Correct, even an average CFP would know if/when a previously popular strategy is falling out of favor. Compare to the amateur who thinks they found the answer to all their investment worries by reading a few popularized books on the subject. Perhaps I'm underestimating the average investor, but I don't really think so. Exactly the same behavior is found in people following popular diets, popular exercise forms, popular politics, popular music, ... popular investment methods are no different. All areas are the same.
Not to rip/harp on YMOYL, but it provides a historical lesson when it comes to recommending or even mentioning simplistic investment strategies. It's the main reason why I didn't include a "what to invest in"-chapter in the ERE book. The people complaining about that deliberate omission of mine are exactly the kind of "gimme something easy"-types I worry about.
The original YMOYL is based on the crossover principle(*) and LT Bonds that were rolled every few years to keep the maturity high. While the book didn't appear until 1992, the principles were formulated from 1970 onwards. Dominguez implemented the investment strategy around 1970. I forget exactly when Robin inherited her nest egg, but probably around that time.
(*) The brilliance of this concept is rather underestimated but consider how it provides an algorithmic approach to FI that captures SWR (for non-volatile instruments) in a very very direct way as well as providing a test/dry-run in the form of confirmation and implementation. The crossover approach really does everything and the beauty is in its simplicity.
The investment sentiment at the time was similar to the investment sentiment right after the dotcom crash and to some degree the one around 2008/09 for the credit crises. In the years before, people had enthusiastically speculated in gogo-stocks and buying into the NiftyFifty (containing a bunch of electronics companies) that would always go up, only to get burned when the market started a 12 year decline beginning in 1968. At the time, LT yields were around 6%.
It thus made a lot of sense to base one's FIRE planning on bond income. One was FI once one's bond income exceeded one's expenses. That's where the crossover diagram that one could put on the fridge came from. It was a simple and brilliant idea that took all the worry out of picking electronics stocks only to see them decline year after year.
Dominguez FIRE'd with around $400,000 in 2018 dollars (a handsome sum for a 30 yo... made in a booming industry (finance) at the time which today's software engineers should find quite relatable) which invested at 6% would have created an annual income of $24,000 (in 2018 dollars). So the 1968s version of MMM or about the 25-35% spending percentile of standard consumer units. Quite possible by having a high-income job while being reasonably frugal, but nothing outrageous.
Now, how did it fare?
In 1982, interest rates briefly peaked but then began a steady decline. Not that it matters. The initial feature of rolling LT bonds eventually became its own bug since the rolling strategy preserves a more or less constant income in dollars regardless of where interest rates go. This sounds good... but it doesn't take inflation into account. Obviously, this must have begun to become an issue for many of the earlier adherents. This might be why YMOYL2.0 dedicated some space to discussing why inflation doesn't matter. It's quite right that one can work around inflation, but it requires one to develop additional skills. Incidentally, YMOYL2.0 also changed its forward recommendation to index funds. YMOYL2.0 was published in 1999---seven years after the first recommendation.
So in the late 90s the initial $24,000 dollar income had fallen to a $10,000 income (in 2018 dollars). Those who hadn't enhanced their "badassity" over the years would have run out of money and gone back to work. Those who switched to index funds in 1999 would have gone flat until 2012... however, rates were 5% in 1999 and that's what the original strategy would demand as a WR, so pulling that out for 13 years is 65% down from flat (rough calculation). Has the market tripled since 2012? No. And 4%-rule people have taking out another 24% since then. So ...
Today (if Dominguez was still alive), the $24,000 income would be a $6,000 income. This is no longer possible with simple frugality. Now we're talking ERE level.
When would people have realized that the strategy was failing? That certainly depends on the individual, and thats why I recommend getting a professional opinion from time to time. Looking at amazon reviews of YMOYL, there are comments about "how this would never work with today's interest rates". A wiser reader (now) would not slam the original book for that because they'd understand that the book was written many years ago. However, some of the original readers would have to have learned that their original strategy no longer "work with today's interest rates". Indeed a wiser reader back then would have been right in pointing out the problems of a concentrated strategy.
Now, having learned this one lesson of history ... what are the parallels to today's 100% VTSAX strategy as recommended to/by FIRE enthusiasts but much less so by professionals to the general population?
Questions to ponder?
- What has been the 100% VTSAX experience of someone who began investing 5, 10, 15, 20, 25, 30 years ago respectively?
- What if the same question had been asked 5, 10, 15, 20, ... years ago...
These are the questions to ask anyone recommending a particular strategy, because the "autobiography"-bias (point 5 in the OP link) is strong, especially when combined with confirmation bias.
E.g. "I first heard about FIRE in 2010 and put all my money into Vanguard stocks. I've done fantastic. Nobody can time or beat the market and stocks always go up in the long run. Here's a graph going all the way back to 1870 that 'proves' it. And here's an account from someone who started investing in equity in 1982 that confirms my experience."
Questions to ponder?
- Which parts of that quote are autobiography bias?
- Which parts are survivor bias?
- Which parts are confirmation bias?
You don't have to answer. There won't be a test---except of course the ultimate one of whether you eventually run out of money. Just think about it every time you read a popular investment book that suggests a quick, simple, and easy method to investing, because in the long run you can only ever have two of those.
Add: To see what I think that living off of one's investments in practice requires cf. living off of one's job income like 99% of people, read
https://www.amazon.com/dp/1580622011/ ... The author suggests aiming for WR's at 10-12%. That is in my opinion far too high. And also his only mistake. Otherwise, the book is solid. Do the same aiming for 3% like I recommended in the ERE book based on thousands of years of history (and not the 1990s
) and what's in that book is what I would have put in my book had I added another hundred pages for the investment section. Pay particular attention to his "humility" portfolios. It's very close to what I've eventually come up with even though I only read this book a few months ago.
. Depending on my life circumstances, I have no solid plans to quit working even at 2.5% -- that's just where I draw the line of having the option to.