Well that was interesting. I generally ignore the stock markets most of the time except for my monthly net worth posts where I login to my accounts and check the balances. Yet even the current media coverage on the stock market decline managed to pierce my fog of ignorance a bit earlier in the month than I’m used to. So yes, the TSX index is down like 10% or more from its recent peak.
First off, I don’t panic. In fact, I go back to my previous notes about my emergency plans and what the trigger is. You know that plan you wrote down when things were going well and you were calm and rational…unlike now where your mind seems to be moving like a squirrel on a double espresso. And there is black and write is my trigger point which is 10% decline in our portfolio, so while my TSX index is down over 10% I will need to check if my portfolio is down that far yet. Given my bonds I doubt that the damage will be that bad but I will confirm that tomorrow.
Yet the timing of this does suck. I was supposed to be re-balancing my portfolio next week and selling some investments to provide cash for next year. So what do I do? Well looking at my emergency plan the answer is simple: nothing.
Pardon?!? Yep, the answer is I’m doing nothing. I’ll just sit back and wait until the US mid-term elections are done and the world just calms down a bit. In the meanwhile I still have lots of cash in my savings account to live on in the short term and that gives me time to push off pulling money out of my investments until later on in November. Of course the delay is more psychological than real as I will be pulling money out the bond part of my RRSP. What I’m really delaying is the re-balancing of my RRSP accounts as I don’t want to re-balance to a stock market blip that will put my off my planned percentage split of investments five minutes after I finish the transactions.
So I might be “missing a buying opportunity” or “trying to time the market” by delaying my re-balancing but the fact is I wrote out a plan back when I was much more calm which said this: when your portfolio goes down 10% or more than you trigger the emergency plan. Don’t sell investments. Sit down, take a deep breath. Cut back on optional expenses (if you feel the need to do ‘something’). Use your slush fund to pay expenses in the short term (if required). Keep the long view and consider your options: perhaps pick up some part time work or a contract position and consider using debt as a medium term measure if the decline goes on a for an extended period of time. Keep in mind, you are in this for the long run so don’t do anything stupid in the short term. Sit on your hands if you have to but DO NOT touch that ‘sell’ button.
See “rational past me” knows “stupid panic current me” very well and wrote out just what I needed to hear: don’t do anything. Sit tight and if you need to do something work on something to give you some income or perhaps look at your spending in the short term to give yourself a sense of control in a chaotic time.
That is the real value of writing out an investment plan. It doesn’t have to be long or complex but it should be your ‘go to’ document when things hit the fan and you don’t know what to do. So what does your investment plan say to do right now? Or how are you reacting or not to this stock market decline?
I do admit it. Every once in a while when someone asks what I do in retirement I struggle to answer. I think back to my week and realize that yes I exercised three times, volunteered for an afternoon at the school library, walked the dog daily, did some errands, helped my kid with a school project, finished writing 1250 words on my book, got some fall maintenance done around the house, read a book, worked on some crafts, bottle a batch of beer and baked some muffins. But those things don’t sound all that interesting or particularly important compared to most people’s answers or stories from work about their 60 hour work week and having three major projects due next week.
Then I realized the other day perhaps my standards are all wrong. Perhaps I should consider what I didn’t do in a week. I didn’t spend over 20 hours in meetings where very little work actually got done. I didn’t have to write up project status reports for anyone which most people won’t read. I didn’t have to answer questions from co-workers or other interruptions at least ten times each day. I didn’t have to book a meeting room to actually give myself some time to get some work done. I’m not busy and I really should be proud of that fact. The issue is we have confused busy work with real work. Busy work isn’t real work, it takes you away from doing quality, well thought out and useful work.
Oddly enough, despite my relaxed weeks I honestly think I’m getting nearly as much done as I used to at work but in a faction of the time. Do you any idea how much writing you can get done when you can focus completely on it for a hour? I can usually get over 1000 words done on my book. And that just isn’t crappy writing but rather a nicely thought out and organized draft of 25% of a chapter. Could I be doing more? Potentially yes, but given I have tried to write more in the past in a short amount of time and I usually end up with a hot mess of text in desperate need of a good edit. In short, I just make more work for myself to do. So I spend perhaps two hours a week focused on writing and then I don’t worry about it after I hit my weekly target. It means it takes a bit longer to write a book but honestly I think I’m writing a better book because of it.
More time at work isn’t a good thing and I often thought during my career it was a failure when you did put in those extra hours. Now that I’m retired from that job I completely agree. Work could be so much better for people if the focus was on getting the ‘actual work’ done first and then ignoring much of the busy work that fills peoples’ days. Why can’t we have a more sane work pace? People aren’t machines and putting in more over time has been shown to actually get less done and often poorer quality work that often needs rework to fix it.
So yes, I wasn’t ‘busy’ this week and I won’t be busy next week either. But you know what? I like this pace of life. I can see doing this endlessly. Can you say the same thing about your current pace at work?
If you have been around the early retirement blogger community for a while you will notice we have a high number of members who were engineers. I initially thought that was a interesting fact as I drank the kool-aid of thinking anyone could retire early. Then after reading this article in the Atlantic, my realization that I was never middle class it hit me all over again. I have always been really am well off and honestly I like to think it is my own merit and skill but I should really should mention I was born with a significant leg up on everyone else. Yet the real truth of the matter is it extends farther than just me. The entire concept of early retirement in your thirties or forties is really a niche carve out mainly of the subset of the professional class (like engineers, lawyers and other high paying career tracks) who crave freedom more than anything else.
After all we personal finance bloggers continuously preach that it is all a matter of saving a high percentage of your take home pay and just about anyone can do it. If you can save half that is great, but if you can push it even higher to saving 66% of your take home pay then your working career gets even shorter and starts to approach a mere 10 year career.
See by telling the story in terms of percentage we mask the little details like it a hell of a lot easier to save 50% of your tax home pay when you are making a combined household income greater than $100,000 per year (and in a lot of cases per person). When in fact, the median family in Canada is only $70,330 per year (2015). Now toss in the average house cost in Canada is $495,000 and suddenly saving 50% of the median income at that level gets a LOT harder when you could be spending around 40% of your income on just the mortgage payment.
I used to think I was somewhat noble for doing early retirement after all I was giving up the option to be really rich if I kept working…of course I conveniently ignored the fact I was already rich compared to most people just not multiple millions in the bank rich.
My kids for example are already better off than I was. I was the last of four kids so my parents decided to cut off my university funding after my first two years and co-signed a line of credit instead (not that I’m blaming my parents at all for that decision there were a lot of factors that lead to that decision). But it did result in me owing $25,000 when I left university. My kids haven’t got to high school and they already have over $40,000 each saved for their post secondary education. Not to mention the fact they now have two parents who work in the house and are available to help them with homework, attend school functions and otherwise support them in just about everything.
While I can’t predict if my own kids will ever go after FIRE themselves the reality is they would end up with a huge leg up over my own attempt as they will likely graduate post secondary education with zero debt. Thus further enabling my kids to retire even earlier than I did if they also go after a professional or other high paying career.
So the question becomes is FIRE really possible for everyone? While in a pure theory sort of way, the answer is yes. The reality is much different. The difficulty of early retirement keeps getting higher the less income you make and the scale isn’t just linear. For a family earning less than medium income the odds start to become vanishingly small. You basically need to live in a low cost of living region with a higher than average local income to make it work. So in the end I have to conclude FIRE is basically an elitist concept that is mainly limited to high income people and those that succeed at it will always be a minority as compared to the general population.
Do you think FIRE is elitist? Why or why not?