291 | If I Could Turn Back Time | ChooseFI podcast - Listen or read transcript on Metacast

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Episode description

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Episode description

After four years of working on the ChooseFI podcast, Brad and Jonathan want to share their lessons learned, the list of things they might do differently, and highlight a few episodes to re-listen to.

Brad is back in the studio after missing out on Episode 290 with Paul Merriman. He's doing fine and appreciates everyone's concern.

With Paul Merriman's Ultimate Buy and Hold Portfolio strategy, the thesis is that diversity is great, but own equal amounts of all asset classes versus a cap-weighted index fund to capture the growth potential of small companies. Unfortunately, for the last 12 years, the majority of growth has come from large companies.

Brad says Paul's book reads like a FI manual with a high-level overview of small steps that could be million-dollar decisions.

The decisions are not little. As discussed in Brad's The FI Weekly email this week, the Rule of 72 states how long it will take you money to double at a given rate of return. 72 divided by the rate of return is how many years before the money doubles. For example, 72 divided by 8% equals 9 years to double your money.

The impact of that last double can be worth millions, that's why getting started early is critical. If your new and haven't already, today is the day to start.

Jonathan agrees Paul's book is a great FI primer and was surprised by how much he enjoyed reading it. He says it would make a great gift.

ChooseFI often talks about the aggregation of marginal gains. It can be quantified as each half a percent improvement means we can make an extra million dollars. Come up with 10 and that's an extra $10 million over your investing lifetime. If you can't do all 10, pick three or four and implement early, aggressively, and consistently.

If they could turn back time and look at how their own understanding has grown and developed over the last four years, what would the conversation look like from both micro and macro views?

Starting with investing, in the beginning, the most powerful concept inspired by JL Collins was to avoid the fees, a sentiment echoed by Paul Merriman as well. Diversity and time in the market are also key.

You will lose approximately 40% of your total net worth when invested with a financial advisor at 1% in a mutual fund with a 1% expense ratio. The dramatic loss happens when your gross 8% market return is reduced to just 6% after fees.

In Episode 052 with Todd Tresidder, he highlighted that there are three asset classes you could invest in, paper, like the stock market, entrepreneurship, such as starting your own business, or real estate.

Inside of paper assets like the stock market, Todd says complexity can be valuable, but others like Big Ern and Rick Ferry say most people will do far betting sticking with something simple they understand.

It's important to talk about the things that will increase the likelihood of success then discuss nuance. While Brad craves simplicity, Jonathan enjoys learning more. There's no one right answer, only what works for you.

Jonathan always conflated individual stock purchases with day trading, but episodes with Brian Feroldi helped him realize they are not the same.

For Brad, individual stocks always seemed like gambling. While he doesn't advocate having a huge percentage of your net worth in individual stocks, it's no longer the 0% he would have advocated for years ago.

The software available through M1 Finance allows Jonathan to implement the complexity associated with some of these strategies and maintain them simply.

As for investing in entrepreneurship, it has become something Jonathan loves doing. It's an investment he has total control over, as discussed in episodes with Alan Donegan after he pointed out entrepreneurship was left off the Pillars of FI list.

After a disastrous real estate failure in his 20s, Brad learned real estate investing can be a significant part of his portfolio if you are investing and not merely speculating. He now owns two single-family rental properties which have been successful so far.

When you decide to start adding complexity, the price that's paid is usually time.

Jonathan believes we are all stuck in a system, but the FI community is working to break out of the system in the best possible way to bring control back over their lives.

Following the path to FI by saving money gives you options, power, and agency.

In every aspect of life, look at the rules of the game, survey the field, and make the best decision that's going to work for you.

Skills are more valuable than degrees. Upcoming in a future episode is Anita, who recently graduated from the Talent Stacker program. Coming from the hospitality industry, she had a four-year degree that left her with massive debt. After two to three months of training in a new industry for just a couple thousand dollars, she's now making multiples of what she was before.

The best way to learn something is to do it. If we can build a system around that, we can eliminate the need to wait four to eight years and go into debt. That's what Jonathan and Bradley Rice did with their course.

An 18-year-old who skips college, takes the course, and comes out making 60-80 thousand dollars a year can be Coast FI at age 25. with Coast FI where you have enough saved and invested and will never need to save another dollar again and have a net worth more than other at traditional retirement age.

M1 Finance's Plus feature normally costs $125/year, but right now you can get the first year for free. With M1 Plus you get a 1% yield on online checking and they will reduce your M1 borrow rate. Jonathan doesn't have a HELOC because a margin loan from his M1 investments is so powerful.

M1 introduced a new feature called a smart transfer. ChooseFI's CEO, Ed, has been testing it out. The current borrowing rate is 1.5% less for someone with M1 Plus.

Because Ed is retired, he hasn't been able to refinance his home at the historic low rates. Instead, he did hi sown refi with M1 Borrow.

Although Ed came to M1 to hack his mortgage, he decided to stay for the checking yield. Then he found the smart transfer tool.

Similar to Zapier, smart transfer allows you to create rules to manage your finances. With simple rules-based drag and drop programming, you can always have enough in your M1 Spend account to earn the most yield, pay all your bills, and be optimally invested in the market.

Resources Mentioned In Today's Conversation

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