We all like lists, so I put this one together to highlight what I've found to be the Best 8 Rules of Investing.

1. Time is the investor’s best friend. As Einstein dubbed the “8th wonder of the world", compound interest is pretty powerful. But it only works when you give it enough time. So invest early, and invest often.
2. But timing the market is a fool’s errand. Very few people successfully time the market – buying at the bottom and selling at the top. More often, people end up selling near the bottom and waiting until the top, then buying back in and getting pretty lousy returns. In fact, in any given year, actual investor returns are usually lower than the market returns due to investors trying to time the market and missing out on some of the gains. It's easier to just make a plan and stick to it regardless of what the market is doing.
3. Have a plan – allocate wisely. Before you invest, you should outline your goals and your timelines. This will help you choose an appropriate allocation based on your time horizon and appetite for risk. Remember to choose the Right Asset Allocation.
4. Markets tend to revert to the mean. Meaning, if the market has been hot for a few years, outperforming the mean, expect it to eventually cool off and underperform. This isn’t always a bad thing, though, because you’ll be able to buy in at lower prices when the time comes.
5. Diversification is key. It's easy to create a well-diversified portfolio of stocks and bonds – just buy mutual or index funds. As your portfolio grows, you might want to get into individual stocks, but for anyone with less than seven figures to invest, stick to diversified funds. You might miss out on a ten-bagger once in a while, but you’ll also miss out on the bankruptcies or other disappointments out there. Don’t swing for home runs starting out.
6. Reinvest the dividends. Most funds and stocks pay out annual dividends or capital gains, which you can either reinvest or receive as cash. Unless you’re living off the income, reinvest it. It’ll juice your contributions and compound over time. Most platforms will either default to this option or let you choose it when you buy your fund.
7. Fees are our enemy. Remember to keep fees low! You’ll be smart to avoid them. Don’t be lazy – just shop around a little. Vanguard has a lot of low cost funds you can buy as you earn your first million. And don’t even get me started on trade commissions. You should not be trading much in the first place, and, if you really can’t resist, you definitely shouldn’t be paying $10/trade! Shop around!
8. And taxes are even worse! There’s a reason Ben Franklin grouped death and taxes in one phrase. Taxes are the death of a good investment strategy! Make sure you’re using tax advantaged accounts when possible, and enable tax loss harvesting offered by many robo-advisors to minimize the tax bite from a taxable account.

Consider each of these when thinking about your investment goals. Did I miss any?

- MMM

Setting and achieving goals is the whole point of personal finance! Why don't more people talk about goals?! Asset allocation sounds bland on it's own, but when it's in the context of an awesome, exciting goal, it's worth learning about. I'm not a materialistic person by any means, but it's my dreams that keep me motivated. Allow me to introduce The Lake House.

Now I don't actually know where the Lake House will be. Or how much it'll cost. Or when I'll buy it. But I have some ideas. I'd like to find one within a few hours' drive from my apartment. I'd like friends and family to be able to visit for spontaneous weekend trips or to fly in for a week or two. I'd like to have a few extra bedrooms for the Fourth of July or Memorial Day parties, 2-3 bathrooms, and plenty of parking. Wouldn't it be great to be able to go swimming, fishing, hiking, canoeing in the summer; ice skating and cross country skiing in the winter? 2020 sounds like a reasonable timeline that will give me a few years to get organized.

When I first thought about The Lake House, it seemed out of reach. But now it seems more feasible.

Let's just say I can find a place like this for $250k (and that it has enough parking!)

Now for the dollars: things like a down payment, taxes, insurance, broker fees, utilities, repairs, rent, and so on will all be important. I don't necessarily know what that'll look like, but I have an idea.

20% is typically recommended or required as a down payment, and it could be more. I'll need in the ballpark of $50k. (Maybe more due to closing costs and other fees. But we'll keep the numbers round.)

Taxes, utilities, repairs, etc. will all depend on location, square footage, age, etc. But let's assume this runs about $500/month. And a 30 year, $200k mortgage for someone with good credit will be a little less than $1,000/month (not including taxes, and assuming a 4% interest rate).

So now I've quantified my goal: I'll need about $50k up front and another $1,500 a month. The numbers aren't critical at this point, because I have a few years to tighten them up. The key is just to have the goal, even if it's not 100% accurate.

The beauty of the lake house is that I could probably rent it out to people on vacation. Let's assume the house will be desirable for short term vacation rentals for $1,000/week, and that there's sizable demand. If I can rent it for 2-4 weeks a month, 6-10 months each year, my carrying costs will be covered.

So the big task is to come up with that $50k by 2020. That works out to about $1,000/month if today is Day One. True, I could lease a pretty sweet BMW or go out for fancy dinners every weekend, but I'd rather put the money toward the house.

The best motivation to stick to a financial plan is your exciting, long term goal. It's about starting with a dream (fancy lake house), making it realistic (affordable lake house that could be rented out for part of the year), and mapping out a plan (setting aside $1,000/month for 4 years). And besides, if you change your mind, you'll be able to put the savings toward something else.

Because goals inspire us all, please share yours in the comments!

Talk soon,
MMM

I went out to a baseball game last night and had a great conversation about all the things I'd recommend to become Financially Independent. Because I didn't want to ruin a fun night out for everyone, I kept my answer simple: Just follow the Three Rules.

1) Earn money
2) Spend less than you earn
3) Invest the rest

It really is this simple. But that doesn't make it easy. We'll get into the how as we go, but, at the highest level, this is what we'll come back to.

So, just to be sure, all you really need to remember about personal finance are these three rules:

1) Earn money
2) Spend less than you earn
3) Invest the rest

Don't forget!

Until next time,
-MMM

Today it begins. I decided to go public. Not with my company or anything, but with the blog. All the stuff I've been yammering about for years. Everything I've learned in the last ten years. All the details. I'm putting it all out there.

For ten years I've kept track of my finances - my income, expenses, assets, debt.  I've defined my goals and put together plans to achieve them, and have done a lot of research each time I had to make a financial decision. I've earned millions of hotel and airline points, paid minimal fees on interest or investments, and benefitted tremendously from compound interest (even after just a decade!). I track everything in an excel spreadsheet <yawn> but I know where every penny went! This is good stuff. I keep a dashboard of some cool charts and visuals I like to check every few days.

So who cares?

Well, you might. If I can get you even 1% as excited about your finances as I am about mine, I'll have accomplished something great and you'll thank me someday.

So how did I get here? My journey really started when I realized we all have a choice: we can either work for money for the rest of our lives, or figure out how to get money to work for us. And besides, empire building is fun. I especially get a kick out of getting a good deal. I'm not into clipping coupons or passing up a hot coffee on a cold day to save money, but I do enjoy finding a good happy hour special or saving on a flight by being flexible with my travel dates. Every dollar counts.

Before I really get going with this blog, though, what do you want me to write about? Are you interested in knowing what I spent on Saturday? Or the big picture stuff like what goals I'm working toward? Do you want to know why I still haven't bought the Harley I've been eyeing up for over a year, or would you rather talk about asset allocation? Any feedback is welcome, and now you can publish comments below.

Anyway, I'm looking forward to sharing all kinds of stuff here - ways I've managed to save money, how compound interest works, what you should look for in a credit card, things to consider when buying real estate, why asset allocation is the key to successful investing, and so on. I'm psyched to start these conversations and look forward to your feedback!

-MMM