I’ve been updating our asset allocation and just got every dollar invested (this doesn’t include cash set aside in our emergency fund).
It’s counter-intuitive and completely against my old way of thinking. You need cash so you’re ready to buy when things go on sale, right? It turns out that cash drag is one of the biggest factors in dragging down investment returns.
But the key to maximizing returns and minimizing losses is a balanced asset allocation. Not just that simple old 60/40 (60% in stocks, 40% in bonds), but a strategy that truly balances the risk of all possible environments.
Ray Dalio, who runs the largest hedge fund in the world, laid out a simple strategy based on his life’s work of maximizing returns while minimizing risk. It’s detailed in MONEY Master the Game, and summarized here.
Educate yourself and put your hard earned money to work.
96% of actively managed mutual funds don’t beat the market. If they can’t do it, with all their seasoned analysts, I’m not going to either. The clear path is investing in low cost index funds—which is why Warren Buffet will leave his wife in index funds.
I’ve been working to update my asset allocation with this in mind, but just can’t let go of one investment. I’ve held it for several years, been through wild ups and downs, and my gut tells me I’m right.
When you decide to go with your gut, you need to set ground rules so your emotions don’t get the best of you. I have a firm allocation that I’m prepared to lose and a strategy to sell of profits along the way, should it continue to trade wildly.
Good sense tells me to sell it, but I’m going bet on my gut… as safely as possible.
Ideally, you have good systems in place and stay on top of your commitments. And when it’s time to turn off work and turn on the rest of life, you flip the switch.
But sometimes there’s just too many open loops. If you leave now, you’ll be thinking about them all night. You won’t be present when you get home to your family.
Sometimes it’s better to suck it up, stay late, and close those loops. Then you can go home with a free mind. Just don’t make this a habit.
It’s said that you can tell the order of a person’s mind from the clutter on their desk (or desktop).
A little time spent cleaning out the clutter can pay for itself in peace of mind and increased productivity.
After having a kid, my morning routine went out the window. I’m usually up late getting her to bed, catching up with work, and spending time with Olga. Then, I sleep to the last possible minute (and maybe a few minutes longer).
This morning, the sun was shining brightly through the window and something compelled me out of bed. I’ve knocked all but one major to-do off the list and am sitting in a quiet house, sipping coffee and checking off the last one.
Doing the work in the morning takes just as much time as in the evening, but feels good. When I leave it to the end, it’s on my mind all day. Now, it feels like the weight of the world is off my shoulders and I’m free to enjoy my day.
I’m not sure I’ll keep this up, but I’m definitely going to try.
It’s hard to eat greens and meat when that crusty bread and melting pasta is calling.
It’s hard to put your cash into a secure bond bond fund when the stock market keeps hitting all-time highs.
It’s hard to give all your attention to the precious present when emails and news are flashing.
It takes will and determination to unplug from short-term fixes and believe in the long-term, but the payoff will be unimaginable.
If you found a $20 bill lying on the ground you’d pick it up. We found $30 sitting right in front of our house.
Our neighbors are moving and tossed out a Weber grill. We paid $100 for the same grill a month ago, so it caught our eye. It’s filthy and the grates are rusted, but otherwise in good shape.
Olga spent 15 minutes cleaning it up and we just sold it on Craigslist for $30. That’s more than a a 400% return at Oregon minimum wage (after taxes), or $120/hour salary equivalent.
Keep your eyes open for money lying on the ground and pick it up.
Have you ever felt like life isn’t in your control and you’re just getting by? It’s like being on the back of a two-seater bike, pedaling away, but the guy in front is driving. Maybe you’re there right now.
I can’t tell you there a secret to making it easier to pedal. If there’s one, I haven’t found it yet. But I can promise you there’s a way to get in control and feel excited about the work. The key is daring to dream.
Once you have a dream clear in your mind, you can rest assured that you’re on your way. Or, you might discover you’re heading the wrong way and decide to leap off the treadmill and find a new way. And once you see where you’re going, shortcuts will start appearing. Really, they were there all along, you were just too busy moaning and groaning to notice them.
So start dreaming, then you can whistle while you work.
I’m revisiting the book, MONEY Master the Game: 7 Simple Steps to Financial Freedom, which I first listened to in 2015. One of the most powerful steps in this book is to calculate the five levels of financial freedom:
- Financial Security: the cost of your basic needs (mortgage/rent, food, utilities, transportation, insurance)
- Financial Vitality: add half the cost of some luxuries (clothes, eating out, entertainment, gym membership)
- Financial Independence: the cost of your current lifestyle
- Financial Freedom: add the cost 2-3 significant luxuries (bigger house, dream vacation, boat or vacation home)
- Absolute Financial Freedom: go wild and list everything you would buy if money was no option.
There’s an app (iPhone only) that will walk you through these calculations, and has some videos that explain the levels in greater detail: here.
Once you have these numbers, simply multiply by 20 to get a rough estimate of how much you need to meet these levels without ever working again. Then pick three of them for short, medium, and long-term goals. For me, these are: security, independence, freedom.
If you want to get somewhere, you need to know where you’re going. Calculate, get empowered, and get moving.
If you want a better life, there’s one principle that you can’t ignore: focus on what’s important.
Tim Ferriss outlined a very simple approach to clearing the clutter from your life. Just remember the acronym: DEAL.
- Delegate. Can someone else do it? Then pass it on.
- Eliminate. Does it really need to be done? Then say no.
- Automate. Can it be automated? Set it and forget it.
- Liberate. If you absolutely must do it, make sure it’s on your terms.