Financial Independence
A quick public service dispatch
I am not a lawyer, nor an accountant, nor a financial expert of any sort. I have always had this as a blind spot in my career. I’m not illiterate. I can read a financial statement. I’ve worked plenty of contracts and negotiated deals. But none of that was my money.
Personally I never became an expert in investing or any of that. In one sense I knew that I wasn’t qualified and mindfully stayed away from doing too much, understanding my own limitations. My game plan has always been to make enough money and if I needed more money for something I’d just make more money.
Now that I’m coasting into a different season of my life I decided to make personal finances one of my projects. My approach to these projects is to research and read as much as I can until I have a working knowledge.
The purpose of this piece is to share with you what I’ve learned in hopes that it may give you something you can use.
Last year I heard Tony Robbins pitching his book “Money” and decided I would read it. Not only read it but learn it and put that knowledge into action. This was certainly a bigger chore than I thought it would be. The book was an 800 page hard cover monster. I pushed through it, because I’m stubborn that way.
It was more like three books. One talked about money strategy and tactics, one was your typically Tony Robbins cheerleading prose and the last was a set of interviews with the most successful financial people in the world.
Based on this I engaged with Peter Mallouks’ fiduciary service Creative Planning to sort out my personal finances.
Again as a service to you I’m going to attempt to give you a simple rendition of some of the key things I’ve learned.
- Yes, compound interest is important. Every book on finances I’ve cracked open over my lifetime has started the exact same way; talking about the power of compound interest. Why? It’s important when you talk about money accumulation over time. If you invest $1 at a 10% return you get $1.10 at the end of the year. The compounding happens because next year you get 10% of $1.10. Your money accumulates arithmetically over time.
Why do you care? Because a little bit of money invested today becomes a lot of money as time goes on and you don’t have to do anything. Just like they have always told you investing consistently from an early age will put you in good stead later in life.
Nothing surprising here but I’m sure there are still some folks who don’t understand the power of compound interest. It works both ways. Small expenses over time have an outsized compound negative effect on your accumulation of money. Tiny changes in interest rate in the short run have large impacts in the long run because they compound.
- This brings us to our second learning; most investment vehicles have hidden fees that are so small or hidden so well that you don’t realize you’re paying them. Those fees compounded over time make a big difference. Again that’s pretty basic.
- Which brings us to our third learning; which is, you can’t trust anyone. The vast majority of financial advisers actual work for or are affiliated with the companies that sell financial products. I’m sure they are all honest, motivated people, but they get part of their compensation for selling the company’s ‘in-house’ products. That profit motive for them works against your accumulation of wealth in the form of less performance or higher fees.
- They finance companies know that none of us want think about this stuff so they make it easy for us. Just buy this fund. It’s perfect for you if you are retiring in 2030… Most of us fail by default option that nibble away at our future finances because we just don’t know what to do.
- Which brings us to the fourth learning; that is only a pure Fiduciary, who is selling no affiliated products, actually has your interest (pun intended) in their interest. They charge a flat fee to give you advice.
- What is that advice? How to structure your portfolio of assets (stocks, bonds, mutual funds, IRA’s, Real estate, insurance, etc.) so that it meets your projected financial requirements in the future. e. you have money when you need it, whether you plan to retire in the traditional sense or not. They give you a portfolio that balances risk and returns at the lowest cost. Then they periodically rebalance that portfolio to make sure you stay on track.
- For this service, and it’s a pure service, they charge you annually a percentage of your assets, typically 1% or less. For example if you have $500k in your IRA they would charge you $5,000 a year to manage it. That may seem like a lot of money, but typically you’re paying more than that in hidden fees. If you don’t think you are getting value from the service you can cancel without notice and are only responsible for how much of the year has gone by.
- Another thing they will give you recommendations on is insurance. Typically life insurance. If you were to drop dead in a trail race tomorrow would your family be able to survive? Again, you don’t buy that from the fiduciary, they give you the recommendation and you go buy it from someone like SBLI.
- Finally they give you advice on estate planning. If or when you die what happens to your wealth? Unless you have done some estate planning the government decides what happens to it and you can bet they will get their share. The fiduciary will give you a recommendation on creating a will and maybe even a living trust to make sure the wealth you have accumulated doesn’t end up in probate court.
Why do you care about any of this? Maybe you say “I don’t have enough money to worry about investing!” or “It’s too late for me!” or “I don’t want to talk about it!” or “I know the answers are going to be horrible and I’d rather just keep on paying bills!”
It doesn’t matter how much money you have or don’t have. It’s worth understanding where you are so that you have the certainty of knowing. If the answer is bad then at least you know the answer and you can work with that. It’s never too late.
Most people don’t realize that the process of wealth accumulation is heavily back end loaded in your career and life. Those last 10 or 20 years have an outsized impact. You may be surprised. I certainly learned from putting the numbers down with someone competent in the lingua franca of personal finance.
Imagine how much better you’ll sleep when you know your spouse or your kids will be taken care of? The fruits of your labor will be harvested ripe and glowing for the one you love.
Don’t be afraid of this subject matter. Don’t hide your head in the sand. Create a project to get it under control and sleep easy.
Hope that had some value for you. Feel free to buy stock in the RunRunLive public offering, or, hey, become a member, pay the piper.