My Personal Finance Odyssey
About This Page: Personal finance is a hobby of mine. This page contains links to references I have found helpful.
About Me: I am an Assistant Professor of Economics within the Villanova School of Business at Villanova University, teaching Intermediate Macroeconomic Theory and Economics of Risk and Uncertainty. My academic research is in the fields of Macroeconomics and Finance.
I am not a certfied financial specialist, so the usual disclaimer applies: I am not offering financial advice but merely providing personal opinion on sources towards financial education; I am in no way responsible for the consequences of following any advice.
An Oasis for Personal Finance Information and Inspiration
See below for links: While I started with Motley Fool, I am presently following John Bogle and Jim Collins. Collins gives you the takeaway theorem, Bogle provides the proof. The advice from Collins is invest 100% in VTSAX while growing wealth and alter this to 25% VBLX, 75% VTSAX when in the wealth preservation (e.g., retirement) stage of your life. I have recently gone a little further - to be continued...
Read this and the subsequent pages. These were the first I read as I began my journey. I was blown away by the principle of compounding, which I had been aware of since I was a child but never thought much about it! Educational, great place to begin your journey. Check out their forums and their 101s. There are many excellent guides, e.g., steps to financial freedom, FIRE (financially independent retire early) even for those in their 20s, blue chip stocks, options, personal finance: credit cards, bank accounts... Their forums are replete and active on virtually every finance topic. Explore their how to invest, retirement planning and community (discussion boards), etc.
John Bogle invented the index fund in 1974 and founded Vanguard. His `The Little Book of Common Sense Investing' cogently proves why he suggests index investing over all other strategies for wealth building to the average person. The bogleheads forum is a great community, though somewhat typically likemindedly conservative in terms of stressing cost minimization instead of income maximization.
Jim L Collins: jlcollinsnh.com
Takeaway: while building wealth, invest 100% in VTSAX (or VTI); when in the wealth preservation stage, consider increasing your bond allocation to 25% (VBLX) and reducing your stock allocation to 75%. Jim mirrors John Bogle's suggestions not to worry much about rebalancing, to focus on the long run, not to worry about diversifying internationally (a large portion by market capitalization of American companies are multinational corporations so their performance is tied to foreign markets). His website is educational and contains dry humor. His YouTube clip on the Importance of F**k You Money is saltier. He concentrates his website advice in a book I highly recommend, `The Simple Path to Wealth.'
YouTube Pundits / Financial Gurus
BeatTheBush: Everything from how to maximize your credit score by paying your card at certain times of the month to how to make more money while retired in your 20s or 30s. Typically more on the side of minimizing costs (i.e., conservative approach) rather than boosting your topline.
Dave Ramsey: one of the top personal finance podcasts in the nation who hails from the Stoneage...well not compared to some of the other financial gurus! Conservative approach, i.e., cost minimization, very little on income generation, but spends a decent amount of time on optimizing the difference. Excellent for beginners, good for the more experienced. Emphasizes pscyhological approach as opposed to mathematical. If you can bend your psychology to the numbers, you may do better, but his approach works charms for countless people and has great research on everyday millionaires (about 80% self-made / came from little wealth). Does not distinguish good debt (most highly successful deca- / hecta-millionaires and billionaires did not get there by being conservative and avoiding leverage) from bad debt and advice on actively managed index funds stands in contrast to that by John Bogle and most financial researchers -- still amazing results and his point is to mostly encourage people, not to put them off. Can listen on Alexa or YouTube. Check out his Baby Steps and the debt snowball approach.
Ramit Sethi: author of `I Will Teach You How to Be Rich', Ramit is less conservative in his approach than the first two above. Tells people to identify their money dials: what do you love? Spend lots of money on it. Dial it up. Dial things you don't care about down. Tradeoffs exist. Interesting approach to automating finances with different cash back cards, banks offering interest on checking accounts (e.g., Charles Schwab), good brokerage companies offering commission free trades on their products (e.g., Vanguard). Your house is a liability, not an asset - rent.
Robert Kiyosaki: author of `Rich Dad, Poor Dad', gets you to think outside the box. Your house is a liability, not an asset - rent.
Tony Robbins: life style coach but has excellent financial advice from learning from billionaires and financial gurus he coached. Educational and inspirational YouTube videos and interviews about personal finance. Author of `Money: Master the Game'. Check out his stories about the people who were on very low incomes but ended up millionaires, the curse of costs when it comes to investing (the problem with trusting finanncial advisers who are not fiduciaries), his explanation of Ray Dalio's All Weather Portfolio.
Dan Pena: high performance coach, the 50 billion dollar man (interview by London Real), inspirational, salty.
Grant Cardone: sales, real estate, lifestyle coach. Author of many books including `10X'. Inspirational, educational. Definitely not in the conservative cost minimizing camp - complete opposite: maximize income. Your house is a liability, not an asset - rent.
Graham Stephan: every time this young man wakes up, he creates a high quality, high value video.
Teach a Man to Fish - My Personal Finance Story
I opened up my first savings account almost as soon as I drew my first breath. My parents were forward looking. Living in Ireland during my teens, I was able to take advantage of the 25% top up by opening a Special Savings Incentive Account. Deposits were tiny, but even small actions today can have big consequences in the future. Thanks to the lottery outcome of growing up in middle class Dublin, Ireland with free college fees and a string of scholarships, I was able to graduate with not just one but four university degrees debt free. I began my post university career and continued saving for almost two years by which time I had passed 30. I emphasize saving because other than a tragic flirtation investing in one company on the stock market during my late teens, I was still almost a virgin at investing. Aged 19, I spent the summer of 2005 working in a stock brokers. Aged 20, I spent the summer of 2006 working for another company researching the construction and financial services industry; observe the industries and the year... I knew exactly what return I would make from saving, but was unused to investing. This was about to change.
My first serious foray into the world of investing was my curiosity about the ability of precious metals to act as a hedge for particular forms of crises including currency crises or generic economic and financial crises. Before I could catch the gold bug, a good friend of mine pointed me towards idea of stock market investing. Motley Fool - one of the world's biggest online multimedia general financial and stock market advice company with tons of educational material and forums. My investor knowledge went from 0 to 60 so fast characters from Fast and the Furious would be proud - they may think twice about risking the pay slips for their cars. Motley Fool was not just the nitrous oxide or 'Nos' to boost my speed. It was the whole package. I spent the next two weeks opening an emergency fund and investment accounts and learning more about personal finance than I had learned after spending almost 25 years in formal education. My formal education included a college degree in Mathematics and Economics, two masters in Economics from Cambridge University and Northwestern University and a PhD in Economics.
Within a few months, I began consuming financial advice content from YouTube pundits like BeatTheBush. I reduced my expenditure by almost 50%, devised ways of increasing my income (but did not carry them out due to a limiting mindset and academic tenure-track pressures to publish), and attempted to optimize the difference by maximizing the returns from my saving and investing. I had planned on selling my unwanted items online and in garage sales to achieve minimalism and to generate some extra cash. The rate of return was not high enough, I decided.
Purchasing my first stock was scary. I knew video games and graphical programming from my PhD research, so I decided to invest in a blue chip / large cap (valued at at least $10 billion) company on the advice of the Motley Fool community called Activision Blizzard around New Years 2016/2017. The stock grew by around 20 percent in the first month and about doubled over the next year or so. Good first experiences can be a blessing. They encourage you. Of course, I built out my portfolio by diversifying to about 15 stocks. For every dollar I invested in an individual company on the stock market, I invested in a stock market index. Ultimately, index investing is where I would discover my long term path to freedom.
John Bogle, founder of Vanguard, created the world's first index fund in 1974. He had expressed some of his ideas in his 1949 thesis while an undergraduate at Princeton University. As I read his book, `The Little Book of Common Sense Investing', I understood the arguments of why index investing works so well for the average long run investor. Jim L Collins is an advocate too and explains things simply in his `The Simple Path to Wealth.' I began the switch to index only investing. In particular, the total stock market index with Vanguard's mutual fund VTSAX and their ETF VTI. Why VTI? My broker charges no commission fees on ETFs, but they charge about $20 for the first purchase of a mutual fund. Once bought for the first time, however, the mutual fund can be automated, which has its advantages. My broker also informed me that they waive the fee on subsequent automated purchases. What brokerage do I use? Currently, I am with Bank of America Merrill Edge.
This marks my current investing strategy. It may change over time, as we each may need to evolve when faced with new information. I hope to develop subsequent posts with my thoughts on various strategies on more general topics in personal finance.
Thoughts on How to Live an Enjoyable, Successful and Productive Life
I claim most of these thoughts as... not of my own origin. In isolation, they may only have small insignificant effects, but a few together may produce significant improvements.
Persistence can be the way to success in most areas of life: small tasks, education, career, dating. If you have not encountered difficulty, you have been extremely lucky or you failed to notice.
Scaling is crucial for most business success. This explains why a one person job of care giving, while arguably the most important, is often poorly reimbursed. Even a surgeon only has a limited number of hours. The same is true for a lawyer, an accountant, a banker, a teacher, a plumber, an Uber driver, an entry level worker at Walmart. Their earnings (number of hours times wage) are limited by the number of hours they can supply. Can you work all 168 hours in a week for each day of the year and command the same high hourly wage? Consider scaling.
Automation is related to scaling. Adam Smith's Division and Specialization of labor matters at all our levels. David Ricardo's Principle of Comparative Advantage matters at all our levels. If you can profitably automate part of your life, why not?
Business success generally depends on relations with people. Respect is earned, but basic levels of decency should be afforded to people on the way up and down - you never know if you fall down the ladder. If you develop interpersonal skills, you will get on better with people, which will make so much of your life better: relationships, obtaining and maintaining a job, developing a career, negotiating, building a business, forming a team, selling, helping your community, making a difference.
The highest rate of return is on investing in yourself. The more skills you develop and the more knowledge you acquire, you will be able to apply these competencies in other areas of your life and improve your overall quality of life as well as help those around you. You will be able to create more value. You will be able to discover opportunties for development you previously did not know existed.
Try to avoid life style creep. When our income goes up, we tend to spend more. NBA / NFL players mostly go broke in a few years after they retire. Practice living below your means. Yes, you can try the other method too of spending more and allowing this to drive you to make more. But that is not for everyone. However, avoid the scarcity, limiting mindset. Sometimes you must spend in order to make more or be happier. Consider the money dials approach of Ramit Sethi. That being said, being economic on certain things at the start will help you to grow faster. Spend on things that help, but don't buy lots of things you can't afford. Maybe renegotiate with your car insurance or your phone service provider. Possibly purchase an item rather than lease. You probably don't need to update your phone every 18 months. Some studies show that people with over 7 figures of net wealth (at least $10 million) spend on average about $50k on a car, which is only a fraction of their wealth and they buy in cash. Yes, there is the other approach of leasing and using the cash to invest in higher rate of interest adventures. Unless you are skilled at this, I don't suggest it for those starting out. I encourage looking into the pros and cons of leasing if you are more advanced.
Consider renting rather than owning. Owning your own house to live in is rarely a good financial investment. It may be. It may not be. Compare how much renting is and the opportunity cost of putting that massive 20% down as a deposit and the amount you will pay back over time. Factor in the headaches from assuming the responsibility of all maintenance, etc. It's going to be wonderful to have to take care of every clogged toilet, leaking roof, broken heating system, yearly snow removal, etc. It is more of a liability than an asset in the sense that it takes lots of money from your pocket (a depreciating asset, like a car). Even when buying in an appreciating market, consider the return you can get elsewhere and how big that return must be to break even with the similar comparison by renting and investing the initial deposit and freeing up time to invest elsewhere.
Value your time. It's something none of us can buy back. At least not really given current technologies, time travel, etc. This is an extra reason I rent rather than own a home. I get to live like I'm in a hotel. They need to replace the whole side of the roof outside my apartment because of a serious leaking issue? It costs $10,000? Well, I'm actually heading off to a conference for a few days. I don't need to pay and I don't need to organize anything. I come back and it's all fixed. Same goes for small repairs. A few times a year something needs fixing, I shoot a quick email to my management company on the online system. Within the next few hours, it's all taken care of.