What Joe Morgan Can Teach Us About Critical Thinking

I don't talk about it frequently here but I am a huge baseball fan, huge. I have been fascinated by the statistics since my father brought home my first pack of baseball cards in 1973 when I was 7. I played a little bit when I was younger, been to quite a few parks over the years and every summer I get the MLB extra innings package from Directv. 

One of the great things about being a fan of the game and the history of the game is debating what players were the best at this position or that position, greatest all time teams, anything like that is a ton of fun for me. I could go on and on. 

As a child of the 70's, a favorite player of mine, along with just about every kid from that decade was Joe Morgan. He was a hall of famer, won two MVP awards and won two world series but I think what made him so popular, aside from being the best 2nd baseman of the 1970's was that he wasn't that much bigger than us as kids, I blew past his 5'7" in 7th grade, and the way he jerked his elbow before each pitch as a mechanism to make sure he had his proper stance. 

Earlier this week someone posted their all-time first team and second team. I clicked through of course figuring I'd disagree with a few things. Johnny Bench was the first team catcher and Josh Gibson was the second team catcher. Was Bench better than Yogi Berra or Roy Campanella? I can't say for sure either way but that's a brutally tough choice and my favorite player from when I was a kid, Carlton Fisk, as much as it pains me to admit, is probably just outside that inner circle of Bench, Gibson, Berra and Campy and you'll find some people who think Mickey Cochrane is the best catcher of all time which is a head scratcher.

There'd be no such debate at 2nd base though. Morgan might be first but if not, definitely he'd be on the second team. He wasn't. How could this be? The second team 2nd baseman was Eddie Collins. Heard the name, knew nothing about him. A quick look at the numbers for Collins and sure enough, they are much better than Morgan's and keep in mind, Morgan's numbers are great. Morgan's average WAR per 162 was 6.1 which is outstanding. But Collins WAR per 162 was 7.1. Collins was a career .333 hitter which is 62 points higher than Morgan. Collins had 800 more hits than Morgan playing just three years longer than Morgan. Collins had more RBIs too. I often look and how many seasons a player's WAR was above 5 but for this comparison let's go with 6. Morgan had five such seasons while Collins had 10 including five years with a single season WAR above 9. 

Setting aside the potential flaw of comparing players from different eras due to it being a counterfactual, Collins was clearly better in my opinion. Morgan=great, Collins=greater. And the top 2nd baseman of all time, Rogers Hornsby. How good was Hornsby? Career .358 hitter, WAR per 162 was 9.1 including eight seasons above 9 and a ninth season at 8.9. In really only 15 seasons as a full time player he had 2930 hits including seven seasons with more than 200 hits. The numbers are mind boggling. He was miles ahead of Collins who was miles ahead of Morgan. 

Thinking Morgan might the be best 2nd baseman of all time, as truly great as he was, is simply not evident in the numbers, not even close. Maybe I should have realized this long before now but when faced with overwhelming evidence, I changed my mind. 

This post isn't actually about baseball. 

Fiat Tires?

Before anyone gets carried away, the tire stuff will be almost entirely metaphorical. 

A while back I cited Saifedean Ammous, author of the books Bitcoin Standard and Fiat Standard, who Tweeted about fiat food. I thought it was a metaphor, I got a kick out of it and blogged about it. While it is at least in part a metaphor, it might be an actual thing, Ammous thinks so anyway. The basic idea on this is that when government (fiscal and monetary) policies inflate away our purchasing power they make whole, single ingredient foods like meat more expensive, too expensive for many people so they are replaced with unhealthier, processed foods that are cheaper in nominal terms, have much higher profit margins and makes us unhealthier. 

I don't know that I am on board with Ammous' conclusion about why our diets are terrible but either way our diets are terrible and all the carb-laden processed food we eat is making us weak, frail and sick. Cut carbs and eat meat is all I can offer there. 

We live up a steep dirt road that is very challenging when there is snow on the ground. Two wheel drive cars can't get 20 feet from the pavement without spinning out. Four wheel drive on the right, or wrong, combo of ice and other people having driven on it previously, might be insufficient. Going down hill in these conditions, it is easy to slip and slide. It gets more treacherous than makes intuitive sense. It's nothing like I grew up with back east.  

Where we live now, as compared to the other hill we lived on here from 1998-2012, is much worse. During our first winter on our current hill I had a lot of trouble sliding around in my Tundra. I remember in the middle of one slide it clicked in my head "I need different tires." I went in and got some very beefy tires from Cooper and when I needed tires again a couple of years ago, I got another set of the same Coopers. That picture is one of my tires. When I got the first set of these a buddy of mine who's only up here in the summers saw them and he said "holy shit!"

A few years ago when we bought the house next door and put it on Airbnb we tried to make the description of the road and it's challenges very plain in our listing and we reiterate the point in our welcome message. We're glad to drive anyone up who can't make it in the winter (the summer, anyone can make it up) but as you can imagine everyone wants to try and I don't blame them, I would too. 

Because the cabin is hard to find I meet everyone at the bottom of the hill and show them the way up. Part of the discussion about whether they will try or not includes me eyeballing their tires even though I don't tell them I'm doing that. The wrong type of tires, fiat tires maybe, versus the right type of tires can be the difference maker on our hill in the winter. The wrong type are "city tires," tires with much smaller, shallower tread patterns. The fiat tires have less optionality for where you can go because they have less functionality. I think that general idea can be applied to many aspects of life, it being easier to accept suboptimal choices or foods or recreational choices (sitting on a couch playing video games doesn't exactly promote health).

Admittedly, the analogy falls apart a little because four wheel drive with fiat tires and snow chains will make it up the hill just fine. 

Where I am using the word fiat as a substitute for suboptimal outcomes, the current event in the stock market is the type of trading that can cause panic. Was Monday a capitulation when the SPX was down 4% and now it will work higher? I have no idea but panicking is a fiat-like reaction. Markets panic but that doesn't mean you need to. Where fiat can be thought of as a consensus to be avoided, meaningful selling during this type of sell off by long term investors is fiat-ish. As @collaborativefund Tweeted today, "your lifetime investment returns are overwhelmingly determined by how you behave during brief moments of market craziness." 

Zen & The Art of Snow Removal

It's been an interesting and fun weekend with a lot of reading and a lot of snow removal thanks to a snow storm that none of the weather websites knew was coming. 

In case you missed it, Bitcoin and the other cryptos are enduring their latest puke downs and of course all of the naysayers are out pounding their chests about being right and pounding the table about why it's going zero. At some point it will bounce and rally like it has before and all the touts will be pounding their chests about being right and pound the table about why it's going to a bazillion. It's the same sort of extrapolation you see on stock market television. When the market is heading lower, it's a parade of guests who did some selling at the top and see it going lower. When the market is going up, which is most of the time remember, a different set of pundits who bought at the bottom tell us why it is going higher.  

The current Bitcoin episode was an opportunity to dust off one of my favorites that "finding out you have too much AFTER a large decline is a bad place to be" and that if you're sweating this decline, you do have too much.

Josh Brown just had a post about how to endure large asset price declines. He was talking about the stock market but it applies to other assets, like Bitcoin, too. One point he made was comportment, keep it together. I make the point all the time that all stock market declines are the same. It goes down, people get scared, it stops going down at some point and then works back to a new high. The only variable is how long that all takes. I reiterated this point in a client email this past week. A client replied, essentially repeating the point and I was thrilled, they get it!

Once you reconcile that and realize that as a retired person drawing from your portfolio you really just need to be reasonably ahead of your cash needs (cash on the sidelines so you minimize the need to sell down a lot) and as someone still accumulating you really just need to keep contributing with each paycheck then your odds for financial success are very high. It can be that simple.

One way to make it that simple is to not obsess over your money. To say I love working in the stock market would be an understatement. I'm fascinated by when it does what it's "supposed to," fascinated by when it doesn't do what it is "supposed to," I love learning about investment products even if I don't use that many, I love learning new things about portfolio construction and studying investor psychology. All of that but I do not obsess over our account balances. It's counter productive on multiple levels all tying into a poor quality of life.

Lately, this blog has been exploring various aspects of life outside of capital markets and then connecting those various aspects of life back to investing such that it hopefully helps people adjust their thought processes and psychology to be more relaxed market participants. More relaxed means better long term results which might just mean never panicking or otherwise succumbing to emotions again.

This morning, I got out about 6am, while it was still dark to start shoveling the snow. The plow on my ATV is kind of broken (it is broken) so I thought I should shovel in our driveway more than I usually do to reduce the amount of plowing I would do with the ATV, even if just a little. A lot of backing up and going forward again in our driveway. A few months ago my wife brought home that big shovel. You push it the way a farmer a 100 years ago might push on a plow being pulled by a couple of oxen. It's a total game changer because you don't bend over at all to shovel so you don't feel it on your back at all.

After shoveling the small dog pen with a regular shovel, I did the driveway with the big boy, all in 90 minutes and felt great. After feeding the dogs and coffee I went back out to ATV-plow down to the main road. I really enjoy snow removal, shoveling and plowing, because it's a great way to start the day by getting a lot done very early. Also, snow removal is for me an activity like deadlifting where my brain empties out and I am just focused on the task at hand. I don't get that sensation from other weight exercises, just deadlifting. It is a fantastic reboot. Enough of these activities in our lives makes it much easier to avoid/minimize negative behaviors like obsessing over your account balance.

Also, I'd have never gotten this picture of the moonlit snow (taken with my phone on night mode).

Engaging in your financial outcome is an important and productive behavior, it becomes destructive when it drifts into obsessing. Having varying and totally unrelated interests prevents obsession and makes for a much happier and more interesting life.

Friday Night Potpourri

First an excerpt from a client letter I sent out this morning about the recent stock market volatility.

There’s no way to know what will happen in the short term but as we’ve talked about before, we know how this will play out longer term. The decline will end at some point, maybe for no reason at all, and then the market will start to go back up and make a new high. We just don’t know how long that will take. In many instances, that process is very quick like in March of 2020 or December of 2018 if you even remember that panic. Sometimes the process for digesting declines takes longer like in 2008 or 2000. 

I would also add the idea that although we have been somewhat hedged with BTAL, TAIL, SH, GLD, BLNDX (they've worked to varying degrees), when the market is going up, you're hedged too much and when the market is going down you're not hedged enough. Recognize that potential sentiment early to help minimize the odds of succumbing to emotion.

The other day I found a great quote. “For short-term investors, volatility is a risk. For long-term investors, volatility is a gift.” This ties in with the quote from Peter Lynch I like to cite which is about not knowing which direction the next 25% is but being certain which direction the next 100% is...or 200%.

Nassim Taleb lamented that he may have "created a monster" over the way people misuse the term anti-fragile. The concept fascinates me but I think people conflate it with resiliency. There's room for both of course. Anti-fragile means to benefit from disorder, chaos or adverse events. Resilience is when you're able to endure disorder, chaos or adverse events without too much trouble.

I'll use a personal example that I hope clearly and simply delineates between the two. In January, 2020 we started to buy some extra stuff at the grocery store (I've told this 100 times) out of concern over what Covid might become. Doing this made us more resilient in the face of what Covid became. We did not derive a benefit beyond having less hassle during the shortages of meat, water and toilet paper. Nothing anti-fragile there.

Our Airbnb rental may have turned out to be anti-fragile however. Other than Airbnb canceling all reservations for the first two weeks of April 2020, our Airbnb's bookings increased. Our semi-isolated, cabin on top of a mountain in the forest, turned out to be a great place to hide from the world and continues to be so today. We caught a wave that we're still riding, this means a little more revenue which is why I think it is at least a partial example of being anti-fragile if not a full blown example of anti-fragility. 

True anti-fragility is rare but resilience doesn't have to be.

Joe Norman Tweeted "Don't let the people you admire narrow your curiosity. Don't let their judgment be yours." This resonates with an idea I've said many times and pertains to Taleb mentioned above which is it would be odd to agree with everything someone you respect says. There are plenty of people I learn from even if I don't agree with half of what they believe/say.

I've learned a ton from Taleb over the years, really a lot but anymore I don't agree with half of what he says. Another tie in from me from the past is to take bits of process from various sources to create your own process.

Shocking Vulnerability Revealed

We were all captivated by the underwater, volcanic explosion in Tonga over the weekend. Before getting to the post, the video was a spectacular reminder of how powerful the forces of nature are.

Fallout that might not immediately come to mind is that an underwater cable providing communications, phone, cell signal and internet, was severed potentially isolating the island for an extended period. In 2019, Tonga decided to deploy a satellite system as a back up of sorts but that has not happened yet due to prohibitive costs. Even then though, it may not have been effective as the ash that is still in the air is interfering with satellite phones.

How many people fantasize about selling everything and moving to a place like Tonga or maybe, a little more practically New Zealand? We've been to NZ twice and while I wouldn't say we a serious notion to move there, it's fun to ponder. Whereas maybe we got caught up in a fun moment, some people actually do this. Picture taken near Milford Sound in 2012.

I suppose if you're really living in the jungle, totally self-sufficient for food, then the lack of communications might be less of a problem than trying to recreate some portion of your previous life in an exotic and interesting location. 

In everyday life in Tonga or other places, I have no idea whether the threat of natural disaster-induced isolation or other form of disruption lives on people's front burner or not but it is potentially serious given Tonga could be isolated for weeks, even longer. 

In 2007 we went to Molokai. It's the smallest of the islands you can visit. Things could have changed since then of course but there was a shocking lack of stores to find food. I remember one store in the main town of Kaunakaki that sold some Kirkland brand food and one or two other stores. There was one restaurant at a resort near where we stayed and there was a pizza joint and a Subway in Kaunakaki too. Choices were very limited and although we had access to food, it was not too difficult to envision some sort of hiccup causing problems. I don't know how or if the island was worse off than the rest of us during empty shelf event in the earliest days of the pandemic. 

The pictures we have do don't justice to how stunning it is there but the potential challenges that you might not think of are substantial and I don't think I even understand half of them. The process to solving this would probably mean having a backup to everything. Solar is an easy solution even if it isn't cheap to install. Being self-reliant for food is easy to know you need to do it but then you have learn how and be successful. When the ash cloud in Tonga clears, will satellite TV and phone, maybe internet which is what our ISP is, work normally again? What if there is a serious disruption in gasoline or diesel supply. You can keep some gas on hand and maybe add stabilizer to slowdown the process of it going bad. What about medications? What will a doctor give as an emergency supply and how long before things like insulin expire? I consider myself very lucky that I have no idea about that. 

My desire to explore this line of thought is not about believing bad things will happen, that's just not how I think but inconvenient things happen and the idea of beefing up self reliance is something I enjoy learning about and I believe it is directly related to financial plans and retirement. 

How vulnerable are you to a serious means testing cut to Social Security? If it happens it will come down to affect those who are merely comfortable or well off, not just the truly wealthy. How vulnerable are you to needing a full 4% from your portfolio no matter what in order for your retirement plan to work? Are you in the sandwich generation meaning you might have to financially support parents or children...or any other relative for that matter? How vulnerable are you to healthcare costs continuing to go up at the same rate they've been going up for the last 15 years? 

Here's one, if you envision consequences of climate change being as dire as some believe, how vulnerable are you to having to move because where you live might be underwater one day? Not only would you have to move, you wouldn't get any money from selling. What if you're not worried in the least about this but it happens anyway? 

No one can plan for every possible adverse outcome. But we know some of the basics that we can't really interrupt for very long; food, medicine and utilities. We know with our finances, that we have to be able to pay for certain things uninterrupted. There are simple ways to mitigate these things such that regardless of what causes supplies to be reduced, we can be a little bit ahead of our regular need. That applies to money too. A client is starting their RMD this year and they asked if they have enough set aside because the actual cash balance was low. They have a Treasury note maturing on January 31st that will cover two years worth of RMDs. The market may or may not do crazy things but they are nicely insulated from potential volatility. This is useful financial management and I believe also useful real life management too.   

Vulnerabilities Exposed!

A few months ago I mentioned my interest in learning about Doomer Optimism. The first impression I got from it was that it was about self-reliance and while that is part of the equation I think it is more accurate to think of it as being optimistic about what comes after the collapse of society and if I am right about that then it does not interest me anywhere near as much. I can't get to the point of thinking society will fall like Serbia 25 years ago or Venezuela more recently. 

The self-reliance part of it actually isn't quite right, more like a small, local community being self reliant together to emerge from the rubble. I had a quick, friendly exchange with one of these folks on Twitter who was talking about surviving a collapse, my response was "I don't think in terms of surviving collapses but resiliency in the face of prolonged distortions like the toilet paper/bottled water event of 2020 or one in the future that might last a little longer."

Similar to navigating stock market cycles, I am less concerned with what causes the "collapse" or less dramatically, causes the distortions as opposed to doing what I can to be as insulated as possible from the consequences of the event. As the Covid event was heading towards being declared a pandemic, I mentioned back then getting a couple of weeks ahead on things like meat, bottled water, dog food and the like. We get our paper goods from Costco, the quantities are huge so we just lucked out having enough of that to avoid ever running out. We also lucked out with hand sanitizer, I was in Sprouts early on a Saturday and they'd gotten a bunch in so I bought 100 of them...just kidding, I bought two that we're good sized and still haven't used them up.

The thought process was to assess the situation. Are people going to panic? What would create the biggest hassle for us? The word hassle is critical my thinking, I don't expect true catastrophe but it is easy to envision nuisance and hassle from having to wait in lines and the like. In taking steps to avoid hassle, we were probably also partially insulated if the distortions caused by the early supply chain issues ended up being a couple of orders of magnitude worse than they'd actually been. We had enough food we like and regularly eat to last for a bit and then had food we don't like that much or eat very often like soup and sardines. We had plenty of propane and solar power in case things got even worse. We have a huge propane tank not because we are worried about bad things but because the delivery guy can't reliably get to us in the winter so we avoid the hassle of running out. We have solar power and backup not because we are worried about bad things but because occasionally the power here goes out for a very long time and we avoid the hassle of a regular propane generator putting a serious dent in our propane supply.

If you've seen the news this week, you might have seen empty store shelves again. I don't know if that is weather related or actually supply chain related but it's not happening here...yet. Could there be another, Covid-related, nationwide food supply chain disruption again? Sure. It doesn't feel like we have great handle on things yet. We all see news that says Omicron doesn't attack the lungs, if that is true, then it is not clear to me why things are clamping down again but if they do clamp down again then it would make sense to once more get a few weeks in front of regular staples needs for anyone who has not already done so.

This is built on how little I know, not how much I know. I try to stay engaged but as a layperson I see results of studies that say completely the opposite things about every aspect of the management of the pandemic. You'll find plenty of content that shows that masks are very important and just as much content that says otherwise. Right or wrong, I believe that Vitamin D is important and taking steps to reverse metabolic syndrome (cut carbs, lift weights) can only help anything else you've done for yourself. Cleveland Clinic defines metabolic syndrome as having any three of the following five: waist greater than 40 inches, BP greater than 130/85, blood sugar greater than 100, triglycerides above 150 or HDL below 40.

Everything I've mentioned is consistent with my wanting to avoid adverse consequences if possible. Everyone's idea of adverse will be different, so if any of this resonates, then figure out what you don't want to have to deal with and do what you can to mitigate your hassles.

The investing parallel ties into sequence of return risk or people who are already retired and drawing from their portfolios. Someone with a million bucks in their account, taking $4000/mo, so more than 4%, would have a hassle if the market cratered and they hadn't set aside some reasonable number of months of income need aside so their lives won't be disrupted by a drawdown. Instead of cash, you could have some invested in products that either will go up when the market goes down or are designed to trade almost sideways with very limited volatility. It would be unfortunate to sell assets that are down 20-30%, even if that is just in lockstep with the broad market, to meet income needs.

What Is Your Safety Number?

There's an interesting number floating around from a survey that "the average amount American adults said they’d need to earn to feel in good financial shape was $128,000." Bloomberg noted the $128,000 contrasts with an average income it cited at $67,521.

The numbers in nominal terms are what they are, accurate or not but what is interesting is the perception that twice the average income would provide financial safety. Also interesting is the whole concept of what sort of dollars would make someone, anyone, you, me feel safe? I might replace safe with being on firm footing or able to withstand a negative financial shock.

While anyone would want a higher income, I've always thought of this sort of thing as how much I had in the bank...or more precisely in our joint brokerage account. We have qualified accounts but in a emergency situation I would certainly try to avoid the 10% penalty for taking out of qualified accounts (IRAs and the like) before 59 1/2. 

Over the years, I quit jobs with nothing immediately in front of me for a new job a few times. The first time was when I was 25. Back then I thought in terms of how many months of expenses I had set aside. Back in that first time, I had 6 or 7 months of expenses if needed. Fast forwarding a little, when I got laid off from Schwab in 2001, between savings and my severance check I think we could have lasted for close to two years. Fortunately, I never came close to exhausting those resources.

At some point a long the way I began to think in terms of do we have enough resources to make it until 59 1/2 (now three and half years away) for the reason mentioned above, what about taking Social Security early at 62 (a shade over six years away)? How far out could we last that would be least disruptive to our Plan A. What I mean by that is, if you plan to take Social Security at 68 and have to take it at 67, that might be a small bump in the road versus having to take it at 62. 

To the extent this is about financial resiliency, there's no wrong answer to what makes anyone feel secure but I think the road to this sort of financial security relates to what we talk about all the time here which is living below your means and having a high savings rate. I like to say that those two habits make every other aspect of life easier. 

Faced with some sort of external shock like a job loss (regardless of the reason), having modest monthly expenses and a lot in the bank relative to those expenses should make you feel financially secure, that is the reward for those constructive habits. 

5 Things

There's been a fun thing going around Twitter for the last few days where people paste in "5 Things I can talk about for 30 minutes without preparation" and then they list the things they can talk about. I saw some interesting things, one funny one that stuck out was someone being able to talk about the misery of being a Mets fan and a doomer optimist gave us a list of head scratchers including reality tunnels/memetic mediation. I have no clue what that is. 

My immediate reaction to the idea is to think of this as benchmark or measurement for being an interesting person and/or having a balanced life. I think this sort of thing is important. Not necessarily being able to talk for exactly 30 minutes without prep on five things but being interested in enough in several-many things to be somewhat knowledgeable able to share with someone who knows less than you and able to absorb information from someone else who knows more. 

This doesn't have to be polymathism level expertise but maybe polymath-lite? The idea is having interests that you want to learn about that might lead to other related things to learn about. Maybe a weak example but if you leave near the beach and like to surf, maybe that leads to learning about sea kayaking or something scientific related to the ocean or sea life. One hobby leading to an offshoot of other interests even if not full blown hobbies. 

Hopefully you enjoy what you do for a living enough that you enjoy learning more about it as well as sharing what you know. Hopefully you have a couple of hobbies like maybe at least one where you do something outside and maybe one where you learn things like, reading about something in the scientific realm, maybe even a third hobby where you create things. If you volunteer your time somewhere then chances are that is something you know about, want to learn more and share what you know when appropriate, you don't want to go Cliff Clavin on anyone in unsolicited fashion.

There are probably very boring, often but not always useless topics that you are well versed in. I've mentioned that the parcel down hill from us sold and was split into four parcels, we bought one and just keeping it as unimproved land for now but that houses are going up on the other three parcels. 

Winters here can be tricky especially where it comes to driving. The snow compacts into ice in such a way that it is very difficult to drive. No one believes it, they have to see/fail for themselves. Part of the equation is that during the day things melt some but then freeze back up at night and the ice gets progressively worse every day until it starts to finally melt away. 

I clear our road with my ATV and plow assembly. That usually pushes most of the snow off the road but some storms are too big. The plow blade does not scrape down to dirt though and based on the trouble everyone here has, even people who hire big yellow equipment to plow can't scrape down to dirt. In a six inch snow storm, if I can plow away 5.5 or 5.75 inches of snow away, I am shortening the time it will take to melt. Shady spots next to the road that go unplowed and have snow stay for weeks. 

There are other things though besides plowing to be able to drive up and down. ATVs seem to be able to drive just fine most of the time. I've only had an issue one time on my road with the ATV. The county road department leaves huge piles of crushed lava cinders around the community for people to take for improved traction on tricky spots. This involves filling up five gallon buckets and then spreading them on your road or driveway. The parts of my road that I need to do is usually 10-12 buckets full. Some of the time though, when you put cinders down on ice the ice melts some and the cinders drop down into the ice then it freezes that night and any traction benefit is lost and you need to do it again the next day. 

Once you plow down to what becomes a couple of inches of ice you can put snow chains on your vehicle and come and go easily enough. Putting chains on isn't exactly fun but it allows you to wait out the melt. 

I've mentioned before our next step with road stuff would probably be buying something bigger like a smaller back hoe or skid steer, something that I could put a bigger plow on so we don't have to wait a week for someone to get to us to dig us out when we get a storm that my ATV can't handle. Last January we had 30 inches over the course of a few days, with 18 inches of that coming in a couple of hours on a Monday and I could not keep up. I could go on from there about techniques for plowing.

Are the above five paragraphs boring? Most of the time yeah but to my three new neighbors, especially the two who will have very long, steep driveways down to the road I plow, it will be important information...if they ask. One already did, he was just up here meeting with the local utility about getting power to his lot having driven on the road I just cindered, noting that he couldn't get all the way onto his lot because there was too much snow/ice.  

This is something I need to know about but could still learn plenty more. If you manage your own money, I think that last sentence would also apply. You need to know about it but can always learn more. If you read stock market blogs then you are probably the person in your circles that people come to for investing advice. Chances are you can share quite a bit, unprepared because it is information you need to maintain a proper engagement in steering your own financial outcome.

Another connection that I've made before is problem solving in one area of interest helping solve a problem in another are of interest or even your work. My day job and fire department involvement has been a two way street of lessons learned and lessons shared for years. Same with blogging. Someone one asked me, would I rather be a money manager or a blogger. I will tweak the question to would I rather be a money manager or a fire chief? Would I rather be a money manager or run an Airbnb? Would I rather be a money manager or take pictures of fire trucks? 

The answer is that all of my interests, as they exist in my life combine to make me who I am. I think this is true of everyone. All of our respective interests balance us out. One dimensional people whose sole dimension is obsessing about their portfolios are in my opinion far less likely to be happy and far more likely to make bad decisions. Obsessing is the opposite of ergodicity, letting the market and the portfolio do its thing for you. A balanced life is likely to be a happier life and lead to better results in the things you care about.  

Is Delayed Gratification The Most Important Trait You Should Develop?

A topic we cover frequently here is doing things for your future self. We make our future easier for ourselves when we have financial plans in order and are executing them as intended. We make our future easier for ourselves, both physically and financially, when we invest in our health and fitness. We improve our chances to gain the outcomes we want by being willing to "pay our dues" in the short term. We enhance our future optionality, our protection with these behaviors against some unexpected turn in our career versus how we thought our careers might play out. 

The point about career could be about deciding one day you want to do something completely different or having your hand forced through some sort of layoff or forced, early retirement. Other ways to phrase this idea is playing the long game, delayed gratification or as we've started referring to lately; low time preference. 

I've built my life around this concept paying career dues into my mid 30's before building my ideal work situation, having always been cognizant of the need to stay fit and live below our means and in how I've run our fire department, not wanting to make panicked policy and procurement decisions as a couple of my predecessors did. 

There's a funny story to how I think I came to be this way, I only recently connected the dots on this. My grandmother loved to bake and the stuff she made was fantastic. Everyone's favorite was chocolate mint cake with chocolate mint frosting. I've never had cake that was better than this. Better than the cake though was the frosting, chocolate mint frosting. We always saved the best for last, saved the chocolate mint frosting for last because it was the best part. Delayed gratification. 

On Facebook and Twitter I post a lot about diet and exercise (I realize I bring it up here all the time too) and it is a focal point within the fire department. The importance ties in with investing and financial planning. If you're healthy enough to avoid spending a fortune on drugs for chronic maladies you are placing fewer burdens on your portfolio or whatever other sources of income you rely on. 

Your 50's can be a great time of life when you're healthy enough to do what you want and have a little money in the bank to be able to afford what you want to do. I suspect I will say the same thing about my 60's too. Think about it, are there any activities that you did 20 years that still interest you now? In terms of physical stuff, for me that would be hiking and wildland firefighting. 

If there are things from 20 years ago that still interest you, then what are the odds you'll still be interested in them ten years from now or further out? Probably pretty high that you'll want to do these activities, that I will want to hike and fight fires ten years from now. The work you put in back then allows you to keep doing that thing today, whether you thought about it or not, you made an investment in yourself, you did something for the future you, the future is here and you're benefitting from whatever you did 20 years ago. I actually joined the fire department 19 years ago though, not 20.

The future is here now and if you've been living below your means (building up a financial cushion) and are healthy then you are benefitting from delayed gratification, having invested in your future (now present) self and low time preference. The ages we thought of as being old when we were 20 don't have to be old when we get there. 40, 50 and I am guessing 60 can be young with some good decisions and habits. 

If this pertains to you, then you understand the benefit and will probably keep investing in yourself this way. If it doesn't pertain yet, life can be much easier with this approach. 

The mindset captured above promotes long term investment success on multiple fronts. 

Think of all the scary stock market events in your lifetime that have led to crashes, bear markets and other forms of panic. Despite all of them, and I promise you there are more than you can remember, the stock market keeps going higher. There will be other scary market events that will feel different in real time but of course they won't be. Those future scary events will end and then the market will eventually make a new high. 

If you're close to my age, then it is a good bet you will see the S&P 500 hit 20,000, right now it is at 4677. I have no idea how long that will take and the next 20 or 30% could always be down but at some point in your lifetime: 20,000. If you can see that long game and tie it into your investing process then it becomes much easier to avoid panicking. If you're 50 today, you want to retire at 65 and I told you that when you are 65, the S&P 500 will be at 18,000 but sometime between now and your 60th birthday, the S&P 500 will touch 3000, would you worry? Having that foreknowledge, would you panic? Of course not.

Well you kind of already know the above. With a long-ish time horizon you know that stock prices will be much higher even if there will be one or two scary bear market declines in the mean time. You still need a suitable asset allocation and pay heed to sequence of return risk but the above paragraph will happen in some fashion, we know this, we just don't know the timing or the price levels. 

Playing the long game promotes investment success for narrower holdings like individual stocks or sector/industry ETFs. Whatever your top performing holding over the last ten years, it hasn't been your best performer every year. Whatever your best performing holding will be over the next ten years, it won't be your best performer every year. No holding can always be the best. 

I've owned the iShares US Medical Device ETF (IHI) for clients for about ten years. According to Yahoo Finance, for the last ten years it is up 520% versus 262% for the S&P 500. In 2021 in lagged the S&P by more than 10 percentage points. In 2016 it was the same as the S&P but in the last couple of months of that year IHI kind of crashed while the S&P traded sideways. Selling it when it struggled would have been a shortsighted, high time preference trade. If anything, the demand profile for devices is even stronger now than it was 10 years ago and while I know there will be periods where it lags over the next ten years, there's no visibility for now of wanting to sell out the position. 

The last point where low time preference helps with long term investing success is with compounding. At some point in your life you learned about compounding. The best way to let your money compound is to...actually let it compound. When you're young, just keep putting in your 10% or more without paying compulsive attention to it and then all of a sudden, one day you'll look and think to yourself "holy cow, that's a lot of money!" When you keep doing that for decades then you might find yourself at 50 or 55 and then say to yourself "holy cow, I'm at my retirement number already!" 

This is not a nudge to retire early but the empowerment of being 50 and being at or close to your number is incredibly liberating. That combined with being fit and healthy and now you are young and 50, you've won. 

I was not exaggerating about that cake and frosting. 

Opening Our Retirement Kimono

Early on Thursday I got my annual email from Social Security encouraging me (everyone) to log in to their account to get their latest numbers after they were bumped up for last year's large, by recent standards, cost of living adjustment (COLA).

Everyone's numbers went up of course. Past a certain age, maybe 50 but either way, it is important to understand your numbers and make sure there are no errors in your earning history. I had one once and got it fixed. 

My full benefit at 67 went up to $3118/mo so my wife's spousal benefit would max out at $1559/mo. There is of course a perpetual debate about whether to take it early, take it at your full retirement age or wait to let it keep growing but for a spousal benefit it stops going up at age 67 assuming the primary spouse hasn't already taken it. 

People get very impassioned about whether to take it early along the lines of not using their own savings to live on but having the SS payment from the government right away to do that, some people bank it believing they can make more in the stock market or they have reason to think they might not live past the point where you start to come out ahead by waiting. People who like to wait often like the idea of a "guaranteed" 8% annual raise they'll accrue by waiting. I've said many times that I prefer to wait until 70 so that if I die young, my wife would get my max benefit.

For a little context of how much you get by waiting, if I take it at 62 I would get $2134 so the most my wife would get then would be $1067. As mentioned, at 67 I get $3118 and at 70 I would get $3897. I also looked at what it would be if I split the difference between 67 and 70, at 68 6 months it would be $3316. 

While I am motivated to wait until 70 to take my payout, it's less important to max out Joellyn's benefit. As a matter of circumstance at the time, when I am 70, Jo will be 64, her payout at that time would be in the low $1300's and we might want to take both at essentially the same time for a combined $5200/mo. If she took it at 65 it would be in the mid $1400's. 

By the time 2036 rolls around we'll have long been mortgage free on the house we live in and a few years mortgage free on our rental. In today's dollars, our fixed expenses excluding soon to be paid off mortgages is about $2800. The extra $2400 could cover most month's one-offs like vet bills, small home repair, car stuff, discretionary spending, our annual firewood delivery and all the other stuff frequent to our life. Our income from our rental would be less than our Social Security payout if we're still doing that. I certainly have no plans to stop managing money at a particular age but don't feel I can plan for what my income from that might be when I am 70. We also have savings we can draw from but I am hoping that money would just be for big things that we want to do, like travel, and big things we might have to do like buy a new car every so often or do something very expensive to our house. 

The biggest variable to our plan seems to be the costs of medical things. Our system is so broken, I have no faith in it which is a small part of why I am a bit of a health nut. Another variable is whether Social Security does go through that 23% payout reduction that's been floated for the last few years. While a cut seems like a low probability outcome, that is the threat. It makes more sense to be concerned about what could go wrong, not what can go right. 

We are very lucky that a payout cut would not be catastrophic, $5200 would become $4000. Some people even think SS will completely go away, that it will fail. I think that's nuts but anyone who is worried about that should work now to figure out how to financially mitigate that threat. Clarifying one thing, I don't think it is impossible that some sort of Universal Basic Income replaces Social Security, welfare and all other government programs. A payment reduction could certainly be part of that outcome, more along the lines of a haircut.    

I think it's important to be transparent and accountable to the things I suggest other people do. It doesn't really matter if you read this and disagree with all of it, but walking the walk is important to me. 

What Is The Biggest Risk To Your Retirement?

In the last few years I've become fond of talking about people preventing/solving their own problems. A hot button for me is not wanting to be dependent on anyone to come save me. If I need help with a task, I ask, but the context here bigger picture long term things. For example if someone is relying on the government for help, they just become a statistic or a file in a stack of files (metaphorically speaking now because it's all on computers or the cloud) on some overworked person's desk. 

I talk regularly about maintaining and improving optionality which can include staying physically fit and mentally sharp to have a better chance of being able to take advantage of something that comes along that you might want to do or need to do. 

We all have some vision of what our retirement might look like or maybe we call it our next chapter. I am assuming people who are at least in their 40's have some idea anyway. At some point we start to have a little better understanding how we might finance that next chapter.

A common path of course is a combination of Social Security and income drawn from a retirement portfolio. Moving further along you start to understand about sustainable withdrawal rates and you find the 4% rule. At a high level the 4% rule says you can take out 4% of your starting value every year and have a better than 90% chance that your money will last. 

As you dig further, you probably will also find that if you take 5% out every year you have a better than 80% chance that your money will last. Any advisor will have clients who've take more than that out over the last 10 years or so, I certainly do, and are doing just fine thanks to fantastic stock market returns. Those people have gotten lucky. 

At some point taking out 7% goes from being a one-off, it happens, stuff comes up, to being a regular thing and if someone is taking that much out then they didn't save enough for their spending requirements. That's a risk to anyone's retirement math, not having enough money for whatever reason. 

Think about the person who has been taking out 7% for the last 10 years but instead of fantastic returns in the market, the returns were more like 2000-2010, down 18% per Yahoo Finance for the ten year period ending 1/4/2010. In that scenario our seven percenter has probably blown up. 

Morningstar has a current article that addresses the need for future retirees to take less than 4%. I'd put that idea in the something's gotta give category when a plan is in jeopardy of not working due to mediocre or worse returns as the article cites as possible for the next ten years. 

Back to preventing or solving your own problems, how reliant is your retirement financial outcome on the 4% rule working for you? If you think you need $7000/mo to live on, you expect a combined $4000 from Social Security, then you'll need to figure out where that $3000 will come from. If it will just be from your portfolio then $36,000 divided by 0.04 means you need $900,000 in the bank. That obviously is applying the 4% rule literally but it leaves no margin for error. Also, if the entire $900,000 is in a traditional IRA account you will owe income tax on the withdrawals so your 4% of $900,000, or $36,000 that you need to make it work every month is actually just $28,800 or $2400/mo. Is that going to be a problem? 

Here's a curveball, what is Social Security gets cut, what does that do to the above scenario? What if instead it gets means tested down to a combined $3000/mo? Between SS and the portfolio those are serious haircuts to income and neither scenario is farfetched, I mean the taxes, that's going to happen.  

Your retirement or next chapter might be vulnerable to something else or multiple things. The time to figure that out is now so that you can then figure out how to mitigate that problem or any other problems you can reasonably foresee. In terms of something's gotta give the simplest mitigations would be to cut your overhead, find some sort of active or passive income that relieves some of the burden you place on your portfolio or some combo of the two. 

In past posts, I've talked about our having a Plan D for our old age in case a whole bunch of things go wrong. A buddy teased me about that but for whatever reason, I am very motivated to not have my hand forced into something I perceive as a negative in kneejerk fashion. I don't know where that comes from but that is a big part of how I solve problems. It's also a big part of how I construct and manage portfolios and run the Walker Fire Department. 

It is up to us to prevent/solve our own problems. No one will care more about your outcome than you.

High Time Preference Investment Advisors?

This morning I sat in on a great ETF-themed virtual conference put on by ETF Trends, Investopedia and ETF Database. It covered a lot of ground with a lot different guests/viewpoints. 

There was one takeaway that was probably unintended but very useful. There were a lot of audience questions and sponsor polls that focused on themes for 2022, ETFs for 2022, this for 2022, that for 2022 and so on. Harsh comment coming but if you are making portfolio decisions with other peoples money based what you think might happen in a given year, then you're doing it wrong.  

Portfolio changes need to happen of course but waking up on January 1st and making a guess that, I don't know how about, self driving cars will become more important for 2022 and be a market leader is guessing (repeated for emphasis). Self-driving cars, the metaverse and other narrow themes will take much longer to come to fruition to change how society does things. Funds in those themes, or other "hot" themes might have a great 2022 or they might be lousy performers, I have no idea and neither does anyone else, we'd all be guessing. If we're guessing, if we're making a bunch of guesses then some of those guesses will be correct of course but many will not. That's tough way to have long term portfolio success.

Contrast that approach to a holding I added in Q2, 2021 with SPDR S&P Metals & Mining ETF (XME). It seemed pretty clear that the risk of price inflation was escalating. A fund like XME, and there are many of them, should do well in an inflationary environment. To me, that's what active management is. Observing the risk of something, like inflation, going up or going down or observing the visibility for a fundamental tailwind for some theme that should last for years like maybe Web3. 

What is the risk consequence then for making some sort of allocation to a theme like reopening travel or to some economic threat? Getting the reopening wrong could be very painful in the short run but is there any doubt the world will reopen? No, there is no doubt but I have no idea when it will happen and so guessing on that is not my trade. Contrast that to supply chain problems, distortions in the labor market, degradation of worker productivity, some sectors of the economy not functioning properly, runaway asset prices and anything else you can think of and it is easier for me to conclude, the risk of inflation increased markedly. 

Back then the outcome could have been no uptick in inflation but the risk elevated and client portfolios could be adversely effected by higher price inflation. The risk of being wrong with XME is more cyclical as opposed to threat as an ongoing concern. If travel is shut down long enough, the airlines eventually fail. The consequence of the risk of missing the reopening is far less than the consequence of the risk that price inflation gets away from us. 

Advisory clients often want to know what I think will happen for the year. I certainly don't know but I can talk about what risks are elevated, how to prioritize those risks and whether or not we need to do something to mitigate the consequences of those risks. Mitigating the risk of inflation is one I wanted to protect against, and still have protection against. Supply chain disruption is another one I've taken step to protect against albeit a little more broadly on that one. The way the portfolio is constructed these days, there's not much need to protect against a travel shutdown because we don't have meaningful exposure to that industry. 

The other drawback to the high time preference of "what's hot for 2022" is that you move away from the ergodicity of letting the market or certain sectors or certain stocks work for you, compounding dramatically over the long term. I made two purchases in the carnage of Q4, 2008. One of them I still own, the Consumer Sector SPDR (XLY). I bought it in the $18's and today it is at $204. As Tony Kornheiser might say: that's ergodicity Holmes. In a reasonably diversified portfolio there's a good chance that you'll have two or three of these when looked at a similar time horizon. And even if you don't use narrower holdings, the S&P 500 is up 250% in the last 10 years. 

I've been writing about this concept since long before I knew the word and am convinced it is crucial to long term investing success. Years and years ago I said it would be great to build a portfolio so perfect that nothing ever needs to be sold. That would be great but I don't think it is realistic. Inflation wasn't a problem (for many years) until it was a problem and like I said, I think risk of inflation is something to address. 

Faulty Assumptions Underlying Everything You Believe

...about portfolio construction and sustainability.

Look at this table from Charlie Bilello:

 

Have you ever looked at past results from a 60/40 equities fixed income portfolio and been impressed or at least favorably disposed? How about the 4% rule which we've looked at hundreds of times? The data supporting 60/40 and the 4% rule includes eight years in the last 40 with double digit returns for bonds plus a couple of more 9.7's thrown in. 

Do you think it's a good bet that for the next 40 years, there will be double digit gains from the bond market 20% of the time? With the state of negative yields elsewhere, I won't say it is literally impossible but pretty much impossible. 

That means 60/40 returns won't be as good as any historical data you might look at. It also quantifies something we've been talking about for a while which is that the 4% rule is based on a 40% allocation to bonds getting a yield that no longer exists as well as a total return potential that no longer exists. 

Could equities make the difference? On a continuum of probability, I would say where bonds are much closer to the literally not possible end of the spectrum, equities are more like maybe they will maybe they won't. There's no zero bound, if that even is a bound, confronting equities. Stocks are expensive by almost any measure but there's nothing to say they can't get more expensive, there's nothing that says they can't just stay this expensive or grow into their current valuations. It could absolutely play out that way, just understand that equity markets are on weak fundamental footing which increases the potential for the bad kind of volatility. 

Where bonds are often held to offset stock market volatility, then long dated bonds, if anything could exacerbate stock market volatility. If and when interest rates go up, intermediate and long dated fixed income products will get crushed, price-wise. I have no idea if rates will go up a lot but the risk is clear, rates are close to all time lows with inflation running hot and a central bank that is signaling rate hikes are coming. I've owned no long dated debt for clients for many years, I've avoided interest rate risk for years because it has been prevalent for years. It's much easier to avoid that risk and seek out yield and fixed income exposure in other sectors like bank loans, short dated high yield, short dated TIPS and strategy funds with long term track records of delivering "normal bond market like" returns as some long/short funds do. 

If your goal with fixed income is managing equity volatility, you can do this with products that bring down the equity beta (the extent to which your portfolio tracks the some broad equity index) of your portfolio pretty easily. Things like gold, inverse funds, different long/short funds than mentioned above will offset a portion of the beta derived from your equity holdings. If you put 90% of your money into an S&P 500 fund and 10% into a double inverse index fund, you might expect that everything else being equal, your beta could be around 70 which is not that far from 60 as in 60/40. Hopefully, no one reading this is crazy enough to build a 90/10 portfolio in the way I just described. It's a building block of understanding, an example to show how beta reduction potentially works. Part of the crazy of that 90/10 blend is the phrase "everything else being equal." That's not how the world works.

I've had several clients who over the last year or so reach out to change their portfolio to do something similar, reduce they extent to which they are exposed to equity market volatility. I think this can work. You won't be up 30% when the stock market is up 30% but I think there is great chance of not being down anywhere near 30% when the stock market goes down by that much. If you feel a sense of game over because you have enough money and you probably no longer have a 50 year time horizon, this can make sense and so you can have a larger portion than 60% in equity-like exposure with a less than .6 beta to the market. Using the right products, you could have 75% in equity like products with a beta that is half the market's and have much easier time avoiding interest rate risk that might be embedded in the typical 60/40 portfolio. 

As far as workarounds for the 4% rule, we discuss that all the time here but everything I've ever suggested on this topic could be summed up by saying "figure out how to be less dependent on your portfolio for income." Ideas here include when you're younger investing in something that gives passive income, monetize a hobby, get some sort of other fun part time job, downsize and so on. 

Retirement is something to solve in an individual manner suited to your preferences, resources, quirks (we all have them) and the limits of your ability. I think things like 60/40 and the 4% are great building blocks to get started but there's a good chance you'll have to adjust those building blocks to your particulars so be engaged enough to understand the building blocks and what you need to do with them in order to succeed. 

Clearing The (Portfolio) Clutter

Many years ago on an episode of a sitcom, might have been Just Shoot Me or Stark Raving Mad, one of the characters was apartment sitting for a minimalist and all that was in the apartment was an orchid on a pedestal and a hairless cat and every wall was bare and white. 

For my wife and me that is front burner funny, it comes up pretty regularly. I have some interest in minimalism where possible but not to the extent of making our lives more difficult. Here is an article of a family who greatly benefitted from going minimalist purging a lot of unnecessary stuff but also uncluttering their lives. 

To the extent anyone is overwhelmed by how much stuff they have or how busy they are, reducing that baggage will be very helpful unless I suppose there's some sort of psychology underlying the problem. Throwing away clothing you haven't worn in a long time will certainly feel good but might just be a band aid for someone who needs help. I could stand to get rid of some clothing although we are not pinched for space and my wife says I have very little clothing as it is. I have long sleeve t-shirt from the Maui Invitational in 2009 that is now one size too big but I love it so I keep it. 

There's other stuff I could let go though. We have a collection of Deneen Pottery mugs from various national parks, national monuments and the like that we could thin down considerably. My wife says no and where the disagreement is so mild, and again we're not pinched for space, we still have them all. There's other stuff too, not too much, that I wouldn't mind getting rid of but we feel no stress from having it. 

One spot where we really have a lot of stuff is in our barn. We have tools, various sized screws, nails, nuts, cleaning supplies for our rental, tarps, extension cords and so on. If anything looks like a mess on our property it is this but the nature of where and how we live, these things regularly come in handy even if a little of it is junk and even if we could level up our organization. 

Last winter we had a clog in our gray line about 15 feet from where it goes out into the forest. First I tried snaking it manually but it couldn't get through the gunk. Long story short I had to replace the PVC and change the angle of the line. Having the materials we needed here made it a much smaller project for not having to go to Home Depot. Any errand into town is at least an hour round trip. Far from being a source of stress, having the stuff in the barn makes our lives easier more often than not. As a note, the gunking up of our gray line was caused by using pods of detergent in our dishwasher, the plastic covering the actual soap clogged up the line. 

Knowing what stuff you don't need, what stuff is neutral (no big either way) and know what stuff you do need is a pretty important skill. I'm not talking about junk in our houses anymore.

We've been saying for a long time here that if you put all your money into one or two funds, especially when you're young and continue to add money in while never panicking then you'll benefit from the broad market just doing what it has always done, gone up about 7-9% annualized over very long periods of time. Going forward it is very likely to do the same thing and if you own 1-2 broad market funds you'll capture that effect. This concept, I learned in the last couple of years is ergodicity. 

This uncluttered simplicity can definitely work for someone in their 20's or 30's. Maybe today that looks like a large percentage in an equity index fund, a small amount in crypto and an emergency cash reserve.

That sort of simplicity will eventually become suboptimal you accumulate more money, have to manage personal risks that could derail your plans like sequence of return risk along with changes in tolerances for risk and volatility. Someone who is 60 and wants to retire sometime between tomorrow and 10 years from now probably shouldn't be 90/10 domestic equities/crypto. 

We all come at this differently of course but I want to include diversifiers that will help smooth out the ride. I certainly want growth but I don't need every last basis point of return and volatility. If you agree with that, then the portfolio becomes a little more involved. If you want the modest asymmetric return that some stocks offer then your portfolio becomes a little more involved. If you want a few basis points of your total return to come from dividends, further smoothing out the ride (maybe) then your portfolio becomes a little more involved still. 

Examples here, I've owned Nike (NKE) for clients since 2006. Although it hasn't had the asymmetry of Bitcoin, it's been pretty good. I've owned Johnson & Johnson (JNJ) for clients since 2004. It mostly tracked the market until the start of 2020 with a much higher yield than the market. It has been a steady Eddie, and that attribute plays a role in a diversified portfolio even if you never expect it to be your top performer. What I don't think clients need, what I think would be portfolio clutter is a lottery ticket Bitcoin miner. Any of those names could certainly do well but they are sources of extreme volatility with no fundamentals to fall back on and the reality that Bitcoin, the underlying crypto could thrive without them. I feel the same way about solar stocks. I'm a fan of solar, our home is on solar but the stocks correlate to oil stocks with far more volatility. For the typical person who hires an advisor, so someone who had made most of their money, need their money to grow prudently and meet their income needs without depleting for however long they need it, adding volatility for volatility's sake becomes unnecessary portfolio junk.    

Retirement Date Announcement!

Ok everyone, the big reveal regarding my retirement!

I am retiring effective September 15, 2003. 

Yes the title of this post is very tongue-in-cheek. On or about September 15th, 2003 I was allowed to resign from a very brief stint at Morgan Stanley here in Prescott. I failed to meet sales quotas, I'm a terrible sales person, and so I walked out the door. Starting September 16th of 2003 then was the first day that I permanently owned my time, set my schedule working for myself, starting from scratch with two clients, a few months' worth of expenses in the bank and a very low monthly nut. 

I wasn't worried about not having a job, I'd taken several, calculated career risks already and this was just the next one. Our mortgage on our old house was about $650/mo and we had no car payments which left me feeling very empowered to start the next and still current chapter. Joellyn worked part time for our friend Bill here in Walker, whom I've mentioned many times, as handyman and that small income covered most of our bills. 

The catalyst for this post is a short article from Barron's about FIRE-FFYO...I made that acronym up, it's about FIRE for 50-year olds. The article does a good job covering the basics for anyone new to the subject but I think there is a lot more to delve into in terms of the psychology of retirement versus being financially independent.

My joke at the start of this post could have been a serious observation if I had instead said I am financially independent effective on that date in 2003. 

The psychology of actually retiring is potentially brutal in terms of confronting your mortality. I've talked to enough people about this to draw that conclusion, trust me. Financial independence is more of a continuum. 

Think about this flow; you're working but living way below your means so you can leave your job anytime you want for something new or entrepreneurial or something you would love to do but would pay much less. You're financially independent, not necessarily rich but independent, and just being able to leave your job if you wanted has given you tremendous empowerment. Time goes on and you continue to set your own schedule, finding time for the things you want to do and incorporating those things in with whatever you're doing to make an income. 

Then at 60 or 70 you're a little less concerned about the income you are making and devoting more time to things you're passionate about all the better if any of those hobbies kick off some sort of income, all the better still if you have passive investment income from a good decision you made in your 40's or 50's. Next thing you know you're doing all of these same activities but instead of your primary source of income being some sort of job, it's Social Security. Your transition into retirement then looks nothing like the person's who put in 40 years with some company doing work that didn't allow time to pursue outside interests in the manner they'd have hoped for. That second, more traditional scenario leaves us more vulnerable to retirement being a big psychological event.  

I certainly have to acknowledge that I was lucky in having this work out for me but I started cultivating this outcome much earlier than I actually started living it. I've told this story before, but I was heavily influenced by the TV show Northern Exposure. It gave permission to a city/beach kid (city growing up, beach in college) to live in a small town mostly owning their time. This was 1990 so I didn't know how I would make it happen. Then a few years later I was working on the equity desk at Schwab Institutional and some of the advisory clients were doing exactly what I wanted to do, managing small books of business living wherever they wanted to live, other clients were huge organizations in big cities too. Then the internet came along, I got laid off at Schwab in 2001 and at that point I was just a couple of years away from September 15, 2003.

All in that was 13 years plus a couple of more years for the income to be viable. Mark Baker, who I quote all the time is big on quitting your job and owning your time. I view a job where you don't own your time as a form of dues payment. There are no reliable shortcuts. I've always been good at playing the long game or as has become fashionable to say, good at understanding low time preference. 

On September 15, 2003 I was 37 years old. Dues had been paid, experience had been earned and I was still young. At 55, I am still young. At some age, we realize that we're old enough that we could have serious problems. I pin that in my life to my 25th high school reunion when all of sudden, people weren't coming back. If you start the 10 or 15 year journey to a financially independent lifestyle when you're 40 then you probably want to enjoy many years living that independence. You're more likely to have that happen if you stay strong, lean and aren't spending $1500/mo on prescriptions. Plenty of people in their 40's and 50's are not healthy and that does not portend well for a long future. I don't give a hoot about comparing myself to anyone else, I care about being independent, financially and all other ways, to a very old age. Take care of the financial independence with good decisions related to spending and the risks you take and take care of the physical independence by staying fit, lean and strong.