Growing up, school taught us the skills necessary to get a job and make money, but they forgot to teach us the best ways to put that money to use! Not once did a teacher I had review budgeting, projecting finances, bank account buffers, 401(k)s, credit, credit cards, emergency funds, IRAs, taxable accounts, health insurance, 529s, car loans, student loans, mortgages, life insurance, car insurance, homeowners insurance, taxes, or retirement planning. Chances are every one of these topics applies to you over your lifetime. How well you leverage each one directly influences your net worth, flexibility, and freedom all while being, generally speaking, more in your control than your income.
Money Smartly Philosophy
There’s a big secret in the investment world: investment fund managers can’t beat the market after their fees. Warren Buffett has been making this point since 2007 when he challenged Protégé Partners to a bet of $500,000 for charity. Buffet would invest in a low-fee passively managed index fund designed to track the market and Protégé Partners would invest in an actively managed fund of hedge funds with high fees. After ten years, whichever fund had the highest returns wins. When the bet concluded in 2017, Buffett won with returns of 99% over Protégé Partners’ paltry 24%.1
The same pattern applies to almost all actively managed funds. In 2016 the S&P Dow Jones Indices ran a study of over 641 actively managed domestic equity funds. Over a 10-year investment horizon, 85.36% of large-cap managers, 91.27% of mid-cap managers, and 90.75% of small-cap managers failed to outperform the market.2 Even if you do pick a previous winner to manage your portfolio, previous performance is no indicator of future performance. In 2016, only 0.78% of large-cap funds and no mid-cap or small-cap funds that were in the top quartile of funds five years prior managed to remain in the top quartile.3
The fund Buffett picked was Vanguard’s S&P 500 Admiral fund, started by Jack Bogle. Jack Bogle now has a cult, self-proclaimed ‘Bogleheads’, following his principals. Money Smartly follows the Boglehead philosophy4, which says investors can’t collectively beat the market because they are the market and in order to minimize volatility while maximizing returns should own the so-called “global market portfolio” with the lowest possible fees.
Why Money Smartly?
I started Money Smartly to help other self learners optimize their finances. The posts are comprised of about a decade of researching a plethora of articles, academic papers, and books with a vast variety of recommendations—many good and many more bad. My goal is to piece together the best advice in one place and spare you the bad advice to provide a one stop shop of condensed good financial advice, in particular Money Smartly’s mantra of maximizing your net worth while keeping your funds sufficiently liquid. I intend each post to cover just enough to answer how to achieve this mantra and why it works. If you are looking to read more in depth on any particular topic, I recommend following up with the works I cite alongside the content.