Scoundrels and Rascals

When I lived in Asia, I was taught that desire is a necessary component of deception.

My desire to “be right” often leads me right back to another deception.

Some tactics follow that might help you avoid trouble with rascals that, truth be told, are often entertaining.

They Might Be Right – I get a guaranteed laugh when I tell my wife, “I might simply be different.” She smiles, “yes, babe. You’re different alright.”

When would the other person’s course of action be right?

If we live long enough then we are almost certain to find our present selves holding different opinions from our younger selves.

The Message Not The Messenger – we share a curious desire to bring down others and a glee in catching people being naughty. My opinion of a person can prevent me from learning from them.

What can I learn from this person? this situation?

Turn People into Adjectives – when I’m locked on a person, it’s far more useful to drill down to a description of what’s triggering me.

Think about a person that’s disappointed you and dig, dig, dig… until you move beyond the person and arrive at the behavior. There is always something inside of me that’s being touched by, what I believe is, an external trigger.

Let The Situation Move Away – hands down, the most useful thing I realized. Nearly all my “problems” move away if I stop feeding them. Usually the best course of action is to chill out and let my problems leave on their own.

This doesn’t mean that I support the injustice that I see. I means that I acknowledge that my most effective antidote is being just in my own actions.

Turn problem people into adjectives and correct their behavior in myself.

  • Honesty
  • Courtesy
  • Reliability
  • Kindness
  • Gentle
  • Loving

A Fiduciary’s Reading List

I’ve completed William Bernstein’s recommended reading from his eBook, If You Can.

The reading humbled me. With a 1st Class degree in Econ / Finance, and 20 years experience in international investing, I was left feeling intellectually arrogant and ignorant. Each of these books challenged my beliefs while explaining financial history.

I’d recommend making these books compulsory reading for your advisers and key family members.

Good people can be found in the field of finance. I appreciate the significant time that each of the authors spent to educate willing readers.

The Millionaire Next Door – introduces the key concepts of wealth, saving, investment and taxes

Your Money & Your Brain – a solid summary of the latest on behavioral psychology as it relates to finance and investment – why I will always fool myself

The Great Depression: A Diary – an inside look at what it is like for a conservative, professional family to live through a depression – 2008-2010 was easy compared to the 1930s – could your family survive on minimal income for multiple years?

All About Asset Allocation – the early chapters were the most useful – simple explanations of the role that volatility plays within a portfolio – reading this book, you’ll be tempted to seek the perfect portfolio mix – my decision has been to keep it simple

Common Sense About Mutual Funds – a wealth of information – Bogle picks apart the industry by making his case for simple and low-cost investing – the book makes one wonder how brokers and financial advisers can sleep at night – readers will learn about the industry structure that silently fleeces its customers

Side Note: if you worked in finance from 1980 to 2000 be sure to adjust your brilliance for volatility and leverage using Bogle’s updated charts. We had one heck of a tailwind. Humbling!

How A Second Grader Beats Wall Street – don’t be fooled by the child-like title – this book will save your family tens of thousands of dollars in fees and taxes

Devil Take the Hindmost – a history of financial speculation – hedge funds in the 1860s & derivatives in the 1600s (!) – as Taleb says, we’re never going to get rid of greed, the challenge is to build the system so the greedy don’t inflict suffering on the good

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To Bernstein’s list, I’ll add Estate & Trust Administration for Dummies – a good primer to get you thinking outside of your own self interest.

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If you are in an advisory, or trustee, relationship then tick off one book per meeting with your professional team.

Read a book, take notes and discuss how the book impacts your family (or your firm).

Challenge yourself with exposure to the best ideas available.

Studying new approaches can be painful but we all benefit from a bit of cognitive dissonance.

Conversations With Hollywood

Yankee Doodle Lake

I have a friend that is a Hollywood producer and is willing to visit me in Boulder.

Hollywood, LA, TV… it’s a long way from the life that Monica and I have chosen for our family. I knew that there was something I could learn.

HollywoodWhat’s good about living in LA?

The two best things are the wealth of opportunity and the diversity of humanity with whom you can work.

In a sentence, my pal summed up the benefits of working internationally.

Being social creatures, we all share a bias towards our “in-group” – whatever group that might be – gay, straight, white, hispanic, Chinese, Malay, athletic, Jewish, firm, family, team, tribe… you name it.

My pal placed his family right in the middle of one of the most diverse places in the world.

Snacks

What’s your secret?

Young people that experience significant success are often asked their secrets…

Never underestimate the value of luck

It’s takes uncommon self-awareness NOT to attribute success to individual skill. As a young man, I lacked the humility to see the massive tailwind that led to success.

Above Ten Thousand FeetGratitude

Over the last few days, we spent 20 hours riding in the mountains.

However, at the start, only one of us could truly see the view! He’s raving about the beauty of the scenery, posting up on Instagram and smiling from ear-to-ear.

At first the little voice in my head is going, “of course it’s beautiful… you frickin’ live in LA!”

However after a dozen hours, I realize that I’ve been infected by his relentless positivity.

A deep happiness combined with a genuine desire to understand my point of view. Highly addictive!

Big Air

Think big, you have nothing to lose

You’ll never find out if you don’t try. Being an inspirational figure, my buddy implores… “you MUST try.”

Keep trying until you fail – that’s the only way to learn that failure isn’t fatal.

The picture above shows that he practices what he preaches. One year into riding his mountain bike, he can crush me on all technical terrain.

I was schooled, and impressed.

Rest StopTurning the tables, he asked me a question, What’s made a difference?

When I listen to people talk about their lives, I’m impressed by the quality of their (largely unconscious) thoughts.

We share moments of deep insight. However, and most certainly in my own case, insight is brief and fleeting!

The dark periods of my life spur a desire for change. In my early 30s, I realized that I had nothing to lose, wrote down my insights and started to make small change a habit.

It takes a while but, like compound interest, 14 years of (mostly) good decisions add up.

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Thanks for the visit, buddy. I hope we meet again but, even if we don’t, I’m grateful for our time together.

My Financial Domain and Legacy

You can find my Part One here and Paul’s thoughts on Part One here.

#3 – What are the other things in life that are critically important to me, and for which I will be financially responsible?

This is a great question.

Be sure to run your answer by your therapist.

Why?

Because people that are high-achievers and good savers tend to take on responsibilities outside of their domain. I’ve watched families make themselves miserable by taking ownership of the financial wellbeing of adult relatives.

What’s my financial domain? Myself, my spouse and my minor children.

Watching people that I love struggle is no fun at all. However, I respect the people that had the courage to let me suffer as a result of my own choices.

#4 – What are the risks in the universe which may prevent me from fulfilling my responsibilities to myself and to others, and how might I defend against them or at least mitigate their impact?

Another great question!

Humans are lousy at assessing risk and statistics. An excellent investment you can make is reading Taleb’s Antifragile – please don’t use the book as motivation to set up a personal derivatives strategy!

Pro Tip: use insurance products to insure an identifiable risk, not make investments.

#5 – If I have accumulated wealth that exceeds all of the above requirements, how might I best utilize that wealth to derive the most personal satisfaction available from life?

It’s a shame that it takes so much money for people to realize they had won before they even started.

Value your time, more than your money.

Diversify your time towards helping people that have less of what you think you need. Specifically, teach what you’ve learned.

Improve your family’s human capital, starting with your health, your manners and your gratitude to the society that enabled your success. Start with small, simple changes:

  • Physical movement AM and PM
  • Get strong
  • Eat real food
  • Be a little more kind
  • Be a little more fun
  • Optimize your health markers via diet and exercise (blood pressure, cholesterol, blood glucose, body composition)

If you are a self-made person then love the people closest to you by ensuring that they have the opportunity to prove their self-worth via their own initiative and through their own passions. Tell your kids when they impress you.

Be willing to constrain yourself to create harmony within your family and community.

Laugh out loud.

One Kind Word

Duty CallsSometimes I watch my friends get caught up in drama, and sometimes I watch myself.

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What’s your mission?

Whether you desire riches, fame or simply want to be loved, it helps to figure out the “why” of your existence. We get a lot of clues through the people that we admire.

Here are some of my whys for living

  • Write Books – help my kids; establish expert credentials; challenge my mind; get my ‘story’ straight
  • Blog – use my best form of expression to connect with like minded people to share my experience so we all feel less alone; experience gratitude from sharing my story; hold myself accountable to the ideas that I express publicly
  • In My Family – fulfill my role as a member of the family; What’s that role? Just love ’em.

At the care center where I volunteer, they have a flow chart that helps the team figure out when to act. I probably walked past the chart 50x before I gave it a read. The first question was revolutionary:

“Is this my domain?”

Each time I’m tempted to engage, I’ve been pausing and asking, “Is this my domain?”

It’s been eye opening to discover how much of my life isn’t my domain. In fact, I can ditch much of my internal strife by sticking to my domain.

Sometimes, it is my domain – take, my kids. With a pause, I get a chance to consider my goals, “teach my kids by my actions.” If I don’t want them to freak out with each other, then it helps not to get caught up in transient dramas.

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Being angry at injustice is a source of energy. If you pay attention to it then you can simply open up to the feeling and change the emotion. Anger, with a bit of time and breathing, can change into a desire for positive action.

That sounds great and I might get there. However, I’m not that Zen, so I convert my negative feelings to a drive to empty the dishwasher, take out the trash, fold the laundry or vacuum.

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Later, I look deeply and consider what’s really driving the response.

Often, I will try to con myself that I want to help others but, in my case, it’s a desire to make the world more like me, or get you to change your opinion to show me you care.

If I’m still stuck then I look for a way to send the person a little bit of love – a kind comment, any small gesture to help alleviate their pain. For people that get caught in hate, there’s always a source of pain that’s hidden from our view.

One kind word can break the chain.

Don’t Know, Don’t Care

Lexi's Pink BootsA story that runs far beyond your portfolio.

Like most of us, I tend to shun painful thoughts, people, experiences…

However, in reading a book on finance, Your Money & Your Brain, I discovered a better way to think, and live.

Don’t Know, Don’t Care

Rather than getting rid of whatever seems to be bothering me. Why don’t I move my life towards a position where I’m OK either way.

In the finance book, the author was making the case for passive investing.

  • What’s going to happen to… ?
  • Should I sell?
  • Should I buy?
  • Where will interest rates be next year?
  • Corporate profit margins, availability of bank credit, tax policy, insolvency risk, terrorism, politics….

There is no end of worries available to you.

If you’re following a passive strategy with a fixed monthly investment then none of the above matter.

Another benefit is I don’t have to follow the noise that’s constantly pouring out of the media.

Once I saw the logic of changing one area of my life, I started to consider the other areas where I trade happiness, for worry.

Step into the mind of young woman:

  • Will they like me?
  • What will they think about my shorts?
  • Do my shoes match my outfit?

Sweetie, I don’t know but I think you’re terrific.

The “don’t know” strategy doesn’t make me immune to the opinions of others, but it gives me a mantra to occupy my mind on something more useful than worry.

Life is none of my business.

What Do We Need To Retire?

My post showing how a 1.2% fee differential can cost you 131% of your pension contributions inspired Paul Meloan to write an article about The Clear Value of Financial Planning. The article lays out Paul’s case for his work in the field.

To help you understand the cost/benefit relationship, have your advisers write out the dollar amounts that you’re paying in fees, expenses and taxes. Be sure they include all the soft costs that are buried in your mutual funds.

In Paul’s article, he lays out questions for a family to consider. I thought I’d answer these questions, as viewed from a life outside the box.

#1 – How large of a pool of assets do my significant other and I require in order to live in the manner which we desire for the rest of our lives?

The most important thing for you to remember is to declare victory immediately. You have more than you need and are in a position to think about the future. Many, many people are less fortunate than you. Spending time with the less fortunate will temper your needs and get you to financial freedom more quickly.

The financial services industry is built backwards from your true needs. If you listen carefully then you can hear the industry say, “you can be happy tomorrow if you have more.”

Be happy now, with less.

I recommend that you flip question #1. When I look at my family’s net worth, I express it in terms of “years of current expenditure.”

For example, if your net worth is $500,000 (Assets Minus Liabilities) and your current expenditure is $125,000 per annum then you have FOUR years of current expenditure (500,000 / 125,000).

Why is this is a useful way to consider your position? It’s useful because it changes the conversation from

  • What do I need to be happy tomorrow?; towards
  • How can I spend wisely today?

The years-to-burn exercise reminds me that the fastest way to improve my financial position is to reduce my current expenditure, not take more risk.

In terms of years-to-burn, my peak wealth was 13 years ago. I was living out of a Subaru and sleeping on a friend’s floor in LA. My life was extremely simple – eat, sleep, train. It was one of the happiest periods of my life and my net worth was 1/6th of right now.

It’s worth repeating… I increased my net worth by 600% and feel less wealthy.

Historically, most my spending has been wasted.

  • luxury air travel
  • high-end hotels
  • excessive childcare
  • personal assistants
  • office space
  • non-performing assets
  • personal luxury expenditure (clothes, cars, boats, vacations)

I ditched most of these because I discovered that they were bandaids healing myself from a lack of satisfaction with daily living. My spending was driven by our culture rather than my needs.

Choose your hometown and your buddies carefully! I assure you that the exact same family will have needs that vary by geography. Consider:

  • Manhattan vs Boulder
  • Aspen vs Truckee
  • Palo Alto vs Greenville
  • Santa Barbara vs Hood River

I came close to moving to Palo Alto to spend more time with my pals (love you guys and gals). It would have changed my life – not better, not worse – but absolutely different.

The more time that you spend helping people that have less than you, the smaller your retirement fund will “need” to be. There are examples of this all around us.

Finally, the benefit of wealth is not to leave work. The benefit is to feel secure enough to choose meaningful work, regardless of compensation. Hang out with people that are rich in personal satisfaction (artists, priests, teachers, ministers, caregivers, coaches, guides) – you’ll know them when you speak with them.

#2 – What should be the composition of that pool of assets, and how should they relate to each other in terms of risk and expected returns?

You can beat all of your pals by using Bogle’s Little Book of Common Sense Investing.

As a bonus, the strategy is simple to understand and easy to execute.

If you can’t figure the book out then call Vanguard and they will help you in exchange for a fixed price fee when you need help.

If you keep screwing up then get yourself a financial coach and pay a fixed fee to hold you to your plan.

We all do better when someone is watching – that’s why I have a blog.

Summertime Template For Young Kids

Here’s a template to help you maintain your sanity, and productivity, with school out of session.

Goals:

  • Exercise before facing the kids
  • Personal time for mom & dad
  • Tire the kids early
  • Nap through the hottest part of the day

Here’s how we roll:

  1. I’m up by 5:30a and back from exercising by 7:30a
  2. My wife does her exercise 7:30a to 9:30a and I get the kids sorted
  3. Kids out the door by 10am and I now have a 3.5 hour slot of total quiet at my house. As, I work at home, this is valuable
  4. Wife and kids head to the club with packed lunch – family swim until 11:30a
  5. Kids eat lunch in the childcare at the club – my wife is free for up to two hours for errands and personal time. Three days a week she coaches masters
  6. Kids arrive home, suitably whipped, 30-60 minutes of madness then everyone naps.
  7. I get another 90-120 minute slot of total quiet – my wife gets a personal slot
  8. Before the kids wake up, I exit for my second exercise session of the day
  9. Evening trip with the kids (swim, friends, park or errands) OR movie night
  10. Dinner (out or home) then bed

This gives me two training sessions, five hours of quality work time and interaction with each of my three kids.

Date night fits with a sitter coming in when the youngest kids are napping.

Alternatively, consider using “day rate” with sitters. We agree a fixed-price deal (8:30am to 8:30pm) and have the sitter take long breaks over lunch and nap. With my working at home this can be a win-win-win between husband-wife-sitter.

For this strategy to be effective, caregivers must resist the urge to interact with the kids on a day off, and during their daily breaks!

Repeat every day June to August.

For weekly productivity, I can get a lot done with 35 hours of totally quiet time split between 14 slots.

Because swimming is cost effective and accessible to club-provided childcare, we make getting our kids water-safe a high priority (links to my Endurance Corner article). So far, each of our kids has been water-safe by their third birthday.

Axel Swim 18 mths

Restructuring and Rebalancing My Portfolio

At the end of May, I did my first rebalancing exercise. This required a fair amount of preparation:

  1. Setting up an individual 401K under my consulting company
  2. Checking my family cash flow for the next 90 days and making sure I had 120 days worth of reserves
  3. Getting a home equity line of credit to cover financial emergencies
  4. Moving legacy retirement funds to the appropriate (pre- or post-tax) IRA account
  5. Shifting my current IRA assets to Vanguard
  6. Making a table that showed where everything ended up, and what it held
  7. Deciding on my desired portfolio mix
  8. Considering tax implications of the restructuring that was implied by my mix
  9. Executing the strategy

The exercise above required wading through admin, building spreadsheets and carefully mapping things out. It’s worth getting specialist advice from a CPA because if you screw up then you can get hit with penalties and/or trigger capital gains taxes.

It’s a pain, and finance companies do not make it easy to move your business away.

Considering fees saved, I earned $1,000 for each hour of my time. I’ve seen cases where families could save up to $10,000 per hour.

Financial inertia can be extremely costly!

My decisions were the result of this year’s reading. I started with the short, free eBook, If You Can, and worked through the author’s recommended reading.

I used Vanguard funds and the expense ratio for my portfolio is less than 0.1% per annum.

Have you asked your adviser to explain your total cost of ownership? Following my blog on expenses, a friend called his adviser, asked the question and was transferred to a call center! He’s still waiting for an answer, they said it would “take a while to pull things together.”

For what it’s worth, my portfolio criteria are:

  • Simple
  • Low cost to hold
  • Focused on long term capital gain
  • Liquid in event of capital being required
  • Tax effective
  • If it won’t make a difference to my overall situation then wait

Like the behavioral finance books say, it was hard to sell the equity funds with the markets at all-time highs.

Now the tough part, resist tinkering and tracking.

How I Met Your Mother

Gordo and MonicaWhen I lived in Asia, I made some money, had my best friend die and blew up my marriage.

A wise friend observed that it was fortunate that the marriage exploded because I was better off waiting until I was able to offer something to a relationship. My buddy, who would spend the next decade dealing with her breast cancer, captured an essential aspect of successful relationships – that they are best avoided until you are prepared to continually offer yourself.

I look back at my writing from that time and smile at how hostile I was to relationships. Ten weeks before I met my wife, I rode across the United States with a Swedish buddy. He gave comfort that, indeed, there were “at least three women in the world” for me. When I asked, “why three and not one?” He smiled and told me, “the world’s a big place, Gordo.”

Squash Court

[This is the squash court where I met your mother]

In the middle of 2004, I conquered my fears and walked into a room of (mostly) female, triathletes. They were training under the instruction of a six-time world champion, Dave Scott. Dave personifies the old coaching adage “challenge your men and love your ladies.” He didn’t cut me any slack!

It was a complicated situation as my wife-to-be was going out with my landlord’s brother and neither of us were aware that we should be together. I played a long game, got her out of the country and we were engaged before she returned to Boulder.

Nelson, NZ in 2005

[Here’s your mother as a young woman in New Zealand. She was working as my extra-special soigneur at a stage race.]

We were lucky. We grew into each other.

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The journey that led to a wonderful life partner began years before I met Monica. I started by cultivating independent self-love, which sounds like something you’d hear in yoga class.

In the language of business…

To do a good deal, you have to be willing to do no deal, a fundamental component of success.

Divorce caused me enough pain to make me hostile to any form of intimacy. First a childhood divorce, then my own as an adult. There were deep feelings of failure associated with marriage. I had not learned how to strengthen a marriage and was preoccupied with the illusion of failure.

After my divorce, I made myself a better person. This was not my goal. Becoming a better person happened because I stopped living the values of other people – back then I was misled by money and assets. Later I was misled by victory and vanity. At the end, I hope to end up with kindness, good humor and service!

My introversion, and pride, fed a desire to prove that I could be happy alone. Truth be told, I was never alone – I wrote frequently and had two very close friendships. One of these was with Scott Molina and he joked that I had ’embarked on the longest dry streak known to man.’ Scott’s observation still makes me smile!

To make myself relationship worthy, I needed to create a life where I was happy without an intimate relationship. In order to have something to give, I needed to develop a source of energy outside of the relationship. I found my source in athletics and nature.

The great spiritual traditions write about love being the source. I have a long way to go there. My love for my children is a sign explaining that everything I need is within myself.

As an introvert, the teaching that I’m my own source feels natural because I’m happy when I’m alone. However, I need to be careful that I’m not alone too much. First, because there is a deep human need for intimacy. Second, because a life with meaning requires us to do good work in the world.

After five years of working on myself, I met my wife. In Monica, I discovered that I enjoyed spending time with her more than I enjoyed being alone. I’m not sure if that will make sense to an extroverted reader, who might find solitude draining. However, for the sociopathic hermit in me, it was a revelation.

To create an intention for success, I tell my wife, frequently:

  • There’s no way I am going to improve my situation through any pathway other than our marriage.
  • I’m grateful for all you do – family life is a challenge but I know that family life alone would be far, far more challenging.
  • While I accept that it only takes one person to crater a relationship, I will never speak about failure on my side. If we hit hard times then I’ll stay close and wait for you to come to your senses.
  • I hold the trust between us as sacred.

All thoughts to the contrary, of what I state above, are a sign of temporary insanity!

Ironman New Zealand 2004

[As a couple, Ironman New Zealand 2004 was our best ever. Your mother swam 2.4 miles in 46 minutes and finished 2nd overall. Living in love makes you powerful!]

Today is the 10th anniversary of the day I met your mother and I’m so grateful.

Love you, Babe.

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