Don’t Wait for the Perfect Plan to Start

There are a fortunate few who decided what they wanted to be sometime during their youth, worked hard and made that dream a reality. I know a couple doctors who fit that description. They knew they wanted to become doctors and the path to make that happen (study hard, get into medical school, intern, etc.) was clear.

Most lives, however, don’t follow such a linear and well-worn path. In fact, most people – whether in business for themselves or building a career – follow paths that they didn’t even know existed. For example, did you know that started because its founders couldn’t afford rent? To earn extra money, they rented out an air mattress on the floor of their apartment in San Francisco. To generate additional revenue, they sold custom ‘Obama O’s’ and ‘Cap’n McCains’ cereal (during the 2008 election).

Personally, my life was going nowhere after high school (I barely got out of high school in one piece). I was throwing special events and DJing, but had no ambitions beyond having fun and living in the moment. Knowing my lifestyle was unsustainable, I decided to keep going to school until I figured something out. The problem was I had no idea what I wanted to do, so I had no idea what I should take in school. I applied to a random assortment of programs – from film production to advertising. I was accepted to a couple programs. My criteria for deciding which offer to accept? Proximity to my house!

The offer that was closest to my house was a college program in marketing. To be honest, I didn’t even know what marketing was at the time.

I started attending the college marketing program and actually liked what I was doing. I started working hard and thrived. One of the courses during my program introduced some basic financial ratios (e.g. current ratio, quick ratio) and I was hooked. What I found especially intriguing was that while most of my class was struggling to grasp these basic financial concepts, I absorbed the topic easily. This motivated me to learn more about finance.

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I continued with my combination of marketing and finance education, pumping out a diploma, undergraduate degree, CFA designation and finally an MBA. Because I was interested in the subject matter I tried to learn as much as possible, often spending free time learning about financial history. While I was learning, I was also working.

I started my career in a boutique (aka crappy) consulting firm, barely knowing what I was doing. I eventually moved into a client services role at a mutual fund company and worked my way up from there. 15+ years later, I’m now a senior executive at a large asset management firm.

As you can see, I had no idea where I was going at the beginning. I didn’t have a master plan. Instead, my strategy was to make the most of what I was doing at the moment and build on that.

I think many people get caught up in the search for a perfect step-by-step plan to reach a predetermined end state. Because such a plan is so difficult to create (most people don’t even know what the end state is supposed to look like) people get bogged down by planning and fail to take action.

My recommendation is to get your plan to 50% and launch. You are but a tiny boat in a vast ocean and sometimes it’s best to simply paddle with the current. Be flexible and make the most of every wave.

If you know your destination, great. If you don’t, just be the best paddler in the boat.

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The Biggest Financial Decision of Your Life

There is a single business decision you will make in your life that could end up as the most important: marriage. Marriage can be a wealth creator or a wealth destroyer, so it is a decision that should not be taken lightly. 

A good marriage is one of support and compromise. Two people come together to work towards common goals, split the costs of living, generate multiple sources of income and build a sound foundation for a family. From this perspective, marriage can bear fruit that cannot be grown by one person alone. 

In contrast, when a marriage fails it can destroy the wealth of two people. Mel Gibson’s divorce from Robyn Moore Gibson cost about $425 million. Neil Diamond’s divorce from Marcia Murphey cost about $150 million. Steven Spielberg’s divorce from Amy Irving cost about $100 million. Of course, these examples are high-profile, patriarchal examples (in which the male pays the female a headline-grabbing sum of money) that don’t represent the average. In general, assets are split, the lower income earner turns to a meager lifestyle supported in part by the higher income earner, who loses a portion of his or her income. Divorce is economically survivable, but when compared to marriage it is a lose-lose proposition that can set the wealth creation goals for both parties back by decades. Compounding the economic effects, divorced couples lose the ability to divide tasks (such as household chores, parenting) in an optimal way to build wealth. Time is money – if they choose, a married couple can divide time to allocate to the most wealth-creating activities. A divorced couple simply doubles-up on tasks by performing them twice at separate households. It becomes a lot more difficult to pursue a great opportunity when you’re the only person who’s at home to cook dinner and help the kids with their homework. 

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Unfortunately, the significant economic decision to marry someone is often made by a brain raging with lust and irrationality. People tend to overlook faults and overestimate their ability to change someone when hormones are in charge. The marriage proposition – like any business decision – requires rational consideration. This means you need to separate the emotions out of one of the most emotional decisions of your life. That is not to say that you shouldn’t feel an emotional connection to your potential mate. Quite the opposite. There needs to be a strong emotional tie to make marriage work, but there also many practical considerations to make. 

So how should you evaluate a potential life mate? Here are just a few tough (aka very unromantic) questions you should ask yourself before getting married: 

  • Does my partner have a history of compromise? 
  • Do we tend to make big decisions together?
  • Do we have the same attitudes towards spending and saving?
  • What economic (income, assets or household management) benefits will my partner bring to the marriage?
  • How financially responsible is my partner’s family? Will we be supporting them?
  • Do our career ambitions clash?
  • What are my partner’s attitudes about fidelity?

Love is great. But you know what else is great? Being in love AND not being broke. Think very carefully before taking on the marriage project.

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Gain Time by Exercising and Living Healthy

There is a limited amount of time in the day and you’re too busy building your career or business to go to the gym, right? Every minute you spend working out is a minute you could be coming up with the next big idea or working on your next presentation, right?


I’m about to virtually add time to your day and to your life.

Health and success are not mutually exclusive. Look around at some of the most successful people in the world: CEOs, entertainers, artists, and so on. A majority of them also take care of their health.

There are a few reasons for this. First, these people tend to be well-educated and therefore understand how important it is to eat well and exercise. Second, anyone who has achieved some level of success usually wants to be around long enough to enjoy it. The third reason, however, is the one missed by most. The final reason – perhaps the most important reason – these people live a healthy lifestyle is because it helps create their success.

Exercising helps prevent disease and keeps you trim, but, according to the Mayo Clinic, exercising also provides the following benefits (quotes taken from the Mayo Clinic website):

– It improves your mood: “Physical activity stimulates various brain chemicals that may leave you feeling happier and more relaxed. You may also feel better about your appearance and yourself when you exercise regularly, which can boost your confidence and improve your self-esteem.”

– Exercise boosts energy: “Exercise and physical activity deliver oxygen and nutrients to your tissues and help your cardiovascular system work more efficiently. And when your heart and lungs work more efficiently, you have more energy to go about your daily chores.”

Imagine starting your work day in a better mood with more energy. So by spending roughly 1.5-2.5hrs of your week at the gym you are able to gain hours of additional productivity every single day.

Remember, this isn’t just about work. This is about having energy for your entire life – work, kids, spouse, hobbies. So while your unfit colleagues trudge through the day like zombies, go home and collapse on the couch you can make the most of every waking hour. In a way, you’ve gained time in your day by making each minute more meaningful.


20 Wealth Tips from Real Financial Professionals

Each of the following wealth building, budgeting and investing tips comes direct from the brains of 20 different financial advisors across Canada and the United States.

Some great advice here:

    1. Spend less than you earn.
    2. Boring might not make you uber-wealthy, but it sure won’t make you poor. There are solutions for having too much money, but there aren’t many for having too little. You can’t manage your money until you can manage your behaviours and emotions about it.
    3. Stop obsessing about your investments. Buying and selling frequently is well proven to hurt your returns and it steals your attention from the other very important financial issues you need to be on top of. Investment advice is the tip of the proverbial iceberg when it comes to your personal finances. Managing your cash flow (e.g. budgeting), protecting your family against a catastrophe (e.g. insurance), creating instructions for what happens to your wealth when you die (e.g. estate planning), retirement planning, maximizing your work benefits and pension, etc. There’s a lot to get on top of. Thinking systematically about these things are covered in a financial plan. Go find an advice-only financial planner who can coach you through it (these are professionals who sell only their advice and do NOT get paid for selling you a financial product).
    4. Stay invested and don’t try to time the markets. Know the risk you’re willing to take. Do your research prior to investing, have a strategy and plan. Know your time horizon.
    5. When I bought my house, friends suggested that I spend money (~5-10k) every year on something – fixing the roof, adding a garden, upgrading the furnace or AC. That way I’d always be ahead of the ongoing repairs that a house requires. I could do maintenance stuff or something that would be fun for me. But I should do something. It served me very well over the many years I owned my house. Over the years I researched what added value and what didn’t which helped me make better decisions. Great advice from very good friends.
    6. Create a budget within your means based on what brings you deep meaning and joy. Then strategically redirect the wastage towards saving, debt, and investing.
    7. Slow, boring, and passive indexing wins the race over hype, complication, and risk.
    8. Make debt repayment mandatory like rent and you’ll get out of it much faster.
    9. Understanding and applying the principles of compounding, leverage (other people’s money), and assets will make you wealthy over the long term.
    10. Not sure you can afford that mortgage? Don’t have a down payment? Act like you have a mortgage. Put the money into a separate account or investment. The result is you prove you can pay the additional cost of a house over and above your current dwelling costs plus you contribute to your down payment.

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    11. Tell your money where to go with a proper budget instead of asking where it went when it’s gone.
    12. Maximize any and all workplace programs that match savings, offer shares at a discount or any other program that pay you to invest. It’s unbelievable how many people don’t take advantage of these programs that offer “free money”. And don’t underestimate their value when evaluating job offers or thinking about leaving an employer with great savings incentive programs.
    13. Don’t buy a new car, go used and never finance the purchase of a depreciating asset.
    14. Credit card balances carried over to the next month and the outrageous interest rates will make you poor or even bankrupt. My advice is to never put anything on a credit card that you cannot pay off in full the next month. Otherwise don’t buy it, you can’t afford it.
    15. Money comes last… your vision, your values and your goals must come first when designing a strategy for your future.
    16. Buy an umbrella when it’s sunny outside. In other words, buy insurance when you’re young and healthy because it will rain eventually.
    17. Don’t compare what you have to others – there’s a good chance their financial position isn’t as good as it appears.
    18. You will never become wealthy chasing a larger paycheck. True wealth will come only from wise investing over time – understanding the concept of compound interest and the impact inflation has on the future value of your money.
    19. Never purchase something if you can’t buy it 3 times.
    20. Give! Money is like water-it’s clean and refreshing when moving! Who wants to drink from a stale pond?
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    Is It Worth Getting an MBA?

    I finished my MBA in 2008. I learned a few things but nothing I couldn’t have learned by hitting the library. Ultimately, I don’t think it was worth getting my MBA. 

    Over the years many people have asked me if they should do it. For those in the finance industry, I generally advise a lower cost, but highly rewarding, alternative – the CFA designation. The CFA designation requires more discipline to complete and is highly specialized, so it has a greater impact on one’s career, assuming you work in finance. If finance isn’t your thing, then consider similar pragmatic alternatives like Google Analytics Certification, new experiences or a library card.

    I only recommend an MBA if someone lacks the business background to switch to the management side of their industry. For example, engineers, scientists and IT folks can fast track to management with the technical and management combo. 

    For those with a business undergrad and relevant business experience, I think the MBA is a huge waste of time and money, for a couple reasons:

    Calibre of Students

    There are hundreds of universities offering MBA programs. Students have a lot of choice, so many admissions departments are willing to accept less desirable candidates. After all, universities are a business an tuition is their source of revenue.

    When I did my MBA over a decade ago about half my colleagues were of questionable intelligence and character. Many were also lazy. This detracted from my experience because half the reason to do an MBA is to immerse yourself in an intellectually inspiring environment.

    Also Read: The Latte Factor Warning

    How did these people survive? It was basically an unspoken rule that nobody would receive less than a ‘B’ for anything handed in. So these lackluster candidates were allowed to remain in the program. You have to fuck up pretty badly to fail out of an MBA program. 

    Nowadays, I see ‘prestigious’ MBA programs dropping the standardized GMAT test from the application process. In the past, the GMAT served as an objective way to assess and rank candidates. In contrast, the admissions process at many schools today is much more subjective and prone to bias. Essentially, if you have the money and a half decent background many programs will accept you. 

    Return on Investment 

    Perhaps most importantly, many MBA programs have a poor return on investment. This is not to say MBA programs won’t help your career, but – unless you’re going to a school like Harvard – the boost is generally not worth the cost.

    A full time MBA program can cost about $100,000. That figure doesn’t include the lost income and lost experience from being out of the workforce for one or two years. It also doesn’t include the risk that you graduate into an economic recession, making it potentially even harder to generate a proper return on the MBA. For these reasons, I only suggest people do the MBA while continuing to work full time. This is what I did and it almost killed me. But I didn’t go into debt and my career didn’t fall behind.

    Many people dream of a sudden career boost once their MBA is completed. Schools point to dubious ROI and payback period claims. However, the reality for most is more benign. Often, the ‘returns’ are no different than what you would have earned with simple work experience, without the hassle of going to school. Even if there were positive returns, you need to have a long-enough career runway to ensure you actually have enough time to earn your payback.

    The actual boost from doing an MBA can vary. An engineer trying to transition into finance might experience a meaningful boost. However, a marketer trying to stretch his career will get a minimal return.

    I think people need to ask themselves what else could they do with $100,000 to build wealth. That money could be invested or seed a business. It could be used to pay down a mortgage or to accelerate FIRE. Compare the returns for each to determine the best course of action.

    My Recommendation

    Whether or not you do your MBA is not a black and white question. You truly have to evaluate whether the outcome – career boost, salary increase, education – will be what you expect. You also need to carefully consider the cost to achieve that outcome – financial, time, foregone opportunities.

    When I did my MBA over a decade ago, I didn’t know what I was getting into. Luckily, the cost wasn’t outrageous (I received many transfer credits from my undergrad) and I did gain some knowledge. However, much of what I learned could have been obtained via books. Indeed, I have learned much more since completing my MBA, underscoring that learning isn’t limited to formal in-class education.

    Personally, I did not experience an obvious career boost from doing my MBA. In contrast, once I passed my CFA exams there was a noticeable uptick in calls from recruiters. Asset managers definitely took notice of the accomplishment and I was able to quickly advance in the wealth management industry. Moreover, I have regularly used the knowledge obtained from the CFA program during my career. All at about 1/3rd of the cost of an MBA. In my case, a lower cost pragmatic program proved far more beneficial. I presume the same would be true for many in other industries.

    Final Thought

    If you are thinking about getting your MBA, I suggest the following considerations:

    1. Can your career advance without an MBA? If not, are the advancements worth the cost?
    2. If you’re doing it for the knowledge, can you gain the education of an MBA without actually forking out $100,000?
    3. Would an MBA complement your current experience and education, or simply extend it? I.e. are you learning anything new?
    4. What did the successful people in your desired industry do to achieve their success?
    5. Are you young enough to accumulate the benefits of an MBA over a long career?

    Investing Life

    Dying Words of T Boone Pickens

    Thomas Boone Pickens Jr. (May 22, 1928 – September 11, 2019) was an American business magnate and financier. Pickens chaired the hedge fund BP Capital Management. He was a well-known takeover operator and corporate raider during the 1980s. As of November 2016, Pickens had a net worth of $500 million.

    Before his death, Pickens wrote his last words to be published on LinkedIn by his foundation after he passed.

    The entire post is much longer, but below is the key excerpt. In it, Pickens lists his secrets to success and building wealth:

    – A good work ethic is critical.

    – Don’t think competition is bad, but play by the rules. I loved to compete and win. I never wanted the other guy to do badly; I just wanted to do a little better than he did.

    – Learn to analyze well. Assess the risks and the prospective rewards, and keep it simple.

    – Be willing to make decisions. That’s the most important quality in a good leader: Avoid the “Ready-aim-aim-aim-aim” syndrome. You have to be willing to fire.

    – Learn from mistakes. That’s not just a cliché. I sure made my share. Remember the doors that smashed your fingers the first time and be more careful the next trip through.

    – Be humble. I always believed the higher a monkey climbs in the tree, the more people below can see his ass. You don’t have to be that monkey.

    – Don’t look to government to solve problems — the strength of this country is in its people.

    – Stay fit. You don’t want to get old and feel bad. You’ll also get a lot more accomplished and feel better about yourself if you stay fit. I didn’t make it to 91 by neglecting my health.

    – Embrace change. Although older people are generally threatened by change, young people loved me because I embraced change rather than running from it. Change creates opportunity.

    – Have faith, both in spiritual matters and in humanity, and in yourself. That faith will see you through the dark times we all navigate.


    The Latte Factor Warning

    There is a concept floating around the financial world that goes something like this: if you quit buying lattes every morning at work you will end up far richer in the long run. The industry refers to this as ‘The Latte Factor’, named after the popular book.

    While I appreciate the sentiment that you can build wealth by cutting out small daily expenses, I can’t fully buy into this concept. The latte factor concept ignores the reality of how people lose wealth and fails to consider the beverage’s greater life benefits.

    Yes, I know that the book isn’t only referring to lattes. But let’s go with it since the latte is a good demonstration of where The Latte Factor concept generally falls short.

    Misdirected Focus

    While you don’t want to allow small expenses to get out of control, many people would be better off directing their focus elsewhere. When I say ‘small expenses’ I’m not referring to the easily identifiable small spending habits, like record collecting or clothes shopping. Instead I’m saying you should spend less time trying to cut the expenses that allow your life to go from point a to point b. These are the expenses that act as a lubricant in the gears of life – unnoticeable but vital. While these seemingly unidentifiable expenses cost real money, they are low value targets in the battle to build personal wealth. 

    In contrast, some expenses are clearly extravagant. Many one time large expenditures can wipe out years of savings from forgone lattes. I’m talking about things like that Louis Vuitton bag, family cottage or leased Audi. If you truly want to build personal wealth, these status items are what you need to avoid. Especially since all can be easily and satisfactorily substituted with other options that are far less expensive.

    The amount of time and mental energy it takes to decide on a 1 year old Subaru instead of the brand new Audi is minuscule compared to that required to avoid a latte EVERY SINGLE MORNING.

    Worse yet, those who do focus on the lattes gain a false sense of accomplishment and are actually more prone to justifying those large, extravagant purchases. 

    Life Utility

    Most of you know that we only live once. Taken the wrong way (YOLO!) some people interpret this to mean they can take stupid risks and live like there’s no tomorrow. On the contrary, I believe this means we should seek simple daily pleasures, whether that be time spent with friends, eating a nice meal or drinking a daily latte. Months or years of shitty living can’t be offset by a single big ticket purchase. This is why I think pleasure needs to be had in frequent bite-sized doses. 

    Moreover, there are many spillover benefits to the daily latte, including the dose of caffeine and calcium. Many use this ritual as a means to socialize, decompress and think. Sometimes people use it as a way to escape the drudgery of the office for a few minutes, or work in a slightly different environment.

    Sometimes I take my kids to the coffee shop and unnecessarily spend $12 on cookies and coffee to read together for an hour. Is that time and money wasted? Or is that a ritual I can forever keep doing with my kids as they get older? I hardly see it as a waste, and is not worth trading for a fancy car or purse (both of which have zero benefit to my relationship with my friends, colleagues or family). 

    Before you subscribe to concepts like The Latte Factor, be sure you know what you’re actually cutting. And be sure you are getting a good return for your time and effort by focusing instead on the highest-impact expenses.


    Also Read: The Intelligence of Dumb Money

    ETFs and Funds

    Dirt Cheap Access to Canadian Stocks

    A big part of building wealth involves controlling what you can control. After all, there are so many things outside of your control that affect your ability to build wealth – promotions, unexpected illness and investment returns.

    With respect to your investments, cost is one of the big controllable factors. And that one factor can have a large influence over the long term accumulation of wealth.

    Luckily, today we have many inexpensive ways to get exposure to the markets.

    The following list shows some of the cheapest ETFs that provide exposure to the Canadian equity market. The ETF name is followed by its ticker symbol, management fee and primary objective.

    Horizons S&P/TSX 60 Index ETF (HXT) – 0.03%

    Horizons HXT seeks to replicate, to the extent possible, the performance of the S&P/TSX 60™ Index (Total Return), net of expenses. The S&P/TSX 60™ Index (Total Return) is designed to measure the performance of the large-cap market segment of the Canadian equity market.

    iShares Core S&P/TSX Capped Composite Index ETF (XIC) – 0.05%

    The ETF seeks to provide long-term capital growth by replicating, to the extent possible, the performance of the S&P/TSX Capped Composite Index (the “Index”), net of expenses. Under normal market conditions, the ETF will primarily invest in Canadian equity securities. The Index is comprised of a selection of the largest (by market capitalization) and most liquid securities listed on the Toronto Stock Exchange, selected by S&P Dow Jones Indices LLC using its industrial classifications and guidelines for evaluating issuer capitalization and liquidity.

    BMO S&P/TSX Capped Composite Index ETF (ZCN) – 0.05%

    The BMO S&P/TSX Capped Composite Index ETF has been designed to replicate, to the extent possible, the performance of the S&P/TSX Capped Composite Index (Index), net of expenses. The ETF invests in and holds the Constituent Securities of the Index in the same proportion as they are reflected in the Index.

    Vanguard FTSE Canada All Cap Index ETF (VCN) – 0.05%

    The fund seeks to track, to the extent reasonably possible and before fees and expenses, the performance of a broad Canadian equity index that measures the investment return of large-, mid- and small-capitalization, publicly traded securities in the Canadian market. Currently, this Vanguard ETF seeks to track the FTSE Canada All Cap Index (or any successor thereto). It invests primarily in large-, mid- and small-capitalization Canadian stocks.

    Vanguard FTSE Canada Index ETF (VCE) – 0.05%

    The fund seeks to track, to the extent reasonably possible and before fees and expenses, the performance of a broad Canadian equity index that measures the investment return of publicly traded securities in the Canadian market. Currently, this Vanguard ETF seeks to track the FTSE Canada Index (or any successor thereto). It invests primarily in the largest Canadian stocks.


    How to Generate Retirement Income

    Picture this. It’s September 1981 and you’ve just retired. You want to live a comfortable life so you figure you need to generate a retirement income of about $50,000 in today’s (2019) dollars.

    That means you need $18,172.17 in 1981 (chart below).

    Inflation-adjusted income required to match a $50k income in today’s dollars.

    How do you proceed to generate a sustainable retirement income from your investments?

    In 1981 the solution was pretty simple and low-risk. You could buy and hold 10 year US Treasury bonds that, at the time, yielded over 15%. Investment required: $118,587.78!

    Of course, $118k in 1981 is worth more than $118k today because of inflation. In today’s inflation-adjusted terms (adjusting for Consumer Price Index) that’s the equivalent to $326,289.62.

    Unfortunately, for those retiring today, this retirement income strategy is totally infeasible. This is because the yield on 10 year US Treasury bonds has dramatically declined.

    The chart below shows how the 10 year US Treasury yield has declined over the decades. Currently the yield is flirting with all time lows of about 1.5%. These lower yields mean that an investment in US Treasury bonds doesn’t generate the income it used to. Said differently, to generate the required $50,000 annual income today using low-risk US Treasuries, you’d need to invest way more money than you would need to in 1981.

    10 year US Treasury Bond Yield

    As of September 1, 2019 you’d need to invest almost $3.5 million (chart below) into 10 year US Treasury Bonds to generate a $50,000 annual income. In inflation-adjusted terms, that’s about 10x more than you’d have to invest in 1981.

    (Final chart below shows inflation-adjusted investment required to generate the inflation-adjusted equivalent to $50,000 in today’s income.)

    Investment in 10 year US Treasuries to generate $50k (in today’s dollars).
    Inflation-adjusted investment in 10 year US Treasuries to generate $50k (in today’s dollars).

    With Yields So Low, How Can you Generate Retirement Income?

    Now you’re probably thinking you wouldn’t rely on just your straight investment income to pay for retirement. You might intend to draw down your capital and rely on a pension. This is what most people do. But I would argue it is not the right strategy.

    If you have a good defined benefit (DB) plan pension that replaces at least half your current income, God bless you. You can probably stop reading…that is, unless you think your company has even the slightest risk of going bankrupt sometime between now and the time you die or if you think your company will find a way to weasel out of paying its obligations (because with lower yields it is becoming increasingly difficult for defined benefit plans to remain fully-funded).

    On second thought, keep reading even if you have a DB plan.

    The Retirement Income Rule of Thumb

    The wealthy of the world strive to pay their retirement bills from their returns ON capital…not the return OF capital. In order to build lasting, generational wealth, enough income must be generated from a combination of dividends, interest income and capital gains to cover living expenses.

    You may be familiar with the 4% rule of thumb. This rule states that – based on historical market returns – an investor can withdraw up to 4% from their portfolio each year without eroding their capital. In essence, the 4% withdrawal is offset by returns from a combination of dividends, interest income and capital gains that equals to 4% or more.

    Generating a satisfactory income aligned with the 4% rule while maintaining a high degree of safety was easily achievable in 1981 – US Treasuries are considered risk free assets. Today, however, the environment is far more challenging.

    How do you generate sustainable income from your investment portfolio today? Unfortunately, you might not like the answer.

    You can do some or all of the following:

    1. Learn to live with a lower retirement income by living more frugally.
    2. Work longer and delay withdrawing from your portfolio. This allows your portfolio to grow larger and reduces the income-generation burden on your portfolio and the risk you outlive your savings (i.e. longevity risk).
    3. Build a larger portfolio by earning more income and saving a greater proportion of that income throughout your working life.
    4. Take greater risks with your money by investing in assets with higher total returns potential (combination of dividends, interest income and capital gains). The downside is that you might lose more money than you’re comfortable with if things go south.

    Of course, you can avoid all this if you have $3.5 million to invest in 10 year US Treasury Bonds. Without $3.5 million to invest in risk-free assets, you must stretch across the risk spectrum to find assets with higher dividend yields, higher interest income and greater capital returns potential. Of course, moving up the returns spectrum requires you to take on more risk.

    Beware of Risk

    Whatever you do, don’t go chasing higher returns without paying attention to risk. Same goes for higher yields. Not all yields are the same – for example, a company might have a high dividend yield because the market anticipates a dividend cut or worse. (When it comes to dividend yields, I always look at a company’s payout ratio to assess the sustainability of the dividend.)

    While you won’t be able to escape greater systematic risk (i.e. market risk) when investing in asset classes with higher total return potential, you can eliminate idiosyncratic risk (company-specific risk) by diversifying across companies. Moreover, systematic risk can be mitigated by investing in a variety of assets classes with low-or-negative correlations.

    Don’t make the mistake of ‘diversifying’ across asset classes with similar risk exposures – e.g. dividend paying stocks, corporate bonds, high yield bonds – and thinking you’re set. Many (probably most) asset classes are exposed to the business cycle and risk sentiment, so you need to find a way to balance out your risk exposure using assets that are negatively correlated to these factors, such as sovereign bonds and gold.

    But I just said US Treasuries yields are super-low, right? And gold is more of a currency than income-generating asset. True. This simply underscores today’s challenge with generating retirement income from a portfolio.

    Once you have to start worrying about risk, it becomes exponentially more difficult to generate retirement income using investments, like you might have in the past. It can be done – investing doesn’t need to be hard – but it’s not like 1981 where any monkey could fund their retirement without taking on risk or making lifestyle tradeoffs.

    Today, it is inescapable fact that you’ll need to do some combination of the four options noted above: 1) Live on less, 2) work longer, 3) save more, 4) take on more risk.

    See. I told you you won’t like the answer.


    Vacation is Stressful

    I just took a week’s vacation. After being back at work for two days, I am wiped out!

    I thought I was supposed to feel recharged and ready for my next challenge after a vacation?!?

    The reality is, there’s no such thing as going back to work refreshed.

    Instead, you go back to work after a vacation and get destroyed because your body has forgotten how to operate on 20% less sleep and 100% more stress. It’s a shock to the system that leaves you craving more time off.

    But wait…there’s more!

    After returning to work from a vacation you are inundated by people trying to update you on all the shit that went down in your absence. Upon your return, colleagues will also take advantage by dumping work on you.

    Worse yet, you return to an inbox containing hundreds of unread emails that only punctuate the insanity of what you do for a living, now that you’ve had a few days away to gain perspective. 

    Of course, that is only looking at the tail end of your vacation. The days leading up to vacation are spent working overtime to wrap up tasks and ensure projects don’t go off the rails in your absence. 

    Going on vacation is stressful. Returning from vacation is stressful.

    Some try to keep ahead and ease the stress of their return by checking emails while away. God help you if you make this mistake. Every minute you  check emails requires 5 minutes to decompress from work insanity. Anytime ive checked my emails while on holiday I immediately felt a flood of stress hormones cascade through my body, easily ruining a half day. Don’t make that mistake.

    I’m starting to think it’s almost not worth taking a vacation at all. Still, you won’t catch me handing my hard earned vacation days back to my employer. It is valuable family time that is worth a little stress.