Betterment - Better Investing

Welcome

Is this you?:

• You don't want to pick stocks.  
• You think there might be a way to do better than an index's buy-and-hold methodology.
• You don't know how to do it yourself.

If you resemble those remarks, there's Betterment.


At Advancing to Greater we want to elevate you to better and better levels of success in many areas.

I happen to be very, very good at investing.  Most people are not.  How then, to advance to greater?

Knowing all that I know, if I were directing a friend or family member to a simple investment broker that will take care of them and do it for them, I would direct them to Betterment.

Betterment's idea is simple: low cost investing designed around a custom-built plan that uses low-cost ETFs or funds.  Further, they take advantage of tax-loss harvesting to maximize your gains and minimize your tax and fee burden.

If you want the the low-cost of Vanguard-style investing combined with a few tricks of the trade in the world of investing and you want it all to be simple, elegant, intuitive, fun, and cheap - you can't do better than Betterment.


*I'm not affiliated with Betterment and I do not receive any compensation from them in any way.

Invest Your Emotions

Welcome.

I have realized more and more that much of what is covered here on Advancing to Greater (especially the stuff that relates to early-retirement) is in line with the tenets of Stoicism.

A great friend of mine has knowledge of this philosophy which is greater than my own and whose writing I happen to quite like.
As a result, I asked him to write this guest-post (the first ever!) for you to enjoy and, perhaps, learn something from.  Please consider following his work on his blog.

Thank you, John.

Some things are under our control, while others are not.

This is one of the core teachings of the ancient philosophy of Stoicism: that
we should be always aware of which things are inside our control, and which
things are outside. What purpose does it serve to maintain an awareness of the
limits of our control?

Knowing the limits of our control tells us where to focus our emotional
energies.

Simply put, if a thing is outside of your control, then your emotional energy
is better invested elsewhere.

The Tide

Consider an example: the tide. The relative motion of the Earth and Moon cause
the sea to rise and fall in a regular cycle. The tide is extremely powerful
compared to you and I, and it's entirely indifferent to (indeed unaware of) our
needs and desires. Suppose the tide is troublesome to you for some reason.
Perhaps you want to build a house, but the tide keeps rising and flooding your
preferred building site.

What would be the effects of your becoming upset about the tide? The tide itself
will certainly not be affected. A house built in the way of the tide will continue
to be flooded, regardless of your feelings about it. The primary effect of your
upset will be to injure your well-being.

I have intentionally chosen an example where it is plain to see that it's
futile to get upset. Now, let's move on to less obvious examples.

My Personal Malinvestment

Here's one from my own history. I used to become very emotionally invested in
political matters. I saw wrongs being committed on a massive scale - enormous
violations of my personal ethics committed by politicians. Because the scale
of these wrongs was so large, it seemed natural to me to be very upset about them.
It took me quite some time to realize the futility of spending my emotional energy
in this way. It just seemed so . . . right . . . to be indignant about all
that wrongness.

But my angry rants, fist-shaking, and even letter-writing to my Congresspeople
made no detectable impact. Politicians kept on being politicians, and I kept
on being upset, and losing sleep, and feeling grumpy, and sometimes genuinely
depressed - until I realized I didn't have to be upset.

Now, I am certainly not saying that I've changed my opinion of politics and now
approve of the behavior of politicians. No, I still think they're by and large
crooked. What's different is that I now try and view politics as I might view
the tide: It's a part of my environment - a very powerful and potentially
dangerous part - over which I have very little control. Getting upset can be
reasonably expected to have no impact at all on the problem, and to have a
significant negative impact on my well-being.

Out of Control

Consider this short list of things that are mostly or entirely out of your control:

• The behavior of other people, including
• politicians
• your kids
• your spouse
• your boss
• other drivers on the road
• that person who's wrong on social media.
• The weather
• Disease
• Death

Think about these and other things outside your control. How much emotional
energy are you investing in them? How much value are you getting out of that
emotional investment?

Within Control

What, then is within our control? The Stoics said, and I think they got it
right, that we have control only over our own thoughts and actions. And since
this is where we have control, this is where our emotional energies are best
invested.

We serve ourselves best when we put our emotional weight not on our
circumstances, which are often outside our control, but instead on our
responses to those circumstances. Not on past events, which are always out
of our control (being in the past), but instead on learning from what has
happened. Not on anticipated future events, but instead of preparing
ourselves to face those events in our preferred ways.

When, as is often the case, we find ourselves astray and investing emotional
energy unproductively, the Stoics recommend repeating to ourselves the maxim
with which we began: "Some things are under our control, while others are not."

Learn More

Don't take my word about Stoicism. I'm a student, not a master. To learn more
about Stoicism, I recommend the following resources:

• Stoicism Today, home of the annual Stoic Week, which I strongly recommend.
• How to Be a Stoic, a blog by Massimo Pigliucci, who originally introduced me to Stoic Week.
• The Meditations of Marcus Aurelius

Investing for Beginners

Welcome.

So you've saved up your Emergency Fund and you have paid off your debts...

Now it is time to start piling money into investments so that you can reach your Freedom Figure.

It is this pile of money that you will use to sustain yourself through the rest of your life.

As a result, this is quite an important thing to feel confident about.  The rule of thumb is that for every $10,000 of annual spending, you need about $250,000 of investments.  That ratio puts you within the range of a safe 4% withdrawal rate from your account(s).

What kind of accounts exist?  What do I need?

This is the only challenge for a newer investor, as you need to become slightly educated about these options so that you can make informed choices, but its really not that hard.  Luckily, Vanguard makes it easy for you.
Click on this button on their homepage to see all the different kinds of accounts and what each is for.

First, take stock of what you might already have?  Do you have an old 401(k), 403(b), or 457 account from an old job.  Those can be rolled over into your new account(s).

Second, what is your plan?  If you are planning to reach your Freedom Figure earlier than what the rules that the government has set for tax-free or tax-deferred withdrawals say, you may need to consider regular taxable account(s) too.  Those have no rules or penalties about when you can access your money.

Once you have gone through the steps to open your account, the rest is simple.  You buy shares of VTI and just keep piling money into it until your account reaches the value you need in order to retire, your Freedom Figure.

That ticker symbol's all you need, the Vanguard Total Stock Market Index.  Low fees are a huge advantage that Vanguard offers and it makes a tremendous difference to the performance, and eventual value, of your investment account(s). That's it, period.

That's it.  

There's no big secret.  

It's not hard.  

Vanguard does a good job of making it easy for you to do business with them. I whole-heartedly recommend them.

How to Save Enough for Retirement

Welcome

Saving enough for your retirement shouldn't be a big, scary, seemingly-impossible thing to do.

It should actually be a very simple process and it is largely up to you to determine how long it takes until you reach the goal of having enough assets to rely upon in your retirement.

The first thing you need to know, of course, is how much do I need to retire?  After all, you have to know what your target is if you're going to be able to hit it.



How much you need is a number that I like to call your Freedom Figure.
Once you know what that amount is, we can advance to the next step - how to get there from where you are now.

How to save enough for retirement

First, you have to get your head above water and that means following the steps to getting out of debt.  (Steps 1-9)

Second, you need to have enough money in your emergency fund to give you a nice cash cushion.  (Step 10)

Third, you need to save, save, save.  Saving is the name of the game when it comes to retirement, especially if you would like to retire early!  (Step 11)

The more aggressively you can save for retirement, the better.  At a minimum you should save 20% of your pre-tax income.  That will allow you to save enough over the course of a 37 year working career to retire on.  You take the cash and invest it.

If your employer says they pay you $50,000 per year, you need to save $10,000 per year, minimum.

• That's $833 per month or, if you get paid every two weeks, its $385 per paycheck.

As you save even more, your retirement accounts will grow even faster, and the number of years that you will have to work and save is shortened.

If you save 25% it drops to 32 years.  5 years less than a 20% savings rate!

If you save 30% it drops to 28 years.  4 years less than a 25% savings rate!

If you save 35% it drops to 25 years.  3 years less than a 30% savings rate!

If you save 40% it drops to 22 years.  It keeps dropping in a non-linear fashion the more you save!

If you save 45% it drops to 19 years.

If you save 50% it drops to 17 years.

If you save 55% it drops to 14.5 years.

If you save 60% it drops to 12.5 years.

If you save 65% it drops to 10.5 years.

If you save 70% it drops to 8.5 years.

If you save 75% it drops to 7 years.

If you save 80% it drops to 5.5 years.

If you save 85% it drops to 4 years.

If you save 90% it drops to under 3 years.

If you save 95% it drops to less than 2 years.

Check out Networthify for a tool to let you calculate this for yourself, using your own numbers!

As you can see, the most important factor in determining both how much you need and how long you will have to work in order to save that amount is your savings versus spending ratio.  

If you spend less and save the rest, you can retire earlier on less money.

Every time you choose to spend money, think about that!  

Do you really want to finance that new car?

Is it really worth working a longer career to wait in line at Starbucks for your morning coffee?
You're allowed to brew your own!  

Check my numbers:

If you make $50,000 per year and save the minimum (20%) of your gross ($10,000) you will have a working career that is 36.7 years in order to save up enough.

If you cut out the Starbucks and save and invest the difference (just $500 per year, $9.62 per week),
YOU CUT A YEAR OFF YOUR WORKING CAREER!

How good does that coffee taste now?

Whoa!?

Is that sound I hear the sound of you slashing your cable bill?  Good!

How to save enough for retirement?  

Simple.  

Cut out unnecessary expenses and petty luxuries until you can afford to pay for them out of your passive income from your investment account(s).  Until you have enough, you save, save, save.

Once you have stuffed enough money into your investment account(s) that you have reached your Freedom Figure, you can do whatever you want!

Want to keep working 'cause you love your job?  Cool!  (This is me!)

Want to reduce your hours?  That's great!

Want to volunteer?  You can!

Want to work part-time at the store that serves your hobby?  Go!

Once you reach that point you can save the extra, or spend it on the luxuries that you want, or whatever!  You're totally free to do whatever you want!

You're in control for the rest of your life!

Add Assets - Limit Liabilities

Welcome

People get all mixed up about what is an asset and what is a liability.  


Here at Advancing to Greater we're going to set you straight so you can move forward in your life - confidently, and with a simple definition that just makes sense.

Assets put money into your accounts on a regular basis

Your house doesn't meet this qualification.

Neither does your car or that signed jersey from your favorite athlete.

Stocks and bonds are assets.

Businesses you own are assets.

Cash earning interest at a bank is an asset.

Liabilities pull money out of your accounts on a regular basis

Your mortgage, your house, and your credit cards are liabilities.

Your car is a liability.

Consider adding this A2G maxim to your life: "Add Assets, Limit Liabilities."

When to Retire

Welcome

If you google when to retire, you're likely to get bad information.

When you can retire has nothing to do with age!

When you can retire has nothing to do with anyone's laws or benefit amounts - it is all up to you!

You get to choose when you retire and I will show you how to know, for sure, when you are ready to join the ranks of the free.

First though, if you still have debt - stop reading this blog and get back to work on solving that!  I believe that the piece of mind that you gain from being debt-free far outweighs the benefits of reading this blog (as awesome as I think it might be).  So get to work!  Debt is a challenge that you must overcome for yourself.  

Your past self borrowed money that your current and future self is now working hard to pay off.  Every single dollar that was not spent on paying down your debts in the past was likely wasted.  

Was that $4 coffee really worth it?  Could've put that $4 to work against your debts....multiplied by how many forgettable coffees?  That adds up.

How about that videogame?  Still as happy about it as you thought you'd be?  You could've been that much closer to being debt-free.

G.et

O.ut

O.f

D.ebt

Your choices.  Your results.

Nagging over.

OK  - You're debt free?  GOOD.

Look back at my post on Slavery:

In it, one of the first things you had to do was write out your expenses.  This is a vital step both for crafting a Spending Plan, as I described in that post, and for knowing when you can retire in this exercise.

Step one: List all your monthly expenses.  Include ones that come quarterly, biannually, or yearly like water bills, insurance, and real estate taxes (you can break those less-frequent bills up into their monthly components; so a $2400 yearly real estate tax bill would be $200 per month).

There should not be any debt payments in here!  If there are, kick yourself in the shins for me and get back to Getting Out Of Debt!

Also, leave out any recurring payments/debits/transfers you make to investment accounts, or savings out of this.  We only want to count money that leaves your ownership.  

You can choose whether you plan to keep charitable giving in your expenses, and plan on continuing to give in retirement, or you can choose to exclude it - just know that if you exclude it, it won't get factored into this calculation.

Step two:  Find out how much medical care insurance is going to cost you in retirement, when it is not subsidized by your employer.  Try EHealthInsurance or Obamacare.

Once you have that monthly figure (its probably a lower cost than you first feared) add it to the list you got from step one.

Step three: Add the monthly expenses up.  This should be a surprisingly small number.  

Step four:  Multiply that total by 12.  

We want to know with some certainty what your yearly expenses are.  

Step five: Multiply that total by 33.

This new grand total is your Freedom Figure.  

Once you have that much saved up in your investment accounts, you can retire.  

Simple.

The reason this works is that with a multiplier of 33, it assumes that with a 3% yearly withdrawal rate, that you'll probably never run out of money.  This has been historically back-tested and the probability is that it's true, barring some unforeseen circumstances.

Some people like the feeling of a little more conservative 'padding' in their retirement accounts.  Some people like to use a multiplier of 40 times their total annual expenses to feel safer.

On average, most average Americans total monthly spending should be around $2,000 to $2,500 per month.  (If you're spending a lot more than that, there's likely plenty of fat in your budget that can be trimmed.  Re-read step 5 and step 8 in the Slavery post.)

That's $24,000 to $30,000 per year.

Multiplied by 33 that's a Freedom Figure of $792,000 to $990,000.

Multiplied by the even safer 40, that's a Freedom Figure of $960,000 to $1,200,000.

You can do that.

That's not some big, scary, pile of multiples of millions of dollars.

You can do that in a few years if you have a lot of excess income!

It will take longer, if your current income is lower and therefore closer to your level of expenses.  Most people can still do it within a decade and a half if they focus on this goal.  High earners have it easier.

This also assumes that you have no other income in retirement.

I strongly encourage you to keep some form of active income coming in, even just a few hours a week.  It keeps you sharp, active, engaged with other people, and even just a little extra income has the effect of making your retirement accounts seem even larger than they actually are.  

The extra income lets you withdraw less from your investments, allowing them to keep working hard for you for longer.

• Work at that comic shop you always liked.
• Start that business you've always dreamed about - the one where you get paid for doing your hobby.
• Volunteer at Habitat for Humanity until you have enough skill to work occasional construction jobs.  Building something real with your hands always provides a satisfying feeling of accomplishment.  Coupled with a little extra cash in your pocket - very cool!
• Do what you want...

Every dollar over and above your Freedom Figure just adds to your retirement lifestyle possibilities.

Larger retirement accounts mean more options.

How to Talk

Welcome

We all know how to talk, don't we? 

At least we think we do, but Advancing to Greater is all about taking it to the next level, so let's see how we can improve...

We must begin by assessing how most conversations happen.  This is easily done by reflecting on how we each, ourselves, carry on conversations with others.  

Most people are constantly looking for an opportunity to say something, they are thinking of their next witty response, considering how to say something clever, and waiting to pounce on a pause in the conversation in order to say something.  

This is why most people, for example, struggle to remember someone's name - even if that person just introduced themselves!  It is because they were so focused on themselves and how they were going to introduce their own self to their conversational partner that they didn't even pay attention to their name!

This is the key!  We must realize that most of us are self-oriented people, that we are interested in ourselves and think of ourselves first.  If we are going to Advance to Greater, however, we must extrapolate this out and recognize that, since others are interested in themselves, if we are going to elevate our skill in talking, we must talk with them about the most important topic in the world to them: themselves!

How can we do this in two simple, concrete ways?

First, we must remember their names!  When someone introduces themselves to us, we must avoid our anxiety about how we will introduce ourselves - rather we must focus on their name!  (Don't worry, you won't forget your name when they ask!)

A person's name is the most beautiful sound in the world to them.  Know this fact, remember it, and you can be assured that your are far ahead of others in your skill in talking with people.  

Remember their name.  

There are endless tips and tricks to help you accomplish this but a good practice is to ask your conversational partner about their name, right after they introduce themselves.

"Hello, my name is Rich."

"Well, Rich, assuming your parents didn't know when they named you that you would become wealthy, what is the story of how they choose to name you Rich?"

This does two things: first it gets you to repeat their name back to them.  People love hearing others say their name and by repeating the name, you give yourself a better chance to remember it.

Next, by asking about their name, you have asked them to tell you their name again, but in a way that gets them talking about themselves (their favorite subject).

Second, we must intentionally limit our use of the words "I, me, my, mine" and instead we should work to incorporate the words "you" and "your" as much as possible.  This verbal shift tilts the conversational playing field in the direction of our partner and focuses much of the conversation on them.  It helps us talk with them about them.

Talk with them about their family, their career, things they are passionate about, and their recreational preferences.

Ask them about their opinions on various topics:

"What do you think of...."

"How do you feel about...."

You can also ask them questions about themselves - ask questions that will not result in a "yes" or "no" response. 

For example:

"Tell me about your family."  is a much better conversation starter than, "Do you have kids?"

"Where did you go on vacation and what did you do there?" is better than "Did you take a vacation?"

The better you can do these two simple things the more people will think your are a great conversationalist and the more they will like you:

Remember their names.

Limit "I, me, my, mine," and focus on using "you, your."

When you practice this you can achieve true conversational magic and get a person talking about their favorite topic: themselves.

Using other-centered language in conversation does require more effort and discipline at first, but you will quickly become skilled at it and it will then require less intentionality.  The rewards are great however, and well worth it!