{ "version": "https://jsonfeed.org/version/1", "title": "Brian Herriot, Fast Follow Investor", "icon": "https://micro.blog/brianh/avatar.jpg", "home_page_url": "https://fastfollowinvestor.com/", "feed_url": "https://fastfollowinvestor.com/feed.json", "items": [ { "id": "http://brianh.micro.blog/2024/01/07/hi-there-if.html", "title": "Come find me at ChoosyConsultant.com", "content_html": "
Hi, there. If you’ve come across this blog and it’s interesting to you, I’m honored. I’m now posting at Choosy Consultant. I hope to see you there!
\n\nWhat is Choosy Consultant?\nIn short, I write about wealth building, lifestyle design, and a different kind of retirement.\n
My principles:\nI love quicker financial freedom through semi-retirement and mini-retirements, smart & reasonable investing, and crafting your best life. I hate conventional retirement, investing “rules of thumb,” most financial advisors, and Suze Orman’s $5 Million retirement portfolio.
\n", "date_published": "2024-01-07T09:35:17-08:00", "url": "https://fastfollowinvestor.com/2024/01/07/hi-there-if.html", "tags": ["on life","money and markets","new experiences","micro business"] }, { "id": "http://brianh.micro.blog/2023/05/05/must-you-have.html", "title": "Must you have suffered to lead a meaningful life? I think, no.", "content_html": "It’s a question I have thought about for a long time and a lot lately.\n
\n
I haven’t suffered.\n
\n
I first realized it objectively.
\nI read about suffering in the biographies of great founders and celebrities. The true greats come from poverty or have won battles against personal demons.
\nThat’s not me.
\nHow does my life experience compare to these personal struggles that I read about?
\nI was born healthy and raised in a strong family by supportive parents. I was a good student and went to a good college. I haven’t put undo pressure on myself. I haven’t experienced anxiety or depression. I have no personal demons. I took a good job out of school in a good economy. I’ve switched jobs and climbed the corporate ladder without stress. I started businesses on my own terms. My personal savings have grown while skating through recessions and down markets. My parents are still living. I haven’t lost anyone who is close to me. I’m lucky.\n
\n
Next, it was reinforced emotionally.
\nOver the years, three family members have pointed out that I lead a charmed life. These reminders are particularly memorable to me.
\nIn the family conversations I’ve had, my good fortune was not admired. The frame was negative. The messages I took to heart centered on how I “just don’t get” struggle and how I “couldn’t possibly understand” its meaning.
\nSo I’m conflicted. Is my lack of suffering good? Am I indeed lucky? Or…\n
\n
Is it a bad thing to not have struggled?
\nThat too could be true:
\nMy immediate reaction is that suffering is a part of life that I’ve been lucky to skip past (so far).
\nBut maybe it wasn’t luck at all. Consider:
\nBut gliding safely through life isn’t right either. My life needs meaning.
\nCould I be more conscious in seeking out difficult things, environments, and experiences? Do I pursue something that stretches my comfort zone but risks sadness and suffering?
\nI don’t know.\n
\n
Is there a middle ground?
\nI want to challenge myself. Yet I don’t want to suffer for the sake of it. That seems pointless.
\nWhat if I risk a meaningful but painful experience and then manage the suffering?
\nFrank Ostaseski, co-founder of the Zen Hospice Project in San Francisco, reminds us in “What it Means to Suffer, and Why it’s Important” that pain and suffering are related, yet different experiences.\n
\n
\n\nThe familiar adage says, “Pain is inevitable; suffering is optional.”\n
\n
\n
Suffering is the result of a chain reaction: stimulus -> thought -> reaction.
\nWe don’t have control over the stimulus that triggers pain. But we can influence our thoughts about the pain and our reaction to it. In doing so, we can reduce suffering.\n
\n
To live a well-examined and purpose-filled life, I need to go big and risk some pain.\nAnd when the inevitable pain comes, I should think deeply and practice how I react.
\nMaybe this is the middle ground that I seek.\n
\n
Subscribe to get my posts sent to your Inbox. Thanks!\n
\n
What is Fast Follow Investing?\n
So join me!
\n", "date_published": "2023-05-05T08:23:19-08:00", "url": "https://fastfollowinvestor.com/2023/05/05/must-you-have.html", "tags": ["on life","new experiences"] }, { "id": "http://brianh.micro.blog/2023/04/26/take-one-month.html", "title": "Take one month each year to visit a new country", "content_html": "Use my slow travel planner to create your perfect getaway. Unplug from work, speed up your retirement travels, and expand your mind too.
\n\nThis is a two-part blog.
\nPost 1 makes the case that we Americans should imitate European vacations. We need to take off one full month each year. To do so, you may need to own a micro-business, which I advocate as part of my Idols Framework for building wealth. I lay out a 10-step slow travel planner to get you started! Then, I share my June trip planning to Portugal as an example.
\nPost 2 dives deep into how to prepare a personal itinerary for your slow travels. I’ll share the detailed itinerary for our trip to Lisbon, Porto, Coimbra, and the Silver Coast in June. I also break down any language barriers that often bring fear. I share a simple method to practice pronunciation and key phrases to help you get around.\n
\n
Here is a link to my slow travel planner. Please use it to plan your next adventure!
\nFor the first 25 years of my working life, I have been heads down. Only in the last 3 years have I begun thinking bigger: Why do I work hard? Why do I save? What does it mean to live my best life?
\nConsider this:\nWealth brings freedom. Freedom creates choice. Choice offers no excuses. And no excuses means “get on with living a great and full life”.
\nThe world is very big. I am very small. A full life is one of many, varied experiences. So, I intend to travel while I can. At 47 years old, I hope I can do it for a long time.
\nI have much to make up for. My only true travel experience so far has been a two-week trip to Italy in 2018. Otherwise, I’ve only traveled for work or been confined to a luxury resort.\n
\n
\n\n“See you in September.”\n
\n
I found some statistics about Americans and vacation time. Was it different from my own experience? I have rarely taken more than 2-3 weeks of vacation in a year.
\nHere is what I found:
\nI’m not so different.
\nThen, I read Why Europeans slack off in August in The Economist.
\nI looked into the European philosophy of time off and learned:
\nEuropeans do it right. They embrace what is known as slow travel. Slow travel is counter to how Americans vacation. The typical American vacation is one or two weeks and packed with touristy sights to see. On vacation, our minds are often still at work, because how disconnected can we truly be when only away for a week?
\nSlow travel emphasizes connections to local people, cultures, food, and experiences. Trips are longer. A four-week vacation is likely the minimum. We experience the trip at a more measured pace. We learn more about the place we’re visiting and at a deeper, more emotional level. Our goal is full absorption within the experience.\n
\n
Taking four weeks off to slow travel in Europe isn’t something every American can afford. I understand this. But the limiting factor is not money. Slow travel, due to its pace and focus on local living, can be cheaper that a two-week trip to Disneyworld.
\nThe challenge is time (for the reasons I mentioned earlier).
\nSo you’ll have to first align your life to accomodate four weeks of vacation. Maybe you are a freelancer or digital nomad. Or, a micro-business owner. How does this help you? You take back control of your time.
\nThere is nothing that I recommend more. Americans have to experience a one-month “holiday”. Europeans do this each August. My family will do it in June!
\nThere are ten easy steps to plan one great month of slow travel:
\nNext, I include the slow travel planner for our trip this summer. For each step, you can see what resources I found.
\n# | \nStep | \nJune Portugal Trip | \n
---|---|---|
1 | \nState the reason for travel | \nFour-week trip to experience real life in Portuguese cities we may want to live in someday. Expose 12-year-old son to travel, so look for things he’d like. Experience some key sights while we’re there. This is not a relax-in-the-sun-type experience. | \n
2 | \nEstablish travel principles | \n1. Aim to do 1 or 2 things per day, only 2. Focus on food 3. Take a down day if needed 4. Meet people and seek their guidance on what to do 5. Do everyday things and a few really cool things 6. Seek to understand the local culture 7. Go off the beaten path 8. Hire a photographer to help us remember the trip 9. Start each interaction with Portuguese 10. Feel free to wander and change plans last minute | \n
3 | \nStudy the place, in general | \nResources: 1. Facebook group: Expat Families With Kids Moving To And Living In Portugal 2. Podcast: Portugal: The Simple Life 3. YouTube: Ways of the World channel 4. Blogs: portugalist.com, CNtraveller.com 5. Subreddits r/travel+portugal or r/digitalnomads+portugal 6. Google search “hidden gems”, “secret” 7. Country overview: nationsonline.org, visitportugal.com Portugal is welcoming and focused on the group (vs. the individual). Life is slower. Enjoy good food and drink. | \n
4 | \nDetermine the basics | \n1. Destinations: Silver Coast (4 days), Coimbra (4 days), Porto (4 days), and Lisbon (2 weeks) 2. Flight(s): TAP roundtrip from Chicago to Lisbon 3. Accommodation(s): Airbnbs in each location. 4. Transportation: Sunnycars rental for the first 12 days | \n
5 | \nHandle administrative items | \n1. Mobile phone: Current T-mobile plan has coverage 2. Money: Wise debit card/currency conversion 3. Health insurance: serenity-portugal.com and existing coverage 4. Power: Europe uses 220V so devices must be dual voltage 5. Confirm passport is current; get global entry | \n
6 | \nGenerate big ideas | \n1. Aim to meet people at each destination. There are “show around” and “eat with” micro-DMCs like showaround.com 2. Work in basic “live there” activities like shopping for clothes (look like local), getting a haircut, and grocery shopping 3. Visit a local market and then wander to get your bearings. 4. Find a local interest group: books, soccer, knitting, running, investing 5. Look for things to do that are of interest (e.g. books, soccer, biking) 6. Are any local festivals ongoing? | \n
7 | \nGenerate ideas by location | \nUse YouTube, Airbnb Experiences, viator.com, and messynessychic.com to look and get ideas for things to do. 1. Silver Coast - big waves, beach activities, Sintra nearby, surf lesson 2. Coimbra - college, museum, visit nearby small towns 3. Porto - Douro river cruise, port wine tasting, local food, visit Averio, soccer stadium tour, Ribeira neighborhood 4. Lisbon - friends are also in town, visit with au pair who is flying in from France, soccer stadium tour, earthquake reenactment | \n
8 | \nPrepare loose itinerary | \nEach location should have: 1. Key people to meet 2. Group or DMC with common interests 3. Local market and grocery store 4. Restaurant options 5. Wander or walking tour idea, include alltrails.com 6. Activities from the “big ideas” list 7. Activities from “ideas by location” list 8. Day trip ideas 9. Anything else that popped up from the research *Don’t book outside the country; ask within and then book. And leave days near the end of a visit open for flexibility. See my next post for our family’s loose itinerary. | \n
9 | \nTrain yourself for the trip | \n1. The language: pronunciation, key phrases prepared on a cheat sheet, download the iTranslate app (include offline). See my next post for our European Portuguese cheater. 2. Packing: key things to bring based on the type of trip; less is more; get it there! 3. Watch movies to get inspired for the trip. 4. Read the news and understand the local issues. theportugalnews.com | \n
10 | \nGo with the flow! | \n1. Have these key things with you: phone, loose itinerary, language cheater, and small backpack. 2. Remember, don’t be afraid to go with the flow and alter plans! | \n
In my next post, I’ll share my detailed personal trip itinerary (step #8) and local language cheat sheet (step #9).\n
\n
Click here to get my slow travel planner!
\nSatisficers make a decision once their basic criteria are met. I am a satisficer. It doesn’t mean that I settle for mediocrity. But, once my trip itinerary meets the qualities I’m looking for, I am satisfied.
\nThis is different from maximizers. Maximizers want to make the optimal decision. A decision cannot be made until after every option is fully researched. Only then is the best possible choice guaranteed.
\nIn the excellent book The Paradox of Choice, author Barry Schwartz argues that satisficers tend to be happier than maximizers. Maximizers spend a lot more time and energy to reach a decision. And afterward, they’re often anxious about that decision.
\nPlease keep in mind that I am a satisficer. My approach to slow travel planning is rooted in this approach. If you are a maximizer, you will no doubt want to spend more time planning than I do!\n
\n
I’ll see you next week.\n
\n
Subscribe to get my posts sent to your Inbox. Thanks!\n
\n
What is Fast Follow Investing?\n
So join me!
\n", "date_published": "2023-04-27T08:42:38-08:00", "url": "https://fastfollowinvestor.com/2023/04/26/take-one-month.html", "tags": ["on life","new experiences"] }, { "id": "http://brianh.micro.blog/2023/04/21/my-april-trades.html", "title": "My April 1 trades are made. No fooling.", "content_html": "April’s Fast Follow Investor (FFI) trades increased my stock ownership by 20%. I added 10% to international stocks and 10% to U.S. high-tech stocks.
\nI could try to explain why high tech is trending up, but I won’t try. Because it doesn’t matter. Instead, I’ll follow the model. It’s like buy & hold passive index investing: you gotta stick with it!
\nThe Fast Follow Investor portfolio on April 1, 2023 (approx.):
\nIt’s 15 trading days into the month and my portfolio is up 1% so far. That return has doubled my gains this year.
\nWould I have made the U.S. high-tech trade without the model telling me to do so? Likely not.
\nBut, the model knows better than me. It’s founded on finance and grounded in math. Over the long term, it always beats any of my so-called expertise. My predictions for how markets move are guesswork.
\nSee you next month!
\nP.S. If you are an FFI member, I email you my trades each month. It looks like this:
\n\nThen, it’s your choice for how to use the information:
\nI recommend both. Always start small until you fully understand any new investment strategy.
\nHere is how it works, in short:
\nI use the model’s holding %s to determine ETFs to own over the next month. Given the ETFs I already own, my calculations result in either ETF sales or ETF purchases (my trades).
\nAs an FFI member, I’ll send you detailed instructions and templates to track your own investments and monthly trades.
\nI complete my trades 30 minutes after the market opens on the first trading day of the month. After that, I do nothing until receiving a new set of FFI model holding %s for the next month. I’m set!
\nRinse and repeat (takes 30 min) each month…forever.\n
\n
Subscribe to get my posts sent to your Inbox. Thanks!\n
\n
What is Fast Follow Investing?\n
So join me!
\n", "date_published": "2023-04-21T08:58:10-08:00", "url": "https://fastfollowinvestor.com/2023/04/21/my-april-trades.html", "tags": ["money and markets"] }, { "id": "http://brianh.micro.blog/2023/04/09/cash-its-no.html", "title": "Cash. It's not just for emergencies. ", "content_html": "Holding cash can be a strategic investment move! Cash helps you take advantage of market downturns. With cash, you can shop for value when others are selling at a loss. Look no further than Warren Buffett for how to take advantage of this strategy.\n
\n
\n\n
Imagine your cash savings like a red fox standing watch over a gopher hole. It stays there quiet…for an excruciatingly long time. Then, at a moment’s notice, when the gopher’s head surfaces…it pounces!
\nIn this post, you will learn how holding cash in your investment portfolio creates wealth. Cash savings is a key part of the Idols Framework for wealth building. Cash provides a “margin of safety” which keeps you in the investing game. Experts teach you to have a strong defense and build an emergency fund.
\n\n\nBut cash - which to most appears boring, tired, and too low-yielding - is also a stealthy and opportunistic investment.\n
\n
\n
1.0 Why keep cash savings?
\n 1.1 My 1997 cash savings example
\n 1.2 Warren Buffett is the master
\n 1.3 More historical examples
\n 1.4 Deals come along often
\n
\n2.0 Earning the best possible return
\n 2.1 Defining the term “best”
\n 2.2 High-yield savings accounts >$250,000
\n 2.3 Short-term treasuries (T-bills)
\n 2.3.1 TreasuryDirect.gov
\n 2.3.2 Treasuries via your brokerage
\n 2.3.3 Ultra-short-term bond funds
\n 2.4 Money markets backed by the U.S. government
\n 2.4.1 Sweep accounts
\n 2.4.2 Purchased money funds
\n 2.5 Summary table with recommendations
\n 2.6 Point-in-time analysis: April 2023
\n
\n3.0 How much cash to hold?
\n 3.1 Emergency fund and more
\n 3.2 Opportunistic mountain of cash
\n 3.3 Real-world considerations
\n
\n4.0 Cash savings summary
\n5.0 Related posts\n
\n
Charlie Munger, Warren Buffett’s wise partner at Berkshire Hathaway, said “It is not brains but temperament that makes you rich. Have patience! And don’t do anything stupid.”
\nHolding cash in your portfolio is the ultimate exercise in patience and levelheaded temperament. It is hard to sit on a mountain of cash when stock (or crypto) investments go up and up in the final years of an expansion. “Blow-off tops” can run for years!
\nWhy quietly stare at that gopher hole for so long?\n
\n
Let’s explore a scenario at a point in time: 1997, the year I graduated and started working. Imagine we are 7 years after the most recent market correction (October 1990).
\nSeven years post-crash, the economy and markets have likely recovered. It is when growth starts getting a little crazy and too much money floods the markets. (It would for another 3 years through 1999.)
\nIn this example, let’s invest $100,000. (This part does not reflect my personal reality in 1997 upon graduating!) A single $100,000 investment keeps the math simpler. Later, I’ll show that markets turn south every ~10 years. So, at this point, our investment will grow for 3 years.
\nConsider these two cases:
\nCase 1: What I did in 1997
\nCase 2: What I could have done in 1997
\nIn Case 2, I’m up $45,000 over Case 1. In 2003, I move my cash into a stock index fund that is on sale.
\nIn this example, I’m looking backward. You could argue that I’m cherry-picking data to prove my point. That is true. But the key point is this: “Markets turn south every ~10 years”.
\nIn 2023, a correction could come soon. The stock market has expanded for 15 years! As bubbles form, smart investors set aside more of their portfolio in cash. Cash gives you options, and options are valuable. With cash, you are able to move fast when you find an edge.
\nHow much cash to stash varies with your specific situation and other investment opportunities. (More on that later.) But, the lesson here is that you should hold some!\n
\n
Berkshire Hathaway keeps 10-20% of its investment portfolio in cash. The money is ready when great companies become available to buy at great prices.\n
Charlie Munger reminds us:
\nIn other words, markets will crash. You’d be irresponsible not to prepare for it.
\nBerkeley Hathaway flips a market crash on its head. It’s not horrific, but delightful:
\nIn 1988, Warren noticed a unique opportunity in Coca-Cola’s tragic New Coke experiment. He began to accumulate shares of the beaten-down stock. As of this writing, COKE’s stock price is $61. His $1.3 billion stake has grown to $24.2 billion in 27 years. That’s an almost 19-fold gain.
\nHere’s another example. Warren swooped in during the 2008 financial crisis. He invested $5 billion in Goldman Sachs. In 2011, Goldman Sachs redeemed the shares, earning Berkshire Hathaway a profit of $3.7 billion.\n
\n
While Berkshire has perfected this approach, it is not new. The smartest investors learn from history. Here are three more:
\nRecent history reminds us how often deals come along. We experienced major market drops in 1973, 1987, 2000, 2008, and 2020. That is 5 times in the last 50 years or roughly once every 10 years. Ten years is a long time. This is a true lesson in patience!
\nBefore 1973, crashes were even more frequent. These earlier crashes (known then as “financial panics”) include the 1929 Crash (and the ensuing Great Depression). The worst crash in history resulted in the Dow Jones index losing 89%.
\nI’m not going out on a limb to say that we can expect a crash of 30-50% or more, and likely soon.\n
\n
There are several places where you can stash your cash. The recent run on Silicon Valley Bank reminds us that every option must be safe and as riskless as possible.
\nThe options I examine will be either:
\nI’m not messing around here. These cash investments are safe.
\nThus, I’ll examine:
\nThese 4 criteria combined make up my definition of “best”.
\nMy analysis searches for the optimal combination of 1) net yield (return after fees) and 2) ease of holding and transacting. The U.S. government backs all options and guarantees their safety.
\nI will assess various cash savings options first without considering point-in-time investment yields and costs. Then, I will include these details as of April 2023. I share current net yields with Fast Follow Investor community members.
\nLet’s get started.\n
\n
Let’s start with the passbook savings account you got as a kid from your hometown bank. Now, we’ll make some improvements to it:
\nAn example:
\n
MaxMyInterest or MAX is a service that rotates customers' savings account balances to maximize yields. Always earning the highest savings yield would be too difficult without such a service.
\nWith MAX, you set up a series of savings accounts in your name one time. Then, you pay a fee based on cash savings invested for MAX to move your savings to the highest yielding accounts (in amounts less than $250k) each month.
\nHere is a list of 18 banks that work with MAX as of this writing:\nAlly Bank, American Express Bank, Bank of America, Barclays, BrioDirect by Webster Bank, Charles Schwab Bank, Citibank, Customers Bank, Discover Bank, Fidelity CMA accounts, First Republic Bank, JPMorgan Chase, Marcus by Goldman Sachs, Quontic Bank, Synchrony, UFB Direct, USAA, and Wells Fargo.\n
\n
My analysis:
\nWith a service like MAX, you can realistically earn a high savings rate each month. Its practicality makes me comfortable analyzing it.
To do so, I’ll take the average of the top 5 high-yielding savings accounts for a given month using the list at Investopedia. By choosing the top 5, I’m making an assumption that while MAX may not achieve the top rate, it will be close. To arrive at a net savings yield, I subtract the fee for the service MAX provides.
\nThis savings option is easy to use. It requires time up front to establish a series of bank accounts. After that, MAX moves money automatically for you each month. If you’re the type of person who likes to optimize your credit cards for points, you could be a fit for this service.
\nHigh-yield savings accounts are a valid option for stashing cash. Later, we’ll look at specific, point-in-time yields and fees to help you decide if it’s for you.
\nNote: Robo-advisors like Betterment, Wealthfront, and Robinhood have a different take on the MAX service. As of this writing, Wealthfront brokerage sweeps uninvested cash among 12 partner banks each offering $250,000 in FDIC insurance ($3 million total). The three Robo-advisors offer yields that are ~85% of the top 5 banks' average savings yield. That’s pretty good, especially given the convenience.\n
\n
This option for holding cash is Warren Buffett’s favorite. He recommends that the average investor hold cash savings equal to 10% of their portfolio in U.S. Treasury bills.
\nUnfortunately, I find it difficult for the average investor to hold T-bills. There are three ways to do it, and I’ll examine each.\n
\n
Individuals can buy T-bills directly from the U.S. Treasury in amounts as low as $100 at TreasuryDirect.gov or by visiting a Federal Reserve Bank. First, you must establish an account online with the U.S. Treasury. It is incredibly tedious, and the site looks like it’s from the late 1990s.
\nBeyond struggling to navigate the site, purchasing T-bills requires a lot of coordination. You must calculate how much to buy, when T-bills come due, and repeat the process monthly (unless you choose auto-reinvestment for up to 2 years).\n
\n
An example:
\nThis is what it looks like to access a personal TreasuryDirect account.\n
To log in, enter your password by clicking virtual keys on a keyboard viewable on the screen- it’s clunky! Then, elect to buy Treasury bills. You can buy bills offered in 4, 8, 13, 26, or 52-week durations. The shorter duration bills (up to 13 weeks) have the lowest interest rate risk and are less likely to decrease in value if rates spike. Select Yes to “Schedule Reinvestment” to simplify the process.
\n\nMy analysis:
\nTreasury bill rates are pure since the U.S. Treasury sells them directly. The yields are decent. Fees are zero.
The most significant downside to stashing your cash in this way is the inconvenience of it.
\nSome finer details:
\nAccording to the TreasuryDirect.gov FAQs: “You can transfer any security in TreasuryDirect to an account in the Commercial Book-Entry System. If you hold your security in the Commercial Book-Entry System, contact your broker, dealer, or financial institution or investment advisor. Normally there is a fee for this service.” I couldn’t bring myself to dig deeper to find out more. It’s too complicated.\n
\n
Individuals can also buy Treasury bills within their brokerages (e.g. Vanguard for no fee, or Public.com which charges a small fee). The key improvement over TreasuryDirect is the user experience. Yet, several downsides still exist. And the same complexity exists for selling T-bills before they mature.
\nFrom the Vanguard website:
\n“Vanguard Brokerage doesn’t make a market in Treasury securities. If you wish to sell your Treasury securities prior to maturity, Vanguard Brokerage can provide access to a secondary over-the-counter market.” Complicated.
An example:
\nThis is what you see when you access the “Trade Bonds & U.S. Treasuries” section of the Vanguard Brokerage site.
My analysis:
\nThis method is also very safe and nearly risk-free. T-bill rates are pure, so the yield is decent. Fees are zero at best, and minimal at worst.
The most significant downside continues to be its inconvenience. Your broker’s user interface is likely better than TreasuryDirect. But mine (Vanguard) isn’t much better!\n
\n
It is possible to buy an ultra-short-term bond fund to stash your cash.
\nBuying a low-cost ETF that holds very short-duration bonds is an easy way to own Treasury bills. Treasury bills reach maturity within 1-3 months. So their returns depend primarily on the stated yield (interest rate). The value of the ETF itself can increase or decrease, but not by much.
\nAn example:
\nTwo high-performing ETFs are SGOV and BIL. You can buy both inside a brokerage account.
Why are they great options? Their basic structural factors are sound:
\nAgain, the goal here is to be 100% safe. BIL is the largest in the industry, but SGOV is very competitive and growing.
\nFor a full assessment of both and others, see this link.
\nMy analysis:
\nThe two best options in this space are indeed:
SGOV and BIL buy U.S. Treasury securities which are riskless.
\nYields and fees will vary at specific points in time, so I won’t discuss that here. On average, yields are right below the pure yield on Treasury bills. And fees are very low… like “Vanguard bond index fund” low.
\nPurchasing either ETF via a brokerage account is easy. The funds themselves handle the more tedious purchasing (and selling) of individual lots of Treasury bills auctioned by the U.S. government.
\nAlso worth mentioning for my Vanguard fans: VUSB is Vanguard ultra-short-term bond ETF. But it invests in investment-grade corporate bonds, not U.S. Treasury bills. I recommend not using it.\n
\n
Money market funds aim to keep a $1.00/share value and pay a 7-day yield in line with the short-term Federal interest rate. You can buy money market funds at your brokerage. Some even offer check-writing features.
\nA convenient way to own them is via the “sweep” account inside your brokerage. The sweep account is a money market account that holds excess cash after making other investments. For example, let’s assume you have $5,000 available to invest and buy shares in a stock ETF worth $4,960. Your remaining $40 flows to your sweep account, earning interest at the money market rate.
\nAn example:
\nIf you invest at Vanguard, you’ll recognize that it has replaced its sweep account within the last few years. Its Prime Money Market is now the Federal Money Market (VMFXX). And 99.5% of VMFXX’s invested assets are U.S. government-backed. It’s very safe!
Fidelity’s sweep account is its Government Cash Reserves (FDRXX) and is also 99.5% guaranteed.
\nMy analysis:
\nLet’s assess VMFXX and FDRXX. Both are extremely safe and essentially riskless given their federal government backing.
Yields and fees will vary at specific points in time, so I won’t discuss them yet. Like ultra-short-term bond funds, yields are usually right below rates on Treasury bills. And fees are very low, especially Vanguard’s VMFXX.
\nThe big “watch out” is if you use Schwab for your brokerage. Schwab’s sweep account pays much, much less. Schwab’s business model relies on earning a spread on customers' sweep accounts. (Vanguard and Fidelity do not. Their business models rely on fees from mutual and exchange-traded funds.)
\nStashing cash in your brokerage account without having to buy a money market fund separately is extremely convenient.
\nThis assumes that you do not use Schwab as your brokerage. In that case, you could buy a money fund with cash available in your sweep account. It’s a bit less convenient. If you must stay in the Schwab ecosystem, I would buy the Schwab Government Money Fund (ticker: SNVXX). If not, the Vanguard Federal Money Market Fund (ticker: VMFXX) is a better option.\n
\n
All options for stashing cash discussed so far are safe. To pick the best solution, look at net yield and ease of managing the account. Individual situations (e.g. the institution that holds your brokerage account) also play a factor.
\nHere is a summary and also my recommendations.
\n\nStrong choices:
Best
\nA money market sweep account is the absolute easiest way to earn a very safe, near-riskless, strongly competitive net yield on your cash. It works best for those using Vanguard’s brokerage. It’s pretty darn good for those with a Fidelity brokerage account. It is so easy, you don’t even need to think about it.
Very good
\nAfter a one-time set-up, optimizing cash holdings across many savings accounts is a very good solution. This works best if you’re the type of person who likes optimizing your use of credit cards for points. If you are, you should investigate MaxMyInterest.
Very good
\nTwo other good choices are buying:
Both require a bit more work. You should look across products to understand net savings yields at specific points in time. To make it easy, I do this for members of the Fast Follow Investor community. If you’re interested, you can sign up here. This solution works best if you cannot drop Charles Schwab as your brokerage.\n
\n
Here is a summary of net interest yields as of April 5, 2023.
\n\nThe highest-yielding cash investments (after fees) are:
\nThe worst yield is Schwab’s sweep account. Schwab’s “uninvested cash in your brokerage or retirement accounts” yields 0.45% net interest.
\nWhen choosing your optimal cash savings solution, always consider:
\nLinks to cash investment product research:
\nAnd always remember: this analysis is in no way financial advice. It’s financial education.\n
\n
Before diving in, let’s take stock of what we know.
\nSo, now: How much cash should we hold?
\nThe short answer:
\nIt depends on your personal situation and what opportunities exist to earn better returns.
A better answer:
\nHow about a general rule gleaned from the greatest investor of all time?
So, a general rule of thumb:\nHold 10-15% of your investment portfolio in cash, on average. Hold up to 20% when markets become overheated.
\nThe best answer:
\nA detailed analysis can be conducted at certain points in your investing journey.
This is especially important when early in your investing journey.
\nMany personal finance pundits recommend building an emergency fund. Do this immediately after paying off non-mortgage debts. This is good advice, but for different reasons than often cited.
\nFinancial advisors recommend putting aside 1-3 months of living expenses into cash savings. Some suggest 3-6 months and others 6-12 months. Its purpose is to “give you a cushion to find another job”.
\nBut I look at an emergency fund differently. I’m solving for something even more important.
\nLet’s flip this scenario on its head: A job loss (whether forced or chosen) is not negative. In fact, it can be a huge opportunity. So, how can you position yourself to be ready?
\nI recommend saving up to 3 years of living expenses. Why so much? It’s not because it will take you 3 years to get a job. If you read this blog, you are smart and resourceful.
\nI recommend extra cash savings for two reasons:
\nAn example:
\nAssume an individual is early in her investing journey. With a $150,000 portfolio where she spends $60,000 a year, she should continue saving ($30,000 more). Save until reaching $180,000 (3 years of expenses) in cash before investing in retirement and other higher-yielding accounts.
As shared earlier, this is not what I did in 1997 when starting my career. Instead, I maxed out my 401(k). But, I wouldn’t do it that way again.
\nThis is especially important when late in your investing journey.
\nI’ll start this analysis in the same way. Many personal finance pundits recommend staying fully invested. This means holding only enough cash for a small emergency fund. They say that cash savings' low(er) yield is a drag on your investment portfolio.
\nWhy hold cash when it drags down your return for most of the time you hold it?
\nAgain, let’s flip this scenario on its head. A stock market loss is not a bad thing! It can be a huge opportunity. So, how do you position yourself to take advantage?
\nI recommend saving up to 20% of your entire investment portfolio in cash. Why so much?
\nI recommend holding extra cash for two reasons:
\n#1 - If you are later in your investing journey, you are close to retirement. Holding extra cash reduces the chance you must withdraw from investment accounts when they are down. This is called sequence of returns risk. (Please ignore that confusing term. The term is not important.)
\nIf you invest alongside the Fast Follow Investor portfolio, any negative drawdown in value will recover within 3 years. Thus, if you can cover 3 years of living expenses and not withdraw from investments, you’re set.
\nThis is especially helpful during the “retirement risk zone”. The risk zone is the 5 years before and 5 years after your retirement date. If you are heads-down saving and investing, you likely haven’t thought about this 10-year span. But, it will make or break your retirement.
\n#2 - You can be greedy when others are fearful. Having cash after markets drop lets you buy wonderful investments on the cheap! Selecting high-performing investments during market downturns is smart.
\nAn example:
\nRemember the individual from the earlier example? Assume she is now further along on her investing journey. With a $2 million portfolio where she spends $120,000 per year, she should save up to $400,000 (20%) in cash. Invest the remaining $1.6 million (80%) of her portfolio in Fast Follow Investor or buy & hold indexed investments.
This is what I’m doing. Apart from the pure financial arguments for doing so, having cash on hand helps me emotionally. I sleep better at night. I’ve learned it is really hard to stomach large portfolio swings of tens and sometimes hundreds of thousands of dollars as markets move…and I’m a pretty even-keeled guy. I have to think that holding cash will help you too.
\nThat said, I don’t recommend stashing any more than 20% in cash. Greater expected returns are indeed found elsewhere. This argument is absolutely valid. Your wealth growth will lag with a cash position greater than 20%.\n
\n
In the earlier example, I recommended holding between $180,000 and $400,000 in cash throughout life. When could it be less?
\nWhile there are no hard and fast rules, I can offer several situations to consider. There is nuance here (as in most areas of life).
\nThe first two consider opportunities. Here, you play offense with your cash.
\nThe next two consider the insurance that cash provides. Cash is defensive, but how much insurance do you need?
\nSome examples are:
\nThere are other options too. But I don’t recommend credit cards…the interest you pay is too high.
\nIn the late-stage example, assume she borrowed $100,000 in total from her 401(k) and her spouse’s 401(k). Instead of holding $400,000 in cash, she now needs only $300,000 or a little more to account for interest charges.
\nIn summary, I recommend holding cash in an amount greater than 3 years of living expenses or 20% of your investment portfolio. Your cash will drop upon pursuing an opportunity where you have an edge. This could be a micro-business or other higher-yielding market investment. You can also get away with holding less if you have access to cash through a 401(k) or cash-value life insurance policy.\n
\n
We have covered a lot. And now you know the importance of cash savings when ascribing to the Idols Framework for building wealth.
\nCash is king! Don’t let anyone tell you otherwise.\n
\n
Read more about the Idols Framework for wealth creation.
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\n
What is Fast Follow Investing?\n
So join me!
\n", "date_published": "2023-04-13T19:35:13-08:00", "url": "https://fastfollowinvestor.com/2023/04/09/cash-its-no.html", "tags": ["money and markets","micro business"] }, { "id": "http://brianh.micro.blog/2023/04/07/buy-hold-investing.html", "title": "Buy \u0026 hold investing works great. Until it doesn't.", "content_html": "Buy & hold is a well-known, well-documented investment strategy. It works, and I include it as one part of the Idols Framework for building wealth. But, you must be judicious in how you use it.\n
\n
\n\n
\nI recently heard the story of David & Goliath as told by Malcolm Gladwell in his 2013 Ted Talk. His talk flips the classic story on its head and proves that Goliath was the underdog. What? The talk upset me because I thought I understood the story. Check it out here.
The lesson? Never stop confirming what you know and believe. Seek out differing and dissenting perspectives to continually test your opinions.
\nUntil 2020, I held buy & hold investing in the highest regard. It worked well for me for over 25 years. But, the Covid stock market crash scared me. It forced me to reexamine what I thought about buy & hold.
\nIn this post, I break down the pros and cons of buy & hold passive stock index investing. Then, I discuss how and when you should use it.
\nThe punchline: In April 2023, I have no money invested in buy & hold. One thing needs to happen for me to get back into buy & hold…\n
\n
Buy & hold is a passive investment strategy that tracks a stock market index over the long term. You don’t trade stocks or exchange-traded funds (ETFs) based on market timing. Instead, investors buy and hold them regardless of changes in the stock market.
\nThe buy & hold strategy is popular with financial independence/retire early (FI/RE) advocates. (These are my people!)\n
\n
I see four key benefits of buy & hold investing.
\nNo investment strategy is perfect. I see four major downsides to buy & hold.
\nUse buy & hold investing strategically when ascribing to the Idols Framework.
\nConsider it when:
\nHere is a graph of forward-looking 10-year real investment return at given CAPE levels.\n
\n
\n\n
\n*The cyclically adjusted price-to-earnings ratio, commonly known as CAPE, Shiller P/E, or P/E 10 ratio, is a valuation measure usually applied to the U.S. S&P 500 stock market. It is the market price divided by the average of ten years of earnings (moving average), adjusted for inflation.\n
\n
I include buy & hold investing as part of my Idols Framework for wealth creation.
\nBut am I using it now? No. Why?
\nWhat must happen for me to get back in? When CAPE drops to 15x (estimated), I will put some of my long-term investment portfolio into buy & hold. But not yet!
\nRemember that buy & hold passive stock index investing has benefits and drawbacks. Watch CAPE levels and remember your investing time horizon. Use both to find the optimal time to use a buy & hold strategy. Most importantly, keep investigating buy & hold. Learn more. Maybe you’ll uncover your own inverted story of David and Goliath.\n
\n
Read more about the Idols Framework for wealth creation.
\nSubscribe to get my posts sent to your Inbox. Thanks!\n
\n
What is Fast Follow Investing?\n
So join me!
\n", "date_published": "2023-04-07T13:53:30-08:00", "url": "https://fastfollowinvestor.com/2023/04/07/buy-hold-investing.html", "tags": ["money and markets"] }, { "id": "http://brianh.micro.blog/2023/03/31/tony-bourdain-and.html", "title": "Tony Bourdain and getting inspired to lead a bigger life", "content_html": "\nLast night, I watched Roadrunner, one of many great Anthony Bourdain documentaries. It is a tragic story. But, strangely, I finished it feeling inspired.
\nTony was troubled but intensely driven. He did so much for the poor and underrepresented of the world. And he did it because he wanted to. He traveled the world. But he started first when shooting “A Cook’s Tour” in 2001 when he was 46 years old.
\nI’m 47 right now. I want to travel. And I want to lead a bigger life.
\nSteve Jobs said:\n“When you grow up you tend to get told the world is the way it is and … to live your life inside the world. Try not to bash into the walls too much. Try to have a nice family, have fun, save a little money. That’s a very limited life.
\nLife can be much broader once you discover one simple fact: Everything around you that you call life was made up by people that were no smarter than you and you can change it, you can influence it, you can build your own things that other people can use. Once you learn that, you’ll never be the same again.”
\nGreat things start small. My post this week is short because I spent much of my time planning an adventure. Our family is spending June in Portugal. Thirty days to experience something completely new.
\nI’m taking aim at my inner monologue. It tells me that “I’m not the type of person who spends a month in a foreign country.”
\nIt’s the hard things that are worth doing. Let’s see where it leads.\n
\n
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\n
What is Fast Follow Investing?\n
\nStart with buy & hold passive indexing. Then, 1) expand beyond stocks and bonds and 2) cut off severe market losses at the knees. Grow your lifetime savings at 12% to enjoy a 5% forever rate of withdrawal in retirement.
Buy the dip? No. Dollar-cost average? Maybe. This is a case study in second-level thinking.\n
\n
You were 44 years old. It was Apr 1, 2020, and in March, the stock market crashed. The S&P 500 stood at 2,470. It was down 20% from its high four months earlier.
\nYou knew stocks offered the best return, and it’s exciting to get them on the cheap. In fact, in the last 10 years, the S&P grew by 3.5X. The market had become inflated. Many were calling it a bubble. Finally, a buying opportunity…
\nYou moved some cash and bond funds into stock funds. It wasn’t extreme…enough to get your stock allocation back up to 80%.
\nWell done! As of this writing in March 2023, the S&P 500 index has just eclipsed 4,000 for a 3-year return of more than 60%. You’re now 47 years old and riding high.\n
\n
You were 44 years old. It was September and in January, the stock market crashed. The Dow Jones Industrial Average (the Dow) was down 23% from its high eight months earlier.
\nYou knew stocks offered the best return, and it’s exciting to get them on the cheap. In fact, in the last 20 years, the Dow grew by 5X. The market had become inflated. Many were calling it a bubble. Finally, a buying opportunity…
\nYou moved some cash and bond funds into stock funds. It wasn’t extreme…enough to get your stock allocation back up to 80%.
\nBut wait, this was 1966!
\nThe differences continued.
\nThis was September 1966 and in January 1966, the stock market started tumbling. The Dow now stood at 7,083.
\nReady for a rebound?
\nUnfortunately, no:
\nReally? Yes! Humans have a difficult time remembering the distant past.\n
\n
I’m not cherry-picking this scenario, unfortunately. Assume you joined the workforce in 1943, and you too invested your lifetime savings in the Dow. Your return over the next 40 years -your entire working career- was 1%.
\nThank goodness for pensions.
\nImagine your 60-year-old self in 1982. You started work at 20 years old in 1943. You earned 1% in the stock market over your entire 40-year career.
\nWhat was conventional wisdom then?
\nIt’s easy: “Do not invest in the stock market!”
\nThe crazy thing? Using 1982 conventional wisdom, you would have missed out on 40 years of incredible gains in U.S. stocks.
\nWhat to do?\n
\n
1) Refresh your study of second-level thinking.\n
\nIgnore sound bites and look for the more nuanced, deeper truths.
Be wary of what you want to believe!
\n
\n2) Pose some questions.\n
\nIn the year 2023, are we in a 1982 situation? Or is it more like 1966? When will we recover? Will it take 27 years? Will U.S. stocks continue to be dominant? Is there something else? How would I handle a stock market return of 0% over 10 years or longer?
Consider that we are sitting on 40 years of U.S. stock market growth since 1982 (when I was 6 years old!).\n
\n
\n3) Next, answer all the prior questions with “I don’t know”.\n
\nI don’t know what the future holds. Nor does anyone else (without getting lucky).\n
\n
\n4) Devise an investing strategy that gives us options and allows those options to flex as financial conditions change.\n
\nHint: it’s Fast Follow Investing.\n
\n
My main takeaway for you: Think twice. We are so very colored by our past, especially our recent past. It’s another one of those human biases that we need to overcome!\n
\n
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\n
What is Fast Follow Investing?\n
So join me!
\n", "date_published": "2023-03-22T10:22:04-08:00", "url": "https://fastfollowinvestor.com/2023/03/15/why-i-dont.html", "tags": ["money and markets","micro business"] }, { "id": "http://brianh.micro.blog/2023/02/24/you-can-live.html", "title": "You can live a $5 Million retirement on $1.6 Million in savings.", "content_html": "Use these 3 strategies to shave 70% off your supposed retirement savings.\n
\n
Your retirement savings target (your “number”) is less than you think you need.
\nIn 2019, personal finance guru Suze Orman announced you need $5 Million to live a happy retirement.
\nThat’s wrong, wrong, wrong, wrong, wrong. Very wrong.
\nSuze is misinforming those of us working hard to achieve financial independence.
\nIn this post, I will show you how to shave $3.4 Million off this misguided $5 Million savings target. All you must do is 1) Review your large expenses, 2) Turn your hobby into a micro-business, and 3) Invest smarter.
\nBefore we dive in, think about this:
\n\n\n“How much longer would you need to work to save an additional $3.4 Million dollars?”
\n
I hope the answer is “far too long to even consider it!”. In fact, it’s likely not even possible for most of us.
\nFirst, let’s clarify a $5 Million retirement.
\nThe often-used 4% rule translates $5 Million of retirement savings to living on $200,000 annually for 30 years. (More on this 30-year timeframe, later).
\nNext, we can reduce this $5 Million savings target by ~70% using three strategies.
\nTo do so, we’ll build a case to adjust needing $200,000 annually. Then, we’ll back into the reduced savings target. And, we’ll do this all without sacrificing quality of life in retirement.\n
\n
What is the best way to reduce the income needed in retirement? The best way is the most direct way: eliminate unnecessary living expenses.
\nPlease take note! This is not an act of frugality or meant to reduce your quality of life in retirement. I’m willing to bet that you can comfortably live on 20% less. Let’s shave off $40,000 in spending without feeling it.
\nExercise #1:\n
\nLook at your annual expenses and do the necessary work to curb your spending. Start with the big expenses: home, car, and health. Can you refinance your mortgage? How about selling a car and biking instead? Have you signed up for a subsidized Affordable Care Act (ACA) health plan at healthcare.gov?
Exericise #2:\n
\nImagine you are an entrepreneur, and it is “Day 1”. Assume that you can only afford 25% of what you had planned for. In this scenario, your $200,000 annual spend becomes $50,000. What unique changes can you make? This exercise results in extreme ideas that you could later change to be less severe.
Exercise #3:\n
\nLearn from others who have come before you. Here are 10 ideas that members of the Fast Follow Investor community have shared with me. You need NOT downsize your home, reduce the # of vacations you take, or eliminate a daily coffee habit!
Instead, you might:
\nTotal annual savings: $40,000
\nAnd don’t fret about inflation. Even with inflation, studies show that the average retiree’s spending drops by 25% for every 10 years in retirement. If you retire early, you should adjust that assumption. But, in case you don’t believe me: think about how much your 85-year-old mother spends on travel, for example. Spending in real terms declines as you age.\n
\n
Calculation:\n($200K less $40K saved = $160K needed)/4% = $4M savings target, updated.\n
\n
With reduced spending, we are now living a $5 Million retirement on $4 Million in savings.
\nThat’s $1 Million less savings required! How many fewer years of work is that? 10 years? More?
\nBut we can do better…\n
\n
Any income earned in retirement is that much less you need to save!
\nI often hear this concern: “But wait, if I’m working then I’m not retired.” Yes and no. It depends on how you’re earning this retirement income. Also, after relaxing in retirement for a while, you may realize you need some purpose back in your life. Earning money on your terms this time is a way to get it. For example, why not work a few half days at a local cafe? It’s a great way to stay connected with friends and the community.
\nMy grandfather and my father-in-law both worked in retirement for reasons beyond money.
\nI can think of several options for making money when retired.
\nThe options are endless.
\nHere are a few opportunities that add up to $80,000 per year:
\nCalculation:\n($160K less $80K earned = $80K needed)/4% = $2M savings target, updated.\n
\n
With some income in retirement, we are now living a $5 Million retirement on $2 Million in savings.
\nThat’s another $2 Million less savings required! Wow. Let’s find more…\n
\n
The final strategy is the easiest to implement. You need not cut spending or monetize hobbies. Instead, just invest your nest egg smarter.
\nLet’s revisit the 4% rule that I used earlier. The rule first appeared in 1994 after studying a 60%-40% U.S. stock-to-bond portfolio over different 30 years periods in history. But, using a 4% safe withdrawal rate (SWR) is inaccurate for two important reasons.
\nInstead, let’s use 5% as the corrected, perpetual withdrawal rate (PWR). To do so, the Fast Follow Investor strategy is necessary. I break it down further in this [post](to update with SWR/PWR post).
\nSo, our $80,000 annual income in retirement no longer requires $2 Million in savings.\n
\n
Calculation:\n$80K needed/updated 5% withdrawal rate = $1.6M savings target, updated.\n
\n
This is $400,000 less savings required.
\nIn total, the three strategies reduced our retirement savings required by $3.4 Million.
\nSo there you have it: with a little work, your $5 Million nest egg need only be $1.6 Million!
\n$1.6 Million still requires work to build. To do it, I urge you to follow the Idols Framework for smarter wealth creation. But it is calming to know you needn’t stay in your job decades longer to save an unnecessary, extra $3.4 Million.
\nPlease, do this analysis for yourselves!
\nI suspect many of you reading this are financially independent NOW. But, you may not have realized it. Make the jump. Take the plunge. You can do it.\n
\n
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\n\nWhat is Fast Follow Investing?\n
\nStart with buy & hold passive indexing. Then, expand beyond stocks and bonds & cut off severe market losses at the knees. Grow your lifetime savings at 12% to enjoy a 5% forever rate of withdrawal in retirement. Fast Follow Investing (based on Tactical Asset Allocation) is finally here for small investors like you and me. So join me!
“In like a lion, out like a lamb” (hopefully)\n
\n-Old Farmer’s Alamanac (except the hopefully part)
This weather folklore stems from ancestral beliefs in balance. If the weather at the start of March is bad (roaring, like a roaring lion), the month should end with good weather (gentle, like a lamb).
\nLet’s also hope that is the case for the Fast Follow Investor portfolio.\n
\n
My portfolio changes as of March 1, 2023:
\nThe resulting March 2023 Fast Follow Investor portfolio: roughly 35% international stocks, 15% gold, and 50% cash.\n
\n
So far, so bad. :-(
\nFebruary was a difficult month with nearly all flavors of investments declining in value. Everything! Stocks, bonds, gold, and commodities. All of January’s gains have been more than wiped out.
\nFast Follow Investor model performance.\nFeb 2023: -5.1%\n2023 YTD: -1.2%\n
\n
In difficult months like this one, remember critical facts about the portfolio:
\nNever forget the 36 years performance graph, for reference:
\n\n\n\n\n", "date_published": "2023-03-09T11:43:37-08:00", "url": "https://fastfollowinvestor.com/2023/03/05/march-trades-respond.html", "tags": ["money and markets"] }, { "id": "http://brianh.micro.blog/2023/02/24/explaining-the-forever.html", "title": "Explaining the 5% Forever Rule to withdraw savings (PWR is the new SWR)", "content_html": "The 4% Rule is a dangerous myth based on a faulty premise. Ignore Safe Withdrawal Rate (SWR) and maximize Perpetual Withdrawal Rate (PWR) to enjoy 50+ years of financial freedom.\n
\n
\nWhy do we save? For nearly all of us, we save for retirement income later in life.
We use the 4% rule to estimate how much we can withdraw each year of a 30-year retirement. We use 3.5% if we plan to retire early.
\nI would like to introduce you to the “5% Forever” Rule.\n
\n
My goal is financial independence at 50 years old. With medical advancements, I expect to live until 100 years old. So, I need my savings to last me 50 years.
\nThe 4% rule governs the land. It’s close to becoming conventional wisdom. And I’m not a big fan of conventional wisdom.
\nSome quick history.
\nA financial planner named Bill Bengen first advocated the 4% rule over 25 years ago, in 1994. His clients had questions about how much they could safely withdraw from their nest eggs.
\nBengen looked at U.S. market data from 1926 to 1992. He determined that given a portfolio split between stocks and bonds would survive a 4% safe withdrawal rate (SWR) for a retirement lasting 30 years.
\n4% withdrawn annually would not deplete a portfolio of U.S. stocks (60%) and bonds (40%).
\nBut, consider where Bengen’s analysis wouldn’t hold up:
\nThe 4% rule was built on shaky ground. It’s not a very robust #.
\nIn fact, since it was published in 1994, a lot of work has been done to validate 4%. It now appears the more robust % for a 60/40 portfolio is 3.5%. The problem is that “4% rule” is so nice and memorable. And now it’s hard to change.
\nI recommend thinking in terms of a forever rate, or as it is more commonly called, a perpetual withdrawal rate (PWR). At what rate, can you withdraw from savings forever?\n
\n
With financial experts recently suggesting that 4% be lowered to 3.5%, how can I advocate raising it to 5%?
\nThe short answer is to adjust how the underlying investment portfolio is constructed. There is a better solution than U.S. stocks (60%) and bonds (40%).
\nBut first, let’s investigate what factors impact the withdrawal rate. There are three.
\nNo. 1 and the most well-known is investment rate of return.\nA greater investment return is, of course, better. Growing your portfolio faster supports the ability to withdraw larger sums. But this is just one factor.
\nNo. 2 is inflation.\nIf inflation stays low, the cost of living stays low. And investments can grow to easily cover the cost of future expenses.
\nInflation can be addressed in your portfolio by owning Treasury Inflations Protected Bond Securities (TIPS). But I recommend doing so only as part of the Fast Follow Investor portfolio.
\nA better way to protect against inflation is to control how and where you spend money. I call it smart spending. For example, when egg prices are outrageous, buy milk, yogurt, and cheese for protein.
\nNo. 3 will make sense but is discussed much less: investment return volatility.\nLow volatility means that your nest egg is protected from steep and severe losses. When volatility is high and investments decline sharply, you’re forced to withdraw savings when portfolio values are low. This is commonly called “sequence of return risk”. (Why are financial terms made to be so complicated?)
\nIn summary, to maximize your forever rate, control inflation with smart spending. Then, invest in a portfolio that offers high returns with low volatility.\n
\n
The Fast Follow Investor portfolio offers strong, stable investment growth. It’s predicted to earn 12% annually through all economic cycles.
\nBut, the best feature of the Fast Follow Investor portfolio is its 3-year positive return profile. This means a negative return recovers to neutral within 3 years. It’s only possible because it manages losses, limiting them to a 3-year period historically. This is kind of amazing.
\nThink about it. Start with $50,000 invested. Once it goes negative (which it will), the portfolio will find its way back to $50,000 again within 3 years. Compare that to 10 years for the U.S. stock market. The stock market return for the lost decade of 2000-2010 was 0%!
\nThe Fast Follow Investor portfolio’s 12% return and 3-year positive return profile work together to achieve a 5% annual withdrawal rate…to infinity.
\nAnd that is the 5% Forever Rule!
\nRetire whenever you’d like to and comfortably withdraw more of your invested savings. Just be sure your savings align with the Fast Follow Investor portfolio.\n
\n
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\n\n", "date_published": "2023-03-02T14:04:45-08:00", "url": "https://fastfollowinvestor.com/2023/02/24/explaining-the-forever.html", "tags": ["money and markets"] }, { "id": "http://brianh.micro.blog/2023/02/15/the-lifechanging-magic.html", "title": "The life-changing magic of monthly date nights.", "content_html": "How takeout and a sitter can lead to deeper connection, more wealth, and a life with purpose.\n
\n
My wife and I sat in a church basement completing worksheets of chores we would each do when married. It was then that we identified our key to a happy marriage: a dishwasher. Thank goodness for this marriage preparedness class!
\nWe married in 2001. Both 25 years old, we had no grand plan for what life together would look like. Beyond getting a dishwasher, life was open-ended. I assumed “things would just work out”.\n
\n
The years passed and life happened. Personal goals. Professional goals. Our son was born in 2011. We traversed life “just fine”. I didn’t think about it too much. I put my head down, went to work, made money, vacationed, hung out with the family, and repeated it for years.
\nIt took me 20 years to finally see that I had no vision for what I wanted our lives to be. I was 45.
\nConversely, my wife only seemed to think about big things. Why are we here? Where are we going? What is our purpose?
\nUp to that point:
\nWe needed a solution for combining forces. We could no longer “wing it”. We would need to work together to design a purposeful and more connected life.
\nIt continues to be our goal for the next 20 years.\n
\n
My epiphany for planning a well-intentioned life didn’t happen all at once. It took place over many months. Covid-19 shook me out of a life of “going through the motions”.
\nTo improve our unity and direction, my wife and I decided to meet weekly and make some plans. We mapped out what needed doing that week, fun weekend plans, and long-term activities to work on together. The discussions morphed from tactical to aspirational and back again.
\nBut we had many fits and starts.
\nIn the end, for us, the weekly meeting became too much. We couldn’t get it to fit in with many, other commitments.
\nOur efforts were completely derailed for several months, until my wife recognized it. Since our time meeting weekly, we had both grown. We learned some things…\n
\n
We now meet monthly. We like it, because it’s efficient and with only 12 dates a year, there is absolutely no reason to miss. For us, these are date nights. You might also call them meet-ups. Over the course an evening, we discuss all aspects of our lives.
\nAt first, the dates were tactical.
\nWe would:
\nThe next stage became more strategic.
\nAdditionally, we would:
\nNow, the date night looks like this:
\nBut, we never miss a date.\n
\n
I truly believe that a monthly date night leads to deeper connections, more wealth, and a more well-intentioned life.
\nAnd now, I think I know why. I recently read Charles Duhigg’s book, The Power of Habit. In it, he describes the keystone habit.
\nA keystone habit is one that leads to a cascade of other positive actions. It’s a habit that has a ripple effect…from it, other good habits form.
\nThe book offers two examples…
\nLife is hard. Work. Relationships. Kids. Friendships. Health. There is so much to think about and work on.
\nCan’t I just focus on one thing to jump-start everything else?
\nWell, maybe not one. But, how about three things?
\nFirst, focus on yourself: 1) get enough sleep and 2) exercise daily and other dominoes will start to fall.
\nThen, 3) commit to a monthly date night! With proper guidance, it can lead to a deeper relationship, more money, and a better life. I will help you.
\nI cannot wait to see what the next 20 years have in store for us…\n
\n
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\n\n", "date_published": "2023-02-22T13:39:10-08:00", "url": "https://fastfollowinvestor.com/2023/02/15/the-lifechanging-magic.html", "tags": ["money and markets"] }, { "id": "http://brianh.micro.blog/2023/02/16/what-is-secondlevel.html", "title": "What is second-level thinking?", "content_html": "Second-level thinking is a form of deep learning that can help you develop an edge. I call this principle “Think Again”, and it is foundational to smart investors.\n
In his book, The Most Important Thing, Howard Marks explains it:
\n\n\nWhereas first-level thinking is simplistic and superficial, and everyone can do it, second-level thinking is deep, complex, and convoluted.\n
\n\n
Search Youtube for Howard Marks-Second Level Thinking. It’s a great 2-minute video.
\nSecond-level thinking means checking much of what you already know about a subject (e.g. investing) at the door. Like Adam Grant recommends in his book Think Again, you must first unlearn and then, relearn.
\nHow does this help the individual investor?
\nHere’s one example:
\nAs a first-level thinking index investor, I once believed as fact that markets are efficient. Entire books are written about it (e.g. A Random Walk Down Wall Street, by Burton Malkiel). But when markets crashed in March 2020, how could that be efficient? It doesn’t make sense.
\nSecond-level thinkers would dive deeper to learn more. Perhaps, markets are mostly efficient, but with periods of extreme volatility. It’s a more complicated and nuanced portrayal of markets. This must be understood, though, to become a better investor.
\nAnd another example:
\nIn 2023, these investing “rules of thumb” are everywhere:
\nBut, consider a different time. Imagine that you joined the workforce in 1943. You invested your lifetime savings in the Dow Jones Industrial Average (the Dow) companies. What a great idea, and so ahead of its time! This was the buy & hold passive index “fund” of its day!
\nDid you know that your investment return over the next 40 years -your entire working career- would be 1%? Not 1% compounded annually…1% over the entire 40 years.
\nThank goodness for pensions.
\nImagine your 60-year-old self in 1982. You started work at 20 years old in 1943. You earned 1% in the stock market over your entire 40-year career.
\nWhat were the investing “rules of thumb” then?
\nProbably something similar to “do NOT invest in the stock market!” Or more specifically:
\nThe crazy thing? Using 1982 conventional wisdom, you would have missed out on 40 years of incredible gains in U.S. stocks.
\nYou can read more in my post Why I don’t like target date funds (and other unconventional wisdom).\n
\n
Second-level thinking is hard. And it takes time. But it makes you better. It gives you an edge.\n
\n
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I offer my thesis, the “Idols Framework for wealth creation”, for your review. Calling for 25% Buffett, 25% Walton, 25% Bogle, and 25% Thorpe, it’s a recipe for you to absorb, adopt, and adapt.\n
I have refined my formula for smart wealth creation in the last five years. Is it a secret formula? No. Is it prescriptive or one-size-fits-all? No, and no.
\nBut, the formula has merit. And I wish I had known it earlier. The Idols Framework is foundational. With it in place, I can enjoy the adventure of life.\n
You can determine the value of your time by calculating your earnings per hour worked. It makes sense to hire out jobs costing less than this measure. Unless you enjoy the job for other reasons (a hobby, for instance)…
\nSuccessful individuals like Ed Thorpe drive the measure higher: What is the most money you could earn for the least amount of work?
\nMy variation on personal earnings per hour adjusts the factors slightly.
\nMy measure becomes wealth created per stress endured. The goal is a high score.
\nTwo scenarios produce a high score:
\nIf I had to pick one, I prefer “The Vagabond”. Stress is real, and it shortens lives. In the end, all we have is time. Also, does extreme wealth make us happier?!
\nBut, I’m shooting for somewhere in the middle. Likely, we all are. We would like enough wealth accumulated for the least stress. (Enough means financially independent.)
\nHow then?\n
We will create wealth using the Idols Framework. It is a loose business and investment portfolio that I will dissect in great detail in future posts. For now, know that the Idols Framework starts with equal parts Buffett, Walton, Bogle, and Thorpe:
\nThe prerequisite to employing the Idols Framework is simple. You must be great (top quartile) at two or more skills that you combine to provide unique value to a niche market.
\nThe perfect example is Scott Adams, cartoonist. He combined his skills of 1) drawing 2) comedy and 3) corporate experience to produce the successful “Dilbert” cartoon series. Here is his take.
\nEarly in life, you will build your skills and also your margin of safety. Also called an emergency fund, this is the Buffett slice of the Idols Framework. It provides work flexibility.
\nLater, use this money to be opportunistic. With it, you can take advantage of major market declines (black swan events). Buy when everyone else is selling.
\nNext, create a micro-business. Walton is the second slice, but not because Walmart is so giant. I choose Walton to emulate because he’s claimed he didn’t create anything original. Sam Walton learned his best ideas from others. Then, he combined and aligned the ideas with his vision.
\nI love this fact because it means anyone can start a business. Keep it very small (micro) to maintain sole control. Then, you alone can steer the business to low-stress waters.
\nReal estate investment makes me anxious. I fear waking from a deep slumber to replace toilets in the middle of the night. But many disagree with me. Small-scale real estate investment also qualifies as a micro-business. In fact, I’m advising my son to buy two four-plexes early in life.
\nAt last, the Bogle and Thorpe slices work together to compound your savings. I invest in two Vanguard index funds: 60% in VTI (US) and 40% in VXUS (non-US). These percentages align with the market capitalization of the world stock market.
\nThe Idols Framework’s last slice is my Fast Follow Investor strategy. It replicates quantitative trend models built on Ed Thorpe’s early work. The strategy provides deep diversification alongside market-based, passive, buy & hold indexing (VTI/ VXUS).
\nThese investment models need no investment expertise. But you must stay diligent. This is easier said than done. In fact, it’s the human side of investing that is the most difficult.
\nOne can practice a level-headed temperament with good planning, habit-building, and support. I write a lot about this.
\nI list the four slices of the Idols framework at 25% each, but percentages do vary for me. And they will for you. In fact, they should flex as you move through life. They will vary based on life stage, the economy, and when opportunities or risks present themselves.\n
Now, let’s revisit our wealth created per stress endured measure. We achieve a high score by accumulating enough wealth with very little stress:
\nGreat wealth with little stress. Magic.
\n\n\nFollow the Idols Framework to run a self-directed, micro-business with cash on hand to take advantage of undervalued assets all the while producing high investment returns that are fully diversified.
\n
That sentence is long. But, I’ll keep this post short. I have so much more to share. Please stay tuned.\n
\n
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\n\n", "date_published": "2023-02-15T10:51:35-08:00", "url": "https://fastfollowinvestor.com/2023/02/13/this-is-my.html", "tags": ["money and markets"] }, { "id": "http://brianh.micro.blog/2023/02/03/is-the-fast.html", "title": "Is the Fast Follow Investor blog written for me? Let me answer that...", "content_html": "Every blog or website should feature an “About You” page.\n
When writing for an audience, experts instruct us to niche down. “Write for a very small audience, one that you understand deeply.” A narrow and deep niche helps us provide worthy advice.
\nDon’t try to be everything to everyone. It’s the rule behind the wonderful 1000 true fans model for creators. The recipe:
\nNiche. Tribe. There are many names: target market, micro-niche, intended reader, marketing persona, target audience, and avatar. I’m sure there are more.\n
Simply put, I write fastfollowinvestor.com for me. I write for me as someone who is 5 years from finding financial freedom. But, I also write for my younger self…on lessons I wish I had known earlier. I also write for my future self…helping me visualize what I want my life to become.
\nYou may not be a 47-year-old, married, father of one who is a management consultant by day and lover of great biographies by night. (P.S. I recommend Ben Franklin, Charlie Munger, and Ed Thorpe). Still, I hope you find my ramblings helpful as you pursue your well-intentioned life.
\nNow you know who I’m writing for. But, why do I do it? Why do I share personal experiences about wealth building, investing, and living a meaningful life? There are three reasons.
\nHere is a list of my typical reader’s traits and experiences. If you identify with a majority, this blog is for you.
\nWho you are:
\nWho you want to be:
\nDo you find yourself in any of these situations?
\nTell me, did any of these resonate with you?
\nIf yes, you, my friend, are my intended reader.
\nWelcome one and all!\n
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\n\n", "date_published": "2023-02-10T20:33:20-08:00", "url": "https://fastfollowinvestor.com/2023/02/03/is-the-fast.html", "tags": ["money and markets"] }, { "id": "http://brianh.micro.blog/2023/02/02/consider-studying-notable.html", "title": "Study notable life stories and find yourself a role model. It's an entertaining way to learn from the best.", "content_html": "Ed Thorpe is a mathematical genius, but his approach to life is what most impresses me.\n
Ed Thorpe is a beacon to me. I finished his autobiography last week. He offers a great personal blueprint for living your life. If these highlights inspire you, I urge you to read the entire book. Ed has so much to offer.
\nI had not known of Ed Thorpe until 2021. He is the first modern mathematician to investigate risk and achieve great financial success doing so. He devised ways to beat the casinos in blackjack and roulette. Later, he used similar techniques to win at investing with his hedge fund, Princeton Newport Partners.
\nHis mathematical perspectives on investments underpin the fastfollowinvestor.com investing strategy. And the book details it in a way we can all understand.
\nBut, Ed’s approach to life serves up even more lessons.
\nIn A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market, Ed takes us on his journey from depression-era Chicago to MIT to mafia-controlled Las Vegas and finally Wall Street. Then, suddenly, he casts all of his professional success aside.
\nAt its core, this is a book about how to live your best life.
\n“What matters in life is how you spend your time. Life is like reading a novel or running a marathon. It’s not so much about reaching a goal but rather about the journey itself and the experiences along the way.”
\nEd learned from Benjamin Franklin (another favorite of mine) who became financially independent at 42 years old. It was Franklin who said:
\n“Time is the stuff life is made of, and how you spend it makes all the difference."
\nFranklin followed his own interests in his next 42 years, and his accomplishments are remarkable.
\nEd Thorpe advises that we:
\nOn investing, Ed believes in finding a simple edge and betting on yourself. At the same time, you must control the size of your bets to cap any losses.
\nIn the book, Ed clarifies these points with a sports analogy. The very best teams have both a very good offense and a very good defense. Neither has to be the best, but both must be strong to win championships.
\nI’d like to close by giving Ed the last words:
\n“When Princeton Newport Partners closed, Vivian (Ed’s wife) and I had money enough for the rest of our lives…. it freed us to do more of what we enjoyed most: spend time with each other and the family and friends we loved, travel, and pursue our interests.
\nTaking to heart the lyrics of the song “Enjoy Yourself (It’s Later than You Think),” Vivian and I would make the most of the one thing we could never have enough of—time together. Success on Wall Street was getting the most money. Success for us was having the best life.
\nWhatever you do, enjoy your life and the people who share it with you, and leave something good of yourself for the generations to follow. "\n
\n
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\n\nReferences:
\nFounder’s podcast Ed Thorpe episode
\nA dozen lessons from Ed Thorpe blog
\nNassim Taleb’s book forward on Medium
\n", "date_published": "2023-02-09T08:57:29-08:00", "url": "https://fastfollowinvestor.com/2023/02/02/consider-studying-notable.html", "tags": ["money and markets"] }, { "id": "http://brianh.micro.blog/2023/02/01/hey-there-my.html", "title": "Hey there, my February 2023 trades are made! ", "content_html": "Trigger: At 4PM Eastern, the market closes on the last trading day of the month.
\nThis process is repeated every month…forever!
\nThe highlight is definitely dinner with my wife.
\nBut, I should not skip over this fact too quickly. The most difficult part of investing is psychology. How do you stick with it through good times and bad? By tying monthly FFI trades to a dinner date, I’m creating a habit that I can commit to for decades.\n
Gold and international equities were winning trades in December and January. The FastFollowInvestor.com model increased both positions in February.
\nFebruary also brings a new allocation to mortgage REITs (up 10% to 10%).
\nAnd, after languishing for 3 months, I hold no more commodities (down 10% to 0%).
\nWhat remains is very little cash (less than 5%). It is interesting that just 3 months ago, FFI held an 80% cash position!
\nOne thing I love about this system: I must never decide when to move out of cash and into the market. The model does it for me.
\nSee you next month! :-)\n
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\n\n*FFI is a deeply diversified portfolio of asset allocation, trend-following models for individual investors.
\n**Broad-based, liquid ETF indices of stocks, bonds, real estate, gold, and commodities are possible FFI investments.
\n***I think of these trades as monthly rebalancing into the best-trending investments.
\n", "date_published": "2023-02-02T10:13:07-08:00", "url": "https://fastfollowinvestor.com/2023/02/01/hey-there-my.html", "tags": ["money and markets"] }, { "id": "http://brianh.micro.blog/2023/01/30/the-great-one.html", "title": "The great one tells us to \"be greedy when others are fearful\". But, how exactly?", "content_html": "Economists say humans are rational and emotionless investors. Wrong! Humans are highly emotional, and it hurts our portfolios. The good news is that we can train ourselves to become more levelheaded investors. Take these 3 specific actions…\n
\n
On December 9, I shared my December 2022 trades. International markets trended up in November. So, at the direction of the Fast Follow Investor (FFI) model, I moved ~50% of my portfolio from cash to international equities. At the time, I was nervous, noting:
\n\n\nMy head and my heart tell me this is a precarious time to “get back in”. But the market and the model disagree.\n
\n
\n“When it comes time to buy and it’s the right time, you will not want to. When it comes time to sell and it’s the right time, you will not want to.”\n
\nRemember: Just like Buy & Hold, Fast Follow trend investing requires fortitude to stick with it.\n
Warren Buffett has said: “Success in investing doesn’t correlate with IQ … what you need is the temperament to control the urges that get other people into trouble.”
\nI agree. Successful investors remain calm when everyone around them is pulling their hair out. A levelheaded temperament helps them stick to the plan. That sounds great. But how, exactly?
\nThere are three things you can do to develop and exploit a calm, levelheaded temperament:
\nOnce you 1) find your investing edge and improve on it over time, and all the while 2) protect yourself from major losses, you’re halfway there.
\nThe hardest part is to put systems in place to stay levelheaded and focused, despite difficult times:\n
Fortunately, I made that December 1st trade into international equities. As a result, my portfolio is up 5% in two months. Of course, international equities could have gone down, and the FFI model would have adjusted accordingly. Up or down, I am happy I was able to stick with the system that gives me my edge.
\nI will continue to find and meet these challenges each month…with some months proving more difficult than others.
\nBy reading these posts, you help hold me accountable! Thank you for cheering me on.\n
\n
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\n\n", "date_published": "2023-01-30T11:51:40-08:00", "url": "https://fastfollowinvestor.com/2023/01/30/the-great-one.html", "tags": ["money and markets"] }, { "id": "http://brianh.micro.blog/2022/12/23/buy-hold-investing.html", "title": "Buy \u0026 Hold investing can leave you feeling powerless. Add some TAA to your portfolio and take back control.", "content_html": "Tactical Asset Allocation (TAA) adds strong diversification alongside a Buy & Hold investment strategy. I compare the two strategies and highlight their differences.
\n\nIn my 20s, I consulted for Accenture out of its Milwaukee office. One highlight of working at a big firm in the late 90s was the sometimes extravagant employee perks.
\nThe greatest perk took place one day in October every year. To reward us for a job well-done, Accenture leadership would rent out Six Flags Great America… in its entirety. I would always bring my girlfriend (now wife).
\nImagine showing up at Six Flags just north of Chicago, parking in the front row, and walking into an empty park. It wasn’t as empty as Wally World when the Griswolds visited. But close…
\nOur small group would ride Iron Wolf and American Eagle and our favorite, Raging Bull. At times you needn’t get off to get back on! One year, I think I went on 50 rides in a day.
\nMy wife and I bonded over our shared love for roller coasters and these incredible days at Great America.
\nIn 2018, twenty years later, she and I were living in the Bay Area. That year, we hired a sitter and drove 30 minutes to Six Flags Discovery Kingdom in Vallejo. We got there early. With excitement, we boarded our first ride.
\nWhen we got off, we looked at each other and said, almost in unison, “I don’t think I can do another one.” We pushed through it, tried one more, and both nearly lost our breakfast. Dizzying.
\nThe roller coasting chapter of our lives had closed.\n
\n
I felt the same way when watching my 80/20 investment portfolio crash in March 2020. What hadn’t bothered me in 2001 and 2008 now did. I could no longer stomach the steep losses. Why?
\nI looked at my now greater savings as the collection of 20+ years of hard work. Watching $300K vanish was hard to take. I remember thinking, “I’ve just lost 6 years of savings…6 years of sacrifice.”
\nAt least I didn’t pass out like I almost did at Six Flags.
\nNow, let me fast forward through 18 months when I read everything about investing that I could get my hands on.
\nI had found an investing strategy to complement my Buy & Hold portfolio.
\nIt’s a great diversifier, without dilution. Meaning, it enhances my investment returns. And, best of all, it reduces my risk of severe loss and helps me sleep better at night.
\nTactical Asset Allocation (TAA). It’s the investing strategy I teach at FastFollowInvestor.com.\n
\n
To learn TAA, I checked much of what I already knew about investing at the door. Like Adam Grant recommends in Think Again, I had to 1) unlearn and 2) relearn.
\nTake a look at these comparisons I’ve drawn:
\n\nThere is a lot here, I know. It took me almost a year to understand TAA. It’s new and different. And it doesn’t always align with popular beliefs.
\nSo, this is my challenge: How can I best share this strategy so everyone benefits?\n
\n
Derek Thompson, one of my favorite podcasters, speaks in analogies.
\nIt can help new ideas stick. So let me try one.
\nI think of Buy & Hold investing like that ride on a roller coaster.
\n\nA roller coaster entertains riders with steep climbs and steeper drops.
\nYou must put your trust in the ride because you have no control.
\nFor long stretches, there is a lot of up and down, but you make no vertical progress.
\nBut, riding is easy. You get on the ride and go (think: set it and forget it).\n
\n
Tactical Asset Allocation (TAA) is more like a mountain trek.
\n\nHiking a mountain takes preparation and, sometimes, training.
\nYou choose your path, and so control your destiny.
\nWhile you may need to backtrack, it’s minimal if you plan your route well.
\nWhen you reach the summit, you’re exhausted but feel great given the achievement.
\n
\n
Buy & Hold and TAA are valid investing strategies.
\nYou can expect positive returns from both. But, one may work better than the other in certain situations.
\nOne obvious use case: the new saver has time to reap rewards from Buy & Hold. The soon-to-be retiree does not have the time and should tilt her/his portfolio toward TAA.
\nBuy & Hold and TAA are excellent diversifying strategies.
\nTogether, they reduce your portfolio’s overall volatility and don’t dilute investment returns. Diversification, not diworsification.
\nAnd how fortunate this is! Take a small piece of your Buy & Hold portfolio and try it out. Dipping your toe in the TAA waters is a good way to learn something new and manage risk at the same time.\n
\n
When you’re ready for more, you can watch my trades monthly in real-time at FastFollowInvestor.com.\n
\n
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\n\n", "date_published": "2023-01-24T08:54:25-08:00", "url": "https://fastfollowinvestor.com/2022/12/23/buy-hold-investing.html", "tags": ["money and markets"] }, { "id": "http://brianh.micro.blog/2022/12/31/my-first-trades.html", "title": "My first trades of 2023 are in!", "content_html": "On January 3, my Fast Follow Investor (FFI) model made some portfolio adjustments:\n
\n
A “Santa Rally” never materialized, and December was a down month for U.S. equities. The S&P 500 was down over 2.5%. The Nasdaq ended down almost 5%. Fortunately, I held only a 3.3% position in U.S. equities.
\nThe FFI portfolio was up and down all month, closing the month down 0.3%.
\nMost January portfolio adjustments were minor tweaks.
\nThe most significant change:\nFFI’s cash position increased by 15% after reducing my investment in one international equity ETF (EFA).\n
\n
For most, 2022 was a difficult (and down) year. It was no different for the Fast Follow Investor portfolio. 2022 ended down 13.1%.
\nThe only good news, if you can call it that, is the standard 60% stock/40% bond portfolio was down 17.6% for 2022.
\nSo, yes, the FFI portfolio fared 26% better. It’s nothing to write home about. But, it does reflect the downside risk protection that Tactical Asset Allocation offers.
\nWhen the markets do recover, growth will compound from a higher low. This is rewarding over the long term.
\nAnd always remember:\nThe FFI portfolio will never be the top-performing investment strategy in a given year. By design, it cannot be since we wait for an uptrend to buy back in.
\nYet, many 2nd and 3rd place finishes added up make for staggering and consistent success.\n
If you know someone who could learn from my monthly investments or commentary, please point them to fastfollowinvestor.com.
\nThanks!\n
\n
This offer is in no way financial advice. Rather, it is very important financial education!
\n", "date_published": "2023-01-15T10:30:32-08:00", "url": "https://fastfollowinvestor.com/2022/12/31/my-first-trades.html", "tags": ["money and markets"] }, { "id": "http://brianh.micro.blog/2023/01/06/what-i-learned.html", "title": "What I learned in the ten years since my \"Marissa Mayer moment\"", "content_html": "Today is my birthday!
\nI am made fun of for broadening its celebration. My birthday becomes my “birthday weekend”, my “birthday week”, and even my “birthday month”. I don’t know why I do this. I just love my birthday.
\nBirthdays are wonderful days to reflect on your life: What have I accomplished? Who am I now?
\nI’d love to tell you about my “Marissa Mayer Moment”.
\nIn July 2012, I was six months into a new job. My first as a director! I was commuting 2.5 hrs per day. Waking up nightly to care for a 1-year-old. I was working hard, but managing it all pretty well… I thought.
\nThen Yahoo! named Marissa Mayer its CEO. We were both 37 yrs old.
\nI looked up her background. Marissa graduated high school in 1993 in Wausau, Wisconsin. This is only 100 miles from where I grew up, in rural Ripon, Wisconsin.
\nSo, in late 1993, we both took off to school…and now she was the CEO of Yahoo!. It took her only 15 years after college.
\nIt was the first time something shocked me out of the daily corporate grind: What am I doing with my career? What am I working toward? Is this a mid-life crisis?
\nMy wife laughs at me: “That was the first time?”.
\nIt’s crazy to think that was 10 years ago. In those 10 years, I decided to jump off the corporate track. I have been able to start a couple of (small) businesses and lead a relatively stress-free life. I like it. It fits me.
\nI google Marissa now and again. I see pics of what looks like a pretty normal life. And maybe we’re not so different. I mean, apart from her fame and the $ Millions… ;-)
\nP.S. Marissa Mayer- please don’t misunderstand me. You’re awesome!\n
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Spend one weekend alone to make plans for a full and well-intentioned life.\n
In 2022, I spent a December weekend in Alameda’s beautiful Gold Coast neighborhood.\n
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What started during Covid-19 as a need for some “me time” has become an important, life planning event.
\nSome do it at the turn of the year. Others do it close to their birthday. My birthday is January 8, so I guess I do both!
\nI spent a recent December weekend at a local Airbnb reflecting on 2022 and making plans for 2023.
\nIt was an entire weekend for me. An entire weekend not stuck in the daily grind. An entire weekend spent appreciating 2022 and dreaming about 2023.
\nThink of it as a strategic planning offsite…for you.
\nI recommend you do it.
\nNow in my 3rd year, I have insights.
\nOne insight I didn’t expect is how the weekend helps me segment years. Before taking my annual trip, the years ran together.
\nNow, my life has chapters. The chapters help me fight time which has accelerated as I age. How is my son 11 years old, already?
\nMy second insight tackles how to make the trip’s significance stick.
\nI propose keeping your life’s plan for the year simple. I prepare 4-5 goals for the year in a Google doc or in Word. You might even choose to handwrite your plan.
\nEither way, make a hard copy and display it at your desk. Don’t tuck away your life goals for the year!
\nPlease feel free to use my template. I call it my “One Year Life Planning Guide”. You can access it here.\n
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My life’s 46th chapter (2022) started at this humble Airbnb in Forestville, CA.\n
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And one final insight. I find it helpful to create a personal theme for the year. For example, looking back…
\nMy 2021 theme was Lay a solid personal financial groundwork.\nThis translated to 1) Prepare a wealth plan, 2) Learn to invest better, and 3) Become tax efficient.
\nMy 2022 theme was Simplify life by targeting the best opportunities.\nThis translated to 1) Work on the right things and 2) Keep stress-levels low.
\nLooking ahead, my theme for 2023 is Live a full life and try out retirement.\nOur family is making a concerted effort to do new and memorable things. I’m going to take some time off work.
\nHappy planning! Here’s to a great 2023!\n
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After you grab my “One Year Life Planning Guide”, you can check out some other freebies here.\n
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Subscribe to get my posts sent to your Inbox. Thanks!
\n\n", "date_published": "2023-01-03T11:51:44-08:00", "url": "https://fastfollowinvestor.com/2022/12/28/a-new-year.html", "tags": ["on life","money and markets"] }, { "id": "http://brianh.micro.blog/2022/12/20/use-this-x.html", "title": "Use this 2x2 matrix to learn which investments will shine this year", "content_html": "In the past 40 years, we’ve seen only two types of U.S. economy. A new and different economy could be right around the corner. What is it?
\n\nIf you’re familiar with San Franciso, you’re familiar with microclimates.
\nOn a summer day, it may be 55 deg. in the City, 75 deg. in Alameda (where I live), and 95. deg in Concord (where my son goes to school).
\nIt’s no wonder that the #1 memento for a San Francisco tourist is a sweatshirt. You think California summer, and you think hot. Nope. Fog covers the City, pulled on shore by the Bay Area’s inland heat. And it’s cold.
\nThe simple lesson? Be ready for all kinds of weather.\n
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This analogy has infiltrated investment-speak over the years.
\nThe most direct is Ray Dalio’s All Weather investment portfolio (1996).\nIt holds roughly 30% stocks, 40% long-term bonds, 15% short-term bonds, 7.5% gold, and 7.5% commodities.
\nOther examples:
\nIf this post is getting complicated fast for you, do not worry.
\nI name these investment portfolios for one reason. Smart investors with very long investment horizons consider all types of U.S. economies. Or as I will call them: economic regimes.\n
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Economic regimes depend on two factors that interact: Growth and Inflation.
\nIf we match levels of Growth (positive or negative) with Inflation (yes or no), we arrive at four economic regimes:
\nAssessing recent history:
\nConsider these questions:
\nThis is good: We have access to stocks and bonds in our 401Ks, IRAs, and brokerage accounts.
\nThis is a problem! Most investors can’t access commodities and gold as investments.
\nInflation really messes things up. If it sticks around, we need alternatives to stocks and bonds for continued investment success.\n
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In my 20s, I worked for a manager who looked at life through 2x2 matrices. Every situation. Every decision. Everything could be framed by a 2x2.
\nWell, so can economic regimes.
\nThe four quadrants that define our four economic regimes are defined here:
\n\nFor those interested in my research, here is a link to the key chart.
\n\nAnd for even more excruciating details, refer to this.\n
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I mentioned early on that several all-weather portfolios do exist.\nBut few know about them, for these reasons:
\nPortfolios that accommodate all economic regimes may have been out of favor for 40 years. But, they may soon make a comeback.
\n2022 and 2023 appear to be years of economic change. It’s time to learn more!
\nAnd, wouldn’t it be cool if there was a more fluid all-weather portfolio?
\nWhat if you could move money to the best performers when economic regimes changed?
\nThat’s what I do at fastfollowinvestor.com.\n
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Subscribe to get my posts sent to your Inbox. Thanks!
\n\n", "date_published": "2022-12-27T10:45:20-08:00", "url": "https://fastfollowinvestor.com/2022/12/20/use-this-x.html", "tags": ["money and markets"] }, { "id": "http://brianh.micro.blog/2022/12/15/what-eddie-izzard.html", "title": "What Eddie Izzard taught me about investing for the long-term", "content_html": "Humans are not wired to think long-term; yet it’s required to invest well.\n
Eddie Izzard, of stand-up, film, and TV fame, quips that:
\n“He grew up in Europe, where the history comes from.”
\nLike Eddie, I find it difficult for Americans to grasp “long-term”. We’re a young country. Our history is short. It’s not a bad thing… simply a fact.
\nLater in his bit, Eddie cites a story on TV during a recent hotel stay:
\n“We’ve redecorated this Miami building to how it looked over 50 years ago.”
\nYou have to see it here.\n
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Is 50 years long-term? Not to the Long Now Foundation.
\nFrom its website:
\n\n\nThe Long Now Foundation is a nonprofit established in 01996 to foster long-term thinking.\nOur work encourages imagination at the timescale of civilization — the next and last 10,000 years — a timespan we call the long now.\n
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Contrast the long now with:
\nI like these definitions. And nowadays is all that the human mind can consider comfortably.
\nI remember 20 years ago: leaving grad school, getting married, and moving to San Franciso.
\nI can imagine 10 years from now: my son graduates college, I’m working part-time, and traveling in Europe.
\nTry it yourself. Pushing beyond a 30-year window is difficult.\n
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If asked to name a long-standing business, the first that comes to mind for me is General Electric.
\nGE launched in 1892. It’s 130 years old.
\nNot many make it that long. It’s quite impressive, as GE is having its own issues right now.
\nBut, 130 years is nothing.
\nStaffelter Hof Winery in Krov, Germany opened in 862.
\nThat’s 1,160 years ago!
\nI find it hard to wrap my head around that. The winery has been around for ~45 generations.
\nFor a list of the oldest business still operating, check out this site.
\nOf the oldest companies, the industries with the greatest longevity:
\nMoney, drinking, and communication. In that order. That seems about right.\n
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Experiences from our own adult lifetimes influence how we invest.
\nTake me. I started investing in 1997, the year I got my first real job.
\nMy biases (good and bad) stem from the period 15 years prior, when the finance books I read were written, through now.
\nAs a whole, 1982-2022 has been a period of strong growth, low inflation, and a helpful Federal Reserve enabling asset growth.
\nStocks and bonds have performed well.
\nBut what if I was born 40 years earlier, in 1936?
\nA look into the more distant past shows a very different situation. Economic depression, war, and high inflation.
\nWhat performed well then? Real assets like gold bars, oil, and other commodity products.\n
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As Eddie Izzard points out in jest, we must elongate our thinking.
\nAnd we must translate that long-term thinking into how we invest.
\nA lot of bad things can happen over the course of many lifetimes.
\nThis means we need to weather a lot of tragedy within our investment approach.
\nDon’t fret. In my next post, I’ll share how we can do just that. I’ll help you keep your investments performing well throughout your lifetime and beyond.
\nAnd the solution is far easier than starting a German winery… which is good news for those of us who don’t live in Germany.\n
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Subscribe to get my posts sent to your Inbox. Thanks!
\n\n", "date_published": "2022-12-17T13:14:13-08:00", "url": "https://fastfollowinvestor.com/2022/12/15/what-eddie-izzard.html", "tags": ["money and markets"] }, { "id": "http://brianh.micro.blog/2022/12/12/what-is-behind.html", "title": "What is behind the name FastFollowInvestor.com?", "content_html": "If you’re curious, here’s my thinking about the name and logo (or should I say mascot).\n
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The “fast follower” in the name stems from the technology strategy.
\nA fast follower is not an innovator.
\nBut when innovation takes off, the fast follower quickly jumps in.
\nThe master of this is Microsoft. Its success speaks for itself.
\nMicrosoft has been in the top 3 in market capitalization for over 20 years.
\nNo other company can match it.\n
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Credit Visual Capitalist
\nThe Wall Street Journal again named Microsoft its top-managed firm.
\nHow does it do this?
\nOf course, a fast-follower strategy doesn’t work in every situation.
\nHave you “Binged” anything online lately? Where is your Zune player? Some misses are inevitable.
\nBut…a lot of 2nd place finishes, when added up, make for staggering and consistent success.\n
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Fast Follow Investing aims to do the same thing:
\nA FastFollowInvestor.com portfolio is never the flashy 1st place finisher.
\nIn fact, it will likely NEVER have the highest return in a given year.
\nThough stack up many high-place finishes year after year (especially in down years), and you become the winner.
\nThe FastFollowInvestor.com portfolio will be the highest performer over 5 years.\n
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My second reason for the name is that Fast Follow Investor simply sounds better!
\nIt’s a catchier name than “Tactical Asset Allocation” or “TAA” (or “T&A” as it’s often misheard.)
\nIn my view, the strategy needs better marketing.
\nTAA is THE best strategy out there for investment success over the long haul.
\nHands down.
\nBut nobody knows about it! And this needs to change.
\nSo maybe a little rebranding will help.\n
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Now, for my beloved mascot. The dog featured everywhere is my pup Izzie.
\nShe follows me everywhere.
\nI think it has to do with her hearing loss in old age. For fear of being left behind, Izzie follows me all around my house. Upstairs. Downstairs. Inside. Outside.
\nIzzie puts a lot of trust in me to guide her.
\nAnd I know those who follow me do as well.
\nMy wife and I have had Izzie since 2007. She’s almost 15 1/2 years old. :-(
\nAs my mascot, Izzie gets to stay with us a lot longer.\n
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Subscribe to get my posts sent to your Inbox. Thanks!
\n\n", "date_published": "2022-12-12T19:36:10-08:00", "url": "https://fastfollowinvestor.com/2022/12/12/what-is-behind.html", "tags": ["on life","money and markets"] } ] }