Boring Is Often Good in Investing

Since I started taking a deep dive into investing years ago, one of the things that has stayed with me is the Permanent Portfolio. It's composition is simple: 25% each in gold, long term bonds, a stock index fund and cash. Rebalance about once a year or when any one asset reaches as high as 35% or as low as 15% of the total.

It sounds (and is) easy at the core, but you can learn all you care to with an excellent book on the subject, as there are a variety of ways to implement it.

And for those of you who don't have time for a book but still have a little curiosity, here is an article that goes a little deeper than this post will.

A few caveats:

-If you want a wild ride, you are likely barking up the wrong tree. Sure, at any given time, it's likely that one of the assets is killing it and another is getting killed, but on balance, it has historically worked out to modest real returns (below most basic U.S. stock index funds), but with much less volatility. You can see for yourself with this tool.

-There are funds that attempt to mimic the Permanent Portfolio, but not all are created equal. One of my greatest regrets is initially using PRPFX as a proxy, when its allocations are only loosely based on the actual Permanent Portfolio. That fund allows things such as holding silver and a much higher allocation to stocks. So, while it isn't fun to make mistakes, it also would have been bad to have never learned anything, so you have to take the good with the bad.

The Permanent Portfolio has weathered the storm and fads very well over the last 4 decades or so. While anything is possible, there are certain structural advantages that the portfolio has (like, you can't lose all of your money in a stock market crash if you are only 25% invested in stocks). For many investors, as a stand alone, it might not provide all of the return necessary to meet their goals, but it can be a very effective ballast for their holdings.

"Fear of Missing Out" Is Alive and Well with Bitcoin

In his article about Bitcoin, Josh Brown recalls a quote by F. Scott Fitzgerald (and probably some other people, as well): 

“The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.”

First, in talking about Bitcoin, I should inform everyone that I know almost nothing about it. Whenever discussing nascent technologies, I'm reminded of a pastor friend who was at a regional conference for his large Protestant denomination some time @ 2003-2005. They were bleeding members due in part to not having the 2000 year-old gravitas of the Catholic Church nor the tech-savvy of a megachurch, so they were caught in the middle. At one point, some of the older leaders said something to the tune of "You know what we need to do? Get on the internet. That's what the kid are doing today." So, for vanity's sake, I'd prefer not to be one of those people who is insanely late to the party or outkicking his coverage by talking about something I know nothing about.

But, and I could be paraphrasing or twisting here, but what I took away from Brown's article was this:

-There could still be a ton of opportunity in cryptocurrencies, even after the insane run up we have seen so far.

-A lot of people still may get creamed by cryptocurrencies.

This really isn't much different from many other financial manias. Let's look at some of the more famous:

1) Tulip mania in Holland in the 1600s

2) England's South Sea Bubble in the 1700s

3) Florida real estate in the early 1920s

4) U.S. stocks in the 1920s

5) Japanese stocks in the 1980s-1990s

6) Tech stocks circa 2000

7) U.S. real estate 2001-2008

Now, clearly these are only a few and the sample is unscientific (like many things in the financial sphere) but they are certainly at least among the most famous. But in a lot of them, such as numbers 3,4,6 and 7, enough patience would have resulted in the investment paying off...eventually. As for the other ones? The South Seas Company is dead and buried, tulips are never coming back and who knows about Japan.

The point is just that, in a good deal of bubbles, even getting in at the top can work out if your planned holding period is extremely long and you are realistic about the fact that you are likely speculating, and not investing. Is Bitcoin and company a momentous paradigm shift, or a passing fad like braided belts, waterbeds or the metric system? And it's one thing for a tangible asset like real estate to make a comeback. Bitcoin, on the other hand, isn't tangible, so in the long run, could behave very differently. 

My wife and I have had a chance to do some modest real estate investing since we've been married. And, we've had good luck with it, and I mean that literally-we started since the last financial crisis, so we haven’t seen a bear market and our skills and resolve haven't truly been tested. Also, we’ve only made a few investments. So, trust me, my ego is firmly in check on the matter.

But, early on, after Detroit got beat up so badly, I was tempted to invest there. I had grown up in the metro area, still had family in the area and it appeared that things couldn’t get worse, so maybe the upside was unlimited. But, while there might be endless ways of ruining our family financially, I ultimately decided that southeastern Michigan real estate wasn’t going to be one of them. I might have to one day explain to my wife that I tore my spine doing Brazilian Jiu-Jitsu, blew the Christmas budget buying classic Lego sets or lost one of the kids while pursuing a vintage Dr. Pepper sign at an antique mall. But, I would never have to say that the retirement was blown on a block of houses in Highland Park that I didn’t know had once been meth labs. Since then, Detroit and the surrounding areas have had a comeback of sorts, and I’m more focused on being happy for the city and praying it lasts rather than kicking myself for money not made.

Bitcoin is the same way. Could I be missing out? Sure. Maybe the crash is years away, never comes or happens and then we see even bigger highs. I don’t know. It’s easy to look at Bitcoin and say “woulda, coulda, shoulda” as it climbs into the stratosphere, but you must also consider how many disasters that a healthy dose of skepticism will save you. Some people might do very well in Bitcoin, but that same early adopter spirit might bite them in the butt when they go all-in on Elon Musk’s plan to revolutionize city-to-city travel using ziplines. I'm not predicting disaster, I'm just pointing out the downside. Sometimes, new things stick around.

Being a little circumspect has it's advantages, as does being on the bleeding edge. People get into trouble when they don't know themselves and then fail to craft an investing philosophy around that self-knowledge. Instead, many watch for what's cool, wait until almost everyone is on board, jump in and then risk getting pummeled.

It’s hard to see others getting wealthy and not want in on the action. Or maybe we can suppress that desire, but only by praying that all the suckers who invested lose their shirts. Better financially, but not exactly balm for the soul. Comparisons can kill, and it’s likely not a good idea to either keep up with the Jones or wish for their demise. But, if you truly can’t avoid it, maybe it’s better to also consider all those people who aren’t doing so well financially. Unfortunately, they are never in short supply. There’s always someone richer, but always someone poorer, too.


Taxes and Complexity

I haven't gotten to into the weeds on the tax plans. Honestly, I tend not to pay much attention these kind of things until they are done deals. It's an extension of my old office-place policy of ignoring emails until it was important enough for someone to bother me in person. Tax reform is much talked about, but I will believe it when I see it. And whatever improvements may or may not happen, it will still won't be enough.

It's obviously easy to get into a party divide over taxation. This is a tempest in a teapot because neither seem willing to do the hard work of serious reform and the radical reduction in spending that true reform would require. Democrats are the party of high taxes and high spending and Republicans are the party of low taxes and high spending. I'm not a fan of either. Now, from and ideological perspective, a true conservative would favor low taxes and low spending, but most Republicans seem to stop being actual conservatives once they get elected. If anything, the political class of the GOP  is largely a support group for people who might have, at one time in their life, had some principles.

But a key part of my support for tax reform goes beyond the simple idea of whether we should have a progressive or a regressive tax system and who pays what percentage. It is a question of complexity. Some things, like human emotions, the origins of life on Earth or the college football playoff ranking system, are complex because nature demands it. We have no say in the matter.

However, our tax code it 75,000 pages long, and there is no good reason for it, other than the fact that every change we make is merely an add-on at the fringes, as opposed to substantive overhaul. Instead of a sleek Dodge Charger, our tax code resembles and even uglier version and less efficient version of the Arkansas Chugabug from the Wacky Races.

Unlike John McCain, I'm not in favor of bipartisanship for it's own sake, but it would be nice for us all to be able to step back and see the problem. Regardless of where the tax burden lies and regardless of what our money is spent on, the current amount of opacity in our tax code is an invitation to inefficiency and confusion. Even an incredibly simple system where everyone paid 40% of every dollar in taxes with no deductions and no exemptions, onerous though it might be, would have a certain tidiness to it. But what we have now is a toxic combination of waste and intellectual dishonesty. We drool over tax workarounds the government gives us that only exist because the government put the roadblock there in the first place.

The only winners are the CPAs, and even they aren't happy because they have no life for a quarter of the year. So, maybe there actually are no winners. That sounds like a plan only government could design.


Some things just have to be experienced. You can know they are hard, but it doesn't really hit home until you feel how hard they are. In my life, one of these things is dealing with kids. People can tell you how difficult parenting and teaching are, but until you go through them yourself, it's merely "head knowledge" and not "heart knowledge". What's the difference between the two? Well, for me, it's this: heart knowledge is stuff that, in the process of learning it, nearly gives you a heart attack. 

Investing is very similar. Those of us who study market history can see the numbers go up and down on the charts, but when it's in the rear view, it is a lot different. As we experience it in real time, though, we tend to wonder if this is the big one-the market decline that sends us back to either bartering or a new  type of feudal system everything is denominated in cans of La Croix.

This article at Of Dollars and  Data  does a great job is pointing out the dangers of a little knowledge by relating it to the wilderness survival rates of lost children (kids under age 6 actually do better than kids aged 6-12). Another piece at Validea article points out that it's very telling that the talking heads in the media used to convince us that they were all-knowing, where as now, many financial bloggers have built a business on being transparent about how little they know. Overconfidence is no longer en vogue because it can get you killed-literally and financially.

When I began this business, I fell victim to the trap of overconfidence. That's not too surprising, I'm not above possible biases. What's a little disappointing is that I fell victim to overconfidence despite my placing a premium on humility as a cornerstone of my business and approach to investing.

I hated things like predictions and stock picking, but it still wasn't enough. I valued rules and algorithms, but still underestimated the importance of indexing, simply being in invested in the markets, and keeping fees low. It doesn't mean I currently think index investing is the only way to go, but it's much more viable and useful than I once thought.

I'm not trying to throw myself under the bus, smarter people than me have fell victim to being overconfident (actually, the fact that they are smarter is probably the reason they were overconfident). My point is just that it's almost impossible to have too much humility when it comes to investing. There is always more to learn and experience. It's all theory until we undergo the trials firsthand.



Modest Expectations: An Integral Part of Your Financial Plan

Under-promise and over-deliver. It is one of the oldest maxims in sales. Sadly, whoever has been selling to the millennials apparently hasn't followed this advice. After a pretty torrid stock market since 2009, investors are still expecting the annual returns over the next 5 years to healthy at over 10%, with investors born between 1982 and 1999 expect returns to clock in at over 11%. 

Depending upon which year you use as a starting point, long term annualized returns for the stock market are in the 9-10% range, but expecting them over a short 5 year period, when anything can happen, is especially dangerous. So, it's always risky to extrapolate. Even more risky is to extrapolate such returns after 8 years of a booming stock market. The annualized returns of the S&P 500 since 2009 have been over 14%, so even if the future does resemble the past. one would expect lower returns in the immediate future balance out the high returns of the recent past. And if the future doesn't resemble the past? Returns could be even lower. We won't know until we get there.

But, this isn't just about setting an artificially low goal so you can pat yourself on the back upon reaching it.  Having reasonable and attainable ideas about what returns are possible is an integral part of deciding how much to save. If your plan will fail because you didn't beat the market, it probably wasn't a good plan, anyway.

Mitch Does Index Investing

It’s probably not an ideal fun biographical fact for a financial adviser to share with the public, but I used to do standup comedy. In my defense, it was only a brief, ten year fling with the craft. It’s kind of strange now, because I have about 2-3 generations of friends who never even saw me perform. So the fact that I spent so much time doing this odd hobby probably colors their perception of me, but they really have no idea of how good or bad I was, though they probably have their own deeply-held opinions on the matter.

Considering how emotionally violent and fraught with substance abuse (which was not an issue for me) comedy can be, it isn’t the ideal training ground for becoming a financial adviser. But you don’t have to look too close to find decisions that foreshadowed my present career. I think an inflection point for me came about 3-4 years in when I talked to a very funny and talented friend who had just moved to L.A. When he told me he was about $10,000 in debt, that gave me serious pause about the viability of a career as a comic. I managed to get through college debt free and didn’t want to go in the red yelling at hecklers in a strip mall bar, trying to work out issues from high school.

I generally have a good sense of self-awareness about my strengths and weaknesses (actually, I’m so self-aware that I’ve considered the distinct possibility that I’m not as self-aware as I think I am.) But I think I was pretty good at standup, in as much as anyone can be good at anything that can be so needy and narcissistic…which is probably why I was good at it. While I was pretty quick on my feet, I mostly leaned on my writing. I wasn’t really a ranter or a story teller, my style was short jokes, similar to Stephen Wright or Mitch Hedberg, who happened to be coming into his own as I was starting. I didn’t really intend to mimic anyone, it’s just what I gravitated towards.

Those not familiar with Hedberg should be. He was mostly clean, smart, very funny and non-confrontational. Also, he needlessly died way too young. One of his best jokes is:  “The depressing thing about tennis is, no matter how good I get, I’ll never be as good as a wall.”

Well, index fund giant Vanguard is (kind of) to investing as walls are to tennis. As Ben Carlson points out under number 3, the numbers on Vanguard’s funds are pretty impressive. The 18 funds listed are all beating at least 79% of their peer funds over the last 15 years. So, as an example, Vanguard’s S&P 600 Small Cap Growth Fund is beating 99% of the other small cap growth funds over the last 15 years, even though it is merely trying to follow the market and the most of the other funds are trying to beat it. This speaks to the power of index (or passive) investing. It is inexpensive, simple and doesn’t shoot itself in the foot.

Now, stay with me, because my approach is a bit nuanced here. Much like Cullen Roche of Pragmatic Capitalism (actually, I stole it from him), I think the “active vs passive” debate is a bit overblown.  (See the link for a more detailed discussion as to why, as it is beyond the scope of this post.) Also, from a portfolio standpoint, index investing doesn’t completely get you (or your adviser) off the hook from making decisions. For example, do you invest in large companies, small or medium? What about stock/bond mix? Foreign or domestic? Even if you decide that my questions are contrived and you want to ignore those considerations, that is still a decision, and one with consequences.

But, the point is that, index investing may not be the only way to go, but it’s very valid. And any competing method better clear that bar, and it’s harder to do than the active, stock picker-types want to believe. This is partly because the non-index, or “active” funds tend to be more expensive and partly because many of them tend to lean on predictions, as opposed to simple algorithms (which can be a viable form of active management).  In the long run, there aren’t many strategies better than simply trying not to be too clever for your own good and just taking the returns that the market gives you.

Marriage, Family and Eviction

Growing up in a stable middle class home, eviction was an abstraction. I never would have even known about it if not for TV. It was the boogeyman that loomed over Jack, Janet and whatever blonde was their roommate at the time on Three's Company. But, clearly, this is a serious issue. If an eviction happens, it's rarely good for the parties involved, whether tenant or landlord. Not to mention the negative impact on kids, which I would imagine is doubly bad if they also have to switch schools as they move.

This story about rental insecurity brings to light the current issue with affordable housing in many of our nation's cities. This is important on a few fronts. It's a human rights issue, first and foremost. But it also represents a possible investment opportunity (multi-family residential real estate, anyone?). And even if you don't have any desire to go down that alley, the amount of people who have been subject to an eviction recently represents the reality that wages likely aren't keeping up with rents. Which probably means that wages would need to increase for people to live in a lot of these cities, which means higher prices are in the future for the items and services that these renters provide. You've been warned.

Also, it should come as no surprise that the most vulnerable are single parents with kids. It's become a political football, but the reality is that single parenthood and illegitimacy are expensive. This isn't so much about throwing stones as it is about recognizing reality. To be honest, after some weeks, my wife and I wonder how many single parents are even doing as well as they are. Double parenthood is tough enough without the need to up the difficulty, so I tip my cap to anyone going it alone.

The solution likely isn't as easy as many would have us believe. A certain amount of philanthropy (and maybe even-gasp-government assistance!) might be called for, but those only paper over the problem (more so for  the government angle). If the solution were that straight forward, housing projects would have solved the problem by now.. Giving people something for free doesn't always incentivize them to care for it. And a place to live at a reduced rate doesn't solve the problem of the fractured family. The problem won't truly be solved until the marginalized are integrated into the economy organically and families are whole. Like many prescriptions here, it's simple, but not easy.

Qualitative things such as who and if you marry effect have an huge effect on your financial life. Everyone is aware of how expensive it is to have kids, but many people would be well-suited to keep in mind how expensive it is to NOT have a spouse, whether you have one child or five. For a deeper dive on class and marriage, check out my talk with Brad Wilcox of the National Marriage Project on my (non-financial) podcast,  the Catholic Phoenix Podcast.

Paying Attention Is Expensive

This could be the most personal thing I ever write here. It involves something near and dear to me, something of vital importance to us all, something upon which can make or break a heart. That thing is college football.

I write to all of you a broken puddle of a man, A husk. A ghost. As I just witnessed Texas lose to Oklahoma State in the most heartbreaking ending of a football game that didn't involve Charlie Sheen and Corey Haim. I've suffered close losses before, some with much higher stakes. But this felt so needless, almost like a betrayal.

I follow the sport closely, but that doesn't always translate into getting to see my favorite teams play in real time. I have four kids and the fact that games begin at 9:00 am here doesn't help matters. I've learned to cope, as long as I can follow the action during the day and catch up on highlights and watch some late games after the house quiets down, I'm reasonably content. I'm a simple man that way.

But, the last two weeks, the stars aligned, the cable schedule cooperated  and the clouds parted, and I got to see the lion's share of Texas last two games against Oklahoma and Oklahoma State. The loss to OU was painful, but I dealt with it. They're good and we're young. It was a good game but for a brief defensive lapse in the second half.

Oklahoma State is probably equally good, but this one was a bigger punch to the gut, as it appears Texas isn't so much learning how to win close games but conditioning itself to lose them. I won't bore you with the details, because they don't matter as much as how I experienced them (for purposes of this post, at least). I was pacing and throwing my arms up like Kramer at the horse track (an analogy I have used on this blog at least once prior, but it's still apt) all game and I was a deflated mess at the end. If my kids weren't around, I likely would have thrown the TV out the window (given that I use Cox for cable, there I many days when it is just as useful in the yard, anyway).

Fans of Texas football know that close losses are nothing new in recent years. But, I was watching a little closer than usual (now regretting the 8 episodes of Phineas and Ferb I could have been watching instead) and I was INVESTED. Also, the way the team had been playing this season had started to give me something dangerous: hope and expectations. 

Our investing connection for the day? Losses hurt, but they hurt the closer you are paying attention. Watching financial news as it happens is just as risky as watching a football game as it happens. In both cases, you can't effect the larger outcomes, you can only manage your reactions to them. And watching either too closely can effect be expensive, either in lost account values or TVs with kicked in screens.

This is when self knowledge comes in handy. There are many sports fans who probably need a new hobby. They could use a workout, as opposed to watching others exercise, and their families would benefit by not having their lives captive to how well a bunch of strangers in a distant town play a game. In the same way, and even greater percentage of people have no business following the ups and downs of the markets (as painful as football can be, it's more interesting than watching Intel move half a point).

As a side note, I think an excellent case could be made for the role of "college football fan as historian", which is a subset to the idea of "sports atheism" (a phrase used by Bill Simmons to describe pop culture writer Chuck Klosterman's style of enjoying sports while not really having favorite teams). The "college football fan as historian" relies on books, maudlin Disney based-on-a-true-story movies and ESPN 30 for 30 documentaries to express their love for the game. Right now, I'm think of rooting for the 1992 Alabama Crimson Tide. They won it all and I want to experience what it is like to wear a houndstooth hat.

So, in summation, paying attention can cost you. The outcome is often easier to handle if you don't watch it unfold.


The Cost of Impatience

My father has given me lots of advice over the years. Two pieces stand out:

1)   “In the workplace, criticism of the current situation is a de facto criticism of the current management.” Unfortunately, he first gave me this advice about 12 hours after I needed it.

2)  “If you want an answer right now, I can give it to you, but it probably won’t the answer you want to hear.”

I’d like to focus on the second one for now. Whenever I’m being pressured for a quick answer (whether by a car salesman, a friend asking me to have their back in a bar fight, or by someone trying to get me to go to a restaurant that serves tapas), my default is going to be “no”. This lets people know that impatience comes with a price. If they want a shot at a positive outcome, they better give me time to decide (and in the case of the bar fight, I will do my deciding in the last stall of the bathroom while standing on the toilet, thank you very much).

And you might predict, I wouldn’t be talking about this if it didn’t have an application to investing. Impatience costs us there, as well. Markets are becoming more and more liquid. High frequency traders have the ability to get in and out of trades at speeds previously unheard of, as Morgan Housel points out. This has driven the cost of trading down (and online trading has made it easier than ever). It’s like having the constant temptation to drunk dial during business hours, but instead of your dignity and morality on the chopping block, it’s your IRA.

So, there is a behavioral cost to all of this. As Housel says in the article, illiquid assets that are locked up for a certain period do better than investments that are easy to get in and out of, to the tune of about 2% a year. This is a gigantic difference in market terms, especially when all you have to do to earn it is…nothing. This is one of the reasons that most people have had better luck in real estate than in day trading. Houses aren’t as easy to unload (and to price) as those 100 shares of Facebook, so standing pat is easier.

Do nothing for a long time could probably be the best thing to ever happen to your money.

When Not To Defer

Real names eliminated to protect the guilty.

In high school. my brother and I each had our own friends, but we also did a fair amount of sharing them, which worked out well for me, since he had more of them. Once, our friend "Chewy" had a broken stereo in his Fiero. Our other friend, "Shabba", who lived across the street (both nicknames are distant derivatives of the last names), was handy, relative to the rest of us, and offered to fix it.

We’ll never know if he fixed the radio or not, because, after he worked on it, the car wouldn’t start at all. At this point, my brother went inside to field a phone call. Shabba suggested we try to roll start it in front of our house, as we were on a slight incline, which might have been a valid idea had the car not been an automatic. But, in the land of two burnt-out headlights, the one-headlighted man is king, so Chewy and I went along with it, not knowing any better.

Predictably, the roll starting didn’t work and the Fiero set inert at the bottom of the hill. Shabba suggested pulling it back into my driveway using his Bronco II. Again, this might have worked had he and Chewy not insisted on pulling the Fiero by its spoiler. I objected, but Shabba said, “Don’t worry. It’s a strong spoiler.” In retrospect, my actions betrayed more trust than my words because, like a fool, I got behind the car to push it. In the end, Shabba and Chewy were right, the spoiler was strong, but whatever attached the spoiler to the car wasn’t. As I pushed, I heard a loud “Clang! Clang!” as the spoiler ripped off and  dragged along the street behind the Bronco. It likely worked out for the best, because the spoiler also probably represented the limit of the its towing capacity.

Chewy rushed to get the brake on, leaving me to support the Fiero by myself, which, actually wasn’t too hard, since, well, it was a Fiero. He and Shabba ran to the spoiler and both began to fumble with it, like cavemen  with a Rubik's Cube. Chewy said frantically, “Untie it! Untie it!” and Shabba said (in an excited voice that somehow uncharacteristically suddenly sounded like a cross between Yoda and Harvey Firestein), “I CAN’T! IT’S A SAILOR’S KNOT!”

At this point, my brother stepped outside into the dusky evening, about to discover that one of the side effects of talking to girls on the phone is missing out on your friends and brother doing stupid crap. We were all still out in the street and Chewy told Shabba, “Don’t tell him”. This was pointless advice because it wasn’t so dark that my brother wouldn’t either notice a) the spoiler on the pavement or b) Chewy’s attempts to stuff said spoiler into a backseat with the capacity of a mini-fridge.

Shabba said, “Ok. I won’t.” Then he proceeded to run up to my brother on our porch, murmur a few sentences and the darkness was pierced by my brother’s cackle. Chewy said to me, “I’m gonna kill him.” I still don’t know if he was talking about which of them he was talking about.

The purpose of the story isn't to bag on my friends, but that's a nice side effect. Not much point in piling on too much, though, as both of them (and my brother) have grown up to be respectable parents/citizens/professionals. But the real point about this story is about knowing when to defer to the "experts".

Now the story is a little disingenuous. Shabba really did know more about cars and car audio than the rest of us, so maybe some degree of deference was in order. But, you don't need to be a mechanic to know that you can't tow a car by its spoiler, either. And as for the attempt to roll start an automatic? I have no idea what was going on there.

We live in an age  when expertise is under attack. And I can see the experts' point. It must drive doctors nuts when they see a people armed only with Google debate the merits and drawbacks of things like vaccines and diets. But, this isn't just a tale about the masses being uppity, as the experts cracked that door open by being wrong about some very key things (the 2016 election, whether fat is bad for you, the subprime crisis, etc.). And of course, generally mistrust is amplified with the related problem of governments and corporations repeatedly lying to us.

It isn't that expertise doesn't have value, but it doesn't carry the same weight across all domains. When it comes to technical skills (programming a computer, inventing new gadgets, performing sleight of hand, hand-to-hand combat, etc.), the experts keep getting better and better and the limits of human ability keep boggling the mind. When the systems become more dynamic, though (elections, investing, geopolitics), the value of expertise seems to degrade a bit. Partly because expertise in these fields often involves predictions, always a risky proposition.

It’s clear to some people why political and economic domains (in short, the social sciences) might be tougher to get a handle on. But the problem exists in the hard sciences, too, as the “Is fat bad for you?” debate proves. I don’t want to come down too hard on science. It’s not a religion, it is a method of discovery, which means it is sure to make a lot of mistakes by definition. So, I’m not implying that an actual physicist doesn’t know more than some guy who just read some Neil deGrasse Tyson books. I’m just saying that even the expertise in the hard sciences is undercut severely once scientists start exhibiting hubris about what we don’t know. The history of science is littered with ridiculous statements saying we have reached the limits of knowledge, which makes people like Thomas Edison look all the wiser when he said, “We don’t know one millionth of one percent about anything.” Though I’m still wondering if he gave us too much credit.

The problems and limits of expertise might be no clearer than in the domain of investing. The correlation between knowledge and performance in investing is sketchy at best. Someone can have the facts down cold, but constant messing with with their portfolio will likely result in worse results than someone with no knowledge whose internet is down for ten years, rendering tinkering impossible.

This isn’t to undercut my own profession by saying advisers don’t add value. It’s just that their value often takes the form of three things:

      1)  Identifying holes in the client’s finances in areas like insurance, taxes and estate issues, while acknowledging that financial advisers aren’t CPAs or lawyers. When push comes to shove, only lawyers should law and only accountants should account.

      2) Helping the client determine their risk tolerance and crafting an investment plan appropriate for that tolerance.

      3) Enforcing good behavior on the investment piece by executing the plan faithfully and being choosy as to when changes are made.

And a big part of the third point is having a solid appreciation for what we don’t know and just how hard investing is.

As to when to defer and when not to defer? An adviser might have more general knowledge than the client, but the client should know himself and his money better than the adviser. This is true in the same way that a doctor will know medicine better than the patient, but, if the patient is paying attention to themselves, they should know their own body better. A big part of knowing yourself is knowing your risk tolerance and what you can handle. If you adviser is pushing you into things that make it hard to sleep at night, maybe it’s time to push back.

As for listening to the “experts” about the economy who give either excessively rosy or gloomy predictions? All I need to do is look at the college football scores from last weekend (4 top 10 teams lost to unranked opponents) to be reminded that no one can see the future. And if you listen to people argue about economic history, you will realize that a lot of them can’t even predict the past, let along the next 5 years.

Hate Economics? Read These Books

In these days of iconoclasm, I'm not sure I have any heroes left, aside from the saints or near saints like  Fr. Emil Kapaun , G.K. Chesterton, and maybe Jack Pearson from This Is Us, but he has the double whammy of being both fictional and dead, so that might not count. And as much as the fields of investing and finance interest me, it's the ideas, not really the people. that inspire me. I've met many people from the world of money and economics that I could learn from, but not a ton that I would say I call heroes, if any.

So, in a way, it's a backhanded compliment to many of the authors listed below that I find these works so important. On a lot of the issues of the day, I'm probably at odds with them, but I can't deny the level of their work or their ability to provoke thought in an accessible manner. If you aren't a fan of economics as you learned in in high school (or didn't learn it), you might find these books interesting primers on the field of behavioral economics, which is the study of decision-making. Maybe they aren't always right, but they are asking some good questions.

The problem with the field is that many of the same studies or concepts are bandied about in a variety of books, so it can start to seem a little pseudo-intellectual and repetitive to the cynic. But, that shouldn't denigrate the quality and imagination of the research, much of which was counter-intuitive when it was first uncovered.

So, in celebration of Richard Thaler's Nobel Prize, here are a list of very readable and enjoyable books to stoke your cocktail party (or Pabst Blue Ribbon party) conversation.

1) Misbebaving by Richard Thaler-A great account of the history of behavioral economics, from a guy who lived it.

2) Thinking Fast and Slow by Daniel Kahneman. Dense, informative, essential.

3) Anything by Dan Ariely. He's made a nice career out of studying lying, cheating and irrationality.

4) The Signal and the Noise by Nate Silver. Not technically economics, but some good background on statistics.

Another good option who often dissents with popular behavioral economics  is Nassim Taleb. I love all of his books.

Also, though I haven't read it, The Undoing Project by Michael Lewis is about the work of the above-mentioned Daniel Kahneman and the late Amos Tversky. Lewis made subprime mortgages interesting in The Big Short, so I'm betting it's a solid effort.

Remember, reading is a great way to learn from the mistakes of others, as opposed to making your own.


What Could Go Wrong In Real Estate? Just About Everything

The title actually just means real estate is like every other kind of investing, so don't take offense, RE gurus. It has its pluses and minuses. But, the first step towards inviting financial disaster into your life is thinking it can't happen to you. This leads to hubris which leads to risky behavior which leads to the aforementioned financial disaster. So, consider the costs and remember that as author/financial planner Carl Richards said, "Risk is what is left when you've thought of everything."

Buying real estate for cash sounds like a pretty safe and conservative way to go. No danger there, right? But what if the real estate is new construction townhomes? In Vegas? In 2004? Check out this second hand story from Financial Samurai about how the deal went south. Gangs, section 8 tenants, a flaming bathroom. This story has it all. It's evidence that a deal isn't bulletproof just because it was done for cash.

Before further commentary, I should make it clear that I am no real estate professional. I am merely a financial adviser who has done some real estate investing. My biggest assets in the field are 1) I'm perfectly willing to chalk up our modest successes to a great deal of luck, 2) an appreciation for what I don't know and 3) having a decent idea of where to find people who know more than I do. 

It seems like real estate is one of those things that everyone either thinks is really easy or really hard. And the fact that many of the people who think it is hard are the ones who have actually done it may speak volumes. The people with experience talk of middle-of-the-night toilet uncloggings and tenants late with the rent. The people who haven't done it, on the other hand, too often have the vocal confidence normally reserved for the truly ignorant. 

Note, that oftentimes, the people in the first group started off in the second group. Passive income sounds great, but then they find out it isn't so passive. What's going on here and are there ways to invest in real estate and insulate oneself from disaster?

In a word, I would say "no", because remember, to think that you could wall yourself off from the world is to invite Mr. Murphy ("anything that can go wrong, will go wrong") to come knocking. But, I believe there are some things you can do to set yourself up for success...or at least, a greater chance of success. Real estate can be a great way to invest, but there are some caveats and things to consider. Here are some suggestions that I have gleaned from a little experience and a lot of listening to other, smarter people:

1) As is the case with all matters financial, never stop learning. If this blog post (or any one blog post) is the lion's share of your education, I will pray for you, as you will need it. The best single online resource I know of is probably Bigger Pockets. But, also, read some books. Whether the subject is religion, exercise or money, I'm amazed by the amount of people who want to improve a key area of life but can't be bothered to even read a book that a dim high school student could understand. Because those Luke Cage episodes won't watch themselves, I guess.

2) Set expectations accordingly. From what I know, most expert real estate investors don't count on appreciation, they consider that gravy. Most likely, if a deal doesn't cash flow from the start, it doesn't make sense.

3) Train your tenants. There are a lot of great reasons to stay away from real estate, but dealing with the "middle-of-the-night-clogged-toilet" is not one of them. I wouldn't even unclog my own toilet in the middle of the night, let alone drive over to someone else's house to unclog their's. And I wouldn't expect a landlord to do it for me, especially considering 95% of toilet clogs are user error. Very few maintenance issues are true emergencies. Set ground rules and boundaries. The fact that a tenant takes the claims of flushable wipes at face value doesn't mean I need to lose sleep.

4) Think scale. Even if you plan on managing your property yourself, include paying yourself a management fee in your profit and loss considerations. Why? Because the business can't grow if you can't scale and chances are, as you get more properties, you will find more important things to do, either outside of real estate (like your day job) or inside of real estate (like finding new properties).

Another reason to get a property manager is tenant selection and rent collection. It seems to me, based on some anecdotal evidence and war stories I've heard, that a seat of the pants operation is more likely to let tenants slide on rent than a professional manager will. This is less about how good property managers are than it is about how sloppy most mom and pop real estate operations are. A true professional simply doesn't have patience for late rent, because they've seen a week turn into four months too many times. Rookies often don't realize they are getting scammed until a few months have slipped by. And, to create some separation, I even know of people who self-manage their properties, but present themselves to the tenants as only the manager and not the owner. This is like the episode of Cheers where Norm created an alter ego to be the bad guy to manage his painting crew.

5) Include capital expenditures in your profit and loss assessment. Things break down eventually, so set aside an appropriate amount of money each month to pay for them. New properties take less money, old properties take more. I am not aware of the property that cash flows 100% profit, even if it is paid off. Have the money set aside and growing for things like a new roof and AC.

6) Don't forget property taxes and HOA fees. These can turn a profitable property into an unprofitable one. And speaking of HOA fees, if you own a single-family residence with a relatively innocuous and inexpensive HOA, that's one thing. But, I would think strongly about investing in anything with an active/expensive HOA. This would rule out a lot of condos and townhomes. Life is complicated enough. I don't need to add the board at Del Boca Vista to the mix.

7) When possible, I would say to own actual land and own directly. This is related to the above point. Many people choose to get real estate exposure through stock-like instruments such as real estate investment trusts. Those involve owning a share of a large fund that trades on an exchange like the New York Stock Exchange, as opposed to owning actual sole direct ownership. There are a lot of different kinds of these "REITs", but they spread your exposure over the broad real estate market. As real estate investing is, at its core, local, this is a very different animal than, say, owning ten single family homes in Jackson, MS. There is a time and a place for partnerships and syndicates (they are like small private funds that don't trade on exchanges), but tread carefully and maybe wait until you are experienced.

I would say things like condos and townhomes have some of the same problems as the funds (large or small). Namely, what you own is tangled up with the interests of others. When it comes to real estate, I personally want as little interaction as possible with by-laws, lawyers, common areas and voting rights. The hassle of an effective permanent lien on your property in the form of taxes is more than enough for me, not to mention local codes and ordinances. This doesn't always mean that owning the actual dirt is always a better investment (would you rather have a single family home in Detroit or a co-op in Manhattan?), but speaking broadly, I want something I can have total control over and at least fence off if I don't like my neighbors.

8) Beware turnkey investing. For people with money but no time, turnkey investing can be a good option. This involves buying rental ready properties (often bundled with property management) from a company that specializes in this space. There are just a few catches. First, you often pay a premium for good properties and second, this corner of the industry is full of snake oil-salesman, especially at the lower price points.

Reputation matters so much that, when I went looking at turnkey companies recently, finding an honest company was as important as the market.  Jay Hinrichs at Turnkey Reviews is a pretty good place to start your investigation. He's also very active on the Bigger Pockets forums.

9) Use debt wisely...or not at all. There is no doubt that the best potential returns come with using debt. So can the greatest potential disaster. The positive about buying for debt is that it can take a long time to save up to buy a property for cash. Debt ( or "leverage", in the industry parlance) speeds that up. But, in a bad market, I believe owning outright with no mortgage is, if nothing else, a huge psychological advantage. If rents are falling, the person who owns free and clear can always slash prices and still get a modest cash flow. But the person with a $1000 a month mortgage has to decide whether to take the renter in front of them offering $900 for a 12 month lease and go underwater or instead hold out for prices to improve in the short term.

Just some thoughts from a fellow traveler. I hope that helped!

The Tao of George Costanza

Recently, I heard it said that the market exists to cause the maximum amount of people the most pain. It wants you to mess up. 

One way to think of it is like "The Nose Job" episode of Seinfeld. Long story short, George is going out with an otherwise great girl with a big nose named Audrey (the girl is named Audrey, not her nose). He and Kramer guide her into getting a nose job that goes bad. George ends up being so repulsed by it that his treatment of her   compels her to  break things off with him. Then, she gets her nose fixed, becomes beautiful and starts dating Kramer. So, he switched things up right before they got better.

Or, perhaps even more directly, maybe the market is more like "The Opposite", an episode almost needing no introduction. But, for the Philistines who don't know, here's the rundown. George, realizing that his impulses lead him nowhere, starts doing the opposite of his natural inclination. This results in him meeting a great girl, getting a job with the Yankees (as the ever-important Assistant to the Traveling Secretary) and facing down some loud goons in a movie theater.

So, Seinfeld can explain a lot about the stock market. Maybe next week, I will explaining the 1970s energy crisis using Boy Meets World.

The point is that, in investing, doing what feels good and comes naturally can get you creamed. Persistent periods of underperformance are sure to happen, and occasionally, they are due to fundamental changes in how the markets operate. I don't care how much you pray, those typewriter stocks aren't ever coming back.

But, more often, it's merely the natural ebb and flow. And if you just follow the ebb, you will likely see money flow away from you. I've talked about this before, but there was a very famous magazine cover story detailing the death of equities in 1979. It's one thing for that Chess King stock to be permanently in the tank,  it's quite another to throw dirt on the very idea of equity investing. Listening to that magazine cover would have resulted in missing out on the incredible stock market run up of the 1980s and 1990s.

The same "Is it dead yet?" question has come up with value investing (which means basically owning assets that the market has beaten up). There's a few ways to skin a cat in the markets and using value is one of them. As more and more research gets out to the general public, it's likely that the benefits of any particular type of investing (including value) will decrease, as there will be too many mouths at the trough to keep the returns high. But, the opposite holds as well: once a method loses favor with the general public, it often makes a comeback.

It's a constant seesaw. Maybe value investing will never quite be as good as it was in the good old days of the 1930s, 1940s and 1950s, when the legendary Ben Graham was doing his thing and others like Warren Buffet were getting started. But, that doesn't mean it is dead, and what is certain to fail is following the headlines and fads.

Whether you are talking about a general asset class, like equities or housing, or just talking about an investing school of thought, like value investing, beware the conventional wisdom. If you can't stick something when the pundits and your reptilian instincts are telling you to run away, you shouldn't be in it to begin with. Like with George Costanza, doing what feels "good" in the moment can lead you watching your unemployed friend get the attractive girl.

Simple Advice for a Groom

I've heard some bad wedding toasts. Admittedly, a lot of them were by me, as I have been a best man three times and given speeches two other times at the grooms' request,  I've done it at Catholic, Muslim and fundamentalist Baptist weddings, so I have a rainbow coalition of offended guests under my belt.

The best advice I ever heard from  a toast, obviously, wasn't from me. It was June 1996., a simpler time. The Atlanta Olympics were weeks away, the full sin potential of the internet hadn't been exploited yet and George Clooney was still on ER. The best man said this to the groom (his brother): it's not what happens to you that makes you a man, it's what you do about it.

I'm pretty sure this guy didn't invent that advice, but correct application and selection are half of creativity, so I give him  heap of credit. So often, we seek to control outcomes as opposed to managing our response to them, which is time better spent. It's true across domains, including money.

If you bought into the stock market at the worst possible time (Oct 2007), congratulations, as you just doubled your money. That's good for about a 7% annual return, and if you were dollar cost averaging by buying in regularly during that time, you are very possibly doing much better that. So, even though you picked the worst possible time to go all in, patience won the day.

I hate market downturns as much as the next guy. And maybe someday we will reach the point where the market stops bouncing back from these bubbles. After all, one thing about the world that most people agree on is this: it's going to end someday, and our stock market will go with it.

But, before it does, there are lives to be lived and risks to be mitigated. And one of the biggest risks is that your money won't grow because it's on the sidelines as you wait for the perfect time to invest. As an investor, you job is to follow a plan, regardless of market fluctuations. If you do that, you will probably be ok. If you don't, you will become intimately aware of what regret feels like.



Change For Its Own Sake

In another life, before I discovered my current vocation, I was a middle school teacher. It messed with my mind a good deal. I knew it was time to leave when I was watching The Breakfast Club and found myself rooting for the principal. During a particularly bad stretch of behavior by the students, I said half-jokingly, "I've tried everything but consistency!"

Apparently, Harvard's endowment is having the same problem. From the early 1990s through 2005, they were at or near the top of the endowment game in terms of performance. Since 2005, they have had four different management companies and, by extension,, four different investment philosophies. Not surprisingly, performance for the last 10 years has lagged that of a basic mix of 60 percent stocks and 40 percent bonds, let alone that of other endowments.

The lesson here? A good plan faithfully executed is better than a series of perfect plans that are switched when the going gets tough. A basic index investing plan (like the above mentioned 60/40) is perfectly fine if it matches the clients risk profile and expectations, and if the fees are in line with what is appropriate for that hands off approach. Harvard isn't content with index-like returns (nor are paying so much money for "mere" index-like returns), though, and it's causing them to cycle through managers quickly. Now, maybe the investment methods of these managers are good, and maybe they aren't, but it doesn't really matter if they are changed up that quickly. Anyone's portfolio would lag after that kind of constant re-jiggering.

There's a time to switch things up, but that's where art meets science. Sometimes, you realize that your current method doesn't fit your personality, or maybe it isn't sustainable (too much screen watching) or it is too-complex, or maybe you realize a flaw in the reasoning or assumptions that led you to choose that method in the first place. Those are valid reasons to make a switch.

I jealously guard against changes in both mine and my clients portfolios (especially my clients'). But I plan on being in this business a while, and it is simply not realistic to think that my thinking won't evolve over a career that I hope spans many decades. So, I have had to make some changes, and when I do, it's generally after some careful thought. And,  when I do change things, it's  in the name of making things simpler, getting behind better research or reducing fees, and not merely because I'm not happy with current returns. And, also, it isn't just based on a gut-level prediction. Lastly, I brace myself for the fact the next big move I see in my portfolio after the change could very well be down and not up.

One of the more recent tweaks I made involved my own portfolio. I was previously doing a very well-researched method that resulted on about 1 or 2 trades just about every month. It doesn't sound like much but, I hate making trades (ironic considering that I initially got into this business because I thought I wanted to trade).  After attempting this method for a period years ago, I was determined to stick with it this time, but just hated the activity it required. Plus, that amount of trading just didn't feel right to me. I was like watching a pot waiting for it to boil. Also, I was so focused on my clients portfolios and managing them correctly that, oftentimes, these type of trades in my account would slip through the cracks.

In the meantime, I got access to a family of funds that I previously couldn't invest with. Investing with them would be about as cost-effective and would probably result in more portfolio volatility, but it was a lot simpler and more hands off. After some thought, I made the change. 

It's also worth noting that I didn't have any clients in this strategy that I scrapped. On some level, I doubted its ability to scale and didn't trust myself to execute it for them. I probably should have listened to my gut on that one.

The lure  to monkey our investments  can be very powerful. Especially in a long bull market such as this when the stock market has gone up for so long and everyone appears to be an investing genius.  And this is doubly true if you are invested conservatively and are seeing aggressive investing rewarded. Activity feels like you are being productive, it feels good. The problem is that this is largely an illusion, as the "set-it-and-forget-it" tends to work the best. Activity doesn't equate to results.

Helicopters, Easter Eggs and Classic Sitcom Episodes

Around 2009, I was on the beginning of my re-entry in investing and on the tail end of working at a mega-church. I attended a conference at my-then church that was more about leadership than faith. This particular year, I believe  Gen. Tommy Franks and our governor were speaking. I am sure both were honored to have me in attendance.

But another speaker was a hip pastor at an extremely dynamic and fast growing church in the southeast part of the country. He was young and doing great things, and in certain circles, was more revered than the general or the governor. And his untucked plaid buttondown shirt was cooler than anything they were wearing.  He told the story of his church's first Easter. They were small, virtually broke and they decided to go all in on marketing for an event involving a helicopter and a bunch of Easter eggs. By a year later, attendance was up tenfold. The point of his message, as I remember it, was "Go for broke" (or maybe, since he was a pastor, it was more like "Trust God and go for broke".)

Now, the issues of mega-churches , whether they should use gimmicks, and when to take a leap of faith aside, this didn't sit well with me. Sure, it worked for him, but every year, churches (and other businesses) start up and a lot of them fail. And blowing the entire budget on a single marketing campaign is probably not the recipe for success writ large. It worked for him. Great. I want to hear about all the ideas that didn't work, both for him and for others. Like the Thanksgiving helicopter live turkey drop on WKRP In Cincinnati.

Here's the same point about "survivorship bias", in single-panel comic strip form.

It's not a leap to apply this to investing. We can always talk about the ones that got away that seem so obvious in hindsight: putting our money into Amazon, Apple, Facebook, etc. I mean, in fairness, people could have made good money on those stocks even if they got in long after they were household names. You didn't have to get in at the basement at the venture capital level in Silicon Valley in order to get rich on those guys. They were all well known and trading on the exchanges, in the headlines and ripe for the taking. I could understand the desire to kick oneself.

But, how well would that "I only invest in obvious successes" strategy have worked overall? Would you have been all in for Worldcom and Enron in 2000? Or what about getting into Tesla in 2014 and enduring 30 months or so of poor performance as the rest of the market ripped straight upwards? And listening to your gut might have also resulted in an outsized bet in real estate in 2005...which might have played out well, but only if you could have held on for 5-7 years. And, in certain markets, much longer.

So, anytime someone shows you a good idea, I want to see what the corpses of the bad ideas related to it look like. And also, I want to know how many corpses there are. If they exact same investment method that led you to invest in Facebook in 2012 also led you to invest in Enron in 2000, you probably wouldn't had any money left over for Facebook in the first place.

Economic Myths?

I stumbled across an old post at Pragmatic Capitalism about persistent economic myths. I don't know if I agree 100%, but it would be unwise to completely dismiss it. Cullen Roche has a good working knowledge of money and banking and recent events have largely played out per his economic worldview. And it sure hasn't played out the way the perma-bears thought it would during 2007-2008. Does that mean it  we couldn't find ourselves someday having to pay the piper for a smoke and mirrors economy ? No, but we can't overlook one basic fact: our economic system has largely rewarded optimism. And while Roche's worldview isn't officially "optimistic", I would say it leans closer to that than it does pessimism.

A few highlights:

-Point 6- Cullen's belief is that hyperinflation isn't really a money printing phenomenon (though he believes the term "money printing" is a misnomer). He contends it's normally due to exogenous factors such as losing a war or rampant corruption. He certainly has a point here. Because, I'd have to think that if simply printing money caused it, the U.S. would have seen it by now.

-Point 8-He argues that the Fed wasn't really formed by a secret cabal of bankers to control society. I don't know here. I read The Creature from Jekyll Island (about the creation of the Fed), so I've got a conspiratorial streak. Here's my theory: maybe it was started by a secret cabal of bankers bent on controlling the economy, but also, maybe they needed to do it. When the Fed was founded circa 1913, severe economic panics were happening every 15 years or so, and that doesn't even include recessions or the Civil War. Greed meets the public good.

-Point 11-Roche states the economics isn't really a science, it's just "politics masquerading as operational facts". I think there is a lot of validity to this argument. Economists can't even predict the past, let alone the future, as they can torture the data to fit any worldview.

There is a host of thought provoking stuff there. But one point I have to make is this: you don't have to have the correct economic model in order to invest wisely and profit. You need discipline, excess income and faith in our capital markets...or at least just enough optimism to recognize that doing nothing also carries a big risk and generally isn't the wisest choice.

Another Breach, But How Much Does It Matter?

I was talking about the data breach with another adviser who I am close to and we discovered that we were both a little cynical about it. There's a certain fatalism about how it plays into the modern world. These breaches have sadly become the cost of doing business in 2017. And pretty weird thing that happened to another friend's digital life has me thinking we are all targets and it is very possible that the things we are doing to prevent the theft of our data are just window dressing.

I'm no digital expert, so don't take my word for it.  But it seems like, if you catch someone who is "in the know" about these things during a candid moment, they will lay out a pretty bad scenario and suggest that, if we knew as much as  they did, we'd never leave the house.

While the details are obviously still forthcoming, in fairness to Equifax,  I have to wonder how much they could have prevented this. I mean in the long run, as it almost feels like things like this are bound to happen. Maybe the problem isn't negligence,  they just got outmaneuvered.  Maybe the real problems are: 1) they are so big and 2) they exist to serve the financial institutions, and many of us never gave them explicit permission to have our information.

This is really just another angle of "too big to fail" . As capitalism grows, it becomes becomes more about corporatism as the concepts of the free market begin to cannabalize themselves. Today's plucky free market competitor is tomorrow's competition-stifling monopoly. Problems such as these explain the genesis of the economic idea of  distributism more than 100 years ago. This is the idea that, since socialism and capitalism are equally exploitative (not exactly my belief, but stay with me), property ownership should be a fundamental right. This was largely espoused by Catholic writers such as G.K. Chesterton and Hillaire Beloc, who both felt society would be best served by workers owning their own means of production. In short, there would be more owner/operators.

Criticism of capitalism may sound unusual coming from a financial adviser, but I have to call them as I see them.  As overhauling the financial system is a tall order, I'm not planting my professional flag firmly in the distributist model. But, if I'm criticizing capitalism, it is partly because capitalism is in danger of no longer being capitalist. We can't deny the prosperity that free markets have brought the world, but they've also come with a heavy price, as people and information run the risk of becoming commoditized. Furthermore, corporations are having an outsized role in politics, society and the hoarding of information.

The current economic model we operate under isn't likely to change any time soon, and my objections to the present reality certainly aren't so great that I can't  see the good it brings or  serve my clients under it. But, this particular avenue to prosperity has a cost, and we've been paying that in the form of giving up some of our humanity and our privacy. This latest data breach is just another brick in the wall of that argument.

Life Insurance and You: The Fast Version

1) If you have people who depend on you financially, you probably need some form of life insurance. If you need it, get it. Somewhere and somehow, get it.

2) People make money selling life insurance (myself among them). If you buy a policy, chances are some adviser/agent/broker is going to get a commission.

3) Historically, many people have been oversold life insurance policies or have just plain been sold the wrong policy. But it doesn't have to be expensive. You just must know  enough to know what you need.

4) That being said, see point 1.

The Meta-Post

I won't dance around it: writing a financial blog is hard. One has to be welcoming while avoiding being too much of a salesman, and convey information without devolving into nerdiness and boring people.

With that in mind, frequent readers of this blog and my newsletter might notice a certain amount of repetition. This is largely by design. The most important parts of personal finance and investing are pretty simple, it's basic blocking a tackling (admittedly, sometimes, the basics are hard, just ask many of my favorite college football teams).

But, my mission is a matter of constantly driving home certain points because we all need to be reminded. And I am no different. While I am always on the lookout for new ideas, many of the money-related books I read for education and fun are simply novel ways of saying tried and true ideas.

So, buckle up, here's my full disclosure. If you read my writing more than a handful of times, here are some themes you will see repeated.

1) Stick to a plan. In investing, a good plan followed consistently over years is better than a series of great plans that are changed frequently.  There will come a time to change and tweak, but try to minimize these and it is best if your reason for doing so isn't merely because you want better returns. The market's job is to fool you with the old "okey-dokey". You change from plan A to plan B out of frustration and that's when plan A starts working. On that note, never changes lanes at the grocery store checkout.

2) Underperformance is going to happen. When it does, see above.

3) Keep fees low. High fees cripple returns. And an adviser who charges 1% plus may or may not be worth the money. The more they charge, the more I would ask them to justify that fee. They may be able to, but likely even if they could, it would not be based on returns alone. Also, remember, the funds you use have fees on top of the adviser's. These things add up.

4) Keep taxes low. On a regular old taxable investment account, it can be very hard to get ahead, especially if your hold times are less than a year, thus ensuring that your gains are short term and taxed higher. Consider diverting these assets to retirement account, or more tax-friendly assets such as real estate (if you have the desire, risk tolerance and ability) or even cash value life insurance (if you are comfortable with lower returns than stocks and can get a good policy). Yes, I now a certain radio host would hate me right now  for suggesting that.  Just like I hate his overly-optimistic stock market return assumptions.

But, don't get so tax conscious that you cut off you nose to spite your face. Like it or not, Uncle Sam is your partner, he's just a silent partner who doesn't do anything but use up all the Keurig coffee in the break room and has a gun he's ready to point at you if you don't give him his share. But, the only way to cut him out completely is to not make any money. In the situation, he'll still be ok, but you won't.

5) Predictions stink. Hey, remember when we were all sure that the Patriots were going to beat the Chiefs in the NFL season opener? Me, too. There is evidence that investing based on simple rules that react to current market conditions can work. However, this is very different from a prediction/stockpicking style of active management. Odds of success with that are low, as it relies on being able to see the future. Guess what? You can't. And neither can anyone else.

6) Knowledge can be dangerous. I know people who have amassed quite a war chest because they knew enough to save and invest...and nothing else. They are much better off than people who follow the latest financial news and then act on it. Having enough money to invest and being bored by following the markets can create awesome synergy in one's  investment returns. People who ignore their investment accounts normally avoid shooting themselves in the foot.

7) You have to earn and save. If there were a way around this one, I would have found it by now. Trust me, I've looked.

8) When all else fails, go "passive". If you are tired of advisers, fees, research and everything, just put them in a passive, low-fee fund (or funds). The only problem is that, you still need to pick your funds (as they are broken down by country, company size, asset class, etc.), so even "passive" isn't completely passive. Also, if you passive investing is equity-heavy, be ready for a wild ride.

See you next post. Odds are, it will touch upon one of these items, but no promises.