It's probably fair to say I'm semi-ERE. I sort of fall in a weird space because I wanted to "work" at being an investor but also have time for other activities. But still, I have approached my investing like that of a portfolio manager, so I'm not sure it's accurate that I'm FI in the way that many folks who live off retirement income do. I spend a lot of time doing investment research. So, on the one hand you could say that I have a "job" that is me trying to create (above-market) financial value from my financial capital. But, it's still true that I don't "work" for anyone. And I rather enjoy it. Call it what you will.
The motivation for this focus on investing bubbled up years ago, in the last part of college actually. I read Ben Graham's The Intelligent Investor in my last year of college and sort of took to the idea of value investing. Over time as I learned more and got to a point where I was comfortable holding meaningful positions in individual companies. And then, the last piece clicked for me when I was reading the ERE book and looking at some of the graphs/charts/tables. It became really clear to me that if you could do just a few percentage points better (than other options, what you otherwise would do, etc.), the implications are huge in terms of how much you need and where you will end up.
It's taken as sort of doctrine in FIRE communities that something like 3% or 4% is a reasonable withdrawal rate depending on your age and other variables like interest rates or market CAPE levels and so on. I actually have thoughts on all of that, but I don't want to go into that here. But let's just say that if an average person shoots for a 3% withdrawal rate, but I think I can earn 3% excess annual returns, the math changes in dramatic ways. One way of thinking about that would be instead of needing 33x expenses you need 17x (this isn't entirely accurate, but is close enough). There are problems with this regarding drawdowns and volatility, but needing 33x rather than 17x is a huge difference. I would not advocate trying to FIRE on 17x expenses, but it just illustrates how much having excess returns changes things. In other words, in the FIRE community we tend to focus on the level of expenses and how reducing them is the key variable to change in driving early retirement, and accept returns as a fixed thing. In the short-run in getting to early retirement this is definitely true. But, in reading ERE years ago, it struck me that working really hard on increasing ROR could actually pay off in just as large, in not larger, ways, way down the road. This is likely to be increasingly more valuable if we enter a long period of sideways markets or market declines.
This all aligns well with the somewhat surprising idea that beating the market by even a few percentage points over a long time results in massive differences. Simple example: $250,000 growth at 5% for 40 years results in $1,760,000, $250,000 growth at 8% over 40 years results in $5,431,000. 3% annual return over 40 years results in an outcome with a factor of 3 difference.
That’s a long rambling response to something you didn’t directly ask about, but it does provide some background on why I’m doing what I’m doing. “Active” investing is not a topic much talked about here on ERE, so I wanted to go into a little detail on my thoughts on all of that.
Sure, I can elaborate a bit. My life has been quite nice the last few years. I never enjoyed being an accountant that much. I thought I was pretty good at it, but it didn’t fit with the life I overall wanted. So, getting away from the office life has been nice. Studying things that are interesting to me has been nice, doing other projects and activities I’m interested in has been nice. These things have added to my life. Being home more has improved the quality of DW and my’s household situation, as I’m around to do more chores, shopping, cooking, etc. We eat better, exercise more, and are more organized as a result of all this. I’ve actually been more social in this time, as I’ve had more time to meet people, either for coffee or lunch during the day, or at night (since I have more energy). All in all, I have enjoyed my life in all of the sorts of predictable ways you can imagine. The shift from being an employee to “self-employed” as my own “portfolio manager” has been great. I’m self-motivated and don’t enjoy meetings, needless reports, and all the fun baggage that comes with normal work, so that has been great. As an equity investor my “income” is very sporadic (and actually I don’t think about even something like 1 year results as super meaningful), which is very very different than before, but I think temperamentally I’m suited for it. For example, in the last 10 trading sessions, in April, I’m up more I spent in 2018. I’ve watched this level wealth “evaporate” in days before, and expect it to do so again routinely. So it’s a roller coaster. But that very level of volatility is a key contributor to what allows me to achieve above-market returns, and I’m happy to embrace it and not get too attached the idea of being up or down a certain amount.
On the other hand, I’d say my biggest struggle has been social. This was not a surprise, as many have talked about these issues. But I’ve had a hard time explaining my life situation to other people. I’ve heard other people in similar situations say this but they either think I am some financial genius or a total bum living off my wife, where I don’t think either is accurate. While an awful lot of people don’t really seem to ask much about how your life is going, some do, and some find my situation very perplexing. I also believe it has made it harder to relate to some of my friends (and them to me, more importantly), as our finances are in very different situations.
Sort of related to that, at times I have felt like I am not doing enough with my life. I think this is a socially conditioned response in me that often follows after I talk to someone who doesn’t really get or approve of what I’m doing with my life. That can be tough and has been a challenge a few times. While I am not working at a company that is saving the world (or more likely, making widgets), I do try to be useful to people in my life and make a difference on a more local scale. I actually never felt my work as an accountant was especially meaningful in the big scheme of things, and that most jobs aren’t. So while I have these feelings, I have come to see that most of it is just socially conditioned in that it does not feel good to be an outsider, even if you think those you are outside of don’t represent the best way to go about things.
We decided to move to Hawaii because we really liked it here when we came for our honeymoon and a subsequent trip. We both love nature and aquatic activities. We wanted to do something a little more adventurous as our 20s were basically college->work->frugal and we wanted to experience a bit more of the world before returning to the Midwest and a more normal lifestyle. Hawaii is a way to do a lot of those things in a culture that we really, really like.
Yeah, DW kept working full time until this year. A lot of people actually ask me that. The assumption is she has to be jealous, resentful, or something. I talked to her a lot about me doing this beforehand and she was supportive, and she has been supportive throughout this time. I’ve asked her periodically if she’s still OK with it. And she’s always been fine. The thing to remember is that she can (and basically did) walk away from her job at any time. We have a very large financial cushion, and even if she just works part time that covers our cash outflows without need of touching the portfolio. I’ve told her for years that if she ever wanted to leave, do something else, or go part-time, do it and we’ll figure it out financially. Our at-home life has been better with me around more, and ultimately if I prove to be a skilled investor for the long-term then it will financially pay off much better than me being an accountant. And if anything changed where I needed to do a traditional job again, I totally would. That was the idea, and still is. So she’s good with it.
Thanks! 30 is supposed to be a big one, and celebrating mine in Hawaii was fun. I do feel like I am at the beginning in a lot of ways!