How to Build an Investment Strategy for Financial Independence

Summary

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Podcast Summary: BiggerPockets Money Podcast

Episode: "How to Build an Investment Strategy for Financial Independence"

Date: May 26, 2026
Hosts: Mindy Jensen & Scott Trench
Guest: Bob Haynes

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Episode Overview

This episode is a deep-dive into constructing an investment strategy designed to achieve financial independence and, for many, early retirement (FIRE). Guest Bob Haynes – an early retiree and portfolio strategy expert – explains the practical and psychological benefits of having a well-defined Investor Policy Statement (IPS). The discussion centers on crafting an IPS, clarifying investment philosophy, portfolio design, asset allocation, and handling financial complexity, with actionable steps and honest discussion about the real-world challenges even experienced FIRE adherents face.

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Key Discussion Points & Insights

1. Why an Investor Policy Statement (IPS) Matters

• Clarity and Emotional Guardrails: Too many investors lack a guiding investment philosophy and are swayed by emotions and market headlines. An IPS offers a pre-defined framework to make rational decisions and stay the course.
  • "Your portfolio needs to be built around a clear framework, not emotions, headlines, or whatever is performing right now." (Mindy Jensen, 00:00)
• For Everyone on the FIRE Path: It’s not just for those at the end of their journey. Writing an IPS early can save you from common, painful mistakes.
  • "Had we known about it and had we built it in advance, we would have gotten to financial independence faster and probably without making some pretty gut wrenching mistakes along the way." (Bob Haynes, 04:32)

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2. Core Components of an IPS

• Basic Structure:
  • Goals and objectives
  • Investment philosophy
  • Asset allocation
  • Asset location framework
  • Drawdown/decumulation strategy
  • “Other considerations” (constraints, unique circumstances)
  • Estate planning (for some)
  • "That's exactly the way that I've learned it... for most people, enough to build a simple one page investor policy statement." (Bob Haynes, 02:29)
• Naming Convention Confusion: IPS, investment plan, and investment philosophy statement are interchangeable in function—the essence is the roadmap. (Bob Haynes, 03:05)
• Who Needs It: Anyone pursuing FI, not just those who have already reached it.

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3. Why Most Don't Have an IPS

• It's rare – perhaps less than 1% of even the FIRE community. Perfectionism, procrastination, and overthinking block many from drafting one.
  • "I think it's one of those things that just helps if you, I don't know, a lot of us seem to be overthinkers or perfectionists in this community." (Bob Haynes, 05:46)
  • "Done is better than perfect." (Bob Haynes, 07:12)

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4. Defining Goals, Objectives, and Constraints

• Start with Life Vision, Not Numbers: What kind of life do you want? Money is a tool to serve your life vision.
  • "It really should be more about what's the type of life that you want to live... using your money in service of living your best life." (Bob Haynes, 09:11)
• Common FIRE Constraints: Many early retirees don't actually want to draw down their net worth before traditional retirement age.
  • "I don't want to see my net worth decline before I hit traditional retirement age." (Scott Trench, 14:07)
  • "We do all that with a strong likelihood of a growing portfolio over time." (Bob Haynes, 15:00)
• Constraints and Advantages: Document portfolio specifics, unique financial advantages (pensions, real estate, inheritances), and personal risk tolerance.

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5. Crafting Your Investing Philosophy and Asset Allocation

• Typical Philosophy Bifurcation in FIRE:
  • Accumulation phase: “Boglehead” orthodoxy—low-cost, broad market index funds
  • Decumulation phase: Shift to more bonds or sustained equities based on personal or family needs
  • "For most people in this community... you have those that are kind of pursuing financial independence, but they're not there yet. And then you have those that have already achieved financial independence and are in the wealth preservation stage." (Bob Haynes, 18:24)
• Risk Tolerance and Glide Paths: Some maintain aggressive portfolios, while others de-risk upon early retirement. Consider your needs vs wants, and which spending is truly flexible.
• Sticking to the Plan: The IPS is both a reference and emotional anchor during market volatility.
  • "We put this plan in place seven years ago. We've made some slight tweaks to it over time, but nothing major." (Bob Haynes, 22:19)
  • When tempted to change allocation due to fear, revisit the IPS and compare actual vs. target allocation; make strategy-driven, not emotional, decisions.

Notable Quote

"It's not about having the best asset allocation. It's having a good enough asset allocation that has a strong likelihood of helping you to achieve those goals that you've laid out."
— Bob Haynes (16:54)

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6. Dealing with Complexity: Real Estate, Businesses, Alternative Assets

• Not Everyone Is a Pure Boglehead:
  • Many have rental properties, private businesses, pensions, or concentrated stock positions—these must be factored into your overall plan.
  • Sprawling portfolios can become a challenge to manage and unwind; planning early helps mitigate future friction.
  • "I have met significant wealth from this... and significant challenges in actually finishing the play to an intellectually pure situation that I can defend and really sit comfortably with for decades." (Scott Trench, 37:02)
  • When investing gets complex, professional help can be useful.
• Evaluating Real Estate: Calculate current and future cash flows, document mortgage payoff timelines, and integration with other portfolio income streams.
• Annual IPS Review:
  • Review regularly (suggested: annually, or upon major life changes).
  • IPS is a living document meant to iterate as life evolves.

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7. Asset Location, Tax Planning, and Drawdown Strategies

• Asset Location:
  • Place bonds in retirement accounts, equities in taxable accounts, use bunching for charitable gifting (donor advised funds).
• Drawdown Strategy:
  • For simple portfolios: set a cash target (e.g., 3%), withdraw from portfolio only to replenish cash, and rebalance as needed.
  • Pay attention to standard deduction, capital gains, Qualified Dividends, and especially ACA subsidy cliffs in early retirement.
  • Complexity increases with additional income sources (e.g., rental income), pointing to when professional advice may save big on taxes and penalties.
• Resource Mentioned:
  • Tax Planning to and Through Early Retirement by Sean Mullaney & Cody Garrett

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8. “Other Considerations”

• A catch-all section for unique bets, constraints, or intermediate goals (e.g., 529 plan contributions, backdoor Roth IRAs, tax strategy tweaks).

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9. Overcoming Perfectionism & Getting It Done

• Start with a Draft:
  • Even a “bad first draft” is better than none.
  • "Having it done is better than having it perfect anyway." (Bob Haynes, 41:09)
  • The IPS isn’t static; adjust after annual reviews or major events.
• Complex Portfolios Need It Most:
  • The more moving parts, the more needed the planning.

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Notable Quotes & Memorable Moments

• "I feel super blessed. I feel like one of the luckiest men on the face of this earth to know about the financial independence community, achieve financial independence, and then to be able to talk to others about it and live the life we get to live. It's really unreal." — Bob Haynes (13:47)
• "Simple is simpler. But what does better mean? I think that's the questions I'm really trying to answer..." — Scott Trench (63:46)
• "You shouldn't be making changes because the CAPE ratio has hit a new high...the first draft's not going to be perfect and you can make changes to it over time." — Bob Haynes (40:05)
• "If you're helping an older relative to actually do theirs... know that your first draft is just your first draft." — Bob Haynes (40:05)
• "This is one of those things that just helps...a lot of us seem to be overthinkers or perfectionists in this community." — Bob Haynes (05:46)

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Timestamp Guide for Key Segments

| Topic/Segment | Timestamp | |------------------------------------------------------|----------------------| | Introduction: What is an IPS and Why it Matters | 00:00 – 04:32 | | Components & Structure of an IPS | 02:03 – 05:46 | | The Rarity of IPS in FIRE Community | 05:14 – 09:05 | | Goals & Constraints, Life Vision | 09:05 – 18:11 | | Asset Allocation & Philosophy Choices | 18:11 – 25:45 | | Sticking with Your Plan During Market Turbulence | 22:19 – 25:45 | | Handling Complexity (Real Estate, Other Assets) | 29:47 – 37:19 | | Drawdown & Tax Strategy Essentials | 44:06 – 50:17 | | “Other Considerations” Section of the IPS | 41:36 – 44:06 | | Annual Review Guidance | 57:02 – 59:14 | | Final Thoughts & Encouragement | 61:04 – 66:26 | | Resource Links & Where to Find More | 61:06 – End |

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Practical Takeaways

• Start Your IPS: Draft a version, however rough. It’s a living document.
• Focus on Life Goals: Make financial plans serve your actual ideal life, not just numeric targets.
• Document Complexity: The more complicated your portfolio, the more essential the IPS.
• Annual Review: Schedule a yearly review, plus after major life changes.
• Don't Fret About Perfection: It’s okay to iterate and update—having something is far better than nothing.
• Seek Professional Help When Needed: Complex portfolios or tax situations may benefit greatly from a flat-fee financial planner.
• Use Community Resources: Refer to the Bogleheads wiki, BiggerPockets Money goal worksheets, and books like The Simple Path to Wealth, Tax Planning to and Through Early Retirement.

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Overall Tone & Closing Reflections

The episode is candid, encouraging, and reassuring, balancing practical frameworks with the admission that the “perfect” IPS or investment strategy may never be achieved—“done is better than perfect.” Both simple (Boglehead-style) and complex portfolios are discussed, with empathy for listeners at all points in the FIRE journey. The mood is that of expert peers sharing honest experience—sometimes with a touch of envy for those whose simplicity is an advantage, sometimes laughing at the shared burden of overthinking.

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Recommended Actions for Listeners:

• Draft your first Investor Policy Statement—today.
• Use available resources (BiggerPockets Money, Bogleheads wiki, FIRE blogs).
• Review your IPS annually or upon major financial/life changes.
• Don’t let complexity paralyze you—document what you can, seek help as needed.
• Remember: Your investing plan is there to reduce stress and help you live your best life, not to achieve perfection.

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Find additional templates and resources at:
biggerpocketsmoney.com/resources

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Transcript

[Mindy Jensen]

Too many people start investing without ever thinking about their investing philosophy. They're building a portfolio, but without an ethos and making drastic changes during market dips. If you want to achieve financial independence, your portfolio needs to be built around a clear framework, not emotions, headlines, or whatever is performing right now. In this episode, we break down how to build an investment strategy for financial independence, one that you can actually stick with for decades.

[Bob Haynes]

Foreign.

[Mindy Jensen]

Welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen and with me, as always, is my Still Building his investor policy Statement co host Scott Trench.

[Scott Trench]

Thanks Mindy. I'm excited to yield to Bob's great research here in terms of building a world class investor policy statement. I'm actually still working on my own investor policy statement or evolving it, and I'm really interested to hear what Bob has to say today because I feel like I'm diverging a little bit personally, perhaps at huge opportunity cost from Fire orthodoxy in that I cannot intellectually defend keeping most of my wealth in the S&P 500 at very high Shiller Cape ratios. I think Bob's investor policy statement is going to basically default to that. So I'm interested to hear his framework in particular about building a policy statement that allows me to build rigid rules or other people to build rigid rules if they have divergence from orthodox approaches to investing. So we are excited to welcome Bob Haynes back to BiggerPockets money. Bob previously joined us on the show to share how he achieved financial independence and retired in his 40s. And since then he's gone even deeper into the world of investing portfolio design and building a long term investment philosophy that you could actually stick with. So after recently presenting on this topic at the campfi Spain meetup, which sounds awesome by the way, we're excited to have him share these insights with the BP Money Crew. Bob, welcome to the BiggerPockets Money Podcast.

[Bob Haynes]

Thanks, Scott. Thanks Mindy. I'm happy to be here. Thanks for having me back.

[Scott Trench]

Before we dive into the nuance of building this, Bob, do you agree that the basic building blocks of an investor policy statement are a clear articulation of goals and objectives, an investment philosophy, an asset allocation framework, and an asset location framework. Any other core considerations, perhaps estate planning, those kinds of things, and then a drawdown strategy for actually harvesting the portfolio at some point in the future? Is that the basic building blocks in your view of a investor policy statement?

[Bob Haynes]

Yeah, you've got it. You've got it, Scott. That's exactly the way that I've learned it and the kind of way that I've outlined it. And those will be for most people, enough to build a simple one page investor policy statement. No one's going to have a perfect one when they, when they first do it. Amy and I is still a work in progress. We've had it for seven years. But yeah, those are the big picture core components of building one.

[Mindy Jensen]

Bob, I've heard this, variations of this title of this document. I've heard Investor policy Statement, I've heard Investment philosophy statement, I've heard investment plan. Are these all the same thing with just different names or are these three different things that we're talking about?

[Bob Haynes]

Yeah, it's a really good question. I hadn't really heard of any of these until about eight years ago when I was talking to physician on fire Leaf Dahleen about some asset allocation questions and location questions and he said, oh well, it's pretty simple, Bob. You just look in your investor policy statement and you'll find the answer there. And that's how you proceed with making your decision. And I said, investor policy statement, what's that? I have no idea what you're talking about. So yeah, it kind of made me deep dive into this topic. And Leif has written extensively on this topic on his Physician on Fire blog. And there's also a really good Bogleheads wiki on building an investor policy statement. So from my perspective, call it what you will, but big picture, what we really are trying to do is outline your goals and objectives so you know where you want to go. And then you're basically putting yourself in a roadmap with guardrails so that you can kind of stick to a plan to get to those long term goals and long term visions. Because of course your money is just a tool for you to live the life that you want to live. And so that's the purpose of the investor policy statement. It's been invaluable to me and my wife since we built one. And so in my talks with a lot of people in the financial independence community, a lot of people say, well yeah, I've heard of it and I want to have one, but I don't have one yet. And that's what led me to actually teaching this workshop at Campfire Spain a couple weeks ago.

[Mindy Jensen]

And who is this for? Who needs an investor policy statement? Is this something you need at the end of your journey or can you do it before you get there?

[Bob Haynes]

Yeah, so my wife and I are accidental fi. So we didn't actually have this statement as a framework before. We Got to financial independence. I think had we known about it and had we built it in advance, we would have gotten to financial independence faster and probably without making some pretty gut wrenching mistakes along the way. But I think anybody that's listening to this podcast, right, whether you're on the journey, you're a Freedom Fund builder and you're kind of trying to build your financial independence or your fu money, or you're someone who is very close to retiring early or certainly in early retirement, it's really good to have this down on paper so that in a very intellectual way, you can not react emotionally when the market goes crazy.

[Scott Trench]

So one of the things that I'll call out here is I looked at the stat recently, and if you track your net worth regularly, you are in the minority of Americans. Only one third of Americans even do that. That's before we get to budgeting, tracking expenses, any kind of financial plan, I would estimate that. You got it. You got to be looking at less than 1% of people who actually have a formal investor policy statement in this country. Maybe half a percent. Do you think that's a reasonable estimate, Bob? Maybe even within the fire community, specifically less than, you know, 1 or 2% of people have this documented to this level.

[Bob Haynes]

Yeah, I think you're right there, Scott. And, you know, I think it becomes one of those things that, you know, the someday aisle, right? It sounds, you might hear about it and it's like, okay, yeah, that looks like it takes a little bit of effort, a little bit of time, effort and energy to actually put together together. I'm doing fine today, so I might not, you know, maybe not today, but tomorrow or someday I'll. And I've had these conversations with a lot of folks in this community, even to the point where, where they say, hey, could, could I look at your investor policy statement? Of course, you know, I'll send it to you. You know, what's your email address? And almost without fail, the next time I see those. That person or those people and say, hey, how'd your investor policy statement go? Like, well, we're still thinking about it. Like, we. Like the one you sent us, but we actually haven't done ours yet. Which is why I kind of did this statement workshop at Campfire Spain. And we also ran one with Alan and Katie Donegan for Rebel Finance School back in July. So we did a 90 minute workshop on developing your investor policy statement. And I think it's one of those things that just helps if you, I don't know, a lot of us seem to be overthinkers or perfectionists in this community. So it's easy to get inside your own head and be like, well, if it's not going to be right, then why do it at all? So the analogy that I like to talk about or the permission I like to give folks is, you know what, act like you're helping a trusted friend. Like if you have a grandmother or a great aunt or someone that you really care about that could use your help. Because obviously anyone in this community has the talent, skill, ability and intellect to pull this off, right? If they asked you, hey, could you help me build out this investor policy statement? It's really important and It'll only take 90 minutes. Of course, almost everyone listening to this podcast would say, absolutely, I'll help you with that. So if you can kind of treat yourself that way and give yourself the grace to say, you know what, I'm going to develop this investor policy statement. It's not going to be perfect, but it's going to be done. And done is better than perfect.

[Scott Trench]

Talk about goals and objectives, because I think this is actually, this is going to trip up everybody downstream or a huge portion of people downstream. I think that goals and objectives are often framed in the FHIR community, the FI space as the accumulation phase. And I think that there's a wonderful defense in accumulation phase of bogleheads straight up passively managed by vti, by voo, by the lowest cost, broad based market cap weighted index fund you can get and hold it forever. Right? And that's very intellectually defensible, very simple for people to grasp. J.L. collins has done a great job of that in the simple path to wealth, for example, of articulating the case for that. Then on the other extreme, I think that Frank Vasquez has done a great job of framing the goal of I want to spend down my portfolio at the highest level that is reasonable here. And he's bumping up with his very diversified five factor or five asset portfolio with the low correlation, this risk parity portfolio that drives a high withdrawal rate. And I think that when you frame it that way, everything else begins to cascade very easily. But I think for the majority perhaps of the fire community, there's a different goal or hybrid set of goals. And there are constraints that come into play where a 35 or 40 year old retiree does not want to maximize their withdrawal rate. There's more to it than that. I want to be financially free, but I also want to want something else. I want to have less bond allocation for example, do you find that this is a common problem? Am I articulating this in a way that is common among people you talk to about this?

[Bob Haynes]

I think it's a great point, Scott, especially because of the broad swath of folks that this community has in it.

[Scott Trench]

Right.

[Bob Haynes]

We have the 20 somethings that want to go as fast as they possibly can to build their wealth and retire early in their late 20s. Right. Cody Berman just wrote the Retire by 30 book, which, I mean it's just fantastic. I wish I knew about this stuff at that age. And then yeah, I mean you have the folks that are early retired but are much closer to kind of traditional retirement that maybe have more than a 30 year horizon, but maybe not more than a 40 year time horizon. Right. And how do you kind of square all of that? I think you're touching a bit on kind of looking through the goals to kind of like what that asset allocation is going to be and what I encourage folks to do, especially for the goals and objectives, to kind of take 10 steps back and make it more high level in that money can be a component of the goal, but it really should be more about like what's the type of life that you want to live. Big picture, using your money in service of living your best life. What does that best life look like? And when you frame it that way, I think you get a lot more interesting kind of goals that come out, you know, big picture, what folks are actually looking for. And it might make the asset allocation decision a bit easier when you get to that part of the investor policy statement.

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[Scott Trench]

What's an example set of goals? Or maybe what are your goals that you and objectives that you have in yours?

[Bob Haynes]

Great question. I don't have mine in front of me but it's something like to enjoy a prosperous and fulfilling retirement with my wife with the potential to leave a legacy for for family and for charity after the case. So it's very big picture, very broad based, you know, because I didn't want to get too down into the weeds. But I mean that's high level what our goal is. And for the last seven Years what we've been living, I mean, it's just fundamentally been an unbelievable ride that we've had. And it's a crazy.

[Scott Trench]

The.

[Bob Haynes]

I feel super blessed. I feel like one of the luckiest men on the face of this earth to know about the financial independence community, achieve financial independence, and then to be able to talk to others about it and live the life we get to live. It's really unreal.

[Scott Trench]

You are way below the retirement age. How old are you right now?

[Bob Haynes]

I am 51. 51.

[Scott Trench]

Okay. So you literally have 15 years before traditional retirement when you hit fire. Question here. Whenever I set goals, one thing that's really helped me in framing strategies or downstream outputs is this concept of constraints. So I have my goal and I have a constraint as well. Right. Like, for example, I want to, I want to be very fit. But my constraint is I'm only going to work out this much. Right. So I'm willing to do this. But. But there's a limit to it, right? There's more. You know, I want to, I want to be healthy, but a constraint is I want to enjoy some whiskey with my wife on Friday nights. You know, I'm not going to give up alcohol entirely. I think that a constraint in the fire community, the early retirement world, is in practice. I don't think it's articulated enough, but I think it's in practice is I don't want to see my net worth decline before I hit traditional retirement age. What do you think about that as a constraint? Is that a constraint that you have that you believe may exist for you personally or for many people in the space?

[Bob Haynes]

Yeah, I agree with you 100%, Scott. I think that certainly Amy and I fall into that and it's right in our goal. Right. If I didn't say it before, definitely a component of it is that we do all that with a strong likelihood of a growing portfolio over time. Whether or not that's actually a requirement is debatable. We have had just an unbelievable sequence of returns despite three strong downturns in the market. One about nine months after I left with the COVID drawdown, 30% in a month. Like, who thought that that would happen, right? So we've been through that. We've been through Liberation Day tariffs and now the war. And despite all of that, our net worth has doubled despite very strong six figure spending per year. So it's hard now for me to, to think like, well, what I really want to draw down. But to your point, every time that I meet up with JL and Jane Collins JL Tells us we need to spend more money. We're not spending enough, which I struggle with, right? Because on one hand, I agree with him. Like, I want to give more, for sure, right? I want to take my parents on unbelievable vacations and that kind of stuff and really create memory dividends, which is phenomenal. But it's also, like, I don't necessarily think that, you know, if I'm living a life at $120,000 a year, that that automatically living life at 150 or 180 means that it's that much better, if you know what I mean. But, yeah, I agree. This community has a propensity to want to make sure that their portfolio grows over time. And I'm not sure how to get out of that.

[Scott Trench]

But I think this is really important stuff, right? As we're thinking about this, maybe the constraint ought to be, I don't want my portfolio to drop below the level I retire at before age 65. Maybe that's a way to word that constraint. And if you have good first couple of years and it becomes a moot point, then there can be different goals. In the evolution of that document to some degree, is that perhaps what people are getting at without being able to articulate in many cases?

[Bob Haynes]

I think that makes a lot of sense. And I think the community has read the Die With Zero book and has started really kind of taking that more to heart, right. To create these memory dividends. And it's okay to spend when you're young because you travel differently when you're 30 or 40 than you do when you're 50 or 60. And there are some people in your life that you might want to experience things with that are going to experience them differently now versus, you know, ten years from now. So, yeah, I would agree with that. I would also say that probably one of the most impactful things that I got out of Morgan Housel's excellent book, the Psychology of Money is that, you know, when you pick your asset allocation, you're not necessarily trying to pick the best asset allocation that you think is going to leave you the most money at the time of your death, right? You just want to pick a reasonable asset allocation that you can stick with for the long term. And so, you know, the fact that this document, the Investor Policy Statement, is kind of giving you the roadmap on, hey, here's how I achieve my dreams and my goal and live my best life. The asset allocation is just something that's in service to that. So it's not once again, it's not about having the best asset allocation. It's having a good enough asset allocation that has a strong likelihood of helping you to achieve those goals that you've laid out for yourself.

[Mindy Jensen]

So the asset allocation is going to come from your investing philosophy. What does investing philosophy mean to you? Bob Haynes, in the context of the investor policy statement, to just take a

[Bob Haynes]

step back on the philosophy side for a minute, I would say that for most people in this community, there's broadly will fit into two different categories, right? You have those that are kind of pursuing financial independence or are on their way to financial independence, but they're not there yet. And then you have those that have already achieved financial independence and are in what J.L. collins would call like the wealth preservation stage. Right. And so broadly, probably most people will be in one of those two camps. And I think that, you know, when Amy and I were on the path again, we didn't have the document at that point, but we had roughly an 8020 portfolio during our asset accumulation phase. And we decided into our early retirement that that had served us well. And we think about our expenses in terms of our needs expenses versus our wants expenses. And they're about, you know, 50% needs, 50% wants. So we have a lot of flexibility in terms of how much our spending is. So we felt relatively confident and just sticking through with that 8020 portfolio and having a moderately high kind of. We're pretty confident that we can go up and down with the market and not worry about the volatility as much because we have such a big delta between our needs and wants based spending. But some folks, when they get to early retirement, say, you know what? No, it's way too aggressive. So an 8020 portfolio is not what I want. I want to have what probably is the most recommended for traditional retirees, say a 64E portfolio, because my risk tolerance is very low and maybe my spending goal is very high, or my needs and my wants don't have a big delta between the two. So you might want to dial back kind of your risk tolerance. So Amy and I, we've kind of kept our risk tolerance the same from pre retirement to post retirement. But some folks might want to make a little delineation and a switch there at retirement time. Big Earn's done a bunch of research on this in terms of, of, you know, equity glide paths. So maybe it makes sense to dial back the equity exposure in early retirement. And then after, you know, six or eight or 10 years, you can kind of push up your equities over time. But I think any strategy that would be reasonable where you could come up with, hey, this is my philosophy and then bounce it off, you know, a half a dozen other people in the community and if everybody you talk to doesn't say hey, that's totally crazy, I would never do that, then it's probably a reasonable strategy for you to stick with.

[Scott Trench]

This is a very simple exercise, relatively speaking. If you buy the Boglehead philosophy, which is very defensible, there's a lot of really good reasons to do that, right? But hey, if I'm, if I'm a Boglehead, then it's all equities in the accumulation phase. Move a little bit of bonds in for the retirement phase and then if I have slight hybrid goals, less bonds, more equities, like it's not very difficult, intellectually challenging exercise to put this together. Probably takes five minutes, frankly to do this. You can probably get a good version out with AI by the end of the day, by the end of the episode. If you're at a computer watching this, I think what's challenging for some portion of the community, and we're probably all wrong, but I'm in this group as well, is when you say, you know what, I'm old school. I think that valuations matter to a degree. I think that as interest rates rise, that would change things about the way I would hold positions in my portfolio. You know, as cap rates rise in real estate relative to borrowing costs, that changes the amount that I leverage on a portfolio or deleverage or whether I buy an all in cash or with debt on the portfolios. And those things matter to someone like me. That is what is holding me up from, from really producing this investor policy statement. And I think like the Bogleheads are all watching this with a knowing smile thinking, yeah, you just haven't done the hard work to really understand what we're all about. Maybe that's true. What advice would you give for somebody who cannot fully bring themselves to invest and intellectually defend buying into a broad based market index fund with historically high CAPE valuations?

[Bob Haynes]

I think first of all, I would say I get it. I have those same concerns. Scott. It's not lost on me that the CAPE ratio is off the chart. And it is scary. This is one of the reasons why the investor policy statement has been so good for me because I am the one out of Amy is my wife. I am the one that is the market watcher, right? So I'm constantly looking at what the market's doing every day, even though I know it's not good for me and I shouldn't be doing that. I'm the one that's always like, you know, thinking to myself about like, hey, maybe we don't have enough cash, maybe we should up our cash position because the market feels kind of scary right now, right? Doesn't the market know there's a war going on and gas prices are at record highs and yet we still seem to be hitting new all time highs in the s and P500. It feels like, holy cow, there's a crash coming right around the corner, right? So I will get this idea in my own head and I'll go to Amy and I'll say, you know what, maybe we should dial back to 70, 30. And maybe we should, you know, we keep 3% in cash. Maybe we should just double that up to 6% in cash. Like, maybe that would be a good idea. Just want to like, you know, take a little money off the table. This is kind of our insurance policy, right? Like we have, we already have enough. Like, why don't we de risk a little bit, right? And Amy will, you know, very confidently say to me, well, yeah, I mean, why don't we take a look at our investor policy statement and see what the investor policy statement says in the asset allocation section. So we'll pull it out, right? And we have it printed up and we have it in Google Docs so we can pull it up electronically or on paper. And she'll say, well, what's it say? And I'll say, well, it says 80% VTI, 17% BND and 3% cash. And she'll say, well, how much do we have? Like, can, can you look and tell me where we are right now? And I'll say, well, it's about 80% VTI and maybe we have, you know, 17, 17.5% in BND, let's say, and we have two and a half percent cash. And she's like, well, there you go. Like you said, 3% cash. So go ahead and sell some of those bonds and plus up our cash position so we can reallocate and get back to the right asset allocation. And obviously it sounds kind of tongue in cheek and kind of funny, but it really does. It's like, well, we put this plan in place seven years ago. We've made some slight tweaks to it over time, but nothing major. And it's like this document has just helped us stay the course. And once again, to refer back to Morgan's book, the Psychology of money. It's not having the best asset allocation. It's just having the one that we can stick through over the long term that'll get us there. So I wouldn't argue with you at all if you think that Frank Vasquez's portfolio is the right portfolio for you. I mean, I've considered it. I talked to Frank a bunch at Economy this year. I just think that whatever it is that you go with, the best thing you can do is choose that asset allocation and then just try to stick to it, set it, and forget it for the long term.

[Scott Trench]

So, Bob, life sounds very good on the other side of the investor policy statement. Just refer to your investment policy statement and make your changes. I think that that's what we all aspire to here, listening to this podcast. What is the practical advice we can make to actually build that investor policy statement, the investment philosophy and the asset allocation that derives from that, you know, as a next step here? And to Mindy's point, maybe if you're feeling bad about things, this could be your first draft. You can just sit on it for a while and call it a draft. I find that that's very helpful to me when I'm trying to do some big project that's going to be very meaningful the rest of my life. It's simple document, but I'll spit out a draft. Bad first draft, get it done. What's a good template for that? Or process?

[Bob Haynes]

Yeah, yeah, that's an interesting question. So I think Charlie Munger would always talk about invert, right? Always invert. So one of the ways that I thought about doing this for folks that might be in that situation is to, you know, just look at it from the, you know, bottom up, right? So start with where you are today. Like, go look at what your asset allocation is today. Document where you are today. Maybe that matches what you want to have your asset allocation at. Maybe it doesn't. But at least that'll give you a point of reference to see, you know, where you've at least felt comfortable, you know, to this point in time, right? And then once you've looked at that asset allocation, then you can probably derive from that, you know, to your point, Scott, am I a bogleheads like 2 fund or 3 fund portfolio guy, or a simple path to wealth guy, or am I a Frank Vasquez, you know, guy, or Paul Merriman, you know, small crap value kind of guy, or what have you? And you can basically say, okay, how did I get to, how did I make the decision to get to the asset allocations that I'm in and then document the upstream. Like, here was my thought process here. Here are the, you know, whether it's the simple path to wealth or whether it's risk parity. Radio like, this is the source of my investment philosophy and, and document what you think that is. And then that'll give you at least a point of reference to say, okay, here's where I am today. Does that still. Do I still feel the same way today? And to Mindy's point, we're in the middle of a war. Maybe that's not a good proxy. Or maybe you can say, you know, if I thought back to a time where I felt like everything was going well, well in the markets and I was happy with my asset allocation and everything, where was my head then? Right? When you're kind of saying, this is it, you want to make the decision with a strong intellectual exercise, not an emotional exercise to the best that you can.

[Scott Trench]

I am picking up that you are a very simple boglehead portfolio. Maybe you have some home equity, something like that in there, but your position is very simple, very clean, very pure in the portfolio design space. Is that correct for you?

[Bob Haynes]

It's correct in terms of the target. And you're hitting in on one thing that you know, when you design your investor policy statement and you've put down your philosophy and you've put a matching asset allocation to it, you know, just be cognizant that that's your target. Of course, for any of the 401ks or 403bs or IRAs, all of your retirement accounts, you could instantly make those changes to your portfolio without any sort of tax implications. Amy and I had quite a bit of individual stocks before I found the financial independence community. I was like doing horse races between, you know, me picking stocks versus having a couple of different advisors versus having some robo advisors like Wealthfront and Betterment, it was a mess. I had so many different funds, so many different individual stocks. It was kind of crazy. So over the last seven years or eight years, I guess since we found the simple path to wealth, I've been unwinding a lot of that, but I haven't unwound it all. So while the 80, 17 and 3 of VTI, BND and cash is my target, we still have some individual stocks that have an extremely low cost basis that would be painful to kind of sell in my tax in our taxable brokerage account. So another component that we actually have kind of in our other considerations in our Investor policy statement is, is we occasionally do a bunching strategy to give a bunch of that appreciated stock into our donor advised fund. So we just did that last year. We took $35,000 worth of, I think it was Oracle and Broadcom stock that had like a, you know, $2,500 cost basis but a $35,000 market value and put 100% of that into our donor advised fund. So I didn't have to sell it, pay taxes and then give the money to, to charity. I gave all the money to charity. Of course the charities get a step up in basis and then you get a nice tax write off the year that you do the bunching strategy. So that's another component where you can unwind some things that, you know, might take some time but you still are maintaining, you know what your target is. You just, you're not matching your target because of tax purposes.

[Scott Trench]

Well, I put that in the constraints column, right? I have my goals and objectives and then I have my constraints. There are also another category I forgot to mention here when I'm setting goals, which is our advantages, right. What are my unique advantages? And one thing that we've observed pretty, pretty overwhelmingly here at Pickerpockets Money is that a lot of the literature in accumulation and decumulation starts from the assumption that the portfolio is in a boglehead investment portfolio and ends in a 1, 2, 3 fund investment portfolio. And we find that this is overwhelmingly not the case for impractical real life for people. Because, you know, pick any one of these, each one may be low probability in isolation, but if you talk to 100 people in the fire community, more than 50 of them will have one of, you know, such advantage. That could include rental properties. It could include a side business. It could include a working spouse. It could include a pension or military benefits. It could include an inheritance that's coming. It could include a second home that's used for Airbnb. Not consider quite a rental property, but not quite, you know, an investment property. It could include a large stock position. It could include an LP or alternative investment in some kind of syndication or business partnership that they've had there. You know, we find here, at least in biggerpockets money, those to be overwhelmingly common. And that changes, I think the way you think about your investor policy statement because that has to work together, right? It can be very defensible for somebody like you with, with a very relatively simple position. I got to work towards cleaning up a few positions that are not in my line with my thesis Long term as the tax opportunities come. But that's, you know, we have a very clean framework. I think that it changes meaningfully. If you have a $5,000 pension coming into play now, all of a sudden you do something different with your portfolio, or if you have three rental properties that are in various stages of being paid off that have different cash flow components, you're going to assume for that. How do you think about incorporating those into an investor policy statement or, you know, whatever they may be.

[Bob Haynes]

Yeah, yeah, no, that's a, that's a great point, Scott. And I think you're, you're right. There are, you know, as many different people that you talk to, even if on the surface they might have like the Bogleheads portfolio. Yeah. They might have a pension, they might have a working spouse. Carl always tells me a wife with a job is the best kind of fi wi fi. That's, that's fantastic.

[Scott Trench]

I steal his joke repeatedly all the time. So, so sometimes I cite them, sometimes I don't.

[Bob Haynes]

Yeah, obviously, especially in the bigger pockets community having investment real estate property is pretty common. Right. For a lot of folks that are bigger pockets listeners. So, yeah, I think you're 100% correct. I mean, I haven't thought through about this as much because our circumstance is relatively simple and that I don't have any of those special things that you mentioned. The only residential real estate we have is our primary home. And I. Obviously that's not an income producing asset, so it's totally excluded from anything in our investor policy statement. But for those that have investment real estate or have an Airbnb business with multiple Airbnbs or that kind of thing, I think it is important to have that in there from an asset allocation perspective because those are assets that do produce income. And I think when it comes to going down the line, thinking about for someone in this community that might say, you know what, I want to retire early, or maybe it's just as simple as I want to retire my wife so she can stay at home with the kids. Right. We don't want to be, you know, a two income household anymore. We just want to be a one income household. And how do we do that? Well, it can be done pretty rapidly, as you wrote in your book, Scott, with house hacks. And doing it with real estate I think is a fast way because doing it on cash flow. Most of the young retirees that I've met have done it primarily through, through, you know, house hacks and residential real estate investments. So I think in as far as Your asset allocation would be concerned, I guess you would just document, you know, what component, you know, what percentage you're actually, you know, investing in real property or businesses, for example, LPs, and then what percentage you have in a paper portfolio. And I know there are some folks in this community that go all the other way. So they're 180° opposite of Amy and I. And they had have very little if no paper portfolio at all. And they're just like, Nope, I have 38 doors and I'm financially independent on my cash flow every month. And I think that, yeah, it makes sense to document that. I don't know exactly what the mechanics of that look like just because we don't have any residential real estate. Oh. So I think the big picture where I was going with is obviously if you have an intermediate goal before retiring fully or say just retiring your spouse or going part time or something like that, you would figure out the cash flow need of how much you need. And cash flow needs are very easy to fill with those income producing assets. Like you're saying, like real estate. And a little bit more tricky to do with the paper portfolio. I mean, do you use the 4% rules at 4%, is it 4.7, is it 3.65? I mean, who knows, right? But when you have those cash flow producing assets, I think it might make the exercise even a little bit easier, especially to hit the intermediate goals.

[Scott Trench]

Let me push back on that. So this is wonderful. I think we're now at the, at the edges, at least as far as I can I can tell of, of, you know, current thinking for what a good investor policy statement looks like. So here's a challenge with real estate, for example. So there's a very common situation. Suppose you have a $500,000 duplex and it's got a $300,000 mortgage on it. It produces a small amount of cash flow. It's called 500 bucks a month today. And you're about 20 years away from paying it off. What do you think about that? Right? That there's a $200,000 equity. Do you include that in your fire portfolio? You have your 500amonth in cash flow. That's nothing, right? Relatively speaking, you need a lot of those to stack up. And many people have one, two or three of those. And that's nice. But when that thing is paid off in 20 years, you're going to get 40 grand in NOI, 30 to 40 grand in NOI. That's a big deal. That makes a big difference in Inflation adjusted NOI, you stack three of those together, now you got 90k or 100k of cash flow that's very realistic and reasonable to rely on. So you have a ramp with that cash flow from today until it's paid off. That's how things ought to work in a smoothed appreciation curve. That's a pretty complex position. I got to think about that in the context of my stock bond portfolio or the pension that maybe may or may not be part of what I'm doing here, my, my wife fi situation over here and think about how that all interplays. And I think that's the challenge. And I think, you know, this sounds like an ad, I guess for Boglehead philosophy because it's so simple and clean for you. It literally takes just a few. I think many people could get to a very good draft in just a few minutes from that perspective. But I think the reality of many other people who are listening and finding this overwhelming exercise is there's a lot of intellectual work that needs to be done to really defend the position of how you think about these alternatives or the messy realities of the rest of your life in the context of your portfolio and then how you move from where you are today to where you want to be in a tax advantaged way without making mistakes that you really be consequential. Is that a fair way to frame it?

[Bob Haynes]

Yeah, I mean you're definitely hitting like as you're talking, I'm getting like heart palpitations and I'm like, this is why I'm not a real estate investor. The complexities just seem mind boggling to me.

[Scott Trench]

I have met significant wealth from this, you know, this activity set and significant challenges in actually finishing the play to an intellectually pure situation that I can defend and really sit comfortably with for decades like that. That's, that's the real challenge I'm going through personally with this exercise.

[Bob Haynes]

Yeah. So I think the way that I would frame it, again, this is as someone that's not a investment real estate person at all, but the way I would kind of think about it is as far as the investor policy statement is concerned, I would just be concerned with kind of documenting what my desire was in terms of how much of my total net worth or of my total investable portfolio, if you will, do I want to have in real estate, is it 20% of my portfolio? Is it 50% of my portfolio? Right. And then as far as the complexities, like to your point of, you know, it's only making $500 in cash flow now, but 20 years from now, it's going to be making a whole lot more when the mortgage is paid off, then you can use something like Big Earn has a case study spreadsheet where you can actually model out future income inflows and changes in those over time. You know, it's funny, I know Big Earn gets kind of a bad rap is kind of like being the Grinch of the fire community. Like, it's not 4%, it's 3.5 or, you know, whatever.

[Scott Trench]

I think that guy has done really good work, by the way, just as I think that there's a gift there as well that he's giving to the fire community that's disguised as gringiness with all that work.

[Bob Haynes]

So I completely agree with you, with you, Scott. I think, you know, obviously the guy is brilliant. And the irony is, although he seems to have kind of that reputation as being the Grinch, if you take a look at his backlog of case studies that he's done almost in every case he gave whoever it was that was coming to him with their case, he gave them 4 plus percent withdrawals out of their portfolio for one reason or another. Right. Whether it was, you know, a lot of people just discount Social Security, for example, like, I'm not even going to count it because it won't be there. Well, it probably will be there. Maybe it'll be reduced, maybe it'll be means tested, but it'll be there. When Big Earn goes through and actually is meticulous about documenting every single dollar that's coming into your life, he often finds that people can sustain much higher than that 4% withdrawal rate or the 3.5 or 3.75, whatever, at the current CAPE ratio, he says it's going to be.

[Scott Trench]

We had the privilege in the last year of talking with the conflicting opinions of the brilliant bigger in Karsten Jeski, Frank Vasquez, and then Ben Felix recently. And I think learning, it's really powerful learning. When you hear these three guys disagree and Paul Merriman and many others as well in there, and when you hear the different disagreements these people who are really conducting pretty original thought in these areas have, I think that's where you actually get better as an investor. And then of course, that's the challenge, that's the blocker people have about building these investor policy statements is they're done now and I don't feel ready now to finish this play and then I got to stick with it for a lifetime. But I think that's a big psychological barrier that I have, maybe other people have as well, to constructing this thing in a way that you can feel ready to stick with for life.

[Bob Haynes]

Yeah. Yeah. So give yourself the permission to know that it's not going to be perfect. You know, do the exercises, if you're helping, you know, your older relative to actually do theirs. Right. And know that your first draft is just your first draft. Right. You know, Amy and I have, you know, we've made minor changes to ours every single year. We have, you know, we have a finance meeting every month. At the end of every month, we look at our new net worth and our spending. If there was any anomalies this past month, if there's anything big coming up. And then we have a big annual meeting. And at the annual meeting, we re review the investor policy statement and say, you know, what do we need to tweak or tune? And we may have put some things in kind of the parking lot to talk about, like, hey, do we want to make this change? Do we want to make that change? But we try to make those changes to our investor policy statement just on, you know, our lives changing, like, our goals changing. You know, I would encourage, you know, the, the listeners to, you know, obviously if you're getting married, if someone dies, like, if your kids are going off to school, when big life events happen, you may need to make changes to your investor policy statement in service of those goals. But we shouldn't be making, like, changes because the CAPE ratio has hit a new high or, you know, any of the things that I would naturally be like, oh, you know, it feels like the market is a bit scary right now. Maybe there's negative AI bubble. Maybe we need to go to, you know, Cap weighted index instead of, you know, it's like. Or get out of Cap weighted Index. It's like, what do we. So, yeah, I would give yourself the permission to know that your first draft's not going to be perfect and know that you can make changes to it over time. And having it done is better than having it perfect anyway.

[Mindy Jensen]

I love that so much. Bob, in the beginning of the show, Scott was talking about the different nuances that we and the different segments that we put into the investor policy statement. One of them was called other conditions, which is probably super helpful but not super descriptive. What are some of the things that go into the other consideration section of your investor policy statement?

[Bob Haynes]

You know, I got this from Leaf Darling. So Physician on fire is the one with the other bucket. Because I was like, same thing. I'm like, well, what's the other. It seems kind of random. And he's like, well, everybody's going to have these kind of one off things that are important for them, whether they be constraints like, like Scott's talked about, right, where you want to kind of document what those constraints are. Or maybe they are goals, but they're kind of more intermediate goals. You're not going to put it in the top of your investor policy statement that you're funding your Kids529 plan of, you know, $10,000 a year. I don't even know what the limit is, whatever it is, right, because you want them to go to a good college and you plan on paying for it. But you could put something like that in the other consideration. For Amy and I, for a while we were doing Roth conversions and that was kind of in the other considerations area. And now we've actually kind of said, you know what, we're turning off the Roth conversions and we're just doing step up in basis. So we're doing capital gains harvesting only and no more Roth conversions as of last year. We flip flop back and forth on that. So for those that are actually still say in accumulation phase, they might be doing something like backdoor Roth contributions, for example or you know, it's very specific to you what you're trying to achieve and maybe there are are mini goals or to Scott's point, constraints that help you kind of hem in what you're doing in your investor policy statement.

[Mindy Jensen]

Okay, that's really helpful. I think that those are going to be specific to every single person. I mean the whole thing is specific to every single person, but other considerations come from your goals and objectives. I want to throw out there a link to the BiggerPockets Money resource page, which is biggerpocketsmoney.com resources. We have a goal setting worksheet that can help you in your goals because sometimes you're like, oh, I want to live a great life. Okay, well what does that mean to you? That actually gets really, really specific. And that would help you fill out your investment policy statement which will help you then discover your investing philosophy, your asset allocation, your other considerations, blah blah, blah. And then last is drawdown strategy. Do you have a quick overview on drawdown strategy, Bob?

[Bob Haynes]

Maybe back to Scott's point. You know, this is going to be deceptively easy for Amy and I just because of fact that we're kind of the simple path to wealth or boglehead style investors. So in our specific case, right, what we do is I play a little Bit of mental accounting tricks on myself. I thought that during the accumulation phase, you're so used to always hitting the buy button that hitting the sell button was going to be an intellectually easy but emotionally challenging exercise. Right. It just seems like the opposite of what I should be doing. So rather than kind of framing our drawdown strategy as a drawdown strategy, we kind of frame it as just an asset allocation strategy. So we have 80% in VTI, 17% in BND, and 3% in cash. And that 3%, just to be clear, that has nothing to do with, like, what our withdrawal rate is or anything. Amy and I often have the discussion of, you know, what are we optimizing for whenever we're making a decision? And in this case, the what are we optimizing for? Question is, we're optimizing for sleeping very well at night. So in our accumulation phase, we always slept really well with, like, 50 or $60,000 in our checking account. I know Carl sounds like he feels good with a thousand dollars in his checking account, and that would make me crazy. It's like, holy cow, I have no money. Like, what's going on here? So this is just one of those things that I could have picked a dollar amount. We could have said 100 grand in cash, whatever. We just picked 3% spent. Right. So in early retirement, just like during our working years, we live on cash. Right. So every month we just spend what's in our checking accounts. And on a monthly basis, we move in any interest or dividends that we get in our taxable brokerage account over into our checking accounts. And then every month I look at our asset allocation. That doesn't mean I make any changes or I plus anything up, we have about half a percent, trigger. I'll say. So if we have 3% cash now, and then I look at the numbers at the end of the month, and we're at 2.89%. That's fine. Right. But when we get down to about two and a half percent, which happens about once a quarter. Ish. Right. Depending, I will go ahead and sell either bonds or equities in this case, because the asset location for all of our bonds is in our retirement accounts, we're selling equities every time in our taxable brokerage account just to plus up or reallocate to cash. And on average, we end up doing that about once a year. And when I say cash, we are keeping the vast majority of that really in a money market fund, a Schwab money market fund that's currently yielding about 3.8% or so. And that's about it. I mean, so it's just a very simple spend cash move the interest in dividends monthly, and then once we get to about two and a half percent plus up another half percent by selling whatever we don't want to own. So we're still doing that unwinding I was telling you about. So sometimes we're still selling some of those stocks that we, quote unquote, don't want to own because they don't fit our asset allocation.

[Scott Trench]

So when it comes to decumulation, I think the framework I would suggest for people to think about is first, remember you have a standard deduction, right? That's $32,200 every year. You want to make sure you use all of that debt, right? Like that's certainly the Roth conversion floor. Then there's long term capital gains and qualified dividends which stack on top of that. The biggest constraint that you need to be aware of in early retirement is the MAGI cliff for ACA subsidies, right? So that's modified adjusted gross income. When you go above that, you hit a cliff and that dramatically increases your spending, which requires you to withdraw more, which requires you to pay more taxes, and you get yourself into a circularity problem. So I would suggest that people buy us towards thinking about doing the big moves at the end of the year in 2026 in particular while we're in this situation. So they're, they can control exactly how much income they trigger. If you have that capacity, if you have other streams of income, like rental income, for example, that's where you got to be more careful, because rental income is ordinary income, right? You know, it's offset by depreciation, those types of things. Your cash flow could be higher than your taxable income, but you want to be very thoughtful about what that's going to look like and really have your projections nailed before you do things like Roth conversions to move over these cliffs. So decumulation is, I think, one of those areas where you can do it yourself. There's a great book on it in Tax Planning to and Through Early Retirement by Sean Mullaney and Cody Garrett, who we've talked to on Bigger Pockets Money here. But if you start layering in this additional complexity, that's where you know, maybe it's time to think about getting a professional to help you out. Because you, you want to be aware of these things, at least in the first year, so you don't put yourself over a cliff or cost yourself 15, 20 grand. In additional health care subsidies or put yourself into a tax bracket. Or maybe you're thinking about Roth converting aggressively and you go over the net investment income tax threshold. These are all considerations that are not obvious to you. If you haven't been doing this for

[Bob Haynes]

a while, I'm here to second the tax planning to and through early retirement. That's an excellent book. And actually that's what got me to change doing the Roth conversions back to doing the long term capital gains harvesting. My wife and I took Sean out to breakfast at the Bogleheads conference last October and had a detailed conversation with him about it. And he's like, yeah, I had already kind of come to that conclusion. But then once I read his book, him and Cody's book, I was like, yeah, this is, this is going to be the right way to go. Which, you know, here's the other thing. Just to take a giant step back and because I talked about the Bogleheads Conference, it just popped into my head. You know, Rick Ferry was the host this year. He said something very interesting that I kind of like was, it was a bit of an aha moment. He said that, you know, the financial press comes out with, you know, thousands of articles and stories and, you know, rules of thumb and this kind of thing on a daily, weekly, monthly basis, right? You just have to look at Yahoo. Finance or Forbes magazine to see all that. And his point was that almost none of those things, almost none of those rules of thumb apply to anyone that is sitting in the room. In this case, it was at the Bogleheads conference. But I would say that to the entire audience that's listening to this podcast, right? All of these rules of thumb are built for the median American, right? And no one that's listening to this podcast or that's in the FI community are the median American. So take that for what it may. But I think it was a great piece of advice from Rick.

[Scott Trench]

You said something earlier about how the intellectual work needed to get to a defensible investment philosophy. For me, with my complex real estate and syndication and alternative assets and bigger pockets equity and those types of things is just overwhelming to you. But I'll also say this. I'm 35 and I have great problems in the context of this and many other people who are listening may have that as well. And that real estate portfolio or that business that greatly complicates this situation relative to Bob's may be what got you to this position or maybe the collection of bets, even if a few of them didn't work. Out got you to the position of having this privilege early in life and now you got to work with those as advantages or weirdo wacky things that change the rules of thumb for you in these situations. I think that's the hard work and that's all the more reason to tackle it. It's more important probably for me than for a Boglehead's adherent to build one of these investor policy statements, even if it's easier for the Boglehead.

[Bob Haynes]

Yeah, I think that's a great point, Scott. It's one of the things that I also take 10 giant steps back. We're talking about the challenges of doing this or the problems with kind of figuring this all out. And it's like, man, if only everyone could have these problems, right? Like we have such first world problems in this community. You know what I mean? Like it's. Yeah, it's such a good position to be in. So recognizing that, I think it's, it's really great to be in this community and to have these types of problems.

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[Mindy Jensen]

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[Scott Trench]

If you can get this done early, I think it will greatly simplify things for you at the end and save you a lot of money and trouble. Because if you don't do this, my position is sprawling. Not necessarily because I had an incoherent strategy. I bought rental properties and I invest in stocks like that. That was it. Right? And I had a couple of other nice boosts that were not really investments but were boosts to my position here. I know other people who have kind of really created a sprawling hodgepodge portfolio one opportunistic bet at a time across very different strategies. And now they've got a real mess to unwind with a couple of big winners that have huge tax hits and that kind of stuff. So that's another. That's another situation there. If you can think about the end of my at the beginning, you can greatly simplify, maybe speed your path there and make this exercise all the more easy at the end. So if you're not at the point where an investment philosophy for drawdown makes sense, maybe that will help you. You know, thinking about it now may save you a lot of time in 5, 10 years when you get there.

[Mindy Jensen]

Yeah, and perfect example is Bob, who said that when he first retired he had a bunch of stuff everywhere and he's simplifying it. Like would you still have owned the assets, assets in your after tax portfolio if you had had an investor policy statement or do you think you might have put those in different types of accounts or just not even had it at all?

[Bob Haynes]

Yeah, so I think both, Mindy, it's a great point. So there are things that I owned that I don't think I shouldn't have been owning at all. Like, you know, there were precious metal funds and stuff like this and it's like, what, what are we doing with that? I mean that's just nonsense, right? Like I shouldn't own that at all. But then there was a good chunk of, you know, fixed income that was, you know, throwing off dividends and interest in my taxable brokerage account when we were at very, both my wife and I were very high earnings years. So we were paying, you know, 35 or 37 cents on the dollar, you know, for stuff that we should not have had in our taxable brokerage account at all. So yeah, it's an interesting intellectual exercise to think back, like what would have been if I knew about the investor policy statement, if I knew, met leaf, you know, 20 years ago. But then I don't want to think about it because it's like, never do that.

[Mindy Jensen]

Look at all the mistakes I have made. Look at how much it cost me. That is an exercise in horribleness. Don't ever do that.

[Scott Trench]

And then, you know, like, like let's say you're building a diversified portfolio. Like there's so many little things that you're going to have to evolve over time, right? Like you put a REIT in your after tax brokerage account instead of in your retirement account. It doesn't even occur to you to think about, oh, qualified versus unqualified dividends on the distributions for that. So those things matter. Like the REIT should go in the retirement accounts for that reason, right? Because it's going to be ordinary income to you. Not, not a qualified long term capital gain or a qualified dividend. Those are all these little things that you pick up over the years on this and that's, that's going to be just a hobby, I guess, across a lifetime. I think if you want to get good at this, to pick up all of these things and make these decisions for yourself.

[Mindy Jensen]

Bob, you say you revisit this about every year with your wife life. How frequently do you think people should be revisiting their investor policy statement? Do you Think once a year is enough, especially if they're just creating it. Or do you think once a year is like too much if they've just created it?

[Bob Haynes]

Yeah, it's a, it's an interesting thought exercise. Right. I think that for us, the year has been about the rate cadence and we're doing it, you know, kind of late December, early January, you know, as we're doing and all our other like year end tax planning and kind of, you know, just wrapping up our finances and projecting for next year. And in most years, I mean, when I say we've changed, like we've changed a couple words here and there. This was a big change for us this year to say we're not doing Roth conversions anymore. We're only going to do capital gains harvesting in our taxable brokerage account. And that's because the market's gone so crazy that, you know, our basis just keeps getting lower and lower and lower. And we do, we don't want to get to the point where we pretty much have gotten to the point where we don't want to let the tax wag the lifestyle dog. Right? So like if we want to spend $120,000 a year and to, to Scott's point earlier now, like taking 120k out of our portfolio is going to push us over the subsidy cliff for, you know, premium tax credits or something like that. We don't want to say, oh well, we won't do that trip, or we're not gonna, we're gonna cut back, back on something because of the tax implications. So in order to kind of try to keep up as best we can with the falling basis relative to the total value in our taxable brokerage account, we're just going to focus on doing the capital gains harvesting going forward and resetting that basis. But yeah, I think annually has been good for us. And I don't think it's one of those documents that you want to change much more than that. Like I said, unless it's your life, circumstances are changing that fast, right. Maybe you have a death in the family and then you have some other major event like around those things. It makes sense to revisit and change. But even that, I think I was talking to Mark Troutman about this. You know, there's the mindset that says, you know what, whatever things, you don't want to make any changes after a death in the family for like a year or two and make sure that you're clear headed in everything that you're doing after that as well. So yeah, I think annually is good.

[Scott Trench]

Well, Bob, thank you for sharing all this with us today. This has been really powerful learning exercise and again, I think that what this shows is the first components of this can be very simple. If you prescribe to a Boglehead's philosophy or that's most of your portfolio, fairly simple. Once you get into mechanics of actually decumulating even then there's going to be a pretty good complexity here. You're going to throw up your sleeves and really figure out what you want to do and put together a plan. And the consequences are meaningful if you kind of blow it. So be smart about that and put in the work if you're going to DIY the drawdown plan piece. And then I think it sounds like you kind of agree with me that this is a vastly harder exercise for a complex portfolio that has lots of alternative assets in it and there's, and that's a real blocker to getting it done. It probably makes it more important. So I need, I need to do this personally. But it sounds like you're acknowledging the difficulty for the more complex crowd.

[Bob Haynes]

Yeah, I know, I totally agree with you and I think that might be one of those things. We don't currently use a financial planner, but I pay considering doing like the fee only I know Jeremy has that Nectarine platform which is fee only financial advisor. So this might be one of those things where you want to actually pay for professionals help to go through it. And then of course once you have it developed, you can, you know, make your little tweaks over time. But yeah, it probably, it's definitely much more difficult for someone like yourself with all the various types of investments that you have than a bogleheads or simple path to wealth investor like Amy and

[Mindy Jensen]

I. Ir but that doesn't mean that complicated financial position holders shouldn't do an investment policy statement. You should absolutely do it. Honestly, you should probably do it more because you have so many complicated things and maybe doing this investor policy statement will show you that you need to maybe uncomplicate your life. I am also in that position, Bob, where we're like uncomplicating our life as we go.

[Bob Haynes]

Oh, that makes sense, Bob.

[Scott Trench]

Where can people find out more about you?

[Bob Haynes]

So I don't really have much of an online presence, but I do post fishing and landscape photos over at my Instagram account, J. Haynes.

[Mindy Jensen]

Bob lives near an ocean and he goes fishing on the ocean all the time with his dad. And these pictures are really cute.

[Scott Trench]

And when he's not fishing, he Posts the images of the ocean behind him in his office so he can remind himself of the ocean which is steps from you to your house. Is that right, Bob?

[Bob Haynes]

Yeah, yeah. We're four houses to the bay and three blocks to the beach. We're super blessed. Yeah.

[Scott Trench]

Well, thank you for sharing your wisdom here today, Bob. Really appreciate it and fantastic discussion. I appreciate this because I'm struggling with this problem in real time right now and I'm going to use what I've learned from you today. And the biases I had I think were in some cases confirmed. In some cases I need to go back to go back and revisit them about the challenges. This is for the non pure fire Boglehead portfolios. Thank you.

[Bob Haynes]

Yeah, thank you. Thanks for having me on. This is a lot of fun.

[Mindy Jensen]

Bob, it is always a delight to see you again. Thank you so much for sharing this with us and we will talk to you soon.

[Bob Haynes]

Sounds good. Bye guys.

[Mindy Jensen]

Okay, Scott, that was Bob Haynes and that was fantastic. I heard Bob talking about his investor policy statement a few months ago and I said I need to have him on so he can share this with our audience. Because I think you're right. At the beginning of the show, Scott, you said something about only like 0.1% of all people in the world have an investor policy statement. I think that's being really generous. I don't know know anybody besides Bob and Leaf that actually have a statement written down, filled out and of course everybody who did day five of the 31 day challenge that we had back in January. It's just something that you know you need and you don't think about. What did you think of Bob's statement since you are still working on your investor policy statement yourself?

[Scott Trench]

I think the power of what Bob brings here is here's what good looks like in the context of a simple investor policy statement. And I think simple investor policy statement is doing a lot of work because that comes from a position of a very simple investment philosophy in the Bogleheads community, for example, that is doing essentially all the heavy lifting downstream. It's just a matter of outputs and applying that philosophy as close as possible with the constraints, advantages or a little bit of mess that is common to most financial positions. If you don't agree with that philosophy where I'm at, that's where I felt validated by Bob frankly in terms of there needs to be a lot more work. I also felt jealous of the, the Bogleheads community and they're probably laughing at me because of the simplicity that their worldview brings to this exercise.

[Mindy Jensen]

Well, you heard Bob say that he used to have a complicated financial position and he is decomplicating it. You could uncomplicate your financial position too, Scott.

[Scott Trench]

I don't know if I think that that presumes that I settle on. On simple is better, right? Simple is simpler. But what does better mean? I think that's the questions I'm really trying to answer that are that require a lot of thought and a lot of lot of thinking about while on hikes and such and really doodling on exactly what you're looking for there. I kind of have what I'm looking for from a lifestyle output here, but there are other considerations with the portfolio and I fear and want to be defensive in certain ways. What does defensive mean? To me those are all things that I'm working on with my equities portfolio portfolio, for example, that need to be figured out before I can really commit to the rest of my life with this investor policy statement.

[Mindy Jensen]

Well, if you remember what Bob said earlier, he said your asset allocation doesn't have to be perfect, it just has to be something you can stick with. So maybe the all equities portfolio isn't something that is correct for you, Scott Trench, because you have this amazing ability to dive deep into what the Cape Shiller index is saying it is and it's too high for your comfort level.

[Scott Trench]

Yes, I'm capable of doing a tremendous amount of analytical work to get worse returns in the S&P 500.

[Mindy Jensen]

Just give me all your money. I'll manage it for you. So far.

[Scott Trench]

We'll see. We'll see. Yeah, so far.

[Mindy Jensen]

So yeah, even Scott is struggling with this. So don't feel like, oh, this is really difficult. This is something that will benefit you especially if you struggle with market downturns or if you are like Scott and struggle when the market is really hot high and are expecting a crash. Having an investment philosophy, an investor policy statement that tells you what you're supposed to be doing that you made, you did it when the market was calm, when you had a clear head, you made this policy statement and you stick with it. That's the one that's going to be best for you.

[Scott Trench]

And I'll tell you right now that the answer. I know, I know portions of this. I know how I think about my rental properties. I've already given the framework on the show today. You know, with the cash flow today and the escalation over time and what's a reasonable conservative approximation of that. I know what I would value them at today. I know from an equities perspective. I know the answer involves factor tilts for me personally, and that's not a recommendation for other people, but I know it involves some of the stuff that we've heard from Paul Merriman and Frank Vasquez and Ben Felix. All of them are using factor tilts in various parts of their portfolio. That will be part of the answer for me. But how much and whether that changes or evolves over time, time, those are things I'm still trying to pin down. So I'm not, I'm not totally a lost in this exercise. I'm just, I'm just struggling with the, the last bits of nailing it down.

[Mindy Jensen]

Yeah, well, and it doesn't have to be perfect, it just has to be written down on paper and then you can iterate as you are having a clear head having thought about it for a while. You know what, I do want to make a little tweak here. All right, Scott, should we get out of here?

[Scott Trench]

Let's do it.

[Mindy Jensen]

Before we do, I want to tell all of our listeners that if you want even more financial independence information, you can hop on over to our website, biggerpocketsmoney.com Sign up for our newsletter. I send you a newsletter once a week with a couple of articles about different things to think about on your journey to financial independence. And we also have a bunch of templates and calculators and free resources that Scott has been working on on our resource page, which is biggerpocketsmoney.com resources all right, we will see you on Friday's episode and that will wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench. I am Minnie Jensen. And now you know Bob too.

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[Scott Trench]

I wanted a partner who would look

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[Scott Trench]

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