Shin Adachi

Your life is your art

Today marks the last day of my short and sweet two-week stay in my hometown, Tokyo.

First thing that I immediately notice about Tokyo whenever I come home is the amazing efficiency of its public transportation system. Trains run right on the dot to the second, and this is nothing short of a miracle if you are used to transportation in other cities, especially considering the sheer number of people that depend on this system to work this well in order for Tokyo’s economy to keep on going day in and day out. If Tokyo’s public transportation were to suddenly cease to exist, the hit to the economy will be on the order of billions of dollars every single day.

From the well thought-out UI design on the signs all over Shinjuku station that direct people to the exact platform amongst the dozens of platforms of all the different train lines that run through there, to the software-driven timely announcements that inform people of the status of the trains about to arrive and how they can stand to make getting off and on the trains efficient and quick, to the railroad employee who sets up the ramp for a customer in a wheel-chair and contacts some other employee at some other station about the exact train, car and door number where this person is expected to get off so he can be greeted and helped off the train at his destination, to the IC cards that every passenger carries which electronically records the origin and destination of each of our trips to automatically deduct the correct fare without anyone having to stand in line, all of these little things are executed in perfect coordination to transport millions of people every day so they all get to their respective destinations at the exact time they had planned to get there. To me, Tokyo’s public transportation is a work of art, and the people that made it are artists. This is art because it is unique. There is nothing like it anywhere else in the world.

Speaking of art and Tokyo, I am thankful to have met one artist, Bidu, on this trip.

I use the term “artist” in a general sense. To me, an artist is a person who creates something original. Just because a person draws, plays music, or writes, does not mean that that person is an artist. In contrast, one does not have to partake specifically in those activities to be an artist. For instance, Bidu is a kitchen worker at Google Japan. Perhaps not what people imagine when they hear “artist”.

When you use a Google product, do you think about the people that made it possible? Probably not, but even if you do, maybe you just think about Larry and Sergey whom the public often credits as having built everything Google. If you’re a bit more versed in how software works, maybe you think about the engineers who wrote the code. But I bet you don’t think about the kitchen worker. But Bidu is just as crucial to Google’s products as anyone working at Google.

Bidu is an artist. If you work for Google and have been to the cafe at the Tokyo office, you know who he is, because he most likely greeted you with his big smile as soon as you walked in and asked how your day was going.

On my first day, I just smiled back, and told him that I’m slightly jet-lagged, but otherwise great. I got my food and sat down.

Second day, he greeted me again, so I smiled back again and sat down, but this time close to him where I could hear him as I ate my food. I noticed that he is a bilingual, talking fluent English and Japanese depending on who came in.

Third day, I sat facing the direction where he was working to see him work. I noticed that he actually does more than just greet people. He helps people find what they’re looking for, directed the traffic as the cafe got crowded, transports clean utensils and bowls from the kitchen to the pile as they run low, cleans little spills here and there as people grab the food, and manages to throw in conversations with many people all while doing his job, forming connections. Then a blind person walked in. He immediately took notice and gave him the run down of the stations and the kinds of foods available at each, and made him a plate of all the foods that he wanted.

Fourth day, I noticed that he is actually not just bilingual. He was chatting up with one of the employees in French, so add that to his list of languages.

Fifth day, I got really curious so I asked him if he spoke any other languages. It turns out that he is not just trilingual and his mother tongue isn’t even Japanese, English, or French. He is from the Democratic Republic of Congo, and he grew up learning one of the indigenous languages spoken in his home.

One day the following week, I did not sleep well the previous night so came in a bit tired. He noticed and told me, “You look tired. Grab some coffee, great food, feel refreshed, and ‘ganbatte’ with your job.” (Ganbatte is one of those Japanese words that don’t have a direct English translation, but it’s kind of like “Fight On!”)

You see why I call him an artist. He is not just following some manual of what a kitchen worker ought to do. He is paying close attention to the needs of the people, and is creating an awesome dining experience for the people that come in during their busy and often stressful workday.

We are often led to believe that the dent we can make in this world depends on our job titles. Well, that is simply not true. A job is just your platform, and to quote Khalil Gibran, “work is love made visible.” The art that you make depends on you, not your title. This is true specially in this day and age when the needs of the world changes so quickly and whatever job you trained for will get outdated very quickly. But no matter what life has led you up to this point, if you have a job, somebody is paying you to do what you do, which means there is value in what you do. So are you going to treat it as such, and make art with it? Or are you going to be a cog in a machine and treat your job as some menial task? The choice is yours.

Fallacy of a tariff

This week, Donald Trump announced that he is imposing tariffs on foreign steel and aluminum, tweeting “To protect our country we must protect American steel!”

This is a completely illogical policy. It is not at all based on sound economics, and the result is a significant net-negative on America’s (and also the world’s) economy.

It is shocking to me that tariffs are still a thing. Politicians all over the world keep making this mistake, and I am starting to wonder, are they really ignorant, or are they simply doing this to gain votes from ignorant voters even at the cost of the damage done by their stupid policy?

The fallacy in this kind of thinking stems from a simple omission: the mistake of only regarding the positive effect on a small subset of the economy (in this case, the American metal industry) while ignoring the negative effect on the economy of the country as a whole.

So let’s actually think through this issue and figure out what happens to America’s economy as a result of the imposed tariff on metals.

First of all, we must recognize the reason we import any commodity in the first place. The United States imports foreign metals because there happen to be other countries who produce that same metal more efficiently than we do. This makes perfect sense, why would we pay more for an American metal, when we can just import the same exact metal from another country for cheaper?

A person thinking only about the American steel industry then comes to the erroneous conclusion that foreign metal industries are bad for America, because we should be producing more of the metal here “to put America first, and to bring back our jobs.”

This results in a policy like this tariff on foreign metals. Now, those foreign metals are artificially made more expensive in the United States. Because of this, other American industries that need metal to produce their products are now forced to eat the cost by either buying the artificially expensive foreign metal, or the already expensive American metal.

And here is the problem. Now all of a sudden, an American car, say, that used to be made out of inexpensive metal imported from overseas, is suddenly forced to be manufactured from more expensive metal made in America. To the consumer, that means this car is more expensive than it used to be. That naturally leads to the consumers buying less American cars and switching over to cheaper alternatives such as Japanese cars. At best, we “saved” a few jobs in the American steel industry at the cost of jobs lost in the American car industry. In addition to those lost jobs, the American consumers also now have less money, because many goods are now costing more than they used to. The effect of that lost money is hard to trace, but it means less money in the system that could have been used to buy some product in some other industry, so that unknown industry is now short of the need to create that product which directly means less jobs in that industry. I used cars as an example above but the damage is actually distributed across a countless number of industries.

It doesn’t take a doctorate degree in economics to understand the damage of such an erroneous policy if we just simply follow the exchanges. Yet we keep falling for it. To me, there’s no better reminder that our education system has failed to do its one job: to educate citizens to think critically. It concerns me greatly that we continue to fail to make informed decisions based on sound logic and reason. Why don’t we ever stop to think to ourselves for a second, “wait, why is this politician doing this, and what’ll actually happen as a result?” and calling them out for their stupidity without resorting to tribalism and choosing sides based on the politicians’ image, party loyalty, or our views on just one or two issues that we happen to care about that doesn’t even matter that much, like gun control, our fight against terrorism, and many other statistically insignificant things that the profit-driven news programs made us believe are the most important issues? All this while ignoring issues that are actually much more significant. It seems crazy to me that so much of our recent discourse has been about our outrage at things like lack of gun control or Trump alluding to arming of teachers which was no more than a ploy to garner attention, while we go on ignoring things that harm a lot more people, like the lack of equity of access to education, dangers of bad nutrition, and the countless subsidies, tariffs, and regulations that politicians have enacted throughout history that do nothing more than to harm our productivity and, naturally, our quality of lives.

After explaining all of this, some people wonder, “but isn’t it bad for us to support other countries’ economies by purchasing their goods, making us less competitive?” Ok, a fair question, but actually, no, not at all. If other countries are willing to sell us their goods, we are paying them with the money that, in order for them to get any value out, must be invested back in America. It is an exchange. Mathematically, the amount of all imports and exports for any given country must always balance out. If not in forms of tangible goods, then in the form of currency exchange that will eventually be traded for a tangible good in some future timeframe. By enabling free global trade, we enrich the entire world’s economy. This isn’t a controversial issue: economists of all political inclinations agree on this point, other than the fake economists who make a living through their ties to special interests. If we instead artificially cut off the flow of trade, we impoverish more people.

What’s a 401k? (hint: it’s not a super-long marathon race)

New to this blog? Check out all of my finance series here.

Whether you invest in index funds, other mutual funds, or individual stocks, you can get a tremendous tax advantage by investing your money through a bucket that the government calls “401(k)”. If you work in the public sector, a similar alternative available to you may be called “403(b)”, but the name is not as important as the concept. (For curious readers, the names directly come from the U.S. statutory tax law code that created this retirement plan option and defined its terms).

401(k) is a retirement account that you fund directly from your paycheck. To get started, simply set it up with your employer. The difference between a regular investment account and a 401(k) account is in how the money is taxed, as explained below:

You can fund a 401(k) with your pre-tax money.
This is significant. Suppose that you earn $100 through your job, and you decide to invest it. With a 401(k), you can invest all $100. With a regular investment account, you have to pay taxes on it first (let’s say $20), so you’ll only have $80 left to invest. This initial difference, when invested with compound interest over time, makes a huge difference.
Dividends and Capital Gains in your 401(k) account are not taxed.
In a regular investment account, dividend payouts from your stocks are taxed as ordinary income. Also, any gains in its market price of your stocks from the time you bought them to the time you sold them, are taxed in a form of tax called “capital gains tax”. However, 401(k) accounts on the other hand, will not tax you on dividends and market gains, so your money will grow tax-free.
Contributions you make to a 401(k) are often matched by your employer.
If you are lucky enough to work for an employer who matches all or a portion of your 401(k) contributions, you have to take advantage of it. This is basically free money, and it’s not often that somebody will pay you free money, but this is one of those scenarios! Everybody should contribute to a 401(k) account to get the most match they can get from their employer before considering other investment options.

If all of this sound too good to be true, well, it’s all true. So far, you haven’t paid any taxes on anything! The government will eventually want to tax you on your money, so they will when you take the money out of your 401(k) account in retirement. At that time, the money you take out will be taxed as ordinary income. This is fine for most people, but if you expect to be in a higher tax-bracket in retirement, you also have the option, through a similar but different “Roth 401(k)”, to pay income taxes now, and take out the money tax-free in retirement.

Target-date retirement funds

New to this blog? You can read all of my Finance series here.

Last time, we learned about what index funds are, and why they are much better alternatives to the typical mutual fund which charges a much higher fee to pay for the “professionals” who manage them. I put “professionals” in quotes because it turns out that they are no better at picking winning stocks than an average person. Remember, picking stocks or trying to time the market is a loser’s game. Your psychology will fail you. Don’t play that game!

Let’s start looking at some of those index funds so you can start putting your money in them.

I will use Vanguard’s index funds for all of my examples. Although you can find similar index funds from different companies, Vanguard was the first company to advocate for and implement the index fund idea, and they have pretty much every index fund you may ever want to invest in, all at amazingly low fees!

Specifically, we will focus today on “target-date retirement funds.” As you can guess from the name, these funds are for people who want to save for retirement, and have a specific retirement date in mind. Putting your money into a target-date fund is the easiest way to save for your retirement, because the fund will do all the work for you: staying aggressive by investing 90% of your net worth in stocks initially to take advantage of time and compound interest, rebalancing the stocks/bonds ratio of your holdings as the market fluctuates, and slowly selling away your stocks in exchange for more bonds as you approach your retirement date to make the fluctuations of the values of your investments less volatile.

You will find all of Vanguard’s target-date retirement funds here. Just click on the appropriate retirement date based on your situation, and if you’re feeling curious to see more information, click through the tabs to see the fees (often called “expense ratios”), and holdings (information on what the fund consists of: stocks-to-bonds ratio, and how much of it is invested domestically vs internationally).

While target-date retirement funds make investing for your retirement super easy, do realize that this convenience comes with a fee (still a very low 0.15%, compared to actively-managed mutual funds that can charge ten times that, how criminal!). Keep in mind that you could get even lower fees if you are willing to invest in even simpler index funds that do not do all this fancy re-balancing and re-allocating for you.

So basically, my advice boils down to this:
If you are a completely hands-off investor who just wants to keep funneling money into a retirement fund, then just go ahead and pick one of these target-date retirement funds. But if you want to take it up one notch, and are willing to do a bit more work by choosing specific funds and the ratio to hold them, as well as doing the occasional re-balancing by trading your stocks for bonds or vice-versa, you can get even lower rates by choosing the funds and managing the holdings yourself.

And final note for today since we talked a lot about retirement: you can get huge tax-advantages by doing all of your retirement investing in these special buckets that the government calls “401k” and “IRA”. Unlike regular investment accounts that charge income tax on dividends and capital-gains tax on assets that go up in value by the time you sell them, you can grow your money tax free in retirement accounts in both 401k’s and IRA’s. The government gives you this tax break because they want to encourage you to save for retirement.

Up next: What is a 401(k)?

Luxury. What does it mean?

My family started out in a tiny one-room apartment in Tokyo. My parents and my siblings (five of us total), all making do sharing the one room that functioned as the bed room, the living room, and the dining room depending on the time of day. This might be hard to imagine for someone growing up in the United States, but that was just the normal way of life for me and all of my friends. I didn’t think of it much, because I wasn’t even aware that other modes of living existed, other than by fictitious people I saw on TV.

When we moved to California, to put it lightly, the house we moved into was humongous compared to what we were used to. It was as if we had made it in life. I thought to myself, “Wow, we are rich. We are living the life of celebrities.” My perspectives started to shift. I started to think that luxury is about being able to afford nice things: a big house, a big TV, gourmet meals at fancy restaurants, a 5-star resort getaway, and the likes.

It took me a while to discover that I had it all wrong. I finally experienced true luxury when I stopped pursuing material things, and learned to appreciate every little blessing in my daily life. Or, as a wise person put it, “You can’t wear nice clothes to heaven.”

What is an index fund?

New to this blog?
Also check out my previous posts:
Stop trying to time the market.
Why Invest?

As I’ve mentioned previously, index funds that track the stock market are the recommended investment options, and a majority of your net worth should be invested in them. Let’s take a deeper look into index funds today.

What is an index fund, and why is it better than buying individual stocks or mutual funds?

An index fund is a type of mutual fund, but unlike most mutual funds that are actively managed and charge high fees to pay the salary of the people who manage them, an index fund automatically tracks the performance of an index, such as the S&P 500.

Index funds are recommended over actively-managed mutual funds because of their significantly lower fees. This makes a huge difference, because whatever you don’t pay in fees is re-invested in the market, and with the magic (or math) of compound interest, even a 1% difference in fees could mean hundreds of thousands of dollars over the long-term for an average investor. Mutual funds managed by professionals will not beat the market consistently enough to make them worthwhile. They are extremely profitable for the people who manage them, which is why they are marketed like crazy and unfortunately are still popular to uneducated investors today, but the evidence is overwhelming: investors who invest in low-cost index funds see much better results over time. So stay away from actively-managed mutual funds unless they are your only options, that is, if you are investing through your employer’s 401k or 403b plan and you have a limited choice of funds. In that case, still invest in whatever option you do have to maximize whatever employer match you can get, because that is basically free money which you should definitely take advantage of, and whenever you decide to leave that job, immediately roll them over to an IRA invested in index funds to let that money grow more efficiently.

As for individual stocks, buying them is fun but also not recommended for the sake of your future. If the professionals who manage mutual funds can’t even beat the market, what makes you think you can? However, trading stocks is far better than gambling away your money at the casino or through lotteries. At least the expected return is positive with stocks, unless you are trading so frequently to pay more in trading fees than the gain you should make through the market on average. So if you have an itch for gambling, by all means, be my guest and have fun trading stocks. Lotteries are stupid, because the more you play, the more you lose. If you do trade stocks for fun, just remember to only trade stocks with a small portion of your assets, and favor buying and holding for the long-term over trading frequently.

My grandmother actually trades stocks as a hobby, and I support her completely because this hobby is intellectually stimulating for her, and I think it is great for maintaining her sharp mental state even in her old age. I am also quite impressed to see her do it all without a computer. She watches a market-news program that shows the fluctuations of various domestic and foreign company stocks, keeps a mental state of the stocks she holds and their movements over time, and trades her shares through the phone by calling her broker. BUT!! As much as I love my grandmother and enthusiastically support this habit of hers, that is NOT my recommendation for you. My grandmother has invested wisely over her lifetime, has built up a fortune, and now she deserves to have this kind of fun even though her strategy may not be optimal. You, however, in order to optimize your investment, should avoid trading individual stocks, and simply invest in index funds instead. The problem with trading stocks is that because you are basically trying to time the market for each stock you buy or sell, you are often holding a portion of your assets in cash between the time you sell your shares and the time you decide on which company to invest in next. This gets pretty costly over time, because you are missing out on the growth of the market while your money is not invested in the market, not to even mention the fees charged for each trade you make. The overarching trend of the market is that it goes up over time. Even in the last two decades in which we’ve seen the dot-com crash of 2001 and the financial meltdown of 2008, the stock market has still gone up over time, on average. Trying to time the market is a loser’s game for that reason. You miss out on the growth that happens while you are not in the market. A far better alternative is to always be investing by keeping your assets in an index fund at all times.

Up next, we’ll take a look at the index fund that gives you the easiest, hands-off investment option: “target-date retirement fund.”

Your craft makes you badass

Yuki, my sister, works in the mechanical prototyping industry, among many other things she has gotten into throughout her life. We say that she is the adventurous one in the family. She told me about Les, a machinist she met recently.

Les is a really good machinist. Because he is so good at what he does, he gets a lot of requests from many customers to make more parts. He has to turn them down. The job comes to him, not the other way around. His current project is to make a treadmill. He’s mostly doing it for fun because he can, and unlike a treadmill that has to be plugged in, his is powered by the person running. He is pretty badass.

It’s not easy to get to where Les is, where opportunities just come your way. But we all have something to learn from him.

When you search around the internet for career advice, there’s certainly no shortage of them. I’ve read (and even written) some of them. So much of the information out there focuses on the easy things: what to say in an interview, how to craft your resume and cover letter, how to attend events and meet people. It’s as if marketing ourselves is the most important thing. But is that true? Sure those little things might matter, but to focus our conversation on those things assumes that all jobs are scarce and everybody must fight (or even beg) for them. But really, that’s only for the people who are not yet like Les. So why are we not trying to be like him first and foremost? The tragedy is, all the nuggets of advice we find all over the world in books and internet articles dilute the most important message that we all need to hear:

The single most important thing you should be doing right now is to invest the time you have in honing your craft.

This is not easy. It takes time and work. But it makes the most difference.

I am certainly no Les. I am not there yet. But I have seen over the years that the more I work on my craft, the less I have to ask for opportunities, and more that just come to me. This applies no matter your field. The concept is simple, it’s not rocket science. The higher the quality of your work, the more it is valued.

How well you do your craft matters, A LOT. Invest in it.

On rent control

Santa Ana, a city in Orange County, CA near where I live, is considering implementing rent control. This is disturbing news to me, because basic economics principles and past failed efforts to control rent in other cities convince me that this effort, if implemented, will not only fail to solve the problem of expensive rent, but will make the problem worse.

A policy’s outcome is much more important than its intention, so we should never implement a policy just because the people who proposed it had good intentions. Of course we all want affordable rent, so the question is, how do we achieve that? If we want to make rent affordable, we have to look at the root cause: why is rent not affordable in Santa Ana right now? What led to this?

Rent control is like putting a bandage on a wound, it treats the symptom, not the root cause. That’s right, high rent is merely a symptom of some other poorly-instituted policy or restriction that cause a shortage in the number of housing units available per capita, so that’s what we ought to target if we wished to actually make a difference. There also exist other factors here that we cannot control, like the great California weather, which makes this a very ideal place for people to live in. We can’t change that, and as a result rent will always take up a higher percentage of people’s income here than it would in other places. With that said, we can still optimize the policies to make housing more affordable, if not cheap.

When rent is artificially kept low in certain units below what the market is willing to pay, that leads to a smaller amount of funds available in the economy which would have been invested in more housing. That in turn causes a lack of housing and an overall rise in housing costs. It also incentivizes wasteful use of land. That’s because if market forces naturally raise the cost of housing, people who can’t afford it have one of two options. Either they will find a roommate (which alleviates the economy of the need for one extra room, which is a win), or they will move into a smaller, more affordable space, also a win for the person and the system, because the person can continue to live, and it creates an opening for someone else in the economy, helping to maintain the cost of housing slightly lower. And that’s exactly what is supposed to happen when a city has a housing shortage, short of building more units. But if that cost is artificially kept low through rent control, they will stay in that space instead just because they can. While that might be great for the person who was lucky enough to get that rent-controlled space, that leads to less space available for the rest of the population, leading to a higher overall housing cost, based on the principle of supply and demand. And no, we cannot enforce rent control in every single unit, because the only way to make that happen is through subsidies. Nobody will invest in building or managing housing units in which they are only allowed to charge a fraction of the market rate for rent, because that means a loss of money for the investor unless their work is subsidized by the government. But keep in mind that every single dollar spent in subsidy has to be funded through taxes either now or in the future, and that money comes directly from people. So the effect of rent control, if gone far enough to build new rent-controlled living spaces, is that we will have taken money away from people through taxation, and into the pockets of investors, developers, and property managers.

I am from Tokyo, a city that has become a mega-metropolis while still maintaining affordable housing for people of all income levels, and it did that primarily by not restricting land development. When you allow the free market forces to determine how much housing should be built to meet the demands of the the industries in the city and what ought to be its price, miraculously, housing stays affordable for everyone. Some of my American friends who are used to living in gigantic living spaces according to Tokyo standards may say to me, “But you can’t get the same quality of life in Tokyo for the same price. Sure housing may be affordable, but you’re living in a much smaller place for what you pay compared to California.” And that’s exactly right! That is indeed the optimal (and only) way to keep housing costs low for everyone in a city with growing industries. And guess what, that doesn’t diminish people’s quality of lives as much as forcing people to move to far away suburbs only so they can commute into the city for two hours in their gas-guzzling SUVs. So maybe California has something to learn from Tokyo. Because I live in Orange County now, this is an issue I care about deeply. I too want it to be a place where housing is affordable for all people, no matter their income. I ask that policy makers carefully consider the impact of their decisions. Please make decisions based on sound data and logic, and not just on emotions.

Why Invest?

This post is part of an ongoing series. If you haven’t already, also check out my last post: Stop trying to time the market.

Before we get into the specifics of how to invest to optimize the chance of building the largest fund for your future self, let’s talk about why it is so important for everyone to invest.

Do you love your job?

If the answer is “no”, then absolutely, you should invest. It’s the most sure way of building yourself the financial freedom to turn “work” from something you do to pay the bills and are stuck with for the rest of your life, into something that you do because you want to, when you want to.

If the answer is “yes”, first, pat yourself on the back. You must have worked diligently to get to do the work of your dreams. Well, my suggestion to you is, still, you should invest!

With the rapid rate of change in technology, the nature of work is quickly shifting. In my industry, I often feel overwhelmed by all of the new technologies I must continue to learn to keep pace, and as much as I love my job right now, there is no guarantee that the opportunities for me to continue to do the jobs that I love will always be there. Sometime in the near future, I may want to take a few years off to study. Or maybe I might decide to step away from engineering and become a doctor, a barista, a concert pianist, a carpenter, or take your pick! Maybe I’ll retire early and start a farm in a remote village. Or maybe I’ll be married, and my future wife and I decide to be stay-at-home parents. Whatever my desires happen to be, the only reason I will have these options in life is because I was taught about the importance of investing very early on. When I was a kid, my dad set up a meeting for me to meet and talk to his financial advisor (one of the greatest gifts, thank you dad). Ever since, I have been investing a portion of every one of my paychecks, even if I was working a minimum wage job (in 2004 California, that meant $6.75/hour, or $54/day, which felt like a lot of money for me back then). It was also around the time that my dad left his corporate job to pursue his goal of becoming a pastor. It was the perfect living example, to the eyes of my high-school self, that making wise financial decisions throughout your life can set you up with the freedom to pursue your passions. Again, thank you dad for the awesome life-lesson. Anyway the good news for you is, you actually don’t need a financial advisor. Investing is super easy, and I will show you how.

But first, why should you invest? It is because of the single greatest thing money buys you, which is freedom. Money allows you to live the way you want to live. It frees you from having to please your boss or to keep jobs that you hate. It frees you from the worries of losing your job one day. It allows you to give freely to charities whose causes align with your core values, or even better, quit your current job and go work with those organizations to make a difference in the world with your own hands. It allows you to work when you want to, and spend the rest of the time with your loved ones. It lets you travel the world, and should you fall in love with a place, it gives you the ability to stay there indefinitely instead of flying back. As you build your investments and slowly remove the burdens that come from your day-to-day finances, you gain the power to focus more of your life and energy on what truly matters to you.

Investing is not just for the rich. Everybody should invest. It does not matter what you do or how much money you make. Each time you get that paycheck, you have to make investing a priority before you go out for the celebratory dinner or buy yourself a nice gift.

I’m not saying you shouldn’t spend. But if you do decide to spend your money, do it with thought, and ensure that every spending decision you make is an intentional one, with a clear purpose. Just consider that throughout its history, the S&P 500 index has yielded investors an average of 11.95% annual return. With the dividend and capital gains re-invested earning compound interest, that means a $10 you invested forty years ago will be worth $914 today. Once you come to the understanding that the $10 you spend today is depriving your future self of $914 and you are ok with that, then go ahead, spend away that $10. If not, think twice before every purchase you make. That $3 latte to keep yourself awake? That’s actually a $274 cup of latte. Maybe you should just go to bed earlier so you don’t need coffee to wake you up. The nice $60 sushi dinner? That’s actually costing you $5484. Maybe you should just cook up something at home instead. The $500 weekend trip to a resort? That’s $45701, you can easily live two years off that! Maybe you can skip the trip this time and go out for an inexpensive fun night in your own neighborhood instead.

Next: What is an index fund?

Stop trying to time the market

The questions that I get asked often are:
1. “What should I invest my money in?”
2. “I feel like the current market is overpriced. When should I start investing?”

Well, I’ve got some answers for you.

This is a post that I’ve been working on for some time now, but I’ve decided to publish it since it seems like the appropriate day to do so for what the market did today. I’m sure you got a handful of investment advice from your coworkers who are trying to time the market. (Ignore them, and do your own research).

Now, if you’re like me and have read dozens of books on economics and finance, you probably know already that paying attention to the daily fluctuations of the market is just noise and should never alter the way you invest, and you likely already have an aggressive investment portfolio optimized for the long-term. If you’re that person, you can stop reading now and go do whatever you love to do on Monday nights.

Still reading? Ok, I’ll give you the answers first because I’m in a bit of a time crunch now, and will delve into the topic further in future posts.

“What should I invest in?”
Most of your assets should be invested in an index fund that tracks the performance of the U.S. stock market.

“When should I start investing?”
Don’t try to time the market. The best time to start investing is whenever you have the money to invest. This means that you are debt-free, or have at least paid off your high-interest loans (with annual interest rates over 5%), and have enough cash to handle life’s emergencies, such as a broken car, an unexpected medical diagnosis, or a job loss. Keep investing no matter what the market does. When the market takes a big hit like it did today, invest. When the market is quickly rising like it did all of last year, invest. If it completely tanks like it did in 2008, invest. Get it? It’s simple: whenever you have the money to invest (which should be every single time you get paid), invest.

Next: Why Invest?