I’m Sorry, Dead Horsey

I promised myself not to beat this dead horse any further this year, but a fateful conversation with a trusted friend yesterday tempted me back down this road.

"Travis, just got done meeting with our financial advisor. It's been a great year!"

"That's awesome! Tell me about it. What did he share that makes you so excited?"

"Well, first, our investments are up nearly 18% in the last 12 months!"

I tried to maintain my poker face, but as my wife Sarah can attest, I'm terrible at it. My friend could immediately tell I had a cringe-meets-disgust expression.

"What? He said 18% is pretty good. And since the market is supposed to go up 7-8% per year, that's really good, right?"

He showed me his account statement, and we confirmed he did, in fact, receive approximately 18% over the last 12 months. Without saying a word, I opened my online account and showed him this:

34.4%. That's what my investment account received in the last 12 months (12/1/2023-11/30/2024). My friend couldn't believe this. "How the #$!@ did you get that??!?"

I explained this is how the U.S. stock market performed over the last 12 months. Intrigued, he had lots of questions:

"Why did I only get 18% if the stock market got 34%?”

• His financial advisor puts him in garbage and crushes him with fees.

"If I had about a half million in my account 12 months ago, how much did this cost me?"

• About $80,000 just this year alone.

"How hard is it to invest in something like you're talking about?"

• It's one of the easiest things we can do. There are index funds that give you about 4,000 companies in one single investment, with almost zero fees. Vanguard and Fidelity have great options, as do most people's 401(k)s.

"Is it guaranteed?"

• No, it's a mess. It's a bumpy ride and can feel miserable. But the market has returned more than 9% over the last 150+ years and more than 10% over the last 100 years.

"Will I lose money?"

• Nothing is for certain, but the U.S. stock market has never lost money over a 15-year period.....ever. So, considering this friend is 30 and can't even touch his retirement assets for another 30 years (age 60), that doesn't feel too risky to me.

"How often should I be making changes to my investments?"

• I haven't made a single change in more than 15 years.

"How do I know when to sell?"

• I've literally never sold anything, and will never sell anything until I need it someday.

"We really like our guy, though. We'll probably just keep him."

• OK

We all have the right to do whatever we want with our money and investments. But I believe information is power, and people deserve proper context. It's so disheartening to see family after family unknowingly lose hundreds of thousands (or millions!) of dollars for no good reason. They deserve better. You deserve better!

Perhaps it's time to check your statements again.

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The Billion-Dollar Pizza

I have a theoretical question for you if you'll indulge me. Imagine standing in the Target checkout line with a small basket of products. The cost will be about $20. Lucky for you, you have a $20 bill in your pocket. However, as you're about to hand the bill to the cashier, you remember that you strongly believe that $20 bill will be worth $100 by next year. Do you still use that bill to pay for your goods, or find a different way to pay? Hold that thought.

_________

In May 2010, a man ordered two large Papa John's pizzas for delivery. The total bill was about $40. Instead of using cash, though, he thought it would be fun to pay with this new type of currency....it was called Bitcoin. In exchange for his two pizzas, he sent Papa John's 10,000 Bitcoins. As of last night, those 10,000 Bitcoins were worth about $990 million. Yes, he paid almost a billion dollars for two large Papa John's pizzas.

With the crypto market heating up in the last several weeks, I'm again getting countless questions about it. "Should I buy it?" "How much should I buy?" "Which one should I buy?" "What should I do with my millions of dollars next year after my blah blah blah currency pops?"

Today, more than 13,000 cryptocurrencies are in existence, Bitcoin being the most famous. I have a question for you. With so many people owning crypto these days, when was the last time you saw someone use crypto to purchase anything? I'll wait.....

In my opinion, the billion-dollar pizza was both a monumental moment in the journey of crypto, and also its undoing. Given its massive price run-up, it's become a victim of its own success, and has lost the right to be used as a currency. After all, who would buy goods and services with a currency they think will be worth multiples of its current value?

So, if it's not a currency, what is it? It's largely treated as an investment....a highly touted, glorified, idolized investment. But an investment into what? It's backed by nothing. It's secured by nothing. It only has value because other people also believe it has value. Crypto advocates argue other assets share the same dynamics, such as the U.S. dollar. While it's true the U.S. dollar is no longer backed by actual gold, it's backed by the full faith and credit of the most powerful government in the world. What about gold? We can argue about the value of gold, but at least gold has tangibility and utility. What about stocks? Sure, stocks feel like a number on the screen, but they are actual fractional ownership in some of the largest and most profitable companies in the world. Businesses that make actual products and sell them for actual money.

I do believe crypto is the future, though. It's inevitable. However, I believe only a few of the 13,000+ cryptos will likely survive. The owners of all the others will likely lose 100%.....eventually. It's not a train I want to ride. The uncertainties are massive. The future is murky. We are in uncharted territory. I prefer to live with meaning, and losing sleep over the volatility of made-up coins does not check my box of meaning. It's a hard no for me.

What say you? Questions? Thoughts? Insights?

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A Recession is Still Coming

Catchy headline, eh? I'm not trying to create clickbait or lead with fear. In fact, by the time you're done reading this, I hope you feel the opposite of fear. Immediately following President Trump's re-election, the equity markets soared on optimism, with the S&P 500 increasing 2.5% yesterday alone. The general public sentiment is that we're now positioned for good economic times. While we might see a momentary jolt of positivity, I can confidently predict a recession is still coming (regardless of who is in the White House). Why? Because that's what always happens. Again, I'm not trying to spark fear, so please bear with me.

I'm not arrogant or ridiculous enough to proclaim when said recession is coming, but I promise you it is. Again, why? Because that's what happens in a capitalist society. We grow, contract, grow, and contract again. It's been that way for centuries. In other words, recessions (and the stock market crashes normally associated with them) are a normal part of a well-functioning society.

Perhaps some context is in order. In the last 100 years (1925-2024), there have been 16 recessions, beginning in:

• 1926

• 1929

• 1937

• 1945

• 1949

• 1953

• 1958

• 1960

• 1969

• 1973

• 1980

• 1981

• 1990

• 2001

• 2007

• 2020

16 recessions in 100 years translate into one recession every six years. The longest span between recessions was 13 years, between the 2007 and 2020 recessions. However, the 2020 recession was a blip on the radar, lasting only two quarters (just long enough to be technically classified as a recession). Then, due to stimulus and other factors, the economy shot back up as quickly as it fell. If we remove 2020 as an actual recession, it means we're actually 17 years (and counting) between meaningful recessions.....on borrowed time compared to our every-six-year historical rhythm.

Can we all agree a lot of life has happened in the last 100 years? World War 2, Vietnam, Korea, two Gulf Wars, the assassination of a president, 9/11, countless natural disasters, civil rights battles, COVID, political unrest, and a ton of other events I'm probably blanking from my memory. Through all that turmoil, intertwined with the 16 recessions I mentioned earlier, the U.S. stock market is up 10.4% per year over the last 100 years. A $1 investment 100 years ago is now worth $19,800. The stock market has gone up nearly 20,000x, not in the absence of terrible things, but through all the terrible.

I have two takeaways today:

1. A recession WILL happen. A stock market crash WILL happen. It's inevitable. Expect it. Anticipate it. Don't be surprised or shell-shocked when it arrives.

2. Don't fear it. Know it's going to be ok. Know that your patience, diligence, and fortitude will be rewarded. Don't lose sleep at night. Don't let it rob you of your peace.

Please don't scare yourself into making rash decisions or becoming reactionary. Stay the course. Be intentional. Get your financial house in order. Live with meaning. Practice generosity. Make an impact. Please don't let fear or uncertainty rob you of a better future.....or a better present.

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Yesterday's Meaning Over Money podcast episode also engaged in this topic. If there's someone in your life who is more apt to listen to a podcast than read a blog, could you please share it with them?

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Exposing the Secrets

As I was chatting with a friend yesterday, I noticed, in real-time, that the stock market hit a new all-time 155-year high (since 1870). Curious, my friend asked me a few questions.

"Didn't the stock market just tank?"

"No, it went down by about 10% and quickly bounced back to all-time highs......but nobody is talking about that part."

"Is the stock market up on the year?"

"Yes, by about 23% since January 1st. Up 34% in the last 12 months."

"I don't know. It seems impossible to get 9% like you always talk about."

"The U.S. stock market is up nearly 12% per year over the last 15 years."

"Did you get those types of returns?"

"Yes"

"How much time do you need to spend to do good like that?"

"5 minutes per year"

"How often do you make moves?"

"Never"

"Seriously, how do you know when to sell?"

"I haven't sold anything in over 20 years. I literally never make moves."

"Tell me your secrets!"

"There's no secret, really. Invest in a total stock market index. Ignore the noise. Do nothing. Be extraordinarily patient."

"Yeah, but what else?"

"I do nothing else."

"What are the chances of losing money doing it your way?"

"It's not MY way, but it is a good way. There's never been a 15-year period in the history of the U.S. where the U.S. stock market lost money. Never. You’re 30. Statistically speaking, based on history, there’s zero chance of you losing money on your current investment portfolio by age 45 if you’re invested in the broad market.

"It seems too good to be true."

"The simplest answers often do, but the math is the math."

"Maybe I should try."

"Yes! Yes, you should!"

This turned into an odd post, but the conversation merits repeating. I have similar discussions at least 2-3 times per week. With so much noise in our culture around this topic, we must stress truth and simplicity. The overcomplication of this matter leads to paralysis and poor decisions. Instead, when we shine the light on truth and make it simple, we can focus on what matters most:

• Invest broadly.

• Invest cheaply.

• Stay consistent.

• Don't get scared.

• Be patient.

• Do nothing.

• Live a meaningful life.

It's a simple but clean recipe for much success. Life is too short to worry about investments, trying to follow the next hot trend, or chasing your golf buddy's ridiculous stock tips. Simple is good.

If you have any questions, hit reply to this e-mail or leave a comment below on the webpage. I'm here to help! Have an awesome day!

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Be Wary of Self-Titled “Experts”

I recently had a conversation that's stuck with me like a never-ending cold. One of my friends showed me her family's recent monthly statement from their financial advisor. This financial advisor works for one of the most respected companies in the industry. That, combined with the fact my friend (and her spouse) don't know a ton about investing, blindly trusted the "expert."

Their advisor was given free rein to "do whatever is best" with their investment account. The advisor, in his infinite wisdom, recommended that he pick out a handful of stocks that he believed would do well. Can you see where this is going?

The statement I was holding clearly stated that their investment portfolio had achieved a -1.4% annual return over the last 36 months. Yes, you read that correctly.....they LOST money over the last three years.

Now, we need something to compare it to. Oh, I know! How about we compare it to a total U.S. stock market index that each of us has access to at the push of a button. These funds contain upwards of 4,000 companies and have very low fees. Examples include FSKAX (Fidelity), VTSAX (Vanguard), and VTI (also Vanguard). Here's what we found. Over the exact same 36-month period, simply holding the total U.S. stock market index would have provided an 8.76% annual return over 36 months.

Let's put that into context. Pretend this family gave the "expert" $100,000 to invest on their behalf. After 36 months, they would have ended up with $95,900 (a $4,100 LOSS). We will also assume this couple clicked a few buttons on their phone and invested another $100,000 into the total U.S. stock market index. After 36 months, they would have ended up with $128,600 (a $28,600 GAIN).

That's a $32,700 difference between the "expert" and a couple that knows nothing about investing. And to top it all off, they are paying the "expert" for the privilege of losing money for them!

I need to land the plane on this rant. Here are my morals of the story:

• Don't blindly trust "experts." It's hard to know what to trust and not trust, but I'll give you a hint. Whenever someone claims to know what specific stocks to invest in, they are, by default, not an expert. Real experts know that playing the stock-picking game is a fool's errand. A true expert understands the big picture and believes you deserve better (and safer).

• It's so, so, so simple to invest in the stock market.....even if you don't know a lot about investing. The total U.S. stock market index gives you access to practically every company you can buy, all with the click of a button.

• Don't review investment returns out of context. If your portfolio receives a 12% annual return over a period of time, but the overall stock market returned 22%, you did terrible. Conversely, if your portfolio lost 5% per year while the overall stock market lost 7% per year, your returns were ironically good. Context matters.

Simple is good, and good is simple. Don't let "experts" lead you astray.

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Keep Zooming Out

In case it hasn't been brought to your attention (yet), the world is melting. Or probably melting. Or possibly melting. Something like that. Unemployment is up, inflated prices continue to put pressure on families, and political unrest (at home and abroad) is wreaking havoc on our collective psyche.

However, as always, we fixate on the stock market. While the stock market isn't THE indicator for our economy, I understand why we dwell on it. It's one of the few tangible, in-your-face, clearly measurable tools available in our crazy world. It's even color-coded! Green = Good. Red = Bad. These days, when we turn on the news, we see lots and lots of red.

As of yesterday's market closing, the U.S. stock market (S&P 500) is down 8.5% in less than three weeks. In a world that's supposed to provide a positive 8%-10% annual return, that recent development feels scary—very scary.

However, as I always say, we need to zoom out. And every time we zoom out, we need to keep zooming out. Doing so is the only way we can emotionally, mentally, and psychologically survive the scary times.

Here's what I mean. Our recent stock market beatdown takes the U.S. stock market down to where it was on - checking my calendar - May 8th of this year. Oh, that doesn't feel so bad now. Let's zoom out further. When the market first hit this level on March 20th, it was a new all-time, 154-year high. So the level we're at today, less than five months ago, was celebrated as another record-setting, butt-kicking, all-time high. Ah, now we're talking. Keep zooming out.

5 Days (-5.1%) = Feels scary!

6 Months (+4.6%) = Not too bad

5 Years (+77%) = Oh, I guess we're good

Regardless of how good or how bad things feel, I encourage you to keep zooming out. Perspective matters.

Ignoring the Finance Bros

I just celebrated a four-year anniversary working with a specific client. A single woman who is now in her early 30s. In one of our first few coaching sessions, I walked her through the key principles of investing:

• Broad U.S. stock market index funds

• Low fees

• Disciplined contributions

• Don't lose sleep

• Be very patient

She loved the simplicity of this approach and latched on quickly. Early on, we set up automated contributions to her investment accounts, and she's never thought about it since.

Some of my favorite memories were when she would come into a coaching session with stories about how her guy friends would boast about their investing prowess and make fun of her approach to investing. Or in her words, they "mansplained" it to her, as she rolled her eyes telling me the story. These types of stories would persist for the coming years, always revolving around their investing advice, stock tips, and more boastful tales.

I know exactly what she's talking about. No, I don't actually know these particular guys. But I know lots of people like this. They are commonly referred to as "finance bros." They've taken a few finance classes in their college years, got lucky with a few stock trades (ignoring the many other losses), and now prop themselves up as investing gurus.

Whenever my client told me these stories, my message was the same: "Be patient. You'll get the last laugh. The truth always prevails."

While together recently, she and I logged into her investment account to see her performance: +13.6% per year for the last four years. Not too shabby for her only spending five minutes per year on her investments (and practically no time thinking about it). 13.6% per year.....from someone who knows very little about the stock market. That's the power of doing things the right way.

I really wish I could have a beer with her finance bro friends to see what their investments have looked like over the past four years. Having spent enough time with the finance bros in my life, though, I have a feeling it's not a pretty sight.

Simple is good. Steadfast is good. Consistent is good. Broad is good. Cheap is good. Zero brain damage is good. 155 years of black-and-white history is good. I'm so glad my friend ignored all the finance bros.

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The Dip Is a Myth

I have a strange hobby. Occasionally, I'll set a random reminder on my phone for the distant future. These reminders usually stem from conversations with buddies or goals with clients. It's always a fun treat to get a random, obscure reminder. Yesterday, I woke up to a memorable one: "Remind Ryan the dip is a myth." That's it. That's all it said.

This reminder stems from a conversation I had with a group of friends one year ago yesterday. A few of the guys asked me about my opinions on investing. After I shared my perspective (which you've heard here often), a guy (we'll call him Ryan) disregarded the entire thing. "I'm saving all my cash to buy the dip. That's where the real money is made." For context, he had liquidated most of his retirement investments and was sitting on mostly cash, eagerly anticipating a crash. I can't remember the exact amount, but it was a bit north of $200,000.

I, of course, couldn't disagree more with this sentiment. It's a proven bad strategy, oozing with naivety, a false sense of control, and overconfidence. After all, buying the dip requires you to know when the dip actually occurs, put your money where your mouth is, and know when to sell.

Further, let's not forget the stock market is up far more than it is down. To demonstrate, here are a few staggering statistics about the last 154 years of U.S. stock market history:

• The market has been up in 74% of calendar years.

• It's been up 78% of 2-year stretches.

• Even crazier, it's been up 85% of 3-year periods.

The odds are heavily in favor of up!

After sharing the behavioral, philosophical, and historical reasons why buying the dip is a terrible idea, Ryan responds, "You're wrong. You'll see." We agreed to set a reminder 12 months out and compare notes 365 days later.

Well, yesterday was the day, according to my pop-up reminder. So, how did Ryan fare? Here's a screenshot of how the Vanguard total U.S. stock market index performed over the last 12 months:

+25.2%. Ouch! Not only did Ryan not win, he got crushed. In his arrogance and greed, assuming he had $200,000 sitting in cash, he lost at least $50,000 of gains! That's a tough lesson.

I sent him the reminder today, along with the market performance screenshot I included above. He responded, "It was the right decision—it still is. I'll keep waiting for the dip." Old habits die hard.

Will Ryan ever succeed in this endeavor? Maybe. The odds are heavily stacked against him, though. It will require a mix of luck, close monitoring, the conviction to act, the conviction to act again, and a lot more luck. Conversely, he could follow the statistical odds of success by simply investing now and never worrying about it again. I like that option much, much, much better.

Fortunately for you, the best way is the simplest way. The dip is a myth, so just invest.....then patiently (and boringly) wait.

Zoom Out or Freak Out

Have you heard!?!? Everything is falling apart!!! The stock market is collapsing!!!! It's the end of the world!!!! Right on cue, countless people are gripped with fear over how bad the stock market is doing. Everyone's posting about it on social media, and I've received no less than 15 questions about it just this week.

After all, the stock market is down 4.6% in just the last 20 days. Considering the stock market is supposed to go up 8-10% per year, losing nearly 5% in a three-week stretch feels like the end of the world.

Things are so bad that the market is down to a level not seen since......well, seven weeks ago.....when it hit yet another all-time 153-year high. And after this white-knuckle three-week stretch and watching our investments get beat to smithereens, the stock market is now up only 21% in the last 12 months. Even worse, it's only up 70% over the last five years! Whatever shall we do!?!?

I hope you picked up the sarcasm, as I was laying it down pretty thick. If we don't have a proper context of what's happening, we can really freak ourselves out. Alternatively, we can simply zoom out. When we do, we see a different picture. Like this chart:

This is what the market looks like over the last five years. That little downward blip on the right-hand side of the image is this scary, nasty, terrifying collapse everyone is on pins and needles about. I'll stress the world "blip." Context matters. Context always matters. And, like with most situations, we need to zoom out to gain a proper context.

I won't claim to know what will happen next. The stock market may hit a new all-time high next week, or it could be on the way to experiencing a 50%+ collapse. Either way, I don't much care. Here's what I do care about, though. I care that history tells us, over a long period of time, the market will provide something in the ballpark of 9% per year. I also care that there has never been a 15-year period in history where the market lost money. Lastly, I care that the worst the stock market has done over a 30-year period of time is end up 4.4x higher than it started.

We can zoom out or freak out. I hope you'll join me on the zoom out side of the line. Life is far more peaceful and meaningful when we do.

What We Don’t Know WILL Hurt Us

According to a recent Northwestern Mutual survey, Americans believe they will need approximately $1.46M in their investment portfolio to comfortably retire.

As I suspected, personal finance social media is abuzz about this. There's a wild debate about whether this average number of $1.46M is enough. Financial experts are quick to use the 4% rule, which I agree is a prudent way to find a quick rule-of-thumb answer. To summarize, there's a principle in the investment world that says when we start to withdraw money from a large block of invested capital, we can take an amount equal to 4% of our total investment portfolio in the first year, then adjust that dollar amount upward for inflation each year after that. If we follow that strategy, statistically speaking, we shouldn't run out of money during our lifetime.

Let's use a real example. If we have $1.46M in our portfolio when we retire, 4% of that number is $58,400. In other words, a family who retires today with a $1.46M portfolio can generate an annual income of $58,400. This decision has more considerations and nuance, but that's a pretty fair back-of-the-envelope rule of thumb.

This is where the experts came unglued. "You can't retire on $58,000/year!!!!!" In short, people focused on what balance is needed to achieve the annual income they deemed acceptable. Many concluded that $2.0M ($80,000/year retirement income) or even $2.5M ($100,000/year retirement income) is adequate.

Through all this discourse about the appropriate level of retirement lifestyle, they failed to consider the most important factor of all: inflation. Let's go back to the above example. As I mentioned, according to the 4% rule, if someone retires today with a $1.46M portfolio, they could generate an annual retirement income of $58,400. There's one key word in my last sentence...."today." Whether you believe $58,400/year is an acceptable number or not, $58,400 today is not the same as $58,400 in 10 years.....or 20 years.....or 30 years.

If you're 50 and want to retire at 60, that $1.46M portfolio will still generate an annual income of $58,400. However, due to inflation, $58,400 in 10 years will feel like $43,500 feels like today.

If you're 40 today, that same $58,400 at age 60 will feel like $32,300 feels like today. Ouch!

If you're 30 today, that same $58,400 at age 60 will feel like $24,000 feels like today. Uh oh!

Can you see the problem here? Millions of people have a belief structure that, even if they actually meet their goals, are unknowingly barreling toward a challenging situation.

What we don't know WILL hurt us. This sentiment applies to this topic, and others. That doesn't mean we need to become experts in all areas, but gaining awareness of the bigger picture is often the gateway to being better and having better. For that reason, I'm grateful you're here. I hope to provide context and perspective in a few of these areas, but we should all seek other places to grow in other areas as well.

What other resources/content (money or not) do you enjoy consuming on a regular basis?

That’s What It’s For!

This is the text message I received last night from a client. "Can I give it away?" I suppose some context is in order. This client has done a remarkable job over the last five years. They've budgeted well, lived intentionally, pursued work that matters, given with purpose, and invested patiently. One of the practices they've established in their life is a disciplined commitment to taxable investing. If you're a client, you know I beat this dead horse dead-er. I believe taxable investing is one of the most overlooked, neglected, misunderstood, and whiffed opportunities in personal finance today. This client, however, immediately embraced the concept way back when we started meeting. Each month, a portion of their money automatically gets contributed to their taxable investment account. They don't think much about it. They don't lose sleep over it. They rarely even check it. It just happens.

The stock market had a killer day yesterday. It rose by 1.23% in a single day, to yet another all-time high. This is an eye-catching type of day, which somehow caught the eye of this couple. This is where my text exchange begins. They excitedly and somewhat confusingly texted me, saying their investment account shows they made $9,000 just yesterday. They couldn't believe it. $9,000 in one day!?!? Yes, correct. That's the beauty of investing the right way. It feels like nothing. Then nothing. Still nothing. But one day, off in the future (hello future you!), it's everything.

Astounded by this new development, their gut reaction was, "Can I give it away?" That text made my day. "Yes, of course you can! That's what it's for." Again, this is the beauty of taxable investing. This money gets invested intentionally, but its fate remains in the air. They could use it for retirement, kids college, supplemental income, a new car, a home improvement project, a vacation, starting a company/organization, or outrageous giving. Everything is on the table.

After ripping open the doors for generosity, I revealed to them there's another beautiful nuance to it. If they directly give their investment to a registered 501(c)(3) organization (like a church or non-profit), they don't owe a penny of taxes. That's right. 100% of the investment goes to the organization, they owe zero taxes, and can deduct the entire gift on their taxes (if they itemize).

Here's an example. A $3,000 investment grows to $10,000. Assuming it's been held for at least 365 days, they qualify for long-term capital gain tax rates. For most families, that means they would owe a 15% tax on the $7,000 of growth, or $1,050. Instead of selling this investment, they can just give the entire $10,000 investment directly to the organization, the $1,050 of taxes goes away, and they can even report the $10,000 gift as a deduction on their taxes (if they itemize). Win, win, win. Of course, they could always just sell the investment, pay the taxes, and give that money directly to an organization or someone in need.

They are going to have fun with this.....

Current You vs. Future You

We humans have a fantastic ability to disassociate our current selves from our future selves. Take a recent date night as an example. We're out with a few friends, enjoying dinner and some drinks. We're all having a good time and excited to have kid-free time with other adults. Fast forward a few hours, I ate too much rich food, and I probably didn't need that drink toward the end of our evening together. In those moments, I was focused on my current self while completely disregarding my future (12 hours from now) self. I woke up the next morning feeling pretty blah. Had I been more self-aware, I would have considered what future me would want current me to do.....but I didn't. The problem is that, in due time, future me becomes current me.

That's a more minor and less consequential example of this concept. It's also scary considering how short of a time gap there is between current me and future me in that story.....a measly 12 hours. But yet, even though future me would become current me in less than a day, I still disrespected him.

Now, take that same concept and expand the time gap to 5, 10, or 20+ years. The further out in the future we're looking, the harder it is for us to associate with that person. And when we can't associate with that person, we lose empathy, compassion, and care. They are a stranger to us. It's someone we haven't met yet, nor will we meet for possibly decades. As a result, we don't much care what they think or feel.

Let's replace dinner and drinks with financial decisions. Maybe current you is thinking about taking out a big, fat car loan to acquire that shiny new vehicle you've had your eyes on. Have you considered what future you will think of that? In a few years, that shiny vehicle will be worn, out-of-date, and beat up. At the same time, future you will still be making those ridiculous payments and will have lost out on the opportunity cost of what could have been done with all those monthly payments.

Or maybe it's investing. Let's face it: investing $1,000/month isn't all that fun. I can think of a hundred things I'd rather do with '$1,000 each month. However, what would future me think about current me's decision to spend all that money on myself now? Current me can have a lot of fun with $1,000/month, but future me is relying on current me to step up and think big-picture. After all, someday future me will be current me......and I deserve better than to reap the consequences of my past self's selfishness.

Here's a little trick I often think about. When I'm about to make a decision, financial or otherwise, I ask myself what future me will think of it. If I don't like the answer, I should consider making a different decision.

Treat future you well......they will soon be current you.

The Wisdom of Joker

What does Heath Ledger's Joker have to do with investing? Well, I'm glad you asked! In the world of investing, one of the biggest obstacles I have coaching people is helping them get their arms around risk. While it's true the stock market has averaged 9% per year over the last 150+ years, it's also true it frequently looks like a scary rollercoaster. It can be a mess. 

Here's a fun fact. Though we typically view the stock market through the lens of "8-10% per year," the stock market has only produced an outcome in that range three times out of the last 153 years (1912, 1916, and 1993)! In other words, the month-to-month and year-to-year results can vary widely......shockingly so. In fact, it's finished everywhere between -40% and +53%. Again, it's a mess. 

Just this century alone (which spans only 24 years), we've experienced four stock market crashes:

• -46% with a combination of the tech bubble bursting and 9/11

• -54% during the Great Financial Crisis

• -32% (in just five weeks!) when COVID hit us

• -25% in 2022

Once again, it's a mess!

Let's go back to Joker. In The Dark Knight (one of my all-time favorite movies), Joker is in Harvey Dent's hospital room, spouting off crazy. In the middle of this rant, he utters a quote that lives rent-free in my head: "Nobody panics when things go according to plan. Even if the plan is horrifying."

While Joker meant it in a dark and nefarious way, I think there are a lot of parallels with investing. As investors, we need to know bad things will happen. It's part of the plan. The stock market crashes because the stock market crashes. That's just how it works. And if the stock market crashing is part of the plan, and we know it's part of the plan, we don't need to panic. Yes, even when the plan is horrifying. 

Four stock market crashes in just 24 years does indeed sound horrifying....and risky. If you had patiently lived according to the (horrifying) plan and endured whatever the stock market threw at you, you would have lost nearly half your money, just over half your money, a third of your money, and a quarter of your money. Brutal, eh? But here's the fun part. Through all that, you would have received a 6.9% annual return for those 24 years. Put another way, a $1,000 investment made on 1/1/2000 (hello Y2K!) would be worth approximately $5,000 today. That's a 5x multiple on your original investment. Not too shabby for enduring four stock market crashes in the middle of it. 

The stock market will crash. It always does. That's part of the plan. And if you know it's part of the plan, there's no need to panic. In fact, there's not even a need to log into your account or dig into account statements. Let the market do its thing while you live a meaningful life, and then check back in a few decades.

Never Waste a Perfectly Good Mistake

In a sobering coaching moment, I recently explained to a client that their investing decisions have cost them handily. They asked me how much we're talking about, so I did some calculations. Though it's a rough estimation, it's safe to say they've lost at least $25,000 so far. They were livid. Worse, their financial advisor is a family member. What this family member did to them wasn't explicitly immoral, but rather "normal." Normal in the sense it's what most people are doing.....which is terrible. They were sick about it, and rightfully so.

But as I love to say, let's not waste a perfectly good mistake. Yes, they lost out on +/- $25,000. There's no way to reverse that. However, that pales in comparison to what they will potentially lose in the future. By my estimation, they will lose a minimum of $1M in the decades to come if they stay on this same path. It's an expensive mistake, but that singular mistake will ironically be the springboard to them doing so much better. That mistake was transformational......in the best way.

I also think back to my own journey. Specifically, when I received the humbling of a lifetime when the Great Financial Crisis struck us. I was $236,000 in debt, on the verge of losing my job, and had limited options. I was blessed with the opportunity to keep my job (by moving states), which gave me a second chance to do this financial stuff right. That mistake was costly, but it was ironically the springboard to a better life. That mistake was transformational.....in the best way. I still carry some of that pain, but I also carry a ton of gratitude with it.

I don't know what mistakes you've made, are making, or will make in the future, but I know they are coming. Some of them will be mild, but others will be costly. I hope they don't cost you as much as they cost this young couple or the younger version of me, but whatever they are, I hope you use it for good. Learn from it. Be humbled by it. Grow from it. Let it shift your perspective. See it through a different lens. Share it with others. Be better as a result of it. Regardless of how bad the mistake was, more good can come from it than bad......if we allow it.

We can't avoid mistakes altogether, but we can use them as a force for good. Never waste a perfectly good mistake!

You Wouldn’t Pay a Doctor to Hurt You

A friend, who is now a reader of this blog, recently asked me to do a quick assessment of their investments. After reading several posts where I ranted about how most people unknowingly have terrible investment portfolios, he had a growing suspicion that his portfolio probably fell into the same camp. His story is similar to most. In an effort to help their grown children, their parents gave them a referral to the financial advisor they've been using for many years. After all, this is a person they trust. It's a long-standing relationship, and their portfolios have increased over time. And in their parents' defense, when they started investing, this was the ONLY way to invest. It's the traditional way to do it. 

I dug into their funds, took into account their weightings, and this is what I found. Over the last ten years, their investment composition had a return of 8.97% per year (we'll call it 9%). Pretty good, eh? After all, the stock market's historical average is around 9% per year for 150+ years. One problem, though. The total US stock market, over the same period of time, had an 11.50% annual return. This means their portfolio underperformed the stock market by 2.5% per year.....wow! Oh yeah, and they paid their financial advisor 1.25% per year for the privilege of getting their butts kicked by the market. 

So after factoring in sub-par returns and the manager fees on top of it, they performed 3.75% less than they could have performed by simply pushing a few buttons on their phones: 7.75% vs. the market's 11.50%. You wouldn't pay a doctor to hurt you, but this is the financial equivalent of doing just that. 

Let me illustrate it for you. This couple is 30 years old and has approximately $20,000 invested. Let's assume these same returns persist between now and age 65. Here's what would happen:

• Their current portfolio would end up at $270,000

• A simple investment in a total stock market index would be $900,000.

That's a $630,000 difference! Their returns would be 3.3x more.....triple!! And this doesn't even account for additional investments into their account between now and 65. This is ONLY the original $20,000 investment. 

Now I doubt these same returns will repeat themselves over 35 years. Let's pretend the market returns 9% per year instead. And let's also assume their financial advisor will pull a rabbit out of his hat and tie the market (but they still have to pay their 1.25% fee for the privilege). Here's what would happen:

• Their current portfolio would end up with $273,000. 

• A simple investment in the total stock market would end up with $408,000.

That one decision made them $135,000....not accounting for additional investments!

Epilogue: After this conversation, the husband independently set up an account to invest in the total stock market index. The entire process took him 15 minutes. Those 15 minutes just made them more than $1M! That's what I call a great return on investment!

The Deceit of Cultural Narratives

A friend recently reached out to ask a few financial questions. During the conversation, he made a comment that stopped me in my tracks: "It's surprising that you're such a big advocate for the stock market when it's doing so poorly." I didn't quite understand where he was going with this thought, so I asked him to explain. He shared that the stock market has been beaten up badly, and it's "only getting worse." He went on to draw into question the practicality of investing in the stock market, and stressed the notion of "too much risk." 

While it's true the stock market dropped by approximately 20% in 2022 (which I would indeed classify as "beaten up"), he doesn't see the whole picture. It's a truth, but a half-truth. Er, a quarter-truth. Please allow me to fill in a few gaps:

• In the first 11 months of 2023, the stock market (S&P 500) is up approximately 19% (not including dividends).

• Over the past five years (including the 20% fall in 2022 and a 32% tanking in early 2020), the stock market has increased by more than 11% per year. 

• The stock market only needs to increase by 4.3% from today's value to hit an all-time 153-year high. 

• Over those 153 years, the market has increased by an average of just over 9% (including the reinvestment of dividends). The average is 11% per year for the past 40 years. 

If all that isn't crazy enough, here's one more fun fact that may blow your mind. The WORST (yes, worst!) the stock market has done over a 30-year period is go up by 4.4x. Crazy, eh? The worst possible outcome during any 30-year window in US stock market history is quadrupling your money (plus a little more). Considering you can't even legally touch your retirement funds (without penalties/taxes) until age 59.5, if you're under the age of 30, you have at least 30 years before you'll even think about withdrawing those funds anyway. Context matters. 

Ok, investment rant over. Here's the bigger takeaway. My friend is the victim of what many of us fall prey to. We're sucked into cultural narratives that feed us enough half-truths until it becomes THE truth. Investing is a big one, but far from the only one. Here are a few others that I frequently see:

• It's impossible to attend college without student loans.

• Buying a house is always a smart financial decision. 

• You need to use a credit card. 

• Groceries must cost your family $1,000+ per month.

• We need to seek out the job with the highest possible income. 

• Having a car payment is inevitable. 

• ____________ (insert yours here).

All of these are cultural narratives woven into the fabric of our society. Also, they are deceitful at best, and destructive at worst. If we just believe the narrative at face value, we concede it is our reality. Then, we casually float downstream toward an impaired reality. 

Always question the narrative. Challenge the narrative. Seek the truth.

Inquiring Minds Want to Know

A few days ago, I wrote about how most of us believe our investments are doing well, but that may not always be true. I used the example of a family who may unknowingly end up with $1.7M LESS. We don't know what we don't know.

In the last few days, I received dozens of messages from people asking what's actually good. Most of them perceive their investments as "doing good," but doubt started to creep in after reading that post. To figure it out, they dug into their investments in one of two ways: 1) look at what the trailing annual returns were for the last 5, 10, 15, or 20 years (which you can often find on your statements.....especially if you've been investing for a while), or 2) look at each fund in their portfolio to see what that specific fund has done over those periods (and use the proportions to run some averages). 

Results were all across the board. Examples include 6% per year, 7% per year, and even 8% per year (and everywhere in between). There was even a 9%ish number in there! Most people felt these numbers were solid. But the question attached to each inquiry was what to compare it to. Was it actually good? Were these numbers up to par? Were they unknowingly underperforming?

Here are a few numbers to consider. The following is the performance of a popular total stock market index fund containing approximately 3,800 U.S. companies of all shapes and sizes, wrapped up in one inexpensive and accessible investment. We can view this as the barometer for the entirety of the U.S. stock market. These numbers represent an average annual return over the designated period:

• Last 5 years: 10.2% per year

• Last 10 years: 10.7% per year

• Last 15 years: 12.7% per year

Through the lens of these numbers, the results submitted to me by readers look really sad. As a reminder, in the illustration I ran the other day, a 2% difference resulted in a $1.7M worse result for the family in the example. Based on our reader's numbers, we're talking about 3%, 4%, 5%, and even 6% difference between what they are getting and what the market is getting. This can be the make or break between having enough down the road....or not. This discrepancy gets magnified the younger the investor is. 

Ouch! Here's the good news. What's in front of us is more important than what's behind us. Let's say we're 40 years old and have been investing for 15 years. Sure, it would have been nice to have better returns for the first 15 years. However, you still have 40+ years ahead of you......with a higher base to start with. 

Let me end with this. Yes, it feels scary. Nobody wants to take risks. In the 153-year history of the U.S. stock market, there's never been a 15-year period where the market lost money Ever. The worst was +1.15% per year from 1929-1943. While past performance never dictates future results, that doesn't feel overly risky.

This post is a lot more about money than meaning, but it’s important we handle our finances with confidence. When we do, we worry a lot less and can focus on what’s really important….the meaning!

*This post does not constitute formal financial advice. It is meant to provide general insight without the full context of each person's financial situation. 

Sometimes, "Pretty Good" Sucks

I recently had a conversation that I repeat multiple times per week. I was meeting with a friend, and the topic of investing came up. They mentioned they use a financial planner who does a "pretty good job." This comment always sets off my red flag and warning sirens. What is the definition of a pretty good job? How do we know our investments are performing well? Because they are going up? Because they are being watched? Because they are spread across a few dozen funds that sound like some sort of twisted alphabet soup? Because they are being managed by someone we know and trust? 

I asked them what company they use for their investments. In my head, all I could think was, "please don't say xyz, please don't say xyz, please don't say xyz." "We work with xyz." Nooooooo! That's the moment I knew they were in a tough spot. For what it's worth, xyz is a very prominent, highly respected, broadly welcomed financial advising company. Before I go on, please let me clarify that nothing this company does is inherently immoral, illegal, or ill-intentioned. Rather, they do things the old way. By "the old way," I mean the way things used to be done before they didn't need to be done that way anymore. In today's world, we have access to the very best funds in the world, at the tip of our fingers (er, screen), at little to no cost. 

Knowing what company they are working with, I know the general lay of the land. They are most likely paying around 1.25% for management fees and have a portfolio that will, over a long period of time, perform at least 0.75% worse than the overall stock market. Therefore, this person is likely invested in a portfolio that will perpetually perform 2% less than the overall stock market. If the stock market performs at a long-term 9% (just below its historical average), this person may receive 7%. This doesn't seem like a meaningful difference, but let's look at the math:

Here are the assumptions:

• Current age: 42

• Ending age: 65

• Current balance: $500,000

• Annual contributions: $25,000

• These are very simple, rough numbers for illustrative purposes.

At age 65, their current strategy would result in a balance of approximately $3,700,000. See, that's pretty good! That's a lot of money! Their person did a great job! 

But wait, what about the other way? If this person were to simply invest in the overall market (readily accessible to each of us at practically no cost), they would have approximately $5,400,000 instead. That's a $1,700,000 difference!!! I don't know the definition of "pretty good," but in my book, ending up $1,700,000 worse off fails my smell test. 

This isn't my friend's fault. After all, nobody teaches us this stuff! Here's the beautiful part, though. All it takes is one simple tweak. It seems too good to be true, but it's not.