Literary Insights

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This book provides proven ways to save money and build wealth through the mantra “Just Keep Buying.”

It covers saving strategies like determining how much to save, spending guilt-free, avoiding lifestyle inflation, and deciding whether to rent or buy.

It then covers investing topics like why you should invest, what to invest in, avoiding individual stocks, not timing the market, accepting volatility, buying during crises, knowing when to sell, and more.

The key idea is to invest in diverse income-producing assets like stocks and bonds continually. By making investing a habit like paying bills, you can build wealth through dollar-cost averaging without worrying about timing the market.

The book argues that following the “Just Keep Buying” mindset can grow your money into a snowball effect over time, regardless of market conditions. It provides psychological motivation and practical advice to transform your finances through steady, regular investing.

As a general rule, saving is more critical when you have little wealth, while investing becomes more critical as your wealth grows. This is the “Save-Invest continuum.”
When you have little invested, small gains from investing don’t compare to the impact of increasing your savings. But as your wealth grows, investment gains surpass savings.
To determine where you are on the continuum, compare your expected annual savings to your expected investment returns. Whichever is higher is where you should focus more effort.
Over a career, savings account for most gains early on but investment returns take over later. After 40 years of saving $10k per year at 5% returns, 70% of total wealth came from investment gains.
The book covers saving strategies first, for those earlier on the continuum, and investing strategies second, for those further along. The key is to focus energy where it will have the most financial impact based on your current situation.
Dolly Varden char survive harsh winters in Alaska by shrinking their digestive tracts when food is scarce and expanding them when salmon are abundant. This ability to alter their physiology based on environmental conditions is called phenotypic plasticity.
Common savings advice like “save 20% of your income” makes flawed assumptions - that income is stable over time and everyone can save at the same rate. Research shows payments are becoming more volatile and savings rates correlate strongly with income.
Instead of following fixed rules, we should take a more flexible approach to saving based on our circumstances, like the Dolly Varden char. We should keep what we can when we can.
To determine how much you can save, calculate your monthly income and estimate your monthly spending. Fixed costs are easier to determine, while variable expenses may need to be evaluated.
Many retirees worry about running out of money but research shows the opposite - retirees often don’t spend down their savings and leave lots of money to heirs. This suggests we may be saving too much already.
The key is to save what you can without stress. Don’t obsess over arbitrary rules. Know your income, estimate your spending, and keep the difference in a stress-free way.
The conventional wisdom is that to save more money, you should focus on controlling your spending. However, the data suggests that cutting spending has limitations regarding increasing savings.
Consumer Expenditure Survey data shows that the bottom 20% of income earners spend over 100% of their after-tax income on necessities like food, housing, healthcare, and transportation. They need more room to cut back.
Even middle income earners (20th-40th percentile) spend most of their income on necessities, despite earning 3x more than the bottom 20%.
When incomes rise, spending does not increase proportionally. People don’t spend a lot more when they earn more.
This suggests raising your income is a more effective way to increase savings than obsessively cutting spending. Payments can be submitted through promotions, job changes, side hustles, etc.
However, both cutting unnecessary spending and increasing income are valid strategies. Combining the two is likely ideal for most people to save more.
The key is focusing on raising income, not drastically restricting spending. Small spending changes add up, but significant restrictions are unsustainable.
Higher income households spend a smaller percentage of their income on necessities than lower income households. For example, the top 20% of households earn over 14 times more than the bottom 20%, but only spend 3.3 times more on necessities.
This occurs due to the principle of diminishing marginal utility - each additional consumption unit provides less satisfaction than the previous one. This is likened to eating multiple slices of pizza - the enjoyment decreases with each other piece.
Much personal finance advice ignores this and perpetuates the myth that cutting spending alone can make you rich. The most consistent way to build wealth is by increasing income and investing.
Ways to increase income include: selling your time/expertise, selling a skill/service, teaching others, selling a product, and climbing the corporate ladder. Each method has pros and cons.
Increasing income requires converting your existing human capital into financial capital. This is challenging but more sustainable than overly restricting spending. A combination of reasonable spending cuts and income growth is ideal.
The author contrasts two examples - James, who had no concept of money and would spend lavishly without concern, and Dennis, who was extremely frugal and would go to great lengths to avoid spending money.
The author argues that the optimal approach balances these two extremes. He introduces the “2x rule” - don’t spend on something unless you can buy it twice. This allows for guilt-free spending while still being financially responsible.
He also argues that you should prioritize spending on experiences over material goods, as experiences tend to provide more lasting fulfillment. Studies show that experiences make people happier than physical possessions.
Ultimately, the author advocates spending money to maximize happiness and fulfillment, without being reckless. Using the 2x rule and prioritizing experiences can help achieve this balance. The key is moderation between the extremes of overspending and underspending.
The author discusses two former coworkers, James and Dennis, who represent extremes in spending habits. James spent money freely without guilt, while Dennis was anxious about spending and tried to game the system to save money.
Mainstream personal finance advice tends to make people feel guilty about spending through scare tactics. This creates anxiety around spending even for wealthy people.
The author recommends two tips to spend money guilt-free:

The 2x Rule - Invest or donate an equal amount for any splurge purchase. This balances indulgence with responsibility.
Focus on maximizing long-term fulfillment - Evaluate purchases based on how they contribute to your values, growth, and purpose rather than short-term happiness.

Research shows spending that fits your personality increases life satisfaction more than income. You must figure out your ideal spending habits rather than rely on generalized advice.
The right way to spend is whatever works best for you and aligns with your values and goals.

Here is a summary of the key points from the article:

Lifestyle creep refers to increasing your spending when your income rises. Some lifestyle creep is fine, but too much can delay retirement.
The Vanderbilt family went from being the richest in America to having no millionaires just a few generations later due to excessive lifestyle creep.
When your income rises, you need to save a higher percentage of that increase if you want to maintain your original retirement timeline.
You should limit lifestyle creep to around 50% of any raise. Saving more than 50% of a raise is required to offset increased spending and stay on track for retirement.
The table shows how much of a raise you need to save based on your current savings rate. For example, if you save 10% now, you must save 36% of any raises to maintain your retirement timeline.
The key takeaway is that your current savings rate determines how much of any future raises you need to save. Higher savers have to keep a significant portion of raises than lower savers.

Here are a few critical points on whether you should ever go into debt:

Debt is not inherently good or bad - it depends on the context and how it is used. It can be a valuable financial tool if used properly.
Debt can help reduce risk by providing liquidity, smoothing cash flows, or decreasing uncertainty about future costs. This is why some people keep credit card debt despite having savings.
Debt can also generate returns more significant than the borrowing cost, like student loans for education or mortgages to buy a home. The key is that the expected return exceeds the cost.
College is often worth the debt because earnings premiums for graduates remain high. However, costs and returns should be evaluated carefully, especially for advanced degrees.
Mortgages are usually sensible if affordable payments and home values in the area are stable. The leverage can boost returns.
Auto loans can be questionable if buying a rapidly depreciating asset. Keep loan terms short and focus on total costs, not just monthly payments.
Credit card debt should typically be avoided given high interest rates. It is better to build emergency savings as a cushion.

In summary, particular “good debt” types can make sense, but the devil is in the details. Carefully evaluate costs versus expected returns before taking on any debt.

The commonly cited $1 million lifetime earnings premium for college graduates must be revised. After controlling for demographics and the time value of money, the actual premium is $260,000 for men and $180,000 for women.
The value of a degree depends heavily on your major. The gap between the highest and lowest earning majors is $3.4 million.
To determine if a degree is financially worth it, estimate the increase in lifetime earnings and subtract lost profits from attending school. Divide the lifetime earnings increase by two to approximate the present value.
For most undergrad and graduate degrees, the boost in lifetime earnings exceeds the costs. Taking on debt to pay for college is usually worthwhile.
Non-mortgage debt like credit cards can negatively impact psychological and physical health. Mortgage debt causes less stress.
If you are debt-averse, avoiding all debt may be optimal for you, even if it’s not always financially optimal.
Using debt to reduce risk or increase returns can benefit those choosing when to take on debt. Many lower-income households need this choice.
Home ownership has financial and social benefits, like building wealth and providing a stable place to raise a family.
But buying a home has high one-time costs like a down payment (3.5-20% of home value), closing costs (2-5%), and realtor fees (3% each for buyer/seller agents).
Ongoing costs include property taxes, maintenance (1-2% of home value per year), and insurance like PMI (0.5-1% of the loan amount per year).
Renting locks in housing costs but has long-term risks like unknown future costs, housing instability, and frequent moving expenses.
Housing is not always a significant investment - prices sometimes beat inflation, and transaction costs can eat profits from flipping houses quickly.
Whether to rent or buy depends on how long you’ll stay, expected home appreciation, rent costs, and your life stage. There’s no one-size-fits-all answer.
Focus on finding affordable housing that meets your needs rather than treating home buying as an investment.
U.S. housing has historically had low inflation-adjusted returns. From 1915-2015, actual returns were only 0.6% per year. Most of that return has come since 2000.
From the late 1800s to late 1900s, U.S. housing prices were flat after adjusting for inflation. Stocks would have provided much higher returns over this period.
Housing is less volatile than stocks but also provides lower long-term returns. It is a different asset than equities.
Homeownership rates are very high, especially for wealthy households. Homes are the primary way most people build wealth.
The right time to buy a home is when you plan to stay for 10+ years, have a stable personal/professional life, and can afford the down payment and monthly costs.
Putting down 20% is ideal but not required. More important is having the ability to save a 20% down payment over time.
Due to transaction costs, it’s better to wait and buy a home slightly outside your budget than to buy a starter home and upgrade later.
Buying a home is an emotional decision but should be thought through carefully as it’s the largest purchase most people make.
Keep your money in cash to avoid market risk for short-term savings goals (under two years). The impact of inflation will be negligible over a short period.
Consider investing in bonds for medium-term savings goals (2-3 years). Bonds provide some return to offset inflation, while still being lower risk than stocks.
For long-term savings goals (over three years), invest in a balanced portfolio of stocks and bonds. This provides growth to stay ahead of inflation while mitigating the risk of stocks alone.
The longer your time horizon, the more inflation can eat away at cash savings. Investing becomes essential to preserve purchasing power.
However, market crashes can delay goals if invested heavily in stocks. Have a balanced portfolio appropriate for your timeline.
The most crucial factor is your time horizon. Use more cash for short term goals, and shift to more bonds/stocks as the horizon lengthens to fight inflation. But don’t take excessive risk for near-term goals.
The 4% Rule states that retirees can safely withdraw 4% of their retirement portfolio each year and not run out of money over 30 years. This provides a simple way to determine how much you need to save for retirement.
To follow the 4% Rule, save 25 times your expected annual spending above any guaranteed income sources like Social Security.
Some argue the 4% Rule may no longer apply due to lower bond yields, but the creator claims it still holds or may even be 5% now.
Spending in retirement tends to decline about 1% per year as people age. So, the 4% Rule is conservative since it assumes spending will increase by 3% per year.
The 4% Rule provides simplicity but may be too conservative for some retirees. Factors like life expectancy and desired retirement lifestyle should also be considered when deciding on a safe withdrawal rate.
The most critical factor in determining when you can retire is not a magic number but instead aligning your retirement lifestyle with your savings and guaranteed income sources.
The concept of retirement existed in the late 19th century when Otto von Bismarck created the world’s first government-sponsored retirement program in Germany. This paved the way for retirement programs globally.
Three reasons why growing your money through investing is essential today:

People are living longer so retirement savings need to last longer. Average life expectancy has increased dramatically in the past century.
Pensions are disappearing, meaning people must self-fund a more significant portion of retirement. In the past, pensions guaranteed income but they are becoming rare in the private sector.
Interest rates are low, making it harder to grow savings through low-risk options alone. Safer fixed-income investments like bonds and CDs generate little income now.

Investing allows your money to grow faster through compound growth. Even modest returns compound into far more significant sums over decades.
Investing is crucial today since people have to self-fund more of retirement and make savings last longer. Low-risk options alone need to generate more growth.

Here is a summary of the key points about why you should invest money in the United States:

Saving for Your Future Self

People are living longer now, so there is a greater need to invest and save for retirement. Visualizing your future older self can motivate more retirement investing.

Preserving Wealth Against Inflation

Inflation slowly erodes the purchasing power of cash over time. Investing in assets like stocks and bonds that appreciate above inflation is critical to preserving wealth.

Replacing Your Human Capital with Financial Capital

Your ability to earn income (human capital) diminishes over time. Investing allows you to replace dwindling human capital with financial capital that can provide income in the future.

In summary, the three main reasons to invest are saving for retirement as lifespans increase, maintaining purchasing power against inflation, and creating an income stream to replace earned income later in life. Investing allows you to build financial capital as human capital declines over time.

Here is a summary of the key points about investing in stocks:

Stocks have provided positive long-term actual returns in many markets worldwide. Over the past 200+ years, U.S. stocks have returned around 6.8% annually on average after inflation.
Stocks represent ownership in a business. By owning stocks, you reap the business’s growth rewards while someone else manages it.
Stocks are volatile in the short term but tend to rise over long periods. Expect declines of 50%+ every century, 30% every 4-5 years, and 10% every other year. Time is an equity investor’s friend.
You can invest in individual stocks or funds like index funds and ETFs that provide diversified stock exposure. Index funds are an easy way to get broad, cheap diversification.
Opinions differ on which types of stocks are best - size, value, momentum, dividend-paying, etc. The key is having some stock exposure.
Pros of stocks: High historical returns, ownership in businesses, low maintenance, liquidity
Cons of stocks: High volatility, valuations change quickly based on sentiment, require long time horizon

Here is a summary of the key points about bonds, stocks, and investment property:

Bonds

Loans from investors to borrowers, paid back over a certain period
Provide stability and income
Recommended for diversification and lower volatility
Can buy individual bonds or bond index funds/ETFs
Average return: 2-4%

Stocks

Represent ownership in a company
Higher long-term growth potential than bonds
Volatile in the short-term
Can buy individual stocks or index funds
Average return: 8-10%

Investment Property

Can earn rental income and benefit from property appreciation
Leverage can boost returns but also risk
More involved than traditional assets
Lack of diversification unless you own multiple properties
Average return: 12-15%

The key differences are that bonds provide stability, stocks offer higher growth potential, and investment property can generate rental income but requires more active management. A balanced portfolio should likely include a mix of these assets based on your specific goals and risk tolerance.

Here is a summary of investing in income-producing assets, especially when using leverage:

Pros:

Real estate can provide steady cash flow from rent and appreciation over time. Leverage allows magnifying returns through financing.
REITs provide exposure to real estate without direct ownership. Still, get cash flow and diversification.
Farmland has low volatility and correlation to other assets: inflation hedge and stable yields.
Small business/angel investing can produce outsized returns, incredibly if highly involved.
Royalties provide passive income from assets like books, songs, and patents. Leverage is not required.

Cons:

Real estate requires hands-on management, and tenants can be problematic. Hard to diversify with single properties.
REITs can have volatility similar to stocks, especially during downturns—less liquidity than public stocks.
Farmland needs more liquidity and has higher fees. Often requires accredited investor status.
Small business/angel investing has many failures before a rare home run. Huge time commitment.
Royalties require the creation of underlying assets and are hit-driven—slow or lumpy cash flows.

Overall, leverage can enhance returns but also introduce additional risks. Diversification across multiple assets reduces risk. Passive options like REITs and royalties avoid the headaches of active management.

Here is a summary of the key points about investing in income-producing assets:

Stocks provide long-term returns of 8-10% annually but have high volatility. Suitable for passive investing.
Bonds offer lower returns of 2-4% but with less volatility. Provide income and portfolio stability.
Investment property can earn 12-15% returns when leverage is used but requires hands-on management. Hard to diversify.
REITs give exposure to real estate without direct ownership. Returns of 10-12% but can be volatile like stocks.
Farmland yields 7-9% returns with low correlation to financial markets. It is less liquid and requires accredited investor status.
Small business investing can produce outsized 20-25% returns but requires significant time commitments and has high failure rates.
Music, film, etc. royalty generate 5-20% returns from steady income streams, but tastes can change—high seller fees.
Creating your products offers full ownership and satisfaction but requires lots of upfront work with an uncertain payoff.
Optimal asset allocation depends on your situation and preferences. Diversify across multiple income streams.

The key is to invest primarily in income-producing assets while limiting speculation. Focus on assets aligned with your skills and constraints.

The article argues against buying individual stocks, providing both a traditional “financial” argument and an “existential” argument.
The financial argument is that most professional investors can’t beat the market long-term, only a small percentage of stocks drive market returns, and even top companies eventually lose their edge. Buying an index fund is usually better than picking individual stocks.
The existential argument is that it takes years to determine if someone is skilled at picking stocks. The feedback loop is long, and results may not connect to your original thesis. So, you may always wonder if you are good at stock picking.
Research shows only about 10% of professional stock pickers demonstrate persistent skill. For an average stock picker, there’s an 80% chance you can’t identify if they have talent.
In summary, the article makes a strong case against stock picking for the average investor, arguing it is tough to know if you can beat the market and that most people can’t. Broad index funds are presented as a simpler, more reliable alternative.
The critical insight is that most stock markets go up over the long term despite short-term volatility. This suggests you invest as soon as possible rather than trying to time the market.
Every day you wait to invest means paying higher prices in the future since markets tend to rise over time. It’s better to take the plunge and invest now rather than wait for a “better” entry point.
This doesn’t feel natural because better prices always emerge in the future. However, the data shows it’s best to ignore this feeling and invest as soon as possible rather than wait.
Trying to time the market usually backfires. There are endless reasons you could wait - unpredictable events, recessions, better future prices. But historically, investing sooner has been the winning strategy.
Time in the market beats timing the market. The longer you’re invested, the more your money can compound. Starting early, let compounding work its magic.
Overall, the evidence favors investing as soon as possible rather than waiting. Ignoring short-term noise and investing with a long horizon is the key.
If you randomly picked a day to invest in the Dow Jones from 1930-2020, there is a 95% chance the Dow would close lower at some point in the future. This makes it feel like waiting for a lower price is a good strategy, but the problem is you may have to wait a very long time for that lower price.
Historical data across multiple asset classes shows that investing all your money at once (the Buy Now strategy) generally outperforms investing incrementally over time (the Average-In strategy) in most periods.
Average-In tends to underperform Buy Now by 2-4% on average over 12-month periods for stocks, bonds, gold, etc.
Buy Now is riskier than Average-In, but you can reduce risk by investing in a more conservative portfolio (e.g., 60/40 stocks/bonds) rather than compromising with Average-In to 100% stocks.
Investing side cash in Treasury bills while averaging in doesn’t meaningfully improve Average-In returns compared to keeping the money in a savings account.

The takeaway is that historically, investing immediately tends to provide better returns than trying to time the market, even if it feels riskier. You’re better off investing directly in a balanced portfolio based on risk tolerance.

The article explains why dollar-cost averaging (DCA) tends to outperform trying to “buy the dip” in the stock market, even if you could time the market perfectly.

The author sets up a thought experiment where you can invest $100 monthly over 40 years using DCA or buying at the absolute lowest point between market peaks (“buying the dip”).
Even with perfect timing, buying the dip underperforms DCA in over 70% of historical 40-year periods.
This is because severe market declines only happen sometimes. Perfectly timing them requires impeccable, “God-like” timing.
Missing the bottom by just two months reduces the outperformance rate of buying the dip from 30% to 3%.
Buying the dip only works if you know a severe decline is coming and can time it perfectly. Since this is unrealistic, DCA works better over the long run.
The article shows historical data and graphs to demonstrate these points empirically.

In summary, trying to time the market and buy at lows is extremely difficult and usually underperforms consistent dollar-cost averaging for long-term investors. The data bears this out clearly.

The concept of “timing luck” (sequence of return risk) plays a huge role in investment outcomes. Even the best strategy can perform poorly due to lousy timing luck.
Two examples are provided to illustrate this. From 1922-1961, $48,000 in DCA purchases grew to over $500,000. But from 1942-1981, the same $48,000 only grew to $153,000 - a 226% difference!
This shows your investment strategy matters less than what the market does during your investing lifetime. Timing luck is more important.
But despite the dependence on luck, you shouldn’t care. Keep investing consistently over time - try to avoid trying to time the market.
Studies show if you picked a random month since 1926 to start buying U.S. stocks and kept buying for ten years, you’d beat cash 98% of the time. The strategy is the same - keep buying, don’t worry about timing.
The takeaway is that even though investing depends heavily on luck, you can’t control fate. So, hold what you can - your savings rate and consistent investing habits. Don’t try to time markets. Keep investing despite uncertainty.

Here are the key points from the passage:

Luck plays a significant role in determining investment returns. Depending on when you were born and invested, you could have wildly different results even with the same strategy.
The order of investment returns matters greatly when adding money over time. Getting poor returns later in life when you have more money invested leaves you much worse off.
The first decade of retirement returns matters most. A wrong sequence of returns early in retirement can significantly damage a portfolio.

However, investors can take steps to mitigate bad luck, like proper diversification, being flexible with withdrawals, and working part-time. Time also helps younger investors overcome periods of poor returns.

Ultimately, bad luck is sometimes just part of investing. But with the proper perspective and preparation, investors can limit the damage and stay on track.

Here is a summary of the key points from the article:

Fred Smith, founder of FedEx, once gambled the company’s last $5,000 in Vegas to get enough money to pay for fuel. This illustrates that sometimes, the most significant risk is taking no trouble.
In investing, avoiding volatility and market declines can limit your upside. If you want the growth potential, you must accept periodic volatility and declines.
To determine how much volatility is acceptable, imagine a genie tells you the max market drop for next year. Historically, the S&P 500 declines 13.7% on average at some point each year.
Being too conservative and avoiding tiny 5% drops would cause you to miss most gains. Being too aggressive and allowing 40%+ reductions helps slightly versus buy and hold.
The optimal strategy historically was avoiding years with >15% max drawdowns. This balances growth while limiting big crashes.
There is no perfect predictor of volatility. Diversification across assets and time helps smooth volatility that will inevitably occur in markets.
Legendary investors like Charlie Munger accept occasional 50% declines as the price of admission for equity investing. Reframing your mindset around volatility is key.
The author vividly remembers where he was on March 22, 2020, at the start of the COVID-19 pandemic. The stock market had fallen significantly, and he struggled to determine if it would recover.
Seeing a man still selling flowers amidst the panic was a moment of normalcy that lifted his spirits. It inspired him to develop a new framework for investing during a crisis.
Market crashes can provide great buying opportunities because of the significant upside potential. For example, a 33% loss requires a 50% gain to recover.
To take advantage, reframe how you think about the upside. Consider your expected annual return based on how many years you think the recovery will take. Even five years implies ~8% yearly returns.
Data shows buying when markets are down 30%+ has resulted in 10%+ annual returns over 50% of the time. When down 50%+, returns have exceeded 25% annually.
This assumes markets recover within years or decades. Some exceptions exist, like Japan, which highlights investing always carries risk.

Here are the critical points on when to sell investments:

There are only three good reasons to sell an investment:
1. To rebalance your portfolio to your target asset allocation. This prevents your portfolio from becoming too heavily weighted in any asset class.
2. To get out of a concentrated or losing position. It’s prudent to reduce risk by diversifying out of individual stock positions that become too large or cutting losses on underperforming investments.
3. To meet a financial need. They were selling investments to access cash for significant purchases, expenses, or emergencies.
It’s better to sell gradually over time rather than all at once when possible. Since markets tend to rise over time, selling slowly allows you to maximize returns.
Rebalancing involves selling assets that have appreciated significantly to buy more underperforming assets. This forces you to sell high and buy low. Rebalancing annually provides provides a good balance between allowing growth and controlling risk.
Having predetermined sell rules removes emotion from the decision and prevents selling out of fear or excitement. Stick to your plan and tune out market noise.

In summary, only sell when necessary based on specific criteria, do so patiently over time, rebalance to control risk, and stick to a predetermined strategy. This helps optimize returns while avoiding emotional decision-making.

Rebalancing is buying and selling assets in your portfolio to maintain your target asset allocation over time. As some assets increase in value and others, decrease, rebalancing forces you to sell high and buy low.
However, rebalancing also has costs in terms of taxes and transaction fees. As a result, the rebalancing process inherently detracts from your total return over time compared to a “never rebalance” approach.
Rebalancing reduces risk by controlling your portfolio’s asset allocation. Without rebalancing, your portfolio can take on far more trouble than you initially intended.
There is no definitive answer on the optimal rebalancing frequency. Annual or semi-annual rebalancing provides a good balance of risk control without too many transactions.
An alternative to selling assets to rebalance is to “rebalance by buying” - putting new money into your underweight holdings over time. This avoids taxes but only works if you are still accumulating assets.
To get out of a concentrated position in an individual stock, have a plan to sell portions over time. This balances risk reduction with minimizing taxes and regrets if the store continues rising.
Taxes impact investment decisions, but tax laws are constantly changing, so getting help from a tax advisor who can consider your specific circumstances is best.
When deciding between Roth (post-tax) and traditional (pre-tax) retirement accounts like 401(k)s and IRAs, the key factors are your current vs. future tax rates and whether you need tax diversification. Typically, contribute to Roth if you expect your taxes to be higher in retirement.
You may only want sometimes to max out 401(k) contributions because you miss out on taxable account benefits like tax-loss harvesting and lower long-term capital gains rates. Consider contributing enough to get any match, then divide the remaining savings between 401(k) and taxable.
Organize your assets by holding tax-inefficient assets like bonds, REITs, and foreign stocks in retirement accounts and tax-efficient stock index funds in taxable accounts.
The overarching goal is to minimize taxes paid over your lifetime. Work with a tax advisor to determine the right strategy for your situation.

Here is a summary of the key points about tax rates over time:

The traditional 401(k) vs. Roth 401(k) decision comes down to whether your tax rate will be higher now or in retirement. If tax rates are higher now, traditional is better. If higher in retirement, Roth is better.
It’s hard to predict future tax rates. You can look at historical trends, but rates can change unexpectedly.
Considering where you live now vs. plan to retire can help clarify the decision. High tax state currently too low tax state in retirement favors traditional.
Traditional 401(k) offers more flexibility - you can convert to Roth IRA in low/no income years to get better tax treatment.
Roth 401(k) can allow higher savers to put more total dollars in tax-advantaged accounts. It’s also good if you expect higher taxes in retirement.
Using both traditional and Roth provides added flexibility in managing taxes in retirement. It can contribute to Roth’s early career when income is lower and traditionally later when income is higher.

Here are a few key points summarizing the main discussion:

There are two main tax benefits of using retirement accounts like 401(k)s and IRAs: avoiding income tax (traditional vs. Roth) and avoiding capital gains tax (retirement account vs. taxable account).
Avoiding capital gains tax provides around 0.5% higher annual returns than a taxable account if you buy and hold. But if you trade frequently, the benefit can be over 1% higher returns annually.
However, higher 401(k) plan fees can eliminate most or all of this benefit. The average 401(k) plan only provides around 0.38% higher returns than a taxable account.
So unless your 401(k) fees are meager, the incremental returns benefit of contributing beyond the employer match is small, often less than 1% annually.
This modest extra return may only be worth locking up your money at retirement. The lack of flexibility and liquidity should be considered.
So, while you should always contribute up to the 401(k) match, maxing out your 401(k) is often only the optimal strategy if you have an exceptionally low-fee plan.
Jack Whittaker won a $314 million lottery jackpot in 2002 despite already having a net worth of over $17 million as a successful businessman.
Within two years, Whittaker lost his granddaughter to a likely drug overdose, became estranged from his wife, and lost all his lottery winnings through gambling and other vices.
This story illustrates how even responsible people can be corrupted by sudden wealth. Whittaker was an excellent man initially - he supported his family and donated millions to charity.
But the money brought out his worst impulses. Ironically, Whittaker may not have felt rich before winning the lottery despite his $17 million net worth.
The author relates a story about his childhood friend “John” not feeling rich compared to his wealthier friend “Mark.” This demonstrates how people tend to compare themselves to those with more wealth rather than appreciating what they already have.
The author argues that happiness correlates more strongly with progress in meaningful work than absolute wealth levels. Appreciating the wealth you already have is vital to feeling rich and content.
The author’s family thought they were rich from 2002-2007 when they lived in a big house and had nice things, but it was an illusion based on rising home prices. When prices crashed in 2007, they lost everything.
The author realized in college that they were not rich compared to wealthy classmates. Even billionaires like Lloyd Blankfein don’t feel rich compared to their ultra-wealthy peers.
People tend to underestimate their wealth compared to others due to the “friendship paradox” - your friends tend to be wealthier than average, so you feel less affluent.
Being rich is relative. To be in the global top 10% in wealth only requires $93,170 net worth. But no one feels truly rich because there is always someone wealthier to compare yourself to.
The one asset you can never get more of is time. Given the choice, no one would trade their remaining years of life for any amount of money. Time is the most precious asset.
The story illustrates how Dashrath Manjhi spent 22 years carving a path through a mountain ridge in India to reduce the travel time between villages from 55km to 15km. He moved over 270,000 cubic feet of rock using just a hammer and chisel. It shows the incredible value of time and perseverance.
When the author was 23, he set a goal to have $500,000 by age 30, inspired by Warren Buffett having $1 million by 30. However, he came up far behind his plan.
The author realizes in hindsight that he should have focused more on optimizing his time and career decisions in his 20s rather than just his investment portfolio. Your income grows most rapidly early in your career.
The author notes that while more money is always possible, you can only buy a little time. Time is your most precious asset.
Even if the author had reached his financial goal, it likely wouldn’t have changed his life much since increased affluence comes in steps. Going from $200k to $300k impacts lifestyle less than $10k to $100k.
Happiness research shows people’s expectations start high in their 20s but decline as reality sets. The author’s unmet goal follows this pattern. But with age comes wisdom and realism.

Here is a summary of the main points:

Save and invest as much as possible, focusing on increasing income over reducing spending.
Use debt strategically - it can be helpful or harmful depending on the situation.
Only buy a home when it fits your lifestyle and finances.
Use cash instead of risky investments when saving for a big purchase.
Think about what you want to retire to, not just retiring from something.
Replace waning human capital with financial capital by investing.
Think like an owner and buy income-producing assets.
Don’t try to beat the market by picking individual stocks.
Invest as often as possible using dollar-cost averaging.
Focus on long-term behavior, not short-term luck.
Don’t fear volatility - it’s part of investing.
Market crashes can provide buying opportunities.
Fund your needs before risking your wealth on wants.
Consider alternatives before maxing out retirement accounts.
Time is the most valuable asset.

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Just Keep Buying Proven Ways to Save Money and Build Your Wealth - Nick Maggiulli