I give the Bogelheads a hard time. I was on CD’s site and realized in all fairness l should give the Bogel aficionados their due. What they do right is get people to right size their lives. For example for the average guy there is no reason if your employed to live in long term debt except for a mortgage and there is no reason to own a mortgage that is not right sized to your income. There is no reason to own too much car, and there is no reason to not save and invest. There is no reason to not try for a better job since a better job is an income multiplier.
The Bogelheads also get the portfolio basically right. Cheap index funds properly risked in a rising market are a sure winner. Return relies on the economy not stock picking or magic. It’s the jokers in the C suites of the companies that make you wealthy, such a deal. All you have to do is come along for the ride. I poke a lot of fun at the BH3 because I want to teach folks about modern portfolio theory and doing comparative analysis is a good way to do that.
With the advent of Personal Capital graduating to a modern portfolio theory portfolio is plug and play simple. You can upgrade your portfolio to one consistent with MPT and Personal Capital will tell you exactly how to pick your assets and AA to be on the Efficient frontier. It will then add up your cost of owning those funds and Monte Carlo the result to give you some insight into the future and if you are saving enough.
Funds now are dirt cheap to own and transaction costs are dirt cheap as well, the tools of optimization are free, life is good. So what’s the downside of Bogel’s crew? It’s unclear what FI really is. I listened to a “what’s up now” podcast and the panel was interviewing the audience asking if they were FI. Everybody in the room thought they were FI including people with just a few K in the bank. Because they had read a book or read some blogs they assumed they were on their way and could claim the title. Then there is the RE at 30 crowd. They are just gambling or they have a job (like a blog) or a wife who has a good job aka they are freeloading to a greater or lessor extent. Certainly a 1 income household is legit but it takes a long time to reach true FI on one income. In the recent Playing with Fire movie this became evident. The couple were living on their parents couch for a year while grandma baby sat. The wife “tele worked” all day to bring in some dough and the dude hung out tying to figure out a gig. I don’t see free loading as FI or as a means to a 3M nest egg, nor is it a real narrative of success. Free loading by definition is financial dependence.
I find it interesting the narrative seems to have moved from FIRE to FI and people still have a W2 or have manged to start some kind of business. I hear more and more about being FI and less and less about FIRE which means normal wisdom and risk aversion are modulating the narrative. Virtually nobody is retired in earnest they are just FI. I’m not the retirement police so people can do what ever they want, but it causes the narrative to skew wildly away from reality, and I think that does a disservice to those who are being sold the narrative. My hope is the narrative will continue to evolve into something essential and sustainable since we now have amazingly powerful tools, to use to accomplish the true goal of true FI.
So we have now the analytical tools of accumulation, and some ability to attempt to peer into the future using either a historical analysis technique or a Monte Carlo technique. We also have some models of spend down very different from the BH boilerplate of 4% x 25. Kitces for example just wrote a piece of flexibility in spend down. Big ERN includes Sharpes ratio in his spend down viability calculations attempting to better quantify risk and improve his aim at the retirement target. Others are developing odds based models (expectancy theory) to try and determine what is the smartest choice based on probability of success vs probability of some failure or less likely outcome, a very Bayesian approach to spend down. If you look at a normal distribution in spend down, expectancy theory attempts to choose the choices most likely to place you in the better half of the distribution. If you wind up in the better half your chances of being in the worst half tend to zero eventually. My own work at looking at actual year by year spending to arrive at a total cost of retirement and a means to accurately estimate through budget a rational “number” based on your actual life style and not some wanna be lifestyle.
That is the future. Those books have yet to be written, and when they are both FI and FIRE will come into clearer focus. The financial tools and programs for understanding this also exist. Being rich and then not becoming poor is a different thing than day dreaming about being rich. Eventually the hucksters and snake oil sellers who make their fortunes off the masses will die away. People are smart. It’s the reason nobody accepts the 4 x 25 rule as legit. There is simply too much at stake.