BiggerPockets Money Podcast - Testing Your Portfolio BEFORE Retirement with Millennial Revolution

Episode Date: January 15, 2019

A little over halfway into BiggerPockets Money Podcast episode 55, Bryce dropped a bombshell: “We had three years of runway before we actually pulled the trigger.” What he meant is that they tested their portfolio for three years before quitting... Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets Money podcast, bonus episode number 55 and a half. We bring back Millennial Revolution to talk about how they tested their portfolio before retiring. Basically, when we were three years out for retirement, we had to start to build the portfolio as if we retired. So 60% equity, 40% fixed income portfolio is kind of our balanced, but slightly aggressive portfolio that we built. And it's been good for us while we were working and it's still been working for us while we've been retired. It's time for a new American dream, one that doesn't involve working in a cubicle for 40 years, barely scraping by.

Whether you're looking to get your financial house in order, invest the money you already have, or discover new paths for wealth creation. You're in the right place. This show is for anyone who has money or wants more. This is the Bigger Pockets Money Podcast. How's it going, everybody? I'm Scott Trench, and I'm here with my co-host, Ms. Minnie Jensen. How you doing today, Mindy?

Yeah, I'm doing great. It is a beautiful day, and I am super excited for this episode because I hear from a lot of people, and I actually have this own experience with my husband when he was getting ready to retire, that they're not sure they have enough money to quit once they get to their FI number. They suffer from one more year syndrome where they just keep working for one more year. And at the end of that year, they keep working for one more year and on and on. But Christy and Bryce were able to test their early retirement theory for three years before pulling the trigger, which gave them the confidence to actually go through with it.

Yeah, I mean, I think that that's a big problem for me and how if you're a kind of person who thinks like me, where, hey, I've got to figure out how to maximize the returns, maximize the efficiency of my portfolio, right? Well, what they're saying basically is let's cut back. Let's move into that conservative portfolio that's different. It's a different allocation, right, than what you're going to have when you are in wealth accumulation mode. When you're attempting to build up to early retirement, you've got to build a different portfolio to sustain the income in a conservative way. for perpetual early retirement, right? And that's a big shift. And I love how they went for it.

They went ahead and did that several years in advance of them actually retiring so that they would have the confidence mentally to pull the trigger and actually go live the life of their dreams. So I think that this will be a really thought-provoking talk for a lot of you who are interested in the numbers and how those numbers then tie to your actual mental ability to leave your job and go and live this early financial freedom or retirement, early retirement life.

Yeah, you know, yesterday, Christy said something that was really kind of profound. She said, you think it's going to be so easy quitting your job, but it's not. That's your whole identity. That's your, you know, the thing that's giving you all this money. That's your source of income. And you're just getting ready to leave. And I really love how they go through everything and show exactly how they were able to pull the trigger with confidence, like you said.

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Okay, Christy and Bryce, around minute 40 of yesterday's show, Scott asked Bryce about the makeup of his portfolio. Your portfolio look in the year or period leading up to you quitting your job. Did you design that portfolio after you quit? Or was that something that you tweaked and fine-tuned and started receiving income from prior to putting in your notice? And Bryce responded, we had three years of runway before we actually pulled the trigger. I set up a portfolio and then I tweaked it every year so I could tell that it worked.

But then Bryce jumped into the concept of geographic arbitrage and we never really got back to this conversation. Scott and I decided that we wanted to bring Bryce and Christy back to discuss more about the portfolio makeup because I think it's really important for your mental health to be completely fine quitting. And I think this can really kind of help people. So Bryce and Christy, thank you so much for coming back to the show and talking more about your portfolio. Let's dive right in. You said that you created your portfolio initially 6040. Can you start talking about that?

What was 60? what was 40 and why did you choose that particular makeup? Sure. So traditional retirement planning suggests that you would have when you're young because you have such a long time frame that you'd be very heavily towards equity. So like when you're in 20s, you should be like, you know, 100. I think it's like your age is like your amount of the bonds that should be in your portfolio. Yeah, something like that.

So when you're when you're in your 20s, you're 80, 20 and then when you're in your 60s or 46 or something like that. So what that naturally does is that when your time frame is very, very long away, you're very heavily into equity. So your portfolio is very volatile, but because you're still building the portfolio and you don't need the money, you don't care so much about that. But when you get closer to your retirement age 60, 65 or something like that, it becomes much more conservative. So that's how traditional retirement planning works. That kind of breaks down for, as you know, for early retirees because our retirement age is not based off of our age. but by how much money we have. So just like in traditional retirement planning, if you calculate

how long you're away from retirement, you're 15 years away or whatever, you should be very heavily weighted towards equities. But as you get closer and closer and closer to your retirement age, and for us, it was in our 30s, you should be really moving towards a more balanced portfolio. But on the other hand, there is the assumptions that FireCalc has, which, you know, FireCalc is the simulations that were used to create the 4% rule. That the 4% rule, meaning the statement that if you only withdraw 4% of your starting retirement portfolio, you have a 95% chance of not running out of money in 30 years. But that retirement calculator assumes that you have a majority, at least a majority of your assets and equities. If you ever really go below 50% equities, then what you're

doing is not what FireCal was modeling. So the 95% rule and all that kind of stuff doesn't apply to you. So you have to keep at least a majority of your assets towards equities. So if we knew about retirement, early retirement in our 20s, we would have started off like 80, 20 or 75, 25, 25, 75, fixed income. And then as we got closer and closer and closer, gradually moved towards more balanced position like 60 equities, 40% fixed income. But because we really only discovered money mustache and the early retirement community. Basically, when we were three years out for retirement, we had to start to build the portfolio as if we retired. So 60% equity, 40% fixed income portfolio is kind of our balanced, but slightly aggressive portfolio that we built. And it's been good for us while we were working

and it's still been working for us while we've been retired. How did you know, you said you had three years of financial runway where you actually pulled the trigger. I took that to mean you had three years of viewing this portfolio before you actually quit your job. Did you know that you wanted to watch it for three years before you quit? Or did you have a date in mind for quitting? How did you? How did you do that? The three years was based on the fact that we wanted to retire once we had a million, which is based on the 4% rule, which is 40,000, which was approximately how much we were living at on at the time. So the three years was actually based on our estimates for how long it would take us to become financially independent and therefore could actually retire and quit

our jobs. It also happened that because it was such a short runway and we built a 6040 portfolio, like you said, when Carl was about to quit his job, it was pretty terrifying. So for us, because we were actually quite close to it and we had built a portfolio with that in mind that we were going to be quitting in three years, we had the advantage of also being able to, you know, see this portfolio and see that it's not super volatile within the short amount of time that we had before we actually pulled the trigger. So it's kind of twofold to answer your question. Okay. And yesterday, Braves, you said that you would tweak it every year. Yeah. How did you decide when to tweak the configuration? Was it just annually on the anniversary?

Or did you pay attention to it throughout the year and say, oh, it's not doing what I want? Because I think that that's a big, like, up in the air, too. Oh, well, I'm all in equities. when should I transfer to bonds or a fixed income? I do it. I mean, like the research suggests that doing it more than once or twice a year doesn't really help and in fact makes it worse because transaction fees and the desire to tweak kind of makes the portfolio worse. There's a statistic that Jim brought out in his presentation to talk about that, that it was,

I think it was Fidelity ran a survey among all of the investors that were working, that all the portfolios that they had and all the investors that they had, And the single group of people that did the best during that time period of these studies was dead people. And the second group of people that did the best was people who forgot that they had an account. And the reason for that is that there's this weird statistics that it's like, here's how the equity market is doing. Here's how equity investors are doing. There's always this gap because there are people who try to dance in and out of the market that try to read the news about Trump and try to read the news about. the Federal Reserve and try to go, oh, okay, I think this is going to happen.

I think that that's going to happen. And then they try to mess around with stuff because that's what people do. They try to mess with stuff when news is exciting as it always is. And as a result, that's what caused people to vastly underperform. And that's why dead people and people who forgot they have an account do much better because they actually track the performance of the index rather than people who try to dancing out of it. So the research has shown that the less you mess about with your portfolio, the better

because you end up getting that seven to 12. 12% like, you know, annual growth that the equity markets get you over the long period of time. But at the same time, if you have a balanced portfolio, you do want to rebalance from time to time. So when things are going well, for example, equities are soaring and that's going to cause as a percentage of your portfolio. If you start with 6040, when equity markets are soaring, you're eventually going to see a situation like equity markets are 65% in a portfolio and bonds are 35 or something like that because equities are growing fast than bonds. What rebalancing does is it cause you to go, okay, my intention was to go 6040,

so that means that you sell 5% of equities and then buy 5% of bonds. Conversely, when markets are plummeting, bonds are going to be growing while equities are dropping. So in the 6040, if you have like a 2008 situation, like the one that we live through, you would see bonds actually go up as a percentage of portfolio while equity would go down. So you might get into a situation where you went from 6040 to 45-55, which would cause you to kind of go, okay, I'm off target. I'm going to sell 5% of bonds and buy 5% of equities. And what this really clever system does is it forces you to always sell stuff that's gone up and buy stuff that's gone down, right? That's the key to good investing. Relatively. Yeah, exactly, relatively. So buy low, sell high. That's the entire point of investing.

And the thing is, most investors do the exact opposite. When things are going up like a year ago, when the equity market, Bitcoin is going up to like $20,000, people are like, buy, buy, buy, buy, buy. Now, when stock markets are plummeting, everyone's kind of going to sell, sell, sell, sell, sell. They're buying high and selling low. That's the exact opposite of what you're supposed to do as a successful investor. So what are we balancing does is the force you do the right thing. But we only tip it to, so to answer your original question, a long-winded way, we typically

only do it once a year. I tend to do it January 5th. So after New Year's and after my hangover has worn off, that's kind of where I choose to do it. Jim has a really clever way of doing it. He does it on Jane's, Jane is Jim Collins' wife. He does it on her birthday. So as a result, that's always once a year, but it's on like a random day because there are kind of effects that everyone does it around that I didn't think about, which is if everyone does it around January, you have these like weird Santa Claus rallies and October like October selloffs and this kind of thing. So all these seasonal things that happen when people are, you know, there's an interesting effect that during the summer when a lot of Wall Street guys go off on vacation, trading volume

is very low. So you get more volatility. And in September for some reason, or October, for some reason, bad things happen. And I guess it's maybe it's because it's like Halloween or whatever and people are feeling spooked out and like whatever. So October is, I don't know why. I don't know why. But for whatever reason, October has been a historically bad month for stocks. And then in December, there's like a Santa Claus rally that kind of happens because people are feeling in a good mood. So there's these seasonal kind of things that I now realize could affect you. But you want to do it once a year.

And when you do it, you know, your birthday, your spouse's birthday, that's actually a good way of doing it. I may start doing it like that from now on. So if I'm, if I'm listening to this show, right, And what this is really kind of geared toward is, is I'm thinking, hey, I'm, I'm a few years out from technically being able to achieve financial independence, right? And I am investing, because I'm young, in a portfolio that is super heavily, that's super aggressive, heavily weighted towards stocks, right? What the challenge, I think that's going through my head, if I'm in that position, is if I move to a 6040 portfolio, which is capable of sustaining my retirement and giving a higher

distribution. I'm foregoing some of those returns I could be getting in the next three years and potentially reducing the total amount of wealth I have at those three years when I go and attempt to actually pull the trigger and quit, right? So what I think is interesting is the fact that you went ahead and did the 6040 portfolio ahead of time to get comfortable with the distributions of that portfolio. And how did that affect your decision mentally? Do you think that that's a very critical part of the decision mentally to actually pull the trigger? You know, that's a pretty interesting thing. The psychology of looking at your portfolio when you are in accumulation phase is very different

from when you're looking in retirement phase because your portfolio is doing two very different things. When you are still working, you want to get as much money as possible. You want your stocks to go up. You want to pick the right ETFs. You want to do all that kind of stuff and get as much money as possible so that it's the maximum amount the moment you hit your retirement date, bam. And then you go, now I'm a millionaire.

they're ha ha ha, ha, fuck you boss, you know, and that kind of stuff. But when you're in retirement, you actually don't care about volatility. Like in the past couple months in which I haven't even been paying attention to the news. Trump's been saying, bah, and I don't even know what he's been saying, but it probably sound like that, bah. And I know stock markets have been gyrating, and my overall portfolio has dropped probably, or our overall portfolio has dropped probably. I'd say less than 5%.

probably less than 5%. But that's still like $50,000, $70,000 or something like that. And I just don't care because I'm just looking at it and being like, what's it yielding? Yeah. Like what's it yielding? What's it paying me? How much cash is it generating? I literally don't care about the top line up and down and up and down and up and down number

because all I care about is how much income is generating me, plus which is what I called last show, the yield shield. Plus what is in my cash cushion, if that's good. enough for next year and they're good enough for the next three years, I'm good. I literally don't care. So it's a very different mindset because when you are accumulating and when you're working and you're putting money to the stock money, you really care about when the Dow goes up 200 points or goes down 800 points. But when you're retired, you're not looking at that. You're looking at the yield. So it's actually a very, very, very different game. Like I've literally

been kind of seeing, we've seen like two 10% corrections. We were at the last Chautauqua and people were talking about like, I lost $100,000 and I literally kind of said, I haven't even looked at it. I literally don't care. I'm just, all I'm watching is what the cash is being generated. So it was a very interesting transition going from looking at the total portfolio value number and seeing go up and down and freaking out over the Dow versus just seeing the income come in. I'm just kind of ignore all of that. Let me see the income statement. And that's literally all I care about. And is that what you, because again, the big challenge is accumulating a billion dollar portfolio, right? That's the slog and the grind that we go through and optimize for years,

right? But then the second big challenge here, the goal that we're trying to produce when we're going toward financial freedom is actually leaving your job, actually foregoing that income source that you've been dependent on for all this time. And that, I think, is what Alex, designing your portfolio like you did three years in advance and seeing the results pull in for that time is all about. And so the point I'm trying to make is I think if you're, if you are setting, hey, I want to actually pull the trigger, then the mental exercise is saying I know that I could technically have a higher probability of producing greater returns over the next three years if I invest all in equity, 100%.

But I need to get my head around the fact that I'm going to be spending the money in my portfolio is generating and using that to fund my lifestyle and seeing that tangibly helps you actually, as you so eloquently said it, tell your boss to go fucking self, right? So I think that that's what I'm trying to get at here. Is that helpful? Yeah, absolutely, absolutely. Because the thing is, yes, I could have made more money during that time, but here's a thing.

I didn't care. I was in practice mode, right? I was trying to gain the skill of seeing, okay, if I was right now looking at the stock market and parts of it are plummeting, like, you know, weird parts of it are going up, and then this kind of stuff, if I was back in accumulation mode, I would be freaking out about, oh, this mutual fund did better than that, this ETF did better than that. I should have been this one and I'm not been that one. And the thing is back then I might have cared about that. All I care about is, what's the income that I'm getting at? What's the yield that I'm getting at, right?

I mean, like, so the thing is you think you care about your total portfolio amount after retirement. And maybe you do, maybe you don't. But your actual, what you actually care about day to day is, is how much income you're getting from it. So it's a very different paradigm shift from before we cared about your total portfolio value and before retirement, because that's what you're trying to get, you're trying to get to the million. But then afterwards, you only care about income, right? So, like, there are been points in which the portfolio has dropped below a million, but because the income was still up there, I'm just kind of, it's just a number.

It really is just a number. And over time, it's gone back up over a million. And it's just kind of like, I still don't care. I still don't care. That's not what I'm caring about anymore. Before it was about how much money I had. and now it's about how much money it's making. Okay. Tax season is one of the only times all year when most people actually look at their full

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subscription with the code Pockes. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves the needle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple. Use the code pockets at monarch.com for half off your first year. That's 50% off at monarch.com code pockets. You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast?

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slash money free and start building something amazing. Get more with Northwest Registered Agent at Northwest Registered Agent.com slash money free. Okay. So what is your current portfolio allocation now that you've been retired? Remind me you've been retired for three solid years? Yeah. Yeah.

Okay. Okay. So are you still at 6040? I am still at 6040. However, the 40% that was in bonds before, 20% is in preferred shares, and 10% of that is in corporate bonds. So these are higher yielding bonds that are a little bit higher up on the risk spectrum. So this is the second part of the yield shield that I do talk about in the blog, and I don't want to confuse too many people. But there's two parts about how different it is running a portfolio before you retire and after you retire.

One is you generally want to shift more of your assets towards fixed income. And the second is you want to shift some of those fixed income assets towards higher yielding fixed income assets because when you're retired, you don't care as much of overall portfolio volatility anymore. You care more about yield. So some of the assets that we've used for this are preferred shares, which for if you guys haven't talked about this before, preferred shares are kind of a hybrid between bonds and equity. So these are shares that companies issue for the purposes of raising.

capital, but on the order in which money gets paid out for obligations, it goes bonds first, then preferred shares, then common shares equities. So preferred shares are, if money has to get paid out, or if there's not enough money to pay everybody, preferred shares get paid out first before common shares. That's why they call preferred shares. So these guys kind of pay about, where common shares will pay about, like the SAP 500, for example, pays about 2% as a dividend and yield, preferred shares will pay about four to five percent. So that's one of the assets that we used. Corporate bonds are also, just like regular bonds at the U.S. Treasury or the government of Canada or whoever issues, except corporate bonds are issued by Bank of America or Freddie

May or companies rather than governments. So it's a little bit more riskier, but they pay a higher yield, three-ish, three and a half, and that kind of thing. So we pivoted our fixed income part of our portfolio towards riskier, but higher yielding assets. What this tends to do is it tends to make your portfolio more volatile. So a traditional 6040 portfolio would actually be less volatile than what we're experiencing now, but the yield is a lot. The yield is higher. And the yield is rather than two, two and a half percent, we're getting a yield of like three, three and a half percent in our portfolio. So that's another, that's the second kind of step of building. the yield shield, and that's again, something that we talk about in detail in our website,

pivoting fixed income assets towards higher yielding but more volatile assets as well. How do you mechanically go about doing this? Are you buying ETFs for these preferred shares? Is that just available? Is there funds, you know, that you can go do this? Same kind of thing. I don't actively buy these things or anything like that. Just like for equities, there's an index and just like bonds is an index for a performance. vert shares, there's an index. For corporate bonds, there's an index. And for other things like REITs or real estate investment trusts, there's an index for that. So we own those as well. So we don't buy anything individually. We operate under the same indexing principles that we

invest in the bond and equities market. Same dealio, same rationale. But it's a different income versus volatility tradeoff. So if I summarize, you have 60% of your portfolio in low fee passive index funds, right? Maybe a variety of those. And then you have the remaining 40% in, is that right? Is that a variety of those or just one for the 60%. It's a variety of those.

I'm Canadian. If I was American, it would all be, you know, D.T. Sachs or whatever. I'm Canadian, unfortunately. So I have to invest in Canadian and U.S. and international. Fair enough. And then the 40% you have, sorry, 20% in preferred shares, 10% in corporate bonds,

and then 10% in relatively safe bonds. And you invest in these in the same principle, low fee, passive index fund that covers these asset classes that you've researched that give you that allocation. And then you just look up a ticker symbol and buy more or less depending on your portfolio balance. Right. Same principles. Bad fees bad or high fees bad, low fee's good.

And just index, you know. So it's the same. It's the same principles. It's just with slightly different assets. And again, that has this interaction with how much cash question you need to. you need to hold. So the second thing that I just said here with all the preferred shares and all the corporate bonds and all the kind of stuff, that's all optional. If you want to just stick with government bonds and the BND or the, you know, Vanguard bond index portfolio, that's fine.

Your portfolio is going to be earning two, two and a half percent off a million dollars, $25,000, fine. But that means that in order to keep a cash cushion that's going to protect you from protected market downturn, what you need to do is you need to take how much money, money you're projecting that you're going to spend. So our example is $40,000, $40,000 minus the yield shield, which is $25,000 means that your cash cushion needs to make up the difference. So $15,000 per year. So if you want to keep a three-year cash cushion, that would need to be $45,000, right? But if you were able to raise the yield shield and bring up to 3.5%. So for example, for us, when we retired, we were earning 3.5% of our yield shield. Again, a rule only exists if it's, if it's a lot,

rhymes. So a three and a half percent yield shield would be equivalent to $35,000 that's earned a year. Again, our living expenses is $40,000. So if your yield shield was $35,000, your cash cushion only needs to make up the difference, which is $40,000 minus $35,000, which is equal to $5,000 per year. So if you want to keep a three-year cash cushion, obviously, you only need to keep $15,000 of cash outside the portfolio. So there's a. trade-off of if you mess about with the yield shield and how much your portfolio is yielding, you need to keep less cash, but you don't need to do any of that stuff. You can keep it kind of a more traditional bond portfolio, but that just means you need to have

a little bit more cash set aside. So those are the two counterbalancing factors that you need to think about when you are retired versus when you are accumulating. In many ways, when you're working, investing is way simpler. Like, all you have to do would just be like, throw money into VTS, say S-A-X, and you just don't have to think about it, right? When you get a little bit closer, things got a little bit more complicated, but it's not so complicated, you know, and we write about it on our blog. It's not too bad, but you just need to think about a little more. And I just want to add that, so this method of using the cash cushion and the yield shield has actually been tested.

Because as you said, it's very scary, you know, to quit your job. And we were three years out. we kind of had to feel a bit secure. And then when we actually pulled the trigger, I was still terrified. And then the year that we actually retired, 2015, was actually the oil crisis, which Americans probably are not as aware of. But for Canadians, it was a big deal because our market is very heavily weighted towards oil. So as a result of oil plummeting, the TXX also plummeted at the same time.

But we were a little bit concerned because not only was that the first year we retired, so we were already kind of trying to get used to this new identity of not having. a job. The stock market, the Canadian stock market was crashing as well. So this made us think of the sequence of return risk, which as Bryce mentioned with the 4% rule, when they did the computer simulations, they found that it had a success rate of 95%. The 5% failure came from if you were actually retiring into stock market crash for the first three to five years of your retirement. So we were kind of worried that we had to actually hit the sequence of return risk and what were we going to do now that we were actually out. So the fact that we had the cash cushion in place,

generating $35,000 and that we were only having a shortfall of $5,000. And we had a cash cushion of three years of living expenses helped tremendously in this case. Because like Bryce said, we didn't actually need to worry about the value of the portfolio, even though it was dropping. And that helped alleviate our fear of the sequence of return risk and failing retirement being part of the 5%. So not only was this something that, you know, was really helpful when we were three years out towards retirement that we had this cash cushion and then thinking about we didn't need to care about the capital value. We actually tested this in 2015. And as a result, our portfolio has just gone up since then. We've actually made a lot more money than when we actually hit the trigger.

So I would say that in terms of helping alleviate your stress when you're quitting your job, because it's already really big deal to kind of take off that one identity and then develop the identity of an early retiree, actually having the numbers to, like the numbers to justify, because you can't predict whether the markets are going to go up or down, but having that cash cushion in place and not having to care about the actual value of the portfolio was a huge relief for us. So as a result, we were actually sitting on a beach in Thailand at the end of the year. We're like, yeah, whatever. If it's dropping, it doesn't really matter because we can just live off. off the dividends, not a big deal.

Yeah. Well, this really clears things up. Yesterday, at the end of yesterday show, I really wanted to get more information about the makeup of your portfolio, but we kind of ran out of time. I mean, we just had so much information from you guys anyway. And I'm so happy that you had time to come back

and share this with us. I really appreciate this because being so transparent really helps our listeners understand that you can do this. It is possible. Early retirement, isn't this pipe dream for people who have a blog that makes a million dollars a minute. You don't have a blog that makes a million dollars a minute. You're retired and living off of your own portfolio, right? Does your blog make a million dollars a minute that I just thought? Oh, got it. Okay. Here's a thing. We have started making money in

retirement and, you know, our blog makes a certain amount of money. We're publishing a book next year that's making certain money money money, money. And we get that if we start to live off of that amount of money, it kind of perverts the experiment, right? Like, I get that we could spend that amount of money, but that doesn't, how does that help our readers? Because if we start living off of that, it's kind of like, you're not really living off of it. You've built a successful blog and you're living off of that. So what we've done is we segregated all the money that we made after retirement

into its own separate account. And we're saying, it's called portfolio B. We call it portfolio B, which we report on the blog. And then we kind of say, okay, we're going to invest that on its own. We're going to use that to spend on business-related expenses, you know, reinvesting into the blog. Maybe we bought a new laptop because,

my laptop was starting to die. You bought a computer? I know. Shut up. But our base living expenses were still pulling off of the original portfolio. And because we want to be that kind of test case, that guinea pig that makes sure that people can still do it even if they don't build a blog and they don't write a book and they don't do all this kind of stuff outside the portfolio, does do these theories still work without that

extra income. And that's why we kind of structured our lives that way. So the answer is, yes. We left with a million dollar and we use these cash cushion and these yield shield strategies to survive the brief downturn that we had when we retired. It's gone back up. And now we're sitting at like 1.3. I think it's like 1.2 million right now because it just went and they went down slightly. So we have more money than when we left. Right. And what's interesting is that that actually is starting to change how our portfolio is going to start to look, right? Because the idea of shifting between equity and fixed income to raise the yield, that is really only done to mitigate against what, you know, she described as a sequence of return risk, the danger of retiring and then having

a bad bunch of market returns that kind of hammer your portfolio. But as you pull out of that, you know, when we retired, that was three and a half years ago. The, sequence of return risks usually only lasts about five years. So in one and a half years, we're going to start to pull out of that danger zone and we're not going to need that yield shield anymore. So oddly enough, what we're planning on doing as we pull out of that is to actually eliminate the yield shield. We're going to actually get out of preferred shares. We're going to get out of corporate bonds and we're going to move more and more into equities. And we went from if you were accumulating and you were like, you know, something like 90, 10, 80, 20,

and you start to get into more where we were, which is closer to retirement, you know, 60, 40. As you get out of retirement, it actually makes sense to move back into equities because as your portfolio grows, because you survive that sequence of return risk and your total portfolio amount is going up and up and up and up and up. All of a sudden, $40,000 is not 4% anymore. Now it's like 3%. Now it's like 2.5%. So as that happens, then that means you don't need that.

or yield anymore, which means you can actually start to move money out of higher yielding assets into back into equities. There's a certain point in which you go back into when your withdrawal rate, which is how much money that you're spending each year, is somewhere around 2% of your total portfolio. You may as well just go all into equities because then you can just live completely on the dividends and you literally don't care about the day-to-day dirrations of the market. So it's this seesaw approach, actually, which people don't actually appreciate, and we're only starting to kind of appreciate now, which is as you're young, you want to be high inequities, low and fixed income. As you get close and closer retirement, you want to get a little bit closer at 60, 40, 50, 50, 50, something like that. And in traditional retirement, as you get closer and closer to death, and you don't need that money anymore, you typically want to go down like this and go 100% fixed income, like at the point where you're about to die.

but because people like us, the fire people are retiring in their, not in their 60s, but in the 30s, their 40s or whatever, we need that money a lot longer. So it's actually like a seesaw effect where you start high on equities, kind of balance it out when you're at your point of retirement. And over time, it actually starts to widen back out and go back into equities. So it's this actually like weird seesaw effect that happens. That's what we're planning on doing. This is awesome.

I love it. Christy and Bryce, thank you so much today for coming back in. Remind our listeners where they can find our listeners where they can find. you? Yeah. So you can find us on our blog at www. www.mill-revolution.com. And you can also email us at firecracker. Dot Revolution at gmail.com. We also have the contact information. You can find me on Twitter and Facebook as well from our website. Awesome. And the show notes, we're going to link to that cash cushion and yield shield articles again in the show notes, which can be found at biggerpockets.com slash money show 55-5 because this is episode 55 and a half.

Okay, Christy and Bryce, thank you so much. I know, I don't want to call it a vacation because it's just life now. Thank you for taking time out of your life to chat with us. This was really, really helpful. Anytime. Go and have a great rest of your day. Bye, guys. Thank you.

Thank you. Bye-bye. Take care. Bye. Holy cat. I am so excited that Christy and Brice had some time to chat with us. That was amazing. what did you think? I think that they both self-educated an immense amount to become comfortable

with how their portfolio would distribute returns to support them in retirement. And I think that's the key, right? You can listen to this episode and you may not grasp all the concepts that they were talking about today. But if you don't and you want to retire early, you have to, because that's the only way you're going to get comfortable with actually pulling the trigger and moving out and fulfilling your potential if you're interested in financial independent independence and want to leave your work. Again, this is for people who actually want to leave their work as a full-time job and do something like travel the world or start a business full-time or whatever it is without any income that they think they're going to earn

following that transition. Yeah. And the whole point of personal finance or financial independence and early retirement is to lead the best life that you have, to live your best life. And if that includes traveling around the world, then you're going to need something to fund that. And Christy and Bryce really laid it out in fairly easy to understand terms. But again, they have this all laid out in blog posts on their site that you can go and read in-depth. They're really, really helpful. They don't have jobs. You could just call them anytime you – well, you can't call them, but you can email them

anytime you want and ask them questions. They are pretty responsive when you have a question. They're really, really friendly. So I am just very thankful that they came back and chatted with us. And this episode, you know, was so helpful, at least to me. Loved it. Loved it. Okay.

From episode 55 and a half of the Bigger Pockets Money podcast, this is Mindy Benson and Scott Trench. And we will see you next Monday.