Financial Independence Daily FI discussion thread - October 29, 2020 |
| Daily FI discussion thread - October 29, 2020 Posted: 29 Oct 2020 01:07 AM PDT Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. [link] [comments]  |
| Posted: 29 Oct 2020 02:46 PM PDT I don't hear a lot about US Series I Savings Bonds (https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm and https://www.reddit.com/r/personalfinance/wiki/savingsbonds), but I like them. Here's why they are part of my investing plan. Pro:
Con:
I Bonds for Emergency FundI think that I Bonds are perfect for an emergency fund or saving for intermediate-term savings goals (e.g. saving up to buy a house in 5 years). Personally, I like having an entire year's worth of basic expenses (food, shelter, insurance, transportation) in my emergency fund. The obvious downside of a large emergency fund is that you'll hopefully not need it, so it languishes in low-return vehicles. I Bonds are a good way to do that without worrying that my savings will lose buying power over the years. The Benefit of Safe InvestmentsI believe that low-cost equity funds are the most likely investment to perform well over the long term and are a good hedge against inflation. That said, the volatility of the stock market is a significant risk. Young people should accept that risk in order to achieve the returns they need in order to reach their financial goals. But for short-term savings goals or once you've built a large nest egg and are approaching retirement, there is a huge benefit to truly safe (i.e. nonvolatile and government-backed) investments. It is a fallacy that stocks are less risky (EDIT: volatile) in the long run: it is true that a dollar invested in the stock market will be almost certainly be worth more than a dollar invested in bonds after 30 years, at any point in time, the current value of your stock portfolio can halve. So if a dollar you invested three decades ago is now worth $8, that's great, but it doesn't mean you're actually worth $8 unless you sell ... you might be worth only $4 in a few dismal months. Sure, you might still be better off than your friend whose dollar is only worth $3 after 30 years in bonds, but how much consolation is that? My point is that, when you need to lock in the value of your money—when you can't wait a few decades to get back to your current net worth—stocks are a bad idea. I Bonds for RetirementOver the years, I'm hoping to build up a large I Bond fund (~10% of my net worth). I anticipate eventually relying on I bonds in years when I want to reduce withdrawals from the rest of my portfolio (e.g. in years when equities drop substantially). In retirement, I anticipating using a percentage-based withdrawal scheme instead of an amount-based approach ("4% rule"). Maybe I'll use a simple percentage, a CAPE-based withdrawal approach (https://earlyretirementnow.com/2017/08/30/the-ultimate-guide-to-safe-withdrawal-rates-part-18-flexibility-cape-based-rules/), or the Boglehead VPW (https://www.bogleheads.org/wiki/Variable_percentage_withdrawal). The main drawback of percentage-based approaches is that the withdrawal amount can drop precipitously in years when the market is down, and it is very hard to cut spending in half. So I plan on having a floor of guaranteed income from Social Security and I Bonds (and if necessary a TIPS ladder and/or a SPIA) to help mitigate the pain of the down years. On top of the floor, I'll withdraw a percentage of my equity portfolio to cover discretionary spending. In bull markets, I'll probably have surplus, which I can use to replenish my I Bonds and/or TIPS ladder as necessary, or just reinvest in equities. I don't think this is the most efficient route to FIRE. But for those who are more risk-averse and want a guaranteed spending floor, I think that I Bonds + Social Security (or TIPS or SPIA) can provide that floor. And spending a percentage of the equities means that you can experience the upside to a large bull run (which statistically is more likely than a long bear market). If you lock yourself into a constant amount (adjusted upward only by inflation), you definitely risk dying with a huge net worth. Anyway, that's my current thinking, at least. Please comment if you think I'm way off or you have any other pointers about I Bonds. [link] [comments]  |
| Posted: 28 Oct 2020 11:04 PM PDT Hi all, It is my first time posting here and thank you everyone for the great insight into your FIRE's journeys! I am currently evaluating if I should pursue a new job. At the moment I have a very easy job which I am at around ~90 thousands, but due to COVID will be now 4 days a week for ~70K. The job is very easy, and gives me lots of flexibility. I have seen other jobs which can probably raise my salary to 100k, but I am inclined to take maybe this year to do some things I wanted and probably learn a few more skills. I am aware there is a big difference between 70k and 100k, but I am not sure if I might regret either: 1) Not pursuing a better income, or 2) The flexibility and peace of mind of an easy job. Has any of you sacrificed your salary for convenience or vice versa? I'll be happy to hear any stories! [link] [comments]  |
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