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April 2018–Best of the Web

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It’s time to explore the best articles from around the web to help you save more, invest smarter, and retire sooner.

This month we start with articles focused on one of our core principles, keeping your finances simple. We also look at times when you can’t oversimplify.

We’ll shine the spotlight on some icons of the FIRE movement, explore the idea of Fat FIRE, and examine challenges of retirement planning.

With that, let’s dive into April’s Best of the Web.

Keep It Simple

One of our favorite blogs is Mike Piper’s Oblivious Investor. He regularly shares straight forward investing, tax planning, and retirement advice. Jonathan Clement distilled some of his wisdom. ObliviousInvestor.com.

Piper recently provided more support for simple, all-in-one portfolios. Are Most Investors Better Off With All In One Funds?

The S&P Indices vs. Active SPIVA annual report was released, giving further evidence for a simple passive index investing approach.

But Not Too Simple

High returns and low volatility in domestic stocks over the past few years have some investors questioning whether owning international stocks is necessary. Larry Swedroe shared his opinion. Don’t Abandon International Diversification.

Dirk Cotton wrote an excellent review of the limitations of Monte Carlo analysis. The Limits of Simulation.

I’m pondering adding complexity to my portfolio, diversifying some of my assets out of passive index funds into rental real estate. But, I’m hung up by my debt aversion. Chad Carson tackles the topic of using debt to invest in real estate. Dave Ramsey Says Debt is Dumb in Real Estate Investing. Is it True?

Pioneers of FIRE

Elizabeth O’Brien featured Vicki Robbin, author of  “Your Money or Your Life”, in the most recent Money Magazine cover article. The article quotes leading FIRE bloggers who’ve embraced Robbin’s principles, including Darrow. A Growing Cult of Millennials Is Obsessed With Early Retirement. This 72-Year-Old Is Their Unlikely Inspiration.

Billy and Akaisha Kaderli were among the first FIRE bloggers at Retire Early Lifestyle. They’ve also written a number of e-books on the topic. I was honored to share my story with them in this interview. We covered topics I’ve never discussed publicly before including overcoming fear, making the world a better place, and how my mom sparked my interest in investing and financial planning when I was in high school.

Fat FIRE

O’Brien’s article touched on the different variations of FIRE. One variation that appeals to me is Fat FIRE, pursuing FIRE without the emphasis on extreme frugality. Physician on FIRE explores this concept. What is Fat Fire?

I wrote a guest post for Physician on FIRE, Retiring Early in Healthcare Without a Physician’s Income. It wasn’t through extreme frugality. I shared how I traveled the world pursuing hobbies including high altitude mountaineering, SCUBA diving and even attending two Super Bowls while saving a high percentage of a normal professional salary.

Retirement Challenges

Steve Chen outlines the many challenges of retirement planning and proposes better solutions. Note From the Founder, The Why Behind New Retirement.

Jillian at Montana Money Adventures exposes a challenge faced by those approaching the early retirement decision. Most of the people I’ve met taking this path underestimate this challenge. I did too. Trouble with the 4% Rule.

[Contributing Editor Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. Now he draws on his experience to write about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? You can reach him at chris@caniretireyet.com.]

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Comments

  1. Thanks for including my real estate investing debt article, Chris. Have you found an approach to debt (or no debt) with your future real estate investing that you are comfortable with?

    • Chris Mamula says:

      The more I gain an understanding of the math of carefully using debt to control cash flowing real estate while creating a tax shelter and allowing other money to continue to be productive in other areas, the less scary it becomes. Using debt (HELOC) has worked out well in our initial experiment renting out our future home over the past year.

      Still it is a mental hurdle. We got to this point in large part by avoiding debt at every turn other than our primary mortgage, and even that we paid off in a little over 7 years. We definitely value not owing anything to anyone, even if it isn’t necessarily the optimal financial decision.

      Still not sure what direction we’ll go. Having the framework you provide is helpful.

  2. It has been said by many others that the problem with the 4% rule is that it is not a rule. It’ a rule of thumb.

    In the lofty equity valuation environment of today, I could never imagine being comfortable with 4% SWR. Is our goal of 2.5% in a more traditional retirement scenario (i.e no longer actively seeking work) too conservative? Maybe. Only the next 40 or so years will tell. If you fail to prepare, prepare to fail.

    I’d rather have safety nets and contingencies for the contingencies built in to help weather any market storms that will hit at some point and could hit quite hard. If GMO, Research Affiliates and the like are correct about future equity market returns over the next 10 years, 2.5% will still mean we will be eating into principal. But not nearly as much as we would be with a 4% withdrawal rate.

    There is never of course a “one size fits all” approach. I would hope that anybody thinking about FIRE (Fat, lean or otherwise) will be approaching it with at least some level of conservatism built in – either on withdrawal rate or additional/diverse income sources.

    • Chris Mamula says:

      Agree 150% with all you’ve written. That said, I think Jillian’s article could be titled “Trouble With the 3%” or “Trouble with the 2.5% rule” and it would still be valid. It refers to the mental hurdle that you have to overcome to make a drastic change that goes against the things we enjoy, are good at, and get us to this point which are earning, saving, and investing and requires shifting to things we tend to struggle with; not having regular income, spending rather than saving, and watching investments potentially shrink instead of grow. I’ve written about this before in different terms: https://www.caniretireyet.com/fundamental-problem-retirement-planning/

  3. I enjoyed your interview over on the Kaderli’s site, Chris, and love that you featured some FIRE pioneers. I’m also pleased that you shared my fatfFIRE approach, so thank you for that!

    May your FIRE be as fat as you want it be.

    Cheers!
    -PoF

    • Chris Mamula says:

      The Fat FIRE concept is one that resonates with me and I think would with readers of each of our blogs. Happy to include it and spread the idea.

      Cheers!
      Chris

  4. Hi Chris and thanks for a. Ice recap!
    I am trying to set up my portfolio for retirement and plan to use the three bucket method I read about in Kipplingees. That calls for one bucket of money (I.e. the middle bucket) in bonds. Do you or any of the experts you have come across have a good book or source for understanding and selecting the type of bonds to purchase? Vanguard had some good reading material, but I need help understanding which type of bond is best for my situation
    Thanks much!

    • Chris Mamula says:

      Thanks Dave. Re: bonds, I really like the Rick Ferri book “All About Asset Allocation” which I will be reviewing in an upcoming post. It gives a great breakdown of the different types of bonds and their unique risk/reward characteristics, tax treatment, etc. Hope that helps.

      Chris

    • Marjorie Kondrack says:

      The very best book I ever read is How to Make Your Money Last by Jane Bryant Quinn. Easy to read with invaluable information. Available through your library (free) or you can purchase this gem and keep it for reference.

  5. Thanks for including me! It’s been an interesting for us to personally learn when we stepped away from our jobs in our 30’s (still haven’t pulled any money out!) But then in coaching dozens of people about to retire, it’s such a common hurdle! I think if people realize the challenge they can build a solution into their plan 3 or 5 years before they plan to retire and enjoy the process much more!

    • Chris Mamula says:

      Agree 100%. People get very caught up in retirement meaning you have to completely stop work and draw down investments, which can prevent people from taking the leap or causing them to live with a scarcity mentality if they do. That traditional definition of retirement doesn’t make much sense for people like you and I doing this in our 30’s and early 40’s. That said, I think the things we’re doing make a lot of sense for people in their 60’s and 70’s as well if it allows them to live with a feeling of abundance while providing a sense of purpose which is often lacking in retirement.

      • That’s a great point about people in their 60’s and 70’s. When I work with people in their 50’s we focus on: What is the thing you would absolutely love to do until you physically couldn’t do it any longer?

        If someone has put in that many years of working and saving, it’s about time to spend their time on things they really love and feel like is making a difference. Even having 1-3 hours of work a day I think helps people stay young and engaged. I hope I have an awesome hour or two of work a day when I’m 80! Not because I need the money but because I know it’s my very best contribution to the world.

        I saw one of my very favorite authors in the Costco food court. He’s written about 30 books and is in his 80’s. He’s said he won’t write anymore books or do any public speaking but when I saw him he was busy writing and working on ideas. =) I love that!

        • Chris Mamula says:

          Agree and love that perspective. I was originally overly focused on early retirement, but as I began to observe the people who seemed happiest and who I most admired, it was those that were doing work they really believed in. At that point for me, financial independence became more important than ever b/c it frees me to pursue those things w/o worrying about if or how much money they bring in. Retirement defined as doing no paid work became much less appealing.

  6. IMdunDDS says:

    One conundrum I am dealing with is asset location in the drawdown stage, as generally one would want to sell mostly from the taxable account to get hit mostly w/ cap gains and not income early on, right (except for some tax-deferred selling right up to the top of the same marginal tax bracket, or strategic Roth selling)? But – you also do not want to be forced to sell equities or equity funds in a significantly down market. Thus you should maintain an ‘adequate’ buffer of bonds/alternative investments/real estate/cash in the taxable account. So you must have a fair amount of tax inefficiency (40% or 30%?) near and at retirement in the account you ideally would want the most tax-efficiency at younger ages to be located. Does this make sense??

    • Chris Mamula says:

      There are ways to construct your portfolio, draw from it, and rebalance in a tax efficient way while still managing the effects of volatility. Darrow has written extensively about retirement income strategies ( https://www.caniretireyet.com/subject-index/ ) and this is a topic we’ll continue to cover in the future. We can’t offer specific advice to any individual without crossing a line from being educators to giving specific financial or tax advice that we are not legally able to give. You would likely benefit by meeting with a fee only financial planner or other tax professional.