Mindy: We had Ben Felix on the podcast a couple of weeks ago to talk about small cap value funds. And today, we’re having him back on the show because he’s such a wealth of knowledge. It’s a great conversation and you will not want to miss our fun debate on the fire community, what he actually thinks is a safe withdrawal rate, and how to approach portfolio design.
Speaker 1: Hello, hello, hello and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen and with me as always is my loves to talk about portfolios co-host Scott Trech.
Scott: Thanks, Mindy. Love to factor that into the discussion every day here on Bigger Pockets money. Today, we’re joined again by Ben Felix. Ben is a portfolio manager and the chief investment officer at PWL Capital. As a reminder, this episode, as always, is not investment advice and is for entertainment purposes only. Ben, welcome back.
Guest: Thank you so much.
Scott: Awesome. Well, before we get into, um, portfolio construction, we had a really big error that we made on the last episode, I believe that several members of the Rational Reminder, uh, community called out. Could you let us know what that was?
Guest: Yes. So when we were talking about AVUV, which is the Avantus small cap value fund and DF SV, which I I don’t know if we actually mentioned the ticker, but it’s dimensional fund advisors, small cap value, ETF. I mentioned that AVUV is less constrained into small caps and can go into midcaps a little bit, which is not true. If you look at the holdings of AVUV and DFSV, they’re both totally constrained to small caps and AVUV is actually a little bit smaller on average than DFSV. Where my mind was going when I said that was that AVUV is allowed to drift more into small cap growth stocks, whereas DFSV is very constrained within the small cap value universe. Anyway, the Rational Reminder community in their infinite nerdiness listened to our last episode and were very quick to point out that uh, what I had said there was not exactly true. So I did want to issue that correction.
Scott: I think it’s just a good reminder as well that you can know all of this stuff and then the precision of language that you use in the moment can just throw somebody off for years, right? I mean, I I like I I I one time I told somebody about a backdoor Roth and they were thinking about that, you know, two years later they came back to me with a scratch pad of paper and it was like, no, I put the back door there, if you were over the income limit, they were trying to do a back. so it’s just like these like little things that stick with people and it’s just a reminder to be that precise with language, um, and it’s a handicap after you spend 10,000 hours studying this stuff.
Guest: Yeah. But yeah, I I don’t think that was a particularly egregious error for the record here.
Scott: Yeah, I don’t think it was that big of a deal, but worth worth correcting.
Mindy: Yes, let’s make the correction. It’s also a reminder that this is a show for entertainment purposes only. We’re having a conversation. It’s it’s pretty accurate. I like we’re not just making stuff up, but if you hear something that you want to dive deeper into, do your research. Don’t just, oh, Mindy said something or Ben said something, so therefore I’m going to take it as gospel. You have the whole internet at your fingers.
Scott: Today, I I think what you’d really love to get your opinion on other than the intricacies of small cap versus midcap and where that cut off actually lives is the fire movement as a whole. I want to zoom way out here and you know, I I think that you have a a really good take on this. You’re not overly critical and you’re also not a full supporter of it. Could you tell us your position on the fire movement?
Guest: Yeah, so I mean, we we’ve been a little bit critical of it on our podcast over the years and we’ve taken lots of criticism back for our criticisms and I think that my my view on it have evolved over time with that back and forth. I think a lot of the listeners of our podcast are fire proponents and are pursuing fire, which is, which is great, and which is why they would get upset when when we would talk about it. So I think I have to start by stating my sort of understanding or my definition of the fire movement because I think that the definition of it ends up being a big one of the big issues when we’re discussing this, this topic. at least have an intelligent discussion about it. So my sort of interpretation of of fire is the idea that people should find work that pays them as much as possible, even if they don’t love it, in some cases even if they hate it, save a huge portion of their income to invest in low-cost index funds so that they can be free from the need to work for money as soon as possible. Does that sound right?
Scott: I think that that’s fairly close. I think I think I would say we’re going to optimize for the ability to not need to work for money, not necessarily take the highest job. And I think that the fire community is in conflict with itself over whether to take the highest job, whether to relax a little bit on that journey and delay it by a little bit in order to have a much higher quality of life now. And I think it’s also grappling with whether there ought to be a purity contest in terms of continuing to spend very low amounts of money throughout one’s life. I think that there’s multiple, you know, subfactions warring it out over that. Do you agree with that?
Guest: Yeah, I I I completely agree and I think that is sort of the the crux of the whole issue about whether you agree with Fire or not, because I think that there are flavors of it, like you just described, where there are really healthy teachings from it. I I will say, and this is, I I said this in one of my videos and some people got upset about it, but I think it is the right way to characterize it. It’s Fire is is ultimately a self-help ideology. It fits within that framework of self-help, which is not a bad thing. It’s just I I think that that’s one of the really good ways to describe it. And the teachings of that self-help ideology are anti-consumption, which I don’t think is a bad thing or or at least very careful consumption, very intentional consumption. Sometimes at the extreme, like you mentioned, Scott, and where it becomes a bit of a a purity contest. another one of the big teachings is frugality, which is of course related financial literacy is another tenet which which is good, like teaching people about the stock market and about the impact of saving and about how much spending is actually costing in the long run, like that’s all healthy. A final piece that I think is a big teaching is is independence, like wanting to be completely independent from needing to work, but it’s in some cases it almost feel like feels like being independent from society, not socially, but being able to completely sustain yourself, do your own stuff, not pay for services, that that kind of thing.
Mindy: Everything you just said is great in moderation.
Guest: Agree.
Mindy: Even I have a bit of an issue with the community as a whole when they go to such extremes and are so judgy about it.
Guest: Yeah, and that’s I think a big part of the, the issues that there there are healthy teachings, like I think the idea of connecting your spending to your values, that is extremely valuable for anyone to do. Doing an audit of your expenses and thinking, oh, I’m spending this much on that thing that brings me no joy or satisfaction. Of course, you should cut that. And that’s a healthy exercise for people to do regardless to the extent that fire gets people to do that and teaches them about that. I think that’s fine. I think spending on stuff that won’t bring lasting joy to you and your family, while also putting you in debt. Like I’m thinking about buying luxury cars or or I don’t know, I don’t know what else people spend ridiculous amounts of money on that forces them to need to work longer at a job that maybe they don’t even like anyway. Yeah, like if we can get out of that cycle, that’s really good. And I think fire does teach those principles, spending less than you make, that’s like, you know, a lot of people spend more than they make and that’s not very good. And I think fire teaches people not to do that and to save, you know, quite a lot. I think it is healthy to strive for financial independence. like the idea that you can sort of mitigate the risk of your labor income, if you lose your job, even if you didn’t want to stop working, being in a position where you can weather that is great. Being in a position to do work that you like that maybe doesn’t pay as much, that’s a good objective to have. Uh, I think and and you mentioned this Scott, the the speed at which you have to get there. I think is one of the issues that fire principles can have. Um so those are all like good principles that I think fire teaches. Does that all kind of drive with what what you guys think?
Scott: Sounds like an ad for fire. I’ll take the like the uh kind of assertive stance here. I I I believe in pursuing financial independence and the option to retire early aggressively from the gecko. Like I think many, many, many more people who have the opportunity, start at a median income, which is great, which is a really good advantage. coming out of college or in their early twenties, ought to live pretty frugal lives with roommates, drive cheap economy paid off cars, pack their lunch, maybe go out and have some fun with that made, you know, relax a little bit on the entertainment budget. Don’t live super steer there. But grind, go and go and read a bunch of books, get better, try to drive that income up, take opportunities, save up cash, um, make some big bets and attempt to achieve some semblance of financial independence by the 30 or 35th birthday because of the options that opens up for the rest of one’s life. I fear control from somebody else over my life, a boss, for example, who has power to dictate where I live and what I do with my day, um, to a large extent. I want and and and I’m willing to sacrifice for that freedom, um, to direct those activities. I’m also not in this, I’m going to live frugally forever, but I’m very much in the camp of frugality is the number one tool in the early part of the journey and by grinding those costs down as low as possible and a fixed level, that gives you that empowers you to save up, reach financial independence sooner, and then layer those costs back in later. Um I like the problem of having to learn how to spend again once you become wealthy as a good problem in there. So those are, those are how I feel about the the fire community. What would you push back on with that view? Because I am, I would say more aggressive than many in the the fire community who are loosening up in terms of what I believe is an optimal approach.
Guest: Yeah, so I mean, I I can talk about what I see as some of the issues and why I’m not pursuing fire. I mean, I I do save money, but I’m not not at the extreme and I don’t spend lavishly, but I also, you know, I don’t worry too much about what I’m spending. I think, and this is one of the issues, I think spending can be okay and and being frugal can be a negative thing in some cases. There is a concept in economics called utility. without getting too nerdy about it. It’s basically like when you’re younger and have less income, each dollar of spending is worth a lot more to you. There’s one paper out there that’s a a bit of a controversial paper, I guess, but it does suggest that young people shouldn’t be saving at all outside of what they pay into from their government programs if they’re forced to save into. It’s a it’s a published paper.
Mindy: Well, they’re wrong. I haven’t even read it.
Guest: Well, it it’s interesting, right? Because there’s on one hand there’s compounding. Saving early is good because of compounding, that is true. On the other hand, if you take a utility perspective, which is like how much satisfaction you derive from consumption at various points throughout your life, spending instead of saving early on is actually worth a lot more to you than it is later when you have a higher higher income.
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Mindy: Okay, I’m going to push back on that and say, I think it’s more difficult to start saving after having the spendy lifestyle than it is to start spending after having the saving lifestyle. So whoever wrote that paper, please give me a call because I have a bone to pick with you.
Guest: They talk about that in the paper too. And but that’s the trade-off, right? It’s like from a a pure rational economics perspective, you should spend more and but I I agree with you completely that that habit formation is not easy to break. Anyway, so that’s just one one thing to think about that conflicts with the idea of being frugal when you’re young.
Scott: This seems like a very powerful argument against fire and I’m not sure I completely buy it here before we we move on because I I completely agree that experiences are more valuable when you’re 23 maybe than when you’re 50, right? In in to some degree, right? You can just do more. You can ski harder, you can play rugby, uh at a higher clip or basketball. I know you were a basketball star, right? Ben. And tho those are real advantages. But when I was 23, I was able to ski just as much as my friends. I was able to party just as much as my friends. I just lived in a place with a roommate that was much cheaper and drove a Corolla or biked around town for most of that. I packed my own lunches. I have a really hard time buying that eating at a fancy lunch by myself during a work day has higher utility at 23 than packing that lunch and bringing it in into work. It’s like like that that’s where I would push back against the study. I would partially agree but push back. It’s a mistake to deny those major life experiences, the big trip around the world or whatever, but I don’t think it is a mistake to keep your fixed cost of of life much lower. And I’ll also say that now at 35 with two kids, living without roommates is a real privilege. Uh I have much much happier doing that than I would, you know, than I would be if I if I had roommates or was driving, you know, an unsafe or very old vehicle that was less reliable now. There’s a real utility in some of that spending now at 35. What what are your thoughts there?
Guest: No, I don’t I don’t disagree with anything that you said. I mean, if if you can do all of the things that you want to do and don’t feel like you’re being denied anything that you would have wanted or experienced that you would have wanted to have, then that’s I mean, that’s great. If you can do that while being frugal and saving a huge portion of your income, then that’s that’s totally fine. You you can make life choices and get satisfaction from things that you enjoy without spending a lot of money. Like, who who am I to say that’s a bad thing?
Scott: Well, let’s keep going. What are some other thoughts you have here?
Guest: We we talked in our in our last conversation about the the the Pharma and French five factor asset pricing model. There’s another five factor model that’s that’s very different that I also really like. It’s called the the PERMA model of of human wellbeing. So it’s from psychology, not from financial economics. It’s called a a positive model of human well-being. and positive means that it kind of tells you what tends to make people have lives that they evaluate as good, but it’s not prescriptive. It doesn’t tell you exactly what you should do with your life. The factors in the model are positive emotion, which is like enjoying what you’re doing right now. You know, we’re having a good conversation, we’re feeling good. That’s that’s positive emotion. being grateful for your circumstances, all that kind of stuff. Uh, engagement is the E, that’s finding states of flow or being fully immersed in an activity or task uh that that matches your your skill level. so that’s that’s engagement E, relationships is R, and that’s having strong connection with family and friends. Meaning is finding purpose beyond yourself, and that can come from a lot of different places that can be religion for some people, it can be work, uh, hobbies, all kinds of stuff. And then the last factor in the model is accomplishment, which is setting and achieving goals that provide a sense of just, you know, I did that. Kind of classic example is mountaineering where it’s like it kind of sucks while you’re doing it and it’s dangerous and it’s kind of miserable, but then you summit the mountain and you’re like, yes, I did it. Um, so that’s that’s accomplishment.
Scott: This sounds very believable to me. I can I can I can instantly accept some version of those five things as clearly true, even if without reading the study and I will read the study. That’s a great one to hear. I love how everything’s got to paper for you. That’s very scientifically based. So life goals for me to take it to that same level. But let’s let’s take those circumstances, engagement, relationships, meaning and accomplishment as truths. Where do you feel fire is incompatible?
Guest: I don’t know if it’s incompatible, but so the the thing that that has always I I’ve always struggled with with respect to fire is that work is certainly not a requirement to attain any of those things, but it is a very good way to get a lot of them, a lot of them. I mean, relationships, meaning, accomplishment, engagement, positive emotion if you like what you’re doing. I mean, I’m I’m technically working right now and I’m I’m having a good time talking to you guys. There’s stuff that you can do that’s not work that brings you those things, but work can also bring them to you. Now, I understand that Fire is not anti-work by any means. It’s it’s pro-independence but not necessarily anti-work, but I think that to the extent that fire requires extreme frugality, and and I know we’ve talk already talked about how it doesn’t have to be extreme and you can still enjoy your life. I understand that. But to the extent that it does require extreme frugality and enduring, I don’t and we I know we talked about this too, enduring unenjoyable but high- paying work to achieve financial independence at a, you know, frugal level of spending, I think it’s problematic when you hold that up against the alternative, the counterfactual where you find work that you enjoy and get really good at it, like you talked about that earlier, Scott about gaining skills and reading books and all that stuff. I’m maybe, I don’t know, I don’t know if I’m a good example or not or if I’m an outlier, but I I have a job, you know, I I have a boss, I’m an employee, but I really like what I do and I get paid well to do it. Maybe I’m a bad example. I don’t know. Maybe there aren’t that many people out there like me, but I’m pretty happy doing what I do and earning what I earn and not having to worry too much about what I spend. Is there an alternative reality where I’m super super frugal and don’t have to work and I’m happier? I mean, maybe, I don’t know, but it it kind of seems like there’s there’s two ways to get to a a similar place where when you become a high- valued employee that’s paid well, you do get a lot of independence. You get paid, you have flexibility and all that kind of stuff.
Scott: So Ben, I I love this. I’m going to take I’m going to take a a a different set of circumstances and make your argument for you because I think you’re you’re right on a lot of this, right? We we see a lot of people in the fire community who violate these five factors that you’ve just identified here. Wow, factor investing, factor life building, right? You go so frugal that your circumstances are miserable and you miss out on your 20s because you’re optimizing that next dollar instead of actually going to a bar and spending $12 on drinks to hang out with friends, right? That’s that’s crushing your circumstances and your relationships here, right? Some people also optimize for the highest paying job and there there’s such a spread between the amount of income they can earn at that job and their next best alternative that it’s make making them miserable. They’re basically trapped in it because the opportunity cost is so large for moving to something that’s more enjoyable. That’s I think what fire empowers. the pursuit of fire is it allows the option to remove on from that job. Um and I think that there’s a a powerful benefit to it. And then there’s also a a huge sector of the economy that is genuinely happy with what they do on a day-to-day basis with their work that are that are paid well or at least they feel they’re paid well for it like you. And I think that one question I would have or one one challenge I’d have from the fire, you know, perspective is, well, Ben, that’s great, but what if the numbers start moving down over some prolonged period of time there? Because nothing compounds forever. But will that same job that pays very well and is very enjoyable right now be around in five years, you know, what happens if changes happen to your boss or up the chain that make that not as enjoyable? Isn’t it worthy to pursue fire and maintain a financially independent personal financial position, even if you do love your job and are world class at it, like Ben.
Guest: You should still save. Like I’m I’m not suggesting, like for for young people in certain circumstances, maybe that at least that paper says they shouldn’t save, which I know we already talked about being debatable. I’m not saying you shouldn’t save. I I still save a lot, just not, you know, 60% of my income or whatever, whatever it would be for achieving financial independence ASAP. I have enough of a financial cushion that I could be off work for an extended period of time and it wouldn’t be financially troublesome. I probably couldn’t retire at my current lifestyle with what I have saved now, but I’m, you know, I’m okay and I think that, uh, any high-paid employee can get to a similar position without going to the extremes of frugality. And then the other thing that I would say is, and this is I think a pretty good counter point to what you just brought up, is that when you do invest in your human capital and when you make yourself very, very valuable as a as a resource, as an expert, as a professional, if something goes wrong with the job that you have at the moment, it’s relatively easy. Like if I got fired as long as I didn’t get fired for something egregious that was, you know, made me unemployable, it would be pretty easy for me to go and find another job that pays probably pretty similar to what I make now, if if not more, honestly. So I think it’s possible to put yourself in a position where your human capital is not to say you shouldn’t build your financial capital, but you can put yourself in a position where your human capital is valuable and transferable to the point where, uh, it can be relatively safe. Now, there are still risks like massive layoffs in your industry. That’s something that’s a little harder to deal with. That’s a good reason to save and and to build financial independence, but but I do think that you can invest in your human capital and and build complementary skills in such a way that it makes it fairly easy to move around if you’re not happy where you are or if you for some reason lose your employment.
Scott: I think that’s a great philosophy and I think I think that the fire community needs to there’s a great the the mental model is the asset base that you’re building is not just financial, it’s also your human capital and it’s not a top priority for you to stop doing work. It’s a top priority for you to have options in your life and that’s really what fire is about and that’s just another way of producing that option. So I think these are great challenges and counter points and I think the way to put a pin in what I think your what I understand your view to be on fire is nothing wrong with it, but when it’s taken too literally or to these extremes that it violates these areas that are clearly conditional to human happiness, then it’s wrong. The the approach is wrong. It’s taken too far.
Guest: I think that’s a really nice summary of of my thoughts. Yeah, it’s like there are a lot of good lessons in there and there are a lot of things that that a lot of people out there in the world can and should learn from the fire movement and and its teachings. But you you got to be aware of where the limits are and where the extremes are and where it starts to have a negative effect in your life. And then the other thing that I would add to that is that like we were just talking about, it’s kind of always seemed to me that that earning more income or or investing in your human capital, making your yourself more valuable and achieving fire, so investing in your financial capital and growing your financial capital are kind of there are two ways to get to a similar place. Achieving either one is not going to solve if you’re an unhappy person and you’re not hitting on all the right elements in the perma model. Achieving really valuable human capital or financial independence, it’s not going to make you happy. It’s not going to solve that problem. But I think that achieving a state where you have the financial flexibility to choose work that you enjoy, which may be high paying or not depending on whether you want to invest in your financial capital or your human capital. And work that, you know, contributes to all the elements in the in the PMA model, that that’s a really good thing to have. I really like the idea of finding work that is both rewarding financially and psychologically. I’d be sad if someone said, you know, you can’t do your job anymore. Even if someone said, you know, we’re not going to pay you anymore, but you can still do your job. I’d be happier in that case than if someone said you just can’t do it anymore. You can never write a YouTube video again and do stuff like this and communicate with people online about personal finance. I’d be super sad because I like doing that stuff. I like that I get paid for it too, but yeah, so that’s a that’s the last thing is sort that exchangeability or or the tradeoff between focusing on investing and building your financial capital versus your human capital, which can both provide flexibility and options. But in either case, I think that you have to take that lens of what is a good life look like for you and kind of work backwards from there. And if that means investing heavily in financial capital by saving as much as possible for a condensed period of time so that you can do kind of whatever you want with your time, that’s fine. If that means doing an extra degree or certification or or whatever, building complementary skills, like for me, the big thing was I I did a whole bunch of education related to finance and personal finance. Like I did an MBA with a finance concentration, the CFA program, the CFA CFP program, uh, and a couple of other things that are specific to Canada.
Scott: That’s more letters than in Ben Felix.
Guest: It’s a lot of letters in there, which is cool. And like, you know, anybody can go and get financially educated. Uh but then for me, the complimentary skill that I think sets me apart in a lot of ways is is creating content. and I’m not saying everybody needs to go and create content, but building complimentary skills like that where it’s like this thing, a lot of people have, and maybe this thing a lot of people have, but these these two things together is very rare. I think finding opportunities like that with your human capital is a it’s just a really interesting thing to do and and a nice way to to make a living and not have to worry about becoming financially independent as soon as possible because you actually love what you’re doing.
Scott: Yeah, you know you’re in the right profession if it’s 11 o’clock at night, you can’t sleep because you’re debating somebody via your anonymous Reddit handle about a very specific swapping of a position in a detailed tax investment order of operations, right? That that’s that’s how you know you’re in the right profession if you like doing it that much. No monetary value in that activity.
Guest: That was a very specific example, Scott.
Scott: Ben knows what I’m talking about.
Guest: Oh yeah, I do.
Mindy: Ben, you are a portfolio manager. Let’s talk about building a portfolio. When you think about portfolio design, what are some of the core principles that you are looking at when you are choosing what to put in your portfolio?
Guest: So big things for us, uh, and and for me personally are broad diversification, I mean, this is stuff you guys’ve probably heard before. broad diversification, low fees, tax efficiency. Those are the big three characteristics that kind of if a fund doesn’t have those things. If it’s overly concentrated, if it’s got high fees, if it’s tax inefficient. It’s going to be excluded, uh, pre pretty quickly for use by by our firm. Uh so those are the kind of main main building blocks. And that typically will point toward either low-cost index funds or systematic funds like Dimensional fund advisors and advantis that we talked about last time.
Mindy: So you’re saying funds, you’re not looking at individual companies to put into a portfolio?
Guest: We don’t do any individual securities, no.
Mindy: Oh, okay. Well, I think that’s really important for people to hear because there are so many people that are trying to, you know, pick the next whatever, and Ben Felix is a rather successful portfolio manager and he, how did you say it? They don’t do any individual securities.
Guest: No.
Scott: I think that it’s broadly accepted that those three premises are broadly accepted by a lot of investors here in 2026. I think where someone pursuing financial independence might get hung up or at least where I get hung up is there’s a there seems to be a clear consensus on broad-based low cost index funds. Maybe there’s some evolution towards factor tilts for long-term wealth accumulation, but it’s, you know, a common approach that’s widely accepted is, you know, put it in the S&P 500 low cost index fund through one of these providers and let it ride for a long time. You know, there’s a couple of conflicting opinions, but there’s several answers that seem to be accepted as correct for an end-state portfolio. I’d love to hear one of those from you, like what is a portfolio that’s suitable for withdrawal versus accumulation? But what I think is really missing is this gray zone in the middle, right? So I’m approaching my fire number or I want to preserve financial independence and I’m still working. How do I think about my portfolio in that context? So could you help us walk through how you would think about those portfolios in the, you know, the decumulation phase or approaching retirement or sustaining a level of financial independence while continuing to work.
Guest: It’s complicated is the very short answer. There are so many different things that are going to play into that, into that decision. we’re really talking about the mix between stocks and bonds, right? Those are the big the big asset classes. stocks have higher expected returns. They they are historically much more likely to at least keep pace with and and exceed uh inflation over very long periods of time. Bonds, in particular nominal bonds, which in the US, you you do have tips, which are inflation protected bonds. In Canada, we have real return bonds, but that market is becoming thinner because our government has actually discontinued the the real return bond program. Anyway, nominal bonds means bonds that are not adjusted for inflation. Those have historically, if you look around the world, been pretty risky in real terms. Like the probability of losing money in nominal bonds over a long period of time is actually pretty high. For very long-term investors, which when we’re talking about fire folks, of course, they they will be if you’re retiring at 30 or 40, your time horizon is enormous. I do think that there are risks to at least nominal bonds. Inflation protected bonds can solve some of the problems, but they’re not perfect either, especially at really, really long horizons. A lot of it comes down to the individual’s preferences, that their their psychological ability to take risk is one big constraint. So if I said, you know, 100% equity portfolios make sense and someone said, well, last time the market dropped 20% I sold everything and didn’t get back into the market for six years, they probably shouldn’t be in a 100 percent equity portfolio. We do have on our website and I can give you guys a link a tool for like psychological risk profiling. So like I think it’s 31 questions that people can go through and it spits out their sort of range of stock bond mixes that makes sense based on their psychological profile. And it also gives a bunch of other cool pieces of feedback like uh about overconfidence and other little psychological traits. Anyway, it’s a neat tool. So I think stuff like that, like and that’s meant to be a predictive tool about how you will react in a major market downturn. So I think that’s one big input because if people are in portfolios that are too risky for them in in terms of volatility, that can be disastrous, right? If they if they end up bailing out of the market. And people hear stuff like that and they’re like, well, no, I wouldn’t do that. I wouldn’t do that when the market crashes. They have to remember when the market crashes, it’s crashing for a reason. And that reason is usually some very scary thing. Like if we look at the COVID market crash, markets dropped a ton and it looked like the world was ending and we didn’t know when things were going to go back to normal and all that kind of stuff. So I think that narrative that companies’ market declines is a really important piece of understanding psychological risk tolerance. It’s never just, oh, the market’s down 20%. It’s the market’s down 20% because of this terrible thing that’s happening and we don’t know how much further things are going to go down before they get better if they are going to get better at all. Anyway, all that to say, big constraint is the psychological piece. Another piece is capacity to take risk. If somebody has whatever a million dollar portfolio and they need to spend $700,000 to buy a house next year, they can’t take very much risk with those assets. On the other hand, if someone’s spending 3% a year from their portfolio, they can take quite a bit of risk. That’s another another big consideration. I think with with equity portfolios, particularly well, for any retire, but for early retirees, I know it gets talked about a lot. People worry about sequence of returns risk. If you get a bunch of bad years of returns in a row and you’re spending from your portfolio, you can run out of money a lot sooner than you hoped. And now analysis like the 4% rule is designed around finding the spending rate at which you would not have run out of money even in the worst cases in in US stock market history with a stock and bond portfolio in the original analysis. And that’s fine. I I like to reframe sequence of returns risk as sequence of withdrawals risk because no one’s forcing you to continue taking inflation indexed withdrawals from your portfolio every year regardless of what’s happening in the market. And I do think that flexibility in spending is a really good way to mitigate sequence of returns risk. If the market drops a whole bunch, you can spend a little bit less. That also allows you to take more equity risk in your portfolio without worrying so much about running out of money if things go poorly for a bit.
Mindy: You said something about nominal bonds and I didn’t I don’t know what that is. I don’t have a lot of money in bonds personally and I have I’ve not I don’t like bonds because they don’t return a lot. I like growth and because growth is better. Why would somebody invest in nominal bonds? You said that nominal bonds, your chance of losing money is pretty high.
Guest: I thought the bonds were the stability of your portfolio. Yeah, so it’s it’s super confusing and it’s it’s really interesting. It’s like what is risk? It’s a it’s a hard question to answer and I think that’s kind of the the the crux of what you’re asking about with why somebody would invest in bonds. A lot of people feel risk as volatility. stock market drops 20%. that feels like risk. But if we look at long-term investor outcomes, does that 20% drop really matter to a long-term investor, even if they’re withdrawing a bit from their portfolio, probably not that much. Bonds on the other hand are not going to have that kind of volatility. I mean, some sometimes they can they can drop. they did a few years ago. There was a pretty significant bond uh decline. But they’re not typically as volatile as as equities. Like not even close. And so people see that and they think, well, okay, bonds are safe. And from that perspective, strictly from the volatility perspective, they are relatively safe. They also tend to be imperfectly correlated with stocks. So when stocks go down, bonds are often flat or maybe even up a little bit. They can still drop at the same time as stocks sometimes. It’s not perfect, but they generally do diversify stock risk. However, if we take the other perspective of is owning bonds likely to allow you to meet your long-term financial goals, bonds start to look a little bit riskier. So there’s two two perspectives there.
Scott: Your view is widely shared in the the financial independence retire early community when we poll people in the Bigger Pockets money audience, including those who are at fire, very few of them actually allocate any meaningful percentage to bonds. I think there was less than 10% who had any bonds in their portfolio in a recent poll. And at first, I was really struggling with that. I’ve been really trying to wrap my head around portfolio theory the last year. We’ve talked to a lot of of of experts in the space. And I was like, well, that’s irresponsible. If you actually think about it rationally, you get to where you’re at where you just you know it’s a losing bet over 50 years if you’re going to have that type of portfolio in place. And so I think that’s the challenge that a lot of people in the financial independence community have. My solution to it was to go into real estate, not leveraged real estate, because I need a safe part of my portfolio, but paid off rental real estate. My belief is that yes, I take concentration risk in that asset or that market, but I also fundamentally get an inflation adjusted store of value and an inflation adjusted income stream with that investment, and I also have the option to refinance it or sell it at future points, even if there’s a depressed market. How do you feel about that answer to the question that we’re I think we’re really trying to get at here.
Guest: You can kind of deconstruct the returns of of real estate historically and they look kind of like a mix of stocks and bonds, like stocks and and and corporate bonds. you know, it’s not the worst thing to do. I think you do have a little bit of control over the outcome because you can manage the property while and all that kind of stuff. I do also think that the idiosyncratic risk that you mentioned is an issue. For me personally, and I I know you want to talk about simplicity, there’s absolutely no way that you could convince me to be a landlord. You can barely convince me to be a landlord for myself. Like I I don’t like doing that stuff, not because I can’t, but just like there’s always this tension of like my kind of litmus test is always, would I rather do this thing than sit down and write a YouTube video that, you know, a few hundred thousand people are going to watch and it’s going whatever, whatever. And house-related stuff, even though I don’t mind doing it, I would way rather sit down and write a YouTube video. Playing with my kids, like playing playing basketball with my kids, I would rather do that than write a YouTube video. But I don’t know, fixing the house or I don’t know, even coordinating contractors and all that stuff, no chance. Dealing with someone else living to a property that I’m responsible to manage like there there you couldn’t pay me enough money to do it. It just wouldn’t happen. That that’s my personal preference about real estate. So I mean, historically real estate has been a perfectly fine asset class when you when you look at the the total return of capital and net rental yield, uh there’s a paper that looks at this going back into I believe the 1800s and it’s performed well on a global basis. I do think that the idiosyncratic risk in real estate is a lot higher than people tend to realize and that’s because you’re taking idiosyncratic risk at a whole bunch of different levels right down to the individual property level and the individual tenant level. So that’s, you know, I mean if you can manage that, that’s fine. Some of it’s hard to manage like like uh the geographic idiosyncrasies, but I don’t know, I don’t hate real estate as an asset class. I think the the big challenge is diversification. it’s hard to diversify when you have a handful of properties. But then again, for me personally like it just wouldn’t happen.
Scott: So we hate real estate, we’re not going to go into real estate. Sorry I brought it up. But let’s talk about just public securities here. What are some of the the frameworks or solutions to this problem of, hey, I’m at my fire number or approaching it or I’m actually going to begin decumulating and I’m, you know, younger than 50. What do I do? How do I begin that answering that question?
Guest: I mean, there there are two ways that you can solve it. One way is on the portfolio side, so you could do something like build a a tipsladder for the portion of your income that is non-negotiable, not flexible. In Canada, you can’t do that as I mentioned, in the US, you you could, you could uh duration match your expenses to tips and build an inflation indexed income stream that’s that’s going to be pretty, pretty safe over a long period of time. You’re going to lower your expected return a bit relative to investing in equities. I prefer the spending solution where you’re not going to try to change your portfolio and do anything fancy over there. You’re just going to accept the fact that your spending, and I mean it’s it’s interesting, it kind of ties into the fire principles more generally. If you can spend conservatively and be flexible in your spending. I don’t think you have to diversify outside of equities.
Scott: That is the most popular answer in practice in the financial independence retire early community is I’m just keep my portfolio flat and keep rolling. And in practice what happens is the portfolio swells after a few years to like Mindy’s a classic example of this, right? You achieved financial independence, kept everything in equities and now your net worth has ballooned to many, many times what your spending is. So many so many more times what your spending is, Mindy, that it’s all academic. Uh this this discussion on safe withdrawal rates because you’re probably spending at close to 1 to 2% of your portfolio. Is that right, Mindy?
Mindy: Not including when I’m building a house. Yes.
Guest: Oh.
Mindy: When I’m building a house, it’s significantly more than the 1%.
Guest: I’m renovating a house. I hear you.
Mindy: I’m always renovating houses.
Guest: Ugh.
Mindy: I can’t imagine.
Guest: I’m living in a house that I’m renovating while somebody else is building me a house around the corner. and I am much more enjoying them building the house than me renovating the current house.
Guest: Yeah, I’m also living in a house being renovated. It’s uh, yep, it’s something.
Mindy: It’s something.
Scott: Ben Felix is a live in flipper. That’s what we’ve discovered today on the on the.
Guest: I’m not leaving, I’m not leaving this house.
Mindy: Oh yeah, I no, I move into it because it’s awful and fix it up while I live there and then I sell it and do it again. This is my last one.
Guest: Yeah, no, I I bought a house. so this is the first house that I’ve ever bought. We’ve been here for six years, did some small renovations along the way, and now we’re doing some pretty significant renovations, but we’re doing that with the intent of staying here indefinitely. I don’t know. We don’t have a timeline.
Scott: This is great and and I want to go back to what I think is a really simple, powerful and elegant answer. We cannot move away from this because this is something we’ve been we’ve been searching for for the last year. You know, we’ve had several different conflicting opinions on what ought a fire portfolio, what ought it to look like? And we’ve gone to, you know, this risk parity portfolio where we’ve got, you know, percentages in stocks, percentages in bonds, allocation of gold, manage futures, and um international or cash to get different correlated correlated returns. You’re saying, no, I I would just stay all in equities, maybe with some factor tilts here and there, and ride it for the long term with flexible spending. That’s a very simple solution. So for example, we’ve had big debates about the correlation between all these things, what drives a higher safe withdrawal rate. You know, what what does that mean if I’m going to be all in stocks, does it mean I have to take a lower safe withdrawal rate? What is what are what are the assumptions that I’m making here about from a portfolio theory perspective that back up that just stay all in equities assertion that you have.
Guest: relative to all of those other asset classes, the challenge that I would pose there is that back testing asset classes like those in a portfolio and saying, hey, look, we get a higher safe withdrawal rate, I would put very, very little faith in that type of analysis is the simple answer. Correlations are unpredictable, fees and costs matter, and some of those asset classes have higher fees and costs. Future returns are unwable, all that kind of stuff. So if someone says, hey, look at this back test, it gives me a 6% withdrawal rate, I would put very little weight in that type of analysis.
Scott: What can we assume for safe withdrawal rate? Because if we’re assuming saying, you know, that that’s like there’s a whole body of work that’s produced by very smart people who try very hard to get to an answer around safe with draw rates and you’re like, nah, screw that, you know, let’s move on to something more that we can actually defend here. What what what can I assume for safe withdrawal rates? What is well researched in your view?
Guest: I mean, it’s it’s all based on historical back testing is part of the the problem, right? But I if you’re if you’re in an equities portfolio and we’re using fixed safe withdrawal rates where you’re spending an initial amount, an initial amount of the portfolio and then increasing it over time with inflation, so that’s the inflexible spending. Somewhere around 3 to 3.5% based on historical analysis is probably fine. If you introduce flexibility where you’re going to change your spending based on how things have done previously, instead of just doing a fixed inflation adjusted spend, it’s going to be higher than that, depending on how flexible you want to be.
Scott: Okay, so we’re kind of back to the 4% rule with all equities and just be flexible. Yeah.
Guest: I don’t know. 4% still fails a bit too much, but you know, the difference between 3.5 and 4% is not immaterial.
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Scott: you clearly, the way you phrase that, have done your homework on the sequence of returns risk and and withdrawal rates, you know, and specifically the next level of thought around assuming inflation adjusted fixed spending, that you really, you know, nail down your numbers there, don’t have flexible. Like clearly that there’s a a lot grounding what you’re saying there. In terms of safe withdrawal rates, one of the things that I think the fire community misses is that in a well-run Monte Carlo, assuming some of these, you know, 4% safe withdrawal rate numbers, your portfolio dwindles over the 20, 30 years leading up to traditional retirement age. So if you start with two and a half million, you dwindle it to a million in real inflation adjusted dollars by 65. You can still survive from there with social security layered in into a retirement at your targeted inflation adjusted level of spend. And I think that is academically understood by some people, but in practice, the experience of watching that portfolio dwindle relative to inflation is going to be very, very painful uh in practice, which I think is another argument for lower safe withdrawal rates in the range that you suggested. Could you let me know if that’s something that you agree with or have observed advising retirees earlier traditional.
Guest: I mean the perception of the portfolio declining, I can see that being a psychological challenge. But I mean, I just think that having a higher a high safe withdrawal rate, it it introduces a lot of risk of running out of money, period. That’s the issue. I mean, I don’t think 3.5% is particularly low. I also don’t love the idea of fixed inflation adjusted spending. I think flexible spending makes a lot of sense to me. We we just had a guest on our podcast, our episode with Elroy Dimpson, who’s like one of the leading researchers in uh stock market history. He was on our podcast and we talked about this. we talked about bonds, we talked about long-term portfolios. Uh we didn’t talk about safe withdrawal rates specifically. When we’re asking about the role of bonds in portfolios, he talked about how he said, well, I’ll tell you what I do. And he talked about how he’s in equities, doesn’t own bonds, and he keeps his spending low. He didn’t say exactly what his withdrawal rate is, but he said he keeps the spending low and he’s got a lot of flexibility in his expenses. He’s got a simple lifestyle. And I mean that’s from someone who’s spent more time thinking about financial markets than I’ve been alive. I you know, what when he said that, I was like, I love it because it’s exactly how I think about this. I don’t know. I think that’s a it’s a simple, elegant way to think about this stuff. I think the idea of layering on a whole bunch of funky asset classes. It’s I don’t know, man. I don’t I don’t like it. I think adding complexity in general is not a good thing. And when it comes to financial markets especially, it’s a generally speaking a bad thing.
Mindy: You said the 4% rule fails too often, but according to Bill Bengen’s research, it fails about 4% of the time.
Guest: Oh, are we doing Bill Bengen’s research?
Scott: Yeah, let’s do it.
Guest: Okay, okay, okay.
Mindy: Well, he said 4%, and Michael Kitzis did it in like 2008 and came up with the same numbers as West Mos did. I want to say in 2015, he came up with the same numbers. What do you consider an acceptable failure level? Because Bengen’s research said that like there was only one period, or no, maybe that was that was because he has the amazing chart. There was only one period where they ran out of money and it was in year 31. And they were all doing 30-year timelines. Let’s put all the caveats out there.
Guest: Yeah, so there’s two two issues with all of those pieces of research. I’m I’m not familiar with who Moss is, but I know Kis’s research and I know Bengan’s research. Of course, they all arrive at the same result because they’re all using the same data. The big issue is that they’re using US historical data. And we know now, looking back in time, that the US market is the best performing financial market that has existed in modern history. I think there are a couple others that have maybe done better. Like I think Australia, I don’t know if that’s still true. A couple years ago Australia, I think had done better and South Africa had maybe done better, but you know, big, big markets, US is the best performing market that exists. If we go and re-create Bengen’s analysis and Kis’s analysis using two little changes, including international data, which I think makes sense because when we’re thinking about what are the expected returns of the stock market? I don’t think looking at the one, the single best performing market in history is a good place to anchor our expectations for the future. So that’s one thing. So we use just what has happened to stocks everywhere. And we can argue about whether other economies are comparable to the US. I would counter that that is true, but the greatness of the US economy is reflected in its currently high stock prices, which makes it very hard to expect similarly high returns in the future because you’re paying a lot for expected future earnings today. So if we introduce international stocks, uh and then the other one that you did mention Mindy, is if we extend the time horizon past 30 years, which for a an early retire is certainly a reasonable thing to do, I would say, that number starts to go down below 4%. So Bengen’s analysis was was great. I mean what he did was was something very unique and it’s obviously become an important part of how people think about retirement planning. even if it’s not perfect. I think dynamic spending is is much more sensible, but the 4% math gives people a very quick way to think about how much they need to save for retirement and how much they can spend in retirement, which is it’s very cool. I like that. I mean we we had Bill on our podcast. I actually I actually asked him, what about international stocks? And his answer was very simple. I look at US stocks, never looked at international. It was like, okay, that’s fair enough. But there are other other researchers who have done the analysis using international stocks and it does change the results for the simple reason that international stock returns have been not as good as as the US market. I think the only other country Wade Fouded a study on this where he looked at the the safe withdrawal rate for a bunch of individual countries. I think Canada was the only other country that has historically sustained, this is back when he wrote his paper, had historically a sustained a 4% safe withdrawal rate. Most other countries supported much lower rates and the global index supported, I think it was around a 3% safe draw rate in that analysis. And there’s more recent papers that use different approaches using uh something called bootstrap simulation to take a whole bunch of historical data and simulate future returns using that. Uh and they similarly find lower withdrawal rates.
Scott: Well then you can’t you can’t just drop that and then not tell us like how low? Like is does the international data support this three and a quarter to three and a half withdrawal rate range? Is that what we should take away from what you just said?
Guest: Yeah, so with with equities, it it does look pretty good. with with fixed income. uh that more recent research finds much lower withdrawal rates, but I, you know, with those heavy fixed income allocations using international bonds from lots of countries that have had struggled historically. Not I mean, that that research does an interesting thing where they the way that they sample from global stock markets is they’ll randomly pull a country from their data set and they’ll set that as one 10- year on average. They they have varying block lengths, but it’ll be 10 years on average. So say it’s 10 years. So you’re going to pull a 10- year block out of their sample from I think 38 different countries. So they’re going to say, okay, this 10- year block is is Canada. So we’re going to look at Canada as the domestic country. So for that poll, the domestic stock return will be Canadian stocks, the domestic the bond return will be Canadian bonds, and the international stock return will be global stocks excluding Canada measured in Canadian dollars. So that’s one 10- year block of returns. And then they’re going to pull another 10- year block. So this time maybe we’re going to get, I don’t know, uh Denmark. So we’ve got 10 years of Denmark equity returns, International X Denmark, uh equity returns from international stocks and Denmark bond returns. and they keep stringing together those blocks. This is a a method called block bootstrap, and that produces these long samples of simulated returns where you can test stuff. So they’ve done this, they’ve looked at optimal portfolios for long-term investors, and that’s where a lot of the, although this paper is not published yet, but it’s still academic research, but that that paper supports 100% equity portfolios over target date funds and over 60 40 portfolios. It supports a big allocation to international stocks, which I think is also interesting, especially for a US audience. And then those co-authors have also written a paper looking at safer draw rates. In that paper, don’t include an internationally diversified all equity portfolio, but the safer draw rates they find with stocks and bonds using that approach are below 3%. I’m not saying that’s what people should use. It’s just that’s what that paper found. I mean I can give you guys links to all these papers.
Scott: Another analyst who brings a very comparable level of rigor to what you do is Carsten Jestke over at Early retirement now. Are you familiar with his work?
Guest: Uh a bit.
Scott: And I would say he’s arrived at a very similar range to what you have from a different direction, which is from valuations. He takes the cyclically adjusted price to earnings ratio, and then he modifies it, right? He thinks that there’s certain components that are unfair about the way that we’re comparing a cape ratio today to 1999. Like, you know, when companies do share buybacks or the tax code changes that have, you know, around corporate earnings. So he adjusts that, it’s still high regardless how you you know, how you modify for those things. But that is how he’s arriving at this kind of, yeah, I think that the safe draw is lower. And I think he arrives at a similar conclusion to you in terms of portfolio construction for early retirees. So I think it’s interesting that you two have arrived kind of independently from different angles at that same conclusion. And I also think that there’s a pretty hardcore, very staunch, you know, part of the the investment community that will really push back hard against what you’re saying here and say, no, 4% already is conservative enough. Like, what am I going to do? Like delay my life by four, five, six years, my retirement by four, five, six years just to get a few marginal extra bumps of safety in my portfolio. That’s a real criticism of this that I I think is is valid if you’re willing to take on a little bit of that risk that your portfolio good begin depleting or you will need to be flexible at some point in time.
Guest: I agree with that. Listen, on my I I did a video a while ago when one of those papers I mentioned came out and it was my I titled the video which I knew was going to be provocative and it pissed a lot of people off and made them say stuff like that. They of course only they’ve of course only read the title and didn’t listen to the video, but I talked about how that paper had found a 2.7% safe withdrawal rate, but then I also talked about how safe draw rates just aren’t they’re not a good metric to figure out how much you can spend from your portfolio. They’re just not.
Mindy: What is a good metric?
Guest: I think using tools like amortization-based spending, which is just kind of a pretty simple calculation, but it’s it helps you figure out how much you can spend from your portfolio without any probability of running out of money by adjusting the amount that you spend each year based on how things change over time, is the simplest way that I can explain it. But even even just using some relatively simplistic variable spending rule, instead of assuming fixed inflation adjusted withdrawals, is going to increase the amount that you can spend over your lifetime. So I think ignoring flexibility when we’re talking about safe spending, it it just it just doesn’t make sense. It’s a huge miss. And I mean I I agree. like if you introduce flexibility, 4% starts to look pretty reasonable as a starting point. You could probably even go higher.
Scott: So where I would beat up the 4% rules from the complete opposite side here, right? There’s so much high quality research on withdrawal rates when they’re adjusted for inflation in a static lens, but the reality of life is very different than that. And there’s so many ways the 4% rule can be way too aggressive or way too conservative depending on the pattern of your spending in your particular situation. So one of my favorite bones to pick is health care. At least in the United States, your health care premiums will go up as you age because insurers can charge you more from a premium perspective and you may you cannot count on subsidies as your early retiring across a 30 or 40-year early retirement as a multi-millionaire. That’s a preposterously bad base plan for a financial independence. That’s a way you might need more than the 4% roll or a more conservative withdrawal rate than the 4% roll research or even what your research the three and a quarter to three and a half% withdrawal rates require. On the flip side of that, if you have a house that’s in process of being paid off at a low interest rate, that’s an argument that you can actually withdraw at a little higher rate than the 4% roll because that payment will be fixed nominally and will rise slower than inflation and then roll off at some point in the future. So that’s a big offset. College funding you get me another one. And those are way more practical ways to blow up your 4% rule withdrawal research than this incredible amount of academic research that’s unwable and predicting future returns. Like those are much easier to predict or forecast expense profiles in your life than the risks that Ben just talked about or that we’ve talked about with, you know, Frank Vasquez or Bill Bengen, all all these academic, you know, experts in the space. I think that’s more of the risk there. And I think in practice, the way that the financial independence retire early community operates by and large is the 4% rule is the beginning of the end. I am now financially independent and I’m going to now begin shoring up and defending that position. What we find is common is that everybody’s got a unique ace in the hole, their rental property, their pension, their part-time job, their my favorite wife fi, their wife still works and that covers all of the benefits and those types of things. Some people argue whether that is actually financial independent or not. I don’t know. What’s common is that somebody’s everyone’s got one of those, the overwhelming majority have one of those, and what’s unique is which one it is. And that’s you know, perceived as unique to my situation. And I think that’s in practice how folks go about this and you’ll find that, you know, we we’re still on this quest. We we’ve we’ve looked for this person for years and we’ve maybe met five of them in all of this time who are true, I’m at the 4% rule and I have very low cash reserves, maybe six months to a year, and I truly just live off of that. They do exist, but some of them actually do it as an experiment to prove the point rather than as a practical output of the the fire journey. And I think that’s what that’s what makes this fun in practice.
Guest: Yeah, that’s very interesting.
Scott: Ben, can you remind us where people can find out more about you?
Guest: Uh yeah, I’ve got a YouTube channel that’s just my name, Ben Felix. I’ve got a podcast called the Rational Reminder podcast. My company is called PWL Capital, uh PWL Capital.com and I’ll give you guys a link to that risk profiling tool that I mentioned, uh and also a couple of the papers that we talked about.
Scott: Awesome. We tried to debate Ben, but we couldn’t because we agree on pretty much all of these these components.
Guest: I think that’s the thing is is like so many of the debates around this stuff and I I I tried to set that up at the beginning with like let’s define fire because so many of the debates on this stuff are just people talking past each other when I think you just think about what is what is good financial planning? What should a good life look like? And there’s so many commonalities between any approach that you take to solving that problem, and fire is one approach, but I I think it’s the it’s the details, the little details that we can debate, but broadly speaking, a framework like that is a healthy thing. And so I I did a video on this where I talked about this. I was like, fire’s controversial. Here’s why, but a lot of it is just, well, it’s people people talking past each other and strawman arguments when there’s actually a lot of sense in the principles.
Scott: I think that’s right. And I think I think that some people take portions, you know, areas of it as identity and they build their identity around that and they take it to extremes and then they judge everybody else around it and that creates this very hostile environment, right? Here’s what it ought to be. Well, not you know, that’s that’s fine. That’s your opinion. Let’s talk about what it actually is and what it can mean to to various folks. And I think that as long as it I think that the big takeaway I’m going to remember for a long time is is these five factors of a great lifestyle and how fire should support each one of those. And if it’s attracting from them, it’s wrong. And if you’re, you know, failing to achieve those because you’re not doing implementing basic money management habits, that’s also wrong. So thank you for sharing really good wisdom with us, Ben and 17 papers.
Mindy: Thank you guys for having me on. If your listeners are interested, my most recent video at the time that we’re recording is called, I think it’s how how to use your money to be happier or something something like that. But it’s it’s all about the perma model and living a good life and all those kind of principles. So if people are interested, they can check that out.
Scott: Awesome. Go check out the Rational reminder and Ben’s YouTube channel. It’s a really wealth of wealth of knowledge and I’ve I’ve begun watching them regularly. So, thank you, Ben for all you do.
Guest: Awesome. Thanks so much, guys.
Mindy: Thank you, Ben for your time today and we’ll talk to you soon.
Scott: All right, Scott, that was yet another fantastic conversation with Ben. What did you think about his points on the safe withdrawal rate?
Scott: I think that the conflicting opinions between well-researched experts that we’ve had on Bigger Pockets money are really interesting and I think that it creates more confusion over time, the deeper you go into the subject matter, right? I’m really interested to hear Frank Vasquez respond to this position that Ben Felix has taken here. So maybe we’ll we’ll put that shot out there. Frank, we’d love to have you you come on and and chat about that again in the future. But I think that that’s the the conflict is do I build a a withdrawal or decumulation portfolio, when do I begin moving towards that and how? And I think Ben is is giving a big portion of the financial independence community validation to stay aggressively invested with this particular episode. And I think that that’s interesting and that’s something that I’ve been very uncomfortable with personally. Maybe it was the right move the whole time. Maybe it’s the right move for the next couple next 30 years. Maybe it’s not. And I I I find that really intellectually challenging to to figure out what to do with a portfolio as one approaches fire and begins withdrawing from it.
Mindy: Sounds like you need to take his personality test that he’s got on his website, which we have a link to in our show notes. I think that would be very interesting. You’re not a risk enthusiast when it comes to investments. and I’m I you know what, Scott, maybe we’ll unpack that why you aren’t a risk enthusiast. I think that would be very interesting, but you’re riskverse. That is a fact about you and that is something that you should own and embrace. I am risk adverse. Therefore, I am not going to invest in risky stocks. What is the point of investing in something that makes you stay up nights freaking out about your investments. Don’t do that. Invest in things that you feel comfortable investing in. And that’s to everybody, not just Scott, although I’m saying it to Scott too. I don’t share the same riskverseness that Scott has, so I am investing in riskier things and I’m okay if something happens. But I’ve also got a longer length of time that I’ve been investing. So I’ve seen the ups and downs. I’ve seen the stock market recover a lot. I have faith in the American economy and I’m not saying that you don’t Scott. I’m just saying that I think there’s a lot of factors that support having a riskier portfolio for me. But again, that’s me. Money is personal, so do what you need to do to invest and have a peace of mind.
Scott: I don’t even know if if risk averse is the right word. It’s it’s certainly accurate today here in 2026 with my my position portfolio, but it’s also, you know, not it was not an accurate description of a 23- year- old buying his first house hack and putting every extra dollar in the S&P 500 in index funds for many, many years until the point of financial independence is achieved. I think that what I’m really seeking is what is the intellectually honest answer to what to do to these problems. and that is where I’m struggling, right? Maybe one is a a great intellectual you know, answer to that is potentially what Ben just said today, stay investing in equities, maybe some factor tilts. And another is what Frank Vasquez or other proponents, you know, say, which is build a decumulation portfolio with uncorrelated, diversified investments across asset classes and rebalance as you withdraw. And I think that both of those are good and I think that’s the challenge that I’m having is squaring up which one is right for me, which one’s right for a 35- year- old retire, which one’s right for a 70- year- old retire?
Mindy: Again, it’s a personal decision. It’s a personal answer. You just need to know yourself and what you’re comfortable with. And, yeah, 23-year-old Scott was totally comfortable living in that neighborhood. What did you say to me, Scott, once that uh, people who would come to visit would ask you to walk them out to their car.
Scott: I don’t know about that, but we definitely played gunshots or fireworks a a little bit too frequently. Not a very fun game.
Mindy: No, not a very fun game when it’s real close. Maybe I’m thinking of somebody else, but I would absolutely if I was visiting you at night in your original house hack, I would have you walk me to my car. That’s not a neighborhood that I would have moved into. So in that regard, yeah, you were not riskverse at all.
Scott: And it’s done very well for you.
Mindy: So it’s just what are you comfortable with? I would not be comfortable with that, so I didn’t do it. Just like you were uncomfortable having such a large portion of your net worth in the stock market at these valuations, so you did something about it. So it’s you make the best decision with the information you have at the time. And your decision doesn’t have to be permanent. You can jump back into the stock market if you want to, Scott. You can choose to stay out of it if you want to.
Scott: Yep. You just have to make an informed decision.
Mindy: All right, well, this this show ran long, so we don’t need to run even longer in the outro. Should we get out of here, Scott?
Scott: Let’s do it.
Mindy: Oh, you know what? Before we get out of here, I do want to let our listeners know that we have even more financial independence information on our website, which is biggerpocketsmoney.com. And we also have Instagram, Facebook, and YouTube, which is @Biggerpockets money. You can join our newsletter, you can also find free resources, calculators, and templates to help you on your journey to financial independence. All right. Now, Scott, should we get out of here? You already said, yes. So, that wraps up this episode of the Bigger Pockets Money Podcast. He is Scott Trench. I am Mindy Denson, saying bye-bye, pecan Pie.
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