Do Financial Advisors Really Keep Portfolios and Clients Disciplined?

I written about Dimensional Fund Advisors (DFA), a mutual fund family that is powered by top academic research. Another things that makes DFA unique is that they are only sold through approved financial advisors. You can’t buy them with just any old brokerage account. (Exceptions are certain 401(k)-style retirement plans and 529 college savings plans.) Allan Roth has new article about DFA funds in Financial Planning magazine, which is a trade publication targeted to financial professionals.

Why not sell directly to Average Joe investor? Here is David Butler, head of DFA Global Financial Advisor Services:

DFA has no intention of bypassing the advisor channel and offering its funds directly to retail investors. “We think advisors help keep investors disciplined,” Butler says.

In my previous post The True Value of a Real, Human Financial Advisor, I wrote about this concept. A good client advisor will help you keep your cool when the next disaster comes. Vanguard says that the biggest “value add” from good advisors is their “behavioral coaching”. A good financial advisor keeps you from making the “Big Mistake” that derails your plans.


But later in the same Allan Roth article, the idea of advisors as disciplinarians is called into question.

But do investors get better returns? I tested Butler’s claim that DFA advisors help keep investors disciplined by asking Morningstar to compare the performance gap between the two fund families. The performance gap is the difference between investor returns (dollar weighted) and fund returns (geometric).

Over the 10 years ending Dec. 31, 2014, the DFA annualized performance gap stood at 1.28% versus only 0.22% for Vanguard. When I showed these figures to Butler, he responded, “It’s hard to make an argument about the discipline of advisors based on these figures.

Here’s a primer on investor returns vs. fund returns. Investor returns are the actual returns earned by investors, based on the timing of their buying and selling activities.

The next step was to compare the investor returns of DFA’s largest fund, DFA Emerging Markets Value I Fund (DFEVX) with $14B in assets with the closest Vanguard competitor, Vanguard Emerging Markets Index Fund (VEMAX) with $54B in assets. I personally think a better comparison would be with their DFA Emerging Markets Core Equity I Fund (DFCEX), so I’m throwing that in as well.

DFA fund returns are often higher relative to index fund competitors. Here’s a Morningstar chart comparing the growth of $10,000 invested 10 years ago in each of the three funds. You can see the DFA funds do slightly better in terms of fund returns. Click to enlarge.


But what about investor returns? I took some screenshots of their respective Morningstar Investor Return pages.




We see that after accounting for the timing of actual cashflows, the average investor in the DFA fund actually lost money with an annualized return of -1.01% and -2.04%! Meanwhile, the average Vanguard investor earned over 6% annualized.

The three mutual funds don’t have the exact same investment objective, but they do both all pull from the overall Emerging Markets asset class. The DFA funds try to focus ways to earn greater long-term return by holding stocks with a higher “value” factor, but it also has a higher expense ratio. The Vanguard fund just tries to “buy the haystack” and passively track the entire index.

Let’s recap. The stated reason why DFA is only sold through advisors is that they offer more discipline. We are told that such behavioral coaching is where human advisors provide their greatest value. However, the evidence available suggests that DFA advisors are less good at trading discipline than when a similar fund is completely open to retail investors.

I found this rather surprising. I used to think that restricting my potential advisors to those were affiliated with DFA was one way of getting an “above-average” advisor. But after doing my own research, I found that even though DFA investments are generally lower-cost, the additional fees charged by individual advisors ranged widely from reasonable to quite expensive.

I am confident there are financial advisors that can provide the proper behavioral coaching that makes them well worth the cost. At the same time, clearly many are not providing the advertised guidance and discipline. The problem remains – how does Average Joe investor find the good ones? I still know of no clear-cut way.

Retirement Income Risks: Longevity, Sequence of Returns, and Stupidity

annuity_puzzleOne of the first things that pops up when doing research on retirement annuities is the “annuity puzzle”. Essentially, economists have done their calculations and shown that simple, immediate income annuities are theoretically the best fit for many people. You give up some things like liquidity and upside potential, but in exchange you get the most monthly income for the rest of your life. But in the real world, only a small fraction of such people actually go out and buy such annuities.

Bob Seawright wrote a nice article at that lists three main risks with managing withdrawals from your own lump-sum portfolios. An income annuity can help address these risks. I’ve added my own comments as well.

Longevity risk. People are living longer on average. Enter your age(s) into this Vanguard longevity tool. Here is a short snippet from a previous longevity risk post:

For an individual that is 65 today, there is roughly a 50/50 chance they will reach age 80. For a couple both at 65, roughly a 50/50 chance that at least one person will reach age 90.

The extreme ages are getting higher as well; quote below taken from the Seawright post:

Moreover, the distribution of longevity is wide — a 22-year difference between the 10th and 90th percentiles of the distribution for men (dying at 70 versus 92) and a 23-year difference between the 10th and 90th percentiles of the distribution for women (dying at 72 versus 95).

Sequence of returns risk. Two retirees can start with the same initial portfolio balance and experience the same average return, but if one experiences highly negative returns in the first few years of withdrawals they can end up with very different outcomes. Here is a previous graphic illustrating the sequence of returns risk.


Stupidity risk. If you do-it-yourself, what if you aren’t very good? The idea of safe withdrawal rates is a starting point, but even that assumes a theoretical 60/40 you-didn’t-panic-when-stocks-dropped-50-percent portfolio. I like the idea of adding some robustness with more flexible dynamic safe withdrawal rates, but “safe” is still a relative term.

Eventually, I plan to put a portion of my money into a single premium immediate annuity (SPIA). I’ll probably wait until around age 65, with a joint life rider so that it will keep paying out as long as either my wife or I are alive. I like the idea of having enough guaranteed income to cover all basic needs like housing, food, and utilities. Considering that we have no mortgage and assuming no major cuts to Social Security, I am hoping that number is not too much in excess of state-specific insurance guaranty coverage limits.

Lifetime Income vs. Lump Sum Payouts: You May Live Longer Than You Think

My parents are in the midst of planning their retirement payout structure. I don’t know about everyone else, but in my mind I tend to plan to live to pretty much exactly age 80. Early death is depressing to think about (even though I have term life insurance), but what about the other end? The Statistical Ideas blog had a timely post about longevity risks and lump-sum payouts which contained a “death table” (horrible name) for people born in 1950. I’m going to paraphrase the explanation in a way that makes more sense to me.


  • Out of every 100 people born in 1950, roughly 1/3rd are expected to die by age 65. (Blue)
  • If you are in the group alive at 65, your life expectancy is now age 79. That is, half of that group will die before 79. (Green)
  • But, that also means you have a 50% chance of living past 79. If so, you will live to somewhere between 80 to 110. In other words, possibly a really long time! (Red)

If you are a couple, then the odds of at least one of you living a really long time is even higher. Let’s take a couple, one male and one female, who are both age 65. According to this Vanguard longevity calculator, there is an 89% chance at least one will reach age 80, and a 45% chance at last one will reach age 90. If you are younger, your life expectancy is even longer; enter your age(s) into the calculator.

Here’s my mental shortcut. For an individual that is 65 today, there is roughly a 50/50 chance they will reach age 80. For a couple both at 65, roughly a 50/50 chance that at least one person will reach age 90. Putting it this makes make either scenario equally likely and would push me to plan accordingly. On one side of the coin flip, you have to enjoy life now! On the other side, you need to be prepared.

This longevity risk needs to be accounted for when you give up pensions or annuities that offer you a guaranteed income for life. A lump sum payout may sound attractive, but be very careful. Have any annuity and pension buyout offers analyzed and checked by an unbiased third-party. It is a big decision and may be worth paying an expert for their time.

Here’s a sad story of lowball buyout offers for lead-paint victims. Not to say all lump-sum offers are this bad, but it serves as a warning to make sure you understand what you are giving up.

Combining Maslow’s Hierarchy of Needs & Personal Finance

Updated. You may or may not be familiar with Maslow’s Hierarchy of Needs, which is part of one theory explaining human behavior by psychologist Abraham Maslow. It suggests that there are five general levels of needs:

  • Physiological
  • Safety
  • Social
  • Esteem
  • Growth

These are often represented as a triangle due to their relative importance. Lower needs must be satisfied before the higher needs can be addressed. For example, one must first obtain food and water (physiological) before worrying about what might happen if they get in a car accident tomorrow (safety). It’s just a theory, but an interesting one.


While not all of these needs can be explicitly bought with money, it’s not too much of a stretch to see the relationship between this triangle and finances. We usually worry about paying for rent and food first before worrying about giving to charity or that long distance telephone bill.

In the book Retirement Income Redesigned, the authors make a close correlation between the hierarchy of needs and planning for retirement. Here is a figure from the book:


The new levels:

  • Survival income. How much do you spend simply to survive?
  • What-if income. You will want to protect your life. This could mean health care costs, health insurance, and/or proper portfolio planning so you don’t outlive your money.
  • Freedom income. Money needed to do the things that bring joy and fulfillment to your life. Could be travel, education, or fine wine.
  • Gift income. Money for people and causes that deserve your help. This is the replacement for “love”.
  • Dream income. This is the elusive “self-actualization” level where you find true happiness and meaning.

By breaking down your income needs, this could be another way to track your progress towards financial freedom. You can make covering your bare necessities your first smaller goal, and move on from there. This would involve both measuring your expenses and also deciding how much you’d need to save to create that much income.

My One-Page Financial Plan: Why Is Money Important To Me?


onepage0I’ve already shared two nuggets from the book The One-Page Financial Plan by Carl Richards – the importance of getting started and the true value of a human advisor. But what about the title itself?

Before even reading the book, I was impatient and tried to make a one-page financial plan but it didn’t sound right. Even after reading it all the way through, I got a bit lost as besides “one-page plans”, it also tried to cover other big topics like budgeting, investing, and insurance. It took a few re-reads before things finally settled down in my mind. Here are the parts that helped the most:

Your one-page plan simply represents the three to four things that are the most important to you: some action items that need to get done along with a reminder of why you’re doing them.

Having done this with hundreds of my clients, I’ve found no more efficient strategy for solving the problem of how to handle our finances than asking “Why is money important to you?” […] If you’re doing this with a spouse, it’s important that each partner answer the question separately.

The reason I ask my clients this question is because it helps us understand their values. Often, the process of asking “Why?”—“Why is money important to me?” or “Why have I been so anxious about money lately?” or “Just why do I work so hard anyway?”—uncovers deep desires and fears that we are often too busy or too scared to think about. While the process can be uncomfortable, recognizing what really matters to you is the first step toward making financial decisions that are in sync with your values.

Recently, the author shared his own plan on his website – What Does a One-Page Plan Look Like?:


There are many reasons why my plan (at the top of this post) will be different from the author’s and yours. Our current situation is different, our priorities will be different, our goals will be different.

Why is money important to me?

  1. I greatly value security, sometimes so much that it is irrational. I don’t want to have to rely on anyone else for money or favors. We cut back on work hours to spend more time with kids, but we still want to make more than we spend. It’s not time to touch that nest egg yet!
  2. I greatly value spending time with my family, both on a day-to-day basis and for extended vacations in new and strange places. I have to work hard to avoid getting into a rut where the days and weeks all start melding together. Even if it means lugging multiple car seats and strollers everywhere, I still want to stay curious, make some mistakes, have some adventures.
  3. I want to someday shift my activities such that they more directly give back to my community or some other greater good. I don’t like the idea of just writing checks though, so I need to find a more active and satisfying role. If I could make some money while doing this, that would be great, but otherwise I need to put enough aside that my investments will support me.

The overall point of both this exercise and the book is that improving your financial life doesn’t have to be done perfectly. Just by getting started and putting down your best guess down on paper, you’ll already be better than most. If you see something wrong when comparing your values and your actual behavior, then make some changes. Having done them, I recommend both doing this exercise and reading the book. If your library participates with, it is available to borrow as a Kindle eBook.

Early Retirement Portfolio Income Update, Mid 2015

The closer I get to the reality of living off of my portfolio, the more I like the idea of living off dividend and interest income. However, you can’t just buy stocks with the highest dividend yields and junk bonds with the highest interest rates without giving up something in return. Certainly there are many bad investments lurking out there for desperate retirees looking for maximum income. My goal is to live off my portfolio income while not reaching too far for yield.

A quick and dirty way to see how much income (dividends and interest) your portfolio is generating is to take the “TTM Yield” or “12 Mo. Yield” from Morningstar quote pages. Trailing 12 Month Yield is the sum of a fund’s total trailing 12-month interest and dividend payments divided by the last month’s ending share price (NAV) plus any capital gains distributed over the same period. SEC yield is another alternative, but I like TTM because it is based on actual distributions (SEC vs. TTM yield article).

Below is a close approximation of my most recent portfolio update. I have changed my asset allocation slightly to 60% stocks and 40% bonds because I believe that will be my permanent allocation upon early retirement.

Asset Class / Fund % of Portfolio Trailing 12-Month Yield (1/5/14) Yield Contribution
US Total Stock
Vanguard Total Stock Market Fund (VTI, VTSAX)
24% 1.79% 0.42%
US Small Value
WisdomTree SmallCap Dividend ETF (DES)
3% 2.78% 0.08%
International Total Stock
Vanguard Total International Stock Market Fund (VXUS, VTIAX)
24% 2.75% 0.81%
Emerging Markets Small Value
WisdomTree Emerging Markets SmallCap Dividend ETF (DGS)
3% 2.81% 0.09%
US Real Estate
Vanguard REIT Index Fund (VNQ, VGSLX)
6% 3.76% 0.22%
Intermediate-Term High Quality Bonds
Vanguard Limited-Term Tax-Exempt Fund (VMLUX)
20% 1.63% 0.34%
Inflation-Linked Treasury Bonds
Vanguard Inflation-Protected Securities Fund (VAIPX)
20% 2.18% 0.45%
Totals 100% 2.24%


The total weighted 12-month yield was 2.24%. This number is lower than the last three updates: 2.41%, 2.49%, and 2.31%. This means that if I had a $1,000,000 portfolio balance today, it would have generated $22,400 in interest and dividends over the last 12 months. Now, 2.24% is significantly lower than the 4% withdrawal rate often recommended for 65-year-old retirees with 30-year spending horizons, and is also lower than the 3% withdrawal that I prefer as a rough benchmark for early retirement. I should note that the muni bond interest in my portfolio is exempt from federal income taxes.

As noted previously, a simple benchmark for this portfolio is Vanguard LifeStrategy Growth Fund (VASGX) which is an all-in-one fund that is also 60% stocks and 40% bonds. That fund has a trailing 12-month yield of 2.01%. (Last update, it was 2.09%.)

So how am I doing? Using the 2.24% income yield, the combination of ongoing savings and recent market gains have us at 72% of the way to matching our annual household spending target. If I switch to a 3% benchmark, we are 96% there. Consider that if all your portfolio did was keep up with inflation each year (0% real returns), you could still spend 2% a year for 50 years. From that perspective, a 2% spending rate seems like a very conservative lower bound.

Sadly, some valuation models predict exactly that: 0% real returns over a long time. My portfolio has certainly gone up a ton in value due to the ongoing bull market. Bottom line is that we are getting closer but not quite where we want to be.

Early Retirement Portfolio Asset Allocation Update, Mid 2015

Here’s a mid-year update on my investment portfolio holdings for 2015. This includes tax-deferred accounts like 401(k)s and taxable brokerage holdings, but excludes things like physical property and cash reserves (emergency fund). The purpose of this portfolio is to create enough income to cover all of our household expenses.

Target Asset Allocation


I try to pick asset classes that will provide long-term returns above inflation, distribute income via dividends and interest, and finally offer some historical tendencies to balance each other out. I don’t hold commodities futures or gold as they don’t provide any income and I don’t believe they’ll outpace inflation significantly. In addition, I am not confident in them enough to know that I will hold them through an extended period of underperformance (i.e. don’t buy what you don’t can’t stick with).

Our current ratio is roughly 70% stocks and 30% bonds within our investment strategy of buy, hold, and rebalance. With a self-directed portfolio of low-cost funds and low turnover, we minimize management fees, commissions, and taxes.

Actual Asset Allocation and Holdings


Stock Holdings
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
WisdomTree Emerging Markets SmallCap Dividend ETF (DGS)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard Intermediate-Term Tax-Exempt Fund (VWITX, VWIUX)
Vanguard High-Yield Tax-Exempt Fund (VWAHX, VWALX)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
U.S. Savings Bonds (Series I)

Notes and Benchmark Comparison

There has been very little portfolio activity over the last 6 months. No major market movements (the S&P 500 hasn’t moved more than 2% in day so far in 2015). No mutual funds added or removed. I continued to invest in the same funds through 401k auto-contributions and the occasional fund purchase from saved income. Things are little off, but I’ll just wait and rebalance with new money. Some of my usual savings has been diverted to college savings. Mostly, just keeping my head down and moving forward. :)

A simple benchmark for my portfolio is 50% Vanguard LifeStrategy Growth Fund (VASGX) and Vanguard LifeStrategy Moderate Growth Fund (VSMGX), one is 60/40 and one is 80/20 so it also works out to 70% stocks and 30% bonds. That benchmark would have returned about 3.5% YTD for 2015. I haven’t bothered to calculate my exact portfolio return, but it should be roughly around this number.

I like tracking my dividend and interest income more than overall market movements. In a separate post, I will update the amount of income that I am deriving from this portfolio along with how that compares to my expenses.

The True Value of a Real, Human Financial Advisor


The hot buzzword right now is “FinTech”, where technology will help us manage our finances more and efficiently than before. But I’ve also been tracking the reasons why working with a human advisor can be worth the money and time spent. As I’ve mentioned, the strength of the book The One-Page Financial Plan by Carl Richards is that you’re hearing the voice of an experienced financial planner who also has the skill of distilling his experiences down to a sketch. Here’s how he puts it:


Takeaway: A good financial advisor keeps you from making The Big Mistake that derails your plans.

The big institution Vanguard says that a good financial advisor should be able to improve the performance of a “average” client’s portfolio by about three percentage points in the following ways. Take note of which one factor makes up half of that 3%:


Takeaway: The biggest “value add” from good advisors is their “behavioral coaching”.

Here’s more incisive commentary by Josh Brown of The Reformed Broker, called When the flood comes:

When the flood comes, all of the bullshit arguments among the financial commentariat will come to an end. This will be my third time through. Believe me. We will not be arguing about how many basis points an advisor charges versus another advisor or a software program.

The people who are there for their clients and keep a cool head in public will come through okay. More than okay – they’ll actually raise assets from new and existing households who realize what a mistake they’ve made with their previous advisor or solution.

Takeaway: A good client advisor will help you keep your cool when the next disaster comes.

I’m sure you’ve caught onto the theme by now.

The value in a financial advisor arrives when they help you maintain your plan through both the good times and bad. They will prevent you from participating in the mania during the next bubble, and they will keep you from bailing out during the next crisis.

The problem is, how do you find this “good” financial advisor amongst a sea of average to downright dangerous ones? Here’s some advice from The One-Page Financial Plan:

To a certain extent, the process of finding a real financial advisor is a qualitative experience. It boils down to the question “Can I see this person getting to know me well enough so that I can trust him to help me behave for the next twenty years of my life?” Yes, you should verify that they’re properly registered. Do a Google search of their regulatory record. I’m not talking about blind trust here— the kind that would allow someone to steal your money. I’m talking about finding someone who’s willing to get to know your goals and values well enough to help you stick with your plan. Remember, your financial advisor is the only one standing between you and the Big Mistake of buying high and selling low. You’re hiring them to do what you can’t: make unemotional decisions about your portfolio. If they can’t do that, why pay them?

Now, I still don’t see myself hiring an outside advisor. But I do keep my portfolio conservative enough that my portfolio “boat” stays relatively stable even in rough weather. We’ll see if I can remain unemotional during the next flood, as it is not a matter of “if” but “when” the next one comes along.

Your Financial Plan & The Importance of Getting Started

onepage0I’m currently reading The One-Page Financial Plan by Carl Richards, who also writes for the New York Times. Given the title, I thought it would be a quick read but it turns out to cover a variety of topics over its 200+ pages. So far, I like that it comes from the point of view of an experienced financial planner who spends his days talking with clients.

A valuable observation is that the most common financial mistake most people make is simply doing nothing. Either they are scared of what they might find, or they are overwhelmed by how hard it is to plan for something with such uncertainty. Future jobs and/or income? Uncertain. Childcare/Healthcare/Retirement costs? Uncertain. Future investment returns? Uncertain.

As a financial planner, his job is get people over this hurdle. Guessing is okay! You can always correct your course as you go along, but as long as you are facing the problem and doing something, you are much more likely to have a good result. Carl Richards is also known as “The Sketch Guy” and this one from the book illustrates things well:


However, you could replace “investment” with any decision that you have been putting off. Don’t worry about making mistakes (you will). Don’t worry about making the perfect or optimal decision (you won’t). Financial planning is not an exact science.

Here’s another take from inspirational speaker and writer James Clear in Why Getting Started is More Important Than Succeeding:

I can’t think of any skill more critical to the active pursuit of a healthy life than the willingness to start. Everything that signifies a happy, healthy and fulfilled existence — strong relationships, vibrant creativity, valuable work, a physical lifestyle, etc. — it all requires a willingness to get started over and over again.

Take note: being the best isn’t required to be happy or fulfilled, but being in the game is necessary.

Get started and correct your course as needed. In terms of personal finance, so many people have never drilled down to the real reasons why money is important to them, they have never calculated their net worth, never tracked and broken down their monthly expenses, and thus never properly prioritized their time, energy, and money accordingly. But that’s okay, as now is still a great time to get started! I have finished the book yet, but apparently you can fit an entire plan on one page. :)

Dynamic Withdrawal Rates: Increase Spending Flexibility, Improve Portfolio Sustainability

The WSJ has a nice introduction to dynamic withdrawal methods and managing your portfolio in retirement. They outline a few of the more popular variations – Adjusted 4%, Floor-and-Ceiling, and Guardrail. I like learning about dynamic strategies because I think they are more applicable to the real world and involve good ole’ common sense. When my portfolio is crashing and my dividends are getting cut, I think I’ll be fine with pulling back a bit as everyone else will likely be doing the same. If your investments have a good run and your income stream grows, and then you can spend a bit more.

Here’s an infographic they put together to help visualize one type of dynamic strategy called “floor-to-ceiling” (click to enlarge):


Vanguard’s Managed Payout Funds are also designed to aid in portfolio withdrawals, using dynamic methods but adding in a smoothing component so that your income won’t swing as wildly from year-to-year. I don’t plan to buy those funds, but I might use their smoothing idea.

I am a conservative investor, so I don’t know about using dynamic withdrawals to justify a 5% average withdrawal strategy, though. It would just make 4% for 30 years less scary. In my case, I’m considering 3% dynamic for 50 years.

The Affluent Investor by Phil DeMuth – Book for $100,000+ Club


This week I’ve been trying to catch up on my book reviews (you should see my “to read” shelf!), and after a good beginner book I thought I’d write about a good intermediate-to-advanced book. You’ve probably noticed there are a lot of starter books out there for novice investors but not as many with more advanced advice ($$$… the potential audience is a fraction of the size). Addressing this deficiency is the goal of The Affluent Investor by Phil DeMuth.

In terms of the title, the industry classifies you as “mass affluent” if you have investable assets between $100,000 and $999,999. From $1 million to $10 million you are “high net worth”. This definition excludes some possibly important stuff – your income, the value of your personal residence, pensions, etc. But in real world terms, I would say this book is for anyone who isn’t living from paycheck-to-paycheck. If you have a $10,000 portfolio and have a surplus each month, sooner or later you will reach $100,000. If instead you have a credit card balance and it just keeps inching up, then you need something closer to a Dave Ramsey book.

The overall tone of the book is that of a close friend who is smart and into finances. DeMuth is already a financial advisor to rich folks so the last part is expected. What I mean is that he will be blunt and isn’t afraid to make stereotypical assumptions in order to rattle off all his tips. At only 200 pages, most things are only touched upon in a concise manner. Here’s a rough outline of the topics covered:

  • Big picture rules. Get and stay married. Make sure you can afford your children. Avoid debt. Save early and invest it. Diversify. Plan ahead.
  • Financial advice based on life stage. He puts you in the basic “affluent” mold of 20-35s have a kid buy a house, 35-55 working hard at professional career making most of your money, 55-65 protect assets and prepare for retirement, and 65+ retire and spend down money.
  • Financial advice based on job. Has special advice for doctors, lawyers, small business owners, and corporate executives.
  • General investing advice and “Can you do better?” investing advice. General investing advice is keep costs low and buy index funds that closely approximate the global market portfolio. “Can you do better?” advice touches on things like value stocks, small-cap stocks, dividend stocks, momentum, low-beta, etc.
  • Asset protection. Being affluent means you have money, and other people will want it. Insurance, buying real estate with LLCs, homestead exemptions, and similar topics are are very complex but his take is condensed into less than a page each.
  • Tax minimization. IRAs, 401ks, Solo Pensions, 529 plans, Health Savings Accounts, etc.

Here are things you might expect from a “book for rich folks” but won’t find inside:

  • You won’t get in-depth, hand-holding walkthroughs of anything. Consider the book as a push in the right direction for researching ideas.
  • You won’t find his secret list of the best hedge fund managers.
  • You won’t find tips on how to get rich with real estate.
  • You won’t find advice on how to pick individual stocks like Warren Buffett.
  • You won’t find him selling his own personal advisory services.

A general problem with all books of this type is that the advice is pretty short and to the point, but it doesn’t provide very much supporting evidence. You’ll either have to do your own due diligence, or blindly decide to trust the author. I’ve read books where the author might sound convincing but their advice is horrible. In my opinion, I think for the most part the advice in this book is good. But I’m just another person on the internet, so again do your own research.

In conclusion, I think this book covers a lot of questions that are commonly asked by the intermediate individual investor. It’s not too long and not too short. Some of the advice won’t fit your own situation, but at this level if you just find one solid actionable idea that makes the entire $18 book worth it. I’m personally going to look into the solo defined-beneift plan idea again, although I may still be too young to take full advantage.

The Position of F- You and Financial Independence

In the recent movie The Gambler, a loanshark named Frank explains the Position of F- You to gambler Jim Bennett. (Played by actor John Goodman.) Warning: Lots of explicit language ahead!

(Embedded YouTube video above. Direct link.)

If you can’t view the video, here is a partial transcript:

Jim Bennett: I’ve been up two and a half million.
Frank: What you got on you?
Jim Bennett: Nothing.
Frank: What you put away?
Jim Bennett: Nothing.
Frank: You get up two and a half million dollars, any asshole in the world knows what to do: you get a house with a 25 year roof, an indestructible Jap-economy shitbox, you put the rest into the system at three to five percent to pay your taxes and that’s your base, get me? That’s your fortress of fucking solitude. That puts you, for the rest of your life, at a level of fuck you. Somebody wants you to do something, fuck you. Boss pisses you off, fuck you! Own your house. Have a couple bucks in the bank. Don’t drink. That’s all I have to say to anybody on any social level. Did your grandfather take risks?
Jim Bennett: Yes.
Frank: I guarantee he did it from a position of fuck you. A wise man’s life is based around fuck you. The United States of America is based on fuck you. You have a navy? Greatest army in the history of mankind? Fuck you! Blow me. We’ll fuck it up ourselves.

I found this via the ERE Facebook page but saw that Nassim Taleb also commented on it:

This is a critical 1 min lecture to understand independence, antifragility, “f** you money”, selfownership, and many things.

I’ve written about the concept of F- You Money before as discussed by Dilbert and Humphrey Bogart. Here’s that Dilbert comic again.


Financial independence, financial freedom, early retirement, whatever you want to call it… Why do some people yearn for it? Perhaps you recall the most common regret on our deathbeds:

#1. I wish I’d had the courage to live a life true to myself, not the life others expected of me.

In my view, that is what it is all about. Having “f-you money” can help. You don’t need a million bucks or anywhere near that. Even a small sum of money tucked away can make a big difference in your mood and outlook on life.