There's no such thing as a risk-free life // risk tolerance, low risk tolerance retirement, false dichotomywe've learned

There’s No Such Thing As a Risk-Free Life

Back in my early 20s, when I was broke and in student loan and credit card debt, I started to be able to save a little money. Like practically microscopic amounts. But it was something.

I was so terrified, though, of losing even those few dollars that I thought I needed to make them as safe as possible. So instead of putting them into vehicles that might actually make me some money, I put my funds into a savings account, not even a high-yield savings account, and once I started to save slightly more, into the “safest” mutual fund I could find, an intermediate bond fund. I did the same thing with my 401(k), putting my 1 and 2 percent contributions into bond funds, telling myself I’d get more ambitious with my investing “later,” after I had enough of a cushion that I could lose some of my invested totals and still be okay. Though, honestly, that wasn’t a future I could actually envision, so I might as well have said I’d start investing less fearfully when dogs rise up to be our overlords. (Let’s hope it’s the golden retrievers who get put in charge if that happens.)

A few years later, I took a look at my “portfolio,” a couple thousand dollars between the savings account and mutual fund, to see how I’d been doing. At first glance, it looked good. The little line graph went up-ish on the mutual fund, and the savings account kept gaining a few pennies a month in interest. Numbers going up — I must be winning, right?

But then one day, I clicked a link on my bank’s site about inflation and consumer prices, and saw the rates for those years: 2 percent, 3 percent, 4+ percent. The chart looked a lot like my mutual fund chart, actually. I thought, “Huh, I wonder if those things are related.” And then I thought about my money sitting in savings, gaining a little under 1 percent in annual interest in those years.

It wasn’t an all-at-once reaction, as it seems in hindsight like it should have been, but eventually, I realized:

By trying to keep my money safe, I was actually guaranteeing that I’d lose it.

I wasn’t technically losing actual dollars, but I was losing spending power with each day that passed with my investments gaining less than inflation was taking away. One step forward, two steps back.

It would make for a better story if I had some empowering realization then, and began investing more aggressively, with confidence, but the truth is that I was crushed. I had worked hard in that time to pay down my debt, and I saw those few thousand dollars as all that stood between me and financial ruin. And now I could see them slowly trickling away, like sand slowly draining out of the hourglass.

Eventually I built up a bigger safety net, and once Mr. ONL and I combined finances, he helped nudge me toward investments that would actually beat inflation and grow in real terms over time. It wasn’t an easy shift to be willing to put my money at risk like that — investing in stock funds felt only slightly less risky than spinning a roulette wheel — but I got there because I’d learned one of the most important lessons of my life, seeing my savings account’s tiny gains alongside those much larger inflation rates:

There is no risk-free option. Not ever. Not just with money.

There's no such thing as a risk-free life // risk tolerance, low risk tolerance retirement, false dichotomy

Pick Your Poison

Investment banks categorize funds by level of risk, but it’s all an illusion. What they don’t tell you is that by investing in the least risky plans — the “safe” ones — you are increasing your risk of not beating inflation. Which is the exact same thing as losing money over the long term.

What they really should ask you, instead of assessing your “risk tolerance,” is What type of risk would you prefer? And then you could choose based on whether you’d rather take on volatility risk or inflationary risk. But you’d know it’s not a yes/no question. It’s either/or.

Not Choosing Is Its Own Risk

Realizing that we can never escape risk was deeply uncomfortable for someone who is borderline obsessed with building multiple levels of safety into financial plans (hi), but it was also profoundly empowering, or at least it was after I got over the loss of my illusion.

When I realized that my safe approach had never been safe at all, I started seeing all of my financial choices differently. I started seeing all of my life choices differently, too.

I saw that taking some leap, trying something that felt scary might feel like a risk, but the equal and opposite risk was in not trying that thing, never knowing if I might have loved doing it. Which of those would I rather risk?

It’s like choosing a life partner, if you’re into that sort of thing. We are all flawed humans, but it’s a false dichotomy to think we have to choose between the perfect partner and no partner, or the perfect partner and settling. Instead, we should toss out that perfection notion (the mythical no risk choice) and choose the person whose particular flaws jive best with our own. Not yes/no, either/or.

Not Choosing Early Retirement Is a Risk

I have long had the feeling of a ticking clock hanging over my head, reminding me that I’m getting closer to the age when my dad’s disability took effect, a disability that may be hiding in my own genes, watching its own ticking clock.

So when I learned that early retirement was an actual possibility, it was an instant sale. Because I knew, with this alternative life path suddenly open to me, that this either/or question had a perfectly clear answer:

Would I rather risk having money difficulty in early retirement, or risk spending all my able-bodied years at work?

For those of us who crave safety, who hate gambling, who wish we could have certainty on just one thing, once, ever, there’s so much temptation to see that risk-free option. And continuing to work intuitively feels like that financial security blanket. But every day we spend at work is a day we risk missing out on the things we value most. That was not a gamble I was willing to take, and it’s still not.

It’s why even though I’ve found new affection for my job, and even though I will always have anxiety about recessions and sequence risk and all the rest, none of those outweigh the risk of leaving all my best years at the office. The risk of missing the chance to live the life — even if only for a few short years — that only my able-bodied self can live.

The Third Law of Motion — and Risk

For every action, there is an equal and opposite reaction. We remember it in physics, but it applies just as well here. For every risk, there is an equal and opposite risk. For every opportunity we don’t seize, there’s a potential regret we do seize.

It’s up to each of us to shape not how much risk we take on, but which risks we find acceptable.

I still call myself risk-averse, because that’s lazier shorthand than explaining that I try hard to balance the two equal and opposite risks: financial insecurity in retirement vs. working for too much of our lives. Working through this year but not longer feels to both of us like that right balance, but it’s just our best guess with the information we have.

If Everything Is a Risk, Is All Risk Risky?

(Say that three times fast.)

I am the last person who will tell anyone to buy the volatile stock or quit a job on a whim. But for those things we want to do in life, but let fear hold us back, it’s useful to remember that equal and opposite risk. We may spare ourselves from failure or rejection or humiliation if we don’t do the things we’re drawn to do, but at the cost of never knowing what we might have been capable of, what we might have found immense joy in, whom we might have met and connected with.

Does anyone, when looking back at life from their deathbed, ever think, “I wish I hadn’t tried that thing or put myself out there”? Or do they regret the things they never went for, the opportunities they let pass by?

If we remind ourselves that the “safe” option might come with the biggest risk of all, it’s suddenly easier to push past our fears, and to do the scary thing.

And in my case, early retirement is the scary thing. I fully expect to be terrified when I give notice, and when we collect our final paychecks. But that’s not going to stop me from doing it, because the alternative is much, much scarier.

What’s Your Either/Or?

Whether you’re working toward retirement or not, what’s the thing for you that outweighs or counterbalances the financial risks you might be considering taking to retire early? What risk in your life do you feel more willing to take if you consider the equal and opposite risk of not taking it? What risks have you started to see as either/or choices? Let’s chat about risk in the comments!

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92 replies »

    • And I think it can actually STAY scary. But it’s learning to manage that fear and put it in the proper context. :-)

  1. Short term risk is commonly higher than long term risk, as far as investments in the stock market are concerned any ways. Being young this scares the crap out of most people, a long term mindset is often NOT what you have at that age.
    That being said, opportunity cost (as in not investing the money) is not a risk but a guarantee of losing money. Guess taking risk (for the long run anyways) is a good thing, just can be scary sometimes.

    • Oh yeah, I felt that fear big time. When you feel close to financial ruin, volatility IS extra scary, whether you’re thinking long-term or short-term. I feel incredibly privileged for having gotten past all of that!

  2. I’m taking a big risk walking away from good health care coverage that would come with retiring from my job when I am “retirement age” (55). But working for 5 more years isn’t worth it to me at all. Not choosing early retirement would be a much higher risk for us never experiencing the things we want in life. We’ve calculated out our living costs (minus health care) and we can enjoy our great condo in Florida for under $700/month including everything for the rest of our lives if we have to sell everything (investment properties). The older you get, the faster you will see things happen to peers that will cut their retirement dreams off (of really scale them back). Glad you are taking the leap – especially knowing their is a family history of a disabling illness.

    • I really admire the leap you guys are taking, especially considering that they are dangling that health care in front of you if you stuck it out 5 more years. But as you said, there is huge risk that comes with that. We’re grateful on some level that we’ve never had the temptation of a pension or guaranteed insurance to complicate our thinking! ;-)

  3. I love this! What a great way to look at things. The example in my life right now that jumps out at me is that we decided to try to get pregnant while I was still under 35, but before we had met some important-to-us financial goals (paying off student loans, maxing out Roth IRAs, paying off PMI, etc). I felt like the risk of not being able to get pregnant outweighed the risk of being a little financially insecure. Like I probably could have “just one more thing”-ed my way into not being able to have kids at all. It turned out we (very gratefully!) got pregnant right away, so I do worry about our financial vulnerabilities now, especially with the added cost of daycare, but this is the price we are paying for the joys of parenting and I’m ok with it.

    • Congrats! That’s so awesome! And what’s that saying? “If you wait until you’re ready, you’ll never do anything”? It’s totally that. Who ever feels totally ready to be a parent? Maybe someone who’s 60! ;-) And likewise, I expect we won’t feel totally ready to quit our jobs at the end of the year, but we sure as heck are going to do it anyway!

  4. This is a very timely post and I can relate to it in many ways. On my mind recently has been “if not FIRE, then what?”. I’ve been thinking about it in a practical way, if we weren’t to quit and move to the mountains something would still have to change in our lives. Our current job satisfaction, commutes and even area we live in are grating on us daily. Working through the alternatives hasn’t turned up any stellar ideas that even come close to our plan to drop it all and run. Yes, it’s got its risks, but the status quo has more risk.

    • Hi Mrs. PIE! Please say hi to Mr. PIE for me! ;-) And you know we can totally relate — we’re willing to work in an unsustainable way now because we know there’s an end in sight. If we were looking at doing this forever — whoa, that would be a whole other set of considerations, and like you, we would for sure have to change something so we don’t destroy our health and sanity working like crazy people!

  5. Good stuff, investment risk is more than losing money! Inflation is a sneaky safety killer.

    I have been thinking a lot about getting more comfortable with risk and making a leap both financially and professionally (or how I would jump to a less professional but more satisfying way to earn). Trying to find ways to speed up our FI date or move on from the corporate world sooner, but the safety of a regular above average paycheck is a big hurdle to get over mentally.

    • You know we can totally relate to that. It’s why we’ve decided to stay put in our careers until the end, even though we possibly could have done it faster going a non-traditional way (but also could have earned way less and slowed things down — the more persuasive downside). So good luck figuring all of this out!

  6. We really try to encourage positive risks at my school. And I think that’s exactly what you described. Life is a gamble. And as much as we can try to hedge our bets, we’re still betting. I think it’s really important to practice putting yourself out there — whether that’s financially or otherwise. I’ve blogged a bunch about how playing it safe (and aiming for perfection) has gotten me relatively little in life. It’s something I’ll be battling the rest of my days, I’m sure, because it’s a hard mentality to break. But I feel so much better making an honest effort to take those risks.

    • I love that you’re working so hard to break out of that old mindset. As a fellow perfectionist, I do think the whole idea of perfectionism is about hedging bets and not really wanting to put ourselves out there. It’s a fearful mindset, not one that embraces taking chances. So I am striving to embrace the messiness and imperfection of putting myself out there more, just like you’re doing. :-)

  7. “But for those things we want to do in life, but let fear hold us back, it’s useful to remember that equal and opposite risk. We may spare ourselves from failure or rejection or humiliation if we don’t do the things we’re drawn to do, but at the cost of never knowing what we might have been capable of, what we might have found immense joy in, whom we might have met and connected with.”

    I’ve been thinking about this a lot since reading Mindset by Carol Dweck. I was raised as a fixed mindset kid. I was the smart kid. That was my identity. As I grew older, I didn’t do anything to risk that identity. I procrastinated and half-assed, so that bad grades and failures were because I didn’t really try, not because I wasn’t smart enough. I never put my full effort behind anything. I don’t think I realized that until I read Mindset, but it feels true.

    My subconscious fear was in realizing that I’m not actually as smart as everyone thought I was. I didn’t want to risk that identity. Looking back, I see all of the missed potential and years of accomplishments that I didn’t even attempt. The risk of not trying was definitely greater than the risk of trying, but I didn’t realize there was risk on both sides at the time.

    The fact that there is inherent risk in every decision and non-decision is something that more people need to recognize.

    • Wow. Thanks for sharing your story, Matt. I have had friends who went a similar route — super smart, but feared failure, so instead didn’t even try. It definitely made me sad for them, but I get it. I really do wish we’d all talk about risk in equal and opposite terms — there’s never a time when we risk nothing. It’s just a question of WHAT we risk.

  8. To my simple mind the risk is what if I am *not* Financially Independent? Then what happens?

    There is a risk (likelihood even) my role, perhaps profession, becomes structurally redundant… surplus to societies requirements. Maybe replaced by robots or automated via AI or just using a toolset of skills I don’t possess or indeed understand.

    There is a risk in this commoditised services world somebody living somewhere cheaper than I choose to will be willing to do my function for less money than I can afford to.

    There is a risk of unexpected ongoing financial upheaval, either huge expenses (e.g. nursing homes for elderly parents or chemo/radiation treatments or whatever) or life events preventing further earnings at a level to which I am accustomed (an injury to me, or needing to become a full time career for a close family member).

    There is a risk that external factors blow up my long term plans, for example a Greece/Spain style economic implosion or a Brexit style societal brain fart that precludes me living/working in my preferred location.

    If I’m not earning geographically and asset class diversified passive income from multiple sources then I am at the mercy of all these hardly implausible life events. Seems like quite a risk to me… even if the passive income streams only provide me with the illusion of control! ;-)

    • You raise a super important and not much talked-about issue: That those who just want to coast through their careers can’t even rely on being able to do that because technology truly will make many of us redundant or irrelevant. So yet another huge risk in the “safe” option. And you’re so right about calling it the “illusion of control” — there is no truly safe, foolproof option. If the entire economy globally collapses, we’ll all be in a bad way, even the formerly very rich. But we can at least work the odds in our favor. ;-)

  9. First: Society has created ‘safe’ options. These usually are when we fit in with everyone around us. Ask the average person who loses their job, how ‘safe’ these options are. So, I love your reminder: “If we remind ourselves that the “safe” option might come with the biggest risk of all”

    Second: Risks … If I don’t take the risk of doing something different, and stay with the “safe” option, I fear my kids will be grown up, out of the house, and going along with the “safety” of society. This will hopefully push me past the scary thing, but it gets complicated when a household of 7 depends on your income …… but I can’t not do it, can I? (did I type that correctly?)

    • I am definitely not saying that any of these decisions are EASY, just that they get a little easier when we recognize that there’s risk on both sides. ;-) I can’t imagine trying to figure out our plan with five kids! It’s complicated enough with just two of us! So you definitely have my admiration for wading through all of that!

  10. I think this might be my all-time favorite post from you guys, because it hits so squarely on the reality of life. Regardless of the direction that we choose, risk is inherent in it all. Life isn’t about avoiding risk – rather, it’s about deciding which set of risks you are more comfortable with taking. Boom, done.

    While we can’t always control everything that happens to us in life, we can nearly always control our reaction to those things – and *that*, I believe, is the deciding factor of how happy we are in life. The more grounded and less emotional we are in our decision-making, the better decisions we’ll make and the more we learn along the way.

    Early retirement is a risk. Not retiring early, like you said, is also a risk. Living a life on the road, like us, is a risk. We blew a tire traveling 70 MPH on west-bound I-80 on Sunday pulling a 10,000 pound trailer, which also happens to be our home. We could easily have lost everything, including our lives. It happens.

    For us, our counterbalance is our flexibility. If things aren’t working out precisely as we expected, we change things until they do or until we meet a circumstance that we are more comfortable with. Neither of us will just sit here and *let life happen*.

    For us, the risk of “I wish I retired sooner” is a far greater risk than “I wish I worked longer”.

    • Thanks, Steve! :-) Sooooooo with you that HOW we react to things is the most important thing, ultimately, and that’s something we mostly can control. I don’t think we need to take emotion out of it — sometimes it’s about really reflecting on what will make us feel least anxious, and I’d say that’s just as important as what the numbers look like on paper. But either way, it’s finding the way to make decisions that works best for each of us, and takes into account the fact that there is risk in EVERY decision.

  11. For us the big risk was downsizing, selling off our house and most of our possessions, and moving into a travel trailer. Everyone advised against it. We would be too far away to help out with the grandkids. We would lose our social supports system and our friends. We would be unable to find places to stay. We would hate being in such cramped quarters. After five years we ended up deciding that we did need a more permanent home and a real stick house to live in to better handle Canada’s frigid spring and fall and to give us a home base. We bought a small house in the country which has been perfect. I do not for a second regret giving up the big house, downsizing, living simply, and getting out of the rat race.

    • What I like most about your story is that you let yourselves evolve. When you realized the trailer wasn’t ideal anymore, you didn’t stick to it out of stubbornness and principle; you let yourselves buy a small house. That flexibility and detachment from principles is so important.

  12. Nice perspective and thanks for writing this. What I like to do is really think about what I am likely to regret more in the future. Then I try to minimize that future regret by making a better decision now. As you mention, most people end up regretting the things they didn’t do (but wanted to) versus the things they did do (even if it didn’t work out perfectly).

    Ironically (and a complete surprise to me) this introspection has led me to work longer and save more. The financial benefits are large and am still forming plans for the next phase of life so think I’d regret stopping now more than I regret missing a few extra years of early retirement. Others will certainly have a different cost/benefit analysis but that’s why we call it personal finance.

    Regardless, it’s great to think through carefully and make the best personal decision for yourself and loved ones. Thanks for making us think :)

    • Glad you enjoyed! :-) I am 100% with you in thinking in terms of future regret minimization. And I totally respect where you are in your thought process and cost-benefit analysis, but I will share this: Every single current retiree I’ve heard from has said they wish they’d retired sooner. No one has ever told me they wish they’d worked longer. So just a little food for thought. ;-)

  13. You know, failure to start is just another form of failure. And yet so may people ignore that in the comparison. I try to remind myself of that when I take a new endeavor. As for where we are at, we’re in a bit of the calm before the storm situation.

    We are on the cusp of some major life and situation changes. These could involve the need to move, the company I’ve worked for the last ten years being bought and closing up shop locally, or the next opportunity popping up elsewhere. For some logical reasons I cannot jump just yet. Things like severance ect. But I know there will come a point not long in the future where I have to pull the trigger before things go south. Realizing this and realizing the last time I made a company change and a location change it took me the better part of a year to get myself to accept the change, I’m starting to think about it and conceptualize it now. Sometimes it takes a while to gear yourself up for such major life changes.

    • What a great way to put it: “Failure to start is just another form of failure.” And I definitely understand that knowing this fact doesn’t equate to feeling it. It’s okay to give yourself the time you need to process major life decisions — and to not see that as failure! Good luck navigating all of that big stuff!

  14. Gone are the days of 5% interest bearing checking accounts, which still lost ground to inflation. This is a great post. Other similar risks are investing so conservatively that one will never achieve FIRE, or even adequacy at “full retirement age”. Or there is investing too conservatively as to risk running out during a 50 year retirement. Or complicate that with the risk of investing too aggressively in your first ten years of retirement, such that sequence of events risk is enhanced. There are many perils out there, and any one answer may not satisfy. Stay flexible.

    • Did you actually have a 5% checking account?! I don’t think I’ve ever seen rates quite that high, especially on checking. But I do know that my parents paid like 14% interest on their first mortgage, so it’s all relative. Agree 100% to stay flexible AND to have multiple contingency plans in place. ;-)

  15. This reminds me of things I heard on the radio of men dying who regretted working too much. That will never be my regret.

    Waking up is a risk. I say take some risks. I never in a million years asking for and soon receiving 40k of severance was possible, but I took the risk andthe reality is it was much easier to get than the elusive promotion to Director I had been asking for.

    Previously I never asked for more pay, but once I did they started paying me more and this sped up my ER time frame.

    I read about the 4% withdrawal suggestion and laugh when people seek it as a religion. It’s so full of potholes such as Great Depression era that it’s laughable. Prices went down in this era so lower returns still meant good purchases big power.

    In summary, take all risks presented.

    • We’d probably lean more in a calculated risks direction than “take all risks.” ;-) But I think the main thing is to recognize that EVERYTHING is a potential risk — there’s not this simple and clean dichotomy of “safe” and “risky.” If we know that and think of everything in terms of a choice of WHICH RISK, we’ll all be better off and better informed!

  16. In my opinion…

    Playing it safe these days typically means accomplishing little and gaining nothing. I equate that with taking a passive role in life (and your financial future). You let things happen to you, and when it’s not working in your favor, you blame your job, your family, the economy, the government, etc. and just take your lumps.

    On the other hand, taking risks also means taking a more active role, i.e. risk management. Otherwise it’s just dumb luck if you succeed without putting in some effort and energy into the equation. You have a plan and goals to achieve and work towards those goals, making changes along the way as needed.

    I think most of us who read your posts are at least willing to take, if not already taking, a more active approach toward acheiving and maintaining FI … :)

    • I like how you went with the more broad definition of risk in life. I do think that most of us who are here are already embracing investment risk, BUT the exact same risk applies to the rest of life, and that’s an area where I think we can all always use an extra nudge. What’s that big audacious dream we want to accomplish? Why aren’t we working toward that? It’s not just about the money, after all. :-)

  17. Exactly. Boom. And not that we want to play the comparison game but I was at an industry networking function the other day and it was such an excellent reminder to me why I’m choosing to get out of the corporate america cycle. For 15 years I’ve been seeing many of the same people at these events, and it seems that nothing changes except folks change employers every 2-3 years, get older and *cough* fatter (myself included except I’ve been with the same employer 7.5 years). Honestly, in some ways it feels so pathetic and lame. It had been a good 9 months since I attended one of those events and while my comment sounds completely negative, I left with a feeling of gratitude because I had finally discovered that there WAS another way, though I feel so clueless for not discovering that way before 2015. :)

    • Oh, I totally relate to this! I am at work functions all the time when I think, “Wow, I wonder how many of these people know they don’t have to do this forever?!” There are a million cognitive biases that keep most of us trucking down the same path forever, but it’s hard to imagine that everyone doesn’t at some point think, “This is so boring. There has to be another way.” I wonder…

  18. One of my favorite admins raised a good point today. She said she (a lady in her 50’s with kids roughly my age) has noticed younger people over analyzing things to the point of not doing anything. Buying a house, getting a job, making a move on a person who catches your eye…. we can what if ourselves to death, and never have anything to show for it at all. You don’t know if the cute guy is interested unless you take that risk, put yourself out there, and tell him how you feel (or ask him how he feels). We’ll never earn oodles of money in the stock market if we don’t invest in the first place. I’m petrified of taking certain risks, so this is certainly a timely post!

    • I think that admin lady has some built-in bias going on, because I’ve seen people of all ages fall prey to analysis paralysis! ;-) But it’s a great point nonetheless that you never know what’s possible unless you put yourself out there!

  19. Oh, how I love guarantees! But they’re never quite as great as advertised. For example, dealing with health insurance is a pain. Dealing with a home warranty company is even worse. I’ve used them twice, both times for plumbing issues. In each case, the “repair” actually made things worse and it took so long and so many tries that I gave up and hired an independent plumber to fix the problem.
    Life is messy. We try to have layers of safety nets, but there’s really no guarantee.

    • Guarantees are the best! But they are also an illusion. ;-) And ugh — that home warranty stuff sounds like the worst! We had several appliances fail when we bought our house but realized quickly it wasn’t even worth dealing with the home warranty, and just ate the cost of new appliances. You’re so right that we can create safety nets, but nothing is ever guaranteed at all!

  20. It took me some time to realize that the biggest risk is indeed not beating inflation. And by only saving, you are sure of one thing: you will not beat inflation!

    Once I understood this, I was able to explain it to my wife. She then was ok to invest, rather than saving.

    In our approach, there is risky assets: the stocks (and some mutual funds we have) and cash. I see no place for bonds… Curious to get your thoughts

    • I still feel drawn to bonds mostly for emotional reasons — I just like investment instruments that are less volatile. But I know that bonds have their own problems (inflationary risk, not enough upside, problematic value ratios, etc.), and so we are less than 30% in bonds. But we were just talking about what we’ll do with our 401(k) funds (our largest investments by far) when we quit and roll them over into IRAs — will we put them 100% into stock funds, or do a mix? We aren’t sure yet, but we’ll share that here when we decide! :-)

      • Once I had the opportunity to discuss this topic with a panel of professors specialists in investing and Markovitz: they consider that most people have most of the time a long investment horizon in front of them, even regular retirees… Bonds being one risk for me: historical low interest rates… Will this last? The last 30 years rates dropped so bonds did well. Will that happen again ?

      • Yeah, I have no idea! Though it does seem rates have to go back up and some point, and perhaps bonds will be more attractive then? I’m clearly the wrong person to ask. ;-)

      • The gentleman behind early retirement now blog has done the exhaustive financial analysis on it… he recommends 100% stocks especially if you don’t plan on touching it for 20 years or more. It’s quite an insightful analysis and makes complete sense. But I still have mine structured 80/20 because of fear, mostly (95% of the reason), but some other reasons thrown in there, like flexibility. I painted with broad brush strokes and did 80/20 across the board in my taxable and retirement stock accounts and will rely on my private equity and alternative investment to meet cash flow requirements over the next several years because the cash flow is quite predictable and should provide a SRR hedge. But there are no guarantees.

      • I always appreciate insightful analysis, so thanks for the recommendation. I think, regardless of what anyone can show on the power of 100% equities, we’re never going to be happy not being diversified — there are just way too many unknowns out there, and we will trade some potential gains every day of the week for some level of stability. The key is we know what we’re trading to do that, and aren’t doing so blindly because we’re following some formula — and it sounds like the same is true for you!

      • Have you considered consumer staple stocks like PG or Colgate Palmolive or J&J? These stocks do very well during downturns but still provide huge upside potential, over time. I can tell you that in 2008-2009 our PG position declined much less than our index funds.

        These, in my opinion, are a better alternative to bonds.

  21. I think there are degrees of risk. And while you may not be able to reach absolute zero, you can come close. On one end of the risk spectrum, you could take your life savings and put it on a number on a roulette wheel. On the other end, you could buy TIPS that reasonably protect against inflation in a fairly safe way.

    I think if one can pick the right type of risk (as you mentioned) and lower it as close to zero, one can have a piece of mind…

    … and if I’m wrong, I’m one step ahead of all of you with my dog sitting career. I pledged my loyalty to them long ago. The dog overlords have said I’d be at the top of the human hierarchy.

    • I think I’ll be okay on the dog overlord front too, if they judge us on how many shelter dogs we’ve saved. ;-) (And maybe we’d get bonus points for already basically being ruled by tiny dogs? Hahahaha.) Your comment reminded me that we think there’s a decent chance we buy an annuity at some point down the road, to fund our “real” retirement, in addition to whatever rental income and social security we might get at that point. Later in life we’d happily trade more upside for certainty, and we’ll almost certainly be looking to minimize risk entirely at that point.

  22. I’ve been thinking more and more about the risk of staying at work well past FI. My wife and I are on a pretty solid path of meeting our goal of having an “abundant” retirement and leaving my daughter a nice estate. BUT, it seems to me that every year you work past a certain age, let’s call it somewhere in your 50s, you run a significant risk of running out of healthy time. I used to just have one spreadsheet that mapped out my retirement at age 59. Now I have one that has me leaving at age 57. And more and more I wonder why I don’t have one at age 50 or 52, because i could probably afford to do that. That risk of staying at work longer than you need to is very real to me. You nailed it with this post on there is risk with every option, you just need to choose which one you want to take on.

    • Why DON’T you have one for 50 or 52? Or, maybe better stated: Why don’t you make one now? I have yet to hear a retiree say “I wish I had stayed at work longer.” Every one I’ve ever heard from has said “I wish I’d quit earlier.” Seems at least worth exploring!

  23. As always, a great read! I always tell young investors that the biggest risk is being myopic and trying to avoiding short-term volatility. You will have more certainty about returns month to month but also the certainty that the portfolio doesn’t grow much and/or that you run out of money in retirement. I embrace risk. I get paid for taking on risks that others try to avoid and that allows me to achieve FI at a pretty young age!

    • Thank you! And I admire folks like you who can have such a risk-embracing mindset. I’m still not there, but I have come a long way! ;-)

  24. Thanks for the reminder that not taking risks is just taking other risks. For me the either or risk was going so hardcore on earning enough to invest enough to make ER a possibility now meant missing out on a lot of life now and risking being too exhausted to even enjoy it when we get there (or still have people in my life to enjoy it with if I severely neglect those relationships in the meantime). I think part of managing risk is being able to find a middle ground so that each day at work is not missing out on the things I value most because I am doing work that aligns with my values.

    • Preach! This is so important to think about, and you are for sure not the first person aiming for ER who has pushed too hard or too fast. (Hi.) You get major high fives for recognizing that — especially that you might not have people still around! — and changing your path to pace yourself better and minimize the life risk.

  25. I really enjoyed this post and think that the concept of risk assessment is both fascinating and one that most people spend way too little time thinking about and a skill we spend too little time developing.

    I think that our hobbies in the outdoors are very analogous to FIRE. Many people would look at them as risky, you could fall climbing, hit a tree or go over a cliff skiing, drown diving or kayaking. Why would anyone do these things?

    People are accurate in stating the fact that by not ever roping up and leaving the ground, pointing your skis downhill, or getting into the water you are indeed avoiding all of the above risks. What I think they miss is that by never taking any risks, they are missing out on beautiful places, amazing experiences, challenges that develop you in new and different ways, and an almost spiritual experience that I have never found in the same way that I get by getting out into big places and feeling small and powerless.

    Likewise, you will certainly never lose money (at least on paper) by parking it in a savings account, However, you guarantee you will never grow your wealth. Likewise, you will can have more financial security by working another year or ten. However, you are guaranteed to not spend the time with your kids when they are kids or your parents while they are still around, get out and take on physical challenges that you may well not be able to do later in life, or whatever it is that drives each of this on this path. To me, that is far more dangerous than the financial risks that come with FIRE.

    • Thanks, EE! I think about risk in the outdoors all the time, exactly what you’re talking about. And I see it as a continuum, just like the options for saving and investing. Regular, in-bounds downhill skiing is probably like that intermediate bond fund. Slightly more risk than a savings account, but pretty good odds nothing bad will happen. Climbing on lead — probably more like stock indexing. And then there’s the super risky stuff — ski BASE jumping, big wall free soloing, squirrel suit BASE jumping. That’s like speculative investing in sketchy off-shore business. We look for that place where risk and reward balance out, so are happy to take on the mildly risky outdoor activities, but stay away from the ones that come with too much risk without actually letting us see more of the world’s natural beauty. Those, to us, are just risk for risk’s safe, which is an easy no thanks.

  26. I’ll play.

    By choosing to retire early, I risk looking back someday and wishing I’d held on just a few years longer to afford something that is now unattainable.

    By working well past FI, I risk looking back and wondering why I worked those few extra years and didn’t start enjoying life more at an earlier date.

    I’m honing in on that sweet spot — the point at which the likelihoods of regret are equal. We’re getting close.


    • I like that idea of aiming for the sweet spot where risk and regret potential balance out. I think that’s probably what we’re doing, too, without thinking of it that way. And to your point about regretting not enjoying life sooner, I have yet to hear from a retiree who regretted retiring when they did. They’ve all said they wished they’d done it sooner. ;-)

  27. Great read! This is a concept that needs to be drilled into people at a young age. Most people have no choice but to take on investment risk to meet their goals. With 0% returns on savings account, you would need to save $25,000/year for 40 years to reach $1,000,000. Investment returns can drastically lower either the number of years or annual savings required to meet your goal (or help you to greatly exceed your goal).

    • I agree it needs to be drilled in at an early age — both on the investment side and just life in general. That not doing things is also its own risk. And to your point, if you save $25K a year for 40 years, you might have $1M technically, but thanks to inflation, it won’t be worth much!

  28. I love this post! It never occurred to me that “low-risk investments” can be in the same league as bank accounts for losing out to inflation. You’re so right about recharacterizing investment risk!

    I am also someone with a genetic timebomb waiting for me, so the epiphany of having a choice in how I spend my life was huge! It’s still possible that I’ll get hit by a bus tomorrow, but in the more likely event that I don’t, it’s worth it to me to attempt to buy myself some freedom while I am able to take advantage of it. It’s worth it to do it while I’m able to make memories with people I care about. I have a career that I enjoy, but since I doubt I’ll get a traditional retirement, I want to choose to take back some of my “workweek” for myself and my family.

    • I’m so glad you were able to take your genetic timebomb and let it motivate you in a positive direction, instead of making you feel doomed and helpless. (I say this as someone who can totally relate:) You’ll never regret buying yourself that free time in your best years. That was truly the catalyst of all of it for me, and whenever I get fearful of the big leap we’re taking, I just remind myself what I’d potentially be trading (my best years!) for a little more security. And then it’s an easy choice to keep pushing toward ER.

  29. I absolutely love this article. Risk and investing is something that used to really hold me back. At times, it still gets to me, but then I think about all of the money I am losing as well by not investing!

    This is a great reminder.

    • Thanks, Michelle! I think a lot of us have felt that! It’s great that you’re able to get yourself over that risk barrier, though. :-)

  30. I think risk is a big barrier for people to start investing for the first time. If you don’t have a strong understanding of the stock market and investing you assume it’s almost like gambling. But risk is the reason why we get paid for investing. When I first started investing I was devastated when my stocks went down for the first time and I thought I would lose all my money.

    • I didn’t even have to see my investments go down to feel that devastation — just the IDEA was enough to put me off it for a long time! So I get it. But given that there are different types of risks, it’s odd investment banks don’t spin it all differently and talk about inflationary risk vs. volatility risk and share the upside of the latter more.

  31. Like you, I think I’ve probably been spared one genetic time bomb, but there are others lurking under the surface that have me more worried – well not worried, just aware and staying vigilant about if I notice any symptoms.

    Funny you should mention this “either/or” and how it plays with risk assessment. Since we’ve been planning our “lake plan” we gave it the stress test and played wth maybe unrealistic but possible variations on our spreadsheet. Things like kick inflation up to 2.5%, add in $20k/yr for healthcare (total WAG but for illustration), keep stock market growth at 2% over inflation instead of 4% we usually use and some other things and well, it could still be doable, but it could be pretty lean some years. We’ve always had our plan at conservative estimates anyway and run it with varying ranges, but not making them all bad at the same time, lol. While we’re still at or under 4% SWR almost every year, it’s what is your comfort factor not – what do the numbers tell you. Which ties into “what risk are you willing to take?”

    The kids lower our risk threshold because they’ll be stuck with our decision and ahve no say in it. I try to think about not screwing them with our plan, and being more conservative than if it was just me and Mrs. SSC. If that was the case, I think we’d be done working right now – daycare at $24k/yr the last 5 yrs, and no college savings, yeah we’d have already hit our number… :)

    So we changed our vision to “build the house now, use it for vacation, summers, and long weekends and when we are comfortable, pull the plug” because our safety net is there waiting for us.

    If it’s still 2019, awesome! If it’s later like 2021 or 2022, whatever, that’s fine too. But I’d rather go into it with a plan I’m totally comfortable about in ALL scenarios, not just fair to mid-case sorts of assumptions. While I’m generally more about risk taking, the kids have grounded my upper limit for risk.

    • I didn’t know you also have some genetic timebombs potentially lurking! :-( And I like how you describe the kids grounding your upper limit for risk. That’s truly the question we should all be asking ourselves: Not “Am I ok with risk?” But “What is my upper limit for risk?” That’s a far better bar to use for decision-making!

  32. My biggest fear in this space right now is losing a bunch of money in the next crash, thereby significantly increasing my time to reach financial independence. I know timing the market is a fool’s errand. I’m fully aware of the theory that time IN the market is the only sort of timing that a rational investor should consider. Even knowing all of that, I’m not confident that I will be able to sit idly by and watch if (when) the markets tank and erase a large % of my portfolio.

    The historically high valuations of stocks scare me right now. The historically low interest rates have created a risk-reward profile in bonds that also makes them a scary investment strategy.

    I’ve decided for my peace of mind, I’m going to exit the market with a decent chunk of my assets into really conservative, low upside alternatives in the form of annuities and a stable value fund. Yes, this means I’m taking significant inflationary risk. Yes, it means that my path to Fi could take longer and my ultimate gains could be significantly lower over time due to lost opportunity cost. I think I’m ok with that right now.

    Is this the “right” choice? Obviously it’s impossible to know if it’s the prudent financial choice, but it feels like the right emotional choice for me right now. I’ll likely regret it if the next years sees another 20% rally, but I think I’m better equipped to deal with that than the alternative.

    Great post, as always.

    • I applaud you for acknowledging your emotions in your planning! And I think all that matters isn’t what is the right plan in some objective sense, but what’s right for YOU. And it sounds like you’re doing exactly that. It also sounds like you’ve done the work of making yourself well-informed. So you know what you’re risking in favor of less volatility. That’s what matters. :-)

  33. Yes, it often seemed scary to think of risks when I was a teen. But I had learned to meet my insurance premium. It was my first job and my parents were defiant about paying for my coverage. It taught me to be responsible and even today I thank them for being rude!

    • Hahaha. I think you should send them a card that says that: “Thank you for being rude!” ;-) I always love when people end up valuing some tough love as a kid, because it’s hard to do that!

  34. Thanks for creating a kick ass article with this one and giving me my Facebook status quote for the day >>>>Would I rather risk having money difficulty in early retirement, or risk spending all my able-bodied years at work? <<<< not much needed to be said after you dropped that bomb. #MicDrop

    • :::thumbs way up::: This post is my recent favorite, so I’m glad you enjoyed it!

  35. I was definitely like former you. I was so afraid of losing by investing that I kept everything in a savings account. It was not much, but it was diligently saved from the first time I began earning money. It ended up being enough to help me start my business when I finally felt that the risk was worth it. Now I have actual investments and a business. Former me was scared, but she at least protected me and gave me a bit of a safety net to leap into.

    • I love your perspective, and seeing the HUGE favor past you did current you, even if she was a bit fearful. What a great thing you did for yourself. :-)

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