Patient and Disciplined Saving

What Rate of Return Should You Plan On?

As you sit down and start working through long term savings calculators, what should you use as a long-term rate of return? Every percentage point makes a pretty big difference over a thirty to forty year time period.

The short answer up front is you should use 8% if you have a portfolio primarily made of stocks.

The historical average yearly return of the S&P 500 is 9.26% over the last 150 years, as of the end of December 2023. This assumes dividends are reinvested. Adjusted for inflation, the 150-year average stock market return (including dividends) is 6.93% (TradeThatSwing).

Since none of use are going to live 150 years inflation is not going to take as big a bite out of our portfolio so 8% is a realistic balance of growth and inflation.

If you are paying attention, doing some research, and continuing to educate yourself (like reading this blog!), you should actually do a bit better than 8%. I’m approaching 30 years in my investment history and I’m at just over 10% annual average return and I’ve experienced some pretty significant down markets like the DotCom bubble burst, 9/11, the housing crash, and COVID just to name a few.

In fact, some of the biggest down markets were my biggest opportunities. I’ve invested in quality companies that survived the downturns and the subsequent market recoveries have been some of the biggest drivers of growth.

For a period of time while the FED has kept interest rates artificially low, there was a push to get folks to use 6% as a planning rate of return, but that is too conservative unless you have a very conservative portfolio with a significant percentage of bonds. So, 8% has been the recommended advice for a very long time and the historical returns of the S&P have shown that is a good bet.

On the other hand, be wary of going much above 8% in planning and don’t believe anyone that tells you that they can guarantee anything above that. They are probably running a Ponzi scheme.

Educate yourself, don’t be inpatient or greedy, and work with a realistic number. Going above 8% as a planning assumption is very aggressive and may skew your expectations. Rather, enjoy when things are good and your doing better and don’t sweat those time when your doing a bit worse. It is a long trip!

On another note, if you are looking for a gift for the young reader in your life, you can find some great children’s books on Amazon. Just go to these links The Desert Fairies of Oylara, The Rainforest Fairies of Oylara, and The Artic Fairies of Oylara and order them.

Additionally, check out this very cool podcast on Spotify called Gen X Dad and his Gen Z Teens. Entertaining!

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and a brand new addition First Day Out. Enjoy!

Keep Track Of Your Money

A boss of mine years ago explained to me that if you want to effect change in some way the most powerful way to do that is to track whatever it is. That is an incredibly powerful idea and I wholeheartedly believe in it. I attempt to use it in many aspects of my life but by far the most powerful is in the realm of personal finance. I’ve been tracking my money for years now and it has been a huge help and advantage.

I believe that everyone intuitively knows that having a budget is very helpful and would help them. However, most people shy away from a budget because it can feel overwhelming initially the future is unclear. I get that. For that reason I advocate that you simply start by looking backwards and simply track expenses with a basic spreadsheet. I also advocate making it yourself rather than using something that someone else created as that will never completely fit you and your needs. Also, break out your categories however you want. The major reoccurring bills are easy but amount of pop-up nonrecurring costs can be frustrating. I have a miscellaneous column for all those things that don’t fit into nice rows. The overall point is that, contrary to some personal finance folks, not every dollar needs a name. The important thing is to just get started tracking your money.

Once that happens, then it will grow. You will gain insights are what is happening to your money and at some point you will start projecting into the future. That is very powerful and give you a much fuller sense of control. It will also help you plan for the future and help you execute that plan. You will not be disappointed with the time spent doing this.

As always, if you are looking for a gift for the young reader in your life, you can find some great children’s books on Amazon. Just go to these links The Desert Fairies of Oylara, The Rainforest Fairies of Oylara, and The Artic Fairies of Oylara and order them.

Additionally, check out this very cool podcast on Spotify called Gen X Dad and his Gen Z Teens. Entertaining!

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

Always Pay Attention to Your Investments!

As a small investor you should always be focused on the long-term. You should work on developing your patience and discipline so that you are not panicking at every bit of bad news that comes out and therefore making emotional decisions that are probably going to hurt you more than help you.

Rather, trust that you made an investment for the right reasons and are in it for an appropriate amount of time. I use that phrase rather than a generic long-term because not everyone has the same definition for long-term in regard to every one of their investments. Not every single investment needs to be held until cashed out in retirement. There certainly may be other reasons to sell well before then.

Yet, as a small investor our time horizon needs to be substantial, otherwise you are a trader and that is definitely not my area of expertise.

That said, just because the time horizon we are looking at is significant doesn’t mean that after the investment is made that we should then ignore it. No! You should still look at it on at least a weekly basis. I personally will look at my portfolio at least every other day.

I make very few changes annually to my portfolio. However, I look at it a lot not because I want to see the daily ups and downs, but rather I want to stay attuned to any changes of information that could affect that investment.

Examples include accounting issues (HUGE Red Flag), changes in market conditions, changes in corporate strategy, and changes in company products among other things. I’ve had all of these issues to consider. A pharma company had a major drug recall, a tech company had a major new product fail, an aircraft company had a new aircraft that crashed because of their design. Those are all reasons to reconsider that investment, but you have to be paying attention.

You also have to be aware of how the company is reacting to new market conditions. A famous example is how the introduction of the automobile crushed the buggy whip/carriage/saddle industry. Those were large companies that seemed solid right until they weren’t.

Therefore, you need to pay attention to your investments! Don’t let yourself be caught off guard thinking that you never need to do anything until retirement.

Additionally, check out this very cool podcast on Spotify called Gen X Dad and his Gen Z Teens. Entertaining!

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

You Must Understand The Rule of 72!

Every investor and borrow absolutely must know and understand the Rule of 72.

The Rule of 72 is a simple math shortcut that can be used to quickly figure out the amount of time it will take for money to double at a fixed rate of interest. The way it works is easy. All you have to do is divide 72 by your interest rate and the result is the number of years it will take your money to double. For example:

72/1 = 72 years, 72/3 = 24 years, 72/6 = 12 years, 72/9 = 8 years

It is easy to see that you always want your money to grow at a higher interest rate. But the Rule of 72 shows how even just 1%-2% make a huge difference in how quickly that money will grow. Just going from 1% to 3% made the money double 48 years earlier!

So, shopping around for the very best interest rate that you can get for your savings is absolutely worth the time and effort. Simply sticking money is a low rate savings account as your primary savings investment is a dead end. A typical savings account that is paying 1% interest will take 72 years to double. That is not where you need to be!

But, there is more good news about the Rule of 72. It works in the reverse as well to tell you how much a higher interest rate is hurting you when you borrow. To find out how much your debt will double over time you simply divide 72 by the interest rate that you are paying. With the national average interest rate for credit cards in the ballpark of 20% your debt will double every 3.6 years (72/20=3.6). So, again, work just as hard at finding the lowest interest rate you can for your debt as you do for finding the highest interest rate that you can for your savings!

Finally, the Rule of 72 has one more useful feature. It can help you figure out the interest rate that you will need based on the number of years that you have left to save. You simply do this by dividing 72 by the number of years left to save. For example, consider if you are 30 and have $50,000 in savings currently. If you are planning to have $1,000,000 to retire at 65 the interest rate required for you is 2.05% (72/35 = 2.05%). So, the Rule of 72 is a pretty awesome thing to know!

Additionally, check out this very cool podcast on Spotify called Gen X Dad and his Gen Z Teens. Entertaining!

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

A Stoic Life Lesson

I’ve recently been reading and learning about Stoicism. I recently read Meditations by Marcus Aurelius and really enjoyed it. I’m sure that age and my military background heavily influence my thoughts on this, but I really find that I like the Stoic philosophy. I definitely resonates with me.

One of the stoic life lessons that I really like is the idea that “tentative effort leads to tentative outcomes.”

That is a lesson that I learned later in life, particularly in the flight training portion of my career. I had to completely and utterly throw all of my efforts and energy into the training in order to complete it. There was no “half-way” option. You can’t be an ok fighter pilot and survive. You have to put energy and focus into it every day. Professional athletics is where this is also obvious. You can’t go half speed at the higher levels of sport.

I wish I was able to understand this at an earlier time. While I don’t think it would have led me to be a professional athlete I think that I would have accomplished a bit more and been more confident. Luckily, however, I did learn eventually and it has helped in what success I’ve had as an adult. It is also a lesson that I’m trying to pass on to my children.

So, if something is worth doing, don’t do it halfheartedly. Approach your investing with commitment and energy. You will not be successful with tentative effort. Do the study and the work, and then bring discipline to the execution and you will succeed.

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

Great Book that Explains How Money Works!

I came across a book entitled How Money Works: Stop Being A Sucker by Tom Mathews and Steve Siebold.

It was actually given to my family by my wife’s coworker.

After reading it I definitely think that it is a great book for all young people and anyone else looking to add a little knowledge about money.

It is any easy read at just over 100 pages and not overly technical at all.

I finished it in less than a day.

While I’m happy that there was nothing new in it for me, I still really enjoyed it and am going to have my kids read it.

It is certainly a good introduction for people starting their independent financial lives.

I also think that it is a great place to start to find other areas of personal finance that interest you so that you can do a deeper dive to educate yourself.

To me it also reinforces the message that we have to start our children’s financial lives earlier because time is by far the most important thing that we have when it comes to money.

We don’t have to be perfect or take uncomfortable risks if we use time effectively!

So, check out the book and pass it on if you like it.

Additionally, check out this very cool podcast on Spotify called Gen X Dad and his Gen Z Teens. Entertaining!

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

The Table that Opened My Eyes to Investing!

When I was 22 and about to graduate from college I attended a seminar about where to place investment money. A table was shown early in the presentation that I can say literally changed my life. It has been the defining philosophy of my approach to money.

The table was made up of five columns. The first column was the “Age” column starting at 18 and going all the way down to 65. The next two columns were “Annual Investment”. The last two columns were “Investment Return Total”.

Overall the columns represented two people. The first person began investing $2000 a year starting at age 18 and stopping after 10 years at age 27. From that point, after an overall investment of $20,000, that person never put in another dime.

The second person starts their investment of $2000 at age 27 and invests every year until age 65 for a total of $78,000.

With an average of an 8% return the person with the most money at age 65 was the first person who started at age 18.

In fact, despite all the money that the second person puts in every year, they are never able to catch person number one.

That is the power of compounded interest.

I remember seeing that and being completely blown away. I had absolutely zero money saved or invested at that point, but I resolved at that moment that I was going to get started immediately because I was already four years behind.

I also understood from the table that the absolute most important money was the money that was put in early. As many of those dollars that I could put in were the ones that were going to be supercharged and make the difference 40 years down the road.

I can say that overall, by any measure, it has been successful. I’m not quite 65 yet but I’m well ahead of that table and if what I read online is correct I’m ahead of most of my peers.

You can find the table that I talked about online or it is easy enough to create it on your own with a spreadsheet program. I actually encourage you to do it.

If you are behind, don’t get down. It is never to late to start saving. You do what you can. But pass along lessons, especially to those who are younger. You won’t become fabulously wealthy, but you will have security and peace of mind.

Additionally, check out this very cool podcast on Spotify called Gen X Dad and his Gen Z Teens. Entertaining!

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

44% of People Can’t Cover an Unexpected $1000 Expense!

According to Bankrate’s 2024 annual emergency savings report only 44% of U.S. adults would be able to pay an emergency expense of $1000 or more from their savings. That is not fantastic and shows that a high percentage of people are simply living paycheck to paycheck.

This number hasn’t really moved in several years. How do these folks without emergency savings pay for these unplanned expenses? The survey tells us that 35% would borrow money, including 21% financing with a credit card. The next 10% would try to borrow from family or friends and 4% would take out a personal loan.

Those are high cost options that play a part in making everything else harder. Therefore, work hard before an emergency and get some short term savings in place before you are forced to pay that same bill plus a whole lot more in interest!

Be disciplined!

Additionally, I came across this very cool podcast on Spotify that everyone should check out called Gen X Dad and his Gen Z Teens. Entertaining!

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

Understand Demographics as an Investor

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While I absolutely love reading fiction as a primary source of entertainment, I recently have started reading Peter Zeihan’s books. He is a political scientist and demographer and has made and continues to make very bold predictions about the global future. I’m a bit obsessed with everything he has to say as he has been proven correct about some major world events including the invasion of Ukraine by Russia. He predicted it back in 2014!

I found him because I am very interested in demographics and in particular the Chinese demographics. I found myself getting tired of hearing about China as this 800 lb gorilla that we should be terrified of and I felt that the effect of the one-child policy there was having an overlooked impact. I found that and a whole lot more with Peter. He opened up a whole new way of looking at the globe. He highlighted past trends that have brought us to where we are currently and identifying the trends, heavily demographic, that are influencing where we are going. It is staightforward, intuitive, and very easy to understand.

Having an understanding of demographics can have a meaningful impact on our investment decisions. Based on how a country’s population pyramid looks tells you a lot about that country’s economy. Aging societies like Japan and Germany tell you that consumption is low in their respective areas and that they are facing an available worker crisis. The retiring Baby Boomer Generation here in the U.S. is going to have an upward pull on inflation as those workers leave the workforce and companies have to hire and train new workers. China’s population crisis is driving up costs and causing companies to leave and restore back to the U.S. and Mexico. There are so many impacts to the world that are related to population growth or decline that having a working understanding of demographics is critical.

I highly recommend you check Peter Zeihan out on YouTube and definitely read his books. You can find them in your local library. Most of his presentations end up on YouTube and I watch for new ones constantly. I really have learned a lot from him and I know that you will also.

Additionally, I came across this very cool podcast on Spotify that everyone should check out called Gen X Dad and his Gen Z Teens. Entertaining!

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

Low Fee Index Funds will Beat Hedge Funds Over the Long-term!

During an interview on Bloomberg radio this morning, the person being interviewed (whose name I didn’t get) made a statement that I have written about before in a previous post. He very clearly said that if a person is patient and willing to wait 10-15 years then the Vanguard S&P Index Fund ETF (VOO) and the Vanguard Total Stock Market Index Fund ETF (VTI) would beat any Hedge Fund. This is despite the high paid and very smart people who work at the Hedge Fund and their expensive and high end algorithms and computers. Those high expenses were actually the very reason that the Hedge funds would lose.

Warren Buffet actually proved this with a bet that last ten years. By the end of the 10 year period it wasn’t even close. The Vanguard model of keeping fees down, keeping investments simple, and betting on the United States is a winning strategy.

And, I had to laugh at the comment about having to be patient about investing for 10-15 years to make this work. That is not a very long time in the scale of an investing time horizon. Most people can expect to invest at least twice that long.

Also, the mantra here at this blog is to remain patient and disciplined. It was really nice to hear a “Wall Street” guy reinforce what I believe and have been trying to share to help others be successful!

Additionally, I came across this very cool podcast on Spotify that everyone should check out called Gen X Dad and his Gen Z Teens. Entertaining!

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!