Thank you all so much for your advice and kind words.
I just finished reading the book by Ernie Zalinski, "How To Retire Happy, Wild and Free". I would have never picked up a book like that on my own, thinking it would be a bit corny. But, I found it tremendously valuable, with concrete examples and ideas. I've started up on the exercises and am feeling a lot less anxiety about the future already. So, thank you very much, chris2008, for the recommendation! I would definitely recommend the book to others as well.
People (such as petershk) mentioned pitfalls/traps when it comes to money management. I would love to hear people's advice in this area.
Thanks again, all!
There's a number of books that are recommended frequently and are also really solid.
For advice I think the more specific your question, the better the results.
The hardest thing for me was getting away from the desire to have a "right answer." Much more important, IMO, than the "right answer" is being able to sleep at night. Some people can push everything into the stock market and sleep like babies. Other people have a 20/80 stock/bond split and sleep like babies. Finding a strategy that safely covers your cost of living while allowing you to sleep is the key.
WARNING: Long winded, general and personal thoughts below
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1) A quote that helps me with my own decisions here is "don't risk something you need to get something you don't need."
So in simple terms if my family's costs are 80k/year and I have 5 million$, that is a 1.6% inflation adjusted return. I could probably buy 30 year government bonds, TIPS or a CD Ladder... even at today's terrible interest rate and never think about money again. Putting that 5 million into Uncle Fred's 3D printing startup is probably a bad idea, even if it's a sure thing with 100x returns in 2 years.
Those are, of course, extremes... but that thinking lead me to my current investment strategy which is moderately conservative and mostly passive - not passive enough (see emotional problems below). Over time I have moved away from "optimized return" to "optimized sleep at night and don't look at it."
2) no one cares about your money more than you.
The tri-force of Taxes, Transaction costs and investment returns (including inflation) are important to intimately understand.
I had to learn this the painful way as well, though, thankfully when I had WAY less money to lose. The good news is, it's not really that complicated and it doesn't actually take that much time unless you want to make it complicated and spend lots of time doing it
. Any expert who says it's too complication and difficult for you, but is happy to take 1.5% of your money to do it for you; should be run away from IMO
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Two of my favorite resources:
INVESTING:
Stock Series
TAXES:
Archives
My own quick "rule" here is that I take 4% of my total assets as the amount of income it generates (so for 5M that's 200k/year) and then I decide how much of that I would be willing to pay to just manage it.
Most financial advisers take about 1% of total assets, which is around 50k/year. 50k compared to 5M seems small. 50k compared to 200k seems huge. So I look at the 200k number, not the 5M number; and in my mind paying 25% of your income to have someone manage your money is bananas.
I wouldn't pay someone at work 25% of my income to manage my household finances either... so why should I pay that when the source of my income is investments vs working?
10% seems much more reasonable; but I still begrudge that amount. I include in that number: accountants, lawyers, insurance professionals, ETF fees, trading fees, etc. So a .15% ETF would cost $7500, leaving another 12,500 for all the other stuff. If an ETF charges 1.5%, I probably can't buy it because transaction costs are too high. That removes a lot of investment options from the available universe.
Getting that number lower is one of the best long term investment decisions I can make and it's important to focus on that number as much or more than on how much "return" my investments get. Very few investors have a long term track record that beats the market by 1% and if they do, I suspect they don't need to manage your 5 million
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Reducing costs is a 100% risk free return... tax optimization is similar... investment returns are the least predictable and hardest to control so spend time accordingly
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Mad Fientist has some amazing articles in ridiculous detail if you like that sort of thing.
3) Emotions/human behavior are the enemy
Again, learned this the hard way. There's a huge difference between how I think I'll feel/act in extreme situations (2001/2008 market) and how I REALLY act. This varies from person to person and you need to be able to honestly evaluate yourself. If you don't know assume you suck at it because most people do and the costs for thinking you are great and sucking are far higher than the costs of thinking you suck but in reality you are great (see #1).
Knowing this helps me resist doing emotional things in extreme situations (timing the market, reacting to MSN news, buying Tesla stock after model 3 announcement). Some people are not like this. They somehow can behave rationally and confidently even when the emotional roller coaster is swinging wildly. I THOUGHT I was like that... years of evidence says I'm not... and because of #1, I just try to separate out money management from emotions altogether.
My own strategy here is to constantly reduce the number of decisions I make. Although I'm not 100% there myself, I'm pretty sure that I will get the best long term return with the highest number of good night sleeps if I can reduce the number of investment decisions I make to as close to 0 as possible. but I also have to keep transaction costs low so I can't just pay someone 1%-1.5% to do it. That leads me straight to passive ETF/Mutual Fund index investing which I pretty much think is the no brainer, default people should take until they have spent lots of time and deliberation going in another direction.
4) Flexibility of spending is as important as amount of spending
Since the future is always uncertain and uncontrollable I think flexibility is super important. So when you extend that to money: relying on investment income (unstable return) to pay for your life (stable costs) can stress the hell out of you. From what I can tell EVERYONE on this forum has, at some point, thought about "what happens when the apocalypse comes along and wipes me out!?"
I suggest going back and reading the 2008-2009 forum threads... they are very educational and some of the members here were absolutely amazing during that time.
We live in Southern California in one of the most expensive housing markets in the country. If our income from assets took a really bad beating, we could pretty easily reduce our cost of living by 30% just by moving to, say, Austin or North Carolina... both places we think are beautiful and WAY cheaper. My DW is a nurse who keeps her skills and qualifications up in the case that she has to (or wants to) go back to work. For me it's tougher as the industry I am in has much more of a 1 way door (Computer Software).
I have committed to an exercise routine that has dropped my cholesterol level into a range that is better than it's ever been and my BMI is lower than it was when I was in college... reducing medical risks.
We've also kept our spending roughly the same for the past 4 years despite significant increases in assets. That was surprisingly hard for me to do, but now it's kind of a habit.
so those things are all about cost of living flexibility. If we want to we can take a 10k trip to hawaii BECAUSE we have the flexibility. Of course you have to actually DO those things to know if you really are flexible. I haven't ever sold the house and moved to Austin, so that's a bit on blind faith...I try to reduce those.
5) No matter how much you have, someone else has more.
Don't compete.
I also maintain a certain amount of secrecy from friends and family. We deliberately avoid "showing off" financially which prevents people from constantly asking as well as keeping our costs down. I'm kind of uncomfortable with attention so this is actually pretty easy.
Although our house is "expensive" by national standards, it's "cheap" relative to assets/income from a peer perspective. This means I don't see Ferraris driving down the road, I don't have neighbors that compare Rolex watches and talk about flying 1st class to 1 month exclusive Hawaiian resorts - north of us in Hollywood and West of us in Brentwood, that happens all the time. I'm surrounded by mostly middle class people who drive older cars and take a reasonably priced vacation once a year or so. They deal with credit card debt, job loss, tuition costs, etc. So in comparison I feel like I have it made and don't need anything to be happy. If I moved into a "richer" neighborhood I am pretty sure I'd feel the urge to upgrade every part of my life but would somehow not be any happier... in fact the additional cost would create financial stress so I'd actually be LESS happy. No thanks.
6) Kids do what you do, not what you say.
Finally, because we have kids, the last thing I want is to raise a bunch of self-absorbed, spoiled, entitled brats. If I shower myself with expensive gifts and show off to everyone that we have a bunch of money.. or compete with people who have way more... I'm pretty much teaching them to be entitled, materialistic and bratty. So in order to teach them how to be what I consider to be a decent human being, I have to avoid these behaviors.
The money is there because of a combination of work, discipline and luck. It's purpose is so that we can enjoy our lives reasonably and give back in ways that we think make sense. The biggest luxury IMO is time. I heard they aren't making any more of it
. If my kids grow up thinking that I'm a lazy, entitled, materialistic jerk then I have failed as a father and a human being. That's a really good check on behavior.
Anyway... random stuff there but hopefully some of it is moderately helpful.
People on this forum have many centuries of combined wisdom and are generous in time and spirit. They so much more than I do, it's pretty humbling. I have never had a question that wasn't answered with thought and candor and have always found it to be valuable and helpful.
so fire away