Investing Over Your Lifetime

If you want the best returns and are committed to using evidence-based investing (low-cost, broadly diversified index funds with a factor tilt), you need exposure to risk assets. How much risk you take, well, that is investing over your lifetime.

1. Leverage when young

When you are full of vim, vigor, and human capital, it makes sense to leverage your potential. Once you have the insurance bases covered (life, disability, etc., when indicated), investing in VTI or ITOT when you have a mortgage or student loan means that you are leveraging your human potential. You know you can work and earn an income, and you are barely smart enough to look at the interest rate you pay on your loans vs. the historical returns of the S&P500.

Leverage is important when you are young. Remember, early on, savings rate is much more important than investment returns. First, decide how much of your pre-tax income you will save.

Your employer plan lets you save twenty-some k and change, so if you need more savings than that (and most will to get to a 30-50% savings rate), you must automatically invest into a brokerage account every two weeks. Right. Set up an auto-withdrawal from your bank account into your brokerage account that automatically buys VTSAX (or VTI, long story if you are a Vanguard investor), ITOT, or anything that is broadly diversified and cheap. The key is to set it up. You won’t do it. No one does. But if you do:

Then if you can invest more, do absolutely nothing. Wait. Compounding takes only time and non-interruption.

Don’t interrupt your leverage when you are young.

 

2. De-Risk

 

Eventually, while you are still young and have had a healthy saving rate, you will want to de-risk. You have leveraged your human potential and now start looking toward the exit.

How can you get out of the gig you are currently in and on to coast fire? This is when you de-risk during your accumulation phase. You have enough. At least enough for a younger person on the journey to FIRE. Your next gig takes you to coast fire.

You de-risk during your accumulation phase when you are ready to move from your full-time job to your coast fire job. You keep saving if you can, but you make sure your lifestyle is primary because your nest egg is big enough that it will grow in the background, and as long as you don’t touch it, you probably can retire off just that nest egg. So just earn enough to meet your daily bread. Be that happy! Do that much.

Many docs can’t let go, and they work way past they are coast FIRE. Or, actually, let’s be serious here and remember that most docs spend month-to-month, and it is rare that you are thinking about de-risking while you are still young.

If you can find a happy job that pays you what you are worth, then de-risk.

 

3. Go 100% all in

Now maybe you are mid-life and have that apocryphal mid-life stressful event. That’s when you go 100% in. Make sure you are still funding your retirement accounts and taking advantage of all the few tax advantages you can. But go 100% in!

Now you are mid-life you actually spend money on what you value. Ignore comparisons, ignore shoulds, and most importantly, know that what makes you happy and healthy is the journey. Money, work, relationships, etc. It is all of doubtful authenticity, although widely circulated as being true. Apocryphal.

It is time to recommit and go 100% into changing your life. Re-invention if you want; what is the crisis you want to use to allow yourself to slow down enough to access what is actually valuable to you? The key is to know what you want and to OMG please slow down.

After that stressful event or when you are ready for Coast FIRE, drop your energy level and remember to do the next right thing. Retirement is doing the right thing every day, so you can also do that when you coast-FIRE.

Go 100% in; you are ready to retire.

 

4. Go conservative

When finally ready to retire, go conservative because you know you will always compound your assets.

You are smart enough to FIRE. We don’t lemming jump off a cliff, nor are we caught in sequence of returns risk. We don’t even face retirement risk date since we oversave for retirement.

If you are smart enough to FIRE you will never lack because you are always looking for a better way. Compound those small daily wins and continue to grow.

And sometimes the path to a better way is renumerated. Thus, we make money; stop playing with the money you really need.

 

Investing Over Your Lifetime

If you want the best returns and are committed to using evidence-based investing (low-cost, broadly diversified index funds with a factor tilt), you need exposure to risk assets. How much risk you take, well, that is investing over your lifetime.

Risk is not the standard deviation of the stock market. Full stop: who cares what the stock market is doing because I have invested my money knowing it will crash sometimes, and it is only worth something the day I buy it and the day, if ever, I sell it. Hopefully, what I’m investing now will get a step-up in basis when I die or highly appreciated equities are perfect for giving to charity.

When you consider investing over your whole lifetime, risk is the possibility that you won’t meet your goals. The chance to miss-invest (via a stock broker or an insurance agent) is not so likely for FIRE folks. More likely than not, we will continue to DIY invest over our lifetime.

Once smart enough to reach FIRE, no one is stupid enough to see their bottom (or their bottom line) going down.