Weekend Reading: Invest Your Way To Financial Freedom Edition

Two of my favourite writers teamed up for a new book called Invest Your Way To Financial Freedom. A Wealth of Common Sense blogger Ben Carlson and The Evidence-Based Investor Robin Powell offer a simple guide that explains how to set yourself up for financial success.

The chapters are short and engaging, written like a series of excellent blog posts on how to save and invest your money. I finished the 170 odd pages in a weekend.

The book is aimed at Generation Z – those born in the mid-to-late 1990s and onward. Carlson and Powell begin with a sober reality: defined benefit pension plans disappearing and being replaced with less generous defined contribution plans; asset prices for housing and stocks have boomed since the Great Financial Crisis; and salaries are falling in real terms.

With the bad news out of the way, Invest Your Way To Financial Freedom lays out a blue-print for young investors to still get ahead today. That starts with developing good habits and focusing on what you can control – like your savings rate rather than the rate of return on your investments. 

I’ve read a lot of personal finance books that all say some version of the same thing. That’s why I can appreciate when the authors share new or interesting nuggets of wisdom throughout the book. Here are a few of my favourites:

Simple vs. Complex

“It’s human nature to think there must be a clever way to outperform other traders and investors systematically, if only we could discover what it is. But investors would be much better off looking for simplicity”

• It’s easier to be fooled by randomness and complexity
• Complexity is about tactics; simplicity is about systems
• Simple is harder
• Complexity can lead to unanticipated consequences
• Complexity can give you an illusion of control
• Complex problems don’t require complex solutions
• Simple is easier to understand

Stock Picking

One of the secrets to successful investing is that stock-picking isn’t nearly as important as people in the financial media would have you believe. Here’s a shortlist of things that are more important:

• Your savings rate
• Your asset allocation
• Your investment plan

“Instead of looking for needles in a haystack, just buy the whole haystack.”

Investor’s Lifecycle

Your risk profile as an investor is determined by some combination of your ability, willingness and need to take risk. These three forces are rarely in a state of equilibrium so there will always have to be some trade-offs:

1. Your ability to take risk
2. Your willingness to take risk
3. Your need to take risk

“There’s an old saying that the stock market is the only business where the product goes on sale and all of the customers run out of the store.”

Working with an Advisor

The right advisor is well worth paying for. But a poor advisor can do more harm than good. Do your research carefully and ask the right questions. Here are some examples:

• Do you have an evidence-based investment philosophy?
• Do you understand the value of behavioural coaching?
• Do you offer cashflow modelling so I can see for myself that I can afford the lifestyle I want?
• Do you provide proper, holistic financial planning, or just advice on investments?

“The priority for young investors is simply to get started. You also need to develop good habits, to control your spending and to invest what you can every month in a low-cost index fund. You don’t really need an advisor for any of those things.”

When the authors discuss how much you should save, they say, “10% is a nice goal, while 15% to 20% would be even better.” This is my only quibble with an otherwise excellent book. While I agree that saving more is better, the book is aimed at Generation Z who are likely to be struggling with many competing financial priorities such as housing, childcare, and student loans.

It would have been nice to acknowledge this struggle, that saving for retirement to the detriment of having a life in your 20s and 30s is not exactly going to build a healthy relationship with money.

Invest Your Way to Financial Freedom is a terrific book for young investors to help them get started on their financial journey by building the right habits early and avoiding dangerous pitfalls. Canadians can pick up an e-Book version from Harriman House, or from Amazon.com.

This Week’s Recap:

Mike Drak posted the second part of his three part series on retirement lifestyle design. This one was about embracing your ikigai.

In case you missed it, here’s part one on how it starts with purpose.

From the archives: Investing in retirement – how much should you keep in stocks?

Promo of the Week:

I’ve booked flights to Italy and to London next year in hopes to recreate our cancelled trips from 2020. The flights are dirt cheap, thanks to using Aeroplan miles. I’ve built up a bank of travel miles over the past few years and decided to splurge on business class tickets on the way to Italy and also on the way home from London. 

This wouldn’t be possible without taking advantage of the generous welcome bonuses from American Express cards. The Amex Platinum and Amex Aeroplan Reserve cards may be off your radar due to their high annual fees, but the points and perks available in the first year are undeniably good. 

Right now the American Express Platinum Card is offering a welcome bonus of 80,000 Membership Rewards points when you charge $6,000 in purchases to your card within the first three months. 

With this card you’ll get:

• A $200 annual travel credit 
• 3 points per dollar spent on dining
• 2 points per dollar spent on travel
• Transfer points 1:1 to several frequent flyer and loyalty programs, including Aeroplan)
• Free airport lounge access
• A $100 NEXUS card statement credit
• Gold status at Hilton, Marriott, and Radisson hotels

I value Aeroplan miles at an average of 2 cents per mile, so if you earn approximately 90,000 Membership Rewards (bonus points plus the earn rate on minimum spend) and then transfer them to Aeroplan that could be worth $1,800 in flight rewards. Add in the $200 annual travel credit and you’ve got $2,000 in travel rewards.

Alternatively, you can try my new favourite card – the American Express Aeroplan Reserve Card. With this card you can earn up to 90,000 Aeroplan miles plus a Buddy Pass for an eligible round-trip flight within North America.

Here’s how it works:

Earn 30,000 Aeroplan miles and a bonus Buddy Pass after spending $3,000 in purchases within the first 3 months.

Plus, earn 5,000 Aeroplan miles for each monthly billing period in which you spend $1,000 in purchases on your Card for the first twelve months. That could add up to 60,000 Aeroplan miles.

American Express says this is worth up to $2,900 or more in value within your first year! 

Weekend Reading:

Our friends at Credit Card Genius have the latest on the huge changes coming to the Air Miles program over the next few months.

Although RRSP withdrawals can be deferred no later than age 72, it may be necessary or advisable to make withdrawals before then.

In praise of what can’t be measured. Christine Benz on why there’s more to investing than just risk and return.

Here’s Robin Powell explaining why financial planning helps you roll with the punches.

With rates so low today, investors can no longer rely solely on fixed income to generate a portfolio with good returns. Nick Maggiulli asks if we’re craving risk or losing reward?

Ben Carlson says that while investing is a wonderful thing it can also become an unhealthy obsession if you view every financial decision through that lens.

Ben Felix’s latest Common Sense Investing video looks at climate risk and whether it makes sense to hedge against worsening climate outcomes by holding “green” firms or “brown” firms:

Eugene Fama, the father of modern finance, explains the theory behind index funds in five words.

Wealthsimple now has 1.5 million clients. Here’s how they grew by 200% in the pandemic.

The Blunt Bean Counter takes a look at the implications of receiving an inheritance:

“Inheritances typically come on the heels of emotional distress and in many cases, significant changes in your financial situation. The good news is that in almost all circumstances the cash or capital property inherited is tax-paid money and you have no additional tax concerns.”

Erica Alini at Global News shares why the pandemic is prompting more women to be their own boss.

On the flip side of legit entrepreneurship we have the predatory MLM business model that is also thriving during these tough times. 

Bill Thompson explains how he became a best-selling novelist during the second act of his career.

Finally, when do you no longer need life insurance? Mark Walhout answers this question in a 13 minute podcast episode.

Enjoy your holiday Monday, everyone!