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Kindle Notes & Highlights
by
Ramit Sethi
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March 9 - July 22, 2020
Log in to your savings account and set up an automatic transfer from your checking account to your savings ac...
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5th of the month:
Automatic transfer to your Roth IRA.
log in to your investment account and create an automatic transfer from your checking account...
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7th of the month:
Auto-pay for any monthly bills you have.
7th of the month:
Automatic transfer to pay off your credit card.
Log in to your credit card account and instruct it to draw money from your checking account and pay the credit card bill on ...
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When the Money Flows
If you’re paid twice a month:
Now—to oversimplify it for explanation’s sake—you’ll pay your bills with your first paycheck of the month, and you’ll fund your savings and investing accounts with your second paycheck of the month.
Save a “buffer” of money, which you can use to simulate getting paid once a month.
Your automated money flow takes advantage of human psychology.
Your system will grow with you.
Your system lets you go from “hot” to “cool.”
fee-only financial advisers simply charge a flat fee and are much more reputable.
The key takeaway is that most people don’t actually need a financial adviser—you can do it all on your own and come out ahead.
If you’re determined to get professional help, begin your search at the National Association of Personal Financial Advisors (napfa.org).
Google “Ramit best accounts” for the best checking and savings accounts and credit cards.
So You Really Think You Need a Financial Adviser?
“financial adviser questions”),
Are you a fiduciary? How do you make your money? Is it through commission or strictly fee-only? Are there any other fees? (You want a fee-only adviser who is a fiduciary, meaning they put your financial interests first. Any response to this question other than a clear “yes” is an instant no-hire.) ■ Have you worked with people in similar situations? What general solutions did you recommend? (Get references and call them.) ■ What’s your working style? Do we talk regularly, or do I work with an assistant? (You want to know what to expect in the first thirty, sixty, and ninety days.)
You should ideally be paying 0.1 to 0.3 percent.
Morgan Housel writes one of the most interesting blogs on psychology and money out there. Read his posts to understand why you do what you do (and why the herd does what it does). collaborativefund.com/blog
Dan Solin, author of a number of great investing books, writes a terrific newsletter where he names names and calls out the BS of the investing industry. Here are a few topics he’s tackled: “Cracks in the Robo-Advisor Facade,” “Active Fund Managers Are Losers,” and “Find the Courage to Be ‘Different.’ ” danielsolin.com
Ron Lieber writes the Your Money column for the New York Times. I love the variety of topics he tackles, and he’s a...
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Bogleheads forum, where you can find good investing advice. They’ll steer you clear of scams and fads and refocus you on low-cost, lon...
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Active vs. Passive Management
Mutual funds—which are simply collections of different investments like stocks or bonds—are often considered the simplest and best way for most people to invest.
But, as we’ve seen, fund managers fail to beat the market 75 percent of the time, and it can be hard to tell which funds will actually perform well over the long term.
mutual funds use something called “active management.” This means a portfolio manager actively tries to pick the best stocks and give you the best return.
Mutual funds typically charge 1 to 2 percent of assets managed each year. (This percentage is known as a fund’s expense ratio.)
“passive management.” This is how index funds (a cousin of mutual funds) are run.
These funds work by replacing portfolio managers with computers. The computers don’t attempt to find the hottest stock. They simply and methodically pick the same stocks that an index holds—for
Vanguard’s S&P 500 index fund, for example, has an expense ratio of 0.14 percent.
What’s a Better Deal?
In some years, some mutual funds do extraordinarily well and far outperform index funds. In a good year, for example, a fund focused on Indian stocks might return 70 percent—but one or two years of great performance only gets you so far. What you really want is solid, long-term returns.
if you’re thinking about using a broker or actively managed fund, call them and ask them a simple, point-blank question: “What were your after-tax, after-fee returns for the last ten, fifteen, and twenty years?”
Bottom line: There’s no reason to pay exorbitant fees for active management when you could do better, for cheaper, on your own.
Automatic investing works for two reasons:
Lower expenses.
It’s automatic.
Money makes money, and at a certain point, your money is generating so much new money that all of your expenses are covered. This is also known as being “financially independent” (FI).
Your investment plan is more important than your actual investments.
The Pyramid of Investing Options
The advantages of bonds are that you can choose the term, or length of time, you want the loan to last
bonds, especially government bonds, are generally stable and let you decrease the risk in your portfolio.
In general, rich people and old people like bonds.
It is important to diversify within stocks, but it’s even more important to allocate across the different asset classes—like stocks and bonds.
