Stock indexes in Canada have risen so steadily for the past year that the part of my brain that is no good for investing is convinced that everything is different now and stock markets only go up. Let’s let that part of my brain think some more.
Now that my stocks will beat inflation by 25% or so every year, I can throw the 4% rule out the window and go with a 20% rule. My current savings can produce way more than enough income to cover my lifestyle. So, I can declare myself financially independent and ramp up my spending by a factor of four or so.
Believe it or not, many people really talked this way during the tech bubble of the late 1990s: “as long as I can make 15% or 20% a year on my stocks, I can retire soon …”.
That’s a nice daydream, but my more rational side needs to take over. A stock market correction is coming. It may come soon or it may come after markets rise another 50%, but it is coming. The future holds many small corrections and the occasional larger one. I can reasonably hope for lumpy returns that beat inflation on average by a modest margin. As long as I keep my costs low, the 4% rule is as high as I should go.