I saw this book, ‘How I Invest My Money,’ all over my Twitter and Feedly accounts at the beginning of November. After listening to and reading a few interviews about the book, I was intrigued and decided to pick up a copy.
What can I say, marketing works.
The book is a collection of essays from a variety of financial experts about what they do with their money. Despite the title, many of the chapters focus less on the ‘how’ of investing and more on the ‘why.’
I liked it. It’s not the sort of book that says you should own X and Y, avoid A and B, etc. Instead, it’s a window into how the different authors view their money. It doesn’t necessarily contain a lot of immediately actionable advice, but does provide a lot of inspiration and food for thought.
Not every story resonated with me. But the beauty of this book is that each essay is 3-6 pages long, so it’s not long before you’re reading something new. And of course, it’s always good to challenge your perspective by reading different opinions.
Some of the book is very US-centric. There’s a lot of talk about Roth IRAs, 401(k)s, 529 plans, etc. But it’s easy enough to gloss over those parts, or to translate them to the UK equivalents.
Whilst reading the book, I came across a number of quotes that made me stop and think. I’ve collected some of those quotes in this post and wanted to present the lessons that stood out to me whilst reading.
1) Investments are a means to an end
I noticed that this message cropped up frequently. In fact, Christine Benz and Alex Chalekian pretty much used those exact words.
Christine in particular wrote about how she isn’t passionate about investing. Instead, investing is simply something that allows her and her family to live the life they want to live.
I think this is an important point. It’s difficult to motivate yourself to start saving and investing if you don’t have a goal. You need to answer the question, why are you investing?
In my case, I know that I’m saving and investing in order to provide a degree of safety and security, and to give myself options. This is especially evident for me and my decision to attempt a career change. Having a years worth of expenses in savings means that I can take some time away from work to study, without worrying about where my next pay cheque will come from.
Furthermore, whilst I have no desire to retire early at the moment, who knows how I’ll feel in 20 years time. I’m sure it will be nice to have the option to retire early, change careers, or take a sabbatical some time in the future.
A few quotes in particular that resonated with me:
“True wealth is the ability to underwrite a life that is meaningful to me.”
“Some people become owned by their money and possessions. Instead of money freeing them from their concerns and anxieties, they’ve made their own prison in their wealth and they can’t escape for fear of losing it. […] Money is a wonderful servant and a terrible master.”
“Don’t define yourself by what you have, but by your accomplishments and education. […] Money does not buy happiness, but it does provide peace of mind, freedom, and flexibility.”
To finish off this section, this quote sums it up best:
“Wealth means health, time, and options.”
2) Invest in yourself
Several of the authors focussed on the fact that your ability to achieve any significant level of wealth is dependent on your ability to earn a wage, and to continue to do so for the foreseeable future:
“Your ability to work is your safest and highest returning asset.”
“I’m 40 and plan on working for another 20 years. So, my biggest asset is still my earning power.”
This underscores the fact that, for most of us, investing is not going to help us in the early years of our career.
If you have £50,000 invested, and the markets rise by 5% in one year, you now have… £52,500. That’s obviously better than getting 0.5% from a savings account, but it’s not exactly Scrooge McDuck money.
Meanwhile, if you earn £31,000 per year (the UK median wage) and can save and invest 20%, you’ll have contributed £6,200. That’s not only more than the gains you made from the stock market, but it’s more consistent and dependable. You have no control over what the markets do, but you can control how much you spend, save and invest. It’s only once you’ve saved and invested a significant sum that the potential stock market gains can outpace your wage.
On the other hand, if you earn minimum wage, your ability to save a significant amount of money is hampered. If you earn £20,000 per year, the absolute most you can save and invest each year is… £20,000. Obviously that’s not feasible when you consider the cost of rent, groceries, bills, etc. Not to mention spending on fun and luxuries.
If you invest in yourself, you should ultimately be able to increase your earning power. This will allow you to save more without impacting your day-to-day life, and the benefits will compound over your working life.
3) Cash is king
The first step towards financial independence is usually one of two things – either pay down all your debts, or (in this case) establish an emergency fund.
And for good reason!
As I’ve mentioned above, having a sizeable amount of cash in the bank does wonders for one’s peace of mind. I’m not talking millionaire money. Simply having a years worth of expenses in my savings account just means that I can relax:
“We keep a higher percentage of our assets in cash than most financial advisors would recommend. […] Cash is the oxygen of independence.”
Just as importantly, having that emergency fund means that I should never be in a position of having to sell some of my stocks after a downturn in the market:
“A cash buffer gives a sense of stability, allowing you to freely invest the remainder of your assets with a long time horizon.”
4) There’s no single answer
Not every author in the book gave exact details on how they actually invest their money. Of those that did, there was a large variety.
Some keep it simple and just invest in a a handful of index funds.
Others take it a step further, and include a few satellite holdings.
Many are heavily invested in their own business.
Going further, I was surprised to see that some seemed to completely disregard index trackers and invest in a variety of products, from art, wine and commodities, to IPOs and venture capital funds.
Bob Seawright spends most of his chapter talking about the expensive second house he bought. He admits that, financially, it was a terrible decision. It’s old, cold, can’t be rented out for most of the year… It’s a huge money pit. But, it also provides a great return in terms of fun for the family. This house is an integral part of many of his family’s most cherished memories, and is now providing the same opportunity for his grandchildren.
Meanwhile, Josh Rogers writes about the potential of new asset classes:
“Always look to the future and take chances by investing in futuristic companies or in new asset classes.”
It was interesting to read this off the back of Bitcoin’s recent rally and record breaking highs. Maybe if I had read this quote a few years ago I would have bought a Bitcoin and would now be feeling very pleased with myself!
On the other hand, I did actually take a chance on an entirely different new asset class – peer-to-peer (P2P) lending. Ultimately, I didn’t really get much out of it.
Fortunately, I didn’t lose any money. I stuck £1000 with RateSetter almost two years ago, made 13% including the bonus, then promptly withdrew the money and put it somewhere else. Turns out it was lucky that I did so! Nowadays, P2P looks like a mediocre asset class. Poor liquidity and poor returns; what’s the point?
So, despite Josh’s comments on being open to new asset classes, my own experiences tell me that you should probably only invest a small percentage in new, untested classes at first.
5) Keep it simple
While there may not be just one correct answer, I resonated most strongly with those authors that keep it simple.
How much time would you have to pour into researching companies and stocks in order to outperform the market? Morgan Housel puts forward a good argument for sticking with simple index funds:
“Effectively all of our net worth is a house, a checking account and some Vanguard index funds. […] There is little correlation between investment effort and investment results. […] you won’t do well if you miss the two or three things that move the needle in your strategy”
Blair duQuesnay says that avoiding mistakes allows the investment portfolio to grow:
“Prioritise paying yourself first and avoid mistakes. The investment portfolio will then do its job.”
And Christine Benz says that your lifestyle choices will have a greater impact on your wealth than your choice in investments:
“Getting the big stuff right – living within their means, setting a reasonable savings rate, staying employed – will be a bigger determinant of whether they reach their goals than will their investment selections.”
These quotes highlight why I have kept my investment portfolio simple. I invest in a couple of global index trackers in my ISA and pension accounts, and keep my cash across a few current and savings accounts. This frees my mind and attention to focus on the things that I can have an impact on.
6) Enjoy the ride
Maybe the most important lesson of all, and one that we constantly need to be reminded of.
“Life is not just about the next big milestone. Its also about enjoying the moments in between.”
Of course it’s important to have a goal or something to look forward to. It could be a promotion, a net worth goal, or a holiday, etc. But the problem with always looking forward to the next big thing is that you don’t take time to appreciate the moment.
Life is too short to let it pass you by in a flash!
These were the key lessons I took from the book. I definitely think it’s worth picking up and seeing which chapters and messages hit home for you.
Have any readers read the book, and did you take away any lessons that I’ve missed? Are there any other new books that you might recommend checking out?