Patient and Disciplined Saving

Bet on the United States Economy

The longterm advantages of the U.S. make it the best bet in the world. It has advantages that have made it and will continue to make it the most powerful economy on Earth. It is large and has favorable geography and climate. It has a large educated population, good demographics, and abundant natural resources. Finally, add in a favorable economic system, the world’s preferred currency for trade, and large innovative companies that are not reliant on globalization due to internal consumption, and you have the place to invest your money for the future.

The rest of the world has so many challenges due to demographic pressures and a less than favorable geography that doesn’t meet all their needs. No economic challenger is going to come close to the overall economic dominance of the U.S. This is not a tough decision as to where to place most of your money as the U.S. is only going to get stronger as time goes on.

Bet on the United States!

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Pay Attention to Fees, Keep Them Low

The great investor Warren Buffet won a famous bet against a Hedge Fund manager that over a ten year period he would have better returns using low cost mutual funds versus a basket of higher cost hedge funds. The founder of Vanguard, Jack Bogel, built one of the most successful companies, ever, on the idea that investment fees were excessive and unnecessary. Therefore, you should pay attention to the fees of whatever product you are looking to put your hard earned money towards.

Over time, fees do add up. The money that would have gone into the investment can equal tens of thousands of dollars over a 30-40 year period. I’ve transitioned to almost all new investment money to self managed low fee/cost funds over the years as I’ve become more educated and confident in my ability to handle my money. I’m especially careful to watch the fees in my 401K as the higher fee options are simply not worth it. I definitely want all that money working for me as long as possible.

All that said, I didn’t start out managing my own investments. I started with an invest advisor and still have a good portion of my portfolio there. I don’t regret it at all and have used that person to educate me on options over the years. They helped me at a time when I certainly needed the help. I don’t begrudge them the fees/money that was paid to them. However, over the long-term it has been significant and I’m much more aware of it now hence I try to do all new investments on my own using low cost products.

So, overall, educate yourself and look for the low cost option unless you determine that the higher cost is worth the money. It may be at times, but make it your decision. Don’t pay for things that just aren’t necessary.

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

Buy on Down Days, Sell on Up Days

Buy low and sell high! Easy to say and really really hard to actually do. We love to watch our investments go up and hate to see them go down. It is well documented that people often do the exact opposite of what they should do when it comes to buying and selling stocks. They get very excited when the market is going up and that makes them want to buy. Then when the market goes down they panic and sell at the worst possible time. Hence, they end up buying high and selling low.

How do you change that? First, don’t try to time the market. As a retail small investor you will always lose at that game. Rather, simply follow what the title says and you will mostly be fine. It will at a minimum keep you from buying and selling at the worst extremes. Just be disciplined enough to enjoy the up days in the market through observation if you are looking to buy knowing that there will be a down day soon where whatever it is that you want to buy will be at a better price. Do the opposite if you are looking to sell. Simple as that.

Finally, just in my investment timespan I’ve watched the stock market go from around 4000 to over 37,000. Betting on the U.S. has been a fantastic bet. Things are actually only looking brighter for the U.S. going forward because of geography and demographics. Get into the market but do it with a guiding principle to do your very best to buy low and sell high.

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

Start Early, Buy Stocks, Ignore Bonds

The title of this post is my basic philosophy when it comes to investing. It has served me well and think that it is good advice for others.

The first part which is to start early is a universal sentiment and not controversial. There is no one out there recommending to not invest or saying to wait until retirement to start investing. So, that is easy to follow.

The next part, buy stocks, flows from the first. Over the long-term stocks are the best investment there is for the retail investor. They have the best returns over time and are the place to be early with your investment funds. As time goes on and your portfolio grows it also recovers fast after a down market. Finally, when it has grown large, down markets don’t really have the same impact on your portfolio so it is better to stay in stocks to take advantage of the recovery.

The final point is the possible controversial one. I have added a certain percentage of bonds via bond funds to my portfolio over time (less than 10% at the max) and it hasn’t been a benefit. I agree that it will keep you from significant losses but it won’t protect you completely. It still goes down during down markets and is slow to recover. You also lose the benefit of significant upside when there is a big rise in the market. I just don’t see the point of having them in a portfolio unless you might truly need the money in 3 years or less. If you disagree, please let me know in the comments. I’d love other thoughts on the subject.

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

Make Sure You Understand Deferred Interest!

The holiday season is time where people can get themselves into financial trouble because of their very best intentions. This is due to a lack of real understanding about interest-free purchases over a specific timeframe such as 12, 18, or 24 months. Many people will reach for large purchases and use these deals to help fund them which is absolutely ok as long as you understand the contract you are entering. If you don’t then there is the real possibility that you will be presented with a massive accumulated interest bill at the end of the time period.

I read an article today about a survey that said that most people thought that deferred interest deals should be illegal. I certainly don’t go that far as I have used and most likely will use these types of plans in the future. New furniture is a good example that I have used these types of plans. The key is truly understanding the terms of the loan/credit being given to you. Remember, nothing is free and especially not money! These products are basically loans with one key aspect that makes them a little tricky and gets people into trouble.

The product that you are offered basically looks like using a credit card and the bills you will receive will look just like your normal credit card bills. That is the problem. Because they mostly look like a standard credit card bill you are presented with a minimum payment block at the top. Many people then think that the minimum payment is based on the timeframe that they signed up for the zero interest. That is not correct. It is based on standard credit card rules. If you follow that minimum payment schedule you will have a large payment due at the end, probably unexpected, which if not paid off that last month, will activate the repayment of the deferred interest that has accumulated over the course of loan at often incredibly high levels of interest, such as 30% and higher.

To protect yourself you have to first educate yourself on what type of contract you are actually entering. It is a loan! And, while all credit is technically a loan, you have to treat this one as a traditional loan and not a traditional line of credit. By treating the deferred credit product as a traditional loan you can (and will have to) calculate the minimum payment that you need to pay over the course of the agreed timeframe. This can can be very dramatic. For example, I’m currently completing a deferred interest payment schedule for furniture I purchased and my last bill stated that my minimum payment due was around $100. However, that is not correct. To meet the obligations of the zero interest time schedule I need to pay almost $400 as a minimum payment. No where on your bill will that be calculated for you! What will be there, either in the middle or the bottom, is the remaining balance, the current deferred interest, and the end of the zero interest period. Again, though, you need to calculate your own payment. That is ultimately what gets people into trouble!

Why do companies do these types of deals? It increases sales and allows people the opportunity to make bigger purchases and pay for them over time. If you educate yourself, are disciplined, and stay on top of the requirements, these can be great for consumers. Again, I use these products whenever I can, but I make sure to understand the terms. Do your due diligence, ask questions of the sales and finance folks at the time of purchase to understand the terms, and then stay on top of your obligation. You can be a big winner with these offers.

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

Track 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.

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

Is being rich the same as being wealthy?

Like most good questions the answer lies in the gray area. Sometimes the two mean the same thing, however, other times you can be one without being the other. Plenty of rich famous people have declared bankruptcy and plenty of wealthy people have to live very frugal lifestyles. As for myself, by any measure, I’m well ahead of peers in regard to wealth for my age, however, I still need a full time job to support myself. While I’m certainly not “poor” I do have to be very aware of how I spend my money versus someone who is “rich” and can indulge whenever they feel like it.

Why is that? Well, it has to do with income and what comprises the wealth. For most people their wealth is tied to their home and their investments. It is possible to be in the top percentile when it comes to wealth simply by owning a home in the right area at the right time. Also, because of the favorable tax benefits of 401ks and IRAs a person could have a very large portfolio that puts them in the upper echelons, but it is with money that they cannot touch (without penalty) until they are older. So, wealth is a bit more nuanced than being rich.

Being rich is more closely tied to income. Being rich is having the ability to more easily indulge. That is why there is a saying that “rich is loud, and wealthy is quiet.”

For the vast majority of us, we are on a path to wealth that will take most of our lives. It will be mostly quiet and it will take time. We will make a lot of sacrifices, some mistakes, and work really hard. However, by being patient and disciplined, and letting time/compounding interest help us, we will eventually be able to indulge ourselves and be a member of both groups!

Don’t swing for the fences with money you can’t afford to lose!

My grandfather loved to gamble. He taught me card games and how to play craps well before I was old enough to gamble myself. However, he as also adamant about telling me to never ever ever gamble with the “house money”. That is, don’t ever risk the money that you simply can’t afford to lose. That lesson has stuck with me and even despite the fact that I live in Las Vegas I very rarely gamble.

Recently I’ve seen some pretty sad headlines about people who bet huge portions, or in some cases all, of their retirement savings on very risky “investments”. Most of them recently had to do with cryptocurrencies. I’m not going to pass judgement on cryptocurrencies as an investment, but I do believe that betting everything or most of what you have worked and saved for on anything risky is deeply foolish. Certainly a portion of your investment capital should be allocated for some speculative investments, but that portion should be small. Approximately 5% is a reasonable amount. Anything more than that and you better be doing your research and homework so that you understand what you are truly doing and in what you are actually investing. Otherwise, just as the batter that is purposely swinging to hit run is most likely to strikeout, these risky investments are likely to result in a loss. Make sure the “house money” is not what is being lost.

Always try to have a little cash

One thing that I have learned over the years is the importance of having at least a small amount of cash available to invest for those moments where an opportunity presents itself. To be able to “buy low and sell high” you have to actually be able to buy when things are low and the best deals are when there is a major market move to the downside. The major market drop at the beginning of the COVID pandemic back in March 2020 was a great opportunity to pick up stocks really cheap. The subsequent rebound has been tremendous and very lucrative if you were able to take advantage of that market opportunity. However, there are a couple of things to remember when building up an investment cash reserve.

First, this is not your emergency fund. Your emergency fund is for emergencies. Don’t be dumb and tap into those funds for invest purposes. Investment money is separate and a lower priority than your emergency reserves.

Second, be patient if it takes awhile to build up these funds. Especially early on there will be so many things that you want to use that money to invest with in order to create positions but if you can slowly build a reserve of cash it will pay off later when you get those dramatic market moves.

Third, there are several ideas on how much cash you should keep on the side. Come up with your own goal. I stick to an actual amount versus a percentage because as your portfolio grows a percentage becomes a much bigger amount which may sideline too much money.

Finally, when you see your opportunity to buy that stock you have been following or the market moves dramatically and you can buy several things, do it. Bad news is the time to buy if you are able. Those are the times the best deals will be found. But you have to be ready for them by having a bit of cash available to make that move.

Then the process starts all over again.

The Rule of 72

I recently learned about this simple yet very powerful math shortcut that I have to share.

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, especially in today’s low rate environment. 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 .5% interest will take 144 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 17% your debt will double every 4.2 years (72/17=4.2). 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, you are 30 and have $50,000 in savings. 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!