As I blindly swung my arm to swat at the tedious drone of the alarm on the night stand, it was pretty much a morning like any other. I labored out of bed, trudged my way through the early routine on autopilot, and set out on my long morning commute down highway 280 towards San Jose. I always found that stretch of road to be an interesting experience in dual realities, as the stunning views of the bay and surreal scene of clouds pouring over the mountaintops were all too often completely hidden by relentless inner thoughts of important job tasks needing immediate attention. Silicon Valley attracts a certain type of always-on engineer and actively feeds their obsessions, and my blossoming career as a successful product designer at a job I loved had long since shaped me into eager, if anxious, submission.
Once I settled in at the office and started catching up on dozens of emails that had poured in overnight, a morning meeting invite popped up for an impromptu all-hands gathering. Events like this were reasonably common, and I figured they were updating their bonus policy or sharing a new marketing plan. As everyone slowly filed in, several people exchanged comical guesses of what the news might be while sipping their latest round of break room coffee from quirky company mugs.
The last person to arrive was our division president, a quiet and respectful man I truly admire, and I immediately knew something was wrong from his demeanor. Flashing rare emotion in his normally stoic eyes, he informed us that our corporate higher-ups had decided to close our division entirely. Effective immediately, everyone in the office from the VP to the interns was let go and had until 5pm to collect their things and turn over any company property. The room fell silent as strange people we had never met started handing out plain brown envelopes with the details of our severance packages, and just like that the job I liked so much and worked so hard for was gone. With it went countless long days and nights of personal stress and sacrifice with nothing to show for it but chronic neck pain, atrophied personal relationships, and an NDA that prevented me from even discussing what I was doing all that time.
Financially I was in reasonable shape, so I was thankful that making rent or immediately finding new employment wasn’t stressing me out. But emotionally I was in a hard place. Losing that job was a real punch to the gut and my personal identity and sense of purpose took a bruising. The entire experience and abrupt closing of such a bright opportunity after navigating years of hard work and various career stepping stones to get there left me feeling largely disillusioned, and as a result, jumping back into another similar job in the perpetual pursuit of the next big thing just seemed wrong in ways I couldn’t exactly articulate at the time. I always envisioned myself as a resilient and ambitious person ready to adapt and press forward, but for the first time my compass was broken. I felt lost.
Of course, my story is certainly not unique. My wife was in her own stressful career situation and had already been searching for answers, so during my subsequent job search she fed me a series of books to not just keep me occupied but perhaps also help me approach the problem a little differently. I skimmed most of them and absorbed a few helpful tips here and there but for the most part nothing really stuck. That is, until one particular book captured my imagination — an unassuming little paperback called “Work Less Live More: The Way to Semi-Retirement” by Bob Clyatt.
The idea of retiring early was not completely new to me, as classics like “Your Money Or Your Life” were also in my reading pile. But while other works on the subject felt a little foreign or unattainable to me, there was something about Clyatt’s practical, data-driven perspective mixed with real-world testimonials and an emphasis on personal growth that broke through the years of corporate conditioning in my thoughtful but worn-out mind. Here was a fellow business professional that walked away from full time work at the age of 42 to pursue a more rewarding life of sailing, sculpture (the title image of this post is one of his works), and whatever other opportunities life offered. And if he could do it I could too.
I think the thing that first got my attention was that his proposed financial plan was not just a pretty package of hand waving and wishful thinking but a carefully considered strategy built on hard numbers and solid financial theory. As a passionate designer who enjoyed what I did but hated the tradeoffs, I also appreciated his unique approach to using semi-retirement as a means to finding a healthy balance of purpose and freedom rather than reflexively job-hating like so many other entries in the genre. He even talks a bit about art and rekindling your inner creativity, which was exactly what I needed to backfill my old work motivations with inspiring new goals. Basically, his message and reasoning were right up my alley and came at just the right moment in my life to take root and grow.
While it definitely took time to find my own way and many other people and events also influenced me over the years, I believe “Work Less Live More” was a turning point that gave me hope and pointed me in the right direction. Inspired by the book that makes extensive use of spreadsheets for financial planning, through lots of practice and experimentation I also developed a new hobby of modeling portfolio growth and retirement performance using Excel. Those homemade tools gave me the knowledge and confidence to invest intelligently and commit to my financial journey, ultimately leading to my own semi-retirement and providing the intellectual origins of the many calculators you see on Portfolio Charts. In fact, one could argue that being laid off and subsequently discovering this book set in motion a series of events that led to the post you’re reading today.
So imagine my surprise when I stumbled across a reference this week to the Sandwich Portfolio, an asset allocation Bob Clyatt discusses in “Work Less Live More”. Wait – what? How have I not modeled that already? After hustling to my local library to grab a copy and reading the associated website, I quickly discovered that it’s all spelled out as clear as day. When I first read the book years ago, I was clearly fixated on the vision of a better life, the ideas around managing spending, and the overall calculation methodologies rather than the specific investing details. Perhaps I was just too much of an investing rookie to understand what I was reading, or maybe my frazzled brain just absorbed the mental nutrients that it needed most. But with the additional experience on my side there’s no time like the present to come full circle and talk about his investing ideas.
Asset Allocation
Stocks
- 20% Large Cap Blend
- 8% Small Cap Blend
- 6% International Total Stock Market
- 10% International Small Cap Blend
- 6% Emerging Markets
Bonds
- 41% Intermediate Term Bonds
- 4% Tbills/Cash
Real Assets
- 5% REITs
Fans of the Sandwich Portfolio may notice two small differences between his specific recommendation and my interpretation. First, I’ve included his international bonds in the intermediate bond category to match the best data I have available. While every asset is different, in my experience this should be a very reasonable approximation. And second, the specific international small Vanguard fund he recommends is an actively managed version with a notable growth component that runs counter to some of his other discussions on preferred asset classes. However, I believe it’s important to understand this recommendation in the context that it was the only international small fund available at the time he wrote the book. Fund options are a lot more diverse today, so keeping with the spirit of his investing philosophy rather than the literal interpretation of a single fund methodology, I’ve allocated that percentage to international small cap blend.
Reading through the full investing discussion with fresh eyes, the first thing I notice is that Clyatt’s approachable writing style and clear explanations serve as effective cover for a remarkably sophisticated understanding of modern markets and portfolio theory. I guess that should be no surprise considering his degrees in finance and economics from Berkeley and MIT, but he definitely doesn’t write in the boring textbook style you might expect of someone with his pedigree. His full Rational Investing Portfolio includes a lot of assets closer to what a college endowment might invest in versus a normal investor like you and me, with things like hedge funds, commercial real estate, and private equity filling out the allocation. That said, I can see a lot of resemblance between Clyatt’s investment philosophy and the Pinwheel Portfolio, with a focus on wide diversification of uncorrelated assets and about 20% of the portfolio in real assets and other things separate from old-school stocks and bonds.
To his credit Clyatt recognizes that the full Rational Investing Portfolio may be too much to manage for many people, and the Sandwich Portfolio is his simplified offering without some of the more exotic assets. Structurally I would say it most closely resembles the Merriman Ultimate without the value tilts, although Clyatt does express an affinity for value stocks in the full text so that could be a reasonable tweak still in-line with his ideas. I really appreciate his attention to diversifying the stock assets while balancing them evenly with bonds, cash and REITs to effectively diversify the portfolio. I also like how he takes the time to include cash in the portfolio, and I think that reflects on the practical mindset he brings to money management.
Performance-wise, the Sandwich Portfolio is right in the middle of the portfolio pack on most metrics which speaks to its balance and puts it well in the hunt for your attention. And as I expected, the Heat Map looks a lot like the Merriman Ultimate overall.
One might argue after playing with the Portfolio Matrix that a weakness relative to other options might be the withdrawal rates, but I’ll point out that the numbers are still quite good in absolute terms and will serve retirees well. It’s also noteworthy that the data supports Clyatt’s recommended withdrawal rate of 4.3% nicely, adding even more credibility to his well-considered retirement plan. If anything I’d suggest that the long-term numbers in the book are a little conservative, but I always respect people who prioritize quality advice over exaggerated performance. And Clyatt actually takes it a step further with an alternative withdrawal methodology designed to make that withdrawal rate last even longer than my charts might indicate, so it’s well worth your time to read what he has to say.
Of course, these two charts are just the tip of the iceberg and there’s much more data worth exploring. So with a solid historical track record backing a thoughtful investing theory and an even better philosophy on work and life, it’s my honor to include the Sandwich Portfolio in the list of portfolio options. I also highly recommend Bob Clyatt’s book and companion workbook, as he goes into so much detail beyond simple asset allocation such as how to track your spending, calculate a retirement budget, manage your portfolio, and even minimize your taxes. Take the time to read it in full and try some of the spreadsheet ideas on your own, and you’re virtually guaranteed to finish far more knowledgeable and capable of managing your money than when you started.
As you dive into the details and explore the various stats for yourself, my sincere hope is that you’ll come to appreciate the Sandwich Portfolio not only for its economic sense but also for its philosophical purpose that can be applied to many portfolio ideas. After all, I didn’t write an uncharacteristically personal post just to introduce an asset allocation. So if you’re ever at a crossroads in your own career, always remember that a new path to happiness and personal fulfillment is well within your reach. With planning, dedication, and the willingness to take charge and build a better life, people really can turn the corner and find a new balance they always dreamed of but maybe didn’t always believe was achievable.
Don’t give up! Bob Clyatt did it. I did it. And you can too.