How to worry less and start living:
Make one stranger smile today.
P.S. Do this, then report back and comment below:
- What’d you do?
- What happened?
- How did you feel?
P.S. Do this, then report back and comment below:
The 2016 ultimate guide to NOT losing money in your investments
As it turns out, monkeys are who we should study to learn why asset allocation models are so important.
A group of monkeys are hanging around (snicker) their zoo cage one day, when the group of researchers begin their test.
The researchers walk right up to their furry counterparts and give each monkey one single apple.
Because monkeys love apples, they were absolutely thrilled.
But for part 2 of the experiment, the researchers went to the monkeys and gave each monkey two apples each! However, the researchers immediately took one apple back away.
Think that was their reaction?
Actually, it was more like this:
The monkeys were furious, despite the fact that they still ended up with the exactly same amount of apples as part 1 of the experiment.
We act the same way, don’t we?
We’ll often be more upset after losing something we’ve had….rather than never having it in the first place.
(side story: About 7 months ago I found a $20 bill in an old sweatshirt. I was thrilled….promptly lost it…and was pissed. Research confirmed.)
Enough monkeying around. Losing money sucks.
Use index funds like they are going out of style (because they’re not).
I’ve already shown you WHY index funds are the way to go here and here…but honestly, this post by Mr. Money Mustache, “How to make money in the stock market” does a far better job than I ever could. It’s one of the most popular personal finance articles of all time.
If you haven’t read that, go read it right this second.
You probably read personal finance blogs, yes?
And I know you like making boatloads of money. You’re reading this.
Quite frankly, this shit matters more than you think. Here’s all you need to know:
The 3 types of diversification
The truth about risk
The super-secret magic formula of asset allocation
However, a bear breaks into your cage, and steals 50% of your entire stash.
Question: how much do you need to make back, to return to even?
You need a 100% return to get back to even. This is an important concept.
(a realistic example: You have $100,000 in savings, and lose 21% in the crash of 2008. You now have $79,000. In order to get back to $100,000, what percentage increase do you need?
You now need a 26.5% increase to break even.)
Most monkeys fail to realize why losing their stash is so bad. It becomes much harder to recoup your losses in the same market.
Remember that guy Warren Buffett? His rules for investing are quite clear.
I rest my case, now let’s learn how to NOT lose money, and show you the stupid simple asset allocation models.
If you’re reading this far into this blog post, I’m going to reward you with a new style of personal finance blogging that you’ve never seen before.
There’s lots of juicy links, resources, and quotes down below in this post….and all of that is great. All of that stuff contains the reasons behind why you should do this or that.
No learning required. I’m going to tell you what to do.
Is it presumptuous? Absolutely. Is it the easiest way to teach people how to avoid losing money with their investments? Absolutely.
Don’t try to time the markets. Take the guesswork and stress out of investing.
“You’ll drive yourself nuts if you try to pick the perfect moment to start investing–much like brushing your teeth every day, it’s something you should do regularly and without fear or drama (unless you have some sort of bizarrely dramatic oral hygiene routine).
Investing is a long-term proposition–it’s not something to track or speculate about on a daily, or even yearly, basis.”
is that you have less of a tolerance for it than you think.
In his 2013 letters to shareholders, poor-dude Warren Buffet mentioned he instructed one estate to have the following portfolio makeup:
Wait, what the frick?
“90% of my money in stocks?? Is that dude cray-cray??”
Yes and no. The point Buffet was making is that index funds are completely amazing, and that for the right person this is still a solid long-term investment strategy.
Note the words ‘for the right person.’
Most of us monkeys don’t have the stomach for that kind of volatility, or the patience.
Think about that last question again for a second.
You already know that “everyone’s risk tolerance is different.” You’ve heard this before. But why is that?
Because risk is a mentality.
Historically, I’ve been extremely risk-adverse. (I’m getting bolder.) Figuring out your own risk tolerance involves examining how you feel.
Here’s a few handy questions on risk.
Once you have been 1,000% honest with yourself and discovered your true risk tolerance mentality, here’s what to do with your risk.
So what’s your deal?
Are you Ok to go 90% in stock index funds?
Or will you sleep better at night knowing that a stock market crash in the next year isn’t going to force you to work an extra 5 years before retirement?
We’re going to take some advice from BudgetsAreSexy, and keep this stupid simple.
Let’s give 3 options based on your age/risk tolerance, and let’s quantify with rockstars:
(Random note for Canadians! Just read this awesome post from Money After Graduation and thank her.)
You can select these in your 401k’s, 403b’s, IRA’s, or just open a free account and grab some low-cost investor shares.
Without further ado, here are some copy & paste asset allocation models.
Copy and paste people. Like Mr. Money Mustache, I prefer to go all Vanguard index funds because of 3 things:
I can hear you through the internet right now.
“What is this? Am I suppose to memorize this?”
Of course not, but if you truly want to maximize your earnings over the next decade or more, while limiting your exposure to loss…then there you have it.
The allocation is based on modern portfolio theory, and this particular breakdown is similar to the “all seasons approach” in Tony Robbins’ Money: Master the Game.
(note: Tony also includes 15% in gold and other commodities. If you really want to learn about that, read the book. Else use index funds, and spend that extra time fishing with your kids, or reading this blog)
(note note note: This is not for those of you who are in retirement, or 1-2 years away. Go Google fixed-income annuities and TIPs)
I don’t think anyone anywhere should use this. You are either the type of person that…
Just being honest.
This is so lazy. So low cost. So effective.
Sure, there’s not a ton of asset class diversification, but you’re lazy, and you’re still in it for the long game, right?
Here are the takeaways, summed up nicely in pink font so you’ll notice it on your screen, since you skipped half the content above.
The more complex you make your finances, the worse off you’ll be. – Mrs. Frugal Wood
You should probably sign up for the new email course:
It’s 5 minutes a day for 5 days, and covers the skeleton of a highly lucrative and smart investing strategy.
Oh, and it’s completely free.
Top retirement mistakes explained on a 3rd grade level – Part 3
Thinking about retirement is boring.
We’re in the now generation. We like instant gratification. We want to hustle and make fat stacks of cash now!
Retirement planning & saving money is pretty much the opposite.
Building wealth is only hard because it usually requires delayed gratification, which we hate. (tweet this!)
Even if you’re trying to start a business and explode income growth, that takes delayed gratification too.
That said, what you’re about to read is an extremely important concept.
Internalize this point immediately and do something about it (aka take action in real life, not just Facebook share “cool post bro”)…if you commit to the concepts below, you will have more cash down the road.
That’s what you want right? Fat stacks of cash?
Think in longer terms. I know you don’t want to, but do it anyways. Unless you tragically die before your time (I witnessed this happen yesterday I’m sad to say)…then you will live to see the fruits of your efforts.
And how are your efforts going?
Are you going to thank yourself 20 years from now? Or wish you had saved dollars smarter?Continue reading “How to choose investments like Super Mario”
Top retirement mistakes explained on a 3rd grade level – Part 2
The money system.The game. Banks. Retirement accounts. Stocks & Bonds. Capital gains. Interest.
First off, my apologies.
This wasn’t in the original plan for the mini-series on retirement planning. This post falls into the “things everyone should know but nobody actually knows” category.
You’ll enjoy the interruption though.
Many of you who read my blog are really into making, saving, and investing money (shocker). And I’m thankful for that. It’s a fun game most of the time.
But you need to get one thing straight, right now:
This is a long-term game, like it or not.
You’re in the “now” generation. You probably already understand this.
Due to the speed at which communications and interactions happen now, we’ve grown very fond of instant gratification. We’re incredibly inpatient in so many aspects of our lives. We want results now.
But when it comes to money, you need to calm the hell down. Continue reading “Why you’ll never beat the money system”
401k’s. 403b’s. These are awesome tools that are leading you to a smooth, comfy retirement, right?
If you’re employed, you probably have a retirement account, even if you don’t contribute a whole lot.
But what’s in that account? Stocks? Bonds? Do you even know?
What are your returns? What are your fees? Do you care?
(I’m going to crush your dreams of making money through tax-deferred plans, mutual funds, and stocks and bonds. I’m going to crush them. Here’s an intro video…)
To kick things off, let’s walk through the system that you have your money in.