Friday, December 11, 2020

Quit Like a Millionaire

Many of us dream of what life would be like as a millionaire.  In their book Quit Like a Millionaire, Kristy Shen and Bryce Leung tell the story of starting dirt poor and eventually retiring millionaires in their 30s.  The book is a cross between a how-to guide and their personal stories that works quite well to keep the reader engaged.  The main criticism is that the authors don’t seem to have realistic ideas about how the stock market is likely to perform, but this doesn’t take away from the practical ideas and motivation to help readers achieve financial independence.

The book covers the usual subjects like education, debt, housing, banks, investing, taxes, travel, and retirement, all woven into Shen’s personal story.  She grew up dirt poor in rural China, and after coming to Canada made a series of steps ultimately leading to wealth.  If she can do it, you likely can too, and the authors set out to show you how.

It’s common to hear that you should follow your passion in choosing how to make a living, but the authors say “don’t follow your passion (yet).”  They believe young people should focus on making money first, and then follow their passions once they’re well on the way to financial independence.

While low interest debt isn’t so bad, “Consumer debt should be treated as what it is: a financial emergency that you have to take care of now.”  “Cut expenses to the bone, even if it hurts.”

The book’s take on whether we should spend on experiences or stuff focuses on brain chemistry.  “Possessions give you an initial burst of dopamine that fades as your nucleus accumbens acclimatizes, causing you to continuously chase that high.  People who spend on experiences get way more bang for their buck.”

Banks and their expensive mutual funds are a barrier to wealth.  “The bank wants your savings—specifically, a percentage of it, every year, forever.  The real bank robbers work for the bank.”

“If you ever want to see a banker sweat, try this: walk into your bank, ask to see a salesperson, and ask to put your savings into index funds.  It’s the funniest thing ever.”  “I did exactly that.”  The “salesperson spun story after story about why I was making a huge mistake.”  “Eventually he resorted to outright lying.”

The authors tell a vivid story about what it felt like to make their first stock trades and to live through a market crash.  I was reminded what it felt like the first time I bought shares through an online broker.  No matter how carefully you’ve thought through your investment plans, self-doubt can hit you big time.

An interesting part of the book is about the authors’ extensive experience keeping costs down traveling.  They manage to spend less overall while traveling than they spend when living in Canada.

On the subject of managing a portfolio in retirement, the authors draw an analogy about bullets, missiles, and feedback loops.  Once fired, a bullet just travels on a path determined by physics.  However, a missile “sees” its target and course-corrects.  Similarly, we should adjust our spending in retirement if our portfolios don’t perform as expected.

“Because I’ll stay invested in equities throughout retirement, my portfolio is naturally hedged against inflation.”  This point about inflation makes sense, but another comment didn’t: “Inflation doesn’t affect you when you travel because inflation is a per-country effect.  By switching countries you sidestep inflation.”  Inflation still happens in a country prior to your arrival.

On life insurance: “The worst thing to do if you’re trying to clarify your needs is to ask an insurance salesman.”  “The only [type of  life insurance] you need is term life insurance.”  “If you retire early, you don’t need life insurance.

When people hit their magic number and decide to retire, they often hit a “Wall of Fear.”  “Instead of feeling excited, they worry about all the things that could go wrong.  I experienced this wall of fear.  It led me to keep working a couple of years longer than I needed to.  The roaring stock market since I retired has given me an even larger margin of safety.

The most serious criticisms of the book relate to expectations for the stock market.  One example begins “At a conservative return of 6 percent per year on average (inflation-adjusted), … .”  This isn’t a conservative assumption for a long-term average portfolio return starting today.  The book discusses 60/40 portfolios and having a maximum of 80% stocks, but this 6% real return expectation isn’t realistic even for 100% stocks.  One wonders whether the strong bull market over the last decade has given younger investors unrealistic expectations.

The authors recognize that the 4% rule is meant for 30-year retirements and not the 60-year retirement they may have.  To combat this, they created what they call the “yield shield,” which amounts to shifting to higher-yield assets, such as preferred shares, REITs, corporate bonds, and dividend stocks for their first 5 years of retirement.  They assume that this yield will be safe in a market downturn and they won’t have to sell stocks while they’re low.  This is far from guaranteed.  There are many types of market crashes.  The yield shield will work in minor market declines, but dividends can get cut and stay low for a long time.  The only way to shore up the 4% rule reliably for longer retirements is to save more money.  I’d suggest increasing from 25 times annual spending to 30 times for very long retirements.  The authors were simply lucky that they retired into a continuing bull market.

The authors believe that the difficult market in 2015 shortly after they retired was a good test of their yield shield.  My own portfolio went up 7.63% in 2015.  This is hardly a meaningful test when their stated goal is to have their portfolio last their whole lives with 95% certainty.  Fortunately, the continued bull market has made the sequence of returns problem moot for this couple.

The authors describe their bucket system that involves making active decisions about avoiding selling stocks when they’re down.  This can work well for market corrections, but not extended market declines.  When you spend from cash and bonds to avoid selling stocks, you’re increasing your stock exposure.  This makes further declines hurt even more.  Once you’re out of cash and bonds and you have to sell stocks, this will hurt even more.

The book describes a number of backup plans in case your portfolio shrinks too much.  The last resort is to earn an income again.  This may seem reasonable in your 30s, but what if you’re 70?  When deciding on how much you need to save to retire, imagine yourself old enough that your most useful skills are gone.  I’d rather work an extra year while I’m young than have to flip burgers for 5 years when I’m old.  It’s certainly possible to be too cautious about how much money you need to retire, but misapplying the 4% rule isn’t cautious enough.

Despite these criticisms, this book is a useful guide to financial independence written in an engaging style with some good stories.  Many people think building wealth is just impossible, and the authors do a good job showing how it is possible.  It may take longer on lower incomes, but it’s still possible.  Most of my criticisms can be addressed by simply saving a little more than the 4% rule suggests.


  1. I applaud these two for living within their means, but they always forget to tell us that out of school they started with $70,000 per year jobs, that they managed to turn into $130,000 jobs within 3 years.
    That too would be applaudable, except then they say "You can do it too".
    Sorry - I think that's a one in a million situation, which they conveniently neglect to tell us.
    Like so many in the FIRE movement, they're selling snake oil, and profiting from it mightily - by blogging, making personal appearances, and selling books. PT Barnum would be proud.

    1. Unknown,

      The book does address the fact that it takes longer to get to FI on a lower income.

      Like any area, lots of nonsense is written about FIRE, but the best messages from the FIRE movement are excellent. Frugality becomes more important the lower your income, not less.

      It's certainly easier to become rich on a larger income than a smaller one. But reaching FI can be done on a smaller income. I'm reminded of something a friend of mine often says: "whether you believe you can or you can't, you're right."

  2. I agree with "Unknown". These two have taken the "FIRE" concept, and transformed it into "FIRE Inc." They are the 2020 versions of Derek Foster or Krystal Yee. You create a blog around a financial theme and springboard it into a business, but "sell" it to your readers as something else. When people point this out, they cry fowl, and dismiss them as "haters", etc.

    Personally I think "bucket systems" are best suited for people who have difficulties in overspending and controlling credit card balances. Not for people that have systematically saved enough to retire. I would assume most in that category could manage their nest egg more responsibly going into retirement by then.
    By the way, I really like your simple approach to reviewing financial books. You do a great job of it.

    1. Hi Paul,

      I can't comment on what these authors say other than what I read in their book because I haven't followed their blog. So, I don't know what you mean by "'sell' it to your readers as something else."

      The book lays out many techniques people can use to pursue financial independence. It's true that most people could not retire as quickly as this couple did, but it's also true that many people get angry when they're told that their approach to finances could be improved.

      I'm not too concerned about the names people give to the system they use for their portfolios and other savings. I think they get into trouble if their system calls for market-timing decisions based on whether stocks are up or down.

      I'm glad you like the reviews. I don't promote books; I try to bring forth the main ideas (and my opinion of these ideas), and give readers an idea of whether they want to read the books.