What Is The Lindy Effect And How Can It Help Your Retirement?


The definition of the Lindy effect as follows;


I think an easy example of this might be for a new restaurant. Many restaurants fail of course and the longer one has lasted, perhaps the longer it is likely to survive. I've seen people project this general idea at a higher level onto the behavior of people. Here is one example from Nassim Taleb in a conversation about retirement.

While the term is relatively new for me I think I have been blogging about some of the concepts for many years. I personally don't believe in retirement but I realize I could change my mind at some point in the future, at some point though I will reach an age where people might be less likely to want to hire me to manage money for them. I would hope that I would not then simply sit at home, doing nothing, waiting to die. I have a relative or two in this circumstance and it is difficult to understand.

Retiring to just sit at home is not Lindy, but I think having the financial freedom to transition to some other endeavor to devote your time to regardless of whether there is any pay would seem to be very Lindy. I think of my interests in photography and volunteer firefighting in this context. Although I am very active with both hobbies, if there is ever a time where I am not managing money I would hope I would pursue these interests even further as well as find new interests. What are your interests? Would you want to pursue them further? Being financially able to would I think be an example of Lindy.

Behaviors related to diet and exercise then also have a seat at the table. I've devoted a lot time lately to trying to learn more about these topics but for purposes of this post and not going on a long side road, everyone knows they should exercise more and consume less sugar. While people know this, it may be easier said than done but either way they are steps that typically promote longer, healthier life.

The behavioral aspect of the Lindy effect would seem to lend itself to long term management of your portfolio and its sustainability for however long it needs to generate income for you. Figuring out how to overcome the behavioral mistakes that do in many financial plans might be the most Lindy thing you can do.

Additionally, understanding your true horizon really is Lindy. If you're 60, retired and one way or another relying on your portfolio for some portion of your income, your time horizon is still many decades. The 4% rule is designed to sustain through bear markets so if you should think in terms of decades and you're using a withdrawal strategy that is designed to last for decades in all market conditions, then arguably what is going on in the market in a given quarter or year should not derail the long term efficacy of your portfolio; this is your Lindy. Reacting to the short term even if you know the long term, would seem to be ant-Lindy.

About the only thing that can mess that up is your behavior. Obviously this requires an adequate savings rate and proper asset allocation but I find it very encouraging that our own behavior is major factor to our success.

As I mention above, the Lindy effect is a new concept to me, please feel free to comment if you think I am applying it incorrectly.