Defending your Position

I think this may be something that most people don't really talk about.
It's always been the same story most of the time.
Work hard, save more, invest, then plan for early retirement...
And somehow, it always stops there.
It's like... the answer magically appears after early retirement and all our problems are settled.
That's hardly the case. It's pretty much the beginning of the next journey.

Most of the time we know how much we need to spend every month, we multiply it by 12, input some rate of return we are expecting for X number of years and we get the magic number... the AUM required to retire.
And usually people inflate this by 50% or more as a margin for error so that they have a buffer, just in case they calculated wrongly.
So when it comes the time to retire, they have maybe 2x the magic number, which is great.

But... the thing is... even with 2x of the magic number, the insecurity will persist.
Most of us are not used to living with passive/investment income.
We work and we get a monthly salary, we are used to having income monthly and this regular flow of cash gives us the security we are used to.
And to retire comfortably, we need to get used to this.
Most of us aren't talking about retiring with $10m AUM.
We're usually usually talking about $1m or maybe even less. So the insecurity will be there.

So how do we defend our position?
When it's time to let go and move on, retire or semi retire, how can we make sure that our money will last forever.
​This is why in my previous post, I decided to pay up my HDB loan even though it was not due yet.
IF my house is truly paid up, cos currently I have the funds but it has not been really paid up, and my car and other loans are cleared, maybe some insurance policies can be pre-paid...
Then I can have better control over what I need to retire without any mental baggage.

Let's say I have $100,000 left in my loan to clear my mortgage.
But instead of clearing my mortgage, I decide to invest this $100,000...
2 years later, the market crashes due to whatever reason and I am left with $50,000...
This is a HUGE stress. Even though I may have confidence that the market will recover, I may not be sure how long it will take.
So from a position that I am able to clear my debts, in 2 years time, I may be in a position where I am unable to settle my debts and retire without any mental baggage.

This is what I mean by defending your position.
I'm sure none of us want to be in the position where we thought we are happily retired, but then suddenly due to market movements, we are put in a position that the numbers don't work out anymore, and if we use those numbers and multiply by our expected rate of return, suddenly we realize we actually aren't able to "retire", but yet we've been jobless for 2 years already.
This kinda situation is sure to suck.

So for example, for me, I believe it is more important to have $250,000 in AUM with no loan, compared to having $500,000 in AUM with a $250,000 loan.
Cos if the market crashes 50%, I'll still have $125,000...
Whereas in the other case, if the market crashes, I'm pretty screwed cos I still have a loan to settle and my net position will be ZERO!!!

​I'm 37 this year. Based on average lifespan, I probably have around 50 years more to go...
The probability that during this 50 years... or even the next 30 years...
The probability that there will be a market crash of at least 50% is pretty much... 100%.
So of course for me, I want to defend my position.
Cos to me, I feel that I already have enough to retire. I'm not trying to maximize returns.
More returns is always great, but for me, it's more important to defend what I already have.
To maximize returns at the risk of ending up un-retired... is pointless. Cos for me, I am already very happy with what I have, my expenses are low and I have everything I need.

So I'm ok to sit on low returns of 2% sometimes, especially when the market is volatile or in late cycle.
It's OK. At this point in my game, I'm not willing to be sitting on 50% losses.
I'd rather buy after a crash or early recovery and have a higher chance of 30-50% gains with low chances of losses.
But yes, I may be missing out on a number of years of good returns. But at this point, I'm not willing to take the risk of halving my AUM.

And so that's the thing. Most of the time we talk about earning more, better returns, etc... but there comes the next question... do you really need those extra returns? What if those extra returns comes with the risks of delaying or derailing your retirement plans? Is it worth it?

So to me, it's ok to kiasi and hold cash and miss out years of good returns as long as it's within your plans and you think that it's all part of the bigger picture. Don't be bothered about missing out on those returns that other people are bragging about, cos their plans aren't going to be the same as yours.
And based on circumstances, defence is a good strategy.


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