Updated: Aug 17
The Hulett Family at Times Square
The following is a brief article I wrote for my children. I gave this to them while they were in college. I forced myself to be brief. At the time, it fit on one page of paper. It is not meant to provide detail, but more to remind and to encourage conversation.
I hope this helps you as well. Let me know if you have any suggested changes. Remember, edit suggestions are like a game of parsimony and priority! Adding something will require subtraction of as many words....
I’m pleased your Mom and I have taught you thrift, a consistent savings discipline, and an approach to investing. This will help you your entire life! As a reminder….
Markets go up and down. All during your adolescence, we were in an unusually long bull market (10 plus years). All of you grew up believing investments go up! They will come down eventually and it will be uncomfortable. Stay tough! Manage your emotions and stay objective. Stick to the plan!
Time is on your side! The time value of money favors the young. Even small amounts of money invested in your 20s will be worth many multiples at retirement. Start NOW!
Investment risk management is a function of time. I.e., the longer the time period, the higher the properly managed risk may be realized to maximize return. A 7 plus year timeframe should be invested in higher risk profile equity portfolios. (This time period is roughly equivalent to the typical business cycle) Shorter-term time horizons should be in cash or appropriate bond and/or bank-like investments.
Regarding “properly managed risk” - The majority of your financial investments should be in low-cost ETFs / mutual funds with fund concentrations based on your risk profile, including regular rebalancing and tax efficiency strategies (e.g., tax-loss harvesting).
Investing in individual projects (companies, Real Estate projects, etc.) may be appropriate. However, only do so with sufficient research and discipline of only investing a smaller portion of your total wealth. It takes time to properly invest in individual projects. Be honest about how much time you really have. Think of a barbell strategy for risk management.
Maximize your company 401k. Also, robo-advisors are a good investment platform, easy to use, and educational. Create different accounts for unique investment objective timeframes.
Keep up with your regular savings. This is done by paying yourself first. Meaning, use auto deduction to enforce regular savings. Accept what is left over for your wants.
If you get a salary raise, take it off the table in the form of an increased 401k contribution or taxable investments. Get in the habit of maintaining low life expenses.
If possible, avoid financing household expenses or depreciating assets, like cars. Only finance appreciating assets, like houses. Look for a positive net interest margin.
As you get into mortgage debt to buy a house, remember, debt is the opposite side of investment. If the economy turns and your investments go down, so will interest rates.
Look to improve your borrowing cost by refinancing debt in down markets. Similar to investment time horizons, look to match your mortgage duration with the business cycle length. (E.g., mortgage products like 5/1, 7/1, 10/1 ARMs).
Pay your bills! Good payment history → High credit score → Access to low-cost credit
I love you!
See the related article:
“Risk and time are opposite sides of the same coin, for if there were no tomorrow there would be no risk. Time transforms risk, and the nature of risk is shaped by the time horízon: the future is the playing field.” - Peter Bernstein, Against the Gods
“Well informed investors diversify because they do not believe that investing is a form of entertainment.” - Peter Bernstein, Against the Gods
“Don't test the depth of the river with both your feet...” - Warren Buffett
"When the capital development of a country becomes the by-product of the activities of a casino, the job is likely to be ill-done." - John Maynard Keynes
[ In the context of Personal Finance —> Do not confuse Trading with Investing. Short term trading is for gambling. Long term investing is for wealth building. VERY DIFFERENT. ]
See my favorite Risk Management Aphorisms for more related quotes.
Here is the article short version:
Being a successful investor is as easy as 1-2-3...
#1 - Being content with yourselves and NOT spending money you don't have, NOT buying things you don't need, and NOT impressing people.
#2 - Having a long-term focus (and long-term is NOT two or three years). Wealth and security are built over decades, not months.
#3 - Very simply - Save, Invest, Evaluate, Rebalance, Repeat.
Your Personal Finance Journey Guide:
Making the money!
7. Career success - Success Pillars - Maximizing luck with an adaptable mindset to reach your goals!
8. Career choices - Do I need to be a Data Scientist in an AI-enabled world?
9. Career choices - Diamonds In The Rough - A perspective on making high impact college hires
Spending the money!
10. Budgeting - Budgeting like a stoic
12. College choice - The College Decision - Framework and tools for investing in your future
13. College choice - College Success!
14. College choice - How to make money in Student Lending
15. Event spending - Wedding and event planning guiding principle
Investing the money!
Pulling it together!