Just Keep Buying

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  • “It’s not about when to buy, how much to buy, or what to buy—just to keep buying. The idea seems simple because it is simple. Make it a habit to invest your money like you make it a habit to pay your rent or mortgage. Buy investments like you buy food—do it often.”
  • “If you don’t have much money invested, then you should focus on increasing your savings (and investing it). However, if you already have a sizable portfolio, then you should spend more time thinking about the details of your investment plan. More simply: saving is for the poor and investing is for the rich”
  • In order to determine whether you should focus on investments or savings, calculate the total amount of money you expect to save next year. In addition, calculate the amount of money your investments are projected to bring – say at an 8% rate. If your investment growth is much bigger than savings, then you should focus on investments and vice-versa. And as you age, your focus should be more on investments than savings.
  • Many new retirees worry that they will run out of money but studies show the opposite: their investments hold steady or increased post retirement.
  • In aggregate and as the data shows, higher income households spend less of their income than those in lower income brackets.
  • two ways to spend money guilt free:
    • The 2x rule: anytime you splurge on something, you invest the same amount.
    • Fulfillment: This does not necessarily mean happiness. You could run a marathon and feel content as a result of hte experience but this does not mean while you were exerting physical energy while running. This does not mean though that happiness does not matter. It matters and can be derived from through one of the following:
      • spending money on experiences
      • Spending money on others
      • buying extra time
      • paying upfront – all inclusive vacations
      • Treating yourself on occasions.
    • Not all these though lead to fulfillment though. Fulfillment tends to occur when we experience autonomy – being self-direct, mastery of a skill and have a sense of purpose.
      • What kind of things do you care about?
      • What do you want to promote in the world?
      • What would you like to avoid?
  • When you get a raise, how much of it you should spend depends on how much of your income you’re currently saving. This is also to avoid lifestyle creep but if you start splurging more, that will push your retirement timeline as you’ll need more income when you retire to sustain the new lifestyle.
    To that end, if you save about 60% of your income, then you’ll need to save 79% of your raise to maintain the same retirement timeline. If you’re saving 50%, then you’ll need to save 76% of your raise.
  • Taking debt is not necessarily a bad thing in an absolute sense, nor should it be something that should be avoided under all circumstances. Taking debt could be a good financial tool in two situations:
    • Reducing Risk: creating an emergency cash cushion fund as opposed to paying the mortgage. Getting a mortgage and fixing accommodation costs and having housing security as opposed to being an uncertain tenant
    • Generating income higher than cost of debt: taking advantage of 0% balance transfer offers or simply using debt as a way to motivate you to pay it faster than you would if you had to just save.
  • A good approximate rule of thumb to understanding how much you should pay for a degree is to use this formula: degree cost=(expected increase in earnings/2) – any earnings lost from attending school
  • Some consider the emotional return on investment associated with buying a home to be priceless: social wealth and stability and all the memories created.
  • Costs associated with home ownership makes it prohitive to profit from buying and selling quickly. There is maintenance, insurance, mortgage insurance, interest, and real estate agent fees, and other fees too. You should between 1% to 2% of the house price for annual maintenance.
  • The age-old qustion of whether to rent vs buy. There is no one-size fits all and each option has its own pros/cons. House ownership is more costly, and you’re on the hook for any maintenance needs that arise. This can be time-consuming too. Owning though gives you the stability to raise a family and control how much your housing costs will be – assuming you have a fixed-rate mortgage. Renting on the other hand is unstable: you could be asked to leave your place, your costs could fluctuate beyond the 1-2 year timeline. Renters could choose though to invest their otherwise downpayment and monthly mortgage costs, they would make more money than appreciation on the housing price, at least in the US based on housing appreciation data for the time period between 1915 and 2015
  • The right time to buy a home is when three conditions are met:
    • You plan on being there for at least 10 years
    • You have a stable professional personal life
    • You can afford to buy a home
  • Saving for a downpayment that you have to have is best done by keeping the money in cash if you’ll need the downpayment in less than 3 years, and in bonds if it’s 3-5 years. The partial loss in cash value that you’ll get when keeping money in cash is okay considering the safety of the option.
  • One good barometer to determine when you’re reading for retirement is the 4% rule. This rule suggests that if you spend 4% of your savings, you’ll likely not to run out of money for the next 25 years. This means that 25* annual spending should be when you have arrived at FI.
  • Generally speaking, spending declines with age, at about 1% per year. This helps make the case for the 4% rule because it assumes that your spending increases with time while it seems to be the case that your spending decreases after retirement.
  • Three main reasons to invest: to have resources when needed – when you don’t want or cannot work, to beat inflation, and to have your money work for you instead of relying on your time and skills to generate money
  • Bonds as an investment: offer 2-4% return and lower in a low-yield environment.
    • Pros:
      • Lower volatility
      • good for rebalancing
      • Safety of principal
    • Cons:
      • Lower returns, especially after inflation
      • Not great for income in a low yield environment
  • Investment Property: can be a good investment if you’re willing to put the time and the effort – deal with the renters headache.
    • Pros
      • Can yied higher returns than other investment vehicles – thanks to leverage
      • Presents diversification from other investment options
      • Tangible investment with more control
    • Cons
      • Maintenance costs and headache of maintaining the property
      • Leverage could work against you
  • REITs: can offer an alternative to investment properties. Their price will collapse though when the overall market is.
  • “You should invest as soon and as often as you can. This is the core ethos of Just Keep Buying and one that transcends both time and space.”
  • Luck still plays a big role: regardless of your strategy, an investment performance will depend more on the market performance. An investment between the 40 years of 1922 to 1961 yielded a much higher return of one from 1942 to 1981. That is just the luck of th draw.
  • Luck does play a role in your investment returns. The size the role luck plays depends on how long your investment time horizon is. The shorter the bigger the impact that luck has. An incredible investor who outperforms the market by 5% in the period between 1960 to 1980 is still going to be worse off than a terrible investor who underprofrms the market in a 20-year investment period between 1980-2000. A 30-year investment-time horizon decreases the impact that luck has on your overall return.
  • If you invest a lumpsum amount, and if you experience returns of 25% in year 1, -5% in year 2, +10% in year 3, and -2%% in year 4, and if this sequence of returns were to be completely reversed, your return will not be impacted. However, as you add more money – if you dollar-cost average, the performance in the latter years end up having a substantial impact on your portfolio. This is why the performance of the portfolio in the first decade your retirement matters. One or two bad years won’t make a big difference but 10 years would. You could lessen the impact of luck by diversifying, considering withdrawing less than 4% and working parttime to supplement your income
  • . Volatility is the price of admission to be able to take advantage of the stock market gains in the long term. Best way to cushion the impact of volatility is to diversify. There is no way to know how far low the market will go at any given time so trying to time it is a fool’s game.

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