Greetings!
I am thrilled to announce August’s Pre-Order Incentive for my new book, Real Wealth:
Pre-order today at tylergardner.com/book, let me know you did, and receive a bonus chapter from the second book that I am already working on. Not even my editor at Norton has seen this one yet, and I’m excited to share it with you first and get some early feedback.
And remember, once you pre-order, you are eligible for every monthly incentive between now and the book’s release on December 1st. As always, appreciate your support, and hope the book proves useful.
The Subtle Art of Doing Nothing (And Making More Money While Doing It)
It was October of 2008. A 68-year-old retiree, let’s call him Clifford, watched his $1.6 million portfolio drop to about $980,000. He then did what every rational person does, regardless of financial acumen, in response to a true financial crisis: he started reading every article he could find on the internet, and those articles led him to one conclusion: this time really was different, and if he didn’t reposition the portfolio, he’d be one year away from spending his retirement selling used Kris Kross CDs under the bridge for soup money.
So, he moved his remaining assets to cash. Market continued to drop. Recovered by 2010. New all-time highs by 2013. Clifford didn’t start to DCA his way back into the market until 2014, but by that point, he had missed much of the early run.
This week: How to Avoid Being Clifford.
We’re now four weeks into the decumulation series: the 6 Moves to Make Before You Retire, the Withdrawal Order Nobody Taught You, the $250,000 Mistake Most Retirees Never Know They Made, and now (finally) we’re through the dense stuff and get to focus on the #1 driver of returns for retail investors: our behavior. So put on some Lofi Beats, take ten deep breaths and center yourself, and let’s dig in.
Here Are the 5 Things I Want You to Think About This Week:
Climate vs. Weather. The weather is what some ding-dong is screaming at you about every day on Mad Money; the climate is the 30-year return of a 75/25 portfolio. A bad month in the market is a weather problem; your retirement is a climate question. You don’t cancel your trip to Florida because there’s a chance of rain on Thursday; you just don’t plan on living in Florida in August. Know the difference between the two.
The First 5 Years. We went over this one last week briefly: your biggest risk window in retirement is the first five years. To mitigate the risk of an early down market impacting years of returns, you could choose to keep working part-time, position your portfolio (before the day you stop working) to reflect a balanced approach to mitigate downside risk, and/or make sure you have that 1-2 year cash buffer. I plan on having at least a two year buffer sitting in TIPS or money market so the market’s noise is just noise, and ultimately, I plan to keep working as long as I can.
The Reverse Glide Path. Every target date fund in the world goes from stock-heavy to bond-heavy, and in my mind, that’s entirely wrong. Time and again, the biggest risk to a 20-30 year retirement window is not the market crash but inflation eating away at a 3-4% fixed return while you continue to draw down the portfolio’s principal. So be as conservative as you’d like for that first five year window, and then gradually increase equity exposure (usually best done with new money) as the sequence of returns risk window closes.
The Guardrails You Need to Install. Guyton-Klinger. Let’s say your starting draw is 5%. If that draw as a percentage of your current principal drops below, say, 4%, give yourself a 10% raise the following year. In turn, if your draw climbs above 6%, take a breather and cut the salary by 10% the following year. Pick one date, and check on that date.
Now Write the Letter. I know this sounds insultingly woo-woo, blame Sedona-Tyler, but take a moment this week to write a letter to your future worried self. Outline what steps you’ll take when the markets are tumbling and the sky is (yet again) falling. Reflect on what happened the last time and what your long term plan is.
Want to learn more about investor behavior and the art of doing nothing? Check out this week’s episode of the podcast Your Money Guide on the Side, and if it proves useful, please consider leaving a review, as it helps new listeners find the show and helps me know that this endeavor in free financial literacy for all remains relevant.
Listen to Your Money Guide on the Side
Two Things I’m Currently Thinking About:
The 3 Ingredients to a Happy Life: Psychologists Edward Deci and Richard Ryan have spent the better part of their careers on a (seemingly) simple question: what motivates us to get out of bed in the morning? They propose we need three psychological ingredients:
Autonomy - the sense that we have agency over our actions
Competence - the sense that we’re good at something or getting better
Relatedness - the sense that we matter to other people.
Now, whether we choose to admit it openly or not, our traditional work structure, though usually terrible at providing us with autonomy, was an oddly exceptional provider of both competence and relatedness. You most likely got good at something (whether you meant to or not), and you were handed forty people to connect with every day (whether you wanted to or not).
My only point (for now): do be careful what you wish for because I think work, regardless of how much we do or don’t like having someone to tell us what to do with our time, has been providing us with two of the three key nutrients, and we’ve just been too busy complaining about our boss (and perhaps our colleagues) to acknowledge as much. And I’ll confess, my own relatedness pipeline currently consists of eight people I have seen every morning at the gym for six years, two of whom I have actually spoken to.
The Warning Sign for the Bucket List. I semi-promise that this is the last time (this summer) that I’ll mention Ishiguro, but I’m almost finished with The Unconsoled, a novel about a famous pianist who has trouble getting anywhere on time or saying no to anybody (so it’s obviously incredibly infuriating to read), and there’s a moment when one of our central characters, Sophie, is talking to her son, Boris, about his grandfather who has just experienced a potentially life-threatening moment:
This is a warning. Your Grandfather, he’s getting older.
And shortly after, the line that really got me:
Other people, they just carry on like there’s all the time in the world. I’ve never been able to do that.
It’s worth noting that Sophie says this as (potentially) the only sane character in the book. Because of her (relative) clarity, her warning is read as a gift: to Boris, and to us, the readers. Your parents are aging, you are aging, and those troubling test results or that momentary lack of balance (mentally or physically), might just be the nudge you need to remember that we don’t have an endless window of time here. We build our beautiful castles in the sky whose central assumption is this will come to fruition later. Once we reach a certain number, once we reach a certain age, or once the dang market finally decides to cooperate. The only problem? We spend so much of our lives crafting a bucket list with no expiration date…so…it’s just a list.
Let Sophie’s warning be your warning: I’m not going to tell you to go spend your money, as I’ve said it before, and it’s mostly useless. But I am going to ask you to look at whatever list you might be keeping and to identify the one thing on that list that has a clear expiration date attached to your own body or somebody else’s calendar. Those are the items worth crossing off before the year’s out.
And Before You Go…
This week’s newsletter is brought to you by Gelt.
If you’re reading this newsletter, odds are, you have a CPA. And I have no doubt, you are consistently thinking about how to optimize your tax game.
But it’s not just about having an accountant; it’s about what type of relationship you have with them and whether or not they’re acting like a once-a-year-filer or an actual thought partner and strategist.
In my first year running my own business, I left a lot of money on the table (read: gave it to the IRS) because I simply didn’t know what I didn’t know, and my accountant’s only contact that year was an email in late April: “Your taxes have been filed.”
I’ve come to appreciate that the moves worth making are the ones that happen in the off-season, like right now. So if you’ve been confused by PTE elections, S-corp timing, K-1 cleanup, or what contributions you could still make for the prior tax year, check out Gelt today to see what you’ve been missing.
Gelt is the dedicated tax partner who gets in touch with you, not the other way around. Gelt is for solopreneurs, real estate investors, business owners, and high net worth individuals who are looking for a year-round strategist.
Gelt is taking on new clients this quarter, so visit joingelt.com/tyler to get started.
As always, hope this gives you something to think about throughout the week ahead.
-Tyler
P.S. And as a potential reward for those who stay focused and complete newsletters, Norton’s giving away 15 copies of Real Wealth on Goodreads. Entering takes about nine seconds and shelves the book, which is how it reaches readers who have never heard of me.
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