If You Can: How Millennials Get Rich Slowly, by William Bernstein
According to Bernstein, it’s simple. Save 15% of your salary into a tax advantaged account (401(k), 403(b), IRA, Roth, or combination), and you will be able to retire comfortably. Diversify your 15% savings into 3 different mutual funds:
U.S total stock market index fund
International total stock market index fund
U.S. total bond market index fund
Identify the hurdles
Obviously, there are going to be hurdles that you need to overcome in order to actually implement this strategy. Here are the five hurdles that Bernstein identifies which will prevent us from saving our 15%:
Spend too much money on fashionable clothes, fancy cars, Cancun vacations, unnecessary restaurant meals, daily lattes
Need an adequate understanding about the theory and practice of finance
Need an adequate understanding about the history of finance and markets
Maintain strict long-term discipline with your savings and investments
Avoid the chameleonized financial monsters such as well-intentioned college friends and “finance professionals” (malfeasance)
Overcome the hurdles
To overcome the five hurdles, Bernstein has recommended reading assignments for each hurdle:
“The Millionaire Next Door” ~ Thomas Stanley and William Danko
“Common Sense on Mutual Funds” ~ Jack Bogle
“Devil Take the Hindmost” ~ Edward Chacellor | “The Great Depression: A Diary” ~ Benjamin Roth
“Your Money and Your Brain” ~ Jason Zweig
“How a Second Grader Beats Wall Street” ~ Allan Roth | “All About Asset Allocation” ~ Rick Ferri
Other notes from the book that stood out to me:
Before you can save, get out of debt. Regardless of the amount of debt that you have, you should max out your employer’s match on your 401(k) or 403(b) plan. After that, eliminate debt first! Every single penny should go towards debt.
Create an emergency fund for 6 months of living expenses. This money should be placed in a T-bill, CD, or money market account. Do not put your emergency savings in a 401(k) or IRA account.
What is the difference between stocks and bonds? Stocks are riskier, but they have potentially higher returns. Bernstein recommends that you should never purchase corporate bonds – only ever purchase government bonds.
Avoid fund managers and mutual funds! Active investing and trying to beat the stock market over the long-term simply do not work.
What is the difference between a traditional IRA and a Roth IRA? In a traditional IRA account, you pay taxes when you withdraw the money. In a Roth IRA account, you pay taxes when you contribute the money, not when you withdraw it.
I should check my 403(b) account and make sure that the index funds are low cost (less than 1.0%)
I should rebalance my investments every year