Chasing short term market conditions adds a lot of risk to reaching your long term investing goals. An investment policy statement (IPS) can help ensure you stick to your strategy, and avoid market timing and other investing pitfalls. In this episode, Eric talks with Jason about his IPS, and why he finds it such a useful tool. Topics covered include defining portfolio makeup + objectives, the mechanics of cash generation + rebalancing, and why you might consider implementing an IPS yourself. See the link below for the show notes, where we link to all the content we referenced in the episode.
Show notes may be found below the video
Show Notes
Essential Background:
While our portfolios have changed a bit since, if you haven’t watched our previous episodes on asset allocation (part 1 and part 2), this is relevant material to our discussion here.
Jason’s IPS defines his cash holding + generating practices. For more discussion on the topic of holding cash, you’ll want to check out this recent episode on the topic.
Do you have a copy of our free Rebalancing Calculator? Whether you have an IPS or not, this simple tool can help you make decisions about buying and selling in order to rebalance your portfolio.
Jason’s Investment Policy Statement (IPS) is the document we walk through in this episode. If you’d like to see the full copy, you can check that out here. To make your own editable copy, go to File >> Make a copy and this will save to your own Google Drive as long as you are logged in to a Google account.
For more information on Investment Policy Statements (IPS) , check out this entry on the Bogleheads wiki. This page also shares forum user Sunny’s simple IPS which we showed in this episode, along with information on a simpler “investing plan” alternative to the IPS.
How to Create an Investment Policy Statement is a great introductory piece by Morningstar’s Christine Benz. This article also links to a simple IPS template provided by that you can use to for your own portfolio.
Risk Tolerance is a topic we discussed in this episode, and specifically, risk assessment evaluations that often are part of working with financial advisors. There are lots of tools online for this purpose, and this quiz from the University of Mississippi was among the best we found. Check it out and see how risk tolerant you are!
You can find information on the tools we mention in each episode along with additional information in the Resources section of this site.
What can conversations with the dying teach us about the secret to financial independence? In this episode, Eric + Jason are joined by Jordan “Doc G” Grumet, a hospice doctor, podcaster, blogger, and author. Topics discussed include the mirage of wealth, living meaningfully, and Jordan’s experiences eight years post-FI. Irrespective of your own retirement journey, you won’t want to miss our conversation. See below for links to Doc G’s book as well as the show notes.
Show notes may be found below the video
Show Notes
Essential Background:
Did you know we’ve spoken to Jordan in the past? It wasn’t on Two Sides of FI, but rather on Jordan’s own Earn and Invest podcast. Here’s a link to the episode, which was a really fun one for us and also represents the first time we were a guest on someone else’s show as Two Sides of FI! As you’ll find, Doc G is a very skilled interviewer. In our conversation, we talk finances and how they relate to purpose. We also explore whether it is money that solves our problems. Did you ever think that everything will be okay once you are financially independent? In our conversation, we push back on this narrative.
Taking Stock: A Hospice Doctor’s Advice on Financial Independence, Building Wealth, and Living a Regret-Free Life (also available as an audiobook) is Doc G’s recently published book. As you can readily glean from our conversation in this episode, this text contains pure gold. It’s not at all a traditional FIRE book – and this is precisely why we found so much value in it. As a hospice doctor, Jordan Grumet has a unique front-row seat to the regrets of his dying patients. And the stories he relates in this book will remind you to take stock of life now, before it is too late. Please do check it out and recommend it to those in your life!
Not familiar with hospice and want to learn more? This post from The Hospice Foundation of Americais a great resource. Stated simply, hospice is medical care for people with an anticipated life expectancy of 6 months or less, when cure isn’t an option, and the focus shifts to symptom management and quality of life. The site is a wealth of information, including guidance on how to access hospice care and selecting hospice providers.
For links to all of Jordan’s content, including the Earn and Invest podcast and his DiverseFI blog, be sure to check out his website.
You can find information on the tools we mention in each episode along with additional information in the Resources section of this site.
These are the show notes for both our original discussion on holding cash, and our follow-up episode where we react and respond to the feedback from our viewers. You’ll find links to both videos below as well. Show notes may be found below the two videos.
Original episode:
How much cash in your portfolio is enough – or too much? In this episode, Eric + Jason discuss the idea of holding cash allocations pre- and post-retirement. Topics covered include emergency funds, the temptation to invest in a down market, bonds, and building cash reserves. Join us as we discuss this essential retirement topic.
We respond to your feedback:
Are you worried about holding cash in this high inflation environment? In a recent video, we talked about the role of cash pre- and post-retirement. In this episode, Eric + Jason review and react to YOUR ideas that you shared with us. Topics covered include bond ladders, high yield savings, real estate, gold and other cash alternatives, and emergency funds. See the links below for the show notes and our earlier episode about what we’re doing about cash.
In this video we also talked about our experiment earlier this year to hire a fee-only advisor to look at our portfolios. If you haven’t seen it, you won’t want to miss “We Each Hired a Flat Fee Financial Advisor. Was it Worth It?” for all the details on what we learned. Emergency funds and bond allocations are part of this, but there’s a lot more to share.
Bucket Strategies are a topic we’ve covered numerous times on the show. If you’d like to learn more, we’d recommend the article “How To Build A Retirement Paycheck“. This is the first of three great posts on Fritz Gilbert’s (The Retirement Manifesto) implementation of this approach. The other two articles in the series are linked here too.
Equity Glidepathsare a type of dynamic asset allocation plan often discussed in retirement planning. In Karsten Jeske’s words, “if we start with a relatively low equity weight and then move up the equity allocation over time we effectively take our withdrawals mostly out of the bond portion of the portfolio during the first few years. If the equity market were to go down during this time, we’d avoid selling our equities at rock bottom prices. That should help with Sequence of Return Risk!”. He covers glidepaths in Part 19 and Part 20 of his Safe Withdrawal Rate series of blog posts.
How does gold perform vs. stock indices? Many people believe gold and other precious medals are “safe havens” to run to during periods of stock market volatility. This chart from Index Fund Advisors shows the reality of the situation. In this example capturing data from 1978-2021, the y-axis shows the rate of return, and the x-axis the annualized standard deviation. You’ll see gold has similar volatility (SD) as the S&P 500, but about half the annual return. Silver is much worse, at twice the annual volatility as the S&P index but twice the volatility.
Bond (or CD) Ladders are one of the topics we touched on in todays episode, and are commonly used by many retirees as part of their fixed income strategy. This post from the Bogleheads wiki is a good resource to understand this instrument better. These days most brokerages make it easy to set up ladders, via simple to use tools you can access on their websites.
Sitting out market volatility may sound like a good idea to some people, taking their money out of equities seeking less volatile investments. But this is really just attempting to time the market. And articles like this one from CNBC demonstrate just how risky a strategy that is. Considering market data going back to 1930, a Bank of America study found that if an investor sat out and missed the S&P 500′s 10 best days each decade, their total return would be 28%. If, on the other hand, the investor stayed in the market all through the ups and downs, the return would have been 17,715%!
Interest rates on savings accounts are always a hot topic when thinking about holding cash – particularly when these far trail the rate of inflation (i.e. cash losing value over time). As an example of how quickly things can change, the interest rate has already doubled in the few months since we originally recorded this episode. Today, there are banks offering >2% interest on high yield savings accounts!
You can find information on the tools we mention in each episode along with additional information in the Resources section of this site.
With all of the volatility in the market, should you delay retirement by a year? A viewer asked Jason if he would feel more secure had he worked another year or two before retiring early. In today’s episode, Eric + Jason discuss that question and the merits of considering “one more year”. Join us as we discuss this idea and the reasons you might consider that option, what Jason would have missed out on if he had worked longer, and the value he found in retiring when he did.
Show notes may be found below the video
Show Notes
Essential Background:
For context on what Jason has been up to since retiring early in June of 2020, don’t miss our episodes discussing his early retirement milestones. The first, What I Learned in My First Year of Retirement is foundational to understanding his RE experience. Not everything went smoothly as you might expect. Here Jason discusses what’s changed, what’s been better, what’s worse, and – importantly – has it lived up to his expectations.
A few months ago we published a year two update titled My New Life: Two Years After Early Retirement. In this episode, Eric traveled to California to shadow Jason and find out what his FIRE life is like nearly two years into early retirement. We learn how Jason fills his days, hear his concerns pre- and post-FI, discuss the merits of part-time “fun” jobs, and the reality of finances. It’s interesting to compare this video to the one-year milestone for sure!
In today’s episode, Jason talked about his long (five weeks, not seven – he misspoke!) family vacation as one of the most important things that happened since retiring early. Jason discussed this trip as a part of How We Travel: Pre + Post Financial Independence. In this video, Eric + Jason compare notes from their two respective sides of FI and their recent vacations: 7 days for Pre-FI Eric and 5 weeks for Post-FI Jason.
Many people claim they’ve achieved financial independence (FI) yet they fall prey to repeated “one more year” extensions. In our experience, this is often due to a lack of confidence in their financial strategy. In Have Enough to Retire (Early)? 10 Steps to Make Sure we discuss ways you can prepare for this key decision, and proceed with confidence.
Jason’s milestones blog posts are perhaps the easiest way to understand what his journey has been like since retiring early. In these articles, he discusses candidly what he’s felt, experienced, and achieved in the two years since he left his career behind. As he + Eric talked about in today’s episode, it’s almost inconceivable for him to imagine not having had these experiences. If there’s a specific topic you’re seeking, don’t miss this list of all his blog posts to date.
The One More Year Syndrome is a blog post is a post by Fritz Gilbert from Retirement Manifesto. In this article, Fritz discussed why “one more year” made perfect sense for him. Perhaps just as interestingly, this post also collects the thoughts of many other familiar voices from the FIRE community on this topic. It’s definitely a worthwhile read. On a related note, if you haven’t seen our interview with Fritz, be sure to check out Retirement Is Nothing Like I Thought It Would Be. It’s one of our most popular episodes to date for good reason!
You can find information on the tools we mention in each episode along with additional information in the Resources section of this site.
Can you retire early without a high-paying tech industry salary? In this episode, we talk with Stephen about how he plans to do just that. At 30 years old, he’s earning $50k as a higher education administrator, yet he plans to retire with at least a million dollars by his early 50s. How will he do that? Join us as we discuss his plans, the role of financial discipline, why he doesn’t feel he’s overly frugal, and the challenges of his FIRE path.
Stephen’s Budget: Are you interested in more details on Stephen’s financial picture? He graciously shared the Sankey diagram below, which captures his Jan-Jul 2022 income and expenses. This visualization makes it easy to see both sides of the balance sheet, and provides a lot more detail on Stephen’s finances than we were able to achieve in our conversation.
The Shockingly Simple Math Behind Early Retirementis an article by blogger Mister Money Mustache, which many cite among their most important inspirations for getting on the FIRE path. As you heard from Stephen, MMM was one of his early sources as well.
Still doubting whether FIRE is achievable on a more traditional salary? See The Millionaire Next Door (Thomas Stanley), a profoundly insightful book for a very easy read. Dr. Stanley studied wealth and the habits of the wealthy for many years, capturing his observations in this work and others. Learn how frugality, living below one’s means, and investing, truly powers the path to financial independence.
The Simple Path to Wealth (JL Collins)is widely regarded by many in the FIRE community as the most impactful book to their own journey. This fast and easily digestible read is chock-full of investment guidance that you will understand immediately and can readily apply. There is no better starting point to your FIRE journey than this book.
We didn’t dig into it, but you may have heard Stephen refer to feeling “YNAB poor” in this episode. What is YNAB? You Need a Budget is a popular budgeting tool for many in the FIRE community. If manual spreadsheets aren’t your thing or you’ve struggled with budgeting in the past, this may be a good solution. YNAB has a generous, free 34-day trialso you can see how well it works to help you understand and control spending. (affiliate link; no credit card needed )
You can find information on the tools we mention in each episode along with additional information in the Resources section of this site.
Note: This post has been updated to include our episode with our follow-up conversation, in which we we review our take-homes from that conversation, and react to comments and feedback we received about the episode with Karsten.
What would you do if you ran out of money in retirement? It’s hard to imagine a scarier outcome, and yet many on the FIRE path may be at risk for this if they get their portfolio withdrawal rate wrong. In this episode, Eric + Jason talk with Karsten Jeske, the creator of the Early Retirement Now blog. Known by many as “Big ERN”, he is an economist who is well known to the FIRE community for his extensive work in characterizing safe withdrawal rates (SWR). In this episode, we dig into Karsten’s free, powerful SWR Toolbox, and discuss topics including the downsides of FIRE calculators, 100% stock portfolios, the bucket strategy, why dividend investors are wrong, and his own post-FIRE life. If you’re interested in FIRE, you can’t afford to miss this information-packed episode!
Show notes may be found below the videos
Note:This content does not constitute investment advice and is being presented for informational and educational purposes only.
Conversation with Karsten:
Follow-up episode:
Show Notes
Essential Background One of the key dangers underpinning the importance of safe withdrawal is Sequence Risk (sometimes called Sequence of Returns Risk). Sequence risk is “the danger that the timing of withdrawals from a retirement account will have a negative impact on the overall rate of return available to the investor” – for example, starting withdrawals in a period with several years of severe market underperformance. This is a topic we’ve discussed before but for those new to the topic, check out this post from Investopedia.
Key Early Retirement Now Content We referenced a number of Karsten’s blog posts from Early Retirement Now in this episode. Below you’ll find links to that content, along with the main landing page for his SWR series. You’ve got enough reading to keep you busy!
But first a little guidance: given Karsten’s extensive knowledge and expertise on these topic areas, his approach employs analysis which some may find unwieldy or even a little overwhelming. Don’t panic! Skim the math and stick with the text, and you’ll find that it’s not essential to fully comprehend all the analyses to understand the messages being delivered.
The SWR Toolbox: This is the free, downloadable tool that Karsten developed and which we discussed in this episode. Part 28 is the post where the revisions to the original calculator are described and the latest tool is linked. To see the history of this tool, you’ll need to go back to Part 7 of the series.
Safe Withdrawal Rate series: This is the landing page for the SWR series for which Karsten is best known. However, it’s also a 53-part series (now; it will surely grow). So we recommend following the guidance he provides about how to get started. You might begin with a topic of interest found below or listed at this landing page rather than diving into the whole series – though it’s a great read if you have interest in going through the whole thing!
Equity Glidepathsare a type of dynamic asset allocation plan often discussed in retirement planning. In Karsten’s words, “if we start with a relatively low equity weight and then move up the equity allocation over time we effectively take our withdrawals mostly out of the bond portion of the portfolio during the first few years. If the equity market were to go down during this time, we’d avoid selling our equities at rock bottom prices. That should help with Sequence of Return Risk!”. He covers glidepaths in Part 19 and Part 20.
Dividend stock strategies are commonly touted in the investment community, yet are seemingly poorly understood. We talked about this idea in our episode, and Karsten has written several great articles on the topic: Part 29, Part 30, and Part 31.
Is it crazy to hold 100% equities until retirement? Eric asked this question in response to his portfolio moves earlier this year to change his allocation to include 30% fixed income (Two Sides of FI episodes: Part 1 and Part 2). See Part 43 of Karsten’s series for further detail on his position, expanding on what he said in this episode.
Inflationis certainly a topic on everyone’s mind at the time this episode was recorded. In one of his more recent posts (Part 51) Karsten digs deep on this topic. Is what’s currently predicted for the inflation path within historical norms – and is our withdrawal rate modeling at risk? Read on to find out…
The Retirement Income Style Awareness (RISA) assessment was discussed in our follow-up episode. This tool, by Wade Pfau and the team at Retirement Researcher, came from research performed on individual styles, risk tolerance, and other factors, and is aimed at deriving a personal retirement income strategy. Fritz Gilbert at Retirement Manifesto posted a nice write up on this last year, which we’d recommend. If you’re interested in learning more about this assessment, check out Wade’s book: “Retirement Planning Guidebook: Navigating the Important Decisions for Retirement Success”.
Bonus: If you haven’t had enough yet, we’d recommend Part 26: “Ten things the ‘Makers’ of the 4% Rule Don’t Want You to Know”. It’s written rather tongue-in-cheek, while still being packed with the insight we’ve grown to expect from Karsten’s style of writing. We touched on some of these points in the episode but there are a bunch more not covered that are very much worth reading.
You can find information on the tools we mention in each episode along with additional information in the Resources section of this site.
