Simple Wealth, Inevitable Wealth

Happy_EverythingI came across this week’s title via a book recommended in The Reformed Broker’s twitter feed. The author is Nick Murray, who’s been a financial adviser for longer than I’ve been on the planet!

Here’s a link to the book on Nick’s website.

The book is an easy read and the first pass through won’t take you long. It’s a good one to share with your family and discuss. My key take aways…

Volatility isn’t loss – while emotionally painful, adverse movements in asset prices only hurt me if I sell. So long as I can hold through the bottom, price movements have limited bearing on my life.

Dividends are indexed income that comes from appreciating tax-deferred assets. This point really hit home. Sample yields from my portfolio:

  • US Equity – VTSAX => 1.82%
  • US Bond – VBTLX => 2.00%
  • Boulder Real Estate => 3.30%

Both the equity and the real estate have an option embedded via the potential for capital appreciation. The value of the asset can increase (or decrease), thereby increasing my total return on investment.

Nick would say the true risk on my portfolio lies at the far end because a long-term holding of bond-type assets has zero capacity for capital appreciation – I receive return of capital, taxable income and exposure to default risk.

Dollar Cost Averaging with a lump sum is only superior when there’s a crash within 2 to 3 years of receipt of funds. Very similar to the advice Vanguard gave a friend of mine and something I hadn’t fully considered. My lump sum article was written at 5.5 years into a bull market and my holdback capital has an investment rate of 2 to 3 years.

If your goal is long-term wealth creation then you should be close to 100% equity – this is similar to Warren Buffett’s advice for his daughter’s portfolio (90% US Equity index and 10% short-term government bonds). Nick makes the point that dividend income is indexed and we can afford to ride the volatility.

Protect your family by holding enough short-term securities so you don’t have to sell into the inevitable crashes and let long-term compounding do its work.

He also has a great example of the change in total dividends and total profitability across long periods when the market “doesn’t move.” Even when share prices are stagnant, the world makes forward progress.

The book contains very little advice on investment selection because Nick’s take home point is Behavior Drives 90% of Investor Return.

This mirrors my advice to athletes – until you can do, what you do doesn’t matter. Nick’s point is we focus too much on the type of Investment and not enough on making ourselves better Investors.

The final chapter was the best – Optimism is the only Realism. The pessimists in our lives will claim that their views are based in reality. While fear, anger and pessimism are supported by our media, Nick makes the point that long-term optimism is the only position supported by the facts.

Lots to discuss with my family and I recommend it to your own.

Being Good Enough – work finance family

The concept of “good-enough” is essential if you are prone to worry, or if your inability to be perfect prevents you from trying to improve!

Because anxious people get an emotional charge from worry. It’s a tough habit to break!

  • A good-enough mother, father or caregiver
  • A healthy-enough approach to diet and exercise
  • A focused-enough approach to your main vocation (parenting, teaching, coaching, business, sport)

As a Dad, my kids are overwhelming. I was forced to let go (of the unreasonable expectations I set for myself). What enabled me to shift was considering my family’s needs… Do my children say they love me? What does my wife say about my marriage? What happens when I’m not around?

In my work and financial life, it’s easy to endlessly tinker – seeking to optimize a situation where constant change is proven to make things worse, rather than better. My best outcome is to crease a simple solution, that’s good-enough, and limit my ability to screw things up.

What to do? I recommend that you don’t take specific advice from me. Find what works for you. However, I share the specifics of what I do because the simplicity of my approach is a useful counterbalance to the complexity that’s sold to us.

Act as if the goal of the financial services industry is to separate you from your money and run from from any advisor that’s not bound by a fiduciary duty to act in your best interest. Be aware that even the fiduciaries are prone to making money at your expense.

Next, focus on the four things that truly matter

  • Save – live on less than you earn
  • Fees & Expenses – low-cost passive indexing gives you a big edge
  • Dollar-cost averaging – create a strategy that runs on autopilot and get on with living
  • Be Able To Hold Through Dips – never extend yourself, live debt free, be able to hold through unexpected unemployment

At times, you may need expert advice for:

  • Wills, Estates & Trusts
  • Tax & Accounting
  • Pensions & Retirement

The rules on the above vary by country and state. Get advice on a fixed fee basis and expect to review every five years.

What about portfolio? I aim for something that’s “good enough” and spend my energy staying focused on the tips above (save, low cost, buy a little bit frequently, be able to hold). The more decisions I have to make, the greater the scope for human misjudgment.

I do best when I focus on what I directly control:

  • family annual cost of living
  • new investment rate
  • cost to hold my portfolio

However, what to do about my house? That’s a key asset for most families. Here’s what I’ve told my family council. If I’m gone then help my wife get to…

  • Personal residence (10%)
  • US Equity Index Fund (30%)
  • Int’l Equity Index Fund (30%)
  • US Bond Index Fund (30%)

For the young people reading, the 10% constraint means that it will be a long time before you have enough equity for a down payment. That’s a good thing! I waited until I had 20 years living expenses saved, and had watched two recessions from the sidelines.

One of the neat things about triathlon is the ability to be very good at something by combining good-enough performances in each of its components. With three kids and a young wife, something had to give – from the self-centered approach of my years as an elite athlete.


The financial stuff above is based on a short eBook called, If You Can. The book took me an hour to read – you should read it.

A Fiduciary’s Reading List

I’ve completed William Bernstein’s recommended reading from his eBook, If You Can.

The reading humbled me. With a 1st Class degree in Econ / Finance, and 20 years experience in international investing, I was left feeling intellectually arrogant and ignorant. Each of these books challenged my beliefs while explaining financial history.

I’d recommend making these books compulsory reading for your advisers and key family members.

Good people can be found in the field of finance. I appreciate the significant time that each of the authors spent to educate willing readers.

The Millionaire Next Door – introduces the key concepts of wealth, saving, investment and taxes

Your Money & Your Brain – a solid summary of the latest on behavioral psychology as it relates to finance and investment – why I will always fool myself

The Great Depression: A Diary – an inside look at what it is like for a conservative, professional family to live through a depression – 2008-2010 was easy compared to the 1930s – could your family survive on minimal income for multiple years?

All About Asset Allocation – the early chapters were the most useful – simple explanations of the role that volatility plays within a portfolio – reading this book, you’ll be tempted to seek the perfect portfolio mix – my decision has been to keep it simple

Common Sense About Mutual Funds – a wealth of information – Bogle picks apart the industry by making his case for simple and low-cost investing – the book makes one wonder how brokers and financial advisers can sleep at night – readers will learn about the industry structure that silently fleeces its customers

Side Note: if you worked in finance from 1980 to 2000 be sure to adjust your brilliance for volatility and leverage using Bogle’s updated charts. We had one heck of a tailwind. Humbling!

How A Second Grader Beats Wall Street – don’t be fooled by the child-like title – this book will save your family tens of thousands of dollars in fees and taxes

Devil Take the Hindmost – a history of financial speculation – hedge funds in the 1860s & derivatives in the 1600s (!) – as Taleb says, we’re never going to get rid of greed, the challenge is to build the system so the greedy don’t inflict suffering on the good


To Bernstein’s list, I’ll add Estate & Trust Administration for Dummies – a good primer to get you thinking outside of your own self interest.


If you are in an advisory, or trustee, relationship then tick off one book per meeting with your professional team.

Read a book, take notes and discuss how the book impacts your family (or your firm).

Challenge yourself with exposure to the best ideas available.

Studying new approaches can be painful but we all benefit from a bit of cognitive dissonance.

Readings To Strengthen Your Family

With three kids, I needed some expert input on family dynamics and management. These titles have been quite useful for me to consider the life we want to lead.

While it’s tempting to manipulate my kids via parental approval – I wrote them a how-to–manual with my last book – these books reinforce the reality that success comes from respecting differences and working towards the goals of each individual.

While the books are geared at the wealthy, the tactics and challenges faced by families are universal. Seeing financial wealth rise, fall and disappear between generations becomes a metaphor, rather than metric, for family success.

With all the titles, what I found most helpful was thinking about human, rather than financial, capital. Secondly, considering the goals of each individual, as an individual, within the family unit. One can apply these principles into any organization.

Family Fortunes – Bonner/Bonner – interesting ideas, many contrarian to my own views. Caused me to think through, then revise, my own thinking.

Wealth In Families – Collier – practical in approach, filled with excellent questions, timelines for education and checklists.

Preparing Heirs – Williams/Preisser – results from studying generational transitions. Considering this book in light of my family history had unintended consequences that I’ll be sharing.

Family Wealth – Hughes – the deepest study (out of what I’ve read so far) on the concept of human capital. If you enjoy this title then you can go further with his follow up book, Family: The compact among generations.

In studying my own family, I realized that success between generations doesn’t require wealth, or its preservation. Education (in terms of practical skills) and opportunity to apply those skills proved most useful across the last five generations.

More Recommended Reading

You’ll find a list of reading at the back of my most recent book. Over the last few months, I’ve been able to get through some excellent titles. In order of importance to me:

Siblings Without Rivalry – Faber/Mazlish

Absolutely outstanding with practical tips for parents as well as case studies to better understand existing (adult) family dynamics. They gave this book to us when we left the hospital with our second child – it took me a year and a half to read it and I’m glad I did. Essential reading to understand yourself and others.


Antifragile – Taleb

Taleb shares his thoughts on a life well lived. He uses a wide range of examples to help us consider asymmetric outcomes in our lives. I will share a series of articles considering its lessons for my family. I highly recommend this read.


The Thing You Think You Cannot Do – Livingston

Livingston shares thoughts on honor, virtue and courage as components of a life with meaning. He combines stories of personal courage with examples of errors of misjudgment. I admire Livingston’s honesty with himself and his courage to share his opinions about living well. As I look forward from middle age, Livingston provides me with examples of what I’m likely to face in old age.


What Money Can’t Buy – Sandel

I enjoyed the Harvard Justice lectures so picked up this title as a way of saying thanks to the professor. An enjoyable read that encouraged me to consider the larger impact of my career in finance and my family’s tendency to isolate ourselves within our bubble. The book is a well-reasoned account of the benefits of civic virtue and the price we pay for crowding out non-market norms.


The Social Conquest of Earth – Wilson

I started this book because I enjoyed Wilson’s award winning title, Consilience. I figured, rightly, that he would have something interesting to say. The book challenged my thinking about free will at an individual, and a collective, level. As a specific example, I wonder if I am exercising an illusion of individual free will within a community that is highly predictable.


Trust – Fukuyama

Fukuyama takes the reader on an exploration of community, family and business structures around the world. I enjoyed the author’s hypothesis about business organizations being driven by cultural factors. A useful read if you’re curious about cultures outside your own or work internationally. He also spends considerable time exploring the role of family in different cultures.



What I Read

This came in via email and I thought I’d crosspost here.

I like Barry Ritholz daily summary of news – he embeds John Mauldin’s weekly eletter, which I also like. is where I subscribed to his daily email. With that email, I don’t need to read much else for current events.

I don’t subscribe to the Times or the Wall Street Journal but when their articles rise on Google News, I tend to read those.
I read all the stuff on our site – – as the writers are people that I know and trust. I don’t read forums, other than Endurance Corner, as I avoid sources of noise.
I check google news too often – I’d be fine checking every 48 hours but check a few times per day.
That’s about it. When I have time, I read non-fiction. A key focus for me in 2012/2013 is creating more space in my life for kids, writing and reading.
The book list that follows has been helpful – I particularly like all of Gordon Livingston’s writings. For business, Charlie Munger’s essays and books are excellent. I read the Drucker essay, below, once a year.


Great Reads

Buffett: The Essays of Warren Buffett

Cialdini: Influence

Drucker: Managing Oneself

Karp: Happiest Baby On The Block

Kahneman: Thinking, Fast and Slow

Le Guin: Tao Te Ching

Livingston: Too Soon Old, Too Late Smart & Always Keep Dancing & How To Love

Munger: The Psychology of Human Misjudgment

Munger: Poor Charlie’s Almanack & Seeking Wisdom

Shiller: Irrational Exuberance

Taleb: The Black Swan, Fooled by Randomness and Antifragile