What Are Your Goals? Do You Have Any?

I've never been much of a goal setter. There's never been a dollar amount either income or bank balance that I've sought. I don't have a goal for lifting a certain weight. In February we're due to pack test for 2022, pack testing is the annual fire department physical requirement of hiking three miles with a 45 pound pack in 45 minutes or less. I am only concerned about passing it, 45 minutes is just as good as 38 minutes you pass or your don't. 

My way has always been to take advantage when an opportunity presents itself. Blogging is a good example. Some people make a lot of money from their blogs and it would be nice to do that of course but that never happened directly. Opportunities came from blogging though, I wrote for TheStreet.com for eight years and had a side gig with AdvisorShares for four years which were both lucrative for part time work and of course I had an opportunity managing an ETF for a couple of years and although that failed to gain traction with assets it was a great experience. There were also experiences that went along with blogging like being on stock market television a bunch and meeting some people that I would have never met along with a few visits to the NYSE.

My writing has slowed down lately. I hope to write more in 2022. Is that a goal? No argument with anyone who thinks it is but either way, writing regularly is a productive use of time. It leads to learning about yourself, it can help you work through things and solve problems and it's fun. 

I have what might be considered goals for Walker Fire, the volunteer fire department serving the community where I live and where I've been the chief for 10 years. We approved buying a Type 3 engine which looks like this: 

This is an evolutionary step for us and while I've long wanted this type of apparatus, it was never a goal that I set a clock to. In 2021, for the first time we sent a brush truck (pick up looking fire truck) off district to fight fires in various places in the west. This generates revenue and provides experience. For 2022 we plan on sending out our rescue in a similar capacity (in this context, rescue is a vehicle that looks like an ambulance but isn't called an ambulance). If we find a Type 3 in time then we could have three vehicles going out subject to available personnel. This would bring in a lot of revenue and result in a serious leveling up of our department's equipment and other resources. Again, I never thought of these as goals but as opportunities that I was open to exploring as a result of the environment I tried to create that could lead to this outcome but would be ok if it didn't.  

I may have some sort of opportunity in my volunteering with the Del E Webb Foundation. This is a recent thing, I help out as a volunteer with their process of awarding grants to non-profit organizations. This came through my affiliation with Walker Fire. I never sought out this sort of thing but am always open to new experiences, I've said yes to far more things than I've said no to. If all the foundation work turns out to be is helping organizations get funds, that's a win. I don't know what the opportunity could be, it will evolve one way or another but I have no goals with it and no expectations. 

Everything above is probably connected to why I place very little emphasis on a retirement number. You know like "I need $800,000 to retire" or "I need $1.4 million." Yes, we should do the math but far more important than some number you derive along the way is what you end up with. Your number 20 years ago was $1.3 million but you are now retiring with $900,000. That's what you will make work.

In that scenario of $900,000 vs $1.3 million you might not have to make drastic changes to make it work but what if you come far short of your number because something very expensive came along, like a medical thing and you had to go out of pocket? That was five years ago, everyone is ok but you're at what you planned on being your retirement age and instead of the $1.3 million you planned on, or the $900,000 you might have otherwise had, your balance is $350,000. 

If you've paid off your mortgage and don't have car payments, then this is not a catastrophic outcome but plans probably need to change drastically, something will have to give. How are you able to adapt, go with the flow of opportunity that might present itself and what have you done to cultivate whatever opportunities might fit into your life and lifestyle?

My life and how I view things has evolved along these lines. I have no idea where it comes from but I think it corresponds to an idea we talk about a lot here which is knowing yourself, understanding what makes you tick.

Happy New Year! 

The Zen of Deadlifting & Simple Portfolios

@Spiritofthepines had a short thread on Twitter calling on dudes, maybe in his age cohort, to essentially man up through a bunch of different activities including lifting weights, hunting and working on dirt bikes. I chimed in, adding reasonable risk taking, splitting firewood, building confidence and helping others. My buddy Phil Bak had a similar thought with "The more I hear about the metaverse and the more time I spend on my phone and computer the more I crave doing real, tactile work. Woodworking, gardening and painting feel like escapes from a digital prison." 

I think there is value in these things in the literal sense if you want to look at it that way but a subtler message that I take from all of the above is about simplicity. Seeking simplicity where possible, doing what needs to be done in a basic simple fashion when possible. If simplicity can be maintained then the actual thing that needs doing will probably get done faster and done so with less time spent in your head post-analyzing the task.

This works on so many levels. Related to diet and exercise, everyone knows that "too much" sugar is bad for them even if they don't fully understand what sugar is (anything with carbohydrates, carbs=sugar). Everyone knows they should exercise even if they might not know the most efficient and effective way (traditional cardio does nothing for building/maintaining muscle mass, lifting weights done correctly builds muscle mass and provides cardio). Simple, even if not easy.

In personal finance, everyone knows they should save money and live below their means. People certainly struggle with that but they know. Again it is simple even if it isn't easy.

Simplicity in work should lead to more success in actually fixing the problem. There is also psychic value in performing simple but important work.

We heat our house with propane. In the winter, on cold days we have a fire in our wood burning stove. The above picture is our current wood pile. When we get low in the house I go out to get more. Usually I have split it a little more. It is a simple task but when I am doing it, I don't think about anything else I just empty out for a few minutes like a little reboot. It is potentially hard work, if done for a longer time but either way it is a nice break from the day and to Phil's point requires no electronic visual stimulation.

I get the same sensation deadlifting. Maybe this could be thought of as a sense of Zen, Zen in the simplicity of doing simple, manual tasks to help balance out the electronically stimulated parts of our lives. I certainly spend a lot of time on the computer doing the basics that my job requires along with trying to learn more beyond the basics that my job requires and of course leaving a little time for fun. We all do this to some extent but we should not get away from doing stuff, simple stuff that is important like making a drafty cabin warmer on a cold day or putting in the work to stay fit.

The simplicity, the basics have a direct application to investing. I've long said that for most people a simple portfolio is the best, put differently, if you are managing your own portfolio you should think it's a simple portfolio that is easy to understand. If you hire someone to manage your portfolio then I think they should be able to explain it to you in an easy to understand fashion.

I remember years ago a mutual fund manager coming on CNBC, his fund was wildly complex, placing thousands of trades per day. He couldn't really explain how the fund was positioned, I'm not even sure he was a finance person so much as the boss of the tech and math guys who maintained the algorithm. If something goes wrong, you have no idea what happened as opposed to owning the REIT of a mall operator that drops in value because the stores closed during the pandemic.

The starting point to a simple, Zen-like portfolio is understand that a basic equity index fund and an adequate savings rate can get the job done. The volatility might be tough at times but it can get the job done. If that sort of volatility would be too much, it can be dampened with just a couple of other funds to help smooth out the ride. It can be something you don't have to make a full time job out of, with less time spent in your head post-analyzing the portfolio.

When you get closer to retiring, things will get a little less simple because you will need to manage sequence of return risk (the risk that the stock market goes down a lot right before or right after you retire), figure out an efficient way to draw from your portfolio and navigate the Social Security/Medicare minefield.

Keep it simple whenever possible.

The Most Important Question

Carl Richards says, via the Evidence Based Investor blog, that the most important question an investor can ask themselves in a planning context is why is money important to you? We'll all have different answers and I can't imagine there are any wrong answers. If you want to buy stuff, fine. If you want to give money away, fine. Anything else, fine. Related to many past posts here though, is knowing yourself well enough to be able to answer that question. 

I believe a lot of people struggle to figure themselves out but as our friend Bill, here in Walker once said very wisely, you can figure it out now or you can figure it out later but you'll be much happier if you can figure it out now. 

My answer to why money is important might be odd. I don't aspire to much. I love looking at all kinds of vehicles and taking pictures of them. Many kinds including trick trucks (desert racing), Ferraris, old Harley Davidsons, fire apparatus and so on. I can't convey enough how fun that is for me. I've never had interest in buying something like that. I'm not motivated by leaving a big financial legacy to heirs or charities. I suspect we'll have some left over for that but whatever the equivalent is for name on a building for someone who is not wealthy means nothing to me. 

The reason money is important to me is for optionality. For purposes of this conversation I am assuming people are able to pay their bills and put food on the table. 

I've talked about this before but as I get older I find myself more willing to spend money on adding convenience or you could think of it as removing hassle. When we first moved to the house we're in I frequently shoveled the 1/3 of a mile down to the county maintained pavement. I'd put on my iPod and go get it done. I'd like to think I could still do that but a few years ago we bought an ATV with a plow blade. We've had a lot of small snow storms lately. Earlier in the week I was able to do the plowing in about 1/2 an hour without being wiped out. Today there was more snow so it took an hour. There still some work, getting out of the ATV to do a little shoveling but it is not tiring. Last year we had one storm where we got 18 inches in a couple of hours and my ATV could not get it done. A buddy from the fire department bailed us out with his front loader. At some point, as matter of convenience or removing hassle, we'll get a bigger piece of equipment that is capable of pushing more snow. It will be nice to have that optionality, to be able to afford that without going into debt for it. 

Another recent example of optionality as hassle avoidance that I may have mentioned before; a year and a half ago the 15 acre parcel went up for sale. The whole 15 was beyond us financially but we were able to buy the 3 acre slice closest to us to have a buffer from the development that is now happening with three different build sites downhill from us. This was important to us, so that no one would build in our line of site, we still will feel secluded.

I think success on this front comes from knowing what you want, understanding what you want to avoid and all this is much easier to achieve when you live below your means. 

Is Going Off Grid The Answer?

Dividend Hero Tweeted the following:

This resonates on some level. We live in the forest on a mountain, we are not off the grid but we mostly could be other than needing propane delivered. Mark Baker coined the phrase living off the grid in the grid which is more of an attitude about life than actually being off the grid in the mountains or a cave somewhere. 

In that light, both sentiments tie into self sufficiency or as I like to phrase it, preventing/solving your own problems. I don't like the idea of counting on others to solve my problems, in that instance you're just a statistic or if you prefer, you cannot expect someone else to care more about your outcome more than you. 

An investing form of the grid, the status quo, is the 4% rule. I believe it is a crucial building block of understanding and it is a great starting point but very few retired clients adhere to it. Some have some combination of account balances larger than their needs and other sources of income and some have been at more like 6-7% having been helped by the equity market's tail wind of the last 12 years.

Maybe I am stretching here but if you want to go off grid in life I'd guess your benchmark is the typical on grid lifestyle and then figuring out how to access modern conveniences like electricity, water, heat, the internet and whatever else you need as opposed to going full 19th century prairie living.

To the 4% rule, here is an example from Morningstar of total on grid, heavy arithmetic, complexity. I didn't count the number but it must be at least 2000 words which I could replace with "whatever you got, no more than 4% per year." That's it, done. Not that there wouldn't be drawbacks to that idea but there are drawbacks to the complexity laid out in the article too. Where possible, simple is better.

My ideas of off grid in this context for when I am older, I don't even want to say retirement because I will view whatever comes next, whenever it comes as being my next chapter, is years working on cultivating other sources of income should I need them (fire related, maybe I can derive an income writing again), staying fit enough to have optionality to do something I really wouldn't want to do like work in a warehouse or store and very crucially, not painting myself into a corner that relies on one outcome going my way. 

It would be stressful to need $6000/mo, having $3500/mo coming in from Social Security, needing $2500/mo ($30,000/yr) from the portfolio to get to $6000 and having exactly $750,000 in the bank--$30k is 4% of $750k. There's no margin for error in terms of a protracted bear market or a large one-off expense. We all know people in some version of this scenario and they make it work because they have to but it would be better to prevent this scenario or if you can't prevent it, then to solve it when it happens. 

That resiliency, self-sufficiency, ingenuity, optionality is how you get off grid and in my estimation make things better.    

Harsh But Succinct

Yahoo Finance had an article titled Pandemic Upends Retirement Plans For A Third of Americans citing that some people are delaying retirement due to insecurity about their finances/readiness while others are retiring earlier than expected because the pandemic has caused them to reassess their priorities and retiring earlier because of the forced hand of job loss at an age where finding a new job becomes more difficult. 

The word upend evokes an image of violence to me. Not physical violence but more like a huge disruption that someone is ill prepared for. Using that definition, it seems like no one would want any part of their life upended, I certainly do not.

Barron's took yet another look at the 4% rule, offering ideas on how to adapt to a world of much lower interest rates than existed back in the mid-90's when the 4% rule was devised. Getting your withdrawal process wrong such that you run out of money early would certainly be upending. Years ago I came up with the quip that being 80, healthy and out of money is a bad spot to be in. 

Read the article if you can access it. It's not incorrect but I do think it can be simpler by being flexible and avoiding all of the math that the article avers by simply taking no more than 1% of whatever your balance is every three months. That could lead to inconsistent income which is one way that flexibility comes into the equation. I first wrote about this idea with the tag line "no matter what you've got, 4%" per year. Someone observed that with "no matter what you've got, 4%" you'd never run out of money and that you'd leave a lot on the table when you died. That's technically correct but the nature of life is that we have to pay for one-off, unbudgetable expenses like vet bills, home repairs, new tires, whatever else might be relevant in your life. "No matter what you've got, 4%" can provide flexibility in the face of one-off, unbudgetable expenses.

We've looked at ideas related to monetizing hobbies, downsizing and some other things to enhance this sort of flexibility but yesterday, I may have been exposed to a different way, or at least a modification of finding a post retirement career. Yesterday I went to a small get together, a college buddy was in town visiting/doing work with his boss who lives here in Prescott. Their company seems is a portfolio of small start ups that they invest in but also seem to play varying roles in helping these companies start up...if I understood correctly. Without getting specific, they are involved in tech, consulting, a new use for an existing material and a couple of other things. My buddy is my age and his boss is definitely older than us, not sure how much older but in the realm of normal retirement age. The excitement and energy in telling me about the startups (the ideas were crystal clear, their role in these start ups wasn't) was genuine and purposeful. If you can find something to be that excited and energetic about at 60, or 70 or 80 (no way he was 80 and I can't imagine he was 70 either) then the easier of a time you'll have deriving some sort of post retirement income if you need that flexibility in your financial plan. 

Another aspect of being more flexible is literally being more flexible physically. I say on here a lot that a ground level fall for a person in their 60's or older can be a life altering event, upending everything depending on how serious the injury. The probability of serious injury is tied to habits related to exercise and diet. Building and maintaining muscle mass and preventing bones from getting particularly brittle is a great way to avoid having your life upended from such an accident. 

This will seem harsh but it is succinct, it is crucial for successful long term aging to maintain the ability to pick up heavy things, walk normally, run and jump even if you can't do those things the way you did when you were 25.

Back in October, we took a short trip to Kanab, UT and one of the hikes we did was Buckskin Gulch. There are two ways in, the long way and the short way. We took the long way. Once we got to the end and headed back, we went for a distance on the short way just to see if it was prettier or more interesting. We only went a short distance on the short way before heading back but there were two spots that required very modest scrambling (using all fours) to get up three or three and half foot boulders. Again this will be harsh but succinct, going up these boulders required just a little flexibility and strength and going down required just a little bit of strength and ability to jump. If this sort of thing is a source of fear, you probably have some work to do but the good news is that all of these things can often be built back up. There were people younger than me negotiating these boulders slowly, fearfully and unconfidently and that's unnecessary. Don't be an old 68 where falling down in your kitchen ruins your life. 

Selective Learning

Francis Melia Tweeted "if you want to maximize your muscle growth potential, don't do keto." Melia is quite a bit younger than me and I included him on a Health list that I created on Twitter. 

Side bar, using lists on Twitter is a huge productivity boost.

His tweet is interesting because it is rare to find too much negative sentiment about keto but the comments on his tweet all piled on the anti-keto theme. If you don't know, keto is short for ketogenic diet which is usually no more than 30 carbohydrates per day. It is built on the idea that just about all health problems stem from too much sugar/carbs. Our metabolisms cannot burn fat until sugar has been depleted so exercise alone is very unlikely to result in meaningful fat loss. 

I'm a walking testimonial for this. I found out I was prediabetic when I was 50, despite being fit. I learned about cutting carbs, my prediabetes reversed right away and I lost 30 pounds I didn't know I needed to lose. I was lucky though that I did not need to go full keto. I reversed the prediabetes and lost the first 20 pounds cutting to 100 carbs/day, a far cry from 30 and then I made my way down to 60-70 carb/day and have been there for the last four+ years.

Melia and other workout experts do allow for more carb consumption than what keto calls for. What I don't see very often is anyone who has settled in where I have with carb count, at 60-70/day. The point is not that I am right about what people should do but to repeat a longstanding theme here, is that to find what works for me, I've taken bits of process from different sources to create my own process. 

This can all be an analogy for investing. Melia clearly has success lifting weights and eating a lot of carbs but his objectives as a much younger dude are clearly different than mine. I still have learned about weightlifting from him, that part of his process I can use but very little carbs and not eating before working out, bits of process I took from other people.

Think about your investment process. If you've taken anything from me, cool, but it seems unlikely that you'd take everything from a source. I believe in holding a little bit of gold, not because it necessarily hedges inflation but because it has the tendency to have a low correlation to equities far more often than not and that still works. Despite the inflation situation, stocks have gone higher so gold has gone lower as I would expect. That won't resonate with a lot of people. I am a big fan of trying to manage portfolio volatility but again does not resonate with everyone, maybe not even most people. 

I think there is a balance to be struck in how to learn and take from other people while leaving the things you don't need. I've noticed that in the various segments of Twitter I engage with or otherwise follow there seems to be shared political ideologies that to me are irrelevant to the topic. I don't really care about the political views from the workout guys or the Doomer Optimists although I am interested in the connection between Bitcoin and Libertarianism. I lean Libertarian in terms of smaller government and autonomy but not as hardcore as I perceive the Bitcoin crew to be. The balance there is I am interested in how they connect the two (Bitcoin and Libertarianism) but haven't changed my view on things. 

On a related note the ergodicity embedded into index investing is certainly interesting so I go part of the way down that road having held quite a few individual stocks and narrow ETFs for 10-15 years but I am far from passive.

The thing that really matters is that what you decide to do, with investing and beyond, has to make sense to you and you need to have a reasonable basis to believe that the approach you plan to take will get the job done. The other day I mentioned the guy who placed 1000 trades in one day. That could never work for me, I have no idea if it even works for him (will give him the benefit of the doubt) but he has interesting things to say about asymmetry which is all I take from him. 

It's ok to not agree with everything someone else says.