How to invest your money
Investing does not need to be complex. In fact, investing should not be complex. You should feel comfortable and confident with a simple approach.
Here are the main things to know:
- Investing should be a function of your goals.
- You should invest in a way that gives you the highest probability of success with the least amount of risk.
- You must build your foundation first.
- Your investment strategy must include cash and debt.
- Fees for advice and investing should be separated or, at a minimum, well understood.
1. Investing should be a function of your goals
You need to make the best decisions to maximize your life and minimize your stress (and the chances you will be eating cat food in your 90's).
My approach is mathematically driven.
I don't know you. Instead, I look at your goals and solve for what will have the highest probability of success with the least amount of risk. In doing so, I emphasize your goals, not your emotional risk tolerance. I also offer a reward if you can mathematically prove a better solution (if you are eligible).
A super streamlined approach to investing
There are two types of people:
1. Those who have a lot of money.
2. Those who don't.
So what is "a lot of money"? Until you accumulate somewhere between 5x and 15x your annual income you can (and should) use a super streamlined and simple approach to investing. After that point, you have more flexibility and choices.
2. You must build your foundation first
When you build a building, you build the foundation first. Sure, it is fun to pick out countertops and fixtures, but without a solid foundation, the house will fall down. The exact same concept applies to investing. You must build a solid foundation first.
What do we know about foundations?
- You want your foundation to be low-cost, ultra functional, and extremely sturdy.
- You can't cut corners.
- It must stand the test of time.
- It will always be there.
- Foundations have different sizes but are substantially similar.
- The same basic materials are used for all foundations: steel and concrete.
- Similarly, we can use basic materials in investing. We want something extremely diversified, low cost and tax efficient.
- Today, this can be accomplished with a single investment.
Nothing else happens until the foundation is in place. It is the top priority, the first thing to build. Foundations aren't sexy or interesting, but they are essential.
3. Your investment strategy must include cash and debt
Because your foundation is your top priority, it must be prioritized. This is particularly important relative to the decisions you make with cash and debt.
- Eliminate all bad debt (debt at a rate over 5%).
- You can't build a foundation in a swamp or on a jagged cliff.
- Keep good debt (debt at a rate under 5%).
- Keep a small, but reasonable, cash reserve.
Everything else goes to building the foundation. Once the foundation is built, then you should pay down your good debt. When you get my free plan, I'll guide you.
4. Fees for advice and investing should be separated or, at a minimum, well understood
Fees for investment management and fees for advice should be unbundled. When they are grouped together you are likely over-paying for both.
Investors today need to be mindful of the many layers of fees to investing. These fees can quickly add up to between 1% and 3% per year. While it may not sound like a lot, it is. Fees can often cost between 10% and over 50% of your earnings over time.
Consider thinking about investment fees as a function of your wealth.
- Your foundation should be cheap and functional. The first 5X to 15x of your annual income should be in your foundational holding with little to no fees.
- The more you are at the higher end (or above) this range, the more value you may find to investment advice.
Regardless of your net worth, you should pay little to no fees on the foundational of your investments. When you need advice, you can, and should, pay for it separately.
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