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Kindle Notes & Highlights
by
J.L. Collins
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January 3 - January 31, 2024
Avoid investment advisors. Too many have only their own interests at heart. By the time you know enough to pick a good one, you know enough to handle your finances yourself. It’s your money and no one will care for it better than you.
Money can buy many things, but nothing more valuable than your freedom.
Try saving and investing 50% of your income. With no debt, this is perfectly doable.
When you can live on 4% of your investments per year, you are financially independent.
If you intend to achieve financial freedom, you are going to have to think differently. It starts by recognizing that debt should not be considered normal. It should be recognized as the vicious, pernicious destroyer of wealth-building potential it truly is. It has no place in your financial life.
Better to adapt yourself and your attitudes to the numbers than to adapt the strategies to your psychological comfort levels.
Rather than the pursuit of learning and culture, it has become the pursuit of job training in an effort to secure employment that will justify the astounding cost and debt incurred.
Those who live paycheck to paycheck are slaves. Those who carry debt are slaves with even stouter shackles.
Being independently wealthy is every bit as much about limiting needs as it is about how much money you have. It has less to do with how much you earn—high-income earners often go broke while low-income earners get there—than what you value. Money can buy many things, none of which is more important than your financial independence. Here’s the simple formula: Spend less than you earn—invest the surplus—avoid debt
if you want to be wealthy—both by controlling your needs and expanding your assets—it pays to reexamine and question those beliefs.
It’s not hard. Stop thinking about what your money can buy. Start thinking about what your money can earn.
Everybody makes money when the market is rising. But what determines whether it will make you wealthy or leave you bleeding on the side of the road is what you do during the times it is collapsing.
The market always goes up. Always. Bet no one’s told you that before. But it’s true.
The Wealth Accumulation Stage comes while you are working, saving and adding money to your investments. The Wealth Preservation Stage comes once your earned income slows or ends.
But in this context the word “average” is mostly misunderstood. Rather than meaning index fund returns are at the midpoint, the word “average” here means the combined performance of all the stocks in an index.
But investing is a long-term game. You’ll have no better luck picking and switching winning managers than winning stocks over the decades.
Bonds are in our portfolio to provide a deflation hedge. Deflation is one of the two big macro risks to your money. Inflation is the other and we hedge against that with our stocks.
Since deflation occurs when the price of stuff falls, when the money you’ve lent is paid back, it has more purchasing power. Your money buys more stuff than when you lent it.
When interest rates rise, bond prices fall. When interest rates fall, bond prices rise. In either case, if you hold a bond to the end of its term you will, barring default, get exactly what you paid for it.
As an aside, there are studies that indicate holding a 10-25% position in bonds with 75-90% stocks will actually very slightly outperform a position holding 100% stocks.
Overall, I prefer to divide our investment stages by life stages rather than using the more typical tool of age.
This is an acknowledgment of the fact that people are living longer and much more diverse lives these days. Especially the readers of this book. Some folks are retiring very early. Others are retiring from higher paid positions into lower paid work that more closely reflects their values and interests. Still others, like I did, are stepping in and out of work as it suits them, their stages fluidly shifting. So age seems not to matter, at least not as much as it once did.
Is there an optimal time of year to rebalance? Not really. I’ve yet to see any credible research indicating a particular time of year works best.
When you buy an iPhone, built into the price are all the costs of designing, manufacturing, shipping and retailing that phone to you, along with a profit for the shareholders of Apple. Apple sets the iPhone price as high as possible, consistent with costs, profit expectations and the goal of selling as many as they can make.
Tax-efficient investments are typically stocks and mutual funds that pay qualified dividends (dividends that receive favorable tax treatment) and avoid paying out taxable capital gains distributions.
Some would argue that using post-tax income is better as that is what he actually has available to spend. But taxes are very complex and the post-tax income generated from any specific pre-tax income is likely to vary widely. Using pre-tax is just simpler and, because it tends to encourage saving greater dollar amounts, it is more in keeping with the ethic of this book.
In fact, the authors of the study suggest you can withdraw up to 7% as long as you remain alert and flexible. That is, if the market takes a huge dive, cut back on your withdrawals and spending until it recovers.
cash is a really lousy way to hold money long term. Little by little inflation destroys its spending power.
Put another way, financial independence = 25x your annual expenses.
