6 ms·

It's cool that this guy is doing things that make him happy. But I'm extremely confident that he didn't do this by following the financial plan he blithely give

It's cool that this guy is doing things that make him happy. But I'm extremely confident that he didn't do this by following the financial plan he blithely gives. Because a) good luck finding an investment that'll give you 10% consistently for decades, and b) even with that magic risk-free return, his plan takes 20 years (or 22 if you somehow don't have $10K stashed up as a youngster) and then c) leaves you on the edge of your expenses (as he defines them) and reliant on that consistent 10% return continuing forever. "Hey, if you find a magic investment, you can retire at 47 and then live in constant fear of penury!"

Artistry121 11y ago
I don't think you need a magic investment. Find a way to live on half of your after-tax income, save for ten to fifteen years the additional amount and put it in large, relatively safe dividend stocks (DJIA is a good place to look). Then you have retirement at the same level as pre-retirement with about a 4-5% withdrawal rate even if your investment returns only average about 5% per year through the accumulation and disbursement phase.
- eterm 11y ago
  "only" 5%? Even 5% would be incredible return to have if it were consistent and low risk.
  - Artistry121 11y ago
    Consistent and low risk were not requirements. http://www.dogsofthedow.com/dogyrs.htm http://www.dogsofthedow.com/dogyrs.htm Using funds with dividends can smooth returns (although not always tax beneficially).
  - bradleyjg 11y ago
    A 5% arithmetic average nominal return over a multi-decade time horizon is not too difficult to achieve with even fairly low risk tolerance for undershooting the target. Change any of those qualifiers and it becomes a different story.
    - eterm 11y ago
      It wasn't too difficult to achieve, but past performance is no guarantee of future performance. Already that's looking far less true if you look at the past decade or two, but it's still the received wisdom because it's what people enjoyed in the past. The FTSE 100 hasn't peaked much higher than it peaked in 99/00, and in real terms still hasn't closed as high as it did back then. Since you were careful to talk about nomimal return, this is then further reduced by the effects of inflation. A 5% nominal return might well be easy in an environment with a high inflation rate. I'm not suggesting that people shouldn't invest, people clearly should invest as part of a mixed portfolio, and because cash returns are typically even slower, but the original article here is unrealistic as a goal. Edit: Dividends help too of course, they aren't tracked into the index whereas it is possible to reinvest them back in if you don't take them as income. I'm not denying that some people can get lucky with market timings and it works out well for them, and in fact there's the whole boomer generation it mostly worked out very well for, but it does no good to the next generation to account it all towards their actions and not account for any kind of good fortune in timing.
      - bradleyjg 11y ago
        I don't disagree with your points. In particular, I think real return, averaged geometrically, is a better number to look at and design these calculators / spreadsheets around. When you do that, the numbers end up looking quite a bit less cheerful, and as a side effect the big advantage of equities over debt erodes somewhat. The other thing that the frugality and savings über alles crowd neglects to mention is that different people have different preferences (and that's okay!). Including preferences dealing with intertemporal discounting. It's one thing when you are trying to develop pithy messaging aimed at the general public and quite another to make un-nuanced arguments in forums that allow for them.
  - prewett 11y ago
    I believe the S&P 500 has returned 6% - 8% (depending on which quote you believe) for the past century. Pretty low risk index fund, there.
    - JoachimSchipper 11y ago
      Says the American. Now look at, say, the German or Russian stock market. ;-)
- IshKebab 11y ago
  > Find a way to live on half of your after-tax income This is like "How to have an easy life": 1. Find a way to have plenty of money. 2. ...
  - Artistry121 11y ago
    How much money do you need to live? $15k a year? How much can you generate: 30k a year? You're set. This isn't talking about being wealthy - it's about considering alternatives and making good choices - if you can make more than $20k a year.
    - Retric 11y ago
      So step 1, don't have kids, step 2 don't get sick. That's like saying win the lottery. Sure, it could work, but it's a lot of risk and does not scale.
      - coldtea 11y ago
        No, it's just be frugal. You can still pay for insurance and kids. In fact in TFA he says he has a kid.
      - carlob 11y ago
        So step 1 don't live in the US. fixed that for you :)
        anotherangrydev 11y ago
        Step 2: Do not get paid like in the US.
        toomuchtodo 11y ago
        Step 3. Live in a country with a proper healthcare system (not the U.S.).
      - Nadya 11y ago
- mkozlows 11y ago
  Your advice is not his advice.
  - Artistry121 11y ago
    Correct - but the idea of retiring early is not nearly as some make it out to be.
zrail 11y ago
He mentioned at least once that he does consulting occasionally. The point is that the passive stuff pays his base expenses and gives him freedom of choice, not that he can go hog wild all day everyday on strippers and blow with no consequences.
jcdavis 11y ago
The numbers are definitely misleading, which is unfortunate because it takes away from the message, which is decent I think. You need to save far more than $5k/year to retire early, not much of a way around that.
cygwin98 11y ago
I remember a few years ago the saving interests in Australia was around 8% plus. That was risk-free rate, if you take a bit more risk on other financial products, 10% might be achievable. Not feasible for 20 years though.
- joe_the_user 11y ago
  I don't know the history of Australian interest rates but the only time US interest rates were at that level was during the inflationary times of the 70's. This link says current interest rates are 3.5%. [1] [1] http://www.infochoice.com.au/banking/savings-account/high-interest-savings-accounts/ http://www.infochoice.com.au/banking/savings-account/high-in... Long term US stock market returns seem to be something like 10% but those definitely have significant risks involved, even for index funds[2]. [2] http://observationsandnotes.blogspot.com/2009/03/average-annual-stock-market-return.html http://observationsandnotes.blogspot.com/2009/03/average-ann...
- wycx 11y ago
  That all ended in 2008. The best you will get is <4% today. Compare that with the real inflation rate, and the tax rate and things are not so great.
anotherangrydev 11y ago
>invest at 10% (you get to work out where) That's the line where everything fell apart.
- maaku 11y ago
  He's not including inflation. The S&P 500 achieves that. Vanguard total stock market does better.
cpursley 11y ago
> good luck finding an investment that'll give you 10% consistently for decades Folks with pretty conservative Vanguard funds seem to disagree: http://institutional.vanguard.com/iam/pdf/total_return_chart.pdf http://institutional.vanguard.com/iam/pdf/total_return_chart...
jbb555 11y ago
Looks at "https://en.wikipedia.org/wiki/S%26P_500#Price_history" https://en.wikipedia.org/wiki/S%26P_500#Price_history" the returns table at the bottom. It's not 10% every year but this is long term investing but a get rich quick scheme to look at any 20 year interval. It averages more than 10% and isn't exactly obscure.

Artistry121 11y ago

I don't think you need a magic investment. Find a way to live on half of your after-tax income, save for ten to fifteen years the additional amount and put it in large, relatively safe dividend stocks (DJIA is a good place to look). Then you have retirement at the same level as pre-retirement with about a 4-5% withdrawal rate even if your investment returns only average about 5% per year through the accumulation and disbursement phase.

eterm 11y ago
"only" 5%? Even 5% would be incredible return to have if it were consistent and low risk.
- Artistry121 11y ago
  Consistent and low risk were not requirements. http://www.dogsofthedow.com/dogyrs.htm http://www.dogsofthedow.com/dogyrs.htm Using funds with dividends can smooth returns (although not always tax beneficially).
- bradleyjg 11y ago
  A 5% arithmetic average nominal return over a multi-decade time horizon is not too difficult to achieve with even fairly low risk tolerance for undershooting the target. Change any of those qualifiers and it becomes a different story.
  - eterm 11y ago
    It wasn't too difficult to achieve, but past performance is no guarantee of future performance. Already that's looking far less true if you look at the past decade or two, but it's still the received wisdom because it's what people enjoyed in the past. The FTSE 100 hasn't peaked much higher than it peaked in 99/00, and in real terms still hasn't closed as high as it did back then. Since you were careful to talk about nomimal return, this is then further reduced by the effects of inflation. A 5% nominal return might well be easy in an environment with a high inflation rate. I'm not suggesting that people shouldn't invest, people clearly should invest as part of a mixed portfolio, and because cash returns are typically even slower, but the original article here is unrealistic as a goal. Edit: Dividends help too of course, they aren't tracked into the index whereas it is possible to reinvest them back in if you don't take them as income. I'm not denying that some people can get lucky with market timings and it works out well for them, and in fact there's the whole boomer generation it mostly worked out very well for, but it does no good to the next generation to account it all towards their actions and not account for any kind of good fortune in timing.
    - bradleyjg 11y ago
      I don't disagree with your points. In particular, I think real return, averaged geometrically, is a better number to look at and design these calculators / spreadsheets around. When you do that, the numbers end up looking quite a bit less cheerful, and as a side effect the big advantage of equities over debt erodes somewhat. The other thing that the frugality and savings über alles crowd neglects to mention is that different people have different preferences (and that's okay!). Including preferences dealing with intertemporal discounting. It's one thing when you are trying to develop pithy messaging aimed at the general public and quite another to make un-nuanced arguments in forums that allow for them.
- prewett 11y ago
  I believe the S&P 500 has returned 6% - 8% (depending on which quote you believe) for the past century. Pretty low risk index fund, there.
  - JoachimSchipper 11y ago
    Says the American. Now look at, say, the German or Russian stock market. ;-)
IshKebab 11y ago
> Find a way to live on half of your after-tax income This is like "How to have an easy life": 1. Find a way to have plenty of money. 2. ...
- Artistry121 11y ago
  How much money do you need to live? $15k a year? How much can you generate: 30k a year? You're set. This isn't talking about being wealthy - it's about considering alternatives and making good choices - if you can make more than $20k a year.
  - Retric 11y ago
    So step 1, don't have kids, step 2 don't get sick. That's like saying win the lottery. Sure, it could work, but it's a lot of risk and does not scale.
    - coldtea 11y ago
      No, it's just be frugal. You can still pay for insurance and kids. In fact in TFA he says he has a kid.
    - carlob 11y ago
      So step 1 don't live in the US. fixed that for you :)
      - anotherangrydev 11y ago
        Step 2: Do not get paid like in the US.
        toomuchtodo 11y ago
        Step 3. Live in a country with a proper healthcare system (not the U.S.).
    - Nadya 11y ago
mkozlows 11y ago
Your advice is not his advice.
- Artistry121 11y ago
  Correct - but the idea of retiring early is not nearly as some make it out to be.

zrail 11y ago

He mentioned at least once that he does consulting occasionally. The point is that the passive stuff pays his base expenses and gives him freedom of choice, not that he can go hog wild all day everyday on strippers and blow with no consequences.

jcdavis 11y ago

The numbers are definitely misleading, which is unfortunate because it takes away from the message, which is decent I think. You need to save far more than $5k/year to retire early, not much of a way around that.

cygwin98 11y ago

I remember a few years ago the saving interests in Australia was around 8% plus. That was risk-free rate, if you take a bit more risk on other financial products, 10% might be achievable. Not feasible for 20 years though.

joe_the_user 11y ago
I don't know the history of Australian interest rates but the only time US interest rates were at that level was during the inflationary times of the 70's. This link says current interest rates are 3.5%. [1] [1] http://www.infochoice.com.au/banking/savings-account/high-interest-savings-accounts/ http://www.infochoice.com.au/banking/savings-account/high-in... Long term US stock market returns seem to be something like 10% but those definitely have significant risks involved, even for index funds[2]. [2] http://observationsandnotes.blogspot.com/2009/03/average-annual-stock-market-return.html http://observationsandnotes.blogspot.com/2009/03/average-ann...
wycx 11y ago
That all ended in 2008. The best you will get is <4% today. Compare that with the real inflation rate, and the tax rate and things are not so great.

anotherangrydev 11y ago

>invest at 10% (you get to work out where) That's the line where everything fell apart.

maaku 11y ago
He's not including inflation. The S&P 500 achieves that. Vanguard total stock market does better.

cpursley 11y ago

> good luck finding an investment that'll give you 10% consistently for decades Folks with pretty conservative Vanguard funds seem to disagree: http://institutional.vanguard.com/iam/pdf/total_return_chart.pdf http://institutional.vanguard.com/iam/pdf/total_return_chart...

jbb555 11y ago

Looks at "https://en.wikipedia.org/wiki/S%26P_500#Price_history" https://en.wikipedia.org/wiki/S%26P_500#Price_history" the returns table at the bottom. It's not 10% every year but this is long term investing but a get rich quick scheme to look at any 20 year interval. It averages more than 10% and isn't exactly obscure.