Speculation or Investment?
Speculation or Investment?
My good friend Chris Hutchins had Andy Rachleff, the co-founder of Wealthfront, on his podcast All the Hacks recently and it was a truly phenomenal episode.
You’ll likely see some more quotes from this episode in coming editions of the FI Weekly, but I wanted to start with Andy’s succinct distinction between a speculation and an investment:
“The difference between a speculation and an investment is that an investment has a cash flow. You can evaluate its merits based on your expectation for those cash flows. Something that doesn’t have a cash flow is purely a gamble.
Why should gold go up? It’s a shiny metal, it’s purely emotional. The same is true, I think, for cryptocurrencies. So, to me, they are speculations. Commodities are speculations.
I don’t think that speculations have a place in a responsible portfolio. That being said, people have a fear of missing out. So, they are going to do it and all I can say is keep it to a small percentage of your portfolio. The fact that they went up doesn’t mean the person who bought them was smart, it means they were lucky. And that’s the part that people have a hard time understanding.
This is why I really preach ‘don’t judge a decision by its outcome’ because luck can play a role in that outcome. Judge it by the quality of the process that you pursued in reaching that conclusion.”
FI Community Board Games
I mentioned the benefits of board games a few weeks ago and listed Catan and Ticket to Ride as our original favorites. Many of you asked for additional games and while I’m still compiling that list, I wanted to pass along 2 members of the FI community who created side hustles in the board game industry:
- Shane literally created his own deck building game, called Franklin’s Fortune around the teachings of Benjamin Franklin. My family played it 5 times the first day we got it and were really impressed. It’s the first FI-minded board game we’ve ever played and it was cool to see those concepts translated so well to a game.
- Tom started an Etsy shop that sells personalized piece holders for Catan. He uses a CNC machine to carve the wood and already has over 700 sales! If you play Catan, you’ll quickly see how elegant a solution this is to the problem of your pieces being spread out haphazardly in front of you.
Lifestyle is the Answer
I listened to a recent episode of the Impact Theory podcast, and the guest, Raoul Pal had this great quote that resonated deeply with how I look at Financial Independence:
"Lifestyle is the answer to everything. We don’t do anything else for any other reason, I don’t think. Or you shouldn’t.
To be rich is not a future state.
To have the lifestyle that you want is the future state. And that can be anything. You can live in a shack on the beach in Nicaragua and be the happiest man in the world. Go for that.”
The goal of FI is not to merely get rich.
You don’t have to conform to anyone’s idea of a “rich life.” You get to build that life around what you value.
And building that life is the real fun, because it’s about testing, experimenting and making course corrections as you learn more about yourself and the world around you.
ChooseFI Community Taking Action This Week
- Shirelle said, “This week I got a DBA and opened a business bank account for my up and coming Airbnb business. I've had a small business before but this time I wanted to do it right as far as separating the business from our personal accounts from the start, and to maximize the business expense deductions. We have a new home with a backyard cottage that needs to be completely outfitted. I used our advance child tax credit dollars from the last couple of months to buy a fridge and range, and I researched and waited for the best deals on those. Yesterday I got an amazing Labor Day deal on a range. It's always nice when your Honey extension pop up says, "This is a great deal!" These items will also be classified as business expenses to lower our taxable income for the year.”
- Nathan said, “My wife and I booked flights for an upcoming vacation with Southwest Points thanks to travel rewards! I kept an eye on the flights to see if they dropped in price since we have booked, and updating our booking when the price dropped to get the lower rate. Between 3 legs of our trip, we have saved almost 80,000 SW points just because the price had dropped! We were even able to get more desirable flights for lower prices just by keeping an eye on the flights.”
- Tracy said, “My 1% better - here in New Zealand we just had a short, sharp lockdown due to COVID Delta and so of course we weren't commuting - my train pass is $550 a month, and so I put that onto our last remaining debt, a car loan. It was actually a little over 11% of the balance so a big win! We also used a small annual bonus my husband received to pay his tax bill so we now don't have to "find" that money from our take home pay. Feeling pretty FI this week.”
- Shannon said, “Our 1% better was finally maxing out our Roth IRA contributions and being able to buy into VTSAX! It has been a goal of ours since paying off our debt. Our 2 teenage daughters also opened Roth IRAs and have started to put a percentage of their bi-weekly pay from their part-time jobs. It's a small contribution but hopefully this sets them on a path of becoming savers versus spenders.”
- Dave said, “My wife and I are both teachers and have found the last 2 years of teaching to be highly stressful, but thanks to the FI community, the start of this school year has been different for us. My wife is taking the entire year off in order to complete her Post Bac in inclusive/special education and I reduced my contract to 50% for the upcoming school year. Through taking control of our finances and reducing our monthly expenses we've been managing to save close to 50% of our income over the last few years. Thanks to the FI community we now feel that we have control over our lives and look forward to the next year.”
- Rachel said, “Here is a 1% story for you this week: My husband and I had a "money date" last night to look at what this year's cash flow looks like. We decided to up our contributions to our traditional 401K and HSA accounts at work, and as a result we are going to save $7k in taxes this year! It's amazing what can come from simply staying aware of your own finances and using the money tools available.”