Here’s an interesting quote I just recently ran into:
If you’ve won the game, stop playing.
It actually has a couple of iterations/similar quotes floating around the web but the idea is the same: if you’ve already reached financial independence (FI), you don’t need to keep doing what you did to get there.
In fact, if you do keep at it then your financial independence could be at risk.
The quote is attributed to William J. Bernstein, an author of several investment books.
His thoughts are specifically related to investing and the assets accumulated on the way to hitting FI.
He thinks that if you’ve accumulated enough to reach FI you should not continue taking the investment risks to grow your nest egg.
You don’t need any more, you simply need to protect what you have. As such, your investment philosophy should change from growth to preservation. Otherwise a poor market event (like a big drop) you could significantly impact your assets and result in you no longer being FI.
Details on the Thinking
To give even more perspective on this thinking, let me share a few posts I found around the web.
The first is from the Bogleheads forum:
William Bernstein advises retirees and near-retirees to avoid investing in risky assets such as stocks, at least with money needed to provide an adequate income stream. Is anybody acting on this advice and what is your strategy?
“In other words, once the game has been won by accumulating enough safe assets to retire on, it makes little sense to keep playing it, at least with the “number”: the pile of safe assets sufficient to directly provide or indirectly purchase an adequate lifetime income stream.”
Bernstein, William J (2012-06-18). The Ages of the Investor: A Critical Look at Life-cycle Investing (Investing for Adults)
Next, let’s look at this piece from MarketWatch:
Anyone who has reached “critical mass,” i.e., sufficient wealth on which to live without ever working again, must absolutely stop playing the growth game to ensure that the critical mass will remain intact. (Of course, any extra “mad money” in one’s pocket can be always thrown at growth investments, pink-sheet stocks, junk bonds or Lotto tickets.)
In short, winners of the game must invest conservatively, which can be a difficult adjustment for people accustomed to decades of investing in growth stocks. But they must do it. They have to suppress their developed instinct to invest for growth. Otherwise, all that they have gained over a lifetime could be lost at the whim of any number of catalysts: a one-day stock-market crash, an excruciatingly and nearly imperceptible years-long bear market, or simply specific-stock risk.
And finally, here’s a piece from the Wall Street Journal written by Bernstein himself:
If you need $70,000 a year to meet expenses and pay taxes—and if your Social Security and pension income amounts to $30,000 a year—you must [cover] residual living expenses of $40,000. A good rule of thumb is to have, at the very least, 25 years of RLE saved up to retire at 60, 20 years to retire at 65, and 17 years to retire at 70—or in this case, $1 million, $800,000 and $680,000, respectively.
The rub is that your retirement is reasonably assured only if the bulk of those assets is in relatively safe holdings. On three different occasions in the past eight decades, the S&P 500 has experienced five-year drawdowns of 30% to 60%; if you enter retirement at the start of such a bad stretch and stack 5% annual withdrawals on top of those equity losses, your nest egg will evaporate so fast that you’ll have little left by the time the markets finally recover.
If you’re of a certain age and have saved and invested well, it’s possible you’ve just now won the race. As such, this may be a good time to start reducing the risk in your portfolio.
What Got You Here Isn’t What Will Keep You Here
The tough part in this line of thinking is that most people hit FI because they took risks and invested for growth.
They developed and implemented this habit over a long period of time, so now stopping and changing course is tough for many of them.
And while Bernstein was focused on investing, I got to thinking that this concept also applies to other areas of post-FI life.
Consider the following habits that many financially independent people have developed:
- They earned a good income by focusing on their careers and side hustles.
- They saved aggressively by controlling their spending and building a large gap between income and expenses.
- They invested for growth with things like index funds and for income with things like real estate.
In other words, they worked the ESI Scale to financial independence.
They did these over years and years, decades really. Our personal journey was almost 30 years in the making.
So needless to say, some habits can build up in 30 years. These habits are what got them to FI. But now that they are FI, perhaps it’s time to abandon them, at least in part.
Easy to Keep Playing the Game
This is an issue I’ve noticed that I have trouble with from time to time.
Apparently it’s not just me judging by the comments I get here.
So let’s look at a few ways those who are FI grapple with still playing the game:
1. They find it hard to let go of their careers.
Consider this exchange in the comments of My Jobs, Last Three Jobs Before Retirement which you can find here:
Toocold:
Out of curiosity, has achieving financial independence impacted [your] career decisions? I am at a crossroads in my career. I am being offered a CEO position, which will require extensive travel, expanded hours, and higher stress — all of which I’ve handled when I used to manage a business unit for mega-corp. Having achieved FI and a good work-life balance, I am not sure I want this position. My younger self would have jumped at the chance.
ESI:
It depends on what you WANT to do — that’s the point of FI.
Some might never want to work again.
Others might really enjoy the challenge of being a CEO and at least try it.
It’s totally up to you. That’s what’s great about FI IMO.
Tony:
For me, yes, Toocold. I had the same situation after I’d reached FI.
I was wrestling with the decision. My wife said:
“Do we need the money?”
“No.”
“Will it be more stress?”
“Yes.”
“So, who are you really trying to please? Are you keeping score against somebody? If we’ll never spend what we’ve already got, what’s the point? Is this just some ego thing?”
Good questions. For me, I turned down the job and went a different direction.
Toocold:
This sounds very similar to the dialog that I’m having with my wife, and for most of those questions, it’s exactly the same – no we don’t need the money, yes it will be more stressful; no I’m not competing with any of my peers; yes, it will take me away from helping my children doing homework every night.
The one question that I personally struggle with is, “isn’t this what you have been working toward?” ughh.
Thanks to all for providing advice.
ESI:
Believe me, I get it. Even now when I’m retired and enjoying it completely the juices get flowing when someone sends me a note about a great opportunity. I think those of us who are driven get excited by new challenges and want to jump in to tackle them.
In those cases I just remind myself what those opportunities cost in time, effort, lost family activities, etc. and realize it’s not worth it.
Yes, there’s the “isn’t this what you’ve been working for” issue. I even have that, as do many other early retirees. I walked away during my peak earning years — where I could have earned at least a few million dollars more. Isn’t that what I’d put in all those years for?
But there’s also the “once you’ve won, stop playing the game” side of things. If you are FI, you’ve won. Now you can stop playing. I’ll actually be writing a pot on this in the next couple months or so.
In the end, you get to choose — which is really the great thing. You have options!!!! Do whatever you like and enjoy your life! 🙂
Paper Tiger:
Toocold, I faced a similar crossroad 10 years ago. Big job offer, life-changing money, and a tremendous opportunity. However, it would have meant a move, my wife having to leave her job because my new role would have been a competitor, and uprooting our 9 yo daughter.
My decision point centered on the imbalance it would cause related to me being able to spend more time with my daughter and helping her grow up. I just could not rationalize any other decision than to keep her secure and stable and continue to give me as much time in her life as possible during these critical growing years.
I have no regrets with my decision!
You can see how these individuals who have reached FI are struggling with letting go of their (probably lucrative) careers.
They have been hard-charging, high earners spurred on by challenges for decades. And now that they’ve won the game, do they need to stop playing?
I’d say they have the choice to do whatever they want, but it’s hard to pull back even when you want to select “better” options like time with family, less stress, and so on.
As you can see, even I deal with this. I get job offers every other month or so. Some of them are VERY compelling and interesting. They get my competitive juices flowing. I want to accomplish things. That’s what I’ve done for 30 years.
Then I remember all the downsides and what a great life I have in retirement so I move on.
But it’s not as easy to do as one might think.
2. They find it hard to stop saving and start spending.
A guy at church was telling me he heard a call into Dave Ramsey (I couldn’t find the piece online or I would link to it) where the caller wanted to buy a new Harley Davidson motorcycle.
His wife said that they shouldn’t spend that kind of money. Eventually she agreed to let the guy buy the motorcycle if Dave said it was ok.
Dave asked a few questions and found out quickly that the guy had no debt and a net worth of $10 million or so, much of it relatively liquid.
Dave told him to buy the bike and enjoy his wealth!
While searching for the story above I did see several articles where Dave had to tell people it was ok to spend — that they had done well enough that they should loosen the purse strings a bit.
Now on to my life…
A few months ago I found myself in a Tesla showroom. I think you know where this is going.
The cars are REALLY nice. Sure there are some kinks still being worked out, but they are really marvels. Very expensive too. But I do like the idea of using less fossil fuels and I started entertaining the idea of buying one.
A new Tesla represents less than 3% of my net worth. But I couldn’t do it. It’s just too pricey.
“You should buy one — you deserve it!” my daughter encouraged me.
Nope, still couldn’t do it. Just too expensive for a car.
Ok, maybe that’s not a great example. After all, does anyone need to spend $90k for a car?
So let’s move on to a more relatable example — to the cruise we recently canceled.
Even to take a $10k vacation it took a lot of convincing for my wife — even though it represents less than 0.3% of our net worth (not to mention that we can pay for it out of our current income). I finally got her to agree by pointing out that this blog had made more than $10k over what I’d planned, so we had the extra money to spend.
Now to be fair, much of the credit for us being able to save 36% of our income was because she’s great at playing financial defense. Also she would much rather GIVE the money away than spend it, so it’s hard to lob too much criticism her way.
And it’s not just her. Now that I can buy pretty much whatever I want, I find that I don’t really want that much (a habit built over the past 30 years). Is it that I don’t want to spend or that I’m just satisfied?
Since we continue to spend less than we earn and not a penny of our investments, our net worth is going up during retirement (a great market helps, of course, but even if it was flat we’d be up). It’s kinda strange.
Do I need to loosen up? How can I? Am I the only one with this issue?
3. They find it hard to leave growth investing.
This is the heart of what Bernstein is talking about — that once you reach FI you need to pull back on the growth investments that got you to this level.
For me, it was stock index funds.
So now I need to abandon them? Can I live without index funds in my life? 😉
The point is kind of moot for me because I have a vast difference between what I own and what I need. In fact, I’m not planning to spend any of my index fund investments — I can live off the income generated by my investments.
My plan right now is to simply let the investments grow for the rest of my life — maybe 20-30 years. I plan to give a good portion away during that time, but will probably have more leftover than what I have now. What to do with those assets is the subject of our on-going estate plan discussion.
So I’m not exactly his target, but I see what he means. If you need $1 million in investments so you can withdraw $40k per year (4%) to meet all your expenses, you’re going to be in a world of hurt if the stock market goes down by 50%.
But how does this work in the early FI world? Does the 4% rule even work if there aren’t growth investments behind it? If not, there are many who are playing it pretty close and may need to go back to work if the market dives.
For those of you who are a bit closer between what you have and what you need to survive than I am, how are you looking at this issue?
4. They find it hard to stop taking advantage of opportunities.
Here’s a battle I’m having right now: should I invest in new real estate opportunities when the time is right (which I am still waiting for)?
On the “yes” side is that I know how well it can perform, I know the keys to making the most of real estate, and it can really add to my income and net worth (which would be something I could leave for my kids).
On the “no” side is that I’ve already won the game. Do I really need more hassles to deal with, even if it’s just now and then?
In some way, it’s the same with this blog. Do I need the “hassle” of it? It does take a lot of work. But I do enjoy it and it keeps me sharp, so why not? Am I ok or just in denial?
In the end it likely comes down to what I prefer, but you see the conflict.
Lots More
There are probably more examples of ways we keep playing the money game when we’ve already won. The ones above are just the ones I struggle with.
If you think of some more, leave them in the comments below.
And while you’re doing that, let me know your take on the “if you’ve won the game, stop playing” line of thinking. I’m especially interested in hearing thoughts from those of you at FI or close to it. How are you dealing with the issue?
Mike H says
A good post that brings up some great points. The advice is correct, once you’ve won the game you don’t need to play any more.
And it’s true that it is better to retire in a bear market with a stock portfolio than at the top of a bull market. Absolutely.
However a zero risk portfolio that is in Government and Corporate Bonds will only slightly beat inflation so if you are consuming the interesting and not reinvesting a healthy part of it then you will over time, fall behind inflation purchasing power wise. That is the main problem. Whereas the return of stocks should outpace inflation over the long run. However when valuations are stretched, as they are now, the returns from the market can be very low or even negative for several years. That’s why most planners recommend a blend between the two. That being said, once you’ve won the game, so to speak, it would be ok to tilt more of the portfolio into bonds and fixed income.
Real estate investment income is also a slight inflation hedge, depending on the market and local region and the balance of population growth or decline plus the change in supply in the market.
I’m at a career crossroads and will be as selective as I can to find a balance between family and work.
-Mike
Dads Dollars debrs says
Nice and detailed post ESI. I think it is hard to stop playing when we have been wired for so long to hustle. It becomes part of our fine and to remove it is hard.
Still no point risking everything once you have hit your financial goals. For us it includes.looaening our our purse strings a bit and enjoying life now instead of waiting for later.
Jim Wang says
What if you like the game? You take a slug of cash and set it aside, to fund the next 10 or so years, and then keep playing? 🙂
ESI says
That’s what being FI is about — you can do whatever you want to!
For me, I’m trying to:
1) change a few habits (like loosening up a bit on the spending) and…
2) perhaps find a new game. 🙂
Jason says
When I read this I instantly thought of the movie the Gambler where John Goodman meets with Mark Wahlberg and he asks if he knows what to do when you get up 2.5 million. As he puts it, any ***** in the world knows what you do. That 2.5 million that’s your base, that’s your fortress of solitude. That puts you at a level of FU. I think that is the most appealing thing about FI getting to that fortress of solitude. Leaving that fortress and playing is another question, but getting that fortress, well at least you now can choose to be a spectator or a player. No matter what I will probably always play a bit. But part of my identity, for better or worse, is tied into my job.
Fritz @ TheRetirementManifesto says
When I was on ChooseFI a month ago, they asked my asset allocation (60% E / 40% B). They were asking about the conservative tilt. My response: I don’t need the growth anymore, I’ve made it to FI. Roger Whitney (Retirement Answer Man Podcast) makes a point of not taking any more investment risk than you need. You’re spot on with you post.
BTW, I also sprang for a vehicle over Thanksgiving, a new F250 for our post-retirement camping adventures. It’s all part of the plan, so I was fine with spending the $$.
Stop playing the game. You already won.
Snowdog says
Don’t most variations of the bucket approach mitigate Bernstein’s concerns on this? My approach is to shift my near 100% stock portfolio (balanced portfolio of mostly index funds) to an 80% stock 20% mix of cash and short term bond funds. This provides me with liquid access to 5 years of living expenses. Historically, this will allow me to ride out most downturns without selling into a bear to meet living expenses. To replenish the bucket I will harvest the stock portfolio opportunistically when the market is in positive territory. What am I missing here? I’m well on my way as I’m up to a 86/14 mix and still raising cash until I pull the plug next year. I think that this approach is solid but I’d love to hear any thoughts on if this is missing the mark in some way.
ESI says
I think you’re doing (or trying to do) what Bernstein suggested — once you hit your goal you adjust your strategy since you’ve already won.
Will it work or not? I’m not sure. I’m fairly conservative financially so I always have a few backups just in case one or two others don’t work out.
Snowdog says
Well if the equity markets don’t work out in the long run, then many more than I will have a tough go of it. Not sure what the backup plan is If capitalism goes down the drain.
Tim says
Snowdog, you and I are on the same page. I’m FI and we have two primary accounts…an IRA and an after tax brokerage account. The IRA is 15 or 20 years out so that’s staying mostly in equities. The after tax account is equity heavy but they cannot be just sold; the taxes would be murder. The after tax account has enough in short bonds and cash to float us for 5 years. This is more or less exactly your plan.
I’m not aware of any “risk free” investments. Cash investments have their own sort of risk in getting eaten alive by inflation. Bonds default, stocks crash, housing implodes. If someone has an investment that pays even 3 or 4% with zero risk I’d like to hear about it.
Snowdog says
Tim, I agree with you. Risk has many dimensions and risk free does not exist. If you have about $10MM and can live on $100K/yr, then you could park it in a money market and be risk free except for inflation risk to your heirs. For those of us with more modest portfolios and who do not have an appetite to directly own real estate, a total return approach is the only practical way to activate a nice retirement and also have a good chance of leaving the planet with more than you retired with.
blog reader says
well, have for > 15 years been keeping a bank/credit union cd ladder. middle 7 figures. rates are better recently. current weighted average is at 3.45%, fully insured with multiple beneficiaries. yes, most is taxable.
anyone can do it.
Easy Goings says
Dear Blog Reader,
I am amazed that as of 12/8/18, you can earn 3.45% on a current weighted avg basis with guarnteed laddered CDs. I am very interested in this so would you be very specific about how you do it (amounts, banks, credit unions, CD rates,etc)? Do you move money around depending on who is currently paying the best CD rates and is also guaranteed. How difficult is it to execute?
I am 78, my wife is 67 and we have not yet reached FI, probably because I have always been too conservative in the stock market. Now I am too old to take much risk. We plan to deal with our shortfall problem by controlling spending.
I am very healthy and will probably live to age 90+. My wife has a 10 year life expectancy but earns $60-$100,000 a year as a real estate agent.
Many thanks,
CP
blog reader says
CP, – many others do this.
watch for good rates, then before the offer is withdrawn, quickly establish cd’s at various banks or credit unions.
use multiple family members (even >10) as beneficiaries to increase the fdic/ncua coverage.
sites to check; deposit accounts, bogleheads, early-retirement.
currently have cd’s at:
Achieva CU roth 4.2 % 8-2023
Andrews FCU 3.0 % 12-2023
Freedom CU (PA) 3.5 % 2-2021
NASA FCU 3.25 % 12-2019
Sharonview FCU 4.0 % 7-2023
now waiting for more new, suitable offers.
funding not difficult, at times tedious.
– rarely have to break a cd.
really, anyone can do it.
Accidental FIRE says
I think age is a factor here not being discussed. If you’ve “made it” and you are still relatively young (say 45 or under), you have a lot more time to recover from that possible 30-60% loss in the stock market. I’m not saying that hypothetical person should stay 100% in stocks, but they probably also don’t need to pull completely back and feel the need to protect what they built. Now if you’re 58 or 60 years old, then yeah, the advice of “stop playing the game” makes a lot more sense.
Great post!
Kristy says
A good topic. And thinking about stock market; crashes – they do happen. Age is definitely a factor, if all your $$ are in the stock market bucket. Glad some of mine is in dirt as well. Looking forward to FIRE one day.
Apex says
A couple things about the analogy.
Since you like video game lets take that analogy. Once you have won a game, reached the final level, beat the high score, whatever your measure of win is, what happens? Do you stop playing that game forever? Probably not. You may not play it with the same intensity, but you likely still come back for another round from time to time.
How about sports? When you win the tournament, the state championship, the world series, whatever it may be. Do you pack in the game and never play it again? Usually not, you come back for another tournament, another season. After you retire from the sport you play in recreation leagues or you play in old timer leagues, or you just play with friends for fun.
Why? Because you enjoy the game and are good at the game. So from a pure game analogy stand point I think there are plenty of reasons not to just pack up the game console and all your gear, put it on craigslist, and move on never to see, touch, or think about that game again.
Recall that Bill Gates, Warren Buffet, Jeff Bezos, Mark Zuckerberg, etc, none of them ever quit the game of building wealth just because they had won. They love the game. The game built them. The game is a big part of who they are. The game evolves. The game takes on different levels of safety to protect what has been hard fought, but it doesn’t mean the game ends. The game is part of the point.
Moving the concept away from the game as it relates to life/money/retirement, I think the advice to quit the game is most appropriate for a class of people who won the game by retiring near normal retirement age with just enough to finish the game. They are actually in a precarious position if they hope to coast to the end especially given that they don’t know where the end is. They need to be careful. Quitting the game is probably appropriate for them. And to be honest most people are probably in this position or actually shy of this position as we know from savings numbers. In that sense the advice is probably accurate for many people but I would suggest less so for readers of this blog.
When you retire 10-20 year prior to that the end is potentially a lot farther away with a lot more unknowns. It becomes more difficult and more risky to try to coast all the way to the end.
In my opinion retiring early with just enough is extremely risky although a number of radical FIRE people do just that by reducing their spending down to a subsistence level and then retiring with a 6 figure sum. That plan is not for me.
I like the comment above from Jason about getting your fortress of solitude. The problem is if you stop at just the fortress then you can’t do anything else. You need to have your fortress + continue to play money.
You need to have assets that produce reliable sources of income that are mostly unaffected by market moves and extra assets that you can use to continue to do what you want to do.
Now if frugality and hassle was part of your game then that could be laid by the wayside if you have enough buffer. However, it will probably be hard given that it has become a part of who you are. Many people who came through the depression lived like misers even if they eventually amassed 10 million dollars.
Probably buying a Porsche or a Tesla is going to be hard to get by. It also means you are “that guy” and most people around you don’t know you as “that guy” because of the way you lived. Plus you aren’t “that guy.” So those are all things to think about too. It would seem the easiest things to leave behind might be some of the minor frugalities. Maybe don’t need to get the 50 cent off coupon for everything anymore. Maybe don’t need to spend 20 hours trying to find the absolute cheapest tickets to save 50 bucks. Maybe can get the starbucks coffee if you used to swear off that stuff, etc.
So back to the game a little bit. If you have enough of a fortress of solitude and are good at the game and can create value and extra wealth with reasonable skill and you enjoy doing so, what would be the reason not to do that? There are a number of benefits. You can create a legacy for your kids. You can create a legacy for charity. You could fund a cause, a foundation, etc. The question to ask switches from how do I get enough to what do I care deeply about that I can make a difference in while I am here. Certainly time and effort devoted to volunteering can make a difference, but if you can build wealth that can be used in those efforts is that not something that has value as well?
What is the arc of your life? Is the point to coast across the finish line in an RV? If it is not, then quitting the game might not be the best choice.
MexTex says
Good comments from all. Apex specifically goes deeply and personally into what this means for him. “… what do I care deeply about that I can make a difference in while I am here. ” And this can definitely vary from person to person as the ESI article shows and is reinforced in the comments of all.
For me I like to think (and act) on how do I put my kids and grandkids into a situation where they can use their strongest talents in an area that coincides with what they value to make a difference in the world. So leaving some legacy is important to me. (The theoretical background of this comes from thinking in terms of The Hedgehog Concept on p. 96 of “Good to Great” by Jim Collins and similar ideas by Peter Drucker in “Managing oneself” HBR)
ESI says
Apex —
There are some good thoughts here. A few of mine just because I can’t help myself:
As for video games, I think you proved my point. Once I complete the story mode of a game (which often takes 50-100 hours of playing time), I’m done with the game. I might play it again a couple years later, but my goal is “fun”, not completing the game, so it works. But in the vast majority of cases I literally stop playing the game because I’ve won (i.e. finished the story mode) and move on to the next game. If there isn’t a game to move onto, I don’t simply keep playing the game I just beat (my character is usually so strong that it’s no longer any fun), I reallocate my time to something else.
As for sports, I would say it depends on what the goal is. If your “game” is to win the Super Bowl and you do it, then sure, you quit. But most athletes have higher goals — like to win multiple championships, make more money, break more records, etc. In those cases they keep playing because they haven’t won the game by the way they define “winning”.
And in both of these cases, people can choose to keep playing or not — that’s the beauty of FI — you can do what makes you happy. I said this above at least a couple times (i.e. “they have the choice to do whatever they want” and “In the end it likely comes down to what I prefer”.) I’m not saying people HAVE to do anything (not sure you think I did or not, just want to be clear). I said that the habits that get you to FI may not be the ones you can/want to keep afterwards and perhaps a change is needed.
Let’s now move on to the heart of your comment:
“If you have enough of a fortress of solitude and are good at the game and can create value and extra wealth with reasonable skill and you enjoy doing so, what would be the reason not to do that? There are a number of benefits. You can create a legacy for your kids. You can create a legacy for charity. You could fund a cause, a foundation, etc. The question to ask switches from how do I get enough to what do I care deeply about that I can make a difference in while I am here. Certainly time and effort devoted to volunteering can make a difference, but if you can build wealth that can be used in those efforts is that not something that has value as well?”
Some thoughts on this:
1. It could just be semantics, but I would say you stopped playing the game and simply moved to a new one. A personal example: you have either moved on from your career or will relatively soon. You won that game, so you stopped (or will stop) playing. Why? So you can move to another game.
2. I don’t disagree with the general sentiment (as you’ll see in a couple weeks, I am moving along the same lines you suggest), but even with that, there’s some limit. How much money is enough? $5 million? $10 million? Just a little more? To personalize it, how many homes will you end up buying? Is the answer, “As many as I possibly can?” Probably not. At some point you will have “won” the real estate game and will move to something else.
3. Your example reflects someone who decides to play a new game (in my words) because they want to. That’s exactly my point — FI gives you the freedom to choose. You don’t have to work for “the man” any longer. You don’t have to save 40% of your income any longer. You don’t have to sacrifice as much so you can invest more. Now if you want to, that’s your choice. But winning the first game now allows you to determine what game you’ll play next (and it might just be the “retire to St. Martin” game.)
Finally, I too worry about a whole class of FIRE individuals who are making some very precarious assumptions like: 1) what they’ll need to spend in retirement (they often estimate too low) and 2) that the stock market always goes up big (sometimes it’s vital to their plans and they assume it because it’s all they’ve ever known). They are in for a rude awakening when the next market crash happens IMO.
Oh, and how do you know I’m not “that guy”? 😉
Apex says
Maybe you are that guy 🙂 ->
http://lh3.ggpht.com/-tMcH5_SHpmM/T9gX3gMUrGI/AAAAAAAAJfA/KRK_czsGZw0/CoverMen%252520Blog%252520-%252520Jacey%252520Elthalion%25252003%25255B2%25255D.jpg?imgmax=800
The game I am referring to is specifically wealth building because that is what the author seemed to be talking about:
“His thoughts are specifically related to investing and the assets accumulated on the way to hitting FI. He thinks that if you’ve accumulated enough to reach FI you should not continue taking the investment risks to grow your nest egg.”
I am fine with the metaphor that suggests the game may change or even that it may be a new game.
And I am fine with people who truly want to stop the game altogether. I just think people should think through what that means. It may not be what people really want and it may not always be as safe as they think either.
ESI says
Ha!!! 😉
Kevin says
Great comment and thoughtful response.
Mrs. Groovy says
I wrestle with this too. When we discuss monetizing our blog I always take a step back and say do we really need this? And the answer is no. Perhaps there’s a real easy way to monetize without selling courses on how to blog, but we haven’t found it yet.
I also recently was handed an opportunity for a possible steady freelance gig that could have brought in a nice chunk of change. But the signs were telling me that the client’s needs would be more restrictive to me than my former full-time employer. So I said no thank you. Yes, it would have been nice to dump that money into a solo 401-K, but at what cost? We’ve got a house to build!
ESI says
Haha!
I heard your husband on the Choose FI podcast — he was great!!!!
Mr. FWP says
Like you, I struggle with really saying no to other opportunities that come along. (Even though I’m not financially independent yet.) I assume that will still be difficult even after FI. I believe we are made to work, at least some, as part of our purpose, although it can look a million different ways, such as you running this excellent blog and forum (which, while fun, is work), or giving time to others. So I aim to pursue some or all of those types of things once we hit FI. But I really value family time and time outdoors, so it’ll be nice to be able to add in more balance, which will include more of those things.
Josh M says
As far as investing in stocks goes, I think it’s more of a portfolio allocation question. I would suggest you should never be completely out of the stock market. But your risk tolerance should be moving down. But theoretically this should be happening throughout your life, as you get older, you move away from risky investments (stocks) and towards less risky investments (bonds). I think there is a rule of thumb that you should take 110 – (Your Age) and that’s about the percentage of your portfolio you should have allocated to bonds, I don’t see why this would change once you reach FI/retire.
I’ve heard a quote that I can’t properly give credit for, but it’s something like “The real risk is not being in the stock market.” It’s in reference to the fact that most other investments will get eaten by inflation, so if your not in stocks, you’re barely keeping up or actually losing buying power.
I soon hope to have the same problems you are facing ESI.
RE@55 says
My dad, almost 90 now, had to go into stock market to protect all his safe investments after 2008 downturn. Prior to 2008, he had money saved in I bonds, CD’s(6%), and savings with some annuities. They were doing good. The rates all went down to 0.1% after 2008. How could he protect the principal? He went into the stock market buying preferred stocks and other dividend stocks. He also got into annuities over the years. He did good. However, most people his age probably kept their money in the “safe” bank accounts earning 0.1%. They are the ones hurting now and probably most of their principal is gone.
That opened my eyes to the fact the game is never over. You have to get ready for the next game and it will not be the same game you just “won”.
Marcu says
Newly retired at 54, have a pension that I can live on. Have enough savings and investments for my retirement dreams and have a plan of execution over next decade. I still need to stay in the game as interest rates are so low with the kicker that in Canada I still will be paying at least 30% on the dismal interest that I earn! So I remain 80 % in indexed ETFs, I see no other option, maybe because that is all I know. It’s hard to just stop. Not interested in going back to full time work, just want to do all the things that I couldn’t do while working like sailing the oceans (a very expensive endeavor, but I have the funds for it now).
JayCeezy says
People are motivated by ‘feeling’, far more than ‘facts’, and they have a hard time admitting this. Even reading that sentence is going to trigger some readers. Bottom line: FI types have empirically proven that they are ‘good’ at building wealth, and they like the ‘feeling’ that growing NW, salary, job titles, opportunities, etc., gives them.
Risk doesn’t provide any feeling…until it becomes reality. So far, for FI types, taking on Risk has resulted in Reward, and it feels great. But there is an Inverse Correlation too. I don’t expect to persuade anyone to lock in their FI ‘nut’, but the feeling of ‘more Reward’ has diminishing returns. People that stay ‘in the game’ after reaching FI are pursuing a ‘feeling’ that more money gives them. I hope all FI-types don’t have to experience the ‘feeling’ of watching NW slide back below the FI level back to Losing. Nobody pursues the ‘feeling’ of Losing.
phr3dly says
I’m trying to figure out now whether I stay in the game or leave. My liquid-ish net worth gives me a SWR at 3% of about $90K, easily enough to live off. I’m in a moderately lucrative career as an engineer, in my early 40s.
I like my job, but there are times when it’s very stressful. And further, while I could (and do) live off of less than $90K I also enjoy that I can buy what I want (within reason) without worrying about the cost. I’ve told myself that if that new $200K Tesla Roadster is everything it’s cracked up to be, I’ll buy one once the waitlist is gone.
I don’t want to “retire”, because I think I’d be bored. I don’t want to “work” at a job that pays peanuts, because I think I’d be annoyed at being required to show up at a given time while making a fraction of what I currently make. I also appreciate having benefits like health insurance.
I’m strongly considering having a heart-to-heart with my management. Put (most of) my cards on the table and tell them that I’ll continue working but want to explicitly take myself off any accelerated career track. I’ll provide my experience and expertise, perhaps part-time, for the foreseeable future. That may be preferable to them than having me retire early. Or they may show me the door 🙂
ESI says
It would make a great blog post no matter which way it goes… 😉
Phillip says
+1 on the blog post. Or even a long follow up comment on this article would be nice.
Joe says
I have a lot of trouble with spending money and investing as well. It’s very difficult to change your habit especially since they are good habits. We’re still relatively young (44) so we can keep playing the game for now. I think age has a lot to do with it too. If we were 65, I’d be much more conservative with our investment.
Bryan says
Take away point is that if you require riskier assets (like stocks) to live on your savings then you are not financially independent. You need to be honest with yourself, especially if you give up a lucrative job that you enjoy. The difficult issue for me is to know how much is enough 40 years from now.
ESI says
Great point!!!!
Joe says
$14,000,000 net worth. Still playing the game…
We don’t have anything close to a luxurious lifestyle I think I stay invested because I don’t want to fall behind by standing in place. I see costs around me going up by much much more than the rate of inflation (health insurance, tuition costs, restaurant food, services).
ESI says
Are you still playing because you want to (ie enjoy your job and do it for fun) or because you’re afraid your net worth is not high enough to do something else?
Joe says
I’m early retired for 10 years already. By playing the game, I meant I am still invested in stocks, and even in individual stocks (gasp!) If I had continued working (I retired in my late 30’s), it would have meant 10’s of millions more, so I definitely gave up a lot to quit that part of the game.
If the net worth ever grows to $20 M+ some day, I would buy a bigger house. Around the SF Bay Area, that means $4 M+ for a house, along with $100 k of associated expenses each year.
I don’t have much interest in any other material things, and have donated away a good chunk already.
Jeff B. says
With $14M I think you will be fine keeping up with rising expenses. 🙂
Chad Carson says
Lots of good thoughts here ESI. Your last one – hard to turn down opportunities – is what I’ve faced too. I’ve created a pipeline of real estate deal flow over the years and I’m good at creating deals. But more deals would mean more hassle.
The only short-term compromise I’ve found over the last couple of years is to keep the same portfolio make-up, but upgrade. So, sell off the worst 10-20% and replace it with better properties. At some point you have no properties you want to get rid of, and you move on.
I’ve also found that my writing and teaching is a replacement from me having to hustle and grow on my own account. I find it much more rewarding helping others grow than building my own empire where I have the stress and hassle of extra assets.
Mr. FWP says
Love that idea for giving back. I hope to do the same someday, and have done a little of that already.
Coopersmith says
Very good post. I am approaching the slow movement of out of the game. With the recent increase in the markets, I am investigating the dialing down approach and looking into other investments that are less risky but still make a good income.
I am looking into the less volatile stock funds that are geared more toward a minimum volatility index and bond funds that are not just a total bond but offer broader exposure and higher yield.
WealthyDoc says
I think Bill Bernstein is brilliant. He has given me some personal financial advice that runs along these same lines. Another genius (NN Taleb) has given me similar advice to “stop trading.” I reached FI and still work part-time since I like my work. The risk asymmetry doesn’t support further risk. I keep my stock investment to a minority position. There is some growth, but minimal “drawdown” risk.
Paper Tiger (aka MI 27) says
ESI, I love this article and all the great comments associated with it. I am right at the point where the game is changing for me, from accumulation to preservation. I am 60 and my current investment mix is 85% Equities, 10% Cash, and 5% Bonds. About 53% of the portfolio is in tax-deferred retirement accounts. The mix changes if I add our home equity and personal belongings/collectibles. It would then be 70% Equities, 8% Cash, 4% Bonds, 14% Home Equity and 4% belongings/collectibles.
I’m learning the game is quite different when you move the focus to preservation, with more considerations around taxes, than I would have thought. I’ve been a DIY investor for more than 30 years but I’ve decided to work with a retirement planner and CPA to put together my game plan for preparing my portfolio for retirement. As others have discussed, I’ve “won the game” already in terms of achieving FI so now it is a matter of not blowing it.
One of the things we are considering is taking the deferred portion and converting it to Roth IRAs over an extended period of time so that I can pay the taxes now and then have tax-free income for life on those earnings that can be passed on to our heirs, tax-free as well. I will also buy an annuity to provide some income that is safe under any market condition. That still leaves me with almost 50% of our investment portfolio of non-qualified money that I can continue to invest freely as I see fit because all of my income needs for retirement will be taken care of between our Roth IRA and all of my other income streams.
I need my CPA to help figure out how much to convert each year and what accounts to pull from in our non-qualified accounts to pay the taxes. Like I said, the game changes and there are more things to consider as you set up the portfolio for the rest of your life, and beyond. I’m learning as I go with this and it has been quite interesting.
Jay says
I haven’t read all the responses in detail, but I think I get the message. Personally I live in los angeles and am financially comfortable, but rent an apartment at this time.
I have a somewhat stressful job and at age 55, not sure how much longer job will last.
If I left/lost job I could probably relocate to lower cost city, like atlanta (used to live there) and semi retire. Health insurance is the concern.
I am now in the process of buying a condo in LA to live in. Though this may not be a sound financial move. The condo costs close to 420k. I would put 25% down. Thus have a loan over 300k.
If I lost job I may be OK semi retiring but it would be harder in LA then lower cost city.
Risk is, I lose job, and condo goes down in value. Then my financial situation worsens and I am stuck with depreciated condo.
I believe I would enjoy condo resort like lifestyle.
Any thoughts out there on my home purchase dilemma?
Thank you all.
ESI says
First of all, I hope you are well/safe. The fires out there look terrible.
Second, there’s not enough info to really have an opinion one way or the other other than these:
“not sure how much longer job will last”
“Risk is, I lose job, and condo goes down in value. Then my financial situation worsens and I am stuck with depreciated condo.”
Not sure about the condo value, but sounds like you could lose your job.
If I was in a situation where I thought I might lose my only (and vital) source of income, I wouldn’t be buying anything very expensive.
If you’re thinking about retirement and can’t afford it in LA, you’re right, you have tons of other, low-cost cities to choose from that would help you out quite a bit from a cost standpoint.
Good luck.
Jeff B. says
I have unclinched a bit once we hit $4M liquid. We are going on a cruise next year that will be about $10K. We have budgeted $100K in travel once we retire. We should have $6M in about five years. I don’t think we will have any issues doing what we want, but I am not going to spend $10K flying first class just because I have the money.
Phillip says
I agree spending $10k to fly first class is a slippery slope best avoided. Your past behavior got you to where you are. If you’re fiscal values change too much, you can lose the great success you’ve achieved.
Dave says
A wise man once told me, “no, definitely don’t fly first class. That will be for your son-in-law to enjoy..”
🍷
Brian says
Winning the game is so much bigger than financial freedom. We devote so much energy and focus the this sub game or single factor. Winning the game is much more. Maybe winning the game means focusing on winning the other factors or sub games that were previously neglected.
Regarding the financial freedom game: as a retiree, the risk profile has simply shifted. You have changed your life and changed your sources of income when you walk away from the professional world. The financial game is now very different with different goals.
The game is still to maximize returns given the new risk profile. As an index investor the goal was never to win the investment game- you were just average. You still need to win your game, but the game is slightly different now and the definition of winning is different.
Redefine the game and the metrics that determine success. Don’t walk away from the game.
Each of us have different metrics that define our games in life- $1mm, $10mm, $1b are all different metrics of financial freedom for different people.
Jason@WinningPersonalFinance says
There is so much great info in here I don’t know where to start.
1 – When you have enough, make sure your allocation protects your “enough.”
2 – When you have enough, it’s okay to spend some of it to maximize happiness.
3 – When you have enough, use your time the way you want too. If that’s being a CEO, great! if it’s lying on the beach, that’s cool too. That’s the beauty of FI!!!
Randal Graham says
This is such a great post, thank you! I too struggle with these issues (I also agree with you about the Tesla!). I have been retired for 3 years, since age 58, and my net worth has also gone up without touching my retirement investments (IRA, Roth IRA, tax deferred annuity), and my net worth continues to rise, thanks in part to the bull market. I have no interest in resuming my former career as a surgeon (too much stress and long hours), but find it hard to spend easily, and still have my portfolio positioned for some growth (basically a balanced asset allocation with 60% or so equities). I think it is reasonable to continue to invest for some growth, as long as you can live on whatever would be left in the event of a personal or market calamity (a lot of us got to FI by being frugal–a part of the ESI principles), and here’s why for me. I don’t want to leave it all to my kids, since too much unearned wealth can have very negative consequences (ie, lottery winners’ ruined lives), not to mention the possibility that some or a lot of what I have worked for could be squandered, but the higher my net worth is as I age, or at my passing, based on continued investment for some growth, the more that is left over to donate to make the world a better place, and there is no end of need for that, in any way that appeals to you. I guess it is the model of the Bill Gates and Warren Buffetts of the world. They have more than they could possibly need, and have for a long time, but that hasn’t stopped them from accumulating more, with the desire and intent to be philanthropic. That is an opportunity that few will have, and even fewer will take, but if one is so inclined, a incredibly wonderful legacy to leave, and a great example for your heirs as well.
Shaun says
The Tesla comment caught my attention. Yes, they are expensive. My goal, and I’m blogging about this, is to save up enough money and put it into a passive investment that throws off enough income to make the car payments. When the car is paid off, I’ll have the car and the cash! I htink once I hire FI, that will be the type of game I’ll play – find investments that will pay for whatever big ticket things I want.
Ten Factorial Rocks says
This is a timely post. With 10 years worth of our living expenses gained in the capital markets in just one year, and with the euphoria about the new tax plan behind us, I have reached a similar conclusion to take significant chips off the table. Sure, there is always a possibility of missing further gains but FOMO gets a lot of people into trouble. As someone who went through it in 2000 and 2008-09, I think many investors are grossly overestimating their risk tolerance. We have seen almost no even 1% down days in the stock market in the last couple of years. The other day, I read people in a website talking about a 0.5% downswing as a “correction” ?. It is almost as if it’s a foregone conclusion for the market to go up every month and any Pre-market declines are magically erased soon after market open.
In these times, it is prudent to make some or most chips off the table, especially if you’ve “won the game”. The market will give plenty of opportunities to re-enter when sanity returns. As much as people and media talk about avoiding fear when investing in equities, very few mention about avoiding greed as well. I say this as an investor who has personally gone through both severe bear markets above, and as one who’s been in almost 100% equities until recently.
Snowdog says
I agree with your observations that many in today’s markets lack a realistic perspective and the impending correction will be earth shaking. Especially to all those newly retired 30ish year olds with small children yet to raise and educate. However, your last paragraph sounds like market timing to me. As they say, they don’t ring a bell at the top or the bottom of the market. Getting in and out at the right time has proven to be a futile approach resulting in lower than market returns over any meaningful time frame. Each investor has to decide on a withdrawal strategy and also determine what level of exposure allows them to sleep well at night. Any money in equities has to have a long term horizon.
Financial Samurai says
This is a great topic! Give yourself a Rockstar Shoutout! Seriously! 🙂
It depends on your personality. I felt like I won the game in 2012, hence why I left. But, as competitive tennis player, coaches say to always PRESS when you are ahead and never let your opponent a chance to come back.
I’ve toned down my risk, but I tuned UP my hustle to build a business to increase the lead. All I want is a ~5% tailwind on my investments while my business grows.
The thing w/ a Tesla is that you need to spend $2,000 – $4,000 installing and buying the charger. Could be good! But they are a dime a dozen here in SF. Maybe in 5-10 years!
Sam
Shaun J Stuart says
That’s only if you get the high speed charger. You can install an additional 240v outlet (like a washing machine or dryer uses) for about $50 and use that to change overnight.
Financial Samurai says
In tennis, what we do is step on our opponents the road when we are ahead to ensure that we win and not blow a lead.
We see teams blow incredible leads before. It’s kind of the same mindset with personal finance. I didn’t quit in 2012 when I left my full-time job because I wanted to run up the score and absolutely make sure I never have to work again. I was 34, and didn’t wanna have any regrets.
Now that I’m 40 years old, I’m going to finally take it down in orange. The bull market might have one or two more years left and I just want to stay conservative now for the remaining years my life.
But if the government probably repeals the death tax, maybe not!
Sam
Jerry Brown says
I am no where close to reaching FI but I could see how the saving habit is hard to break. Currently, I look at the opportunity cost of every purchase I make. Could this purchase have gone towards paying off more debt instead or be given away for a good cause? I am not sure if that will ever stop
Dave says
I am planning on retiring with an asset allocation of 50% in bonds to cover about 20 years of living expenses. The additional 50% will be invested in stocks for growth and inflation. Losing the game means having to return to work. Those stakes are just too high for me.
Paul says
I have been saying this exact statement for years with no answer.
I have over time increased my “safe” holdings like CD’s, I Bonds, MM funds. According to every calculator, financial planner I speak to, every blog I read I have to much money in my no risk category.
The thought for me is I still have over 1.4 million in the stock and bond mutual funds with a 50/50 split. I have been retired for almost 5 years without ever touching any principle. I believe the reason for that is the amount of cash the safe part throws off and the stock market going crazy for the better part of 5 years.
I have read every post and I still can’t make up my mind. It feels like if you have been doing something for as long as you remember and it got you where you are today how do you stop even if you want to?
Thanks to everyone for all the posts.
Steveark says
I think the 4% studies generally all assume a balanced portfolio with a significant position in stocks. Risk is a tricky subject and it is impossible to eliminate it just because you’ve hit your number. Inflation is a real risk you don’t control and you can’t overcome inflation with a “safe” portfolio. My portfolio is 50% stocks and the rest is in bonds mostly but I also have a chunk of cash, some REIT’s and even some commodities. That blend could support 4% withdrawal but I also choose to work at some part time side gigs which have been paying quite well so my actual withdrawal rate is zero. It probably will stay at zero until I decide to quit doing them which I’m guessing will be around age 70, a long way off. Keeping yourself employable through part time side gigs or other part time work after you pull the retirement trigger is a great way to manage the risk of market crashes and inflation. It also provides a little bit of the structure and requirements to perform that can provide a feeling of relevance and significance. I’m sure not everyone needs work to provide that but for the two years I’ve been slightly early retired it has improved the quality of my life to have some work to do. And I’m pretty sure a zero percent withdrawal rate is safe no matter how I invest!
Noonan says
Much of this great article resonates with my own views.
I retired ten years ago at age 48 and my wife retired a few years later at age 46.
Upon retiring we pivoted from stocks into less risky assets like CDs, money markets, and bonds (currently, less than 10% of our total assets are in equities).
IMHO our nest egg is like a wasting asset that will eventually lose much or all of its value as we tap into it for living expenses (and despite our low exposure to stocks the egg is bigger now than it was ten years ago).
Knowing when you’ve won the game has its advantages. Over the past decade I haven’t spent much time worrying about fluctuating equity markets. Instead, I’ve spent a lot of time kayaking, hiking, biking, skiing, snow shoeing, berry picking and hanging out with friends and family. (What I like most about retirement so far is the overall absence of stress.)
Those who reach financial independence gain not only their freedom from having to work, but if they so choose they can also gain their freedom from having to over-worry their finances. There’s a big world out there that should be enjoyed. Post-retirement, I’ve come to believe that incremental hours of freedom are far more valuable than incremental dollars of wealth. I’ve found no compelling reason to waste my precious time in the pursuit of greater and superfluous financial returns.
Sean @ FrugalMoneyman says
This post brings up a great point that I have no idea how I will even personally address yet.
I am 25 and my financial life currently revolves around stock index funds! All of my effort is focused towards putting my money in the right stock index funds for future growth. Occasionally in the back of my mind I will think about the day when I don’t “need” anymore growth from my funds, but it is almost a scary feeling. My brain is wired right now to focus on building, not what I will do when the construction is complete! And most people I have come in to contact with who are personal finance nerds absolutely love the next challenge. It is a different type of high than anything else, to the point where it can be euphoric!
Thanks for the insightful share!
Chris says
Very nice post, covering some of the dilemmas I briefly encounter on my road to FI…
A few years ago I got into some serious debt, and in my desperation / determination to overcome this I essentially stumbled upon a goose that lays golden eggs. All I need to do is return to the nest and there are eggs there again. However this started to feel like I was using “cheat mode” to get through life, so I forgot about the nest.
Every now and then my thoughts turn back to it, how I could hasten my journey to FI if I just visited the nest every so often. However, what I’ve discovered is life is no fun if you win the game by cheating.
So what I’ve realised is it’s not just about winning, but how you win that counts. Take whatever steps you need to take to be the person you want to be, not just for your own sake but for the sake of those who look up to and admire you. For me, this philosophy has triumphed over winning at all costs.
Mr. Enchumbao says
Awesome post! We reached FI last year and will be retiring next year. (I’ve been waiting a full year to say that!) Even though we’re still accumulating we got some chips off the table last year by shifting our assets to a more conservative allocation.
We reached our FI number earlier than predicted, due to the market performance and our aggressive savings rate of 65+ over the last 4 years, and realized that with only a couple of years away from retirement we needed to add more bonds to our portfolio to preserve our wealth. I can stomach a 25% drop in wealth and still retire but I don’t know if were confident to retire with a net worth drop of 50%.
As the market went up last year our net worth still went up by 31% and we have an allocation that we can leave untouched for the next 30 years and still be fine. Out of that 31% gain, 45% came from stock market returns so even with our allocation of approximately 60/40 (stocks-bonds) we still enjoy gains from the market and have a pillow to cushion the blow when we hit the next recession. We still play the game, we just don’t play it as often. 😉
Money Beagle says
I agree with this to an extent but I think that the reason many people ‘stay in the game’ is the fear of the unknown. They may have enough to retire on with the money that they have today as things stand today, but that doesn’t mean that things are going to stay that way. Retirement can last much longer than it did in the past. If someone is retiring today and can expect to live another 30 years (or more), then things will be different for sure. Someone retiring 30 years ago probably would have not factored in the cost of health care that exists today back when they retired. That might have given someone back then pause, and I can see the same thing happening today.
Bottom line, I think some keep going for reasons you mentioned, but I also think there’s a ‘just in case’ factor that comes into play that keeps many ‘in the game’.
MillionaireInterview73 says
Not sure ESI Money can full appreciate the impact this article has had on so many people (including me). It is also mentioned multiple times in my recent Millionaire story as well.
https://esimoney.com/millionaire-interview-73/#comment-25211
Kudos ESI Money !!!
XSC says
I have great respect for Mr. Bernstein but I think this is terrible advice, depending on the definition of “risk” and what it means to “play the game.” Because really you are taking on risk no matter what and you are always playing the game.
It is foolish to believe bonds are risk free, except in a narrowly defined sense of being guanrreed of getting your (nominal) dollars back. So you are assuming the interest rate risk for a given duration; you are taking on the risk of rising inflation; you have reinvestment risk; and relatedly, you have the risk of your bonds being called and replaced at a lower rate. Not to mention a lower expected return.
Equities subject you to higher volatility, no guaranteed return of capital, and greater uncertainty especially in the short term (though potentially for decades or more). On the other hand you mitigate inflation risk and you have a higher expected return over the long run, not to mention likely an ever increasing stream of dividends (but no guarantee of such).
So you pays your money and you takes your choice. I took the advice and “quit playing” right before the market crashed . Lucky me, right? I was feeling smug for a while, then the cost of my strategy (90% bonds) became apparent as I missed out on huge gains. I went 80% equities in 2013 and that has worked out well, and my ever increasing stream of dividends has more than replaced my bond income.
I’m no expert and I’m not qualified to give anyone advice, but I don’t see the sense in ever getting out of equities altogether. In my view a bucket or income based approach can work better. Do you really need 100% of your portfolio to maintain its cash value over the long run? Can you really forgo growth altogether? Are you content to view your nest egg as a wasting asset? Do you want to leave a legacy to heirs and charities?
The question is not of quitting the game or not, but of how you want to play and what bets you want to make while you’re playing it. You really don’t quit until you die.
Elizabeth says
Habits are indeed hard to change. I have two family examples.
My father has always been pretty frugal just on principal, bordering on cheap (with the exception of giving generously). He continues to be that way and spends only about $36K a year by my estimate (plus donations) despite being retired at 65 with investments of about $4 million. He hasn’t even tapped social security yet, but once he does that stream will pay for his fixed expenses. Yet we have to coerce him to turn the heat on in the winter rather than simply using a heating blanket; he shops at the Dollar Store and Wal Mart. He did splurge on a very nice car, but he just cannot bring himself to spend regularly, even on the things he loves like coffee (he buys the cheapest option). Interestingly, he is 100% in equities and relishes the game of investing. He watches the market and his holdings daily, and the reality is that he can afford to lose 50-75% of it given his spending.
My grandfather was around 75 when he asked me what % I thought he should hold in equities. He had a $10 million portfolio and lived in a very low cost of living area with most of his budget going to giving and the rest to largely discretionary things like travel. So I told him I didn’t know why he’d hold any stocks; I think I may have even used the quote about quitting after you’ve won the game. Well he did transition to a 100% muni bond portfolio. As a result he’s missed out on the last decade of stellar stock market returns (he’s in his mid 80s now). Actually his kids did because he’s given them most of his estate already in the last few years. And really he could have afforded to take the equity risk given his budget. Most notably, eliminating most of his investment risk in now way reduced the amount of attention or tinkering he felt the need to give to financial matters. Some people are just wired to over-analyze things (most PF bloggers and readers I imagine), and all the simplicity and efficiency in the world isn’t going to actually tear them away from financial news and media and tracking.
BigLaw Burnout says
I have to say that I know this about myself – I’ll never be able to buy treasuries or investment grade bonds. So I had to get to the point that dividends from my “growth” stocks can fund FI. That meant having to get to a larger number, which took longer, but also means that I stay invested in the companies with the best long-term prospects. Volatility =/= risk. If the stocks all fall 50%, dividends won’t, and I won’t have to sell a share.
That’s the plan, at least.
Bernie Johnson says
I really enjoyed this article. It covers those with significant amounts of net worth, who should enjoy what they have achieved. It warns about reducing your FI risks as you settle into retirement. It even has a few nuggets of insight into the risk of early FI at the lower levels of net wealth. The stock market has been on a general rise since around 2009, but who knows what our future holds. It’s easy to become complacent about the risks. Between the excessive national debt in various nations and the rising healthcare costs, it’s really impossible to know what our future holds.
BJ
117 says
Some people prefer to play the game than watch from the sidelines. It’s in our DNA.
Joe Saul-Sehy says
I still find this general line of thinking disturbing, years later. “Quit playing” is disappointing on a lot of levels. You have a lot to give and contribute. You have a community that needs you. Good for you that you’re all set! The idea of not growing is contrary to our human journey. If you aren’t growing, says Dylan Thomas, you’re dying. So let’s keep that growth mentality.
ESI says
I don’t think this is about stopping growing.
It’s about not having to play the FINANCIAL game any longer. You can ease back on earning, saving, and investing and relax a bit once you’ve won the game.