I eat oatmeal for breakfast. Because I’m lazy, I cook it in the microwave. When I first started doing it, the oatmeal overflowed and made a mess in the microwave.
I found a discussion online on this same problem. People had many different suggestions. Someone said to use water instead of milk. Someone said to cook it at 50% power for a longer time. Someone said to interrupt it in the middle, stir, and continue. Someone said to add a pinch of salt. Finally, someone said,
Just use a bigger bowl.
I bought this bowl from Target for $2. Problem solved.
You don’t have to be precise when the bowl is big enough. It doesn’t matter whether you use milk or water. You can cook at full power. You don’t need to stir and reheat. The big bowl gives you more leeway.
Benjamin Graham talked about the concept of “margin of safety” in the context of investing. When you buy at a wide margin of safety between a stock’s price and its intrinsic value, you’ll still get a good return even when your estimate of the intrinsic value is off a little.
Translating to personal finance, using a bigger bowl means saving and investing more such that you’ll always meet your goal even if you run into unfavorable market conditions. You don’t have to be precise in how much of your savings should go into traditional or Roth accounts. You’ll still be OK if you invested a good chunk in international stocks when international stocks did poorly relative to U.S. stocks.
At retirement, it means having a large portfolio such that you won’t worry about bear markets or high inflation. You spend your time on activities you enjoy, not watching what the Fed will do next. Your retirement success won’t depend on knowing when to harvest tax losses, how much you should convert to Roth, or whether you’ll pay IRMAA.
Big Bowls In Action
I read an interesting discussion on the Bogleheads forum. The poster retired in October 2021 but he had over 80% of his investment portfolio in one stock. As of early June when he posted an update, the value of his investment portfolio dropped 22% in five months. He had plans to reduce exposure to this single stock, but overall he hadn’t felt any undue stress. He was comfortable waiting for his investment thesis to play out.
Besides his confidence in this company as a leader in its field, he didn’t feel stressed because he had a big bowl. His portfolio value was $9 million after the drop and he planned to spend $250k a year in retirement. The planned expenses were less than 3% of the value of his portfolio and I imagine that a large portion is discretionary. It would be quite a different story if his portfolio value was $900k and the planned expenses were basic needs. The bigger bowl allowed him to take risks that are otherwise considered reckless.
I won’t put 80% of my portfolio in one single stock if I have $9 million but I’m not too worried about this person. The bowl is big enough. He can do whatever he wants.
I also read this interview of a retiree on ESI Money blog. He retired 14 months ago. His wife has been a stay-at-home mom for 15 years. Their investment portfolio is 89% in hedge funds plus some small percentages in real estate and other assets. That’s certainly unconventional but he’s not too concerned with not having enough safe assets such as bonds or annuities because they have $13 million in investments while spending $186k a year.
I won’t put 89% of my investments in hedge funds if I have $13 million but I’m not worried about them either. They have a big enough bowl.
If You’ve Won the Game, Stop Playing
Investment advisor and author Dr. William Bernstein famously said:
If you’ve won the game, stop playing.
This suggests reducing risk when you have enough assets to provide an adequate lifetime income stream.
You’ll have to decide whether you truly won the game. If your investments teeter on the edge between enough and not enough, you’ll naturally worry while going through rough patches. This creates great demand for retirement calculators and optimizing orders of withdrawals, Social Security benefits, and Roth conversions. Everyone wants to know whether they have enough to retire.
Ironically, when it’s abundantly clear they’ve won the game (“a big bowl”), as in the two examples above, it doesn’t really matter that much whether they stop playing or not. They can stop playing and convert everything into safe assets. Or they can keep playing and take unnecessary risks as they prefer. They’ll make it either way.
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