Calvinist vs. rabbit

[George the original one]

I've been noting a tone amongst finance blogs. The common theme is the parable of the tortoise being slow and steady always winning the race. This fits in with the Calvinist philosophy of long, hard work is its own reward and you'll reap the benefits in the end.
Thus index investing, modest savings rates, middle class standard of living, and constantly improving one's career are "approved" methods of achieving finacial independence.
Doing anything that resembles a shortcut, like an ERE savings rate or trading stocks or investing in high yield securities is always seen as a shortcut that will damn you to the rabbit's fate.
Yet if you look at the people who achieved huge success, they very often used a shortcut. Dropped out of school. Took a chance with big leverage. Started a company that didn't make ANY profit for 5 years.
Heck, from that point of view, then Tim Ferris is right... any shortcut that helps you achieve your goal is ok. Yet what holds us back from taking any of those actions? Some of us even have apprehensions (usually the older we are, like me) about following ERE at the level that guarantees success. Why is that?

[Hoplite]

@George; an excellent observation.
On the finance blog side, I think “slow and steady” is there to appease the people who notice that the conventional advice isn’t working. It prevents judgment due to the endless time frame, something like buy and hold forever, since selling is judgment day, financially speaking. From the advice-giving side, slow and steady is the safety zone.
The problem with short cuts is that many are either false (highly leveraged and waiting to collapse) or plain old lying and cheating. For over 20 years, you could have pointed to Bernie Madoff as a huge success. And I say this knowing many people who are very successful yet ethical. That’s why I like ERE—an honest person’s route to FI/RE.
I am older myself and have to push past old ways of doing things, sometimes ruthlessly so for my own good. I also believe that people in general are too fearful. WRT “winning the race” I think that a large part of the hesitation is fear of predation, conscious or not. The rabbit is exposed; the tortoise carries his armor with him.

[CestLaVie]

Shortcuts are often more dangerous paths. If you are lucky, a shortcut can hasten your ability to retire. If you are unlucky, a shortcut can delay your ability to retire considerably.
Some high school dropouts do become very successful, but many more never are in a position to retire early. Some entrepreneurs are successful, but many more fail miserably. Leverage cuts both ways as well. It can make you rich or it can make you lose your shirt.
There is no free lunch.

[sshawnn]

Concerning the slow and steady comments among financial blogs and other readings....Might these comments often be made by those whose own financial security depends on the average investor being slow and steady and paying the associated fees to do so?

[tjt]

I think there are a number of reasons why people have apprehensions in following ERE at a level that guarantees success. I'll list the one's that I've observed on my own journey.
Fear of change

It's scary to change your life so significantly. In my case, I lived 30 years driving towards retirement at 50+. From the time I was a kid, I was basing my consuming on my production, and not the other way around. I was taught the value of hard work, I learned to listen and follow. All things ERE challenges, and all things that are hard habits to change.
Fear of being different

It's a lot easier to fit in than it is to stand out. I am an avid ultra-marathoner, and one thing I learned as I got really into it is that it's best not to talk about it with people at work because they won't understand, and they think your crazy and strange to run 100 miles in a row. It was easier not to talk about it, unless it was a good friend, or someone you thought might understand. I see ERE the same way. I'll probably just say I run my own business (I do run a very small one).
Fear that the math is wrong

Yes, yes, I know... It's all proven through history that spending 3% of your savings while investing in the stock market has worked 100% of the time (per firecalc.com). But what if there's a typo? What if I make a mistake in my investments? What if Jacob misplaced a decimal point?!?
Inconvenience (as we see it)

It's easy to think that not having a car is an inconvenience. It's easy to think that not having a TV is inconvenient. Cooking your own food from scratch is inconvenient. I realize that having car trouble is also inconvient, not having time because you lost it watching TV is inconvenient, and having health problems from eating too much fast food is also inconvenient. But it takes time to realize this.
Our Calvinistic Culture

I work in an office where the successful people truly do love hard work. I'm at the point in my career where my ambition is exhausted, yet others still work 80 hours per week because it's respectable to work hard and produce more. And I know I would be shunned by many to say otherwise. So I go on faking it, until I leave this office (3 weeks!)
I think there are many many other things that make it difficult to take the ERE plunge, but these are the ones I've battled most so far.

[halcyon]

@tjt You pretty much summed it up. I particularly agree with the point about being different and I would also add one more point "not knowing any better."
When we were reared, we were each handed a map which showed where we were and where we should be when we have finished our journey. For most of us, that map had a series of steps like this 1) go to school and get good grades, 2) get a good job, 3) save 15% of your income in a 401k, 4) work for 40 years and then retire (and then an unwritten rule: pray that you die before you run out of money).
The advice on most personal finance blogs simply adds details to this standard map.
Personally, I don't really see ERE as a shortcut... it's simply moving the finish line closer.

[mikeBOS]

I think part of it is also the irrational sense of loss aversion. I have a friend who has all his money in CD's because he's so afraid to lose any ground. Of course, he's blind to all the loss of gain that he's suffering by being so "safe" (no matter how loudly I remind him). But it would "hurt" if his assets dipped down by a few thousand dollars. Whereas, that few thousand dollars in interest he misses out on every year, well he never sees it, so he never feels that loss.
What people need to embrace is that there is no minimization of risk, only a shifting of risk. When you minimize the risk of your investment holdings, you increase the risk of having to spend more years of your life in servitude.

[George the original one]

mikeBOS, I think you've hit it. People are not taught how to deal with risk, rather the emphasis is always on minimizing the obvious risk.

[tjt]

I think the loss aversion point is definitely true for some. It wasn't for me, even while I had never heard of ERE or considered retiring pre-50, I was investing in stocks very aggressively. The difference was that I thought I was doing that so I could have more boats and planes in my retirement - not to retire earlier.
Great point,though. I always tell others with that risk aversion: safe is risky.

[aquadump]

Adding to the difference comments, I can feel totally ostracized [from the younger demographics] when I don't buy social entertainment. It's a choice, but the consumer culture does a good job of supporting and growing itself.
Also, I wonder how many others are ERE-like, but it is just one of those industries that doesn't advertise well. For example, 10 year old shoes taken care of well can look better than 1 year old beaten shoes.

[Chad]

tjt and Mike have it. The risk thing has always been a pet peeve of mine. 99% of people have no idea how to evaluate risk in any part of their lives.

[CestLaVie]

This question almost deserves a poll.
For people on this board who have successfully retired early, how did you do it? Did you follow the tortoise or the rabbit?
Most early retirees I know followed the tortoise, i.e. they worked hard, lived (well) below their means, invested in stocks/real estate/bonds/CDs/options. Nothing too far off the beaten path. I did follow the tortoise too.

[jacob]

@George - But if you look at people who ended in failure, they also very often used a shortcut. Going for quick and easy they took a leveraged chance and/or engaged in a high risk venture that flopped. They wasted they time and are now stuck below average playing catch up.
For each famous high risk success, there are dozens of high risk failures that we never hear about. This skews the perception of the efficacy of the method.
You'd absolutely have to consider the expected return or perhaps better, the median return, rather than the maximum return to evaluate a method.
One thing I note as "figurehead of ERE" is how many get into ERE because their high-risk method to financial independence either turned out to need a lot more work than they expected or produce much less income than they expected. In contrast ERE is quite robust. It has a narrow distribution.

[George the original one]

@Jacob - ERE is robust in that it is simple and repeatable, but it also has risks for the incautious. We will likely not hear of the failures because they'll be quiet, much quieter than some of the spectacular leveraged train wrecks of mortgages gone wrong & shuttered businesses that have made the headlines of the past few years.
All methods with risk need backup plans. If a shortcut is presented, then one shouldn't proceed without knowing the way out. So, for instance, traders use stop losses. ERE uses going back to work or further reducing expenses. And, apparently, real estate investors mail the keys back (I'm being a little facetious here as I've never actually read a coherent plan for getting out from under a bad real estate investment; if someone knows what it would be, please speak up!).

[dot_com_vet]

ERE is its own doctrine, not really a shortcut. High savings rates, low spending, sacrificial cold showers, being frugal, DIY, is all very disciplined.

[AlexOliver]

I think it'd be hard for anyone to "fail" at ERE if they follow the formula: investments = annual expenses / 3%, and have an average return on their investments. If they fail, they fail in one of those two regards.

[George the original one]

@dot_com_vet - I would bet that leveraged real estate enthusiats would say they're using a doctrine and it's not really a shortcut.
And just last night, on the WealthTrack show, James Grant (Grant's Interest Rate Observor) said, regarding the ridicuously low interest rates,"and why wouldn't they be taken advantage of?"
[Realize that I'm firmly in the ERE camp even if I'm ER rather than ERE]

[George the original one]

@AlexOliver - You're using pretty rosy glasses for someone who just mentioned knowing two people who have mental illness severe enough that they can't work.
The 3% SWR works up until expenses unexpectedly escalate and/or you do not have the mental capacity to handle your own finances. There are counter measures which can be taken (this is a strength of ERE), but they may not be done in a timely fashion.

[jacob]

Blogged!

[tac]

I think ERE is fundamentally pretty different from "get-rich-quick". ERE does actually depend on most of the things a traditional retirement does (living within your means and maintaining a steady savings rate), just with much more discipline. I would say also that most of the possible ways in which ERE might "fail" are going to be problems if you are pursuing a traditional retirement path also. Say you are ERE and you get really sick and need to spend a load of money on health care. Well, if you had a job your health insurance still might not cover all the costs and a protracted illness might eventually wind up costing you that job.
I think ERE is not so much retiring as transitioning to self-employment, where some of your "income" may be in goods/services you generate without money (i.e. grow your own food, build your own or fix physical objects you need, etc). So as long as you have a good "business plan", it's workable. I think also people who manage to successfully ERE in the first place are also likely to have a level of discipline and resourcefulness that would enable them to figure out an alternative if ERE suddenly crashed out on them.