KISSy KISSy

Lotsa people in the FIRE community love KISS. I mean really love KISS.

No, no, no. I don’t mean the band, KISS you silly goose! I mean the Keep It Simple Stupid philosophy kind of KISS. More specifically, building wealth by way of index funds. Mostly broad, diversified, low-cost ones. Weighted towards equities. There’s even a name for the simplest (tho maybe not the most appropriate for many) form of this approach: VTSAX and chill. 

In recent years, the FIRE community and discussions about the concept, contours, strategies, and tactics of FIRE have evolved. In a good way if you ask this humble blogger, which I know you did not, Dear Reader. 

The KISS approach has been a particular big topic of debate. The conventional wisdom of VTSAX and chill, or a classic three-fund portfolio (a total stock market index fund, a broad bond fund, and a broad international fund), or a 60/40 portfolio (an investment portfolio comprising 60 percent equities/40 percent bonds (or, for the more aggressive, 70/30, 80/20, or 90/10)) being taken as a Diktat From on High that cannot be questioned is . . . being questioned.

More is better?

We now have Frank Vasquez’ risk parity and other portfolios. Paul Merriman’s recommendation to incorporate small cap value into the mix. And others who suggest diversifying into cryptocurrencies, gold, foreign equities index funds, and/or I bonds, for example. Well, that last one died a quiet death a few years ago. But you get my point.

Then there’s the withdrawal approach debate. The ride-or-die 4 Percent Rule (live on 4 percent of your liquid investments (adjusted annually for inflation) each year); or, for the more conservative, a 3.75 Percent (or lower) Rule. Or just don’t inflation adjust sometimes (generally after a bad year for one’s investments). Or withdraw 4.7 percent of your liquid investments annually, as 4 Percent Rule-creator, Bill Bengen, recently updated his advice to allow. Or Aubrey Williams’ risk-based guardrails approach. And more.

These discussions are great. Indeed, they’ve led me to think more broadly and in a more nuanced way about our portfolio composition and withdrawal approach. 

But I’ve not incorporated any new approach for me and The Missus from what we’ve been doing all along. 

I also wonder if these discussions have caused more trouble than they’re worth for some in the FIRE community (even if possibly only a small number) because they’ve introduced complexity and caused these folks to call into question things that need not have been called into question quite so much.

I mean, the 4 Percent Rule has worked 96 percent of the time in the 100+ years it’s been tested on. It’s not failsafe. But it’s got a pretty good pedigree. 

And anyway, I don’t know anyone so robotic as to unquestioningly follow the 4 Percent Rule and not adjust if and when their investments take a hit. Especially a material hit. 

Plus, I think most in the FIRE community either don’t include state pensions (Social Security in the United States) in their planning, or figure that they won’t get the full amount that they’ve been “promised.” Nor do they consider that they might have yet other sources of income after FIREing, such as inheritances or unanticipated paid work (contract gigs, side hustles, passion projects, formal jobs, etc.). 

In short, I think that the wider debate is good but maybe counterproductive in that people might unnecessarily complicate their investing and withdrawal approaches. At the very least, that may mean subjecting themselves to more angst than they otherwise might experience. At most, it may mean worse results. Especially if they don’t fully appreciate the chosen alternative’s details. 

Complex state of affairs

After all, many of the alternative investing approaches necessitate a more complex investment mix. Sure, they can (historically) allow for bigger annual withdrawals. But only if followed as recommended. 

Following one of those alternatives isn’t necessarily rocket science. But I wonder how many people, when deciding to mix things up, complicate their lives by having to track and/or worry about more funds and make their brains go all sorts of squirrelly. Or say to themselves, “Hey, while I’m at it, I’m going to make this other change, too. It’s just a little change, and it’s capitalizing on this new shiny thing that surely cannot fail. What could go wrong?!” only to have that blow up in their faces. 

Full disclosure, Dear Reader, I did something that rhymes with this several years ago (before the debate about more varied investment portfolio went more mainstream in the FIRE community). The additional investment vehicle has been a real dog almost from day one. So, I know from whence I speak. 

And while I think it’s undeniably good to know about the alternative withdrawal strategies, I think that, too, can introduce unnecessary complexity. The markets tanked last year! Should I use the guardrails approach? This year? Next year? Do I give it more time? Or should I take the don’t-adjust-for-inflation approach? Or this other conservative withdrawal approach? But wait, there’s Social Security, and I have this side hustle I love, which nets me a few thousand dollars a year. Need I do anything? Aaaggghhh! 

Me? Imma not overthink things. We’re mostly sticking with our original Gene, Paul, Ace, and Peter KISS strategy. 

Investments: A pretty simple mix of (what I believe are) reasonable investment vehicles. This mix is somewhere in between VTSAX and chill and the mixes advised by Vasquez, Merriman, and others. It hasn’t changed since I learned more about those other approaches. 

Withdrawals: Following the 4 Percent Rule (even if we’ve not needed to withdraw that sum (much less adjusted for inflation) any year since I FIREd (I know that this necessarily undercuts some of my argument, but I still think the 4 Percent Rule solid)). With the nuance of my treating it as a Rule of Thumb. 

Additional Factors: Banking on what we’ve been promised in Social Security payments, a small pension that The Missus will receive, and probly at least some money in inheritances (which I know that we’ll be extraordinarily privileged to receive if one or more come to pass). 

As my disclaimer on this blog indicates, my words on this blog are just for chuckles. Not investment advice. This particular blog post most certainly ain’t investment advice. But it is a representation of how I think about things. 

Others, I think, agree with me. For example, author Morgan Housel, who invests in a way that allows him and his wife to sleep at night, even if it’s not the “optimal” approach from a returns perspective. Also, at least as to the 4 Percent Rule (of Thumb) Others, who’ve essentially contended that good enough is good enough for smart-and-generally-conservative-investor-types like those in the FIRE community. 

Maybe by following another, more complex, approach we could achieve results allowing us to take higher withdrawals. But it’s all a bit too much for me. Better we solve for my our neuroticism and achieve results that are “good enough,” and time-tested. 

And in the end . . . 

For those who want to follow one of the more complex investment and/or withdrawal strategies, I say bully for them! As I mentioned, they’re not too difficult to implement. But I know just as well that your brain can play hardball with you. So, maybe better to KISS off and party every day.