guaranteeing no side hustle, though you could cut your expenses to something lower than what MMM was spending ten years ago given the fairly decent chance you run out of money, I don't think that is a recipe for success.
My take: 5% is probably a good figure if you have side hustles planned (such as he did) or if you're FatFIRE and truly have plenty of fat to cut. If you don't have side hustles planned and plan on living on $40k in the U.S., you should probably be much more conservative in your planning (unless you truly don't mind living like a pauper for a few years; easier said than done).
If you plug 5% WR into www.cFIREsim.com with the default values, you get a 74% historical success rate. So yes, if history is any guide, you would "probably" make it with 5%. The numbers get even better when factoring in SS. Maybe that doesn't fit your risk tolerance or definition of success? Cool, then you can shoot for lower. The fact remains that for most of history, a 5% WR would've worked out just fine, and as such, will probably work in the future.
4) MMM uses a constant rate of return for stocks in his calculations. Since this has never actually happened, I don't consider it a good lynchpin for your retirement spending.
This is simply false. He's using historical returns and the Trinity Study (https://www.onefpa.org/journal/Pages/Portfolio%20Success%20Rates%20Where%20to%20Draw%20the%20Line.aspx) methodology. If you've never read it, now would be the time.
-
I see very few people on boggleheads say you should work for a long time. I've read it every day for close to a year now and these comments are rare.
What I like about boghleads is they are a non-stop machine of people criticising bullshit
- The bullshit of market timing.
- The bullshit of dividend investing.
- The bullshit that people can sector/market pick implying they know something the market doesn't.
- The bullshit that average people can stock pick.
- The bullshit that (all or even most) can live without bonds and see a substantial net worth that took them 15 years or more of sacrifice halve in front of their eyes.
- The bullshit that "it will be ok because I can get a job if there is a recession" even though in a recession the economy is stuffed and unemployment rises sharply at the time you need it.
- The bullshit that you can just "adjust your spending" in a recession or bad sequence of returns, especially for those living a frugal life where there is not much slack in spending to cut from.
There is non-stop bullshit on just about every forum, and most forums have sheeple supporting the bullshit because most people are incapable of critical thinking to try and poke holes before accepting what they read as truth. It is nice to have a forum that consistently and relentlessly calls out the bullshit over and over again, and I haven't found another forum that even comes close.
In regards to the post mentioned, for a withdrawal rates, I use this. I don't see how anyone can not consider it the definitive guide.
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/
-
2) But then he quotes living off $40k, which was his starting amount (if subtracting home equity) ten plus years ago. Not that it isn't possible to be happy on this amount, but few are as frugal as MMM.
The median household income in the USA 10 years ago was $50k/year. A paid off house was easily worth at least $10k/year in foregone mortgage payments even back in 2009. From this post it sounds like you believe that more than half of american households don't earn enough money to be happy without being exceptionally and atypically frugal.
Is that a correct understanding if your worldview?
Everyone loves to talk about the risk of portfolio failure, but no one (outside of a few here like sol, arebelspy and maizeman) seem to ever mention the risk of working too many years.
Time is what we all seek to buy back, and yet it seems like people won't bat an eye at one, two, or three "more years" in the work force. You don't get those years back.
It's a good counter argument to "early retirement wastes your best earning years." Well, it also wastes what are probably your healthiest years, too.
Thanks for mentioning me with some forum legends, @fattest_foot. A lot of the credit (at least from my perspective) for continuing to make the case that the risk of working to long and dying too soon should be taken just as seriously as leaving work too early and going broke goes to @Retire-Canada I make mathematical models, that guy writes with passion about the topic.*
*And gets on my case when I start forgetting that the easiest way to guarantee I won't run out of money is to keep working until I die at my desk. ;-)
-
I'm new to both this forum and Bogleheads but I've noticed some cross-forum discussions like the one below.
Do they have a valid point? How do you feel about their philosophy? Are the same folks on both?
https://www.bogleheads.org/forum/viewtopic.php?f=1&t=266780
MMM may be better for those "getting started" and Bogleheads may be better for those "more advanced" but there is quite a bit of overlap in who participates and who can benefit.
-
Thanks for your responses. I find it interesting that some folks on the Bogleheads forum think MMM is a "false prophet" and that it's not realistic (or honest) to tell people to live on 40k/yr when his blog makes over 400k yearly. I'm still new so trying to understand some of the dynamics going on here.
-
I agree with the general tenets. That's why I'm here. But let's pick through the article:
1) MMM puts his stake in the ground (or draws a line in the sand), saying its absolutely possible to make a chunk of money last a lifetime with no side hustles. I agree.
2) But then he quotes living off $40k, which was his starting amount (if subtracting home equity) ten plus years ago. Not that it isn't possible to be happy on this amount, but few are as frugal as MMM.
3) Then he gives three success scenarios, starting with being probably able to make it with 5%. Well, if the premise is you're guaranteeing no side hustle, though you could cut your expenses to something lower than what MMM was spending ten years ago given the fairly decent chance you run out of money, I don't think that is a recipe for success.
4) MMM uses a constant rate of return for stocks in his calculations. Since this has never actually happened, I don't consider it a good lynchpin for your retirement spending.
5) MMM says to get the big picture right and not sweat the small stuff, but neglects to mention his experience with sequence of returns, specifically the house business. He certainly wasn't comfortable with the giant losses in his business at the time owing to the housing market downturn. Now, of course, everything is small stuff for him.
6) He recommends not investing in bonds. When you are that close to the line of making it / not making it from an historical perspective, bonds (at the beginning of retirement) can decrease the sequence of returns risk.
7) He says that should the stock market crash, within a year or two, the market is back up. Try 16 years for the Great Depression, or 11 years with the DotCom bust. (And these are not inflation-adjusted; if you consider those dips, we have historically seen decades-long dips).
8) He says you can cut your lifestyle if needed below $40k per year. Not sure this comes with the happiness proposed.
9) What happens should an adverse life event bump up the cost of living to $50k per year?
10) To round it out to an even ten, he only considers historical U.S. returns. Past performance yada yada.
To conclude, a chunk of money is a perfectly good retirement plan. But if one were to go solely based off that article they could become very disillusioned with Mustachianism (or perhaps they'll get lucky).
My take: 5% is probably a good figure if you have side hustles planned (such as he did) or if you're FatFIRE and truly have plenty of fat to cut. If you don't have side hustles planned and plan on living on $40k in the U.S., you should probably be much more conservative in your planning (unless you truly don't mind living like a pauper for a few years; easier said than done).
Thanks for the detailed response. I'm not sure which 'article' you were referring to, and from which forum.
In general I agree with a lot of your points, but I wouldn't use such absolute language in most cases. I think MDM's discription of MMM as 'getting started' and Bogleheads as 'more advanced' is good - but I think a better description is that MMM focuses on the mindset of becoming financially independent (and introduces some basic financial concepts) while bogleheads takes a deep-dive into the minutia of all things market related (but often ignoring or glossing over the mind-set most take to get there). MMM emphasizes lifestyle flexibility to increase security, while bogleheads emphasizes additional assets for maximum security.
Absolutely agree about market timing, stock picking, dividend investing. I think most are less risk-tolerant than they think they are (backed up by a lot of behavioral studies); however it seems MMM attracts a lot of those who are, and personally i was 100% equities during the dot-com and the great recession and didn't lose faith or change my strategy. I will transition to holding more bonds as we near actual retirement (currently we sit around 90/10)
The $40k/year as 'insufficient' is where I diverge the most. Subtracting out what we put into savings, we have never come anywhere close to spending $40k, and we live a pretty awesome lifestyle. It's also not far from the median household income in this country (and well above it for most of the world), so a good chunk of humanity lives on that or less. Looking a bit closer, MMM has favored no mortgage in retirement and accelerated payments, so this figure is actually much rosier than it first appears (i.e. you must compare household spending minus mortgage/rent payments).
I understand even less this pervasive argument about 'what happens if you find you need $50k in retirement instead of $40k'. For us fiscally responsible types we live our entire working lives spending less than we earn; why should retirement be any different? During my working years if I earn $40k/year I make sure I spend less than that - the same holds for my WR rate. This argument gets even more absurd when one considers that there's virtually no level of spending one cannot overspend (e.g. "what if I plan on using a $100k WR, but realize I need $150k to live on?' - Answer: you adjust to spend $100k.) . As for one-time events, that's where an ER fund comes in, and is part of the Investment Order.
As for the getting a job or side-gig during a recession, I think that's a very misunderstood concept - particularly on the bogleheads forum. The suggestion isn't that one instantly gets a job when a recession hits, but that additional earned income may be considered further down the line. We're not even talking about full income replacement either, but typically 20-40% of annual spending, a level that's around $1k-2k/month with most budgets discussed on this forum. Experiences within my own family and community indicates that most retirees earn something just for doing what they enjoy. We anticipate our own paths to be similar
I do appreciate that study, and I'm working my way through the posts, will comment on that later.
cheers
~n~
-
In terms of the typical spending of posters, the forums tend to go ERE -> MMM -> ER.org -> BH. Additionally, the "higher spending" boards tend more towards a more conservative view towards ER. I recommend checking out all of them and reading the different POVs - challenging your own assumptions is a good thing!
I also admit I've found MMM's optimism to be a little... much. I mean, it's easy to be optimistic when your little retirement project turned into a huge moneymaker, and your portfolio had the benefit of a nice long bull market. Once you're past the Scylla and Charybdis of SORR, the sailing tends to be a lot smoother.
-
I also admit I've found MMM's optimism to be a little... much. I mean, it's easy to be optimistic when your little retirement project turned into a huge moneymaker, and your portfolio had the benefit of a nice long bull market. Once you're past the Scylla and Charybdis of SORR, the sailing tends to be a lot smoother.
I disagree, but I can certainly see why it would feel that way to some people. But as I think about that, honestly part of the reason I don't feel that was is that I've been around the FIRE movement and MMM since before it was clear that the last decade really was a golden age of relatively low volatility and near monotonically increasing stock prices, or before MMM was making $400k/year on his blog.
Which actually gives me an idea for a solution I'd like to propose: Go back and read the posts from the 2011-2012 era. Back then the blog wasn't making huge bucks yet and the stock market still hadn't fully recovered from the 2008/9 crash (2011 spent a while looking like we were in for a double dip recession as seen in the great depression). The update rate was a lot higher back then and most of the important ideas about FIRE (and honestly a lot of the same optimism) are present in those posts. So if you'd like you can disregard the more recent post-SORR risk post-blog becoming a giant geyser of cash posts, and still get most of the good/useful ideas and information.
-
I think you have a number of these wrong, like #5, considering MMM is a relentless optimizer, but I'll just tackle these two:
3) Then he gives three success scenarios, starting with being probably able to make it with 5%. Well, if the premise is you're guaranteeing no side hustle, though you could cut your expenses to something lower than what MMM was spending ten years ago given the fairly decent chance you run out of money, I don't think that is a recipe for success.
My take: 5% is probably a good figure if you have side hustles planned (such as he did) or if you're FatFIRE and truly have plenty of fat to cut. If you don't have side hustles planned and plan on living on $40k in the U.S., you should probably be much more conservative in your planning (unless you truly don't mind living like a pauper for a few years; easier said than done).
If you plug 5% WR into www.cFIREsim.com with the default values, you get a 74% historical success rate. So yes, if history is any guide, you would "probably" make it with 5%. The numbers get even better when factoring in SS. Maybe that doesn't fit your risk tolerance or definition of success? Cool, then you can shoot for lower. The fact remains that for most of history, a 5% WR would've worked out just fine, and as such, will probably work in the future.
I like cFIREsim as an extremely useful tool. But one aspect I find slightly misleading (and not in a negative way, because I'm not sure there is an easy way to account for it) is the use of yearly success rate as opposed to a per person success rate. So for any given person, they can hit their magic success rate to initiate FIRE at any time, so hence we look at yearly success rate. But on average, much more people will hit that magic number during a large stock market run-up, so those years should be weighted more heavily if we want to calculate a per person success rate. So even though cFIREsim shows a 74% success rate on a yearly basis, on a per person basis it is bound to be much less than this.
This is simply false. He's using historical returns and the Trinity Study (https://www.onefpa.org/journal/Pages/Portfolio%20Success%20Rates%20Where%20to%20Draw%20the%20Line.aspx) methodology. If you've never read it, now would be the time.
Did you read the article? He used a spreadsheet calculation with constant returns to show how swimmingly things would work out for an early retiree.
I think you have a number of these wrong, like #5, considering MMM is a relentless optimizer, but I'll just tackle these two:
I agree that MMM is a relentless optimizer, and that most here or on Bogleheads were probably not the target audience for that article, so in that sense the critics (including myself) are being a bit unfair. If he gets more people into the joy of not spending money on stupid shit, than it is a win even if there's some sloppiness. There's probably only a couple really misleading statements in the article, but he who is without an internet error in their history should cast the first stone.
-
2) But then he quotes living off $40k, which was his starting amount (if subtracting home equity) ten plus years ago. Not that it isn't possible to be happy on this amount, but few are as frugal as MMM.
The median household income in the USA 10 years ago was $50k/year. A paid off house was easily worth at least $10k/year in foregone mortgage payments even back in 2009. From this post it sounds like you believe that more than half of american households don't earn enough money to be happy without being exceptionally and atypically frugal.
Is that a correct understanding if your worldview?
What I was trying to get across was that there generally isn't much to cut when you are spending at that level (which was MMM's recommendation in the article should things go south). Don't get me wrong, it can certainly be done, but will many people be happy spending at that level? Happiness is, after all, the only logical pursuit.
-
I like cFIREsim as an extremely useful tool. But one aspect I find slightly misleading (and not in a negative way, because I'm not sure there is an easy way to account for it) is the use of yearly success rate as opposed to a per person success rate. So for any given person, they can hit their magic success rate to initiate FIRE at any time, so hence we look at yearly success rate. But on average, much more people will hit that magic number during a large stock market run-up, so those years should be weighted more heavily if we want to calculate a per person success rate. So even though cFIREsim shows a 74% success rate on a yearly basis, on a per person basis it is bound to be much less than this.
Fortunately a forum member did account for exactly this (https://forum.mrmoneymustache.com/welcome-to-the-forum/cfiresim-severely-overestimates-success-rates-for-mustachians/msg1625045/#msg1625045). As seem in post #68 in that thread, as long as a person is saving saving at least 40% of their income the success rate of a 5% withdrawal rate is still greater than 60% after accounting for uneven clustering of retirement years. In that particular calculation (different investment mix from the default in cFireSim), the even retirement rate across years success rate for a 5% withdrawal rate was 69%.
I don't know if a nine percentage point different counts as "much less" to you, but to me seems like relatively small potatoes, given the error bars on all of these calculations. In any case, Eric's point that it is in fact true that a 5% withdrawal rate would succeed for the majority of people in the past is true whether or not we make the timing of retirement correction.
Now saying it succeeded for most people isn't the same as saying you should push the big red eject button on your career once you have 20x your expenses saved (5% WR), it just renders the statement a given person will "probably able to make it with 5%" not false.
2) But then he quotes living off $40k, which was his starting amount (if subtracting home equity) ten plus years ago. Not that it isn't possible to be happy on this amount, but few are as frugal as MMM.
The median household income in the USA 10 years ago was $50k/year. A paid off house was easily worth at least $10k/year in foregone mortgage payments even back in 2009. From this post it sounds like you believe that more than half of american households don't earn enough money to be happy without being exceptionally and atypically frugal.
Is that a correct understanding if your worldview?
What I was trying to get across was that there generally isn't much to cut when you are spending at that level (which was MMM's recommendation in the article should things go south). Don't get me wrong, it can certainly be done, but will many people be happy spending at that level? Happiness is, after all, the only logical pursuit.
In my experience living in both cities with below average incomes and in the poorer parts of cities with above average incomes, I meet more happy people than unhappy people. And the unhappy people I meet tend to be unhappy for reasons more money wouldn't fix (health issues, poor relationships with significant others, loneliness). And these are not mustachian individuals by any means.
So I assert that the answer to your bolded question is clearly yes.
Edit: But let's turn this around. If you don't think many people would be happy living on $40k/year, at what income do you think the answer to the question "will many people be happy spending at that level?" becomes "yes"? $50k? $80k? $150k? And why do you believe it is that number?
-
Thanks for the detailed response. I'm not sure which 'article' you were referring to, and from which forum.
The $40k/year as 'insufficient' is where I diverge the most. Subtracting out what we put into savings, we have never come anywhere close to spending $40k, and we live a pretty awesome lifestyle. It's also not far from the median household income in this country (and well above it for most of the world), so a good chunk of humanity lives on that or less. Looking a bit closer, MMM has favored no mortgage in retirement and accelerated payments, so this figure is actually much rosier than it first appears (i.e. you must compare household spending minus mortgage/rent payments).
I understand even less this pervasive argument about 'what happens if you find you need $50k in retirement instead of $40k'. For us fiscally responsible types we live our entire working lives spending less than we earn; why should retirement be any different? During my working years if I earn $40k/year I make sure I spend less than that - the same holds for my WR rate. This argument gets even more absurd when one considers that there's virtually no level of spending one cannot overspend (e.g. "what if I plan on using a $100k WR, but realize I need $150k to live on?' - Answer: you adjust to spend $100k.) . As for one-time events, that's where an ER fund comes in, and is part of the Investment Order.
As for the getting a job or side-gig during a recession, I think that's a very misunderstood concept - particularly on the bogleheads forum. The suggestion isn't that one instantly gets a job when a recession hits, but that additional earned income may be considered further down the line. We're not even talking about full income replacement either, but typically 20-40% of annual spending, a level that's around $1k-2k/month with most budgets discussed on this forum. Experiences within my own family and community indicates that most retirees earn something just for doing what they enjoy. We anticipate our own paths to be similar
I do appreciate that study, and I'm working my way through the posts, will comment on that later.
cheers
~n~
Here's the article, which was also MMM's most recent on his site: https://www.marketwatch.com/story/mr-money-mustache-you-can-retire-super-early-and-have-your-money-last-for-life-2018-12-17 (https://www.marketwatch.com/story/mr-money-mustache-you-can-retire-super-early-and-have-your-money-last-for-life-2018-12-17)
In the article, MMM uses a nest egg of $1M, then goes on to give details as to what to do if all of that $1M was in home equity. So the implication is $40k per year will also have to cover housing expenses. That being said, whether $40k is the right amount to bring happiness is certainly a debatable and subjective point. I know there are some people who are happy living on $0 per year in the USA. (Happiness is a mindset, after all.) I think the important thing is if you are going to choose a high withdrawal rate (like 5%), that the budget you are living on brings more than substantial happiness to the family and can easily be trimmed by a quarter without diminishing that happiness. Otherwise, you will become resentful of Mustachianism, which wasn't the objective.
I agree, side gigs aren't too hard to come by and can provide good meaning in a "retirement" world. I for one might not ever be comfortable with not working at all (at least in the near future). That being said, in the article the premise was built on not getting a side gig.
-
I've heard 75k is the magic number. Maybe it's less if you have no mortgage?
http://time.com/money/5157625/ideal-income-study/
-
I've heard 75k is the magic number. Maybe it's less if you have no mortgage?
http://time.com/money/5157625/ideal-income-study/
$72k would be 6 grand per month before taxes. For a married couple filing jointly that also keeps you in the 12% marginal tax bracket. I personally don't think you "need" any more than that to be "happy."
-
Here's the article, which was also MMM's most recent on his site: https://www.marketwatch.com/story/mr-money-mustache-you-can-retire-super-early-and-have-your-money-last-for-life-2018-12-17 (https://www.marketwatch.com/story/mr-money-mustache-you-can-retire-super-early-and-have-your-money-last-for-life-2018-12-17)
Thanks for linking that article - now we can be talking about the same thing.
Here I'll point out that MMM is guest-writing an article for MarketWatch, and the whole point (IMO) is just to get an 'average person' to consider that early retirement is possible, and doesn't require a massive nest egg of huge salary. I have no qualms with either of those generalizations. In all I think this was designed to be a '30,000 foot view' of FIRE and his view to attract readers, and to combat the recent negativity towards the FIRE movement (e.g Suze Orman's ridiculous podcast explosion, and the financial industry's constant insistence that managing your own money is too hard and too complicated). To make his point in a short article he absolutely makes some big generalizations, like assuming constant market returns and inflation - but such minutia would have clouded the message of this relatively short (2,000 words) glossy piece, which is: early retirement is achievable, and the fundamentals are fairly straight-foward.
He's gone into detail about investing strategies and market volatility and tax implications and whether to pay off a mortgage and a whole host of other things in detail in his blog (particularly in the earlier years when he was posting weekly, instead of 3-6x/year).
In summary, I think most of the issues you have are with how the article took a very generalized view, not that MMM's approach itself avoids these various subjects. As an analogy, I'm a scientist that frequently has to give presentations about my work. Most of those presentations are 10-12 minutes in length and are designed to convey a year (or more) worth of work to a fairly diverse audience. Because of these constraints I have to gloss over assumptions and skip over bits that didn't work or are still confusing and instead focus on the core message of my experiment(s). If audience members are interested in my talk they can read my papers or converse with me directly or analyze my data (all stored on Github, btw). The same dynamic is at play here - the format (an online article at a very broad audience likely altered by an external editor) leaves a great deal of detail out, but focuses on a core message. People who become interested then are directed to the hundreds of blog posts and this forum, where they learn all the finer points of planning for FIRE.
-
Fortunately a forum member did account for exactly this (https://forum.mrmoneymustache.com/welcome-to-the-forum/cfiresim-severely-overestimates-success-rates-for-mustachians/msg1625045/#msg1625045). As seem in post #68 in that thread, as long as a person is saving saving at least 40% of their income the success rate of a 5% withdrawal rate is still greater than 60% after accounting for uneven clustering of retirement years. In that particular calculation (different investment mix from the default in cFireSim), the even retirement rate across years success rate for a 5% withdrawal rate was 69%.
I don't know if a nine percentage point different counts as "much less" to you, but to me seems like relatively small potatoes, given the error bars on all of these calculations. In any case, Eric's point that it is in fact true that a 5% withdrawal rate would succeed for the majority of people in the past is true whether or not we make the timing of retirement correction.
Now saying it succeeded for most people isn't the same as saying you should push the big red eject button on your career once you have 20x your expenses saved (5% WR), it just renders the statement a given person will "probably able to make it with 5%" not false.
I appreciate the link. Still probably not perfectly representative, as people will tend to be making more income (and thus saving more) during boom years as well. Setting that aside and going back to the article under debate, MMM said, "If you retire with $800,000 in investments, you will probably make it through your whole life without running out of money (a 5% withdrawal rate)". Guess it gets into the connotation of the word "probably", but all of the dictionaries I've consulted imply much greater than 50%.
2) But then he quotes living off $40k, which was his starting amount (if subtracting home equity) ten plus years ago. Not that it isn't possible to be happy on this amount, but few are as frugal as MMM.
The median household income in the USA 10 years ago was $50k/year. A paid off house was easily worth at least $10k/year in foregone mortgage payments even back in 2009. From this post it sounds like you believe that more than half of american households don't earn enough money to be happy without being exceptionally and atypically frugal.
Is that a correct understanding if your worldview?
What I was trying to get across was that there generally isn't much to cut when you are spending at that level (which was MMM's recommendation in the article should things go south). Don't get me wrong, it can certainly be done, but will many people be happy spending at that level? Happiness is, after all, the only logical pursuit.
In my experience living in both cities with below average incomes and in the poorer parts of cities with above average incomes, I meet more happy people than unhappy people. And the unhappy people I meet tend to be unhappy for reasons more money wouldn't fix (health issues, poor relationships with significant others, loneliness). And these are not mustachian individuals by any means.
So I assert that the answer to your bolded question is clearly yes.
Edit: But let's turn this around. If you don't think many people would be happy living on $40k/year, at what income do you think the answer to the question "will many people be happy spending at that level?" becomes "yes"? $50k? $80k? $150k? And why do you believe it is that number?
I didn't say people wouldn't be happy on $40k per year. I said if you are using a 5% SWR, make damn sure you either have plenty of fat to cut where you can still be happy or consider it somewhat probable you may need to get some earned income down the road. (And yes, somewhat probable means >50%, because people aren't going to wait until they are down to their last dollar to get a job.)
And let's not forget MMM spends way more than $40k per year (including imputed rent), he just chalks up a lot of it to blog or carpentry business expenses. If these were hobbies instead of money-making businesses, would his personal expenses remain the same? Doubtful. But if so, would his level of happiness be the same? (I'm not criticizing his spending, just using him as the eponymous example set here.)
All of that being said, I think my family would be happier on more than $40k per year in retirement. I haven't dug deep enough to know our annual spending level (increased happiness also comes from not micromanaging my wife's expenditures), but I'm absolutely certain our Hedonic threshold is over $40k at this stage in my life. (This is understandably 100% subjective.) In other words, compared to our current level of spending, if we had to cut it down to $40k per year indefinitely (adjusted for inflation), I hypothesize a marked reduction in happiness levels.
-
In summary, I think most of the issues you have are with how the article took a very generalized view, not that MMM's approach itself avoids these various subjects.
I did touch on that in my earlier reply to Eric, namely that the article was not targeting advanced Mustachians or Bogleheads. That being said, there were probably two or three points in the article that were (I'm sure unintentionally) misleading. But if more people are brought into the way of the Mustache, minor internet errors are more than forgiven.
-
Fortunately a forum member did account for exactly this (https://forum.mrmoneymustache.com/welcome-to-the-forum/cfiresim-severely-overestimates-success-rates-for-mustachians/msg1625045/#msg1625045). As seem in post #68 in that thread, as long as a person is saving saving at least 40% of their income the success rate of a 5% withdrawal rate is still greater than 60% after accounting for uneven clustering of retirement years. In that particular calculation (different investment mix from the default in cFireSim), the even retirement rate across years success rate for a 5% withdrawal rate was 69%.
I don't know if a nine percentage point different counts as "much less" to you, but to me seems like relatively small potatoes, given the error bars on all of these calculations. In any case, Eric's point that it is in fact true that a 5% withdrawal rate would succeed for the majority of people in the past is true whether or not we make the timing of retirement correction.
Now saying it succeeded for most people isn't the same as saying you should push the big red eject button on your career once you have 20x your expenses saved (5% WR), it just renders the statement a given person will "probably able to make it with 5%" not false.
I appreciate the link. Still probably not perfectly representative, as people will tend to be making more income (and thus saving more) during boom years as well. Setting that aside and going back to the article under debate, MMM said, "If you retire with $800,000 in investments, you will probably make it through your whole life without running out of money (a 5% withdrawal rate)". Guess it gets into the connotation of the word "probably", but all of the dictionaries I've consulted imply much greater than 50%.
Fortunately we have empirical research to answer this bolded statement as well.
(https://revolution-computing.typepad.com/.a/6a010534b1db25970b01bb09be7114970d-pi)
When you tell people an event is probably going to happen, they tend to interpret that between 60% and 80% odds. (Here's the original source code and data (https://github.com/zonination/perceptions).) Since depending on our assumptions we're getting odds of success between 60 and 75%, I'd say "probably" is an accurate word to describe that distribution of probabilities.
2) But then he quotes living off $40k, which was his starting amount (if subtracting home equity) ten plus years ago. Not that it isn't possible to be happy on this amount, but few are as frugal as MMM.
The median household income in the USA 10 years ago was $50k/year. A paid off house was easily worth at least $10k/year in foregone mortgage payments even back in 2009. From this post it sounds like you believe that more than half of american households don't earn enough money to be happy without being exceptionally and atypically frugal.
Is that a correct understanding if your worldview?
What I was trying to get across was that there generally isn't much to cut when you are spending at that level (which was MMM's recommendation in the article should things go south). Don't get me wrong, it can certainly be done, but will many people be happy spending at that level? Happiness is, after all, the only logical pursuit.
In my experience living in both cities with below average incomes and in the poorer parts of cities with above average incomes, I meet more happy people than unhappy people. And the unhappy people I meet tend to be unhappy for reasons more money wouldn't fix (health issues, poor relationships with significant others, loneliness). And these are not mustachian individuals by any means.
So I assert that the answer to your bolded question is clearly yes.
Edit: But let's turn this around. If you don't think many people would be happy living on $40k/year, at what income do you think the answer to the question "will many people be happy spending at that level?" becomes "yes"? $50k? $80k? $150k? And why do you believe it is that number?
I didn't say people wouldn't be happy on $40k per year.
Your specific statement was "Not that it isn't possible [impossible?] to be happy on this amount, but few are as frugal as MMM." You followed up with the question "will many people be happy spending at that level?" I assert the answer is yes. If you agree with my answer to your question, just let me know and we can resolve this line of discussion.
I said if you are using a 5% SWR, make damn sure you either have plenty of fat to cut where you can still be happy or consider it somewhat probable you may need to get some earned income down the road. (And yes, somewhat probable means >50%, because people aren't going to wait until they are down to their last dollar to get a job.)
Yes you also said these things, but you listed your concern about happiness at $40k/year as a separate and independent point from thoughts about withdrawal rates or the odds of needing to get a job after FIRE. If you wish to retract item two from your original list, then I'm happy to agree that we have, in fact, reached an agreement. But trying to shift the argument onto other topics without addressing the original issue isn't an effective or efficient way to reach consensus.
All of that being said, I think my family would be happier on more than $40k per year in retirement. I haven't dug deep enough to know our annual spending level (increased happiness also comes from not micromanaging my wife's expenditures), but I'm absolutely certain our Hedonic threshold is over $40k at this stage in my life. (This is understandably 100% subjective.) In other words, compared to our current level of spending, if we had to cut it down to $40k per year indefinitely (adjusted for inflation), I hypothesize a marked reduction in happiness levels.
Ballpark numbers are completely fine. But are you saying you think you'd need about 20% more money to spend each year to avoid being unhappy? 2x as much? 10x as much?
Also, I am quite happy to agree that you and your specific family may be unhappy if you only had $40k a year to spend. You know your own family's desires and dynamics way better than anyone else. There are a number of important reasons this could be the cases, including that people tend to be less happy with annual expenditure that goes from $24k/year to $100k/year to $50k/year than an annual expenditure that goes from $24k to $30k to $40k, so having high expenditures in the past makes it harder to be happy with lower expenditures in the future than if you just never spend as much money in the first place. Another issue is that many people's feeling of satisfaction and happiness comes from their perception of their situation relative to their peer group. So if you life and socialize with people who earn and spend a lot of money, it will also take more work to be happy spending less than if your social circle is also spending about as much as you are.
My concern is that you appear to be generalizing from your own individual family to how most people (or the average person) might feel, and it is that generalization that strikes me as likely quite misleading given what we know about the overall distribution of income levels and happiness in the USA.
-
@maizeman - that's the most awesome quantitatively descriptive analysis of what common terms like "likely" and "probable" that I've come across. That's going on my wall-o-graphs. Woot!
-
I'm trying to understand the source data for that graph. My first question was, do people really assign probabilities less than 50% to "probable" and "probably"? I came across the following graph that appears to be the source data, showing that 1) NATO officers from 25 years ago were a statistically-challenged bunch and 2) one person's (Sherman Kent's) subjective assignations of probability levels for these words. Am I missing a separate dataset or is this the basis for that graph?
Here's from the linguistics experts:
probably (adv)
most likely; presumably (American Heritage)
almost certainly; as far as one knows or can tell (Oxford)
insofar as seems reasonably true, factual, or to be expected; without much doubt (Merriam-Webster)
-
What about Kent's methodology do you find to be subjective?
-
It's it though? Worth reading the backstory on this type of quantitative analysis. That graph is more modern data, but the idea originated from old defense studies about how different people interpreted the qualitative terms to describe probability in analyst predictions and military intelligence reports.
I'm trying to understand the source data for that graph. My first question was, do people really assign probabilities less than 50% to "probable" and "probably"? I came across the following graph that appears to be the source data, showing that 1) NATO officers from 25 years ago were a statistically-challenged bunch and 2) one person's (Sherman Kent's) subjective assignations of probability levels for these words. Am I missing a separate dataset or is this the basis for that graph?
Here's from the linguistics experts:
probably (adv)
most likely; presumably (American Heritage)
almost certainly; as far as one knows or can tell (Oxford)
insofar as seems reasonably true, factual, or to be expected; without much doubt (Merriam-Webster)
I'm trying to understand the source data for that graph. My first question was, do people really assign probabilities less than 50% to "probable" and "probably"? I came across the following graph that appears to be the source data, showing that 1) NATO officers from 25 years ago were a statistically-challenged bunch and 2) one person's (Sherman Kent's) subjective assignations of probability levels for these words. Am I missing a separate dataset or is this the basis for that graph?
It's a separate dataset. The raw values are in the numberly.csv file. There's one outlier datapoint which was not removed, which is where those peaks come from in the image I posted. The NATO study is an independent dataset that came up with similar but not identical distributions for the probabilities people assign to qualitative words. It also has some values well below 50% for both of those terms, which is backed up by anecdotal data from people who reading intelligence estimates at the time.*
Here's an easier to read graphic showing the earlier NATO survey results (dots) and the standardized probability definitions for each term proposed by a single person (gray bars).
(https://2oqz471sa19h3vbwa53m33yj-wpengine.netdna-ssl.com/wp-content/uploads/2017/04/kent-study.jpg)
I don't think you can call people statistically challenged just because english words aren't being used with the same definitions that you think they should be. Language is defined by the meaning the speakers of the language assign to words. If you're trying to communicate with other human beings you can try to force people to redefine what they think words mean, but it's a difficult and not particularly fruitful task. You'll note that despite decades of effort Kent (the guy who proposed those gray bars) was not able to get people to define their use of words away from their original use and towards the prescriptive definitions he proposed.*
Or you can just figure out what people mean when they use a given word, and save yourself a lot of time and hassle to get to the same end goal (ability to communicate effectively with your fellow human beings).
*See this source: https://www.cia.gov/library/center-for-the-study-of-intelligence/csi-publications/books-and-monographs/sherman-kent-and-the-board-of-national-estimates-collected-essays/6words.html
-
What about Kent's methodology do you find to be subjective?
Poor choice of words on my part, and I'll recant that statement. I'm sure he considered some objective criteria to set the grey bars, but there would also have to be subjectivity employed.
-
What about Kent's methodology do you find to be subjective?
Poor choice of words on my part, and I'll recant that statement. I'm sure he considered some objective criteria to set the grey bars, but there would also have to be subjectivity employed.
Fair enough. I ask just because this is a topic that comes up every semester, and there's a big difference between subjective data (or the subjective interpretation of a dataset) and the subjective choice of how to present objective data.
This graph is a good illustration: This is 7 different ways of objectively presenting the same data, and all are valid. The researcher can choose (subjectively) which method to present. Whether that choice is a 'good' representation depends entirely on what the underlying question being answered was.
(https://garstats.files.wordpress.com/2016/05/fig6-motulsky_fig_updated1.jpg?w=600&h=514)
source: https://garstats.wordpress.com/2016/05/27/the-percentile-bootstrap/ (https://garstats.wordpress.com/2016/05/27/the-percentile-bootstrap/)
ETA: Sorry if this is too far OT - I just like to geek out on such things.
-
I don't think you can call people statistically challenged just because english words aren't being used with the same definitions that you think they should be. Language is defined by the meaning the speakers of the language assign to words. If you're trying to communicate with other human beings you can try to force people to redefine what they think words mean, but it's a difficult and not particularly fruitful task. You'll note that despite decades of effort Kent (the guy who proposed those gray bars) was not able to get people to define their use of words away from their original use and towards the prescriptive definitions he proposed.*
Or you can just figure out what people mean when they use a given word, and save yourself a lot of time and hassle to get to the same end goal (ability to communicate effectively with your fellow human beings).
*See this source: https://www.cia.gov/library/center-for-the-study-of-intelligence/csi-publications/books-and-monographs/sherman-kent-and-the-board-of-national-estimates-collected-essays/6words.html
These aren't my definitions, they are the English language definitions from several dictionaries. And Mr. Kent is along the same line of thinking. Just because people have alternative facts does not mean we should accept them.
Or, perhaps maybe my thinking here is challenged. I'm willing to be educated. If you'll do me a favor, please provide a sentence where "probably" is used correctly (without faulty logic) and to indicate a value less than 50%.
-
I once mentioned my health insurance strategy and pointed out if I don't pick up hobby income, I would qualify for a subsidy.
The wrath of the internet subsidy police rained down on me
-
What about Kent's methodology do you find to be subjective?
Poor choice of words on my part, and I'll recant that statement. I'm sure he considered some objective criteria to set the grey bars, but there would also have to be subjectivity employed.
Fair enough. I ask just because this is a topic that comes up every semester, and there's a big difference between subjective data (or the subjective interpretation of a dataset) and the subjective choice of how to present objective data.
This graph is a good illustration: This is 7 different ways of objectively presenting the same data, and all are valid. The researcher can choose (subjectively) which method to present. Whether that choice is a 'good' representation depends entirely on what the underlying question being answered was.
(https://garstats.files.wordpress.com/2016/05/fig6-motulsky_fig_updated1.jpg?w=600&h=514)
source: https://garstats.wordpress.com/2016/05/27/the-percentile-bootstrap/ (https://garstats.wordpress.com/2016/05/27/the-percentile-bootstrap/)
ETA: Sorry if this is too far OT - I just like to geek out on such things.
That's exactly why I recanted. All conclusions based on data are subjective to some extent, but that doesn't make them any less objective as long as they are based on facts.
-
These aren't my definitions, they are the English language definitions from several dictionaries. And Mr. Kent is along the same line of thinking. Just because people have alternative facts does not mean we should accept them.
You can get really upset that the majority of english speakers will understand "literally" to mean "figuratively" or "metaphorically" (depending on context) and accuse them of lying or misleading people each time they use the word that way, or you can accept that the meaning of words shifts over time. (And ultimately that is indeed what dictionaries did (https://www.merriam-webster.com/words-at-play/misuse-of-literally), which suggests that dictionaries are a lagging, rather than leading, indicator of the meaning assigned to words in english by native speakers.)
I don't consider the usage of literally to sometimes mean figuratively or metaphorically to be an alternative fact. Do you?
Or, perhaps maybe my thinking here is challenged. I'm willing to be educated. If you'll do me a favor, please provide a sentence where "probably" is used correctly (without faulty logic) and to indicate a value less than 50%.
So now you're shifting the goal posts. Previously your complaint was that a probability range from 60-75% was not "probably" because you didn't consider that range to be "much greater than 50%" (which was how you chose to define the term yourself). Are you now agreeing that a range from 60-75% can indeed accurately be described using the word "probably" in the english language?
"I think Granddaddy Needs a New Pair of Pants is probably going to win the horse race. Based on the current betting odds the chance of that horse winning is greater than of any other." (You're welcome to argue this is not a logically usage, but of then we're just circling back to what definition you assign to "probably" and how it differs from what definition other native english speakers assign to the same word.)
Also, you seem to be dropping conversational threads without answering the original questions. While I'm happy to continue discussing what "probably" probably meant to the writers and readers of that particular article, did you ever have a final answer on whether you're agreeing that you were incorrect in point #2 in your original post?
-
To get somewhat back on topic, earlier upthread boofinator shared what s/he considers "the definitive guide" for setting one's WR (link below)
In that guide there was this table:
(https://earlyretirementnowdotcom.files.wordpress.com/2016/11/swr-part1-table1.png)
My reading from this is that I will 'probably' be fine even using a 5% WR and with a retirement duration of 50 years and a 75/25 investment ratio. I would say that it is "highly likely" that my portfolio would survive the same number of years using a 4% WR.
Others may use those terms differently, but that is how I would describe 62% and 88%, respectively. Using any WR less than 4% I would describe as "almost certain" to succeed, provided that future returns are no worse than the worst periods of the last 125+ years.
source of table:
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/ (https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/)
-
The first year of retirement we decided to test out the happiness factor of 40k. There are 2 of us in a MCOL. House and cars paid for. Low property taxes but retiree health insurance was 10k. We didn’t go out to eat or take vacations. I shopped around for cheaper car/house insurance. We went on a cheap cell phone plan but it only worked in cities. We did have 4 old dogs so vet bills took part of the income. We stuck it out for the year but it sucked. Our happy budget now is between 60-70k/year depending on if we take one or 2 vacations.
-
Thanks for your responses. I find it interesting that some folks on the Bogleheads forum think MMM is a "false prophet" and that it's not realistic (or honest) to tell people to live on 40k/yr when his blog makes over 400k yearly. I'm still new so trying to understand some of the dynamics going on here.
I think Pete (MMM) would laugh at anyone holding him up as some sort of 'prophet', false or real. The blog income comes up frequently by detractors as some great kink in his philosophy ("he's only saying you can live on $40k because he's really earning 10x that amount!!") but I think it's important to evaluate the message from the messenger. Yes, it's possible to live very well on 'just' $40k/year indefinitely (literally hundreds of millions of middle-class people do this each year), and yes if you withdraw 4% you have an above average chance of that money lasting you until you die (see below for a very exhaustive discussion on what various terms like 'probable' and 'likely' mean to various people)
Regardless of what Pete's real life is like, those two ideas hold water. If you want to spend a great deal more in retirement, or if you refuse to have any sort of flexibility, or if you are extrmely pessimistic about the future you should shift your strategy accordingly.
I've heard 75k is the magic number. Maybe it's less if you have no mortgage?
http://time.com/money/5157625/ideal-income-study/
THere is no 'magic number'. That study is based on a survey and what people earned, not what they spent (and not what they lived on after paying off loans, saving, taxes and with work-related expenses). That is much different than the number it takes to be happy, which in itself is highly dependent on what sort of lifestyle you are accustomed to. The lastest research shows that happiness continues to increase as NW increases, but that each subsequent dollar brings less happiness.
Since our time itself is limited, and work (and needing to work) is one of the largest sources of stress, that needs to be taken into context as well. For example, very high earners might be able to reduce their target WR from 4% to 3.5% in just a year or two, whereas lowerwage earners that different might be a decade.
A person with a highly-stressful, high-paying job but exists in a very high-spend community is going to view their FI number much differently than someone who lives in a LCOL area who enjoys what their work but is lower down on the pay scale.
In sum: it's all relative to the individual. Which is what makes arguments led with "you can never be happy on $40k/year!" so frustrating. I literally can't imagine spending the $200k/year that some on the BH forum are shooting for in retirement.
-
These aren't my definitions, they are the English language definitions from several dictionaries. And Mr. Kent is along the same line of thinking. Just because people have alternative facts does not mean we should accept them.
You can get really upset that the majority of english speakers will understand "literally" to mean "figuratively" or "metaphorically" (depending on context) and accuse them of lying or misleading people each time they use the word that way, or you can accept that the meaning of words shifts over time. (And ultimately that is indeed what dictionaries did (https://www.merriam-webster.com/words-at-play/misuse-of-literally), which suggests that dictionaries are a lagging, rather than leading, indicator of the meaning assigned to words in english by native speakers.)
I don't consider the usage of literally to sometimes mean figuratively or metaphorically to be an alternative fact. Do you?
Or, perhaps maybe my thinking here is challenged. I'm willing to be educated. If you'll do me a favor, please provide a sentence where "probably" is used correctly (without faulty logic) and to indicate a value less than 50%.
So now you're shifting the goal posts. Previously your complaint was that a probability range from 60-75% was not "probably" because you didn't consider that range to be "much greater than 50%" (which was how you chose to define the term yourself). Are you now agreeing that a range from 60-75% can indeed accurately be described using the word "probably" in the english language?
"I think Granddaddy Needs a New Pair of Pants is probably going to win the horse race. Based on the current betting odds the chance of that horse winning is greater than of any other." (You're welcome to argue this is not a logically usage, but of then we're just circling back to what definition you assign to "probably" and how it differs from what definition other native english speakers assign to the same word.)
No, I'm not going to correct the average Joe for using 'literally' when he intends 'figuratively', but I'm not going to be taking much stock in anything he says if it was used in a scientific or mathematic context.
And no, I'm not shifting goalposts. The discussion had morphed to where I had disagreed that "probably" could be used for anything less than 50%, which is where we're currently at. I concede that "probably" in the context used by MMM is not wrong, though at the same time would not be my choice of words.
As for your sentence, I would counter that "I think Granddaddy Needs a New Pair of Pants is probably not going to win the horse race" would be the logically correct statement. Unless both are true at the same time.
Also, you seem to be dropping conversational threads without answering the original questions. While I'm happy to continue discussing what "probably" probably meant to the writers and readers of that particular article, did you ever have a final answer on whether you're agreeing that you were incorrect in point #2 in your original post?
I've been working on a reply for this, haven't finished my thoughts yet.
-
I concede that "probably" in the context used by MMM is not wrong, though at the same time would not be my choice of words.
Ah good, we're making progress then.
As for your sentence, I would counter that "I think Granddaddy Needs a New Pair of Pants is probably not going to win the horse race" would be the logically correct statement. Unless both are true at the same time.
I think most native english speakers would accept either of those statements. Humans are messy and illogical creatures. That's why using qualitative words to describe probabilities is so confusing in a natural language. ... and honestly why a lot of human language is confusing when you stop to think about it (for example flammable and inflammable mean the exact same thing).
But hey, if we wanted logical designed and unambiguous vocabulary a whole lot more people would speak Esperanto.
-
I'm sure their is quite a bit of generalization from my own situation, but I think that is normal. Jacob from ERE would say you can be happy living on $7k in San Francisco. I'd be willing to bet, on the other hand, that most Mustachian people would not be.
My main point for #2 was that even MMM spends above $40k, and he is the master. It wasn't to say people cannot be happy at any spending level. As mentioned above on two separate occasions, there were probably only two or three misleading things in the article, whereas everything else would fall under the "optimism" category, including the $40k per year of spending.
EDIT: Too many nested threads to unstrand correctly. Just deleted all the quotes, but this is my response to maizeman on #2.
-
You can get really upset that the majority of english speakers will understand "literally" to mean "figuratively"
Can and will. Everything else I'm pretty flexible on though :)
-
To get somewhat back on topic, earlier upthread boofinator shared what s/he considers "the definitive guide" for setting one's WR (link below)
In that guide there was this table:
(https://earlyretirementnowdotcom.files.wordpress.com/2016/11/swr-part1-table1.png)
My reading from this is that I will 'probably' be fine even using a 5% WR and with a retirement duration of 50 years and a 75/25 investment ratio. I would say that it is "highly likely" that my portfolio would survive the same number of years using a 4% WR.
Others may use those terms differently, but that is how I would describe 62% and 88%, respectively. Using any WR less than 4% I would describe as "almost certain" to succeed, provided that future returns are no worse than the worst periods of the last 125+ years.
source of table:
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/ (https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/)
Thanks for reposting this table, one of many amazing things from ERN's website.
I think one other nuance for the use of probabilistic words is the context of risk. For example, if somebody was rolling a die, with the outcome that they win $100 if they roll greater than a two but lose $100 if they roll a one or two, I think it is safe to say "you are probably going to win $100". But if someone is playing Russian Roulette with one loaded chamber in a six-shot revolver, I would not say "you are probably going to be fine" (though I also wouldn't say "you are probably going to kill yourself").
Which is one way to say that some people have different risk tolerances. Some might say the advice MMM gives in the article about using 5% is too risky, and hence the objection to the term "probably", whereas others would consider it not risky at all and therefore "probably" fits right in. Risk, of course, being defined as the product of probability and expected loss for each outcome.
-
I think one other nuance for the use of probabilistic words is the context of risk. For example, if somebody was rolling a die, with the outcome that they win $100 if they roll greater than a two but lose $100 if they roll a one or two, I think it is safe to say "you are probably going to win $100". But if someone is playing Russian Roulette with one loaded chamber in a six-shot revolver, I would not say "you are probably going to be fine" (though I also wouldn't say "you are probably going to kill yourself").
Which is one way to say that some people have different risk tolerances. Some might say the advice MMM gives in the article about using 5% is too risky, and hence the objection to the term "probably", whereas others would consider it not risky at all and therefore "probably" fits right in. Risk, of course, being defined as the product of probability and expected loss for each outcome.
That is an interesting self insight. So in your case what qualitative word for probability you feel is most appropriate to describe the likelihood of outcome depends on not just your perceptions of the likelihood of that outcome but your perception of how bad the negative outcome would be?
That would explain a portion of disconnect in this discussion, since for some people "failing" at FIRE and having to cut back their spending below their previously planned levels appears to be extremely scary to imagine and for other people the same scenario is seen as unpleasant and not desirable but not a big deal overall. [
My main point for #2 was that even MMM spends above $40k, and he is the master. It wasn't to say people cannot be happy at any spending level. As mentioned above on two separate occasions, there were probably only two or three misleading things in the article, whereas everything else would fall under the "optimism" category, including the $40k per year of spending.
Okay, I think we've essentially resolved this given the bolded bit, but I do just want to say that I think (based on the underlined bit) maybe part of the disconnect here is that you're perceiving people on the forum as thinking Mr. Money Mustache/Pete as the most badass/hardcore mustachian out there, whereas a lot of folks on the forum would say his lifestyle is probably about the middle of the range of the distribution (before the blog blew up and he had $400k a year to play around with).
So you're arguing: look, even MMM really spends more than $40k, so how could a regular person be happy with that level of spending. And I (and I'm guessing some others) know from lived experience that our own personal tipping points where spending more money ceases to make us any happier are significantly below that figure, so it has been hard to understand where your argument was coming from until now.
-
I'm sure their is quite a bit of generalization from my own situation, but I think that is normal. Jacob from ERE would say you can be happy living on $7k in San Francisco. I'd be willing to bet, on the other hand, that most Mustachian people would not be.
My main point for #2 was that even MMM spends above $40k, and he is the master. It wasn't to say people cannot be happy at any spending level. As mentioned above on two separate occasions, there were probably only two or three misleading things in the article, whereas everything else would fall under the "optimism" category, including the $40k per year of spending.
EDIT: Too many nested threads to unstrand correctly. Just deleted all the quotes, but this is my response to maizeman on #2.
Going back to the article, it seems the only claim he made about the $40,000 figure was:
For example, in the story above I assumed a $40,000 annual spending rate, which is way more than almost anyone really needs to live well here in the US, especially once your kids are grown.
Every other use of that number was as an example to be used in a formula. Now of course we can debate the meaning of "live well" just the same as the meaning of "probably" but my take on what you've said so far is that you are thinking in terms of the amount of money that would maximize/optimize happiness which to me would be quite different than simply living well. Is this perhaps where the disagreement comes from at least in part?
For the record, my definition of living well would come in well below $40,000 for a family of 4. My figure for what dollar amount would constitute maximum happiness would be well over $40,000.
-
I see very few people on boggleheads say you should work for a long time. I've read it every day for close to a year now and these comments are rare.
What I like about boghleads is they are a non-stop machine of people criticising bullshit
- The bullshit of market timing.
- The bullshit of dividend investing.
- The bullshit that people can sector/market pick implying they know something the market doesn't.
- The bullshit that average people can stock pick.
- The bullshit that (all or even most) can live without bonds and see a substantial net worth that took them 15 years or more of sacrifice halve in front of their eyes.
- The bullshit that "it will be ok because I can get a job if there is a recession" even though in a recession the economy is stuffed and unemployment rises sharply at the time you need it.
- The bullshit that you can just "adjust your spending" in a recession or bad sequence of returns, especially for those living a frugal life where there is not much slack in spending to cut from.
There is non-stop bullshit on just about every forum, and most forums have sheeple supporting the bullshit because most people are incapable of critical thinking to try and poke holes before accepting what they read as truth. It is nice to have a forum that consistently and relentlessly calls out the bullshit over and over again, and I haven't found another forum that even comes close.
In regards to the post mentioned, for a withdrawal rates, I use this. I don't see how anyone can not consider it the definitive guide.
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/
Good post. Amidst a thread full of bullshit posts attacking someone for disagreeing with anything MMM has to say (Boofinator). this is why i spend my time at BH now.
-
That would explain a portion of disconnect in this discussion, since for some people "failing" at FIRE and having to cut back their spending below their previously planned levels appears to be extremely scary to imagine and for other people the same scenario is seen as unpleasant and not desirable but not a big deal overall. [
Yes, I agree, though I'm not sure "extremely scary" is the right descriptor (but I struggle to think of a better one). For me, I would rather work a couple more years then have a 30% chance of working three-to-five years way down the road in a job I might not like and would definitely pay less while being more-or-less broke. Why take the risk if you enjoy what you're doing?
Okay, I think we've essentially resolved this given the bolded bit, but I do just want to say that I think (based on the underlined bit) maybe part of the disconnect here is that you're perceiving people on the forum as thinking Mr. Money Mustache/Pete as the most badass/hardcore mustachian out there, whereas a lot of folks on the forum would say his lifestyle is probably about the middle of the range of the distribution (before the blog blew up and he had $400k a year to play around with).
So you're arguing: look, even MMM really spends more than $40k, so how could a regular person be happy with that level of spending. And I (and I'm guessing some others) know from lived experience that our own personal tipping points where spending more money ceases to make us any happier are significantly below that figure, so it has been hard to understand where your argument was coming from until now.
I think you're pegged it. I don't consider MMM the most badass, but I consider him to have a very strong balance between frugality and happiness, and he's definitely cheaper than me (and I'm probably the most frugal person I know IRL... though stealth wealth has a habit of being stealthy).
-
For the record, my definition of living well would come in well below $40,000 for a family of 4. My figure for what dollar amount would constitute maximum happiness would be well over $40,000.
Agreed. The secret for hitting FI (in my opinion) is to hit the sustainable amount of money that puts your family in the sweet spot that is somewhere between living well and maximum happiness. Because you sure don't want to fall below "living well".
-
I see very few people on boggleheads say you should work for a long time. I've read it every day for close to a year now and these comments are rare.
What I like about boghleads is they are a non-stop machine of people criticising bullshit
- The bullshit of market timing.
- The bullshit of dividend investing.
- The bullshit that people can sector/market pick implying they know something the market doesn't.
- The bullshit that average people can stock pick.
- The bullshit that (all or even most) can live without bonds and see a substantial net worth that took them 15 years or more of sacrifice halve in front of their eyes.
- The bullshit that "it will be ok because I can get a job if there is a recession" even though in a recession the economy is stuffed and unemployment rises sharply at the time you need it.
- The bullshit that you can just "adjust your spending" in a recession or bad sequence of returns, especially for those living a frugal life where there is not much slack in spending to cut from.
There is non-stop bullshit on just about every forum, and most forums have sheeple supporting the bullshit because most people are incapable of critical thinking to try and poke holes before accepting what they read as truth. It is nice to have a forum that consistently and relentlessly calls out the bullshit over and over again, and I haven't found another forum that even comes close.
In regards to the post mentioned, for a withdrawal rates, I use this. I don't see how anyone can not consider it the definitive guide.
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/
Good post. Amidst a thread full of bullshit posts attacking someone for disagreeing with anything MMM has to say (Boofinator). this is why i spend my time at BH now.
I don't mind the disagreements (I wouldn't characterize anything posted in this thread as an attack), as long as they don't enter dogma territory, which they generally don't here or on BH. Disagreements are healthy for growing and refining your thoughts.
But yes, as Andy R has highlighted very well, BH and MMM have very different approaches, with BH being much more conservative than MMM in their retirement plans. I like both places. Remember the Realist from the beginning of MMM's blog? Well, that's bogleheads. The Optimist kicked the Realist to the curb pretty quickly on the MMM blog.
-
I think you're pegged it. I don't consider MMM the most badass, but I consider him to have a very strong balance between frugality and happiness, and he's definitely cheaper than me (and I'm probably the most frugal person I know IRL... though stealth wealth has a habit of being stealthy).
Wow to that last bit!
So there is absolutely nothing wrong with this, but I am guessing that the combination of your (undoubtedly accurate) view that your own family would not be happy without the ability to spend significantly more than $40k/year and being the most frugal person you yourself know IRL means the people you interact with on a day to day basis both make and spend substantially more than the median household income.
When I was in college I knew a lot of folks from rich families in NYC and Boston who would tell you that $250k/year was pretty much just getting by. Dated a girl for a little while whose parents made a combined $500k/year but didn't consider her family rich. And the thing was, based on the people they'd know growing up that was accurate assessment. (These are all in first decade of the 21st century dollars FWIW.) It just wasn't accurate when you compared them to the country as a whole. Or even the population of those two cities as a whole.
We're getting more and more effective as a society at mostly interacting with other people with similar socioeconomic status (and sometime political views as well). That worries me sometimes.
-
I see very few people on boggleheads say you should work for a long time. I've read it every day for close to a year now and these comments are rare.
What I like about boghleads is they are a non-stop machine of people criticising bullshit
- The bullshit of market timing.
- The bullshit of dividend investing.
- The bullshit that people can sector/market pick implying they know something the market doesn't.
- The bullshit that average people can stock pick.
- The bullshit that (all or even most) can live without bonds and see a substantial net worth that took them 15 years or more of sacrifice halve in front of their eyes.
- The bullshit that "it will be ok because I can get a job if there is a recession" even though in a recession the economy is stuffed and unemployment rises sharply at the time you need it.
- The bullshit that you can just "adjust your spending" in a recession or bad sequence of returns, especially for those living a frugal life where there is not much slack in spending to cut from.
There is non-stop bullshit on just about every forum, and most forums have sheeple supporting the bullshit because most people are incapable of critical thinking to try and poke holes before accepting what they read as truth. It is nice to have a forum that consistently and relentlessly calls out the bullshit over and over again, and I haven't found another forum that even comes close.
In regards to the post mentioned, for a withdrawal rates, I use this. I don't see how anyone can not consider it the definitive guide.
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/
Good post. Amidst a thread full of bullshit posts attacking someone for disagreeing with anything MMM has to say (Boofinator). this is why i spend my time at BH now.
The MMM forums are generally hostile to the first 4 in that list, too. It's not "non-stop" because, as has been pointed out, MMM is more about the lifestyle rather than the numbers.
I don't see point 5 (bonds) as being a particular MMM stipulation. The bond tent has been discussed in these forums and it's recognized that bonds do yield less volatility when withdrawing.
Point 6 -- agreed. This is one of the specific "optimisms" that I'm skeptical about. However, a FIRE failure takes years and getting a job doesn't have to happen immediately at the height of a recession. It can happen when the economy starts to recover.* Take a look at the Y2k retiree (at the bottom of the page):
http://www.retireearlyhomepage.com/reallife18.html
This retiree will make it to 30 years on a 75/25 portfolio but getting a part-time job in, say, 2014-5, would lengthen the timeline and make the portfolio last for 40 years pretty easily.
Point 7 -- in BH land, there's no slack if you're spending $40k/year because they're high rollers. There are threads titled, "Net worth of $3.7M at age 47 - can I retire?" that would receive a far different response on the MMM forums.
* "randomguy" on BH just made a similar comment.
-
@bacchi and @Andy R I also agree that point #6 is questionable. Depending on your exact field you likely won't be able to get a job earning nearly as much money as you did before, and you may well not be able to get any job at all DURING a recession.
However I don't think that there is strong consensus on this point on the forums either. Here's a nice long debate on the exact topic: https://forum.mrmoneymustache.com/welcome-to-the-forum/jobs-you-can-realistically-get-in-a-fire-failure-situation/
So it boils down to your specific skillset, and for most of us how much the idea of working a relatively low skill job (likely several years after the recovery from a recession) bothers you. I really REALLY don't care for that kind of work, so I don't factor "I could always get a new job" into my calculations at all.
Good post. Amidst a thread full of bullshit posts attacking someone for disagreeing with anything MMM has to say (Boofinator). this is why i spend my time at BH now.
So just to clarify @wannabe-stache, when you say bullshit posts, you're talking about me, right? I just don't want there to be any ambiguity here.
-
@bacchi and @Andy R I also agree that point #6 is questionable. Depending on your exact field you likely won't be able to get a job earning nearly as much money as you did before, and you may well not be able to get any job at all DURING a recession.
However I don't think that there is strong consensus on this point on the forums either. Here's a nice long debate on the exact topic: https://forum.mrmoneymustache.com/welcome-to-the-forum/jobs-you-can-realistically-get-in-a-fire-failure-situation/
I remember that thread, or a similar one. Having experienced unemployment in a tech city during the dotbomb, it's not easy to get a job, even a crappy one. I remain highly skeptical.
-
I see very few people on boggleheads say you should work for a long time. I've read it every day for close to a year now and these comments are rare.
What I like about boghleads is they are a non-stop machine of people criticising bullshit
- The bullshit of market timing.
- The bullshit of dividend investing.
- The bullshit that people can sector/market pick implying they know something the market doesn't.
- The bullshit that average people can stock pick.
- The bullshit that (all or even most) can live without bonds and see a substantial net worth that took them 15 years or more of sacrifice halve in front of their eyes.
- The bullshit that "it will be ok because I can get a job if there is a recession" even though in a recession the economy is stuffed and unemployment rises sharply at the time you need it.
- The bullshit that you can just "adjust your spending" in a recession or bad sequence of returns, especially for those living a frugal life where there is not much slack in spending to cut from.
There is non-stop bullshit on just about every forum, and most forums have sheeple supporting the bullshit because most people are incapable of critical thinking to try and poke holes before accepting what they read as truth. It is nice to have a forum that consistently and relentlessly calls out the bullshit over and over again, and I haven't found another forum that even comes close.
In regards to the post mentioned, for a withdrawal rates, I use this. I don't see how anyone can not consider it the definitive guide.
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/
Good post. Amidst a thread full of bullshit posts attacking someone for disagreeing with anything MMM has to say (Boofinator). this is why i spend my time at BH now.
The MMM forums are generally hostile to the first 4 in that list, too. It's not "non-stop" because, as has been pointed out, MMM is more about the lifestyle rather than the numbers.
I don't see point 5 (bonds) as being a particular MMM stipulation. The bond tent has been discussed in these forums and it's recognized that bonds do yield less volatility when withdrawing.
Point 6 -- agreed. This is one of the specific "optimisms" that I'm skeptical about. However, a FIRE failure takes years and getting a job doesn't have to happen immediately at the height of a recession. It can happen when the economy starts to recover.* Take a look at the Y2k retiree (at the bottom of the page):
http://www.retireearlyhomepage.com/reallife18.html
This retiree will make it to 30 years on a 75/25 portfolio but getting a part-time job in, say, 2014-5, would lengthen the timeline and make the portfolio last for 40 years pretty easily.
Point 7 -- in BH land, there's no slack if you're spending $40k/year because they're high rollers. There are threads titled, "Net worth of $3.7M at age 47 - can I retire?" that would receive a far different response on the MMM forums.
* "randomguy" on BH just made a similar comment.
Just to be clear, and I apologise if I wasn't before, I wasn't saying that MMM'ers overall agree with the "bullshit" (I have left many other forums that do), but there is not a constant rapid-fire criticism of bullshit on here the way there is on BH's.
I also disagree with your comment on about BH's being rich. I've seen the occasional person post with 4m and 10m and 20m but I'm not sure why a few people who ask how to manage their large amount of money makes it somehow the norm. Their discussion is aimed at dispelling the bullshit that goes on to varying degrees almost everywhere else, and to put you on a simple path to manage your own wealth by offering a philosophy to consider using as a guide. I'm not sure what the amount of wealth has to do with it really, and actually when people ask if you need to invest differently with 10m to 1m, the answer comes back as no.
I find a lot of value on this forum, which is why I stick around. The value comes from people discussing finances from a point of view of getting out of the rat race and being comfortable on less. The investing part is a subset of it, where as the investing part is the whole thing on BHs, more of a deep-dive.
I also think this thread has taken on a life of it's own (and not a good one). The same with the MMM thread on BH's which I have actively ignored, and I think I'll bail on this one too. Not sure what can be gained from a shit-fight.
-
I also disagree with your comment on about BH's being rich. I've seen the occasional person post with 4m and 10m and 20m but I'm not sure why a few people who ask how to manage their large amount of money makes it somehow the norm.
Without empirical evidence, it's of course just a feeling that the BH crowd lives larger, and seems wealthier, than the MMM crowd. There are certainly more topics there such as "401k limit is $55K - do you max it out?" and "Should I buy a Tesla?" and "Buyer's Remorse on purchasing a Mercedes."
Again, if the "Net worth of $3.7M at age 47 - can I retire?" topic was posted on MMM, the first comments would be, "Why are you spending so much?" and "Sell your home in DC, move somewhere less expensive, and retire already." There's some of that on BH but mostly it's answering the direct, financial, question.
I find a lot of value on this forum, which is why I stick around. The value comes from people discussing finances from a point of view of getting out of the rat race and being comfortable on less. The investing part is a subset of it, where as the investing part is the whole thing on BHs, more of a deep-dive.
Agreed.
I also think this thread has taken on a life of it's own (and not a good one). The same with the MMM thread on BH's which I have actively ignored, and I think I'll bail on this one too. Not sure what can be gained from a shit-fight.
Eh, there's nothing wrong with acknowledging differences between forums. MMM is, and always has been, more of a lifestyle/eco/RE blog and forum. BH is more about optimizing investing and taxes, etc. RE is an afterthought, at best.
-
I also think this thread has taken on a life of it's own (and not a good one). The same with the MMM thread on BH's which I have actively ignored, and I think I'll bail on this one too. Not sure what can be gained from a shit-fight.
wait, what s*it fight? I've seen people disagree, but in all it has seemed fairly civil and respectful. Did i miss something?
-
I think this thread has been helpful. It's hard to see the differences in some of these forums especially for newcomers.
-
I come here for the face punches and go to BH to learn about the best $5,000 watch
-
I'm new to both this forum and Bogleheads but I've noticed some cross-forum discussions like the one below.
Do they have a valid point? How do you feel about their philosophy? Are the same folks on both?
https://www.bogleheads.org/forum/viewtopic.php?f=1&t=266780
Although this is a long thread already, but there are a couple (IMO) important concepts that haven't been touched on very much, so I'll start back up at the top.
We all know the 4% SWR is based on past results. At Bogleheads (generally speaking of course) there is the widely held belief that 4% is in fact too high, and lots recommend 3.5%, 3%, or even lower. And indeed, the lower the WR, the "safer" you. But as fattest_foot points out, that hope of safety requires the guarantee of working longer, or accepting a lower standard of living in retirement.
I personally believe that in all the endless slicing and dicing of WRs, people are ascribing a precision to the data that does not exist. The United States, the world, and financial markets, are all radically different then they were 50 or 100 years ago. But there are other risks besides a too high WR that will blow up your retirement. Dying for example, as illustrated in this excellent thread:
https://forum.mrmoneymustache.com/welcome-to-the-forum/rich-broke-or-dead-visualizing-probabilities-of-outcomes-in-early-retirement/
And there are other risks that are much harder to quantify like divorce or serious illness. There can be no perfect safety in retirement. Yet, there is (literally!) discussion of the merits of a 3.56 vs. 3.66% WR. Two decimal places! Again, that is a precision that is unknowable, and ignores even more probable life events. Remember also that in most scenarios the retiree with a 4% WR becomes filthy rich late in retirement.
There are also a few common sense things that can improve portfolio survival as well. For example, in many cases simply holding onto a mortgage through retirement improves survival. Most of us will have a backstop of Social Security at some point. Many people at BH say that getting a side hustle or returning to work is bullshit. Possibly, but not so fast. Retirement portfolios go bust due to a poor sequence of returns early in the retirement. You'll know within a few years of leaving the work force if you are in trouble. In that case, you probably will be able to go back to work. Depends on your skill set of course, but most people who have the ability to retire early did so because they developed in demand skill sets. I don't like the term "side hustle" very much. I prefer the term "income generating hobby." If you have an income generating hobby early in your retirement, then you vastly increase your chances of portfolio survival. Does an "income generating hobby" sound like work? Maybe, but working extra years to meet that 3.2% WR is definitely work.
IMO, the only sensible thing to do is get the WR pretty close to what would have survived in the past and call it good and recognize there may be a need for course corrections along the way. The second decimal place won't be enough to affect you, and the first one probably won't either.
-
Well said Telecaster. I'd just add one additional point or extension of something you said.
And there are other risks that are much harder to quantify like divorce or serious illness. There can be no perfect safety in retirement.
My personal bar is that, if the event would be something that would dramatically alter my life even if I still had a job, I'm not going to worry too much about the risk that it will also alter my life after I FIRE.
My favorite example of this is the people who use data from Japan and European markets to argue that safe withdrawal rates need to be much lower to (although that don't explicitly state this part) allow you to continue to spend the same amount of money each year uninterrupted while your country is invaded, your nation's government is overthrown, your nation's infrastructure is destroyed by shelling and bombing, and a significant fraction of an entire generation is killed in war either directly (combat) or indirectly (starvation and disease).
-
I'm on both and gain a lot of good knowledge from both. Honestly, I'm too old to retire early, even if I quit today. I'm also on the conservative side, even on the BH forum for my own dealings. It's served me well. My plan is to retire when I'm at 50 times spending (which a good market rally would easily put me to in my portfolio at this point).
We probably all agree that the average age at BH is higher than here. With that comes different questions looking at retirement. For you guys, child care seems like a big expense. For me, having been there, I usually use the term "mouse nuts" because its nothing compared to college, health insurance or a black swan event. RMDs are a big focus at BH. Social security strategy is a big focus. Sequence of withdrawals is a big focus. Not something I even looked at before I turned 50.
Black Swan Events: I'm just hoping that I never have a year like 2018 again with the black swans landing on my house. Having first hand knowledge of when a lawyer's work cost $275 an hour, $400 an hour or $500 an hour is not something I'd wish on anyone!
There's absolutely a dichotomy on BH wrt college for the kids. Long ago, I planned for having to pay $1MM for my 2 boys. Fortunately, it's been cheaper, but I was ready for that much. I see a lot on BH where I think people have the view "Let them live in a cardboard box and pay their own way through college". The other end is like me, where I'll pay for the best, appropriate education possible with strings attached. Major in engineering....fine. Major in Art History? Not getting a dime.
-
There are also a few common sense things that can improve portfolio survival as well. For example, in many cases simply holding onto a mortgage through retirement improves survival.
Actually, in most cases holding on to a mortgage past retirement worsens survival rates (though of course many factors come into play). Posted here:
https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733 (https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733)
-
There are also a few common sense things that can improve portfolio survival as well. For example, in many cases simply holding onto a mortgage through retirement improves survival.
Actually, in most cases holding on to a mortgage past retirement worsens survival rates (though of course many factors come into play). Posted here:
https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733 (https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733)
It seems many of the posts in that thread run contrary to your statement above, including your own post linked here. ("... yes, this only refers to someone about to FIRE. If one is early in the savings stage, paying off the mortgage will not help to FIRE earlier under just about any circumstance given today's interest rates (and assuming you can't predict the market)."
[/i])
Unless I'm missing something?
-
There are also a few common sense things that can improve portfolio survival as well. For example, in many cases simply holding onto a mortgage through retirement improves survival.
Actually, in most cases holding on to a mortgage past retirement worsens survival rates (though of course many factors come into play). Posted here:
https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733 (https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733)
It seems many of the posts in that thread run contrary to your statement above, including your own post linked here. ("... yes, this only refers to someone about to FIRE. If one is early in the savings stage, paying off the mortgage will not help to FIRE earlier under just about any circumstance given today's interest rates (and assuming you can't predict the market)."
[/i])
Unless I'm missing something?
I look at it as the optimization of two different objectives in the accumulation phase versus the retirement phase.
During the accumulation phase, the objective is to minimize expected time to FI. This is when you want to go heavy on the riskier / more volatile assets and use some safe leverage, with the expectation that you will reach FI quicker, but with a small likelihood that you might have to work a little longer due to poor sequence of returns.
During the retirement phase, the objective is to maximize the survival rate (to some reasonable number, say 95%). The 4% rule is based on this concept. This is when it is important to consider reduced volatility to minimize the risk from sequence of returns.
Paying off a mortgage earlier, even with lower interest rates, in many cases increases survival rate while simultaneously decreasing final expected value. This makes it a good strategy to consider just before or during FIRE (you've won the game, who cares about final expected value?), but a generally poor strategy during accumulation.
-
There are also a few common sense things that can improve portfolio survival as well. For example, in many cases simply holding onto a mortgage through retirement improves survival.
Actually, in most cases holding on to a mortgage past retirement worsens survival rates (though of course many factors come into play). Posted here:
https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733 (https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733)
I would agree that if you are going into FIRE with a mortgage with a low interest rate mortgage that has run for a significant part of its term (say 12 years left on a 30 year term) paying off the mortgage increases success relative to continuing to pay it in FIRE. As far as I know, when you brought that point up a month ago, it really was a new insight, and I continue to give you credit for it.
Yet, as we discussed a month ago (https://forum.mrmoneymustache.com/welcome-to-the-forum/trying-to-calculate-early-mortgage-payoff-vs-investing-extra/msg2191836/#msg2191836), your own work also demonstrates that refinancing into a new 30 year term increases success relative to either of the previous two options.
-
The only thing I strongly dislike about the bogleheads forum is the absolute disdain with which they treat the MMM community. They are not nice people, on this particular topic.
So I don't spend time there anymore. I learned a lot, years ago, but it didn't take me very long to realize that I did not value money for its own sake. There are more important things in life than dying with the biggest pile of money, and I feel like many of the members over there have a hard time accepting that.
-
Best allocation bond/stock ratio from 2000 - 2017
https://www.youtube.com/watch?v=opNohVglLX0
Best allocation bond/stock ratio during Great Depression
https://www.youtube.com/watch?v=ZOXu2cu7ZUw
-
The only thing I strongly dislike about the bogleheads forum is the absolute disdain with which they treat the MMM community. They are not nice people, on this particular topic.
This is why I've ceased to bring up my involvement on the MMM forum whenever I post on BH. It gets nasty. However, I don't find the reverse to be true - I frequently hear people suggest that one should post a question over there to get more detailed feedback.
-
There are also a few common sense things that can improve portfolio survival as well. For example, in many cases simply holding onto a mortgage through retirement improves survival.
Actually, in most cases holding on to a mortgage past retirement worsens survival rates (though of course many factors come into play). Posted here:
https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733 (https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733)
I would agree that if you are going into FIRE with a mortgage with a low interest rate mortgage that has run for a significant part of its term (say 12 years left on a 30 year term) paying off the mortgage increases success relative to continuing to pay it in FIRE. As far as I know, when you brought that point up a month ago, it really was a new insight, and I continue to give you credit for it.
Yet, as we discussed a month ago (https://forum.mrmoneymustache.com/welcome-to-the-forum/trying-to-calculate-early-mortgage-payoff-vs-investing-extra/msg2191836/#msg2191836), your own work also demonstrates that refinancing into a new 30 year term increases success relative to either of the previous two options.
Yes, I agree, there are some cases where holding a mortgage early in FIRE makes more sense. But even then, depending on the performance of the market, the optimal choice might be to pay it off at some point later in FIRE.
All of that being said, I am just trying to change the collective wisdom of many around here that it is always better to hold the mortgage. Pre-FIRE, yes, you're almost certainly getting to FI quicker by holding your mortgage at today's rates. But post-FIRE, you can be introducing significant risk of running out of money (and hence no longer being FI or FIRE) by holding on to the mortgage.
-
I'm still new so trying to understand some of the dynamics going on here.
Generally speaking, for general and beginner investment advice I would steer people towards the Bogleheads Wiki, or Bogleheads forum.
There is great investment discussion here on this forum, but often what I would consider questionable advice sneaks in here, but that is coming from my dogma: own a total US stock market fund, own a total international stock market fund, own a total bond fund; divide between the three in some proportions; maybe tilt to size and value if you feel like you need to do something.
For information and advice on retiring early, you will get better information and advice here, and a healthier serving of face punches (if those are still being served)
-
There are also a few common sense things that can improve portfolio survival as well. For example, in many cases simply holding onto a mortgage through retirement improves survival.
Actually, in most cases holding on to a mortgage past retirement worsens survival rates (though of course many factors come into play). Posted here:
https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733 (https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733)
I would agree that if you are going into FIRE with a mortgage with a low interest rate mortgage that has run for a significant part of its term (say 12 years left on a 30 year term) paying off the mortgage increases success relative to continuing to pay it in FIRE. As far as I know, when you brought that point up a month ago, it really was a new insight, and I continue to give you credit for it.
Yet, as we discussed a month ago (https://forum.mrmoneymustache.com/welcome-to-the-forum/trying-to-calculate-early-mortgage-payoff-vs-investing-extra/msg2191836/#msg2191836), your own work also demonstrates that refinancing into a new 30 year term increases success relative to either of the previous two options.
Yes, I agree, there are some cases where holding a mortgage early in FIRE makes more sense. But even then, depending on the performance of the market, the optimal choice might be to pay it off at some point later in FIRE.
All of that being said, I am just trying to change the collective wisdom of many around here that it is always better to hold the mortgage. Pre-FIRE, yes, you're almost certainly getting to FI quicker by holding your mortgage at today's rates. But post-FIRE, you can be introducing significant risk of running out of money (and hence no longer being FI or FIRE) by holding on to the mortgage.
You got the wrong guy. I didn't say it was always better to hold the mortgage. I said "in many cases" it is better to hold a mortgage. And in many cases it is. And this consideration should be of particular interest today, not only for people who recently purchased at low rates, but people who refinanced older mortgages into lower rates as well and therefore still have many years remaining on their mortgages. I don't know how big that cohort is, but mortgage questions are a common topic on this board, so I feel it is safe to say that number is close to, if not actually, "many."
However, my point isn't to re-hash the mortgage debate in this thread. My point is that the promise of safety requires the guarantee of working longer, or accepting a lower standard of living in retirement. That is an expensive promise, so I think it is worthwhile to evaluate what the 4% rule is really telling us. There are ways to insure yourself against portfolio failure (and in my prior post I acknowledged not every solution works for everyone, but some do), and there are other risks besides portfolio failure as well.
-
I see very few people on boggleheads say you should work for a long time. I've read it every day for close to a year now and these comments are rare.
What I like about boghleads is they are a non-stop machine of people criticising bullshit
- The bullshit of market timing.
- The bullshit of dividend investing.
- The bullshit that people can sector/market pick implying they know something the market doesn't.
- The bullshit that average people can stock pick.
- The bullshit that (all or even most) can live without bonds and see a substantial net worth that took them 15 years or more of sacrifice halve in front of their eyes.
- The bullshit that "it will be ok because I can get a job if there is a recession" even though in a recession the economy is stuffed and unemployment rises sharply at the time you need it.
- The bullshit that you can just "adjust your spending" in a recession or bad sequence of returns, especially for those living a frugal life where there is not much slack in spending to cut from.
There is non-stop bullshit on just about every forum, and most forums have sheeple supporting the bullshit because most people are incapable of critical thinking to try and poke holes before accepting what they read as truth. It is nice to have a forum that consistently and relentlessly calls out the bullshit over and over again, and I haven't found another forum that even comes close.
In regards to the post mentioned, for a withdrawal rates, I use this. I don't see how anyone can not consider it the definitive guide.
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/
The only two of those I take issue with are the last two.
For jobs, I think most capable people could get SOME sort of job in dire circumstances. It likely wouldn't be in whatever you were doing pre-FIRE. But I remember plenty of help wanted signs in all sorts of low paying stuff last recession. If you're living at all frugally all you'd really need is a bit of part-time work to help ride it out. I think most of us here would be perfectly capable of getting hired at McDonalds, or some shop, or as a temp preparing tax returns during that time of year, and so on. So many options.
For cutting spending, I mean, you can just look at your spending and it should be obvious if there are easy cuts or not. We are generally considered frugal, with our typical $27,000/year household spending. We could cut that by over 30% off of that simply by not going to Asia and Europe for one year. Literally not changing a single other thing in our lives - we'd still do our fitness classes, buy all our video games, live in downtown Vancouver, go to concerts, and do everything else we do now. So it's just not a blanket rule that people can't easily cut expenses. Maybe they can, maybe they can't, but look at the budget and it will be right there.
-
i read BH a lot when starting out- they were such great help in my case study- and asset allocation help- went with the 3 fund porfolio in the end.
Sad to hear they have disdain for mmm.. i didnt see that back then. But am more of a member here than there, these days.
Anyone know what BH think about Collins stock series and book? I personally love it.
-
i read BH a lot when starting out- they were such great help in my case study- and asset allocation help- went with the 3 fund porfolio in the end.
Sad to hear they have disdain for mmm.. i didnt see that back then. But am more of a member here than there, these days.
Anyone know what BH think about Collins stock series and book? I personally love it.
I've yet to see it mentioned in most any capacity. They appear to be highly disdainful of any FIRE advocates that might be linked to MMM thinking. It's sort of a mental block en mass IMO. I've thrown it into any book rec threads that are active when I visit, but it is almost universally ignored despite the fact that it is a recent book, espouses BH theory almost completely, and is easy to read, and appeals to a younger crowd (which many of their current tried and true recs just don't).
-
I've yet to see it mentioned in most any capacity.
Actually, Taylor himself recommended it in a new thread, then there were a mixed review, or from what I remember maybe 70/30, with the 70 saying that it was nothing new and the lack of bonds are dangerous and the lack of international also not so good (very valid points if you ask me, the lack of bonds and international part), and the others saying it was good. It wasn't a very long thread though, and also I read it a while ago so the 70/30 figure might be off.
Edit: here ya go (https://www.bogleheads.org/forum/viewtopic.php?t=201953)
Edit: Taylor also put it in a page of books to read (https://www.bogleheads.org/wiki/Taylor_Larimore%27s_Investment_Gems).
-
very valid points if you ask me, the lack of bonds and international part)
I'm less convinced that the benefits of diversification into so many different asset classes is so vital. I understand modern portfolio theory, and I've seen all the graphs that show averages and deviations for various mixes, but there has to be a limit, right?
I think owning two stocks is more risky than owning 500 stocks, but is owning two asset classes more risky than owning 500 asset classes? Are we each supposed to be exposed to both residential and commercial real estate, with differing loan types, in differing regions? Do I need to "diversify" into questionable investments like cryptocurrencies, and if so how many of them? Do I need international bonds in addition to international stocks? Do my international bonds need to include both international treasury and international municipal bonds? Do the international stocks need to be split into growth and value, or into international healthcare vs international manufacturing? At what point are we just being silly in the pursuit of "diversification" that no longer helps, and in some cases (ahem, cryptos) actively undermines returns by stretching to include stupid asset classes?
I think most of these so-called asset classes are just advertising. They're brokerage wrappers, ways to convince you to buy more of their products. You need an emerging markets fund! You need international blue chips! You need REITs! No, you really don't. You need to own the index in the most successful economy in the world, that's it. Then if you want to, you can lower your long-term returns and control your short-term volatility by adding bonds. Then if you want to, you can branch out into other assets for fun but they are by no means necessary.
-
I think most of these so-called asset classes are just advertising. They're brokerage wrappers, ways to convince you to buy more of their products. You need an emerging markets fund! You need international blue chips! You need REITs! No, you really don't. You need to own the index in the most successful economy in the world, that's it. Then if you want to, you can lower your long-term returns and control your short-term volatility by adding bonds. Then if you want to, you can branch out into other assets for fun but they are by no means necessary.
I don't have a link to it but I recall a vanguard paper showing that with 30% international you had the same return but lower volatility. The only reason I know to not diversify and get this benefit is recency bias.
-
I've yet to see it mentioned in most any capacity.
Actually, Taylor himself recommended it in a new thread, then there were a mixed review, or from what I remember maybe 70/30, with the 70 saying that it was nothing new and the lack of bonds are dangerous and the lack of international also not so good (very valid points if you ask me, the lack of bonds and international part), and the others saying it was good. It wasn't a very long thread though, and also I read it a while ago so the 70/30 figure might be off.
Edit: here ya go (https://www.bogleheads.org/forum/viewtopic.php?t=201953)
Edit: Taylor also put it in a page of books to read (https://www.bogleheads.org/wiki/Taylor_Larimore%27s_Investment_Gems).
Thanks! Taylor was a great help with getting my 3-Fund in order, nice guy!
I feel like putting the youtube Collins did in a post to bump that thread- will it piss BH off though? The vid is so gooooood.
I hope you all know what I am talking about. :)
-
Thanks! Taylor was a great help with getting my 3-Fund in order, nice guy!
I feel like putting the youtube Collins did in a post to bump that thread- will it piss BH off though? The vid is so gooooood.
I hope you all know what I am talking about. :)
No idea what video you mean. If it seems worthwhile to you and likely to others, why not post it there? There may or may not be some who won't like it, but that can be said about many things.
-
This one https://www.youtube.com/watch?v=eikbQPldhPY
But I'm not going to post it, as it could be offensive to some of the old timers on BH.. esp don't want to offend Taylor.
I love it though :) and his book- and althought I didn't take his advice of 100% VTSAX I think it is a great book to dive into again, or keep in mind, when you want to stay the course.
-
So I've read a couple of Jack Bogle's books, and in them he states that owning international index funds isn't necessary due to US companies being multinational anyway. Yet, a group that calls themselves Bogleheads seems to believe international funds are a necessity.
Can anyone explain this discrepncy?
-
This one https://www.youtube.com/watch?v=eikbQPldhPY
But I'm not going to post it, as it could be offensive to some of the old timers on BH.. esp don't want to offend Taylor.
I love it though :) and his book- and althought I didn't take his advice of 100% VTSAX I think it is a great book to dive into again, or keep in mind, when you want to stay the course.
Yeah, that would not fit within that forum's rules. ;)
-
So I've read a couple of Jack Bogle's books, and in them he states that owning international index funds isn't necessary due to US companies being multinational anyway. Yet, a group that calls themselves Bogleheads seems to believe international funds are a necessity.
Can anyone explain this discrepncy?
Perhaps because they are people not sheeple (https://en.wikipedia.org/wiki/Sheeple)?
-
So I've read a couple of Jack Bogle's books, and in them he states that owning international index funds isn't necessary due to US companies being multinational anyway. Yet, a group that calls themselves Bogleheads seems to believe international funds are a necessity.
Can anyone explain this discrepncy?
Perhaps because they are people not sheeple (https://en.wikipedia.org/wiki/Sheeple)?
Perhaps because they are sheeple, and have been duped by decades of advertising by brokerage houses and the financial press trying to sell them something new and different?
-
So I've read a couple of Jack Bogle's books, and in them he states that owning international index funds isn't necessary due to US companies being multinational anyway. Yet, a group that calls themselves Bogleheads seems to believe international funds are a necessity.
Can anyone explain this discrepncy?
Perhaps because they are people not sheeple (https://en.wikipedia.org/wiki/Sheeple)?
Perhaps because they are sheeple, and have been duped by decades of advertising by brokerage houses and the financial press trying to sell them something new and different?
Within the Bogleheads® investment philosophy (https://www.bogleheads.org/wiki/Getting_started) there is plenty of room for individual flavoring. It's possible to deviate from the one dimensional line between 100% VTSAX and 100% VBTLX without committing apostasy.
-
Within the Bogleheads® investment philosophy (https://www.bogleheads.org/wiki/Getting_started) there is plenty of room for individual flavoring. It's possible to deviate from the one dimensional line between 100% VTSAX and 100% VBTLX without committing apostasy.
I agree, tons of room!
But the questions wasn't "why do bogleheads deviate from Bogle's recommendation?" it was "why do boggleheads insist that you HAVE to deviate from Bogle's recommendation?" Bogle said you don't need it, the bogleheads say you do need it. This isn't a question of whether you have the freedom to choose, it's a question of why that community insists that you don't.
I don't mean to come down on the BH crowd, we all have our blind spots and their advice is generally good for people who expect to work long profitable careers and then retire into the 1%.
-
very valid points if you ask me, the lack of bonds and international part)
I'm less convinced that the benefits of diversification into so many different asset classes is so vital. I understand modern portfolio theory, and I've seen all the graphs that show averages and deviations for various mixes, but there has to be a limit, right?
Cosigned. In theory there could be an improvement, so some international diversification isn't a bad thing to do. And international companies tend to be more heavily weighted in different sectors than U.S. companies. So you get a bit of sector diversification there.
But how much difference does it make really? I do have an international fund, but I don't think it is a requirement. You get more benefit from saving lots.
-
Within the Bogleheads® investment philosophy (https://www.bogleheads.org/wiki/Getting_started) there is plenty of room for individual flavoring. It's possible to deviate from the one dimensional line between 100% VTSAX and 100% VBTLX without committing apostasy.
I agree, tons of room!
But the questions wasn't "why do bogleheads deviate from Bogle's recommendation?" it was "why do boggleheads insist that you HAVE to deviate from Bogle's recommendation?" Bogle said you don't need it, the bogleheads say you do need it. This isn't a question of whether you have the freedom to choose, it's a question of why that community insists that you don't.
I don't mean to come down on the BH crowd, we all have our blind spots and their advice is generally good for people who expect to work long profitable careers and then retire into the 1%.
Sure, some people in the bogleheads forum say you need it. Much as some people in the MMM forum say some things with which not everyone agrees. :)
-
So I've read a couple of Jack Bogle's books, and in them he states that owning international index funds isn't necessary due to US companies being multinational anyway. Yet, a group that calls themselves Bogleheads seems to believe international funds are a necessity.
Can anyone explain this discrepncy?
This actually doesn't come from the Boggleheads, but from Vanguard's own excellent research:
https://personal.vanguard.com/pdf/icriecr.pdf
No major target date fund has followed his advice, including of course Vanguard's. The advice to not invest internationally is American exceptionalism writ large.
-
I'm on both and gain a lot of good knowledge from both. Honestly, I'm too old to retire early, even if I quit today. I'm also on the conservative side, even on the BH forum for my own dealings. It's served me well. My plan is to retire when I'm at 50 times spending (which a good market rally would easily put me to in my portfolio at this point).
We probably all agree that the average age at BH is higher than here. With that comes different questions looking at retirement. For you guys, child care seems like a big expense. For me, having been there, I usually use the term "mouse nuts" because its nothing compared to college, health insurance or a black swan event. RMDs are a big focus at BH. Social security strategy is a big focus. Sequence of withdrawals is a big focus. Not something I even looked at before I turned 50.
Black Swan Events: I'm just hoping that I never have a year like 2018 again with the black swans landing on my house. Having first hand knowledge of when a lawyer's work cost $275 an hour, $400 an hour or $500 an hour is not something I'd wish on anyone!
There's absolutely a dichotomy on BH wrt college for the kids. Long ago, I planned for having to pay $1MM for my 2 boys. Fortunately, it's been cheaper, but I was ready for that much. I see a lot on BH where I think people have the view "Let them live in a cardboard box and pay their own way through college". The other end is like me, where I'll pay for the best, appropriate education possible with strings attached. Major in engineering....fine. Major in Art History? Not getting a dime.
I would disagree. I was in graduate school when I had my eldest daughter. Her daycare, on campus, cost more than my tuition.
-
Thanks for mentioning me with some forum legends, @fattest_foot. A lot of the credit (at least from my perspective) for continuing to make the case that the risk of working to long and dying too soon should be taken just as seriously as leaving work too early and going broke goes to @Retire-Canada I make mathematical models, that guy writes with passion about the topic.*
*And gets on my case when I start forgetting that the easiest way to guarantee I won't run out of money is to keep working until I die at my desk. ;-)
Friend of mine did that less than a week ago. Not literally at his desk - he left work early not feeling well, then died.
-
I also admit I've found MMM's optimism to be a little... much. I mean, it's easy to be optimistic when your little retirement project turned into a huge moneymaker, and your portfolio had the benefit of a nice long bull market. Once you're past the Scylla and Charybdis of SORR, the sailing tends to be a lot smoother.
If you take the more "conservative" approach you are typically trading for a guaranteed several years of additional work to insure against small-to-moderate chance of needing to use flexibility* in retirement.
*Maybe a part time job for a couple years, or selling stuff on Craigslist/ebay/whatever, or CC churning, or reducing expenses by skipping planned traveling or whatever, etc.
-
I also admit I've found MMM's optimism to be a little... much. I mean, it's easy to be optimistic when your little retirement project turned into a huge moneymaker, and your portfolio had the benefit of a nice long bull market. Once you're past the Scylla and Charybdis of SORR, the sailing tends to be a lot smoother.
If you take the more "conservative" approach you are typically trading for a guaranteed several years of additional work to insure against small-to-moderate chance of needing to use flexibility* in retirement.
*Maybe a part time job for a couple years, or selling stuff on Craigslist/ebay/whatever, or CC churning, or reducing expenses by skipping planned traveling or whatever, etc.
This seems to be a perpetual source of disagreement between the two forums. BH posters argue that finding additional work if necessary will not be nearly as easy as posters on this forum suggest (and that needing to work means you ‘failed’ in retirement planning). By contrast, posters here will point out that working longer means fewer years retired to prevent an increasingly diminishing chance of portfolio failure.
Both have valid points, and a both can be mediated somewhat - it just comes down to what concerns you more.
-
This seems to be a perpetual source of disagreement between the two forums. BH posters argue that finding additional work if necessary will not be nearly as easy as posters on this forum suggest (and that needing to work means you ‘failed’ in retirement planning). By contrast, posters here will point out that working longer means fewer years retired to prevent an increasingly diminishing chance of portfolio failure.
Both have valid points, and a both can be mediated somewhat - it just comes down to what concerns you more.
Agreed. Bogleheads also tend to retire later, which does make returning to work somewhat more of a concern. They also seem FAR more risk averse in general, and it seems to be an emotional thing - not math. Which I get. I have feeling of risk aversion, but try to make logic take the center stage.
For me, weighing:
100% chance of working 3-5 more years to get to 3% WR
Against
5% chance of needing more income (max 3 years of part time work during the first 10 years of ER) due to using a 4% WR
...seems like a pretty simple and easy to understand equation.
-
...and that’s where income levels, age, future plans and spending rates become so important.
The view of a couple of professional DINKs earning $200k and wanting to spend $60k/year in retirement is much different from a household with a SAHP earning $70k and needing $40k in retirement. The former could easily reduce their WR considerably by working another couple of years. The latter might require a full decade, and at the expense of missing more time with their growing children. The DINKs might not care about leaving any inheritance behind, whereas the larger family might want/need to support their kids through college.
-
Finding work after age 50 is difficult. DH knows from personal experience.
-
Finding work after age 50 is difficult. DH knows from personal experience.
Or in a market downturn. Or after several years out of your field. Having a large employment gap means you may not be able to work in your field again, at least not without a lot of effort.
-
Or in a market downturn. Or after several years out of your field. Having a large employment gap means you may not be able to work in your field again, at least not without a lot of effort.
Fortunately, you don't have to work in your field ever again. Why is that always everyone's default plan? In every single scenario I've ever run using various allocations and a 4% SWR, a half time minimum wage job for 20 hours per week is more than enough to see you through safely, though I suppose if your 4% is 200k per year then it might not be enough. Maybe that's why the bogleheads don't see it as a viable option?
Remember that you don't need a job that covers your expenses, you only need a job that reduces your withdrawal rate to 3.0 or 3.5%. An inflation adjusted 3.0% has historically never failed, for any length of time, in any market conditions. So even if we're repeating the worst economic period in US history, 3% will be fine even if you retired at age 25 on the eve of disaster.
So if you need a job, just find one that makes enough money to close the gap between 3% and whatever you want to spend that year.
As an example, a typical mustachian retirement plan is to retire with $1,000,000 and plan to spend $40k/year. That's a 4% SWR. A 3% SWR would mean you can still safely withdraw $30k, so you need to earn another $10k that year. A minimum wage job in my state pays $13.50 an hour, and would generate virtually zero tax burden because your income is so low. You might even qualify for the EITC! Earning 10k at 13.50 an hour means you have to work 740 hours, or 20 hours per week for nine months of the year. At minimum wage.
There are LOTS of jobs I could handle in my retirement for 20 hours per week for 9 months per year. None of them are in my old field. If I found one that paid more than the legally mandated minimum wage, I could work even less. I expect most of us, being conscientious and hard working individuals, would not stay at minimum wage indefinitely.
But personally I won't look for another job. I think it would be much easier to cut my spending from 40k to 30k than to go back to work, even part time for only part of the year.
-
I understand this logic. If I had to return to work, I would want it to be something I enjoy -- minimum wage jobs wouldn't fit that bill for me.
-
I understand this logic. If I had to return to work, I would want it to be something I enjoy -- minimum wage jobs wouldn't fit that bill for me.
I don't think anyone has ever argued that it's easy to find an absolutely perfect job, doing exactly what you want to do, immediately during a recession - just that a person could find something doable that would see them through the temporary situation. But this is good, we've moved from "finding a job is difficult" to "finding a perfect job is difficult", which is progress.
-
What I'm getting at is that if you enjoy your field of work, which many boggleheads appear to, there is nothing wrong with working a little longer to ensure a larger safety margin so that you won't one day have to possibly work at walmart.
-
I understand this logic. If I had to return to work, I would want it to be something I enjoy -- minimum wage jobs wouldn't fit that bill for me.
Interesting - I actually feel that the lower paying jobs would be more enjoyable. I could be a personal trainer, work on ski patrol, etc. those are not high paying jobs typically.
My current field is very high paying, and not something I would do if it didn’t pay so well.
As was mentioned earlier in this thread, if someone has 1 mil at a 4% withdrawal rate, in the event of an emergency or massive downturn, I’d be surprised if most people that are able to save 1 mil couldn’t find a job paying around 30k-40k in another field.
-
Just came here to say I live in rural MO and I know very few people who earn OVER $40k per year, so this whole debate seems pretty laughable to me
-
I understand this logic. If I had to return to work, I would want it to be something I enjoy -- minimum wage jobs wouldn't fit that bill for me.
I think you misunderstood. The suggestion isn’t that you should find a minimum wage job (and one you dislike) - it’s merely being used as an example as to how little one needs to earn in order to offset a depressed portfolio. In other words, you do not need to earn at or near your previous salary. You also don’t need to work full time. The bar is that low. Many don’t appreciate just how low.
-
So I worked and ran a temp office back starting in 2009. There were a LOT of highly trained and educated, former 100k+ job holders who were desperate for 10/hr admin roles or AP clerks.
We didn’t run into too many “I haven’t worked in 5 years and now I need a job” types, but the people who were recently laid off or recently out of work had a much better chance of getting that coveted 10/hour short term temp job.
When you’re going back to work in a recession, you weren’t recently part of the work force. There will be 8-10% unemployment of people who are “in” the workforce. You’re now competing for the same 2% of job openings that those 10% are too. And these temp gigs? 8-12 weeks if you’re lucky. There were a lot of 2-4 week projects. Then go sit on your butt for a month or 2 before something else might come along.
It won’t be easy to find a job. Might be impossible if your resume says you have “been off for personal reasons” the last 10 years and now you’re 45, 55, or 65. There’s a lot of better looking candidates out there.
You may have to make your money elsewhere. Figure out how to make money outside of W2 work. Got that figured out? Good. You’ll be just fine.
Sent from my iPhone using Tapatalk
-
So I worked and ran a temp office back starting in 2009. There were a LOT of highly trained and educated, former 100k+ job holders who were desperate for 10/hr admin roles or AP clerks.
We didn’t run into too many “I haven’t worked in 5 years and now I need a job” types, but the people who were recently laid off or recently out of work had a much better chance of getting that coveted 10/hour short term temp job.
When you’re going back to work in a recession, you weren’t recently part of the work force. There will be 8-10% unemployment of people who are “in” the workforce. You’re now competing for the same 2% of job openings that those 10% are too. And these temp gigs? 8-12 weeks if you’re lucky. There were a lot of 2-4 week projects. Then go sit on your butt for a month or 2 before something else might come along.
It won’t be easy to find a job. Might be impossible if your resume says you have “been off for personal reasons” the last 10 years and now you’re 45, 55, or 65. There’s a lot of better looking candidates out there.
You may have to make your money elsewhere. Figure out how to make money outside of W2 work. Got that figured out? Good. You’ll be just fine.
Sent from my iPhone using Tapatalk
You know you're a Mustachian when the idea of working for four weeks followed by two months off sounds like a sweet deal. That's what people with a 60%+ savings rate are doing already, technically - one month of working provides for two months of not working.
-
I guess I'm lucky that I'm a native English speaker living in an non-English speaking culture. My backup plan during FIRE has always been English teaching. I taught English to adults when I first arrived here 13 years ago and had no problems getting a job with no experience as I have a professional degree and can teach the specialized English of that profession. I really enjoyed English teaching but found a job in my profession which pays a lot more (but more stress and less fun). I'd like to continue English teaching in FIRE so I guess my FIRE plan is pretty safe even if it ends up being a lean FIRE and/or a recession happens. The economy is already terrible here but people are still desperate to learn English both for themselves and for their children.
-
In retirement (and ER especially), people are probably better served by the more sophisticated investing advice that Bogleheads offers, but the MMM Forum offers more interaction with folks that are paving the way for ER. A conundrum for ER's is that you need a high allocation to stocks for their outperformance, but then you are exposed to sequence of return risk during draw-down. I think both forums have their place as long as you know what you are looking for and not just listening to what you want to hear.
I have heard equally as much disdain for MMM on BH as I have heard for BH on MMM. I try to put worthwhile posts out there on both fora trying to help and ignore things like 'BH's are all going to die miserable and rich at their desk' comments.
-
So I worked and ran a temp office back starting in 2009. There were a LOT of highly trained and educated, former 100k+ job holders who were desperate for 10/hr admin roles or AP clerks.
We didn’t run into too many “I haven’t worked in 5 years and now I need a job” types, but the people who were recently laid off or recently out of work had a much better chance of getting that coveted 10/hour short term temp job.
When you’re going back to work in a recession, you weren’t recently part of the work force. There will be 8-10% unemployment of people who are “in” the workforce. You’re now competing for the same 2% of job openings that those 10% are too. And these temp gigs? 8-12 weeks if you’re lucky. There were a lot of 2-4 week projects. Then go sit on your butt for a month or 2 before something else might come along.
It won’t be easy to find a job. Might be impossible if your resume says you have “been off for personal reasons” the last 10 years and now you’re 45, 55, or 65. There’s a lot of better looking candidates out there.
You may have to make your money elsewhere. Figure out how to make money outside of W2 work. Got that figured out? Good. You’ll be just fine.
Sent from my iPhone using Tapatalk
Again, the assumption doesn’t involve finding a temp job during a recession, as discussed above.
-
Again, the assumption doesn’t involve finding a temp job during a recession, as discussed above.
His point is that this might be all that is available during a deep recession (when you'd need to return to work). Hence why such high qualified people were desperate for these positions. He was on the front lines of this so his perspective is interesting imo. You'd be competing for low paying/quality jobs with people who are already in the work force. It was very difficult for someone who hadn't worked in awhile to get any type of work in 2008-2010.
-
Again, the assumption doesn’t involve finding a temp job during a recession, as discussed above.
His point is that this might be all that is available during a deep recession (when you'd need to return to work). Hence why such high qualified people were desperate for these positions. He was on the front lines of this so his perspective is interesting imo. You'd be competing for low paying/quality jobs with people who are already in the work force. It was very difficult for someone who hadn't worked in awhile to get any type of work in 2008-2010.
I don't know that there's ever been a time when a very intelligent, capable person with complete time flexibility was unable to find a one or two day a week minimum wage job. It's really not hard to beat the competition for those types of jobs.
-
Again, the assumption doesn’t involve finding a temp job during a recession, as discussed above.
His point is that this might be all that is available during a deep recession (when you'd need to return to work). Hence why such high qualified people were desperate for these positions. He was on the front lines of this so his perspective is interesting imo. You'd be competing for low paying/quality jobs with people who are already in the work force. It was very difficult for someone who hadn't worked in awhile to get any type of work in 2008-2010.
I don't know that there's ever been a time when a very intelligent, capable person with complete time flexibility was unable to find a one or two day a week minimum wage job. It's really not hard to beat the competition for those types of jobs.
And as nereo mentioned - it doesn't even have to be during the recession. An ER with 4% SWR would have been fine waiting til 2011, or 2012 or 2013 to pick up that part time job for awhile.
-
A couple anecdotes about these topics.
When you’re going back to work in a recession, you weren’t recently part of the work force. There will be 8-10% unemployment of people who are “in” the workforce. You’re now competing for the same 2% of job openings that those 10% are too. And these temp gigs? 8-12 weeks if you’re lucky. There were a lot of 2-4 week projects. Then go sit on your butt for a month or 2 before something else might come along.
It won’t be easy to find a job. Might be impossible if your resume says you have “been off for personal reasons” the last 10 years and now you’re 45, 55, or 65. There’s a lot of better looking candidates out there.
You may have to make your money elsewhere. Figure out how to make money outside of W2 work. Got that figured out? Good. You’ll be just fine.
A few years back, I interviewed for a position, and based on my conversation with the hiring manager, I got the impression he was an interesting guy who only does work he finds enjoyable. I stalked him after the fact and noticed from his LinkedIn that around the time of the dot com bust he "tried early retirement for a few years" and "rode my motorcycle around the world, having adventures". Few years later there were a series of startups with him listed as founder, obvious gaps in between. And then sometime around the present, back in W2 role at large established tech company, his title was head of xyz impressive sounding thing at impressive sounding company. The gaps and retiring into a recession didn't seem to prove a problem.
Remember that you don't need a job that covers your expenses, you only need a job that reduces your withdrawal rate to 3.0 or 3.5%. An inflation adjusted 3.0% has historically never failed, for any length of time, in any market conditions. So even if we're repeating the worst economic period in US history, 3% will be fine even if you retired at age 25 on the eve of disaster.
So if you need a job, just find one that makes enough money to close the gap between 3% and whatever you want to spend that year.
As an example, a typical mustachian retirement plan is to retire with $1,000,000 and plan to spend $40k/year. That's a 4% SWR. A 3% SWR would mean you can still safely withdraw $30k, so you need to earn another $10k that year. A minimum wage job in my state pays $13.50 an hour, and would generate virtually zero tax burden because your income is so low. You might even qualify for the EITC! Earning 10k at 13.50 an hour means you have to work 740 hours, or 20 hours per week for nine months of the year. At minimum wage.
Or spend less, as has been said. A lot of the argument seems to be around whether it is possible to consciously cut your spending in retirement during a recession. But you may do it without even realizing. We had aimed for $40,000 annually in spending, and we weren't looking to cut costs, but it turned out that in the first two years of retirement we've spent approximately $25,000 and $30,000 annually. It's a worrying upward trend :) But there is a lot of safety factor built into just living a normal frugal life. The first year included a not entirely fully planned for pregnancy, and the second year included bumming around South East Asia for a month and replacing transmission that unexpectedly failed, so presumably there is fat to cut if shit hits the fan.
I realize the plural of anecdotes isn't data, but I think it does illustrate that where there's a will, there's a way.
-
Within the Bogleheads® investment philosophy (https://www.bogleheads.org/wiki/Getting_started) there is plenty of room for individual flavoring. It's possible to deviate from the one dimensional line between 100% VTSAX and 100% VBTLX without committing apostasy.
I agree, tons of room!
But the questions wasn't "why do bogleheads deviate from Bogle's recommendation?" it was "why do boggleheads insist that you HAVE to deviate from Bogle's recommendation?" Bogle said you don't need it, the bogleheads say you do need it. This isn't a question of whether you have the freedom to choose, it's a question of why that community insists that you don't.
I don't mean to come down on the BH crowd, we all have our blind spots and their advice is generally good for people who expect to work long profitable careers and then retire into the 1%.
I think that's a huge generalization. I would expect anyone to read, learn and make their own strategy. As I'm a buy and hold investor and hugely focused on expenses and live below my means and invest mainly in a 3 fund portfolio, I fit right into both Boglehead and MMM philosophy.
If I explain the minute details, I do hold some Berkshire Hathaway because I'm thinking forward to where I'm going to want no dividends. My asset allocation is 50/50 stock/bond, but I "float" my international. I've heard nobody do this. It's because as a beginner, I made international 25% of my equity and after listening to Jack Bogle, decided that I sorta agree. So rather than make a big AA change, I decided "well, let's let international do what they do". It works for me. I also have a huge amount of US Savings Bonds from before I trusted the market. Several hundred thousand dollars worth. That's pretty unusual, but I have seen a few people with 6 figures in Savings Bonds, so I'm not completely alone there. I suspect that some have acquired so much from back when a manufactured spend scheme was to buy savings bonds on treasury direct with a credit card for no fee, up to $30k per person and cashable after only 6 months. I did it for first class upgrades for my family to Aruba and did it for 3 or 4 years until they killed the program. Eventually, I was able to afford to not cash in any more and just let the bonds grow. Need a new car....sell some bonds. It's my back up emergency fund now but I only do paper bonds so only my federal return gets me new bonds.
-
I think most of these so-called asset classes are just advertising. They're brokerage wrappers, ways to convince you to buy more of their products. You need an emerging markets fund! You need international blue chips! You need REITs! No, you really don't. You need to own the index in the most successful economy in the world, that's it. Then if you want to, you can lower your long-term returns and control your short-term volatility by adding bonds. Then if you want to, you can branch out into other assets for fun but they are by no means necessary.
I don't have a link to it but I recall a vanguard paper showing that with 30% international you had the same return but lower volatility. The only reason I know to not diversify and get this benefit is recency bias.
Indeed. Plus international has other possible benefits, such as risk reduction.
In Vanguard’s canned portfolios the equity portion is 60% US and 40% international. It’s possible they know what they’re doing.
-
It’s possible they know what they’re doing.
Totally possible.
But they're working with the same data that we're working with. They recommended an increasing international allocation in the late 2000s, when it looked like international markets had real benefits based on the preceding ten years of data suggesting significant stabilization in emerging markets. Then we had 10 years when international as a whole, and emerging markets in particular, drastically underperformed US equities.
I'm not saying it's a terrible idea, just that it became popular right at the exact wrong time and anyone who jumped on that particular bandwagon lost out. Maybe things will "correct" going forward and international will finally live up to its promised benefits. Maybe not. You don't know, I don't know, and the Vanguard research team doesn't know.
As to the "risk reduction" benefits, I'm still not totally convinced. A helicopter with two rotors is twice as likely to crash, not half as likely to crash. The only truly proven risk reduction strategy is a long time horizon.
-
I read both MMM and BH and personally fall somewhere in the middle. I don't think BHs are any more critical of MMM readers than vice versa.
BH readers, in general, are considerably older. I'm older than most here. One big difference I think is that people here are much less realistic about the costs of health care and and the increased expenses that many will want to incur to maintain a pleasant living situation as they age.
"But I have good genes and live a healthy lifestyle" is great, but it's no guarantee of anything. If you see enough friends and relatives get old, you see that some of the last people you'd think would develop chronic health issues at an early age do. Having a lot of money gives you options and options are good. I'm not that far from average retirement age. I can see the appeal of a whole lot of "luxuries" that I would have scoffed at as being ridiculous when I was 30.
I also don't feel "danger" from working too long. I don't hate my job, have decent flexibility and am pretty happy. I've got way more free time now that my kids are close to being fledged.
I can completely see why many BH are skeptical of retiring at 35 and planning to live off a modest stash. On the other hand, I find some of the handwringing there about buying this or that extravagant car kind of funny too.
You can just take what you want both places, smile and move on.
-
I'm not saying it's a terrible idea, just that it became popular right at the exact wrong time and anyone who jumped on that particular bandwagon lost out. Maybe things will "correct" going forward and international will finally live up to its promised benefits. Maybe not. You don't know, I don't know, and the Vanguard research team doesn't know.
I think this misses the point of why you should invest internationally. It has nothing to do with recent performance. It's logical to invest on a global scale for precisely the same reasons we use index funds in the first place. Why restrict yourself to only local companies? As Dodge would say, "The dozen large companies in NY state are closely linked to both the international economy, and the US economy. Why shouldn't I just buy them? GE often follows movements in the S&P 500, why not just own one stock?"
I won't try to summarize his legendary post, but I think this is one of the best posts on this forum ever written and why it's so important to consider investing globally:
https://forum.mrmoneymustache.com/investor-alley/statistics-personal-experience-and-risk-management/msg629210/#msg629210
-
A helicopter with two rotors is twice as likely to crash, not half as likely to crash.
I tried to think of a fancy way to say "that is the worst analogy I have ever seen" but I decided to just say it.
-
A helicopter with two rotors is twice as likely to crash, not half as likely to crash.
I tried to think of a fancy way to say "that is the worst analogy I have ever seen" but I decided to just say it.
Fair enough. I'm still unconvinced.
Diversification can be taken too far, right? Do I need to diversify into beanie babies and cryptocurrencies? Sports memorabilia and fine art? How do we choose which asset classes are appropriate to hold, and which merely expose us to new kinds of risk?
Why not just stick with what's been proven to work? I feel like part of the push for more and different types of diversification is counterproductive. People have taken an idea developed for holdings within a class and applied it to whole classes, even whole markets, and I'm not sure the reasoning holds up under closer inspection.
If someone wants to hold international funds, I'm all for it. I just wish they could articulate why they want to hold international funds, beyond "diversification" into something different. There are hundreds of currencies in the world, do I need to hold them all? I would argue that diversifying into every currency is a stupid idea. Diversifying into every international stock market is probably a stupid idea too, for the exact same reasons.
-
A helicopter with two rotors is twice as likely to crash, not half as likely to crash.
I tried to think of a fancy way to say "that is the worst analogy I have ever seen" but I decided to just say it.
Fair enough. I'm still unconvinced.
Diversification can be taken too far, right? Do I need to diversify into beanie babies and cryptocurrencies? Sports memorabilia and fine art? How do we choose which asset classes are appropriate to hold, and which merely expose us to new kinds of risk?
Sure there is a line. It depends on the time you want to put in. Vanguard and pretty much every broker offers four-(plus)-fund portfolios that are every bit as easy as VTSAX, so that seems like a good line. If you aren't comfortable managing four funds yourself then use those. I can see reducing that to three funds DIY because foreign bonds don't seem sufficiently useful to justify the time. So for me three or four asset classes is the limit. Lower than that and you have no excuse. I also see value in something that is not a financial instrument, such as a house, but I realize not everybody wants the time associated with those.
Why not just stick with what's been proven to work? I feel like part of the push for more and different types of diversification is counterproductive. People have taken an idea developed for holdings within a class and applied it to whole classes, even whole markets, and I'm not sure the reasoning holds up under closer inspection.
What has been proven to work?
If someone wants to hold international funds, I'm all for it. I just wish they could articulate why they want to hold international funds, beyond "diversification" into something different. There are hundreds of currencies in the world, do I need to hold them all? I would argue that diversifying into every currency is a stupid idea. Diversifying into every international stock market is probably a stupid idea too, for the exact same reasons.
What are you looking for? "In case the US stock market happens to go nowhere for two decades, as it has in the past, while collectively international stocks meddle forward?" "In case the dollar devaluates dramatically taking the US economy and bonds with it, and the other economies as well, except their currencies appreciate thus giving me real gains in US terms?" "In case the US economy crashes and burns but other countries do great?" "Because I don't know if the future is brighter for Apple, Samsung, Huawei, or a company from Chile I haven't heard of yet?" "If you don't know where the needles are in the haystack buy as much haystack as possible?"
Can you articulate why you think investments should stop at the US border, beyond "the US has been better since 1990"?
"In a canoe up shit creek, with two paddles, plus an undersized spare" Why not that analogy?
-
If someone wants to hold international funds, I'm all for it. I just wish they could articulate why they want to hold international funds, beyond "diversification" into something different.
So you consider the idea of diversifying from all your assets in one US bank into all US banks valid because you are spreading the risk, but somehow you think it doesn't make sense to spread it through to banks outside the US??
Why don't people articulate why they want to hold international funds, beyond "diversification"?
Because there is no need to find another reason. Diversification IS the reason. If you diversify throughout all companies and sectors by using a total market index, then you are doing that for diversification. Your question is no different from someone telling you to articulate why you want to hold total market funds, beyond "diversification" into something different.
There are hundreds of currencies in the world, do I need to hold them all? I would argue that diversifying into every currency is a stupid idea. Diversifying into every international stock market is probably a stupid idea too, for the exact same reasons.
Holding international funds is not for the sake of diversifying currency, that is largely a side effect. The purpose is to diversify into companies in other markets in the same way that you would invest in banks throughout the US rather than just in one city.
It seems your problem is specific to currency risk associated with international funds.
Currency risk is a real risk, and unlike market risk, it is not rewarded/compensated, and this is one valid argument against (unhedged) world-wide diversification. If currency risk is your problem, then state this as being the problem, rather than a blanket statement that investing internationally is "probably a stupid idea". Investing internationally is not a stupid idea. Your inability to comprehend the separation of the two concepts is the problem.
As someone from a smaller country, I have no choice by to have to deal with the trade off between diversification of markets vs currency risk. This is a whole discussion with a host of upsides and downsides that need to be taken into account. Sure since your country makes up half the world index and has a very diverse industry within your country, you can invest only in domestic equities and will probably be ok. Just because you can doesn't mean some diversification, even with some currency risk, wouldn't improving the outcome further, or that it is stupid.
-
As someone from a smaller country, I have no choice by to have to deal with the trade off between diversification of markets vs currency risk.
I also have to diversify into international equities because I am from a smaller country. The currency risk is of course an issue however you can now buy hedged funds as well. The fee is a little higher but I intend to use a 50% hedged and 50% un-hedged approach.
The argument for utilising international funds if you are from the US is probably not as strong as if you are from a small country but my personal opinion is that it is still a good idea. My take is invest in a minimal amount of funds and get the best diversification that you can get at the lowest possible cost. The most rational approach I've seen is a two fund portfolio. You invest in an international stock portfolio and a home country domiciled bond fund based on your risk profile. There may be better options available but this to me is the simplest approach with the best possible risk-reward pay off over the longer term. Sure some options will beat this approach but picking those options today is impossible.
-
Diversification can be taken too far, right? Do I need to diversify into beanie babies and cryptocurrencies? Sports memorabilia and fine art? How do we choose which asset classes are appropriate to hold, and which merely expose us to new kinds of risk?
Except that no one is actually suggesting that you diversify into further asset classes. The idea is to continue to diversify within the same asset class that you've already decided you want to own.
It's the exact same reason for why you own the S&P 500 or total US market instead of just the Dow. In fact, it's the exact same reasoning for using index funds in the first place. That reason is diversification, and you already use it to justify your current investing behavior.
-
"Because I don't know if the future is brighter for Apple, Samsung, Huawei, or a company from Chile I haven't heard of yet?"
That's my reasoning too. I have no idea whether Tesla or Ford or Toyota or BMW or XXX will own the electric cars market. But one of the companies will probably do it. Better to own all of them then.
-
@bacchi and @Andy R I also agree that point #6 is questionable. Depending on your exact field you likely won't be able to get a job earning nearly as much money as you did before, and you may well not be able to get any job at all DURING a recession.
However I don't think that there is strong consensus on this point on the forums either. Here's a nice long debate on the exact topic: https://forum.mrmoneymustache.com/welcome-to-the-forum/jobs-you-can-realistically-get-in-a-fire-failure-situation/
So it boils down to your specific skillset, and for most of us how much the idea of working a relatively low skill job (likely several years after the recovery from a recession) bothers you. I really REALLY don't care for that kind of work, so I don't factor "I could always get a new job" into my calculations at all.
Good post. Amidst a thread full of bullshit posts attacking someone for disagreeing with anything MMM has to say (Boofinator). this is why i spend my time at BH now.
So just to clarify @wannabe-stache, when you say bullshit posts, you're talking about me, right? I just don't want there to be any ambiguity here.
to be honest i don't even remember to whom it was directed. if it makes you feel better, assume it was or wasn't directed at you. like a hardy boys novel, pick your path.
-
I come here for the face punches and go to BH to learn about the best $5,000 watch
Ah, I see you're a fan of Petrocelli.
Have you followed Taylor's recommendation to get a Toyota Corolla?
-
I love Taylor but always have to get in a dig every time he declares that the Second Grader's 90/10 three-fund portfolio beat all the 60/40 lazy portfolios over ten years. The key to investing success is clearly to be seven years old, live with your parents, and not have any bills due tomorrow.
If everyone followed his advice they'd probably be better off, though.