Note: While reading a book whenever I come across something interesting, I highlight it on my Kindle. Later I turn those highlights into a blogpost. It is not a complete summary of the book. These are my notes which I intend to go back to later. Let’s start!

  • Charlie Munger once said “I did not intend to get rich. I just wanted to get independent.” We can leave aside rich, but independence has always been my personal financial goal. Chasing the highest returns or leveraging my assets to live the most luxurious life has little interest to me. Both look like games people do to impress their friends, and both have hidden risks. I mostly just want to wake up every day knowing my family and I can do whatever we want to do on our own terms. Every financial decision we make revolves around that goal. That stuck with me. Being able to wake up one morning and change what you’re doing, on your own terms, whenever you’re ready, seems like the grandmother of all financial goals. Independence, to me, doesn’t mean you’ll stop working. It means you only do the work you like with people you like at the times you want for as long as you want.

  • And achieving some level of independence does not rely on earning a doctor’s income. It’s mostly a matter of keeping your expectations in check and living below your means. Independence, at any income level, is driven by your savings rate. And past a certain level of income your savings rate is driven by your ability to keep your lifestyle expectations from running away.

  • The independent feeling I get from owning our house outright far exceeds the known financial gain I’d get from leveraging our assets with a cheap mortgage. Eliminating the monthly payment feels better than maximizing the long-term value of our assets. It makes me feel independent. I don’t try to defend this decision to those pointing out its flaws, or those who would never do the same. On paper it’s defenseless. But it works for us. We like it. That’s what matters. Good decisions aren’t always rational. At some point you have to choose between being happy or being “right.”  
  • Over the years I came around to the view that we’ll have a high chance of meeting all of our family’s financial goals if we consistently invest money into a low-cost index fund for decades on end, leaving the money alone to compound. A lot of this view comes from our lifestyle of frugal spending. If you can meet all your goals without having to take the added risk that comes from trying to outperform the market, then what’s the point of even trying? I can afford to not be the greatest investor in the world, but I can’t afford to be a bad one. When I think of it that way, the choice to buy the index and hold on is a no-brainer for us.  
  • Simple investment strategies can work great as long as they capture the few things that are important to that strategy’s success. My investing strategy doesn’t rely on picking the right sector, or timing the next recession. It relies on a high savings rate, patience, and optimism that the global economy will create value over the next several decades. I spend virtually all of my investing effort thinking about those three things—especially the first two, which I can control.  
  • If we have made mistakes, the main issue would be that we always have quite a bit of cash knocking around in our taxable account mainly because of inertia and because it never feels like a great time to move it all into something with more return potential. There has surely been an opportunity cost in that, especially as cash yields have gone close to zero at various points in time in recent years. On the other hand, knowing that we have liquid reserves that we could tap in a pinch probably gives us peace of mind to stay very aggressive with our retirement accounts.  
  • My thoughts around money life—not just investing, but earning, spending, saving, borrowing, giving, and so forth—have coalesced around the notion of “funded contentment.” True wealth, I believe, is the ability to underwrite a life that is meaningful to me. This is very different than being rich, or merely having more. Funded contentment is my mental model for thinking about the life I want to lead, and the lives of my wife and three kids.

  • On paper, the biggest investing mistake I’ve made is holding too much cash. At times, it’s been north of 25% of our total net worth. The back of the envelope math on what I could have earned on that cash over the decade-long bull market is stomach turning. Still, here’s my thinking. First, my career has an extremely high market beta. My human capital and financial capital are closely correlated. Times like 2008 put my financial—and family—stability at risk. I need to hedge that. I have had many finance jobs, left some willingly, others not, and cash hedges my liabilities, both cash flow and emotional. I’ve long slept well knowing that no matter what, Tracy and the kids would be fine for a long stretch (years) if my career really tanked. More constructively, I’ve come to see cash as providing optionality to take advantage of market dislocations or unexpected opportunities. The “juicy” part is my effort to earn higher returns in a zero-to-low rate world. Unlike others, I’ve not hopscotched to different banks offering marginally higher rates. The hassle doesn’t seem worth a few extra basis points. Instead, I’ve tried to park my cash in short-term municipal bond offerings with outsized yields. I invest in a small private fund (limited partnership) which buys short-duration, odd lot munis with tax-equivalent yields north of 5%. These opportunities are out there if you look for them and big institutional muni buyers can’t touch them. One could say that is bond investing, not cash, and that’s fine. The fund has monthly (not daily) liquidity, which allows the PMs to manage the fund effectively.

  • The cottage is a remarkable family fulcrum. Its environs were and remain our children’s favorite place in the world, and they have passed that love down to their own children. Mimi’s legacy is broader and deeper than the cottage, of course, but it is inextricably tied to it.  The cottage was a great investment. It was a mechanism for Mimi to get and keep her family together. It served her purpose. We in the financial world spend enormous amounts of time considering how we (and our clients) should invest. We ought to spend more time than we usually do considering and reminding ourselves why we invest. We save and invest for the future, obviously, but what we want that future to look like depends upon our “whys”—what we have determined are the purposes by which we choose to live.  
  • One’s purposes provide the foundation upon which a financial plan is built. A good financial plan is designed to provide a means and the funding for living out one’s life… on purpose. Humans generally lack courage more than genius, and persistence most of all. Accordingly, sticking with our financial plans is often more difficult than creating and implementing a good one. Repeated consideration and articulation of our purposes can help us do that. Imagining ourselves at the end of life—like Mimi in that hospital bed—thinking back over life’s joys, struggles, and decisions, can prod us toward better and more profound choices.  
  • Like compound interest, success is sequential. It takes time for good choices to add up before exploding exponentially. All the best things in our lives provide benefits that compound. Our financial investments do that, and so do our personal and family investments. Generosity and service compound. So do healthy living and education. Love is the most powerful compounder of all. Focus your purposes there. We don’t completely control our destinies or our legacies. But if we invest well—financially and otherwise—our legacies can be profound. Mimi had her whys in order. She and Pop knew what was important to them and they invested to bring those purposes to life. Ginny and I are trying to do the same thing.  
  • I believe being willing to stick to a diversified portfolio of index funds is the closest thing to an investing superpower that exists in the age of shiny object syndrome. Patience seems to be a much simpler and more satisfying road to our financial goals than always trying to find the next best thing. We currently contribute monthly to my Roth 401(k) and our taxable account. Given our income levels, it may or may not be a smart long-term decision to choose Roth if we end up in a lower tax bracket in retirement, but I do it anyway because I don’t mind paying taxes now. I care much more about what it could mean for us in the long run. The future tax bill is another potential friction I can eliminate by investing in this way. I also consider the question of whether I would rather pay taxes on the seed or on the tree? With 30-plus years of potential tax-free growth ahead of us, I prefer to pay taxes on the seed. Our taxable account is becoming our most sizeable account. We look at it as an extension of our savings despite it being all equities. If we needed funds beyond our emergency savings, we are willing to accept the possibility that the market may be in the tank when we need it, if it means that we can position ourselves for higher probable returns for years to come. The purpose of our taxable account is to provide for both retirement and education. We do not utilize 529 plans for education because we prefer optionality rather than tax benefits. If our sons end up joining the military, getting an unlikely scholarship or doing something entirely different, we are no worse for it and may provide for them in other ways because we can. By saving this way, we have given ourselves options. For our third goal, preparing for life’s what ifs, I am a big believer in insurance. I have enough life insurance to provide for my family in perpetuity and cover our education goals if something should happen to me. I have disability coverage to provide for my family if I am unable to work, and we have adequate liability insurance for the remaining what ifs. Insuring ourselves for what can go wrong is what allows us to invest for what can go right. Understanding what matters most to us and what we are trying to achieve provides the guideposts for establishing our strategic and tactical plans that allow us to sleep well at night. There is no one right way to do anything financially, you must find what works for you and stick to it.

  • In golf, par is a good score, and avoiding bogeys is more important than making birdies. Very few professional investors beat the market consistently, after accounting for the costs.

  • My investable assets can be divided into four goals/buckets (and the asset allocations within each). 1. Short term/emergency funds (100% money market). I keep a couple years of living expenses and emergency funds in money markets because I’m running a new and pre-profit business from which I do not currently draw a salary. This is the slush fund that lets me keep the dream alive until my company is profitable. 2. General investing and cash for investment opportunities (50% stocks, 50% cash). This is a brokerage account in which I hold stocks and ETFs that are not part of my core strategy. They’re companies I enjoy and believe in, or ETFs with themes that I think are promising. I hold some of my fellow independent ETF issuers’ products in this account. One of the things I love the most about the ETF business is getting to do it alongside brilliant people with innovative ideas, and getting to use their products before they become mainstream. 3. Retirement (90% stocks, 10% bonds). This is the largest asset pool out of my investment goals/buckets, mostly rolled over from my Fidelity 401(k). Here I have some extremely low-cost Fidelity index funds—large, mid, and small cap US equities. At some point I intend to switch these out for corresponding ETFs, but it’s not a priority currently as I do not trade them at all. I get made fun of by my ETF colleagues for still having mutual funds in my account. To people in the ETF industry, mutual funds, even index mutual funds, seem anachronistic. But at this cost, in an IRA, I’ll allow it. I also have some bond funds that I have neglected to switch into lower-cost ETF counterparts.

  • The remainder and bulk of this account is in emerging markets equities in the form of the Freedom 100 EM ETF (Ticker: FRDM)—the ETF based on my index. This position makes up more than half of my long-term holdings across all accounts. It is a freedom-weighted emerging markets strategy that uses personal and economic freedom metrics to determine country weights and allocations. Freer countries get higher weights, less free countries get lower weights, and the worst actors are excluded. So there’s no allocation to the worst rights offenders like China, Russia, and Saudi Arabia. I believe in the long-term growth potential of emerging markets and in the power of free people to drive that growth. Since most other emerging markets funds have about 50% of their allocations in autocratic regimes due to market capitalization weighting, freedom-weighting makes much more sense to me. At the same time, it’s a way for me to express my preference for freedom in my portfolio. This is a very aggressive allocation and as I write this we are experiencing a bounce off the lows of the COVID crisis of 2020. There were several times during the last few months when I had to be talked out of taking unwise actions in my accounts by friends and colleagues with more years of experience and who could see things from a third party unemotional perspective. That’s the power of accountability from people you trust and respect. Sticking with an investment plan is hard, and I do not recommend going it alone. I am fortunate to be surrounded by investment experts who know the business I’m in. A good financial advisor that knows your story is invaluable for most investors. That said, the one thing I never considered reducing is my position in FRDM. That’s a behavioral investing hack—invest in what you believe in and have strong conviction about, and you’ll likely experience better outcomes just by being able to avoid selling at the worst times. 4. Charitable giving (20% stocks, 80% bonds). I use a charitable gift account to contribute highly appreciated stocks in kind, organize distributions, and get immediate tax benefits without having to keep a receipt for each recipient. Many years ago, before I had any money, I bought one token share of GOOG because they stood up to the Chinese government regarding censorship. That share multiplied itself over time and has since been transferred into this account in kind. My most highly appreciated security currently is AAPL, and I plan to use some of those Apple shares for gifting.

  • The foundation of the institutional asset allocation framework considers expectations for both factors, then determines how to allocate assets to four primary categories, each of which serves a different purpose in an investor’s portfolio. Fixed income: Preserves capital, limits volatility, provides liquidity, and hedges against unexpected deflation. Absolute return: Generates uncorrelated returns less dependent on the direction of equity and fixed income markets. Equities: Offers long-term capital appreciation. Real assets: Hedges against unexpected inflation and produces long-term total return. Sounds simple, but present-day investors continue to dissect far-reaching policy implications of COVID-19 government actions in 2020, which include fiscal policy and global monetary policy adding yet another round of stimulus to markets in an effort to rescue the US economy.

  • Asset allocators are faced with recalibrating allocation models to incorporate increased volatility, uncertainty, complexity, and ambiguity. Volatility—currencies, global equities, and fixed income market volatility as well as the absence of stable and predictable markets and regulation. Uncertainty—wide swings in monetary and fiscal policy over the course of months or even weeks. Complexity—markets become riskier the larger that the ETF space becomes. The shift towards passive funds has the potential to concentrate investments in a few large products which increases systemic risk, making markets more susceptible to the flows of a few large passive products. Corrections have become more extreme. Ambiguity—Investors hesitate to diversify and explore products that they are not familiar with, thus limiting their diversification.

  • Institutional investors are advised to have an exposure to a mix of sectors with low correlation to each other to help reduce risk, lower volatility, and increase diversification in an investment portfolio over multiple market cycles. These benefits can help a portfolio weather market ups and downs and ensure its sector allocations do not move in lockstep when market conditions change.

  • My approach personally and professionally over the years has been to incorporate a healthy allocation to real assets (infrastructure, natural resources and real estate) in the range of 10%–20% of an overall portfolio. The goal is to deliver income (cash flow), capital appreciation as a driver of long-term total return and inflation protection. Inflation will make a comeback in this cycle. Aggressive, coordinated expansion of monetary and fiscal policy will be reflationary. We see a high risk that policymakers will prolong this response disrupting the structural disinflationary forces (tech, trade and titans) of the last 30 years. Inflationary pressures will emerge with a vengeance, so be prepared. Hope is not a strategy, denial is not a river and cash flow is always king.

  • People may assume that only the rich need to create a will, but the truth is everyone should draw one up. A will outlines your wishes and removes the guesswork after you are gone. This is wisdom I impart on my clients when talking about uncomfortable topics. My dad showed me the life insurance policies that he purchased for himself and my mom. He taught me how to crack the safe and how to locate the estate planning documents so that I could take care of mom in case anything happened to him. He advocated for addressing serious topics on a proactive basis, because if you do not buy life insurance or do not prepare for “what if” scenarios, it does not mean they will not happen.

  • In order to understand why people invest or want to invest their money in a certain way, I believe that it is especially important to understand people’s backgrounds and their first experience of personal finances. It’s vital to find out what money means to them and what were their initial experiences that shaped their ideology on wealth.

  • Wealth means different things to different people. But for me, after watching my family struggle for years, it meant having financial independence. As I have grown older, and hopefully wiser, wealth has taken on a whole different meaning. Wealth now means health, time and options.

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