K.I.S.S.

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Having had the good fortune to complete high school, an undergraduate degree, four years of medical school, three years of internship/residency, three years of a cardiology fellowship, and one year of a subspecialty fellowship in arrhythmia, I’ve been blessed with the opportunity to learn from a lot of teachers.

And when I look back at this long parade of teachers teaching, it is clear to me that the ability to teach well is a rare skill.

Most of my teachers were decent, some were terrible, but a vanishing few were truly exceptional.

My sixth grade teacher Mr. Tacke comes to mind, (He taught me everything I ever needed to know about writing as a disinterested 11-year-old,) as does my early medical mentor Dr. Arthur Ablin. (He inspired me to give up my dreams of becoming a professional baseball player in favor of a career better suited to my own particular talents, medicine.)

And when I think of these great teachers, there is really only one common thread that I can perceive.

They made complex topics seem simple.

It is easy for someone to babble on and on about minutiae, and to impress you with their own intelligence and command of a topic at hand.

But at the end of such a display, the knowledge will likely not stick around on the students brain. And the student will soon be no smarter for the exchange.

A great teacher, On the other hand, is able to take a complex concept and distill it down to its essential points which can then be easily digested by her audience.

And each of these simple points once transmitted, can be manipulated by the student in his own mind and made into his own.

It is in this way that knowledge is most efficiently transferred.

A great teacher is not so unlike a concert pianist, an Olympic skier, or a master painter. Their mastery makes the incredibly difficult seem simple.

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Teaching is easy…just like olympic skiing.

And this pattern certainly holds true for financial planning.

Simple is better.

Owning the whole market is a simple idea. And if you do only this, odds are that you’ll beat 80% of the other investors out there.  (Even the ones who confidently predict the coming changes in the market on TV.)

Whole life insurance? Not so simple. Think of it as a mixture of an investment product and an insurance product. Plus it has some qualities of a tax shelter. But the complexity of this product hides a simple truth which you should always remember: Its intricate structure distracts from its astronomical fees that rob you of any value and enrich only the insurance company.

So if you want insurance; buy insurance. And if you want to invest; invest cheaply.

Keep it simple, Sweetie.

Now I’m certainly no great teacher, but thinking about all these great teachers who have impacted my life, has inspired me to try to write down some simple rules for becoming wealthy.

In descending order of importance, they are:

1: The more you save, and the less you spend, the richer you will become.

The corollary to this, which is even more motivating for me, is the simple truth that when you spend money you are in fact spending your own freedom.

(Action point: at a minimum you should save 20% of your take-home pay check each month.)

2: Avoid debt, with the possible exception of mortgage debt.

This means car loans, credit card debt, and student loans.

And if you do decide to purchase a home, aim to spend less than two times your yearly income on the house.  If you can’t afford this, rent.

3: Invest your savings in low-cost passive index funds.

The data is in and the verdict is clear: passive investing beats active investing 80% of the time, long-term. If you think you’re smarter than the market, you’re probably not. And the most important skill in investing is reminding yourself of this unfortunate fact.

4: Insure against calamity.

This means buy health insurance, a simple term life insurance policy (if you have dependants) up to the amount of your goal nest egg, and possibly disability insurance if you are a high income earner with low net worth.

5: Come up with an investment plan and stick with it through thick and thin.

If you don’t want to put all your money in a “lazy portfolio” or Betterment (either of which will serve you very well) then read some books, and come up with an asset allocation strategy that is true to your own unique belief system.  What you decide on is not so important.  What is important is believing in it.

If you can be stubborn enough to stick to your guns even when the going gets tough, you will be rewarded by your currently underperforming assets’ future overperformance as your portfolio reverts to the mean.

6. Fill up your tax advantaged accounts first before investing in taxable accounts.

In general you should maximize contributions to your 401(k)/403B, then maximize contributions to your health savings account, then contribute to your Roth IRA/backdoor Roth IRA.

Don’t outthink the room here. Avoid taxes like a good American , and in so doing, increase the power of each dollar contributed towards your own retirement.  After that invest in taxable accounts and harvest capital losses.

7. Don’t take risks you don’t need to take.

This means that your risk tolerance should lessen as you get closer and closer to your goal nest egg.

Always remember the marginal utility of money, and realize that at some point the downside of losing capital will be much worse than the upside of gaining even more.

When this occurs your portfolio should reflect this decreased tolerance for risk with more bonds/CDs/cash and less stocks.

And that is really all there is to it. You don’t need to outthink the room. You don’t need to hit homeruns.

You simply need to save more, invest passively, take advantages of tax shelters that are readily available to you, and get on with your life.

In a world where we often conflate wealth with goodness, it can be hard to accept that the road to riches is so simple.

But not getting in your own way ain’t easy. And having the fortitude to resist complexity is very, very, difficult.

And truth is simple, and misdirection is complex.

So all we must really do, in the end,  is remember four easy words:

Keep it simple, sweetie!

Best of luck, and please leave your simple lessons below for all (including me) to learn from.

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3 Responses to “K.I.S.S.”

  1. Robert May 27, 2014 at 1:25 pm #

    Those are excellent nuggets of wisdom, Alexi! But, they are written from your perspective–someone already through school and working in a good job. We could make this more complete by rounding out the “10 commandments of becoming wealthy” with the following 3 that come before your 7:

    (1) Get a good education in a field that matches your talents and rewards qualified people with satisfying, remunerative jobs. (This probably does not include art history or general studies, for example, and does include most STEM fields such as nursing, medicine, engineering, computer science, etc.).
    (2) Be willing to take a student loan if necessary to pay for your education, but only if that education meets rule #1 so that you can afford to pay off the loan and still come out ahead. It is generally better to get a loan and then work hard at your studies and complete your education quickly than to work a minimum wage job to help pay for school but then get worse grades or take longer because of it.
    (3) Find a well-paying job. The more you earn, the higher your wealth accumulation potential. (The more you earn, the more you can save in Step 4). Don’t be overly idealistic about finding a job you love. Earning money isn’t a bad thing! If digging ditches pays more than teaching, decide if you’d rather be a poor teacher or a rich ditch digger. Either could be the right choice; just make it consciously and with a realistic life plan. The worst is to be a teacher because you enjoy it but spend as if you were a rich ditch digger!

    • Miles Dividend M.D. May 27, 2014 at 3:08 pm #

      Great points all Robert.

      One of my favorite things about writing a blog is that that comments like yours reveal my own blind spots and assumptions that are specific to me.

      I have such hard enough time trying to figure out my own way forward that I think it really blinds me to other issues facing other people at different stages in life.

      Thanks for the additions.

      Alexi

      PS I think I just need to print out the Credit Suisse report, reading it on an iPhone is just too difficult on the eyes!

      • Robert May 27, 2014 at 5:31 pm #

        On an iPhone?! LOL. That would be an eye killer, for sure! Large tablet, maybe. I read it on my 24″ monitor. It would be a pretty long print job if you go that route.

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