Thursday Randoms

Barron's posted an article that by the title was about expenses to consider if you retire early but the article was pretty thin. It made a couple of good points though including that if you are not working but not yet eligible for Medicare then health insurance through healthcare.gov is going to be very cheap. Someone in that situation would probably also pay nothing to very little in long term capital gains if they have a taxable non-qualified investment account. 

A couple of stats from the article included that 46% of American retire sooner than they expected with the two most common reasons being laid off or health issues with themselves or their partner. I've described this as having your hand forced. We've looked at this many times and of course it is a common thing but the stats on this seem to move around.

Maybe layoffs and health issues are the most common causes but coincidentally I had a conversation this week with someone in their mid-50's whose hand has been forced for a reason that I don't think anyone could reasonably predict. I'm not going into detail obviously beyond the unpredictable nature of this anecdote and that you just never know what can happen. This person has optionality but this is still a good chance to offer a reminder about how important it is to work on maintaining optionality in case something happens that cannot be reasonably foreseen. I had my own close-ish call never expecting the partners at the old iteration of my firm to lose the firm. I've disclosed this several times before and thankfully it turned out to not be that close of a call for me. 

What is your backup plan if your hand is forced into early retirement?

More Barron's about smaller university endowments having a better year than the larger endowments. Smaller endowments, the article said, are closer in composition to what individual accounts look like in terms of having more exposure to plain vanilla equities as opposed to funds like Harvard and Yale which are heavier in private equity and the like. Obviously there are periods where the big boys and their alt-heavy portfolio outperform. 

Simple portfolios, very simple, can absolutely get the job done. There are tradeoffs and drawbacks to understand but once understood, panic can/should hopefully be avoided. Portfoliovisualizer has portfolios that you can model against each other or against portfolios that you'd come up with. One of the ones they have is a three fund portfolio designed or inspired (not sure which) by Jack Bogle which is 50% domestic equity, 30% international equity and the rest in fixed income. Most of the time it does pretty well but occasionally it gets pasted, down 30% in 2008, down 17% in 2022 and dropped buy more than 1/3 when the internet bubble popped. Those aren't the only down years but were the biggest down years.

Ian Cassel Tweeted about the importance of understanding the downside of your investments and that ability is more important than understanding the upside.

The above captures my philosophical approach for how to navigate through a full market cycle. I'm trying to look more like the green line, trying to smooth out the ride as much as possible. An investor actually pulling off a result that looks like the green line will clearly have periods where they lag by a lot. In this sample, 2021 and 2023, the green line lagged by a lot but I don't think too many people would be bummed by that five year result. 

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