In today’s opening monologue, Jesse explores the concept of Sequence of Returns Risk, a crucial and often misunderstood threat to retirees, by illustrating how poor returns early in a retirement can severely impact long-term stability. He emphasizes the importance of diversification. Jesse then introduces the idea of path dependence, drawing parallels to the life of author Philip K. Dick, whose posthumous fame underscores the significance of a journey’s path, not just the journey’s outcome. Jesse connects this to investing, explaining how the sequence of returns can greatly affect an investor’s experience, despite the long-term average returns. Using "Sally the Investor" as an example, Jesse highlights the emotional and psychological challenges of navigating market volatility, reinforcing the need for resilience, understanding short-term unpredictability, and the benefits of diversification in long-term investing.

Tyler, the creator of Portfolio Charts, joins Jesse for the second half of the show. His site is known for its innovative financial tools and insights. Tyler, a fellow engineer with a passion for finance, blends technical expertise with creativity to clarify complex investing concepts. In their discussion, Tyler and Jesse explore critical retirement topics, including the safe withdrawal rate and sequence of returns risk.. Tyler introduces the concept of engineering tolerances for managing financial variability and discusses strategies like variable withdrawal rates. He explains the "flowing nature of withdrawal rate math," illustrating how safe withdrawal rates change with longer retirement periods. If you’re looking for some evidence based, long term thinking in your DIY financial life, then this is the episode for you!

Key Takeaways:

• How poor returns early on can negatively affect my retirement.

• What is “sequence of returns risk”? And how can I create a financially resilient situation for myself?

• Diversification into a variety of financial vehicles is key to the long term success of your portfolio.

• Path dependence, illustrated by Philip K. Dick's posthumous fame, emphasizes that the sequence of returns can greatly affect investment outcomes.

• What are “safe withdrawal rates”? And how can traditional average return calculations be misleading?

Key Timestamps:

(01:07) Jesse’s Monologue: Understanding Sequence of Returns Risk

(07:50) Mitigating Sequence of Returns Risk

(08:35) Path Dependence: Lessons from Philip K. Dick

(13:16) Sally's Ride: A Real Example of Path Dependence

(22:57) Investment in Knowledge: Path Dependence

(25:28) Understanding Safe Withdrawal Rates and Sequence of Returns Risk

(35:05) The Importance of Consistent Portfolios

(47:29) Tyler's Personal Finance Journey and Portfolio Charts

(51:01) Conclusion and Listener Engagement

Key Topics Discussed:

The Best Interest, Jesse Cramer, Rochester New York, financial planner, financial advisor, wealth management, retirement planning, tax planning, personal finance, Tyler from Portfolio Charts, path dependence, sequence of returns risk, safe withdrawal rates

Mentions:

Website: https://portfoliocharts.com/

Mentions:

https://portfoliocharts.com/charts/withdrawal-rates/#chart

https://portfoliocharts.com/2016/12/09/perpetual-withdrawal-rates-are-the-runway-to-a-long-retirement/

https://portfoliocharts.com/charts/retirement-spending/

https://portfoliocharts.com/portfolios/permanent-portfolio/

https://bestinterest.blog/path-dependence/

More of The Best Interest:

Check out the Best Interest Blog at bestinterest.blog

Contact me at jesse@bestinterest.blog

The Best Interest Podcast is a personal podcast meant for educational and entertainment. It should not be taken as financial advice, and is not prescriptive of your financial situation.