Would You Rather Be Sexy or Rich ;))?
The Making Only $75K A Year Makes You Happy Study Is Flawed BS
- You may have heard about a study that found money makes us happy up to $75,000, then it levels off. (https://content.time.com/time/magazine/article/0,9171,2019628,00.html)
- In reality, the 2010 study by Angus Deaton and Daniel Kahneman found that “emotional well-being” peaks at $75,000.
- There is strong data indicating that the more you earn, the more satisfied you are with your life.
- “For developing and developed countries alike, being rich is correlated with higher life satisfaction.”
- “People who spent money to buy themselves time, such as by outsourcing disliked taks, reported greater overall life satisfaction.”
Recommended Personal Finance Websites and Resources by Ramit Sethi
- If you find yourself getting a ton of credit card offers and other junk mail, go to https://optoutprescreen.com to get off their marketing lists.
- Pundits Worth Reading And Tools Worth Using
- Morgan Housel writes one of the most interesting blogs on psychology and money out there (https://www.collaborativefund.com/blog/authors/morgan/)
- Dan Solin, author of a number of great investing books, writes a terrific newsletter where he names names and calls out the BS of the investing industry (https://danielsolin.com/blog)
- Ron Lieber writes the Your Money Column for the New York Times (https://ronlieber.com)
- Brad Klontz (yourmentalwealth.com)
- Bogleheads Forum ⇒ low-cost, long-term investing (bogleheads.org/forum)
- Look into random funds
- Great site to look into random funds and see where your asset allocation is going in Personal Capital (https://www.personalcapital.com/)
What Was The Best Performing Stock From 2008 to 2018?
- If I asked you to name the best stock from 2008 to 2018, you might guess Google but would you have guessed Domino’s Pizza?
Investing Is Not About Picking Stocks
- Since you cannot successfully time the market or select individual stocks, asset allocation should be the major focus of your investment strategy, because it is the only factor affecting your investment risk and return that you can control.
- It’s easy to practice the “DNA” style of investing - the Do Nothing Approach.
When To Start Investing
- The single most important thing you can do to be rich is to start early.
- The best time to start investing was 10 years ago. The second best time is today.
Biggest Danger In Investing
- If you’re nervous about investing and just starting out, your biggest danger isn’t having a portfolio that’s too risky. It’s being lazy and overwhelmed and not doing any investing at all.
- People are afraid of “possibly” losing money in the stock market, when they will certainly run out of money if they don’t invest.
The Fallacy Of Illusory Superiority
- Illusory superiority, which refers to how we all think we’re better than other people.
- “I believe that 98 or 99% - maybe more than 99% of people who invest should extensively diversify and not trade. That leads them to an index fund with very low costs.” - Warren Buffett
The Myth Of Financial Expertise
- Being rich is within your control, not some expert’s.
- Experts Can’t Guess Where The Market Is Going
- The key takeaway here is to completely ignore any predictions that pundits make. They simply do not know what will happen in the future.
Only Time You Really Need A Financial Advisor
- Once you have 7 figures in assets, or complex transactions involving kids or retirement or taxes, you’ve earned the right to consider advanced advice.
- A 1% Fee Can Reduce Your Returns By Around 30%
- No reason to pay exorbitant fees for active management when you could do better, for cheaper, on your own.
Experts Can’t Time The Market
- When it comes to investing and compound interest, your feelings will lead you astray.
- Long-term investors have a phrase they use: Focus on time in the market, not timing the market
- By contrast, fee-only financial advisers simply charge a flat fee and are much more reputable.
Active Vs. Passive Management
- Mutual funds - which are simply collections of different investments like stocks or bonds - are often considered the simplest and beest way for most people to invest.
- Mutual funds typical charge 1-2% of assets manage each year. (This percentage is known as a fund’s expense ratio.)
- “Assuming a 50-year horizon a simple 2% in fees can cost you over half of your investment returns.”
- Lots of people with high salaries have no savings or investments.
The Magic of Financial Independence
- Financial Independence + Retiring Early = FIRE
- “LeanFire”, which is people who’ve decided they can live on a “lean” amount of money - often $30K - $50K a year in perpetuity.
Asset Allocation: The Critical Factor That Most Investors Miss
- Investing in only one category is dangerous over the long-term
- Your asset allocation is actually one of the most important decisions you’ll make in life - it’s a decision that could be worth hundreds of thousands of dollars to you and for some millions
The Swensen Model of Asset Allocation
- 30% - Domestic equities
- 15% - Developed-world international equities
- 5% - Emerging market equities
- 20% - Real estate investment trusts - REITs
- 15% - Government bonds
- 15% - Treasury inflation-protected securities (last thing to invest in)
The Importance Of Being Diversified
- If you’re trying to make a quick buck off investing, you’ll usually lose money, because you have no idea what will happen in the near future.
Mutual Funds: Not Bad, Pretty Convenient, but Often Expensive and Unreliable
- Financial companies charge big fat fees (also known as expense ratios).
- Mutual funds are, by definition, expensive, they’re not the best investment anymore.
Index Funds - The Attractive Cousin in an Otherwise Unattractive Family
- Index fund. These simple funds by stocks and match the market (more precisely, to match an “index” of the market, such as the S&P 500)
Target Date Funds: Investing the Easy Way
- Target date funds are different from index funds, which are also low cost but require you to own multiple funds if you want a comprehensive asset allocation.
- Target date funds aren’t perfect for everyone, because they work on one variable alone: when you plan to retire.
- Target date funds are great: They’re designed to appeal to people who are lazy.
Dollar-Cost Averaging: Investing Slowly Over Time
- “Dollar-cost averaging” is a phrase that refers to investing regular amounts over time, rather than investing all your money in a fund at once.
- By investing over time, you don’t try to time the market.
- To set up automatic investing, configure your accounts to automatically pull a set amount of money from your checking account each month.
What About Other Kinds Of Investments
- Your primary residence is not a very good one for individual investors because the returns are generally poor
- If you do buy real estate, regardless of whether it’s to live in or to invest in, be sure to keep funding the rest of your investment areas
High-Risk, High-Potential-for-Reward Investments
- Use a small part of your portfolio for “high risk” investing - but treat it as fun money, not as money you need. I set aside about 10% of my portfolio for fun money.
“What About Crypto?”
- In crypto you see the same signs of gambling and cult-like behavior
- Questioning anything is verboten and harshly punished
- Moving goalposts (“It’s a currency…No it’s an investment…No we’re here to change the world.”)