William Bernstein’s newly published booklet, If You Can: How Millenials Can Get Rich Slowly, dissects an investment strategy “that a seven-year-old could understand, will take you fifteen minutes of work per year, outperform 90% of finance professionals in the long run and make you a millionaire over time.” Interested? Pack a towel. This is the hitchhiker’s guide to getting rich.
The booklet serves as a practical guide to navigating the perils of personal finance galaxy and is a perfect starting point for beginners. He recommends to start saving 15% of your salary at age 25, to be distributed equally among three index mutual funds:
- U.S. Total Stock Market Index Fund
- International Stock Market Index Fund
- U.S. Total Bond Market Index Fund.
Side note: The booklet is geared towards those in the U.S. Since we’re Canadian, I’m going to suggest adding a fourth fund, a Canadian Total Stock Market Index Fund, in addition to the others recommended. The result is a portfolio similar to the Canadian Couch Potato Portfolios.
While saving and investing 15% can seem simple enough, Berstein draws the parallel in saying that the concept of dieting and exercise are simple, but neither is easy. He attributes the struggles investors face to five hurdles, which I’ll summarize Twitter style:
Hurdle #1: You spend too much – Spend less than you earn; you can’t invest if you haven’t saved anything to invest with.
Hurdle #2: Lack of financial knowledge – Know the difference between a stock and a bond. Understand risk and the improbability of predicting market behavior.
Hurdle #3: Repeating trends in financial history – Gauge the emotional environment of the market and act counter-intuitively. Don’t buy when things are going well only to sell when the market tanks.
Hurdle #4: You are your own worst enemy – Resist your human nature to react instinctively. Don’t bail when everyone panics only to buy when the market is on the rise.
Hurdle #5: Financial advisors make you poor – The financial services industry acts with a conflict of interest- spending your money to make themselves rich. Avoid anyone that can’t explain the term fiduciary duty.
Each hurdle comes with book recommendations to fuel your Infinite Improbability Drive of knowledge. In all likelihood, you’ll acquire more knowledge than the average financial advisor should you complete the readings. Clearing these hurdles will put you on the path to a “reasonably well-to-do retirement.”
Give the booklet, If You Can, a read for yourself. It’s available for a free download above or on Bernstein’s website Efficient Frontier. Here’s to you Bernstein. Thanks for all the fish!
Are you ready to go for a ride?
I really enjoyed reading Bernstein’s book, the intelligent asset allocator. I’ll have to give this one a read too. Our asset allocation is actually based off the introduction to his book, we’re using the simpleton’s portfolio. I always wonder how differently they’ll perform, and if there’s some system to picking the “right” AA.
I’m also a fan of Bernstein’s work. I’ve come to the conclusion that the best asset allocation is the one that is easy to understand. The Simpleton’s portfolio allocates 75% to equity and 25% to fixed income, rebalanced annually. Though relatively “simple,” there’s no denying its effectiveness- especially for investors looking to get their feet wet.
I’ve also wondered how different AA would perform. I’ve come to the conclusion that while optimization and additional asset classes can work to boost investment returns, the trade off of time vs effort may not necessarily increase my quality of life by any significant standard.