Beaudacious wrote:
The hesitation speak is what gets to me. You have to work longer because "what ifs" might happen. But I think playing it safe can be a crutch when taken too far.
Well said.
Fear is often both a motivator and a deterrent at the same time. Work hard and save because you'll need the money (a good thing), but never stop working because you may need even more money (an irrational thing). Some people eventually stop to ask "is there another way to tackle the unknown than to throw maximum money at it" while others do not.
It actually doesn't surprise me that those who have been very successful in earning, saving, and investing millions would, counter-intuitively, be most fearful of life outside the cash flow equations. In times of uncertainty, it's human nature to fall back on what you're good at. Developing personal skills other than money management may give one the confidence to face the unknown with more excitement.
I am a Boglehead and an EREr, and actually retired at 25. Being a Boglehead just means index investing - high spending is a feature of "people" in general, not of "Bogleheads." (and Bogleheads are people too, believe it or not). And actually I'm quite sure that Bogleheads are considerably more likely than the general population to be ERErs, since they already start with a base of high saving and thoughtfulness about retirement.
@JeanPaul - Bogleheads are people too? I thought they automated their lives as well... Robots I say!
JeanPaul wrote: And actually I'm quite sure that Bogleheads are considerably more likely than the general population to be ERErs, since they already start with a base of high saving and thoughtfulness about retirement.
I think that's what surprises me about the Boglehead population. You'd think more would be inclined to actually retire extremely early. I lurk on their boards because of their similarities with the ERE crowd, but that final step of actually stepping away is rarely taken or supported unless they're 50+.
Side question: Do you follow the simple 3 portfolio or do you have a different set-up?
On my ranked list of other groups that have things in common with ERE, bogleheads are near the bottom. The only overlap is their ability/propensity to save and invest.
Here's my crude list of compatibility/overlap (from most to least)
1) Permaculture (ERE is practically permaculture applied to personal finance. Many don't care about traditional jobs and money, but almost everyone immediately 'gets' the ERE way of thinking.)
2) Survivalist (they share a focus on self-reliance and resilience, ERE doesn't care so much about guns, bunkers, and taking to the hills, they are also generally quite libertarian which tends to work with ERE's capitalist focus and taking care of yourself)
3) Simple Living (they are onboard with most ERE stuff, even if not deliberately strategized and designed. EXCEPT the money, many simply don't like money and thus they aren't FI and will never get there)
4) Early Retirement (they found a typically financial way to liberate themselves from careerism, OTOH, many of them hate their jobs and simply cannot conceive how someone can be both FI and work a job. Many are still tied to consumerism possibly because most are of a generation where fat pension plans were still a fact and thus they did not need to break with consumerism)
5) Bogleheads/ycombinator (they are professional enough to make and save a lot of money, however they still live in a consumer world and thin in consumerist terms, their valueset is that of careerism, your value as a person is proportional to your ability to follow orders from your superiors and do what society expects of you, significant LBYM is beyond them, saving 30% is considered A LOT, simple living = poverty, if you say you only pay $500 in rent, they think you're lying, if you save more than 50% you're lying or sacrificing your youth, if you suggest meaning can be found outside of a career, your at best crazy and at worst not fulfilling your social contract, DIY is at best a show on TV, they would never consider fixing a broken toaster)
6) yahoo/youtube/mainstream media (don't get me started)
Beaudacious wrote:@JeanPaul - Bogleheads are people too? I thought they automated their lives as well... Robots I say!
JeanPaul wrote: And actually I'm quite sure that Bogleheads are considerably more likely than the general population to be ERErs, since they already start with a base of high saving and thoughtfulness about retirement.
I think that's what surprises me about the Boglehead population. You'd think more would be inclined to actually retire extremely early. I lurk on their boards because of their similarities with the ERE crowd, but that final step of actually stepping away is rarely taken or supported unless they're 50+.
Side question: Do you follow the simple 3 portfolio or do you have a different set-up?
No, I believe in an effectively efficient market, and only use passive indices, but don't follow Bogle's portfolio (which originally didn't even have foreign stocks). I tilt towards small-cap, because I'm willing to accept the higher risk, and towards foreign stocks, because I don't want to concentrate too much risk in a single market (especially one where I don't live, since that creates currency risk). And I'll admit that at heart I'm cheating and timing a bit - the US market also just seems so overvalued (especially relative to Europe), that I wouldn't want a full market-weighting regardless.
I would say 5 passive funds is pretty average for a Boglehead - small and even value tilt is pretty widespread among Bogleheads,even if not Jack Bogle.
JeanPaul wrote:I would say 5 passive funds is pretty average for a Boglehead - small and even value tilt is pretty widespread among Bogleheads,even if not Jack Bogle.
Isn't the only practical difference between ERE and them the fact that ERErs focus much more on the reducing expenses side?
I am amazed by the amount of criticism coming from them in the forum, and even more by the fact that it seems to come mostly from the meaning of the word "retirement".
They seem very different to me. ERE doesn't rely on the efficient market theory, whereas Bogleheads categorically do. They're not at odds by definition, but EREs can and do invest in PP, real estate, timing the market...
On the investment side, Bogle was a strong believer in Modern Portfolio Theory. MPT assumes that investors are rational and that individual securities are always efficiently priced. If these assumptions are true, then one should combine securities into one index for each asset class (roughly speaking) which has a risk they define as the price volatility ... and then combine these asset classes in a mathematically defined way into a portfolio that then maximizes return over volatity---risk-adjusted return.
In practice this means holding index funds (not trading the components) and occassionally rebalancing the those funds if/when they get out of whack according to the theoretical values. Trading costs and fees should be minimized because under the assumption of effiecient prices, trading does not add any value.
As far as theories go, this is a pretty robust foundation. It's simple to execute and understand. Many (most?) fund companies have their website set up to accomodate this line of thinking. If you ever took a test to find your "risk profile" and it came out with a pie chart showing your optimal asset allocation, MPT was the underlying idea.
MPT was invented in the 1950s and thus it does not include more modern insights such as behavioral economics (investors aren't always rational), risks other than price fluctuation (fat tails, risk on/off trades), agent-based impacts, etc.
Now as for the bogleheads themselves, these are my more personal antropological observations based on some of their, euphemistically speaking, louder forum members. I am not a regular reader of the boglehead forums.
It seems that their understanding of the markets are frozen in time around the 1950-70s. They would rather flat out deny something than change their opinion. In short the idea of the efficient market is treated like faith. I've raised a few concerns about the EMH on my blog (which later appeared on wikipedia.org) and it immediately got attacked by the bogleheads as me not having read the popularized literature on index investing (Malkiel, Swedroe, etc.) and thus not understanding anything at all about investing. In short, they're more close-minded than open-minded, more faith-based than scientific when it comes to investing. MPT is simply treated like dogma.
Furthermore, it seems that many (most?) of them are steeped in careerism and consumerism. In that regard they're no different from the typical member of society (the boomer generation) thinking that having a job is the purpose of living, that specialization gives the highest returns, that specialization has little risk (it didn't for their generation), that retirement is what follows at the end of a long career, that following the expectations of society and the orders of one's manager is the measure of a person, that more money is the only way to increase one's quality of life, and that accumulating ever more money is the only path to financial safety.
In that regard ERE is completely and utterly different. ERE challenges practically all of these assumptions. There's way more to ERE than simply reducing expenses and saving money.
As for what to invest in, there's no official ERE position on that.
If you bet your entire life and future on indexing and efficient market theory, and someone suggests that something better may exist (or even just the possibility of something better), it could be like a personal insult. Like "if you were smarter/worked harder, you could do better", but they'd rather keep the faith. It is like a security blanket, you don't want to let go of. It lets you rest peacefully. The possibility that something better could exist results in a defensive posture, as the thought takes one out of that comfort zone. That said, indexing does seem to be the best approach for most investors, and as Bogle points out, mutual funds and investors on average don't do well versus indexing. Browne essentially says the same thing too, though he mentions low-cost, fully-invested growth funds vs indexing but the two seem interchangeable.
It's naive from a practical stand point ... however theoretically the math gets so much easier. Being able to use math (physics envy) was very important to the field of economics in the 20th century... still is.
Yes, it still is. Trying to make an exact science out of economics is tough sledding when they are basically making up numbers and the relationship between these numbers. Efficient market theory may make the math easier, but finding the real answer is still just as hard, if not harder due to the false answer we are getting.
jacob wrote:It's naive from a practical stand point ... however theoretically the math gets so much easier. Being able to use math (physics envy) was very important to the field of economics in the 20th century... still is.
There is an epistemological necessity in creating simple methods and models to build knowledge. Thus in economics and finance they will very often make assumptions that are completely detached from reality--to make the math work. Then they can use those assumptions to build models that, in turn, will have some use in reality.
There's nothing wrong with this at all, and, in fact, is a very useful tool in building knowledge.
The problem comes when there's an attempt to popularize this knowledge. In that process, the theoretical models are translated into "theories about how the world really is" in the minds of people. Go ahead, call me a snob, but what happens is that a lot of people cannot understand the difference between an economist describing a model and an economist describing the future.
As a result, you get this bizarre popularist permutations of perfectly sound and reasonable academic disciplines. Bogleheads are a perfect example of this phenomenon. It's a popularization of an academic theory that has theoretical validity, but limited practical application. The Bogleheads don't understand that, and so they see it as a practical tool.
If I remember Bogle's book correctly, his research showed the odds of an investor beating an index fund by holding an actively managed fund over a long time period (30 years?), after deducting taxes and fees, were less than 1% - with most investors doing far worse than that because of poor timing and yield chasing.
workathome wrote:If I remember Bogle's book correctly, his research showed the odds of an investor beating an index fund by holding an actively managed fund over a long time period (30 years?), after deducting taxes and fees, were less than 1% - with most investors doing far worse than that because of poor timing and yield chasing.
+1
This discussion is mainly about creating ridiculous straw-man arguments.
Bogle's not a theoretical guy. He focuses on real-life returns (data-driven).
His advice works against MPT in some ways. For instance, he has never believed in international diversification or rebalancing.
Bogle believes in two things:
1. People can't consistently pick individual stocks. Nearly all professionals fail to select better stocks than an index over a multi-decade period, and individuals have terrible real-life stock returns.
2. Buy the whole market cheaply. If you're unlikely to consistently beat the market, then own everything at the lowest possible cost.
Of course, everyone on this forum is in the top 1% of stock pickers.
