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Just Keep Buying

Just Keep Buying on Amazon

Read in December 2023 and January 2024

0. Savings and Investing #

  • expected saving = money you can easily save in a year
  • expected return = money you expect to get from existing investment
if (expected_saving > expected_return)
	You are 'poor', focus on saving more
	You are 'rich', focus on investing

1. Saving #

1.1 How much to save? #

Save more when you can, less when you can’t

  • Income won’t be stable over the lifetime
  • People with different income levels can’t save at the same rate: high income usually translate to higher savings rate

1.2 How to save more? #

Since Saving = income - spending: a. Control spending b. Grow income

Control spending

  • Spending usually don’t increase by the same proportion of increase in income: diminished marginal utility
  • Cutting spending is rarely what drives people out of poverty

Grow income

  • Usually more effective than control spendings
  • It is easier to save more when income is higher

1.2.1 How to grow income? #

Income is grown by converting human capital into financial capital

  1. Sell time/expertise: easy to start, doesn’t scale
  2. Sell skill/service: better than 1, still hard to scale
  3. Teach: tough competition, easy to scale
  4. Sell a product: high initial investment, easy to scale
  5. Corporate laddering; most common, gain skills/experience in exchange of control over time and what to do
  6. Acquire more income producing assets: ultimate goal, 1 - 5 are all temporary in order to do 6

1.2.2 How to spending responsibly? #

Responsible spending brings contentment without guilt 2X Rule:

  • Invest the same amount we splurge in income producing asset Fulfillment maximization:
  • Money is a tool to create the life we want, spend on things that get us closer to what we want in life
    • What things do you care about?
    • What situations do you want to avoid?
    • What values do you want to promote?
  • Align spending with our long-term fulfillment:
    • if (algined AND canAfford) go for it
    • if (notAligned OR cannotAfford) forget and move on Find what works for you
  • It’s your money. Find what works for you personally Lifestyle creep Increased spending after increase in income to keep up with peers
  • Aim for <= 50% of the raise, less if income is higher

1.3 What of debt? #

Debt is not always bad.

1.3.1 When to take debt? #

  1. To reduce risk: debt provides liquidity, decreases uncertainty
  2. To generate return higher than the cost of borrowing

1.3.2 Calculate debt’s worthiness #

  1. Discount future income stream as a result of debt by 4%/year (roughly 50% over 40 years)
  2. Subtract opportunity cost
  3. Subtract cost of debt
  4. Subtract taxes

1.3.3 Other costs of debt #

  • Stress and emotional cost: exactly how much depends on individual

1.3.3 Debt as a choice #

  • Debt is usually more effective for those who can choose when/if to take it
    • Not an option for many people

1.4 Home #

1.4.1 Cost of home ownership # One time cost #
  1. Down payment: 3.5% - 20%
  2. Closing fees: 2% - 5%
  3. Commissions: 3% Total cost: 5.5% - 31% of home value. It only makes sense if living in it long term. Transaction fees easily eats away appreciations. Ongoing cost #
  1. Upkeep: 1% - 2%
  2. Cost of time Total cost: ~2% of home value per year. Expense of home ownership is more volatile than renting over the short term.

1.4.2 Cost of renting #

  1. Rent
  2. Long term risks
    1. Future housing costs
    2. Instability of living condition
    3. Ongoing moving cost

1.4.3 Home as investment #

  • From 1915 - 2015, U.S homes appreciates 0.6%/year after adjusting for inflation
  • Opportunity cost of investing in home is usually far higher than its return over the long term: Home is not a incoming producing asset
  • Home value is far less volatile than most other asset class

1.4.4 When to buy a home #

  1. Plan to live there for at least 10 years
  2. Stable professional and personal life
  3. Can afford it: >= 20% down payment AND mortgage/income < 43%

1.5 How to saving for big purchases (e.g home) #

It depends on the time horizon: longer time horizon increases risks of cash, decreases risks of bond due to inflations

if (horizon <= 2 years) 
	Cash is king
else if (horizon > 2 years AND horizon < 5 years)
	Bond over cash
else if (horizon > 5 years)
	Consider a mix of bond + stock

1.6 Save for retirement #

1.6.1 The 4% Rule #

A point where you can withdraw 4% of a 50/50 stock/bond portfolio for at least 30 years: Total saving required = 25 x Annual spending of first year in retirement (if spending is constant)

1.6.2 Spending is not a constant #

  • Data suggests spending usually decrease in retirement by about 1%/year
    • Lower needs for new clothing, services, transportations
    • Mortgage is usually paid off

1.6.3 The cross over point rule #

A point where investment income > expense

  • Total saving required = expense / return rate ~= 4% rule result

1.6.4 Retirement is more than just money #

  • Finance is usually not the chief problem for retirees
  • Fulfillment in retirement and health conditions (mental + physical) usually turn out to be the more important issues
  • Money is a tool that solves a lot of problems, but it won’t solve the problem of your being

2. Investing #

  • Investing is for our future selves
  • Investing is a hedge against inflations: $1 deprecate by 50% over 35 years at 2% CPI
  • Investing is turning diminishing human capital into financial capital

Human capital = All future earnings discounted by a discount rate (1-3%)

2.1 Invest in what? #

Many paths, no singular answer

2.1.1 Stocks #

  • Represents ownership in businesses
  • One of the best reliable ways to create wealth in the long term


  • No ongoing up keeps
  • Historically good income generation over the long term


  • Highly volatile


  • Buy individual stocks
  • ETFs or index funds (recommended, cheap, easy, handsfree diversifications)

2.1.2 Bonds #


  • Tends to rise when risky assets fall
  • Consistent income generation


  • Much lower return


  • Buy individual bond
  • ETFs or index funds (recommended, cheap, easy, handsfree diversifications)

2.1.3 Properties #


  • Tangible
  • Usually does not crash in value
  • Historically steady appreciation


  • It is an asset as well as a liability
  • Require on going maintenance
  • Hard to diversity
  • Low liquidity


  • Direct negotiations
  • Through agents

2.1.4 Real estate invest trust (REIT) #


  • Stock-like return
  • Low correlation to stock


  • Equal or greater volatility than stocks

2.1.5 Farmlands #


  • Competitive compound return (7% - 9%) if well managed
  • Low correlation to other assets


  • Low liquidity
  • Requires ongoing upkeep


  • Direct buying
  • Through REIT

2.1.6 Angel investing #


  • High return (20% - 25%) Cons
  • Most will lose
  • Huge time commitment
  • It’s more of a profession

2.1.7 Royalties #


  • Steady income (5% - 20%)
  • Low correlation to other assets


  • High fees
  • Tastes are hard to predict


  • Buy individual stocks
  • ETFs or index funds (recommended, cheap, easy, handsfree diversifications)

2.1.8 Your own products #

Books, services, information, etc


  • Ownership
  • Potentially high return


  • Huge initial investment, no return guarantee

2.1.9 Gold, crypto, arts, etc #

  • Values are based solely on perceptions
  • Have no reliable income streams
  • They are non-incoming generating assets
  • Recommend make up < 10% of total investment portfolio

2.2 On buying individual stocks #

Only do it for fun. Put in what you are willing to lose Why?

  • 75% professionally managed funds don’t beat market benchmark
  • Insanely high volatility, emotional + time cost

2.3 How soon should you invest? #

Now: Most stock markets go up most of the time

2.3.1 Timing the market #

  • Appealing in theory, difficult to practice
  • Historically average-in underperforms all-in by 4%/year
    • Average-in only over performs during crashes, crashes are pretty rare
    • 60/40 all-in beats 100 average-in with the same risks: diversify by asset types instead of time

2.4 Never wait for the dip #

  1. Historically buying the dip under performs most of the time anyway
  2. You can’t predict the dip

2.5 Luck #

2.5.1 When you were born #

  • There are good decades, there are bad decades
  • Our birth time will shape what kind of return we can get regardless of investment strategy
  • The act of investing itself is to mitigate against potential bad luck

2.5.2 The end is more important #

  • Bad returns at the end of the time horizon is worse than bad returns at the beginning
  • Personally 2055 - 2065 is the most important for me

2.5.3 Mitigate bad luck #

  • Adequate diversification depending on time horizon
  • Lower withdraw during downturn
  • Supplement income by working part time
  • Time is the best way of mitigating against bad luck

2.6 Volatility #

  • Volatilities are like ocean waves, you won’t get to the new world if you can’t stomach it.

  • Volatility is the admission fee of success

  • Stock will decline an average of 10.6% in any given year at some point

  • If max draw down > 15% for the year, it’s better to invest in bonds. But max draw down is impossible to know

2.6.1 What can we do? #

  • Diversify
  • Accept volatility

2.7 During a crisis #

If have investable cash on hand, crisis is the best time to invest. It takes more percentage growth to offset the same loss in dollar term.

2.8 When to sell #

a. To rebalance b. Get out of concentrated (or losing) positions c. To meet financial needs

2.8.1 Sell right away vs over time #

  • Sell as late as possible: let money work in the market for as long as possible
  • Buy quickly, sell slowly

2.8.a To rebalance #

Without rebalancing, portfolio asset mix will drift

  • Usually stock outperforms bond in the long term
  • Rebalancing usually reduces return but also reduces risks

How often to rebalance

  • No perfect time, but start with annually: easy, save time, tax season

Better way to rebalance

  • Don’t sell, buy more instead
    • It reduces max drawn down compared to sell to rebalance
  • Becomes harder when portfolio is large

2.8.b Get out of concentrated (or losing) positions #

  • Concentrated positions is likely to underperform the market in the long term. Avg stock return 6.6% vs 9.9% of S.P500
  • Don’t sell all at once (Tax!!)
  • Sell based on a pre-defined rule and stick to it no matter what

2.8.c To meet financial needs #

Fund the life you need before risk it for the life you want

2.9 Where you should invest #

2.9.1 Roth vs pre-tax #

if tax_rate_before == tax_rate_after
	does not matter at all
if tax_rate_before > tax_rate_after
	go pre-tax
if tax_rate_before < tax_rate_after
	go roth
if not sure
	why not go both?

2.9.2 Benefits of retirement accounts #

  • Shelters you from capital gain tax
  • Not much difference to a taxable account if you are disciplined to not trade in/out frequently

2.9.3 When not to maximize 401k #

  • Always get all your employer match, it’s free money
  • If your 401k has high fees (>= 0.83%), the fee could offset all tax advantages
  • 401k is effectively inaccessible for the majority of our life time

2.9.4 Asset organization #

  • Theoretically: put high growth/risk assets in non-taxable account, low return/risk asset into taxable account
    • It makes rebalancing harder
    • Time consuming
  • In reality, just forget it

2.10 Know you will never feel rich #

  • Rich is a relative term
  • No matter how rich you get, you will never feel you are rich

2.11 Most important asset is not money #

Time is the most important asset, would you switch places with Buffet right now?

3. Conclusions #

  1. ‘Poor’ should focus on saving, ‘rich’ should focus on investing
  2. Save what you can
  3. Have more income more effective than limit spending
  4. 2x rule for spending
  5. Save 50+% of raises and bonuses
  6. Debt is a tool, it’s not always bad
  7. Only buy a home when time is right (finance + lifestyle)
  8. Use cash to save for big purchases
  9. Retirement is more than money
  10. Investment = convert human capital to financial capital
  11. Buy incoming generating assets
  12. Don’t pick individual stocks
  13. Buy quickly, sell slowly
  14. Invest as often as you can
  15. Investing is an act against bad luck
  16. Volatility is the admission fee of playing the game
  17. Crashes are good opportunities to buy
  18. Money is a tool, use it to get the life you want to live
  19. Rethink about maximize 401k
  20. You’ll never feel you are rich enough
  21. Time is the single most valuable assets of all