One Of The Biggest Financial Mistakes Early Retirees Make

After more than nine years of early retirement, I realized I made a serious mistake that cost me $500,000+. Let me tell you what happened so you don't do the same. The biggest financial mistake early retirees make are often realized until way after the fact.

Estimated Passive Income In Retirement

When I left Corporate America at the age of 34, I thought I was done earning more money for good. Below is the income budget I put together in 2012 to support us for the rest of our lives. Expenses are not listed because we've never spent more than we've made.

Financial Samurai original passing income projection for retirement 2012 - he Biggest Financial Mistakes Early Retirees Make
First passive income projection for retirement 2012

Our base case retirement income scenario was to make $78,000 gross or $54,600 net a year in passive income and live a simple life back in Hawaii for the rest of our lives. If things went really well in the stock and real estate markets, we calculated an optimistic annual passive income scenario of $117,600 gross and $94,080 net.

Related: Which Is A Better Investment: Real Estate Or Stocks?

At the time, we were probably spending about $100,000 a year to live in high cost San Francisco. By moving to a paid off house in Honolulu, we'd have no problem living within our means with a child on a much lower income.

Flexibility To Earn More In Early Retirement

But if we did have a problem living on less or wanted to live it up more, we had fallback options through Active Income and Bonus Income. These were also divided into Base Case and Blue Sky with $15,000/month and $50,000+/month gross totals, respectively. It's always fun to dream about what could be.

If you're wondering about the line items in the Bonus Income column, those are all the things I already had, but didn't count on to make anything extra. For example, my Rich Hot Spouse was there to provide the love she has always provided. Anything more and I classified it as utopia. Aww.

Today, we still live in San Francisco and I've done all the things listed in the Active Income chart. Although my income grew in retirement, I did NOT change my investment risk profile. This was a major mistake because a major bull market ensued. 

Early Retirees Should Invest With More Flexibility

If you retire early, know that you have the ability to make more money than you could ever imagine working a full-time job. This surprise is the biggest reason why the fear of running out of money in early retirement is completely overblown. If you have the wherewithal to retire early, you have the wherewithal to lock down your expenses or make a killing pursuing a dream.

From the years 2012 – 2014 I was stuck with a “4% mentality.” In other words, if all I could earn was 4% a year on my retirement nut, I'd be happy because at this rate, I'd never touch principal. By not touching principal, I could leave some money to people in need after I die.

Because of my complacency and fear of having to go back to work, I proceeded to invest much more conservatively than I should have. As a result, my public investment portfolios comprised of stocks and bonds underperformed the S&P 500 by several percentage points per year. For reference, the S&P 500 was up 13.5% in 2012, 29.5% in 2013, and 11.4% in 2014.

Therefore, my biggest financial mistake as an early retiree is investing to conservatively.

Yes, I know I shouldn't compare a stock/bond portfolio only to the S&P 500, but I like to compare my performance to the top performing asset class of the two to feel the pain. I always have a choice to go 100% stocks or bonds.

Despite my public investments comprising only ~25% of my net worth, I was still unable to invest aggressively like a 28 year old who has only seen a bull market. I kept reminding myself of the Asian Financial Crisis of 1997, the dotcom bubble of 2000, and the housing implosion of 2008-2009 as reasons to stay conservative. The first rule of financial freedom is to not lose money. The second rule of financial freedom is to not forget the first rule!

Lessons #1 From The Biggest Financial Mistake As An Early Retiree

Just because you close your eyes doesn't mean the world can't see you. When investing, try to think beyond your own financial situation. The stock market doesn't care if you are retired. What it cares about is corporate earnings growth and profitability. There are always companies to invest in which because of different phases in their growth cycles can offer much greater returns. Projecting your own financial situation onto other investments may adversely affect your returns.

In Spring 2014 a catalyst for change happened. My 7 year, 4.1% yielding CD was finally coming due and I had to put the money to work. Originally I was going to just reinvest the proceeds in another 7-year CD, but the best 7-year CD rate I could find at the time was about 2.2%. Disappointed, I decided to look elsewhere.

After seeing Blue Sky income growth, I realized that my base income assumption of $78,000 – $117,600 a year in retirement had been too conservative. Thus, I decided to do a 180 and aggressively leverage up. Specifically, I took on a $1 million mortgage to buy a $1.24M fixer upper in Golden Gate Heights while already carrying a $1 million mortgage for my primary residence.

Risk Exposure Is Off

Think about how egregious this move was from a risk management perspective. What I did was akin to buying $1.24M of one stock on $1M margin. If the stock went down 20%, I'd be wiped out. I suddenly believed I was some invincible hot shot who couldn't miss. Yet I had no job, just a feeling that my online business would stay at an elevated level.

The last time I made such a move was back in 2007. Not only did I lose all my vacation property equity a couple years later, but I also suffered through a 50% income haircut as company bonuses were slashed. It's funny how after a long enough period passes, we dismiss our mistakes.

With this new home purchase in 2014, I figured I could make up for my underperformance the previous three years. To do so, I'd take on leveraged single asset exposure risk. Meanwhile,I already had three other properties in the SF Bay Area.

It was only through luck, some self-published propaganda, and a bit of foresight that Golden Gate Heights and the western portion of San Francisco turned out to be a region in high demand three years later.

Lessons #2 From The Biggest Financial Mistake As An Early Retiree

When you finally admit that your investment strategy was suboptimal, try not to go crazy by over-investing to catch up. Taking on leverage to invest, co-mingling funds, putting up safe assets as collateral for riskier investment, and aggressively inflating your lifestyle are the main reasons for financial destruction.

Instead, slowly increase exposure through at least three tranches over a minimum six month period. Just note that even if you reach an “optimal” investment allocation, there will always be people who make even more. 

I'm currently in the process of de-risking in order to make sure I don't lose all my gains. The three year double leveraged gamble feels like I went into a casino, found $30,000 worth of chips in a trash can, bet it all on black five times in a row and won each time. With these proceeds, I'm allocating a large chunk of capital towards 3% – 4% yielding, A-rated or better, tax free municipal bonds with 17 – 23 year maturity periods so that the money will be there to pay for my son's college education and then some.

But here's the thing. I'm going back to my same super conservative investing style despite my income now being able to easily make up for losses in riskier assets. There used to be a time when my investments made more money than my income. Not any more. Therefore, in a bull market with excess cash flow, I should take more risk and try and generate more income.

Lessons #3 From The Biggest Financial Mistake As An Early Retiree

You need to talk to someone about your investment plan. For example, Personal Capital offers a free financial consultation after you link up $100,000 in your free account.

Despite being an intelligent, rational human being, investing money is an incredibly emotional and sometimes completely irrational process. We are naturally guided by greed and fear to the point where we go from one extreme to another.

Over the long term, talking to a parent, friend, spouse or professional can help you make better investment decisions. Make sure you can properly explain your investment thesis to someone. If you can't, then chances are high you are not investing according to your risk tolerance.  

If you want a wonderful life, you should share it with someone. Talk to people about your hopes and problems.

The Biggest Error For Retirees

Poor risk management is absolutely one of the biggest financial errors early retirees make. We often bet too big when we aren't supposed to, or invest too little when the opportunity is ripe. Steady recalibration is in order. See Financial SEER to learn how to quantify your risk tolerance.

I wish I could turn back the clock to 2012. I should have realized just because I was jobless, didn't mean that everybody else was in a precarious situation as well.

We need to set up an investing system similar to what I wrote in the post, A Better Dollar Cost Averaging Strategy. The problem is, even if you come up with an investing system that works for you, it still takes effort to follow your system.

Reduce Financial Stress

For three months in 1H2017, I was too stressed to think about anything other than my pregnant wife and newborn. As a result, I neglected to take advantage of any stock market sell offs and follow my asset allocation objective of 50% stocks, 50% bonds for the year. The biggest financial mistake left me somewhat paralyzed.

Instead, I focused mainly on paying down mortgage debt and buying municipal bonds at par value because I didn’t have to think as much. I had already invested $250,000 in a real estate crowdfunding fund in January. My lack of focus has already cost me ~3% of performance compared to the S&P 500 in just half a year.

Automation is one of the reasons why so many people have done so well investing in real estate. Come hell or high water, some principal will get paid down each month. Automation is why I have no problems paying a marginal fee to a robo advisor. Life is always getting in the way. Tenters who say they'll simply “invest the difference” hardly ever do.

If you don't follow any of the three lessons above, then let me offer one catchall guideline for retirees when it comes to investing your money:

Invest 90% of your capital as if your life depends on it, because it does. For the remaining 10%, invest as if you were a 28 year old whipper snapper with nothing to lose.

By following this guideline, you are protected from financial calamity. Further, you also potentially gaining exposure to higher performing assets that may supercharge your wealth in retirement.

Always Keep Building Passive Income

Perhaps above all else, always focus on building as much passive income as possible. This way, you'll also have various income streams to keep you afloat. In 2012, I had about $78,000 a year in passive income.

Today, I'm earning about $300,000 a year in passive income. Therefore, although my biggest financial mistake was investing too conservatively, I still made out OK.

Recommendation To Build Wealth

Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool. It will show you exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.

After you link all your accounts, use their Retirement Planning calculator. It pulls your real data to give you as pure an estimation of your retirement future as possible. Don't let your biggest financial mistake be not carefully monitoring you're finances.

I’ve been using Personal Capital since 2012. Since then, I have seen my net worth skyrocket thanks to better money management.

Planning for retirement when paying for private grade school - biggest financial mistake
Personal Capital sample retirement planner calculator. Are you on track? Click to find out.

Related: Stop Your Limited Beliefs About Making Money And Wealth Creation

About The Author

84 thoughts on “One Of The Biggest Financial Mistakes Early Retirees Make”

  1. My biggest mistake was fear. I was so afraid of my lack of safety net that I did not learn enough about investing early. Thankfully, I turned some of that fear-based cash savings into a business, but I missed out on some very good return years.

    My current allocation is 95% stocks. I’m expecting an income doubling event in the near future. When that occurs, I will combine pumping up my cash reserves with paying down debt in the short term. Once that has stabilized, I want to allocate up to 98% stocks. I’m young and have many years ahead of me.

  2. Sam, enjoy your post and articles. Are you going to write an article about digital coin currency? I am interested in getting your thoughts on it.

  3. I made an error many years ago by investing in a solar company in China that I didn’t know anything about. It was based on greed and positive news reports about its growth potential. Long story short I suffered. Now I realized that greed and finding value are different and am glad I made that error sooner in my life rather than later.

  4. Sam, enjoy your writing and philosophy. I just turned 60, dreaming about retirement, we’ll see.
    Net Worth: $2.67M (Annuity fund $675, Rollover IRA $500, Inherited IRA $130, new 401k $150, LT incentive $400, Real Estate 3 homes Net $700, cash $100)
    Guaranteed income Age 62 $70k age 65 $90k
    I have been much more conservative after the crash and reinvesting at the bottom, bought the annuity at Dow 18,500 in 2015 and now only $300k of net worth in stocks. I do agree with your 90/10 rule althought the 10% risky investments have all been losers for me and the Buffet way of investing has always been more successful “buy good companies cheap”. I do think it is important to remember that 20% losses require 25% returns, 33% require 50% returns and 50% requires 100%!! My goal is to earn minimum $180k per year without ever touching principal and leave at least $1M in today’s dollars to each of my 2 kids. I do find it fun to fiddle with the spreadsheet and look at all the scenarios! Cheers

      1. Well the only loss on the guaranteed income I could potentially have is high inflation. Why don’t you like annuitiies? The fees are high, mine is about 2.2%, but guaranteed 6%/yr increase to Base investment used as calculator for 4% permanent payout. So, I saw it as protection against the next big dip which I will see before I retire in 3-5 yrs. The other option I might have taken is a solid dividend stock portfolio in the 3-4% range. Anyway, my annuity plus Soc Sec = $90k per guarantee starting age 65 plus return from real Estates and stocks should be total of $180-200k per year without touching principal

  5. I am far far from being retired but the biggest mistake I made so far was leaving a job that provided pension. I was so ignorant and financially illiterate that I didn’t care about benefits/retirements back then. Luckily, now I have pension again, but if I stayed on the first job, I might be able to retire in 10 years (~47 or 48). I like what I do, so I don’t plan on retiring early, but do want to achieve FI in 10 years.

  6. Steve D Poling

    consider the rate-of-change of net worth. if we assume the utterly unrealistic model of uniform periodic contributions made to a constant rate interest-bearing account, we get a nice smooth exponential curve. (unrealistic, but useful for purposes of discussion.) at the moment of retirement the slope of this curve is maximal. Thus any perturbation in timing retirement will have its greatest effect on the size of the war chest at the beginning of retirement.

    at retirement the curve changes to another familiar exponential. it gently curves downward at the outset (depending upon the ratio of war-chest size vs living expenses taken from it), and its slope inexorably increases reaching the maximum slope at epsilon minus the time the fund expires. i hope we all expire before our funds do, but the timing is known only to the grim reaper.

    it seems that, in addition to the other factors cited introducing uncertainty into the retirement timing decision, the mathematics is conspiring against us.

  7. Personal Alpha Investments

    I couldn’t agree more with lessons 2 and 3. Even though, you recognize the lesson 1, if you take an above average risk, you’re doomed to fail. Most people don’t fail because of lesson 1, they do so because they try to compensate for the lost time and think they’re smart.

    Btw, the mindset where a person thinks he is intelligent is a slippery slope. Level of intelligence is in no way a measure of financial success. I definitely recommend reading Millionaire Mindset for this sole reason.

  8. These are phenomenal tips Sam and much more detailed and helpful compare to most advice online. I like how you incorporate personal stories into them. I’m the one that has about 75% say in investments (and hubby naturally 25%). He doesn’t like making financial decisions and he has no interest in money (can you believe it…) and I really would prefer if we were 50/50. It’s important to have someone play the devil’s advocate so you can see clearer.

    I’m looking forward to your second quarter investment review!

  9. I look at this risk change for early retirement as akin to the prevent defense in football.
    You’ve played great, your strategy is working and you’re ahead by a good margin. What do you do?
    That’s right COMPLETELY change your strategy and start playing hyper conservative. What happens in the NFL? The other team starts to whomp you all over the field and you turn a win into a nail biter or even worse a loss.
    Good investing is good investing no matter where you are in the game. if your strategy and read of the “game”/market is working for you don’t change just because you’re “supposed” to be more conservative at some point.

    1. There were some atrocious losses in the NFL last season right? I seem to recall the Falcons losing some huge game with a huge 24 lead? Was that the super bowl?!

      Going into complete hyper conservative mode would be akin to going 100% money market/CD/municipal bonds. I wasn’t that bad bringing my exposure from 75%/25% equities/bonds in 2012 down to 45% equity/55% bonds today. I reduced equity exposure by about 5% a year for 5 years. I think I was up about three touchdowns after the first half, but only won by a field goal in the end, when I could have won by six touchdowns!

      Then I could brag to all my friends what I stomping I made on social media and in real life! But then I would realize a win is a win, and that would bely the Stealth Wealth Mantra I follow.

      1. So no spiking the football on team stealth wealth?

        I realize you didn’t go super conservative I’m just mentioning for others out there. I’ve never understood making a dramatic shift that some do when you’ve had a strategy and it’s working.

  10. multimillionaire

    Maybe I was lucky. I have been very actively managing my portfolios while I still have a full time job. I have my 401K and IRAs that are passively managed and those could not quite keep up with S&P 500 from 2012 to now. Then I have two actively managed options portfolios that have both long and short positions depending on my reads on the tea leaves (i.e., technical analysis, etc.) One has a 60-month ROI (pre tax) that is over 400%. The other has a pretty big long term stock position that we have had for the last 25 years and never wanted to sell. From hindsight we should have sold the position, paid the big the capital gain tax and use the cash for my options strategy. Because of that it has a lower 60-month POI (pre tax) that is about 250%. All I can say is the incomes from the actively managed portfolios have exceeded my day-job income by a very good margin.

    1. Very cool. What keeps you still working a full-time job? Have you considered managing money for a living or just trading your own portfolios for a living? You might even be able to do even better if you could focus more on investing.

      1. multimillionaire

        I am working for the Federal government. I haven’t been with the government for very long and will be eligible for early retirement in about 1.5 years. My plan is to manage my portfolios full time after retirement. I will even roll all 401Ks into IRAs and use similar options strategy that are permissible for IRA accounts. If there are opportunities to manage other people’s portfolios in the future, I will certainly welcome the opportunities and review how much works would be involved.

        I also notice that I definitely do even better in terms of improved P/L with lower risks when I have off days from my office and manage the portfolios full time at home. The other thing is as my portfolios and positions grow, they demand more of my time in managing.

        I notice that you help people negotiate their best exit package before they retire. I am not sure however the technique would work for federal government employees.

        1. Rolling over 100% of 401k to IRA? Investment choices aside, couldn’t this add significant risk given exposure to lawsuit?

          From my understanding, you will not want to commingle rollover funds with personal contributions to the same IRA, so as to protect rollover funds from potential creditors.

  11. multimillionaire


    The pitfall in your lessons learned was you now realized that 2012 to 2017 had been a secular bull market by looking back, and wished you would invest more in stocks. I would say that is a common mistake many retail investors have made. Just when they finally realize the have missed a bull run, they start to pile in long positions to chase the bull and then the market reaches the top and corrects or crashes.

    Long story short, just have a stocks/bonds allocation that meets your risk profile and sticks with it. The TLT has a correlation of -0.3 with respect to SPY. It helps to dampen the P/L volatility of your portfolio. Enough said.

    1. Thanks you for your insights. It is definitely a disappointment that I underperformed on 25% of my net worth.

      Were you mostly stocks for all your net worth during this bull run? Where are you currently with your finances e.g. Retired, working, etc.

      My only saving grace is that for the rest of my net worth, it has done OK given being leveraged long San Francisco real estate, private funds but have long lock up periods, and my online business.

      Love and learn! Always.

  12. This article is misleading because you’re saying your mistake is missing out on the big bull market. Now what if stocks tanked again or flatlined the past 6-7 years. You would be patting yourself on the back saying I avoided the rundown.

    What was your rationale for buying that fixer-upper with a million $ mortgage? Was it the feeling that SF housing would keep going up. You already experienced the loss of equity with your vacation house. If the housing market suddenly turned you would be caught.

    Yet you didn’t take the same risk with stocks. Do you have a bias towards real estate? Because this bet was much riskier than just putting even 50% of your portfolio into the S and P or any broad index.

    1. Sorry that you are feeling misled. I try to use examples to make people understand better. So here’s another one:

      There are two people who start off with $100. Peter buys one stock that goes up 10%, and Paul buys nothing. Peter is now $10 richer than Paul.

      In another scenario, Peter buys one stock that goes up 20% and Paul buys one stock that goes up 10%. Peter is now $10 richer than Paul.

      In another scenario, Peter buys one stock that goes nowhere. And Paul buys one stock that goes down 10%. Peter is now $10 richer than Paul. (Is this the scenario you were hoping for?)

      In all scenarios, they can both live off one dollar a year and they both have less than 50 years to live.

      Hope these examples help explain the relativity of finance, and the great fortune we have of living in North America. If you are still confused, let me know and I can I try to help explain things better. If I cannot write clearly, then I am failing at my craft.

      I’ve tried to include as many pertinent related articles within my articles as well. Perhaps I need to include more articles and then put in parentheses why you should read the article.

      I’ve been much more biased for real estate than stocks. Check out this article:

      Tell me about yourself and how you are investing for your future? Thanks

      1. Wonderful way of explaining Sam! And as a teacher, I’ve always had a call student behind. It’s sometimes very hard to instruct in a way that they don’t feel stupid or bad about themselves, while also not slowing down the brighter students too much. Takes a lot of patience.

        1. Thanks. I have to balance people reading between the lines and making sensible conclusions with explaining intentions and concepts. If you explain to much, then the post gets old and heavy. If you explain to little, you might lose a lot of people. So at the end of the day, writing is a skill that needs to be practiced. I’d love more people to do some guest posting.

          It’s impossible to write something that appeals to everybody because everybody has a different money mindset, different net worth, different age and situation.

          This is why I like to ask people about their backgrounds, so I can understand where they’re coming from. Unfortunately, only a minority of people share for some reason.

  13. Been saying for several years now this is a cheap stock market. Those playing it conservative are leaving a lot on the table and may regret it later. It’s obviously not cheaper than 2009, 2010 but current market is cheaper than 2007, 1997, and 1987. People forget to account for the fact that George Bush Jr wasted an entire decade of growth.

    1. Well done. How about the future? What were some of the ways you were able to convince yourself to take more risk in retirement/near retirement? I’m always fascinated by those of taking the option of pricing because they have a buffer instead of being conservative since they’ve already reached their number.

      Have you paid off your SoFi loan yet?

      1. Well my formula is pretty simplistic, I look at the compound rate of last 10, 20, 30 years of S&P and compare it to compound rate of today. Today, is cheaper than all 3 (10, 20, 30). Even in years that it’s not still dollar cost average. Just go a little harder in the years that it obviously (in my limited opinion) today is cheap.

        As for Sofi Loan, yes still paying off. I’m a borrower and a lender. Have a Sofi loan and do Prosper lending.

        1. I don’t get it. Can you elaborate with some numbers? Compound rate of what? I am excited to hear that you think the market today is cheap. Therefore, I would love to know what numbers you’re using to come up with this believe and how it compares to history. Thanks

          1. It’s extremely simplistic. It jives with history because it uses history.

            Look up the price of S&P in 1977. Use that as your base.

            Look up 1987 S&P price
            Look up 1997 S&P price
            Look up 2007 S&P price
            Look up 2017 S&P price

            Calculate the rate of return from 1977 to 1987 price

            Calculate the rate of return from 1977 to 1997 price

            Calculate the rate or return from 1977 to 2007 price

            Calculate the rate of return from 1977 to 2017

            You will see that the rate of return 1977 to 2017 is lower than the other 10 year indicators . This indicates that it’s currently cheaper than those other years.

            1. Hmm, didn’t realize it was so simple. Shouldn’t earnings and the rate of earnings growth also be factored into the equation to determine whether something is expensive or cheap? What is your background if I may ask.

              How and what are you investing in now?


            2. No earnings in the calculation. It’s just a general gage that I use to determine if market is cheap compared to previous years. The current year is lower than those 10 year indicators. To think that the rate of return will never again hit the previous 10 year indicator levels of those previous years would be foolish. The years from 2000 to 2008 (Bush era which I’m so critical of) was lost years. We are still catching up. Simplistically, this is why I believe market is still cheap. My background is math and tech. I invest in hand pick stocks that I’ve picked over several years (over a decade, maybe around15 to 20 stocks). I own every single FANG stock in portfolio, mostly because of my background. Most or all of them I’ve owned before FANG was even a term.

  14. Mr. Smart Money

    Thanks for this post! Hopefully I can refer back to it if I reach my early retirement goal of 35.
    But what would you say about your 90/10 rule if you are 28 years old? (I currently am)

    I have a few alt. investments I feel bullish on, and I’m contemplating going ‘all in’ with the view that I have time to recover if I royally screw up. :)

    1. Paper Tiger

      MSM, if your goal is to early retire by 35, 7 years from now, alternative investments don’t sound like the right vehicle. If you are thinking you can make a killing with them then I have to believe these must be angel investments in startup or early stage opportunities. I too have dipped into that bucket but I started with that in my 50’s and still waiting for a payoff.

      Your best bet is to continue to save as much as you can and dollar cost average into a well-diversified portfolio of index funds sprinkled with a few REITS. Once you have your number in hand and a little mad money to play with, then you can consider a few small bets that have high risk-high reward.

      I don’t want to sound like the old guy here but the story about the tortoise and the hare really does apply to investing as well and so does the outcome. Slow and steady really does win the race!

    2. What are these alternative investments? Alternative investing isn’t bad, it just sometimes can be misunderstood. I’m all for alternative investments in real estate crowdfunding and venture debt at the moment. I will not angel invest anymore, unless it’s as a favor to just help out a close family member or close friend.

      I left the workforce at 34. At the time, I was about 75% stocks / 25% bonds in my public investment portfolio. The equity portion basically shifted down about 5% a year to where I am now at ~50%.

      But I would work on your X Factor. My X Factor is this site, which fulfilled my Active/Bonus income Blue Sky goals. You will never know unless you try!

      1. Paper Tiger

        Sam, everything you say is true and it does depend on what alternative investments he is talking about. I focused mainly on two things in his message that made me question his strategy. First, he is 28 and wants to early retire by 35. He has dabbled in AI and now he is considering going “all in” because he is young enough to recover if it blows up.

        I think what he is really saying is he doesn’t have a lot of confidence that he can save, invest and accumulate enough in 7 years to hit his goal so he is willing to roll the dice and go for the big score to see if he can make it. From my perspective, that would not be the most prudent way to go about it but to each his own I guess.

        1. Mr. Smart Money

          Thanks for both your comments! I was thinking about liquidating all my equities and shifting it all into rental real estate, I currently own rental property, but could purchase another if I did go all in on real estate. Equities feel a bit overvalued at the moment?

          And no, you don’t sound like the ‘old guy’. It just sounds like wisdom from someone who’s learned over the years. I am always looking to be a student and learn, definitely don’t have it ‘figured out’ by any means!

  15. I was far to conservative for my first year & a half of working – i had all my savings going into money market fund or savings account. I corrected and directed all new cash to a risk appropriate target date fund with 85% stocks.

    Oddly enough i never added the 25k in cash into stocks because i was to afraid of an immediate dip. If i could mentally handle investing all new cash into an aggressive allocation i should have been able to handle investing a lump sum. I forgot about it for another year and then in early 2016 when we had the 15% quick correction i invested the lump sum.

    I got lucky and was able to make up some of my lost opportunity because that money that was invested during the downturn ended up generating 20+% returns over the past year and half.

  16. Great post and analysis. Most people think the hard work is all in the accumulation phase. The more I read and research, the more I am learning that the hard part is when you reach FIRE. As you stated, this is when emotions are high. People are unsure about how conservative or aggressive their portfolio should be. They don’t want to miss out on opportunities as well as being too aggressive and landing back in the workforce. They are also unsure of what the their withdrawal rate should be. Talking to someone might be the best bet to get a second opinion during the draw down period.

  17. FS, totally feeling you on reluctance to take on greater risk as you move further from your old worklife. I’m in my fifth year of retirement now, and still backing-and-filling on ‘risk-management’. You may recall my portfolio being 90% in Fixed Income. To answer your excellent question in the post, ‘have you made any mistakes?’, the answer is ‘yes!’

    My biggest mistake, in hindsight, turns out to be not assuming enough risk. If I had put more than 10% to work in Equities, I could have enjoyed the 1,000+ point runup in the S&P500 (40%) since. I was just too gunshy after two brutal bears.

    1. At least Fixed Income has done fantastically well, and you’ve been able to sleep well at night! I wish I actually put all my CD money 10-20 years ago into municipal bonds and specialty REITs.

      But the past is the past! We just can’t get too ahead of ourselves (Lesson #2).

  18. Mr. Freaky Frugal

    I haven’t made any serious investing mistakes since I FIREd in 2012. Of course if I had a crystal ball, I would have invested more money in stocks. :)

    Mostly I just feel lucky because of this long-run bull market. I could have been screwed by the Sequence of Returns risk early in retirement.

  19. Sam, I read your page on recommended networth allocation by age and work experience and compared my numbers to what you recommend. Based on your quote above, I consider myself a moderate risk investor but still may be too conservative based on the comments that I see on this post. Would be interested in some feedback.

    Of an approximately $3M Networth … I’m currently 35% Stocks, 27% Bonds, 18% Real Estate (Paid off Home, no other Real Estate…so I guess I’m really real estate neutral), 19% MMarket and remainder in Alternative Stock Investments (i.e., REIT’s).

    I’m 54, with a desire to retire to what I want to do when I want to do it in 1 to 2 years and not sure how long this bull is going to run so I have kept a good chunk in cash to ride the correction. If a correction/recession does so happen within the next couple of years, I still want to retire and not feel the need to stay on the job and have some cash to live on to ride out the downturn and invest when there is a sale.

    So I guess I’m in line with your statement?:

    “Invest 90% of your capital as if your life depends on it, because it does. For the remaining 10%, invest as if you were a 28 year old whipper snapper with nothing to lose.”


    1. If you actually want to retire in 1-2 years, and would absolutely hate to have to work longer than 2 years at the age of 54, then I see no problems with being conservative. I just don’t know what your annual expenses are or your alternative income generating abilities once in retirement e.g. part-time consulting for an extra $10,000 a year etc.

      For me, I really, REALLY didn’t want to go back to working in finance, despite the relatively high salary. Therefore, I need to preserve capital, stay conservative, and lock down expenses.

      My last piece of advice is appropriate for you. Why take excessive risks if you’re almost there?

      And just beware, whenever I write about investing on FS, there will be a tendency for people to come on and share how great their investments have performed. It’s just a human tendency to talk about our winners, and sweep our losers or suboptimal investment decisions under the rug. I’m trying to address both sides because I’ve seen the good and the BAD these past 20 years and I’d hate for people to not realize the RISK side of investing.

      1. Sam, thanks for the quick response. I’m a long time user of Quicken (since 1988, lots of history) and the last couple of years using PersonalCapital to track finances. My base living expenses annually are $45K and I have added ~$25K on top of that for health care throughout my retirement years (estimate through age 90). To answer the expense question, total ~$70K. I do plan to bring in ~$10-$20K annually doing IT System Consulting and/or Home Remodeling/Cabinet Building work. I guess I’m in wealth preservation mode rather than wealth accumulation at this stage in my wife and I’s lives. Appreciate your insights!

      2. New Father Finance

        I agree. At some point, most investors should change their mindset from investing to achieve the most gains to investing to ensure the income you need to live a happy life. If you know you’ll be happy with a hypothetical $50,000 a year from a $2M portfolio, why would you put your $2M at risk to get a $4M portfolio? You may miss out on some of the upside, but you’ll also avoid the inevitable downside. And with how overpriced many asset classes are today, you may be happy you did.

        1. It’s just greed. We all have it, especially when times are good. A $4M portfolio could yield $100,000 a year, and retirement life could be so much better! :)

          It never ends, and the more you compare yourself with people with more, the more you want more and the unhappier you’ll get.

          I have found the people need LESS in retirement to be happy. About 30% less than what they thought.

  20. Thanks for the post, Sam! I was almost 100% in stocks for the first 2-3 years of my career, but not that I’m hoping to retire in about six years (and since market valuations keep going up), I’ve started investing new money in bonds, and I have about a 5% bond allocation now. I also have about 15% in alternatives like Yieldstreet, Fundrise, and a couple REITs. Not a big allocation, but enough negative correlation to make me comfortable that my retirement dream is alive and well. If I didn’t have a few safer investments, I think I would tend to pick “safe” stocks (or those that were perceived as safe), which would probably make me underperform the market.

    What I liked best about your post is the reminder to not get too conservative. Like you said, even if I can live off of 4% of my portfolio, if I’m choosing investments that only return 4%, I’m not investing well if I could be earning 5% from a better allocation.

  21. What would you do right now with the RE market booming, Stock Market at all time highs, bonds have no where to go but down in the long term.

    I have too large of a pile of cash gaining 1% in an online savings account, not sure what to do here…

    1. Hi Mike

      I would take a third of your cash and do four equal installments in a real estate crowdfunding company over a 12 month period. With the second third of your money I would do the exact same thing over the same time period into a vanguard total market index fund. With remaining money I would do the same thing except with muni bonds yielding at least 3 percent.

      You would than lock in the same amount of earnings your currently receiving as well as give you a chance for growth as long as you have at least a moderate time horizon. All of this is accomplished in a very conservative manner just as your currently sitting.

      My 2 cents, Bill

  22. Great lessons. I think you’ve done really well. It’s good to be more conservative with that kind of net worth. You don’t need outsized return anymore. We’re still 80/20 with our stock/bond allocation. May need to go a bit more conservative soon.

    Also, life happens. You need to be able to take the time off to enjoy being a SAHD. You don’t have to be 100% optimal all the time. Have fun with the baby. :)

  23. Adam and Jane


    Thank goodness we did not make too many mistakes but we may be your MOST financially conservative readers. We have NO money in the stock market.

    1. Lost some money during the 2000-2001 tech bubble in my 401K so I moved all money into fixed 4-6% investments since. Lost opportunity to leave money in the market to recover and to make a lot more gains.
    2. Listened to a financial advisor to invest 100K in muni bond fund and 100K in a wealth mgmt fund. In less than a year I lost 9K. In a panic, I cashed out but I could have recover if I just left it alone. I panic too easily.

    Current expenses: 55-60K
    Current ages 52/52

    Current yearly investments/incomes:
    1. 87K from tax free municipal bonds
    2. 79K from combined 401Ks with fixed interest investments
    3. 52K from wife’s pension
    4. 8K from company for wife’s healthcare
    5. 70K for my future pension when I reach 55 at work in 2.2 years
    Or 37K for my future pension at 55 if I quit my job now.
    6. 8K from company for my healthcare only if I make it to 55 at work.
    7. Have 7-8 years of living expenses in savings
    8. 36K combined for Social Security at age 62.

    For us, there is no need to take any risk. We have/will have passive incomes over 3x expenses without reducing principle. I am trying to grind out 2.2 more years of working to reach age 55 to double my pension and to get 8K yearly for healthcare. I work from home doing 10-20 hours a week.


    1. Adam and Jane,

      You are rocking the house with a solid foundation of income in retirement with plenty of cash in hand. Given your cash flow situation, I’d be investing all of that but do whatever you need to do to sleep well at night. Well done!


      1. Adam and Jane

        Mike H,

        Thanks! We be ULTRA conservative and need our sleep at this age. I agree with you on investing some extra cash. I was thinking of buying 300K of more 4% muni bonds to generate another 12K for total of 100K of tax free passive income BUT I was hoping the wife would give permission to buy a condo in Hawaii one day. She said NO buying and to just rent. :(. This is why I am just sitting on the cash and it also provides financial security.


  24. Brad-

    I think we reached maximum thread depth on the comments because I can’t reply to your latest. Trying again down here to see if this works… :)

    “It is interesting you fear running out of money as the reason for investing more aggressively.”

    Fear really wasn’t the right word. Concern perhaps. Running out of money is a larger concern than short-term market swings.

    I’ve had two grandparents live past their 100th birthdays. I know that if I get 4% returns, like you were targeting, my money wouldn’t last. So the way I’m invested now makes the most sense. It scores about 90% on a Monte Carlo simulation. I’d love to get it to 95% with some additional income ideas I’m working on. Most financial planners consider better than 80% good enough but I’m a bit more conservative than that.

    BTW, my wife and I did discuss throwing in some bonds. Even she – who hates the topic of investing and is more conservative – said she didn’t like the idea. That cash buffer gives us peace of mind.

  25. Interesting post, we have never taken the 4% SWR as our target, but also never looked at it in the way of ‘being stuck with a “4% mentality.’ We have a strong focus on automated cash flow and hope to build it up when we move forward.

    Still a long way to go and only been investing for 3 years now. Quite the risk appetite since we’re young, so 100% in individual stocks (paying dividends) and in a few months we will add real estate to the mix (leveraged for around 67%).

  26. I just looked at my draw down strategy retiring at age 48. I figure I need $70K pre-tax and that has to get me through age 59.5 when I can start drawing down on my 401k. That being said, I think I would stay aggressive with stocks. This is mainly due to the fact that I have a pension coming at age 65 if I work 10 years and am vested. That pension income provides a strong support base, much like bonds or even a money market account as it does not adjust with inflation, and will provide at least 50-70% of my retirement income. Through social security in the mix at $2 to 3k a month depending when I take it and I am really safe.

    1. It may be you don’t want to count on this, but as a worst case scenario know that you can draw down your 401k before 59.5 if you needed to without paying the 10% penalty (just pay ordinary income tax on withdrawals). Look into the IRS’ SEEP option (substantially equal periodic payments).


    It could kick myself for all the opportunities I missed out on in my 20’s. I was so risk averse, I just saved cash. No investing (except my 401K), no real estate, just cash. Had I invested in stocks and/or real estate, I would be years closer to early retirement. Lesson learned I guess. For all you guys out there still in your 20’s, invest away! Don’t hoard cash like I did.

  28. I’ve probably done the opposite with our investments! I studied and tried to pick the “winner” stocks that I thought would beat the S&P 500. I did well my first year of this (2012) beating the market handily but 2013-2017 have been a disaster. I’ve lagged the market by 2-10% per year in returns. Overall we are probably 3-5% CAGR under the S&P average for the last 5 years.

    However I learned my lesson and invest only in index funds now. Even if I had the time to do more research, it’s still very difficult to beat the market. I agree totally with not being too conservative but being too aggressive can hurt too. I still have the original stocks I bought but they are less than 25% of our portfolio now (and shrinking with new contributions). Hopefully they will perform in the coming years and prove me wrong but for now (and the foreseeable future) I’m sticking to index funds.

  29. Great lessons learned. Taking on that much leverage would make me extremely nervous, but then again I am not buying in SF. We have a currently have very low allocation to real estate. We are considering selling some stock and adding some physical real estate to the portfolio. Paying all cash seems like not the best use of capital, but adding leverage in my early retirement is undesirable. Any thoughts on the optimal debt to equity for the early retiree?

  30. Too little risk… the story of my public market investing life.

    Also panic sold a Hoboken condo during the crisis. Lost about $100k and when I look at what it sells for today… FML

    The only reason I am in a good position today is having a decent ability to make money in business and lucked out with the exit of a company I cofounded.

    My investment strategy now mirrors Sam’s concluding line (largely because I consulted with him)… invested relatively conservatively (but with 50% stocks) for most of my nest egg, with a sliver in angel/vc/crypto.

    1. Eric! Always good to hear from you man. You and I are very much alike. You selling during the crisis is like me buying a year before the crisis. Two sides of the same coin.

      I hope the new stage in your life is treating you well!

    2. Trying to get ahead

      Eric, I also sold a Hoboken condo in 2013. Got 850k. Now it’s worth $1.4mm. FML. I want to scream every time I see Zillow email updates and recent sales in the building. The crazy thing is that, looking back, I could have easily afforded to double down back then and be 1mm ahead today, after 4 short years, but I didn’t have the nerve to take out more debt. Now I feel like I missed the boat. This is a serious issue that I think of frequently. Now, I want to get back in bc of reurbanization of retirees and millenials, but fear we are in bubble territory. The waterfront properties are way out of control. Are you considering buying back in Hoboken and, if so, will you wait out 1-2 years to see if prices fall? I would love to get your insight.

      1. Hey man. No plan to buy anytime soon. Currently live in the burbs (Bergen County). Much as I’d love to buy for today and future use I agree. Prices are just so high. I’m just being patient.

        By the way my old condo was in the South Constitution bldg. Right on the water. Great except for when it floods :)

        BTW Sam, you were right. So much opportunity came my way the instant I announced my exit from company. I’m busier than ever.

  31. Investing can be a big challenge. Even though there are always new opportunities, it’s impossible to time entries perfectly or to be able to find all the golden eggs. Legging in multiple tranches over six months is good advice and gives oneself extra time to compare and review your investment decisions with your thesis. Nobody can get things perfectly. Investing is a continual learning experience. You’ve come a long way and should be proud!

  32. Thank you for sharing these amazing lessons, Sam! It’s definitely not easy to admit that we made mistakes and then share them with the world. Mr. FAF and I will keep your advice in mind when we manage our investment portfolio! :)

  33. Brad -

    Only targeting a 4% return because you can live off 4% of your investments is a dangerous but common error I see. It ignores inflation which can eat up a ton of purchasing power over an extended timeline. If you want to live off 4% you probably need at least 7% annual returns to be safe.

    I’m early retired BTW and 100% invested in stocks. I do hold three years of living expenses in cash to ride out any market corrections. I might consider what PoF said though and put most of that cash into bonds (munis) to earn 2-3% rather than the 1.15% I get on savings right now. It’s something I’m considering but am not rushed to change right away.

    1. You’re right. It’s twisted and sad that even if the 4% produces $400,000 a year in returns, it is not enough if it could be making $1,000,000 a year, for example. Everything is relative in finance!

      Being complacent and happy with what you have in retirement is nice, but it is definitely a sub optimal financial move in a bull market.

      If you are 100% invested in stocks, what is your net worth asset allocation by percentage? Did you retire early as well? If so, I’d love to get your views on how you were able to convince yourself to take on extra risk. What is your estimated net worth now if you are willing to share?

      Btw, to clarify, I beat my 4% return goal during those years thanks to the stock market and bond market doing much better than expected. But my blended portfolio did underperform the S&P 500 each of those years by several percentage points.


      1. Brad -

        Yes, I retired early. I decided in 2014 to sell my company and move into early-retirement mode. The exit from that was enough to push me into the comfortable range.

        My net worth is right around $3 million. The breakdown is $2.2 stocks, $400k house, $100k RV, $300k cash.

        The way I’m able to keep my sanity with 100% in stocks is knowing that the average market correction lasts 18 months. Having three+ years of cash to live off gives me a lot of buffer if (when) the market heads south. Each year right now I draw a year’s worth of living expenses (about 3.5%) in May. When the market corrects I’ll pause withdraws and spend down the cash. Might also tighten the budget a bit. When the bounce-back starts, then I’ll replenish the cash. (I plan a blog post explaining this in the coming weeks.)

        You would probably enjoy reading Simple Wealth Inevitable Wealth. It’s by well-respected advisor Nick Murray. I based a good bit of my alignment and risk profile on his research and planning thoughts.

        100% stocks isn’t for everyone though. Someone who sold during any of the recent corrections may want to hold some bonds or CDs. I sat tight through the dot-com bust and the “great recession”. Of course I was still earning an income then so it might be a little harder next time, but the cash will help me through it. :)

        1. Got it. Well done!

          Do you think your investing habits would change if you had a higher net worth e.g. $5M, $10M, $25M, etc? I found myself getting more more conservative the higher my net worth has gone, especially once it past my target number.

          Or do you find that you might as well take maximum risk once you have surpassed your number because you have such a buffer?

          For some reason, I just can’t get myself to go Max all in because I’m so fearful of having to go back to work and missing out on spending time with my family .

          1. Brad -

            Thanks :)

            That’s a great question. I’d like to say that I’d hold to the same plan I have now. That said, psychology can be a funny thing. Hard to know for sure what would happen until I was in that spot.

            Truth be told, but biggest fear isn’t that the whole market will go south and stay there. If that happens I think nationally we’ll have a LOT of issues to deal with besides the market. But my “fear” is running out of money some day. Because of that I need to stay aggressive with my investing.

            People think of risk as downturns in market values. In reality the biggest risk to most people is outliving their money. To balance short-term swings they go conservative with their investments, and that costs them long-term.

            So I’m “risk averse” but my risk aversion is against outliving money, not smoothing volatility.

            Again though, it isn’t for everyone so don’t take this as an endorsement. Just what works for me (and historical performance shows is best).

            1. I guess time will tell.

              It is interesting you fear running out of money as the reason for investing more aggressively. Could it mean that you retired with not enough money to begin with? I know I remember feeling the way you do when I was in my late 20s up to about 32.

              I no longer feel this way, perhaps mainly because I figured out how to make money outside of my investments. I’ve reinvested 100% of the dividends and have not touched principal since leaving work in 2012z

              My only insight for you is that it didn’t get easier losing money the higher the net worth. It started getting more painful. But that’s just me.

            2. Like Brad, I’m almost 100% in stocks. I hold much less cash but the dividends are gravy above my expenses.

              Uncle Sam (the government one) will really love me when I begin taking RMDs and paying taxes on them!

    2. Paper Tiger

      Hey Brad, for what it’s worth, you can now find 36 month CDs at 2.0%. Just Google best 3 year CD rates and several pop up. I just renewed one for my Mom.

  34. Agree. See what I wrote after Lesson #1.

    “After seeing Blue Sky income growth, I realized that my base income assumption of $78,000 – $117,600 a year in retirement had been too conservative. Thus, I decided to do a 180 and aggressively leverage up. Specifically, I took on a $1 million mortgage to buy a $1.24M fixer upper in Golden Gate Heights while already carrying a $1 million mortgage for my primary residence.

    Think about how egregious this move was from a risk management perspective. What I did was akin to buying $1.24M of one stock on $1M margin. If the stock went down 20%, I’d be wiped out. I suddenly believed I was some invincible hot shot who couldn’t miss. Yet I had no job, just a feeling that my online business would stay at an elevated level.

    The last time I made such a move was back in 2007. Not only did I lose all my vacation property equity a couple years later, but I also suffered through a 50% income haircut as company bonuses were slashed. It’s funny how after a long enough period passes, we dismiss our mistakes.

    With this new home purchase in 2014, I figured I could make up for my underperformance the previous three years by taking on leveraged single asset exposure risk, while already having three other properties in the SF Bay Area.

    It was only through luck, some self-published propaganda, and a bit of foresight that Golden Gate Heights and the western portion of San Francisco turned out to be a region in high demand three years later.”

  35. Wall Street Physician

    Taking too much or too little risk is a pretty common investing error. It’s also common for investors to swing back and forth between asset allocations based on what’s doing well or not. I agree that if investors feel like they can’t stick to an investing plan, then they should consider a roboadvisor or (fee-only) financial advisor.

    1. Thank you for your insights. What type of errors do you think you’ve made in your interesting career? If you could do it over again, would you have gone straight to medical school and become a doctor? It seems like there is a huge movement of doctors who want to get out of being a doctor. But maybe it’s just because Tom, the poster is a doctor, and he is attracting other doctors to read this post.

  36. Physician on FIRE

    Not quite retired yet, but soon to be a part-time doc. Being about your age, I could be looking at a 50+ year retirement, so I plan to be fairly heavily invested in stocks. Not quite 100% like some FIRE bloggers are, but at least 80%. I like the idea of having 5 years in expenses invested in bonds and the rest in stocks and real estate.

    I’ve got an appointment to look at a big chunk of lakefront property this morning, and I’m told an offer was made on it yesterday. Fortunately, we’re in the position to make a cash offer if we want to pull the trigger, which may give us a leg up on the other interested party.


      1. Physician on FIRE

        Thanks, Triple D.

        We bought the land! Purchase agreement in place, anyway. The only building(s) on the property need to be torn down, but it was a great buy.

        See you & the RV in due time.

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