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Investment strategy

practical guide – русская версия внизу

_{** little text – in no shape or form this is an investment advice to you. this is a framework on how to think strategically about your financial goals and reaching them**}

So we just bought a house. Yay, excited. But that’s not the point of this article.

The point is that now is a good moment to re-access where am I vs my financial goals, and to design an investment strategy that will get me there.

I decided to do it step by step here, as I get a lot of questions like –

I got burned on stocks before, should I buy them now?
I have 10k, what should I get that would make me rich quick?

Unfortunately, this is not how you ensure your long term financial success. Its not quick-and-easy, it is about knowing your goals, selecting a strategy, and sticking to that strategy over a long period of time.

So I encourage you to do this exercise along with me, I’ll go first.

What are my money goals?

First step is to write down your financial goals. I categorized mine into 3 buckets – from must haves to capriccios. These will be very individual, no right and wrong there – although things like retirement savings should be on everyone’s plan, lets not be naïve and rely completely on our governments.

These are mine:

What is my time horizon?

If I look at my money goals, 90% of them are 10+ years in the future, which is a long term horizon for the financial markets. It means I can theoretically construct almost all-stocks portfolio. Sure equities will sell-off at some point, but I have enough time to recover from the losses.

But do I want to be that aggressive?

In 2008, stock market crashed 50%, and it took it 6 years to recover
In 2000, technology stocks crashed 75%, and it took this particular segment of the market 17 years to recover

It does not mean you shouldn’t be invested in stocks – in fact, if you are thinking – oh well, I’ll just wait until it crashes again 50% and then I get in, you are guaranteed to miss out, there are numerous studies showing people (even the most sophisticated traders) are terrible in predicting when to get in or to get out of the market. The key is to invest systematically – during the crash one smart thing to do would be to rebalance, but not trying to guess when the market has bottomed.

Investment strategy – Decent return after inflation, avoid catastrophic losses.

I want to design an investment strategy to follow long term. To make the investment process as emotionally detached as possible, and to have strict rules what I should and should not do when market crashes, or bubbles emerge or anything in between.

Broadly speaking, the key asset classes provide long-term average return in real terms (ie after inflation):

· Stocks real returns 5-7%

· Bonds 0-5%

· Real assets (commodities, gold, real estate) 3-5%

Thus, my goal – to construct a “lazy” portfolio that would do ok in broad different states of the world: (a little disclaimer here, its not me that smart, this approach was pioneered by one of the most famous investment managers, Ray Dalio, back in 1990s..)

Inflation rises
Inflation falls
Growth rises
Growth falls vs expectations

Investment principles

The most important thing with money – is to do SOMETHING. Doesn’t really matter if you are 60% stocks or 40%, this or that… what is important is not to let money stay “under the mattress” – then you are just simply losing money to inflation.
Diversification – each asset class will experience catastrophic losses at some point. Diversification between various assets reduces overall portfolio risk.
Should be simple and little time consuming
Consider: US equities, non-US equities, bonds, commodities, real estate, gold/bitcoin
Consider equity exposure to factors: momentum, value, trend following
Implement with lower fees
Rebalance annually or in drastic market moves

Key principle:

One you construct your portfolio, sit tight and don’t panic on the way down, don’t overjoy on the way up.

Strategic Asset Allocation (SAA)

“Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep by him in reserve”

Talmud 500 B.C

Key driver of the long-term success of your investment portfolio is not how smart a trader you are, but the allocation between various asset classes (stocks, bonds, etc..)

Apparently even in Talmud, centuries ago, there was an advice on SAA, translated into the modern world, Talmud’s portfolio looks like 33% real estate, 33% stocks and 33% government bonds.

My current portfolio allocation is vastly equities (retirement funds), and real estate. When I think about my target SAA, I wont take the house we just bought into account – I don’t see it as a financial investment, so lets skip that. I also will not consider my pension money in this exercise, as this is managed separately and tax free. My current allocation ex pension and ex primary house looks roughly like that:

Stocks 55%

Bonds 20%

Real Assets 25%

What should be my target asset allocation?

As discussed earlier, I want a portfolio that would bring returns modestly above inflation, and perform OK in 4 different macro states of the world. Lets see how various asset classes behaved on average during those times:

The classical advice is 60/40, meaning 60% stocks and 40% bonds, which is rather conservative. Since most of my retirement money is in stocks, Im taking risks there, so will construct my other-than-retirement portfolio as following:

So still 60% stocks, which should generate good returns, but then I decided to put around 10% of my money into Bitcoin ETF, first of all, its fun, and secondly hopefully this is where all these teenagers once they get their first paycheck will invest.

Investment strategy execution

Now, what do I actually buy?

Has to be simple, low fee and no stress -> ETFs! Stock ETFs, Bitcoin ETF, Commodities ETF.

For Bonds will construct some sort of 5yr average duration portfolio, US government bonds, perhaps Italy – need to look carefully at the yields.

These are the popular ETF choices with smaller fees that I found:

From the fee table, I’ll be making adjustments to my SAA – its expensive to invest in commodities! I didn’t find a good and cheap ETF for it.. if anyone knows, shout out! Otherwise scratch commodities.

May be I will keep remaining 5% as my “play” budget – ie more tactical trades vs the stable allocation to these asset classes above.

When do I buy all of this?

Here a little caution. Stock market is all times high these days. I would not advise to take all your savings and buy stocks now. With my personal portfolio, I already have bunch of money in stocks, perhaps not the ones that I decided I’ll hold, so for me I will rebalance stock portion of the portfolio into desired ETFs probably early next year, as I need to consider taxes.

For the other parts – Bitcoin and bonds, this is what I will be steady growing now, from every paycheck.

If you are just starting to invest though – the best method out there is called “dollar cost averaging” – ie committing to put same amount of money periodically – every month, every quarter or whatever be. So if market corrects, you will just buy more shares on your agreed budget. They key is to start, and make investing a regular habit.

Hope this was helpful, always excited to hear your suggestions or questions

Cheers,

Natalia

_____________________

P.S. For those of you who like numbers, here is the extract from one of my favourite investor and author of cool investment articles and books, Meb Faber.

In this study, which he did back in 2015, he pulled together real (after inflation) returns for the various asset classes, and he also showed that historically – diversification, ie constructing a portfolio of stocks, bonds, and real assets – reduces the risk well, while providing decent returns.

Enjoy…

РУССКАЯ ВЕРСИЯ – спасибо ChatGPT за перевод 😊

Инвестиционная стратегия – практическое руководство

Итак, мы только что купили дом. Ура, я рада. Но это не главное в этой статье. Главное в том, что сейчас хорошее время пересмотреть свои финансовые цели и разработать инвестиционную стратегию, которая поможет их достичь.

Я решила сделать это пошагово здесь, так как получаю много вопросов вроде:

Мы прогорели на акциях раньше, стоит ли их покупать сейчас?
У меня есть 10 тысяч, что я могу купить, чтобы выстрельнуло?

К сожалению, это не то, как можно обеспечить долгосрочный финансовый успех. Это не быстро и легко, это о том, чтобы знать свои цели, выбрать стратегию и придерживаться её в течение долгого времени.

Так что я предлагаю вам сделать это упражнение вместе со мной, я начну первой.

I. Каковы мои финансовые цели?

Первый шаг – записать свои финансовые цели. Я разделила свои на три категории – от обязательных до желательных. Они будут очень индивидуальными, нет правильных и неправильных – хотя такие вещи, как накопления на пенсию, должны быть в планах у всех, не стоит полностью полагаться на наше правительство.

Мои цели:

II. Какой мой временной горизонт?

Если я посмотрю на свои финансовые цели, 90% из них относятся к периоду более 10 лет в будущем, что является долгосрочным горизонтом для финансовых рынков. Это означает, что теоретически я могу построить портфель, состоящий почти полностью из акций. Конечно, акции могут обвалиться в какой-то момент, но у меня будет достаточно времени, чтобы восстановиться от потерь.

Но хочу ли я быть настолько агрессивной?

В 2008 году фондовый рынок упал на 50%, и ему потребовалось 6 лет, чтобы восстановиться.
В 2000 году технологические акции упали на 75%, и этому сегменту рынка потребовалось 17 лет, чтобы восстановиться.

Это не значит, что не стоит инвестировать в акции – на самом деле, если вы думаете “о, я просто подожду, пока рынок снова упадет на 50%, и тогда я войду”, вы гарантированно упустите возможности. Существует множество исследований, показывающих, что люди (даже самые опытные трейдеры) ужасны в прогнозировании, когда войти или выйти с рынка. Ключевое – инвестировать систематически – во время кризиса разумно будет ребалансировать, а не пытаться угадать, когда рынок достигнет дна.

III. Инвестиционная стратегия – приличная доходность после инфляции, избегание катастрофических потерь.

Я хочу разработать инвестиционную стратегию, которой буду следовать в долгосрочной перспективе. Сделать инвестиционный процесс максимально эмоционально отстраненным и установить строгие правила, что я должна и не должна делать, когда рынок падает, или возникают пузыри, или что-то между ними.

В целом, ключевые классы активов обеспечивают долгосрочную среднюю доходность в реальных терминах (то есть после инфляции):

Акции: реальная доходность 5-7%
Облигации: 0-5%
Реальные активы (товары, золото, недвижимость): 3-5%

Таким образом, моя цель – построить “ленивый” портфель, который будет хорошо работать в различных состояниях мира: (небольшая оговорка, это не я такая умная, этот подход был впервые предложен одним из самых известных инвестиционных менеджеров, Рэйем Далио, в 1990-х годах).

Инфляция растет
Инфляция падает
Рост увеличивается
Рост снижается по сравнению с ожиданиями

IV. Инвестиционные принципы

Самое важное с деньгами – это делать ЧТО-ТО. Не имеет значения, 60% акций или 40%, это или то… важно не оставлять деньги “под матрасом” – тогда вы просто теряете деньги из-за инфляции.
Диверсификация – каждый класс активов в какой-то момент испытает катастрофические потери. Диверсификация между различными активами снижает общий риск портфеля.
Инвестирование должно быть просто и без особой траты времени.
Основные активы в портфеле: акции США, акции не из США, облигации, товары, недвижимость, золото/биткойн.
Рассмотреть акционерное участие в факторах: моментум, стоимость, следование за трендом (ну это так, не обязательно..)
Реализация с низкими комиссиями.
Ребалансировка ежегодно или при резких изменениях на рынке.

Ключевой принцип: После того как вы построите свой портфель, сидите спокойно и не паникуйте на пути вниз, не радуйтесь чрезмерно на пути вверх.

V. Стратегическое распределение активов (SAA)

“Пусть каждый человек делит свои деньги на три части: одну треть инвестирует в землю, одну треть в бизнес и одну треть держит в резерве.”

Талмуд 500 г. до н.э.

Ключевым драйвером долгосрочного успеха вашего инвестиционного портфеля является не то, насколько вы умный трейдер, а распределение между различными классами активов (акции, облигации и т.д.)

Очевидно, что даже в Талмуде, столетия назад, давались советы по SAA, переводя в современный мир, портфель Талмуда выглядит как 33% недвижимость, 33% акции и 33% государственные облигации.

Моя текущая структура портфеля в основном состоит из акций (пенсионные фонды) и недвижимости. Когда я думаю о своей целевой SAA, я не буду учитывать дом, который мы только что купили – я не рассматриваю его как финансовую инвестицию, так что пропустим это. Также я не буду учитывать свои пенсионные деньги, так как они управляются отдельно и освобождены от налогов. Моя текущая структура без учета пенсий и основного дома выглядит примерно так:

Акции: 55%
Облигации: 20%
Реальные активы: 25%

Какова должна быть моя целевая структура активов?

Как обсуждалось ранее, я хочу портфель, который будет приносить доход выше инфляции и показывать хорошие результаты в 4 различных макроэкономических состояниях мира. Давайте посмотрим, как различные классы активов в среднем вели себя в эти времена:

Классический совет – 60/40, то есть 60% акций и 40% облигаций, что довольно консервативно. Поскольку большинство моих пенсионных денег находятся в акциях, я принимаю там риски, поэтому сконструирую свой портфель, не учитывая пенсионные средства, следующим образом:

Так что все еще 60% акций, которые должны принести хорошую доходность, но затем я решила вложить около 10% своих денег в биткойн-ETF, во-первых, это весело, а во-вторых, надеюсь, что это то, куда все эти подростки, получившие свою первую зарплату, будут инвестировать.

VI. Реализация инвестиционной стратегии

Итак, что я действительно покупаю? Должно быть просто, с низкими комиссиями и без стресса -> ETFs! Акционные ETFs, биткойн-ETF, товарные (commodity) ETF. Для облигаций я составлю портфель с средним временем в 5 лет, в который войдут облигации правительства США и, возможно, Италии – нужно внимательно изучить доходности.

Вот популярные ETF с низкими комиссиями, которые я нашла:

Из таблицы с комиссиями я буду корректировать свою SAA – инвестировать в товары дорого! Я не нашла хорошего и дешевого ETF для этого.. если кто-то знает, скажите пожалуйста! В противном случае, исключу товары из портфеля. Возможно, я оставлю оставшиеся 5% в качестве своего “игрового” бюджета – т.е. для более тактических инвестиций по сравнению с стабильным распределением по вышеуказанным классам активов.

Когда лучше всё это? Здесь осторожно. Нынче фондовый рынок находится на историческом максимуме. Я не советую вкладывать все свои сбережения и покупать акции сейчас. В своем личном портфеле у меня уже есть много денег в акциях, возможно, не тех, которые я решила держать, поэтому я буду ребалансировать акционную часть портфеля в желаемые ETF, вероятно, в начале следующего года, так как мне нужно учитывать налоги.

Что касается других частей – биткойн и облигации, я буду постепенно увеличивать их долю в портфеле с каждой зарплаты.

Если вы только начинаете инвестировать, то лучший метод, называемый “усреднение долларовой стоимости” – это решение вкладывать одинаковую сумму денег периодически – каждый месяц, каждый квартал или как вам удобно. Таким образом, если рынок скорректируется, вы просто купите больше акций на ваш бюджет. Главное – начать и сделать инвестирование регулярной привычкой.

Надеюсь, было полезно, предложения, вопросы всегда преветствуются!

Наталья

P.S. Для тех из вас, кто любит статистику, вот выдержка из одной из моих любимых статей и книг по инвестициям от инвестора и автора Мэба Фабера. В этом исследовании, проведенном в 2015 году, он собрал реальные (после инфляции) доходности для различных классов активов и показал, что исторически диверсификация, то есть построение портфеля из акций, облигаций и реальных активов, хорошо снижает риски, обеспечивая достойные доходности.

Наслаждайтесь…

HOW TO BUY A CAR, OR A POWER OF COGNITIVE BIAS

* Car-buying advice from someone who knows nothing about cars*

After over 10 years of blissful reliance on public transportation, it was time to grow up and we finally bought a car! His name is Delfin.

On a scale 1 to 10, where 10 is the maximum knowledge about cars, I’d put myself at 1.5. My husband is solid 10, so we make a decent average.

However, with the knowledge of cognitive biases what human brain is susceptible to, i knew what a process of selecting a car should look like:

Acknowledge and then totally disregard your emotions on the subject of buying a car. Emotionally it doesn’t matter what car you have – on that later in this article
Figure out what are must haves for the car – for us, it was three things: (i) ACC – Adaptive Cruise Control (if a car stops suddenly in front of your, our car will stop by itself), and (ii) it had to be hybrid (after so many years of not having a car i was not quite ready to go full-pollution route), (iii) pass all the safety standards
Select a car that makes most financial sense for your selected time period out of available choices that satisfy #2

For example, our time period is 3 years. In 3 year time we would likely get a full electric car, as we will hopefully live in a place where there is a charging outlet in a garage.. Buying an electric car right now would be too much pain, as we’d have to find random places to charge it up.

First, the financial part..

How do you know whats makes most financial sense? Easy. Take the cost today, estimate the car’s cost at which you will be able to sell it at the end of your desired time period (for us 3 years). Divide by 36 months in our case. This is how much we are paying per month for the privilege of driving our car.

Of course the killer here is depreciation, and it works roughly as following:

Depreciation timeline	discount
Right after putting your butt in the drivers seat	-10%
in 3 years	-40% to -50%
in 5 years	-60%

So, the most obvious solution would be to buy a car after someone owned it for 5 min, and wanted to sell. Unfortunately, there were no such cars on the market with ACC and being hybrid. In fact, since this ACC is a fairly new feature, there were practically no used cars in the market with it. We had to buy it new.

However, here in Europe, we have a bit different situation than in the US, as Europe is making a big push towards clean cars, and little by little restricts the use of gasoline-run cars in the cities. So in our case, as hybrids will be in crazy demand 3 years from now, we hope that we will be able to sell our car at almost 70% of its cost after 3 years!
Which means that we would loose 10k-12k of the car’s value in 3 years.

All in all, per month the use of our car would cost us 300 EUR, which is very decent in European standards (cars here are way more expensive than in the US).

And now why it doesn’t really matter which car you buy

People make rational choices based on their self-interest
Classic economics theory, Adam Smith

Humans make decisions and act in ways that are anything but rational.
real life

A notion of cognitive biases, introduced by psychologists Daniel Kahneman and Amos Tversky in 1972, stipulates that the humans regularly mess up in their judgement thanks to the tricks of their own minds – aka biases

Ever wondered why the prices are always something.99 ? or why employers hire people who are like them?

There literally dozens of these biases, that once you study them, you’d be humbled by realization that you yourself decide very little in this life, rather letting that black box brain of yours to construct memories, do the reasoning and decision-making based on some screwed-up rules

As you can imagine, there are tons of biases that companies and sales people use on you to coerce you to buy their particular car – from the “herd behavior” effect, which makes us want to buy a car that the class of people we aspire to belong to buys, to “current moment bias”, which makes us pay crazy money for that BMW lease thinking that spending today is more important than saving for future.

However, there is one bias which is actually working in our favor once you turn off emotions and turn on calculator. Its called:

The ownership bias

People place additional value on items they already own.

In 1991, a bunch of students were divided into two groups: the first group was given coffee mugs and the second group was given nothing. When the first group of students were asked what they would charge to sell their mugs, they gave a higher price than the second group who were asked how much they would pay to buy the same mug.

So, the beauty of the Ownership bias, is that you are going to like your car – doesn’t matter which car! you are going to like it, just because it’s yours.

Finally, a premium for show-off

People love luxury goods. there is little sense of paying extra just for a brand name, but we all do that – we pay extra money to show off. Our car buying experience, actually illustrated for me the cost of the show off.

As you remember, we wanted a car that would be (i) hybrid, (ii) have ACC, (iii) pass strict safety standards

After months (!) of extensive research, my husband selected a trio of contenders, which funny enough were absolutely the same – same engine, same features, same look (they do belong to the same company and the engines are manufactured on a same factory)- the only difference were in logos and the prices.

So, what gives?

we bought a Volkswagen. even though absolutely same Seat was 5k cheaper, my husband calculated that the price depreciation of VW will be less than the Seat’s one – just because its German, and oh the Spanish, they assign a premium to anything-German.

but this example shows that the “premium” car being Audi, is 40% more expensive than equal Seat, or 20% more expensive than equal VW. So, in this example, 7k difference for Audi is a price to show-off. Is it worth it? definitely not for myself and my dear readers, who are hopefully reading this blog to get rich and happy!

Our Delfinchik – welcome to the world!

Budgets are a girl’s best friend…

Tell me if this sounds familiar…

you get through the summer in bikinis and loose-fit dresses, swap them for leggings in fall, and then one day early winter (right after Thanksgiving) you try your winter pants on, only to find out that they wouldn’t fit.

I’ve definitely been there, blaming the slow creep of extra pounds when you dont watch them.

there is a reason why we need to step on the scales periodically, and there is a reason why you need to count those calories if you are trying to lose weight.

and the reason is to keep ourselves honest on how we are doing, and by keeping honest, avoid eating this chocolate croissant which is so crunchy, so buttery, and calls for you from the shelf.

So, that brings me to the BUDGETING. which is an equivalent of counting calories if you want to be financially fit. the reasons why you need a budget are simple:

knowledge is power. and you need to know where your money is going
you don’t want to work until you are 86, no? (expected life these days)
doesn’t matter where you are on the line of financial continuum (broke / paycheck-to-paycheck / stable / bloody rich), a budget will help you visualize your financial future, crafting a plan how to get out of debts, or how not to piss away your fortunes if you happened to come about to some money

Create your budget – step by step

Create a table with projected monthly Income, Savings and Expenses. I like to have Savings as a category before Expenses, because sending money to your saving/investment account should come automatically, before even you had a chance to spend it all on something stupid.
Get your actual monthly expenses all in one place. You can get bunch of apps who do that, such as Mint, or Personal Capital, or you can do it old-school like i do with Excel/ Google sheets. Download your transactions from your bank/credit cards etc.
Organize your actual transactions by categories. Mint would do it automatically, even though they tend to crew things up and put big chunk of your expenses into “uncategorized” which is not helpful. Again, i do it myself, yes, its my nerdy fun.
Compare your actuals vs your budget, if you’ve been a good girl/boy and spent less than projected, good for you, go get an ice-cream.
If you spent more than you should have, analyze in detail which categories you screwed up with. For example, later in this post, i’ll show you what actions i took as a result of exceeding my budget (massively so!) on silly things.

Few important things about the sample budget above:

your Income is after all deductions such as taxes, health insurance and 401K- i assume here that you are contributing to 401K to the max ($19,500 max for 2020). if you dont, please drop everything and just go sign up to 401K. Even if your employer is not matching the savings, it still makes massive sense to max out on 401k so you dont pay more taxes than needed.
If you are self-employed, please put here projected Income after taxes, and after the retirement contributions you do to your IRA
Most personal finance gurus advocate for 50/30/20 rule – which is, out of your income: 50% for essential expenses / 30% non-essential expenses / 20% savings

Now, to keep yourself honest about the savings, i would open separate savings accounts for:

Investing/long term savings. Set up an automatic recurring contribution from every paycheck
Savings account for “Big items” – your wedding / car / vacation in Japan / house renovation etc. Contribute to this account any time you got some extra income, or any time you actually spent less than the budget
College fund – if you have kids, you should start one. they provide tax advantages and again, good way of making sure you don’t trade your kids future on some impulse shopping today.

Now, all of this is a bit theoretical, let me share with you my actual budget for July in Spain. Its a weird one, as at least in the beginning, i am not going to have any income in Spain, and hence cant save. Once my life in Spain gets to more normal rhythm, i’ll share the full budget.

Conclusions for July:

overall spent less than planned, but that’s only because we were living in our summer place, hence didn’t pay rent for the primary residence
“Work” category contains tons of some magazine subscriptions which i didnt event know i had – so i spent one afternoon calling to these newspapers and magazines to cancel – next month should be much less.
“entertainment” same – turns out i was paying some some Apple Apps which i never used, and signed up long time ago as “trials”! canned these.
Shopping – bloody hell. i felt all month that I’m not buying anything at all, only this little thing here, that little thing there. It adds up, and worse of all, i really didn’t need any of these things i was buying (the jury is still out on special potty-training underwear, sorry for details)
I cant wait until the end of August to see how I’m doing since i adjusted few of my silly spending habits!

Finally, i enjoy doing the budgets. Yes, really!

If you want to, send me a note, talk to me, i’ll help you (for free) to put together a personalized budget for you, and will help you to analyze it to see how you can shave off expenses and save for the bright financial future.

any questions? suggestions? would love to hear from you!

On investing…

or… the benefits of entrusting your savings to professional money managers..

I finally managed to sit down for my investment check up for the first 7 months of 2020, in what has been a wild year on the markets so far…

Some interesting observations, which are prompting me to rethink my portfolio.

Roughly speaking, I got:

Cash / cash like stuff – since job situation is rather fluid these days, my goal is to have roughly 2 years of expenses in something very safe and liquid
Investments opportunistic – generally the money i can “play with” in current market dislocation. These are equity ETFs, held rather short term, I’m trying to keep the portfolio flat most of the time. at the time of writing this, this portfolio is only about 20% invested.
Investments long term – these are buy & hold, individual equities and ETFs, few bond ETFs. these funds are for 5-10 years horizon
Retirement funds (401k, IRA)
College fund (tax advantageous)

So,

out of these accounts, some are “professionally managed”, and some are “Natalia’s managed”.

On average, one type returned -1%, another returned +32% simple interest (not annualized). Can you guess which is which?

Correct, the “Natalia’s managed” returned so far +32%. The temptation to annualize is big, but I’m not going to do it – it was a nice run we had since mid March, but lets face it, the run is over.

What are the conclusions?

~~Natalia is an investor from God. Warren Buffet, move over~~
~~Natalia will continue earn 32% every 7 months from now on~~

It’s been an amazing market recovery fueled by other forces than health of the economy (thank you very much, dear Fed)
What goes up, must come down (always does)
“Mom & Pop” investors in the US, which are behind this rally, have now tasted the sweet temptation of easy profits, and will fight hard to keep the illusion of getting richer
Too early to dismiss professional money managers as worthless, I’ll keep at least 2 of my accounts with them – one 401k and one long term investment, so they can rebalance between taxable and tax-free to save some money on income tax. Of course they preformed worse than someone who invests in NASDAQ ETF, but hey, that strategy might not be repeatable 🙂

So…. I don’t think its time to completely get out of the market, but its time to diversify..

i started looking into commercial real estate (CRE) crowdfunding options. Sounds scary and exciting, if anyone has any experience with it, let me know!

Life in the time of Coronavirus

Apocalypse now.

I thought I was the rational one.

I knew my family and friends are going to be ok.

I knew the real mortality rate (once they count everyone) will be <1%.

I knew THIS TOO SHALL PASS as it always does.

Still… I started sleeping badly. I started getting annoyed with my annoying friends (they always been annoying, but my reaction is what has changed).

I’m worried. Not scared, but worried.

I’m a Soviet child – we are raised on WW2 movies, on stories about Siege of Leningrad, our heroes were the teens fighting nazis in the woods of Belarus. We went through food deficits, Russian default, hyperinflation. Apocalypse is in our blood. Boring. Not something to be scared of.

All this nonsense about doomsday, buying guns, secret labs where bad people are manufacturing viruses – pleeeeese…

But I am worried about the health of my parents, my extended family > 65, my oldie friends in my apartment building – they are at risk. I am not.

I am worried about mental and physical damage to people who are going to lose their businesses, their incomes, their houses. It’s incredibly sad that this time around it is the brave ones, the entrepreneurs who will suffer the most. These are the guys who saved some cash, took loans, and opened a restaurant, or a hair salon, or a boutique store selling dog clothes.

So… in every crisis situation, what do you do? And trust me, I’ll be doing this exercise myself now (… and drinking lots of wine, otherwise what‘s the point…)

1) Realistically assess the situation

No, everything can’t be bad. And no, you are not alone.

– you are young, healthy, kids are ok? Plus

– no income, and probably won’t be one for who knows how long? Minus

– your parents are good, you can now call your mom every day because you are at home and she is at home? Plus

– if you don’t pay your landlord he might kick you out? Minus

– the government is probably going to provide you with some economical relief.. Plus

…

2) Make a plan

Next day:

– exercise

– take care of your family

– cook healthy food

– call mom

Repeat

Next week:

– figure out your cash flow. What’s coming? What’s going? How much in the bank?

– do the budget. Cut everything non- essential. Bare bones. Food, toilet paper (joking!!!), cell phone, internet

– go through your subscriptions and services. Gym? Magazines? Apps that you don’t even use? Kill it. Cell phone/ internet bill? Go and see how you can lower it. Call them, threaten to leave – they will negotiate with you, they will lower it down.

– call your landlord, negotiate lowering the payment. What can they do? Not like there’s going to be a line to take your place.

Next month:

Ok… now time to think of what YOU could have done differently. Better. Coronavirus is not your fault. Government response is not your fault, don’t even bother being upset about it. But what did YOU screw up?

Got too greedy betting on the stock market? (Me me me!!!)

Spent too much money on stupid things instead of building an emergency cushion?

Got a degree in “women studies” instead of something real?

But hey. If you were creative, entrepreneurial, if you took a risk, started something awesome and it didn’t work because of the bloody virus, DONT WORRY. Yes you probably lost your money, but these skills that allowed you to start this business to begin with, these skills are yours to keep. And after this passes (repeat after me: THIS TOO SHALL PASS), you will re-emerge stronger and more prepared than ever.

3) action!!!

Yes, squats every day. Your butt will thank you in May.

P.S. don’t yell at your partner – you’ll have to hang with them 24/7 for next month!

P. P. S. Call me if you fancy to chat. Seriously.

Brave New World of the 2020s

Everyone and their grandmother already wrote about end of the decade, best and worst things of the 2010s, and their predictions for 2020s; I feel like a sucker left behind.

Jumping in the very last car of the very last train doing straight into the 2020!!!!

Ta-da……

My 2020s decade predictions*:

** in no particular order**

Low developed market equity returns. Bad news for the 14-year olds who want to retire at 25 betting on a steady market inflation that we’ve seen past decade (I’m not joking – there are tons of threads on Reddit starting with “14 year old from Oregon, with $350 savings, want to retire at 25”).
Why low? Aging demographics trend, low productivity growth, potential social unrest due to increasing inequality – all the boring things that economists have been saying..
People moving away from the cities (developed economies, of course urbanization will still be increasing in emerging economies). Trend to live a more simple life, combined with increased connectivity and telecommuting.
Not (yet) autonomous cars. I’m not even skeptical about the technology – we, as a society are just not ready to the ethical dilemmas these cars will pose: “I’m about to crash – who do you prefer me to kill – a little kid or a babushka?”
Insects BBQ and the rise of alternative proteins. Yammy!
Big Tech related disruption. Don’t know what it will be. Zuckerberg turns out to be a space alien, or terrorists steal Amazon’s data to use it for some sort of mega cyber attack – with the power that the Big Techs accumulated in 2010s, we are going to have a first explosion in 2020s.
Precision medicine. Good news for the 1% of the population who’d be able to pay for it. Genome editing, drugs developed for very rare deseases – definitely a bright spot of the future medicine.
Anti-globalization. Too much complexity and too much choice in our lives will prompt people to seek more simple ways of living. Rising wealth inequality will lead to the increasingly frequent backlashes against the holders of the wealth – global corporations.
Climate-activism wars. You can’t save the environment without curbing consumption – starting from eating less meat, using less electricity for data, producing less. Our desire to be cleaner will come in conflict with wanting to buy these 10th pair of yoga pants. There will be activists wars between the climate radicals and corporations and also the good old proponents of Consumerism.
Boys vs girls. Gender issues got a lot of attention in the end of 2010s, with #MeToo, and terms like “toxic masculinity” becoming household expressions. Boys are getting harsh treatment from early on, and into the adult life – affirmative action as part of the cultural wave that is meant to restore gender equality and undo the historical damage done to the women. Meanwhile, the gender educational gap is not in boys favor – girls do better at school. More females than males attain university diplomas – starting from bachelor through the doctorate. Yes, the gender pay and gender wealth gaps are real, and it hits harder the higher you go on the career ladder – small percentage of the C-suite executives are female. Reducing this gap is necessary and good, but the efforts to do so seem to hit at the wrong places – we are creating a generation of the boys used to being inferior, rather than equal. My prediction – things are going to get worse and by the end of the 2020s the issue will become on the nations agenda, as the society realizes the pendulum swung too far.
College sucks – college education will get less and less relevant for the future success. And with the cost of this education, the kids and the parents of the future will more often choose to forego the $80k-per-year expenditure. As all sort the information is readily available to anyone with internet access, ability to learn on your own will be the most defining success factor.

* Disclaimer: these predictions are mainly for the US. This has been my home for the last 29 years, this is the life I know most. It’s only when you get out of the country, you realize how hugely different the US is – good and bad different. How concepts and beliefs of the Americans are alien to the rest of the world. Simply put, the world doesn’t give a shit about many things that are on the front pages of the US agenda (MeToo anyone?), while the US is looking like a Stone Age regarding the issues that matter to say Europe (e.g. avoidance of single-use plastic)

Best Butt Ever (BBE) is under construction…..

(Literally)

2020 Resolution: free of credit card debt

There are few things I hate more than the great scam of credit cards in the US. Somehow as a nation we decided its ok to let the bank earn shit loads of money from our desire to live beyond our means.

Don’t get me wrong, credit cards are ok, only if you never use them as actual credit. Use them to get airline points or cashback or to open your door when you are locked out, just don’t open a credit card if you have a slightest doubt you can repay it back every month.

In my line of work, people would kill each other for extra 0.25% of financial return. Credit cards charge you on average 17% interest rate (whaaat???), and currently the rate is the highest it’s been for decades.

By the way if you think 17% is not that bad, that the interest you pay is 17% of your say $10,000 balance, noooooo… mistake. The way these things work, is that you end up paying way more than just stated APR.

The worst thing you can do, is to pay just “minimum balance”. Let’s see. If you have that $10,000 credit card balance at 17% APR, and only pay the minimum, you are probably paying around $250 per month.

If you just do the “minimum payment”, It will take you:

24 years to pay off this credit card (forever)

$13,000 in JUST interest charges (money wasted)

So, to me, the choice is an obvious one…

Get out of credit card debt – NOW

Don’t care how you do it, there are tons of ways. Suck it up. Just do it.

Few ideas:

Buy rice, chicken and onions. Repeat. Yes, it sucks. So does paying 17% on your credit cards. (And you might loose weight as a side bonus!)
I’m not even going to say anything about Starbucks, ok?
Do your nails yourself!!
Drink at home! Get some friends, and instead of paying $16-a-glass Merlot in a bar, stock up on $8-a-bottle Boujaleas, and throw a house party every week.
No, you don’t need to drive for 2 hours (spending money on gas) to go to that super organic Amish local farmers market. Those onions you’ll buy for your chicken-n-rice are organic enough.
Hair. Keanu Reeve’s girlfriend style might be bit too much for us, so this one I haven’t figured out yet – but surely must be cheaper DIY options?

Got the idea?

Look through your credit cards, pick the one with highest percentage, and figure out how much you need to pay per month to pay it all within 12 month.

For example that $10,000 balance, with 17% APR you can pay down completely in 12 months by paying $913 per month.

Bit sooner than 24 years…

So make it a New Years resolution. Pay off the bastards!

Life Planning

Step 1. Setting Life Goals

1 year – 5 years – life goals

December 2019. Perfect timing to reflect on the rapidly passing decade, and to think big picture – what 2020s will bring me? What can I do to live my Best Possible Life?

Am i just floating in the muddy waters of life, completely in mercy of currents and tides? Or am I being a Michael Phelps in this swimming competition?

“I don’t know what I think until I write it down.”
said someone important

Ok, if you are an extrovert, you probably already told your 1-year, 5-year and next 200 years goals to everyone around, and already got feedback how stupid these goals are. But if you are an introvert, chances are you are not discussing personal issues like that too often, so take some time, visualize your future, and write it down.

As marathon runners know, its much easier to endure 26 miles of pain and suffering when you have the course visualized. You keep that image in mind of you, drinking your Gatorade, with the medal around your neck, happy for what you have achieved. This image, and having an idea of what to expect around next corner is what gives your strength.

Of course I’m not that naive to suggest you can control everything in your life. You cant. Things happen to you, bad and good, things that will derail you from your plan, make this plan either in-achievable or not worthy to achieve, and its fine. “F” for flexibility. This is why this exercise is to be repeated every year, I suggest morning of December 31^st before your judgment gets clouded by all the champagne that’s coming.

– Ok, I’m sold on having to write down a plan. How do I do it?

Break down whats important to you in life into categories. I suggest the following, you can pick yours:

Family

What’s your ideal family? What kind of partner you want? Kids? What’s your relationship with your parents, siblings, extended family?

Friends

We are social creatures, friends are important. But good ones are not easy to get. Do you have friends that don’t just sing sweet songs into your ears, but actually contribute positively into your development and into your life?

Health

Here I’d be modest. Let’s not talk “lifetime” as the universe often has a wicked sense of humor… but 1yr, 5yr sure we can have goals.

Money

Where are you on the money scale from 0 to 10, 0 being “tons of credit card debt, living pay check to pay check”, and 10 being “eating gold-infused caviar for breakfast”? Where you want to be – 1, 3, 10 years? Here please be realistic, your life plan shouldn’t depend on you winning the “Mega Millions” lottery.

Career

Good career provides your social standing, ways to meet driven people and learn things. I know it’s popular nowadays to wish to retire since you are 18, but I don’t think that’s right, I don’t think this brings happiness. Many of my finance peeps are loaded, but really l-o-a-d-e-d, yet still find joy and meaning in showing up at work every day. With the world around us changing so rapidly, and so many cool things are for grabs (before the robots get them!) that its criminal not to try to build a career.

Knowledge

What is it the Mr. or Mrs. Cool-You of the future knows that you currently don’t? Languages? Farming? Robotics?

Love/Sex

What should you do to improve your love life? Sex life?

Leisure

What are the activities you would like to pursue outside of obligations such as work, family and school? Please make these activities be meaningful and worthy of your time (hint: watching 4 hours a day of netflix doesn’t cut it). Every book on happiness I’ve read says that happiness is coming from caring about something greater than yourself and believing you are contributing to something meaningful.

Travel

This one is a separate category because it’s the easiest to plan.

Achieving immortality

This one really is the most important one. What will you be remembered for? Is it a beautiful art you’ll create? A company that changes people’s lives? Contribution to your community that will have a lasting impact beyond your time? Kids who would carry the memory of you into the future?

– Done! What’s next?

For each category, write down your vision of a meaningful and productive future, breaking it down to the time intervals:

1-year goals
5-year goals
Lifetime goals **if “lifetime” freaks you out, substitute here to 10 years**

So enough theory, just go and put your thoughts on paper, on Google docs or whatever else you are using. I do suggest write it all up in one big blurb, almost like a stream of consciousness. I do find that im more honest with myself when I’m not thinking of every line too much. Once the food and fireworks are out of your system on January 3^rd, you can come back to this, re-read it, and add/correct if you wish to.

Otherwise, live it be for a little, because soon enough you’ll need to start the Step 2 – developing a detailed, actionable plan to make your envisioned future a reality (more on it later).

P.S. For those of you overachievers, there is an “extra points” exercise – writing down “Life you don’t want to end up with”. Put it on paper – your worst fears, your pains – what would your life be like if you made all the wrong decisions? If you were lazy beyond reasonable? If you let yourself be angry and resentful? If you take too much drugs or alcohol? Its important to know how your enemy looks like, so you’ll recognize the first signs of him when they come.