The FI REport The Best Commentary and Analysis Related to Financial Independence

Funny how the steady upward trend in the market has created a nation of devoted buy-and-hold investors. But the strategy only works if you HOLD (at least) when the crap hits the fan. We’ll see.


This is a great visual showing how our psychology evolves during market cycles. I’ll admit to having experienced these things in this sequence (but the key is to not act upon them in detrimental ways. Buy high sell low is not good).

A couple of really sharp finance minds–Jack Bogle and Jonathan Clements–believe that total stock market returns over coming decades could be in the 4-6% range. That’s lower than historical averages, but may be a new normal. What to do? Only one thing is for certain: we need to save more.

Correction: Dear Sirs at Chase, I am NOT closer than I think to driving a Maserati. I am farther–much farther–away from it than you think. Laugh-out-loud funny. Picture of an email sent to Chase Sapphire card-holders:

Burton Malkiel discusses wide-spread index investing and the potential impact on market-making. The upshot: active managers are paid enough to keep at it, so the markets will keep on operating as they should. Which is good for us indexers. So as long as there are enough suckers out there that keep paying 1%+ for underperformance in their active funds, the indexers can continue to outperform through laziness. Excellent.

I presumed the data regarding college savings using 529 accounts was bad, but did not know it was this bad: (i) only 32% of US parents even know what a 529 plan is (let alone that it can give them a huge tax advantage in saving for college); (ii) only 14% of parents plan to use a 529 to save for college; (iii) only 16% of investors (relatively affluent ones with more than $100k in liquid assets) have funds invested in a 529 account. And here’s the coup de grace:

Many money managers use obfuscation tactics to avoid letting their customers know how much they are really paying in fees. If you ask your advisor how much you’re paying in all-in fees and you don’t get a straight and clear answer THE FIRST TIME, fire them immediately.  Hidden fees can eat up fully 1/3 of portfolio value over a 40-year period!

So I’m asking myself: Is it even possible to earn $650 million over a 20-year career and then SPEND IT ALL AND THEN SOME? Think no further! Yes–it is in fact possible! (footnote: if you do this, be sure to blame everyone else in your life, including your financial advisors.)

Buying one of these can be really bad for your financial position.

If you are paying Morgan Stanley to manage your money, you are paying too much. And now they want to keep you from the best product–Vanguard funds–because Vanguard refuses to bribe them with kickbacks that they demand. Fire them.

It’s now common and accepted knowledge that index investing is the mainstream norm. That means something. I just don’t know what it means right now.

And here’s a theory that blames current market euphoria on indexers.

The data regarding active v. passive performance over long periods is now so compelling that I have a hard time conceiving of the group of people that still pay exorbitant fees to try and achieve over-performance. I suppose it must be that 50% of the population that irrationally believes they are in the top 8%. This data is damning, and bound to lead to a glut of money in index funds (which I’m concerned will in the long run lead to fundamental changes in how the broad market behaves).


Will we never learn? Greed runs rampant and fear is non-existent in the market. Here we go again; begin to think about ensuring that you have plenty of dry powder.

As a confirmed and devout contrarian, I have little doubt that mass acceptance of index investing as the default will change the character of the markets, and ultimately not for the good. Here’s an interesting theory: by reducing diversification costs, index investing will result in protracted elevated market valuations and ultimately lower returns from re-invested dividends.

Sign that we may be reaching (or have reached) a top:  Risk-assessment firm Riskalyze holds a conference in Lake Tahoe to advance its “mission of empowering the world to invest fearlessly.”  I don’t recall a whole lot of fearless investors/investing last time the market dropped 15% in five days.

If you’ve been sitting on the sidelines of the US equities market for the last 8 years, might I suggest that now is not the time to go all in? It’s amazing how our group psychology is so predictable, and seems to be doomed to repeat cyclical errors.

One of the most critical decisions you will make in your quest for financial independence: choosing a spouse.  Get this one wrong and you might as well have spent your life investing through a “stock broker.” (I have no data to support that conclusion.)

It is now clear that the question of what impact wide-spread index investing will have on the markets is on everyone’s mind.  There is a lot of talk, but very few answers (and no real consensus).  My thought: still plenty of active players to make markets efficient.  And true to form, many retail investors will succumb to their psychology and flee to the prospect of market-beating active management returns during the next correction.  Stay tuned.

There can’t be much doubt that the ACA opens up healthcare options for early retirees that did not exist before.  The discussion of repeal under a Trump Administration is leading to some planning uncertainty for early retirees, would-be early retirees, and self-employed.

This topic continues to trend: what happens when passive investing becomes the default?  My current thought: there will always be a big enough set of Type-As that are compelled to try and beat the market to make an efficient market.  Long live indexing!