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returns on investments such as stocks, bonds and real estate have been incredibly high over the past decade - the ultra low interest rate environment that centr

returns on investments such as stocks, bonds and real estate have been incredibly high over the past decade - the ultra low interest rate environment that central banks around the world have created is a big contributor to this performance. It would be deeply naive to think that starting to invest today, at historically high valuations will yield the same annual returns in the next decade. Stocks are very expensive, bonds are super-crazy expensive (given that you have a contractual guarantee that upside is impossible and that real yields are negative). Extrapolating from the recent past is a dangerous game. Reversion to the mean is a law of the universe and we cannot keep going like this. If you quit your job expecting to be able to live off of your portfolio, you should have enough to still be comfortable after a 50%+ loss. Inflation is flaring up, historically this meant raised interest rates, which in turn translates to lower asset prices.

paradite 5y ago
I completely agree that investments have inherent risks, which is why investors usually transition into lower risk portfolio nearing retirement age. And I believe you already know that. The point of Retire 35 is therefore, not doing precise financial modelling. I am not qualified for that. Instead, what I propose is a change of mindset and how we view retirement. It should be a more of a "mid point" in life, rather than the "last lap", if that makes sense.
- mxschumacher 5y ago
  the traditional "lower risk" portfolio as a function of age is to decrease allocation from stocks in favor of bonds. As previously mentioned, extremely high prices for bonds coupled with substantial inflation means that bonds are no longer less risky. What's risky isn't so much a question of the asset class, but more about the price paid. Trillions of dollars are reaching for yield and it is not clear what a low risk asset might be in late 2021.
  - paradite 5y ago
    I see where you are coming from. I didn't know about the bond situation. Is that US specific? The idea is to go for whatever that is currently accepted as low risk. For example, if bonds are considered risky, maybe high interest saving accounts are the next best option. And you can adjust your retirement goals accordingly.
    - mxschumacher 5y ago
      No, low interest rates are a global phenomenon. It has to be, because otherwise massive arbitrage opportunities would exist. interest saving accounts produce negative real returns, you cannot put enough money into one to generate the passive income you need to retire. The whole retire early idea is predicated on substantial investment returns and the ability to outpace inflation. Savings accounts won't cut it.
- thrashh 5y ago
  Retirement is generally towards the end because most professions aren’t like tech to earn enough to retire early. Retiring early is a luxury of a very privileged minority. Of course you can retire early while making less money but you are definitely wasting your youth if you have to keep spending to the bare minimum. It’s not this way that it is because of “mindset” — it’s because of practicality. And personally speaking, I enjoy my job, I never work more than 40 hours, and I have time for my hobbies. I think this is a way more practical “mindset” for most people.

paradite 5y ago

I completely agree that investments have inherent risks, which is why investors usually transition into lower risk portfolio nearing retirement age. And I believe you already know that. The point of Retire 35 is therefore, not doing precise financial modelling. I am not qualified for that. Instead, what I propose is a change of mindset and how we view retirement. It should be a more of a "mid point" in life, rather than the "last lap", if that makes sense.

mxschumacher 5y ago
the traditional "lower risk" portfolio as a function of age is to decrease allocation from stocks in favor of bonds. As previously mentioned, extremely high prices for bonds coupled with substantial inflation means that bonds are no longer less risky. What's risky isn't so much a question of the asset class, but more about the price paid. Trillions of dollars are reaching for yield and it is not clear what a low risk asset might be in late 2021.
- paradite 5y ago
  I see where you are coming from. I didn't know about the bond situation. Is that US specific? The idea is to go for whatever that is currently accepted as low risk. For example, if bonds are considered risky, maybe high interest saving accounts are the next best option. And you can adjust your retirement goals accordingly.
  - mxschumacher 5y ago
    No, low interest rates are a global phenomenon. It has to be, because otherwise massive arbitrage opportunities would exist. interest saving accounts produce negative real returns, you cannot put enough money into one to generate the passive income you need to retire. The whole retire early idea is predicated on substantial investment returns and the ability to outpace inflation. Savings accounts won't cut it.
thrashh 5y ago
Retirement is generally towards the end because most professions aren’t like tech to earn enough to retire early. Retiring early is a luxury of a very privileged minority. Of course you can retire early while making less money but you are definitely wasting your youth if you have to keep spending to the bare minimum. It’s not this way that it is because of “mindset” — it’s because of practicality. And personally speaking, I enjoy my job, I never work more than 40 hours, and I have time for my hobbies. I think this is a way more practical “mindset” for most people.