Weekend Reading – Wealth-Building Rules to Live By

Weekend Reading – Wealth-Building Rules to Live By

Welcome to a new Weekend Reading post: some wealth-building rules to live by.

Before this Weekend Reading theme, a reminder about some latest posts on my site and my brother-site Cashflows & Portfolios:

It’s worth re-thinking and revisiting any 4% safe retirement rate rule here – I would argue this rule offers a nice starting point for some retirement planning but offers little value for any details…

In case you missed it, here are some free, best-of, top retirement calculators to toy with. 

We also wrote how a part-time job might be able to save your retirement. Read on!

Wealth-Building Rules to Live By

In my recent review and giveaway for The Psychology of Money, author Morgan Housel succinctly mentioned the following rules his family lives by which I think can be extremely valuable to anyone else:

1. You don’t really need to explain yourself to anyone else. It’s your decision related to paying down debt, killing your personal line of credit, or other liabilities before you invest. While I personally believe it’s better to invest vs. pay down your mortgage when any investing rates of return are in your favour – personal finance is and will always be personal. So, if ridding yourself from all debt helps you sleep at night then go for it.

Housel: “We own our house without a mortgage, which is the worst financial decision we’ve ever made but the best money decision we’ve ever made.” “On paper (paying off a mortgage with rates so low), it’s defenseless. But it works for us.”

2. Boring works wonders over time. In just over 3 minutes, you can pretty much learn everything you need to know about wealth-building in this clip with former banker and now bank-beater Larry Bates. 

Larry has been kind to chat with me a few times and I provided a review of Larry’s book here.

Beat The Bank like Larry Bates

To quote Larry a bit on his keys to wealth-building:

1. Take some time to learn some investing basics.
2. Take a long-term investing view/”be a decade trader”.
3. Mind your investing costs: “Pay for what you need, and nothing more”.

“I see the stock market, as a tool, for average people/average investors to be long-term business owners.” – Larry Bates, Beat the Bank.

Indeed.

I’ve chosen to do that via a blend of low-cost ETFs and dividend paying stocks. You can see that journey in more detail on this Dividends page here. If you are at all queasy about any individual stock selection, that’s OK and your decision too. One of the best ways to invest is via low-cost indexed ETFs for wealth-building. 

Housel: “Over the years I came around to the view that we’ll have a high chance of meeting all of our family’s financial goals if we consistenly invest money into a low-cost index fund for decades on end, leaving the money alone to compound.”

3. Just save and keep saving. Maybe you’re saving for a trip, a newer car, or even a house these days beyond retirement. Regardless of what you are saving for, I would also argue you don’t always need a reason to save – you’ll figure that out eventually. Just save. Save 5%, 10% or even more if you can. Save a bit or save a lot. Automate your savings for investment purposes, if you can. As one marketing genius coined for a major label many years ago: just do it.

I also said as much to a University of Toronto investing workshop last weekend when teaching with Ellen Roseman:

Housel: “We also keep a higher percentage of our assets in cash than most financial advisors would recommend – something around 20% of our assets outside the value of our house. This is also close to indefensible on paper, and I’m not recommending it to others. It’s just what works for us.”

“We do it because cash is the oxygen of independence, and – more importantly – we never want to be forced to sell the stocks we own.”

Smart.

I’m sure I could go on, but you get the point. Find your whys. Focus on you. Determine what’s important to you and your family. Stay boring when it comes to investing. Keep your fees low. Save and keep saving. 

What wealth-building rules do you live by? What have you shared with others on your path?

More Weekend Reading…

The Canadian personal finance community is growing and with that – check out WomenCanMoney.com. A virtual summit for women, by women. Learn from 15+ Canadian women money experts whom over 3 days (May 11-13, 2022) who will teach you strategies and action steps you can take to feel more confident and empowered with your money. Use my personal link here to enjoy the event!! Seems pretty awesome to me. 

MapleMoney highlighted some great apps including cash back apps to save money when shopping. I try and use Flipp myself for comparison shopping and I go from there!

Ben Carlson wrote it’s OK to be very confused by the markets right now. Ben wrote:

“You could make the case it’s the middle class that has been getting squeezed the most during this recovery. Add it all up and it’s hard to have a lot of clarity about where we stand right now when it comes to the markets or the economy. Some people are convinced we’re heading for a recession and market crash…I’m having a hard time wrapping my head around the implications of the current environment.”

A nice segue on decisions and clarity and time:

“You can tell how good someone is at making decisions by how much time they have. Busy people spend a lot of time correcting poor decisions, so they don’t have time to make good decisions. Good decisions need good thinking, and that requires time.”  – How to Think

I’m finally catching up with Liquid’s YouTube channel. He shared if the Nasdaq 100 is now time to buy into?

From Liquid: “I have spent over $20,000 buying stocks over the last few weeks. In this video I outline what those purchases were, and give my opinion on where I think stocks are headed next. 🙂”

Early Retirement Now believes crypto is a BAD investment. Read on for why in his comprehensive take! 

Dale Roberts shared some inflation-fighting ETF returns.  

To help fight inflation – check out healthcare giant JNJ from Dividend Growth Investor. He took a look at Johnson & Johnson in his latest stock review.

I liked the MoneySense recent take on bonds – do they make any sense for retirement savings?

I don’t think so, not for retirement savings, I had my take last year on that.

Why would anyone own bonds now?

I’m very much aligned to Jon’s thinking on this one, from the article:

“If inflation keeps rising at 5% or more, even these rates will be losing to inflation, but for those who don’t want to commit 100% to stocks, these at least give you a fighting chance. If inflation starts to moderate, then 3% guaranteed returns in registered accounts may look decent. And if there is a major stock market correction, liquid vehicles like 1-year GICs (or cashable ones paying less), or short-term savings at places like EQ Bank may facilitate the proverbial buying opportunity.”

I really like the idea of a cash wedge during retirement and you can use GICs for that.

Of course, if you’re a long-term investor with 10 or more years of investing ahead of you, you might just wanna learn to live with stocks and keep some cash.

A reminder about the value of cash from someone who knows much more than I do!

Reference: https://www.berkshirehathaway.com/letters/letters.html

“Berkshire’s balance sheet includes $144 billion of cash and cash equivalents (excluding the holdings of
BNSF and BHE). Of this sum, $120 billion is held in U.S. Treasury bills, all maturing in less than a year. That stake leaves Berkshire financing about 1⁄2 of 1% of the publicly-held national debt. Charlie and I have pledged that Berkshire (along with our subsidiaries other than BNSF and BHE) will always hold more than $30 billion of cash and equivalents. We want your company to be financially impregnable and never dependent on the kindness of strangers (or even that of friends). Both of us like to sleep soundly, and we want our creditors, insurance claimants and you to do so as well.

But $144 billion?

That imposing sum, I assure you, is not some deranged expression of patriotism. Nor have Charlie and I lost
our overwhelming preference for business ownership. Indeed, I first manifested my enthusiasm for that 80 years ago, on March 11, 1942, when I purchased three shares of Cities Services preferred stock. Their cost was $114.75 and required all of my savings. (The Dow Jones Industrial Average that day closed at 99, a fact that should scream to you: Never bet against America.)

After my initial plunge, I always kept at least 80% of my net worth in equities. My favored status throughout
that period was 100% – and still is. Berkshire’s current 80%-or-so position in businesses is a consequence of my failure to find entire companies or small portions thereof (that is, marketable stocks) which meet our criteria for longterm holding. 

Charlie and I have endured similar cash-heavy positions from time to time in the past. These periods are
never pleasant; they are also never permanent. And, fortunately, we have had a mildly attractive alternative during 2020 and 2021 for deploying capital. Read on.”

Have a great weekend!

Mark