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Generational Transitions

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There’s a straightforward way through the headwall – just take it one step at a time

Last week, Mark Spitznagel’s book came out (Safe Haven). Don’t expect any specific strategies for constructing Safe Haven insurance. Do expect to (re)learn useful concepts:

  • a reminder of the central role of time in our lives – the capacity to sustain action, cognizant of time, is extremely rare
  • a reminder that we think in terms of arithmetic averages but experience geometric averages (COVID, portfolio compounding, fitness, nutrition, body composition)
  • a reminder that downward moves (in %age terms) have the same impact, regardless of their position in the time series – the counter to this => absolute dollar losses are best taken later in the time series (down $100,000 wipes me out at 25 y.o. – not so at 60) // by the way, creating negative net worth early (via education loans) is a very nasty geometric headwind.
  • a reminder to consider the cost of your insurance strategy, including the decision not to insure. Health, accidents, portfolios, relationships, nutrition => “insurance” comes in many forms.

Also some great parables/examples to help explain mathematical concepts that I’d previously failed to grasp, most importantly, the negative waterfall of financial ruin in a geometric environment.

Related to geometric returns, some useful illustrations of how/when diversification fails, despite its enduring appeal.

Finally, using Eternal Return when assessing risk. With any important choices assume you’ll be stuck repeating that choice over-and-over. I’m not sure I would have been capable of applying this advice as a young man. At 52, my life continues to benefit from this mindset (health, accidents, portfolios, relationships, nutrition…).

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Today, I want you to think about the past, present and future.

Specifically, I want you to look backwards 10-15 years, as well as forwards 10-15 years. This will give you a 20-30 year time span in which to consider family strategy.

We call 20-30 years a generation. For family leaders, it’s the shortest period we should be considering. Let me illustrate:

  • 2004 – met my wife
  • 2008 – birth of first child
  • 2032 – youngest child graduates high school
  • 2037 – youngest child self-sufficient financially

For our family finances, a generation will be closer to 40 years than 20.

Act with 25+ year time horizons => the Eternal Return is a useful mindset for multigenerational family systems.

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Family Earning Capacity Over Time

The biggest change of the last 15 years, for us, has been the quasi-retirement of the two largest earners in our family system. Looking forward 15 years, the biggest change will be the addition of new earners into our family system.

The shift in earning capacity every 30 years, or so.

If you are the prime earner, today, then here is a question for you. Does your family system have the assets, earning power and desire to continue to run the overheads you have built over the last five years?

Current choices can create a “geometric” headwind for the next generation.

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Family Risk Management Over Time

The demographic that seems to worry the most about financial risk is the Top 2%. Makes sense, they own most of the assets and, therefore, have the most to lose.

The easiest way to manage family financial risk is to create a cash flow statement with many different inflows, while having the capacity to painlessly chop outflows. I’ve been working on this for 20+ years, covering fixed overhead categories with a mix of inflows.

The option to shrink cash spending is valuable. Specifically, looking at your cash flow statement and seeing how much of it you could chop, at will.

For example, there are excellent reasons to borrow right now (inflation hedge, low nominal rates, negative real rates). However, the costs and negative-optionality of debt are hidden and difficult to price – particularly in a near-zero rate environment.

  • What is the correct way to price the ability for a lender, or my fixed overheads, to force me out at the bottom?
  • How do I price the capacity to invest during the next credit crisis?
  • What’s it worth to not have a boss?
  • How much is a lack of financial stress worth?

In my memory, all the remains from the 2008/2009 crisis is a note I wrote to myself to NEVER DO THAT AGAIN. Ten years along, there is no “pain scar” from the stress I endured.

With our next generation a decade out from starting to earn, we’re debt free, and happy to be there. It’s worth more than I can prove mathematically. I do not have the capacity to think in terms of negative optionality. I can’t price ruin.

I’ll finish with another note I wrote to myself:

Moderation is easier when the prime directive is simply staying in the game.

This applies to my appetite for risk, further wealth, spending choices and personal fitness => interestingly, my greed focuses on various forms of external winning, while my quality of experience is internal.

Considering Wealth at the Real World Risk Institute

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2019_HalloweenTo shake up my thinking and expose myself to highly-believable people, I attended the two-day program at Nassim Taleb’s – Real World Risk Institute.

You can find my daily notes here. Cleaned up digital version of my notes here.

What follows is my thinking on wealth inspired by what was presented. Mistakes are my own. I can hear things differently than what was actually spoken, so don’t assume my attributions are strictly accurate.

To prepare for the clinic, I re-read the Incerto and I’m glad I did it. Each pass through Taleb’s work provides additional insight. You can find his lectures and lessons on YouTube => well worth your time!

We live in a world where a single bad decision can have massive costs => a few thousand dollars and four days of my time is a small price to (try to) think better.

One of the aspects of my job is guiding the transition of wealth between generations. This sounds sophisticated but it’s a role played by elders and parents in every family system.

My personal greed makes me too focused on financial wealth. It takes effort to step back to see wealth as including:

  • The ability to say “no” to others
  • The ability to keep promises to myself
  • Control of my schedule
  • Health, athletic functionality and contentment within my body
  • Love and companionship – the ability to share experiences
  • Engagement via teaching (my kids, my students, anyone who’s open to implementing what I’ve learned)

What I’m shooting for is creating a strategy, so effective, so straightforward, that an idiot could execute it and preserve wealth access generations.

This is what Taleb calls “Zero Intelligence Investing” but we are focusing on a broad definition of family wealth, across generations, through time.

The impossibility of prediction

Joe did an excellent job of demonstrating how complex systems (even those built on very simple rules, defined by the observer) can be impossible to predict. More specifically, certain systems can only be understood, defined, by running them forward in time. He laid out a host of reasons, any one of which could prove the folly of prediction.

Consider your own life. Cut your age in half, how would you have defined wealth at that age? In my case (25 years ago) the list might have looked like:

  • Wine, women and song
  • A ton of work that pays well
  • Watching my personal balance sheet grow
  • Being very strong in the gym
  • Travel to new places

There was no way to predict my values (today) without living through the 25 years from then to now (the divorces, the insolvencies, the setbacks, the pain of toddlers, the post-traumatic growth).

Because of the role of time in life, we can not predict the future.

However, we can have useful ideas about what not to do. We can get a handle on what might ruin our families.

So if my goal is to preserve, ideally grow, the collective wealth of my family system what can I do.

  • Be vigilant about ruin (in fat tailed environments)
  • Spot, discuss and remove fragilities
  • Position the family to benefit from positive optionality

One of the things Taleb does best is consider his best ideas across domains, gain insight then translate his insight to the reader via real-world examples. It is the secret sauce of his success.

BUT, reading great ideas doesn’t improve my life! I need to go the next step and tinker with a limited number of outstanding ideas.

Who gets the benefit of your best ideas?

Taleb’s best ideas…

Ruin via the fat tail hitting my fragilities => fancy way of saying don’t blow yourself up! I’ve written about this a lot: Taleb’s written about Russian Roulette => his 1,000,000 chamber gun story in Fooled by Randomness changed the direction of my life.

In the seminar we talked about the non-zero risk of a “zero-risk first cigarette.”  Why does a (near) zero-risk choice have a non-zero risk in our lives?

“In life, you must assume that you’re going to take the risk again, and again, and again.”

This completely changes the calculation with regard to the “first” taste of risks that might ruin you: alcohol, rage, opiates, cocaine, sleeping pills, infidelity, felonies, roulette, recourse leverage, luxury spending, unnecessary capital projects… things with the potential for large and unpredictable downsides. Bad habits are always trying to seep into my life!

So, to preserve wealth, you need a process to remove your fragilities, because these are what’s going to ruin you. My family history has persistent, recurring fragilities that hit us hard.

The first step is to gain control of your schedule and create space so that you’re able to think more clearly about what can ruin you. Simplify.

Another great insight – life is not about avoiding risk…

“Take chances, lots of them, and focus on areas where volatility works for you.”

In an uncertain world, one of the best sources of optionality is non-recourse finance.

My first career (Private Equity) could be described as getting overpaid to hold a call option over other people’s work, using other people’s money, without recourse.

Negative action is powerful medicine, with low side effects.

It’s tempting to ask Taleb “what to do.” I did, twice, and he didn’t seem keen on advising positive action with regard to an unknowable future. That’s probably good, as I’m not equipped to implement, or even understand, his technical advice. However, his negative advice (on what to remove) generated huge wealth for me => my total cost was the price of buying Fooled by Randomness on Amazon ($10.17 in December 2005 – my Christmas 2005 reading list, you can skip the flat earth book, the rest were great).

There are many sources of optionality:

  • where I have limited competition
  • where I understand the domain as well as anyone
  • where the cost to enter is small

A few ideas:

Get married, have kids, then take excellent care of everyone (!) => dementia is in my family tree => doing well by my family is the “cost” of a call option for times of future stress => an option that has a constant payoff in companionship, personal growth and a semi-captive audience for teaching.

Technical education in a robust field => look back in time for Lindy professions => spend time and effort for continuous education

But be careful, the “honors” part of my college education (1st class honors Econ/Fin) proved to be technically useless. However, it helped get me a seat at the table in Private Equity. The overall degree taught me valuable skills with regard to financial accounting, programming, mathematical finance and calculus.

Knowing how to count, and being exposed to the way people seek to cheat you, these are useful life skills to prevent ruin. – quote mine

Other sources of optionality => tinker within your social network, attend conferences (and force your introverted self to speak to people), write (then publish), talk to believable people that disagree with you, donate time to people who might benefit from your technical skills (especially within your local community)…

Your body can be a call option on: future mates, future physical experiences, the ability to lift your carry-on overhead as you age…

So the “how do I stay wealthy” answer is about removing fragilities => cutting back a high cost of living, habits with large potential downsides, physical weakness…

The “how do we best grow wealth” answer is about exposure to opportunities that open up the possibility of growing True Wealth (connection, experience, engagement) => each generation can, and should be encouraged) to, contribute based on their current, unpredictable and changing definition of wealth.

Together the family creates its own definition of wealth.

Each generation re-defines wealth based on its collective values.

I would have learned more if I stayed for the entire week but it’s Halloween tomorrow and I got more than enough from the experience.

Strategies for Good Times

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Here are three areas where I fool myself.

Consider Ruin – I’ve done a good job of addressing the risks identified three years ago. So good that, when I asked myself the question, “What can wipe me out?” I quickly answered, “You’re set amigo.” That’s a top-of-the-market sentiment if I ever heard one.

Having mitigated the hazards of leverage, unemployment, litigation, fraud, risk-seeking peers and insolvency… my main risks are health and accidental death.

Do you know your own?

Stay Variable – I was listening to out-of-state visitors rave about the beauty of the Rocky Mountains.

They’re right.

Where they go wrong is assuming that buying a condo will enable them to lock in the emotions of beautiful spring day.

I’m just like them.

We’re all just like them.

Good times give us access to additional finance/capital. We often use this money to capitalize luxuries and time.

Stay variable, stay invested and resist the urge to lock in family overheads.

Rebalance Time – the best deals I’ve done have been where I traded money-for-time.

It takes vigilance to carve time to become world-class at things that interest me. Mastery makes me happy.

Social media, marriage, long-term friendships, work/non-work, self/family – I don’t advocate being in balance – I do advocate making an honest assessment and asking myself if I’m OK with where my time allocation will take my life.

The Road Ahead

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Four recent reads.

A neat concept from Pasricha is to view a week as three bins of time.

  • 168 hours in a week.
  • Splitting into thirds, we get three bins of 56 hours.
  • Most folks drop two bins (112 hours) into sleep, work and commute.
  • Leaving 56 hours for everything else, which happens to be the subject of his book.

The author encourages us to have a look at our allocation. Here’s mine…

  • Sleep and unscheduled personal time – 65 hours
  • Kids — meals, bedtime, homework, housework, dad time and school drops – 40 hours
  • Exercise, strength training, time in nature – 21 hours
  • Admin, taxes, legal, finances, writing – 15 hours
  • Travel, Driving – 15 hours
  • Open, Reading – 12 hours

When I bring energetic action, time and expert instruction to an area of my life… I get results.

If it’s not happening then it’s not a priority.

Better to tell the truth — especially to myself!

Younger Next Year was written for Baby Boomers but I found it entertaining and useful.

Around 2030, I’m going to have a 40-hour slice of time land in my lap. Leaving my desk job in 2000, I have been through much of the author’s story. What I haven’t dealt with is aging and decay!

This winter, I learned to ski well. Learning to ski was humbling — I found myself lacking in absolute power, power endurance and quickness. Add that experience to the gradual deterioration of my vision. Aging and decay!

Through an explanation of Harry’s Rules, the book reminded me of other potential gaps in my life — connection, commitment, passion.

“Kids” have taken a big slice of time in my forties. Because we’re likely to have another 15,000 hours to come, I’ve been working on up-skilling everyone.

Some day the “kid” slice will be gone. My marriage will remain.

The two books by Gray (as well as The Soul of the Marionette) were fabulous and challenged the narrative my local community tells itself.

When I’m doing, connected and engaged…

…I don’t overthink any passing emotional state.

It’s worth making an effort to fill-the-gaps.

High Finance

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2016-09-24-10-14-55Keep your ears open this week. There will be a rare opportunity to learn about finance.

For my international friends, many of the American techniques (in the news) are available in your home countries. I have been applying finance, across four continents, for more than 25 years.

2016-09-25-18-48-42The overall financial system works great. However, when I try to explain certain shortcomings to my friends, their eyes glaze over and I lose them.

I wish I was more skillful.

Whether your favorite billionaire is a Cuban, a Koch, or a Buffett, we can learn a lot from insiders. A constant refrain from wealthy insiders is “complexity creates opportunity for the system to be gamed for economic benefit.”

Finance is a complex system. The system has been gamed extensively.

  • Offshore accounts (Panama Papers type stuff)
  • Thinly-capitalized investment vehicles, with lots of debt
  • Applying non-cash losses today, while deferring cash gains to tomorrow
  • Receiving preferential tax rates on gains associated with financial work
  • Using trusts to avoid estate and generation skipping taxes
  • Using special accounts to shelter income and gains across generations
  • Income reclassification to avoid income and payroll taxes

If the collective wants to run the system like that then I’ll bow to its will. However, I’m not sure the collective knows what’s up.

2016-09-28-10-43-49-1Like professional sports, my beef isn’t with the system. What irks me is the lack of integrity when insiders pretend the system is different than reality. The politics of the people I named above are different but their observations are often similar.

I’m grateful I can explain my personal reality without fear of banishment or loss.

Living a life you can disclose saves a lot of suffering.

How To Make Money At Real Estate

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taxiEffective last month, my family owns a house in North Boulder for a net cash cost of US$100,000. It took me a decade to get that deal done. I did a similar one in New Zealand in 2001.

When I buy, I look for a good asset, at a fair price, with built-in options that can create upside.

If you’re going to make superior returns then it will be due to an option embedded in the deal.

For example:

  • Excess land gives the option to subdivide (Boulder 2010)
  • Buying outside my “home” currency of US dollars gives the ability for international arbitrage (New Zealand 2001)
  • Buy homes for less than their cost to build (Tucson 2010)

The goal is not having a property that you would be proud to show off to your friends. Until recently, I owned a “pride” property. A 6,000 sq. ft home that earned my family nothing for the time we lived in it. Truly fantastic house, mediocre investment.

Likewise, the option should not be created by using a ton of leverage. High leverage is appropriate only when you’re using other people’s money in a non-recourse vehicle. More here.

When should you buy?

#1 – Buy when you need the asset. You rarely need the asset! Be patient.

#2 – Buy when the cost to own is FAR less than the cost to rent – see my free ebook for how to do this calculation.

#3 – Buy when banks are foreclosing – banks, governments and trustees often sell for less than fair value.

#4 – Buy when the local debt market has collapsed – a cash buyer in a liquidity crisis will receive favorable terms.

Note, these tips apply to every asset and you’re going to need substantial liquid assets to take advantage.

All of the above, imply that you should study your target market for a decade before you buy. I also recommend that you limit your equity investment to 15% of your family’s balance sheet.

Right now, we’re in a bull market and you probably feel like you will never get another chance to buy at distressed prices.

You’re wrong.

In my working life, I remember bear markets in 1990 (UK), 1997 (Asia), 2000 (US) and 2009 (Global).

Take your time and remember you don’t need to do the deal.

Once a decade, the patient investor will be sent a fat pitch.

 

Understanding Your Family’s Risk of Ruin

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nightwalkIn my previous piece on effective wealth, I made the case for linking wealth to spending.

  • Individual wealth => 5 to 10 years cost of living
  • Generational wealth => 10 to 25 years cost of living
  • Multi-generational wealth => 25 to 40 years cost of living
  • Surplus (excess?) wealth => beyond 40 years cost of living

Spanning 25 years and a range of industries, my careers have had one thing in common… clients can sustain significant losses.

Early in my working life, permanent financial loss didn’t concern me.

  • I had limited assets
  • I was an employee
  • I was insured by my company
  • I was indemnified by my clients

Over time my exposure changed and, eventually, I realized that I had a significant risk of ruin.

My definition of “ruin” has changed over time. It’s worth writing out your own and discussing within your family.

For example, “losing everything I own:”

  • didn’t concern me at 25 – I had a small balance sheet relative to my future earning potential
  • would have been a huge problem at 35 – I had limited earnings, moderate personal leverage and a balance sheet containing more than 15 years cost of living
  • isn’t a problem today – low leverage, small personal balance sheet, greatly reduced cash flow deficit relative to my young family’s assets

Today, ruin consists of adverse events with my family’s human capital.

While I run our family structure, it’s a very small piece of what I do.

Because… the purpose of getting family structure correct is to enable a focus on what matters – human capital and shared experience.

  • marriage
  • kids
  • family
  • health

Get the structure right so that you can focus on things other than the structure!

  • Simple
  • Straightforward to manage
  • Cost-effective (time, expense, future flexibility)

Consider:

  1. Are you worth suing?
  2. In what capacity could you be sued?
  3. What’s the nature of the losses that could be sustained by any party?
  4. What can go wrong outside of lawsuits? Personal disability, for example.
  5. Can financial, or legal, structuring reduce these risks?
  6. What’s the cost to insure these risks?

Brainstorm the answers and schedule consultations with:

  • an experienced litigation attorney – quantify and understand how you will be ruined 🙂
  • an experienced trust and estate lawyer
  • a fiduciary with experience advising families similar to your own
  • a family that has managed two successful generational wealth transfers – what does success look like when you’re gone?

Write out your notes from these meetings, discuss with your family counsel and reach a rough consensus on your family values.

Here are reading resources to help you understand family wealth.

  • Consult widely
  • Seek out smart people that disagree with you – you’ll both benefit
  • When family members disagree, pause
  • Change slowly

More on the specifics of my own journey in a future installment.

Micro Courage

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axel_lionHow do I cultivate deep strength and resiliency?

We might describe resiliency as…

  • The capacity to continue despite life’s setbacks
  • The ability to become stronger due to stress (anti-fragility)
  • The strength to handle anything

They sound great, grand and completely unattainable!

I’m going to guide you through how I break it down into something that I can action in my daily living.

Start by flipping it on it’s head, what are the characteristics of the not-resilient? Think of the biggest head case you know…

  • Angry
  • Anxious
  • Depressed

When I think about anger and anxiety, they strike me as cultural expressions of fear. At some level, we see angry men and anxious women as normal. I feel both emotions all the time and they make me less effective.

What to do?

Over the last two years, I’ve been experimenting with micro-courage.

I started by printing up 50 life lessons and highlighting the ones that I wanted to focus on (11, 12, 18, 26, 27, 28, 37, 42, 49). If you come by my office, you’ll see they are taped near my printer…

lifelessonsReflecting on the lessons, I paid particular attention to three:

  • Let your children see you cry
  • Forgive everyone everything
  • Yield

I’d encourage you to find your own (triggers).

The game is to focus your actions on situations at the edge of what you can handle.

Here’s an example:

  • There are lots of homeless folks on the Boulder Creek Bike Path. Some of these folks are violent, others are mentally ill, still others are addicts. As a group, they scare the crap out of me.
  • While I have pals that work with the homeless, I don’t have any clue how to “fix” this problem and often wish the problem would go away (so I don’t have to deal with my inability to deal with it!).
  • Anyhow, there’s one guy that sits by the creek in the 28th St underpass and says good morning to everyone that runs, rides and walks past him. He’s a drinker and can get a little sloppy towards the end of the day.
  • I can’t fix the city’s homeless challenges but I can offer the guy a bit of human connection as I ride by. I look at him, smile and take a breath in. On the face of it, I’m smiling at him but, in reality, I’m staying open to the fear within myself. That’s micro-courage.

The story repeats itself in every part of my life that I want to close off.

I try to “stay open” as many times a day as I can.

The problem can be homelessness, litter, aggression, poor driving, manners, food quality… keep it small, remember to breathe in through your nose with a tiny smile.

Staying open to a small fear, a slight inconvenience, a little bit of sadness… I call it micro-courage.

The habit has been transformative in situations that I used to find overwhelming.

This is what I meant when I wrote that strength comes from staying open to little fears.

Courage is a powerful antidote to fear, anxiety and anger.

Be brave.

A Fiduciary’s Reading List

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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

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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.

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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.

What Do We Need To Retire?

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My post showing how a 1.2% fee differential can cost you 131% of your pension contributions inspired Paul Meloan to write an article about The Clear Value of Financial Planning. The article lays out Paul’s case for his work in the field.

To help you understand the cost/benefit relationship, have your advisers write out the dollar amounts that you’re paying in fees, expenses and taxes. Be sure they include all the soft costs that are buried in your mutual funds.

In Paul’s article, he lays out questions for a family to consider. I thought I’d answer these questions, as viewed from a life outside the box.

#1 – How large of a pool of assets do my significant other and I require in order to live in the manner which we desire for the rest of our lives?

The most important thing for you to remember is to declare victory immediately. You have more than you need and are in a position to think about the future. Many, many people are less fortunate than you. Spending time with the less fortunate will temper your needs and get you to financial freedom more quickly.

The financial services industry is built backwards from your true needs. If you listen carefully then you can hear the industry say, “you can be happy tomorrow if you have more.”

Be happy now, with less.

I recommend that you flip question #1. When I look at my family’s net worth, I express it in terms of “years of current expenditure.”

For example, if your net worth is $500,000 (Assets Minus Liabilities) and your current expenditure is $125,000 per annum then you have FOUR years of current expenditure (500,000 / 125,000).

Why is this is a useful way to consider your position? It’s useful because it changes the conversation from

  • What do I need to be happy tomorrow?; towards
  • How can I spend wisely today?

The years-to-burn exercise reminds me that the fastest way to improve my financial position is to reduce my current expenditure, not take more risk.

In terms of years-to-burn, my peak wealth was 13 years ago. I was living out of a Subaru and sleeping on a friend’s floor in LA. My life was extremely simple – eat, sleep, train. It was one of the happiest periods of my life and my net worth was 1/6th of right now.

It’s worth repeating… I increased my net worth by 600% and feel less wealthy.

Historically, most my spending has been wasted.

  • luxury air travel
  • high-end hotels
  • excessive childcare
  • personal assistants
  • office space
  • non-performing assets
  • personal luxury expenditure (clothes, cars, boats, vacations)

I ditched most of these because I discovered that they were bandaids healing myself from a lack of satisfaction with daily living. My spending was driven by our culture rather than my needs.

Choose your hometown and your buddies carefully! I assure you that the exact same family will have needs that vary by geography. Consider:

  • Manhattan vs Boulder
  • Aspen vs Truckee
  • Palo Alto vs Greenville
  • Santa Barbara vs Hood River

I came close to moving to Palo Alto to spend more time with my pals (love you guys and gals). It would have changed my life – not better, not worse – but absolutely different.

The more time that you spend helping people that have less than you, the smaller your retirement fund will “need” to be. There are examples of this all around us.

Finally, the benefit of wealth is not to leave work. The benefit is to feel secure enough to choose meaningful work, regardless of compensation. Hang out with people that are rich in personal satisfaction (artists, priests, teachers, ministers, caregivers, coaches, guides) – you’ll know them when you speak with them.

#2 – What should be the composition of that pool of assets, and how should they relate to each other in terms of risk and expected returns?

You can beat all of your pals by using Bogle’s Little Book of Common Sense Investing.

As a bonus, the strategy is simple to understand and easy to execute.

If you can’t figure the book out then call Vanguard and they will help you in exchange for a fixed price fee when you need help.

If you keep screwing up then get yourself a financial coach and pay a fixed fee to hold you to your plan.

We all do better when someone is watching – that’s why I have a blog.