Category: Everything else

Same and different

All human beings are 99.9% identical in terms of our genetic make up. Despite being virtually the same, we’ve found ways to let that differing 0.1% get in the way of belonging and cooperation.

We’ve been successful in finding arbitrary differences – some biological, most made up – as justification to be cruel to one another. In some cases in our history, this cruelty was due to a competition for scarce resources. In most cases, especially those in our recent past, even the scarcity was manufactured.

While we are undoubtedly progressing as a species in our ability to put that 0.1% in perspective, there is a lot more work to be done.

Martin Luther King Jr said “The arc of the moral universe is long, but it bends toward justice.” In saying so, he acknowledged the challenges involved with changing minds. But, he also reminded us that – “Our lives begin to end the day we become silent about things that matter.”

No challenge is an excuse for us to take action for causes that matter.

The Robo Advisor follow up – 4 approaches to investment management

I spent some time through the holidays in December doing research on Robo investment advisors. Below is what I learnt from the research. For folks outside the US, the specific examples won’t be applicable – but, I hope the framework is helpful.

I think there are broadly 4 approaches to managing investments:

1. Financial advisory (High cost, Low effort): A financial adviser typically charges ~1% of funds under management in addition to the fees from individual funds. There are broadly three benefits. First, the financial adviser helps guide your entire financial life including helping you rein your expenses. Second, advisers ensure you have a few basic hygiene factors in place – emergency funds, life insurance, wills, etc. And, finally, since they manage investments for a living, they have access to a lot of information about the markets and presumably have plenty of data to make good decisions.

Now, on the flip side, disciples of John Bogle would tell you that the passive investing approach is a better, safer, bet than active management. The research would be on their side. But, on the other hand, there are many who work with financial advisers to get their financial life in control before branching out themselves. Financial advisers can also be a boon if you have a high net worth as they can help optimize your portfolio for taxes.

Finally, I lump “Personal Capital” into the financial advisory zone. Even if they claim to be a Robo advisor, fees of 0.89% are in the “high” territory. While I wasn’t on the look out for a full blown financial adviser, I did meet with them to understand their approach (I use their free product). I am admittedly a tad skeptical about their approach as I didn’t find much research to back it up. That said, 1) I’m clearly no expert :-) and 2) I’m looking forward to checking back in a few years to see how their strategy plays out over time.

2. DIY complex investing (Zero cost, High effort): This is for folks who love the art and science of investing. These folks have read the books and the research, follow investment managers and trends, manage their portfolios carefully, read SEC filings of acclaimed investors, and have earned investment experience through years of experience. Most important, their eyes light up when they talk about investing and diversification.

While this would be “high effort” for most people, folks who go down this path tend to do it because they enjoy the process. It definitely isn’t for everyone.

3. DIY simply investing (Zero cost, Medium effort): Folks in this bucket just work with a simple portfolio of Vanguard funds and invest/re-balance on a monthly/quarterly/half-yearly basis.

There are two keys to success in this approach. The first is a threshold level of interest in investing to make sure the overall strategy makes sense. And, the second is discipline. Most folks on forums like “Bogleheads” fall in this category. While I’ve seen folks in the Bogleheads community use phrases like “anyone with half a brain can do this,” I think they often mix interest and ability in their judgment of how easy this approach is to follow in the long run.

And, again, the importance of discipline and consistency in the long term success of this approach can’t be overstated. The biggest long term challenging to DIY investing success is managing your own psychology.

4. Robo advisers (Medium cost, low effort): I think there are two categories of Robo advisers. The more popular category is led by Betterment and Wealthfront. I think of both of them as Vanguard++. They take your Vanguard account, overlay it with a fancy UI that restricts you to a few index funds, optimize the mix for your long term goals, automate the process, and perform tax loss harvesting. Both claim they more than make up their 0.25% fee thanks to tax loss harvesting. Most folks who use these services seem happy – so, I think they’re doing a good job.

The second category is Vanguard’s Personal Advisory service. This service is a marriage between the robo advisers and the financial advisers. The main downsides to this service (versus Betterment and Wealthfront) are the absence of tax loss harvesting and a minimum of $50K in investments. But, on the plus side, you get access to a human advisor for 0.3% in fees. The human adviser can, thus, help you craft a reasonable overall strategy for your investments and ensure you stay disciplined.

We weren’t in the market for a full blown financial adviser as we tend to be pretty disciplined about our expenses and didn’t feel this would be as valuable. I have experimented with DIY simple investing (2013-2015, 2017) and attempted a version of DIY complex investing (2018). But, I realized that it isn’t something that I enjoy doing. While it may have been fun to spend time and learn more, time is a constraint with two kids. So, I was in the market for robo advisers for 2019.

After reading most of the reviews in the first few pages of Google searches for Betterment/Wealthfront and Vanguard PAS, we decided to experiment with Vanguard this year. We really value the presence of the human adviser and thought it would be helpful to have conversations about our overall strategy versus maximizing returns on one account. These conversations over the past 3 weeks have turned out to be very valuable and are well worth the fees in our book.

Finally, we love the simplicity of keeping investments in Vanguard as it makes it easy to just discontinue the service if we think we aren’t seeing value or believe we’ll be able to do what they do ourselves.

Looking forward to seeing how this automated approach works out in 2019. I’ll keep you posted.

PS: A big thank you to those of you who responded to my post with your approaches and notes. As always, it was much appreciated.

Pay back and forward

Reciprocity is wired deep within our psyche. As a result, our natural response to getting help tends to involve asking ourselves “how can I pay this back?”

It isn’t a bad question. Every once a while, we might find ways to give back to the folks who helped us.

But, more often than not, this isn’t possible because it is context dependent. Many of the folks who’ve helped us out in times of need in our careers (for example) are often many years ahead of us in terms of the problems we’re facing. The best we can do in such situations is express our gratitude.

That’s why asking ourselves – “how can I ensure I’m paying it forward?” – tends to be a better question.

If someone gives you a great gift, share that gift with two others. If someone gives you great career advice, find two others who would love to receive career advice from you.

There is always someone we can help. There is always an opportunity to pay it forward. And, letting someone know of the ripples their gift to us created is often the best gift we can share with someone who helped us.

John Clifton “Jack” Bogle

I learnt today that John Clifton “Jack” Bogle passed away. John Bogle created the first index fund and then went on to build Vanguard.

I loved a line on Marketwatch about his impact – “Thanks to index funds and Bogle, millions today live better retirements. Millions of college funds are fuller, millions of charities are better funded, and millions of aging grandparents have better resources in their old age.”

Morgan Housel pointed out that he did all this by creating a $5T non-profit whose profits went to retirees. He may be the greatest undercover philanthropist of all time.

I can say plenty about his impact on my life. For a boy who knew nothing about the financial world, the knowledge that Vanguard had my back gave me the confidence to invest and helped me pay for graduate school.

It is hard to explain how big an impact it made on my life.

Thank you, John, for showing us the way.

Solution space to Problem space

The common approach to solving problems is to get a team together, brainstorm, and agree on a prioritized approach to get to the solution. Spending time in solution space can be both fun and energizing. This is what we were trained to do as kids in school after all – solve problems.

But, as I look back at the many occasions in which the solution space failed to yield a solution that worked. I realize that it wasn’t because of the intelligence of the team or the effectiveness of time spent in the solution space. It was because of a poorly defined problem.

While good problem solving is undoubtedly important, we get the opportunity to make disproportionate contributions when we hold back these natural impulses to jump to the solution space and, instead, take the time to define the question.

Problem space >>> Solution space.

2 million points and counting

I recently met someone who collects points as a hobby. He mentioned he currently has more than 2 million points – enough for fully funded airfare and hotel stays for more vacations than he has time for.

But, that doesn’t stop him from collecting points. He does it because it feels like play. The process is far more interesting than the outcome.

This exchange reminded me of the power of combining passion and purpose. Passion asks “what has the world got to offer that fits my interests?” while purpose asks “what have I got to offer the world that has value?”

We’ve seen a lot of good rebuttals to the “follow your passion” advice over the past few years. The central theme is that we don’t often know what our passion is. Instead, we’re better off focusing on purposefully getting good at something that has value as passion often follows expertise.

While it is the pragmatic approach and one that at least ensures we’re not waiting around for the universe to reveal our passion, it has its downsides too. For example, if collecting points was a lucrative profession, I could become an expert at it. But, the process will never feel like play.

Ergo the power of combining passion and purpose.

It is magical when we’re able to get good at something we care deeply about. For most of us, that may mean a long and winding road to understand what this is and a lot of trouble to eventually get there – but, the juice tends to be worth the squeeze.

Activation Energy

Activation energy is the minimum quantity of energy required for a reaction. The activation energy idea shows up every day in our lives in the form of the minimum amount of energy required to build momentum toward what we want/need to do.

Activation energy is why its hard to get to the gym on a cold morning. It is why getting started on something important is painful.

But, for those of us who have (at least on occasion) managed to make it to the gym on a cold morning, we have likely experienced that is easier to work out long and hard once we’re there.

Activation energy, thus, regularly stands between us and desired habits. So, it is worth understanding activation energy and how we can work with it.

Overcoming activation energy requires willpower. In the long run, the best use of willpower is to create habits. Habits, in turn, help us reduce the amount of activation energy required to get something. But, it isn’t easy to create good habits. So, here a couple of interesting questions for us to consider in our quest to do so –

1. What are ways to reduce the activation energy until we create a habit? For example, we could start the year with a commitment to go to the gym with a friend for the first 6 months. Or, perhaps, we might pay for a personal trainer.

2. Are there ways to bypass the friction and still reach the end outcome? A consistent home workout for a month may be a great way to get us into the habit. Once we consistently begin to feel the benefits of a good workout, it becomes to lower the activation energy threshold.

Like most things, activation energy is neither good or bad. It just is. And, our experience with it is what we make of it.

Extreme opinions are useful for promotion and debate

Given the sheer competition for attention on the internet, it is a melting pot of extreme opinions. Extreme opinions are great for publicity and entertainment value. They can also be pretty useful to spark debate.

But, by spurning nuance, extreme stands rarely help us get to the truth of the matter.

My approach over time has been to treat extreme opinions like the dissonance between the quotes – “many hands make light work” and “too many cooks spoil the broth.”

Each is useful in stretching our thinking in the right context.

But, the truth, almost always, lies somewhere in the middle.

Making “be kind to yourself” easier to implement

The advice “be kind to yourself” tends to resonate with a lot of folks (me included) because of our default tendency to be harsh with ourselves. For years, however, I found myself wishing I’d find an easier way to remember it in the moment.

A model I’ve begun using to better translate this powerful idea reframes it around the question – who does your self talk sound like? I’ve picked three characters my self talk tends to sound like depending on the day. It could either be harshest critic (“that was a dumb move”), spectator (“hey, what happened there?”), or coach (“let’s talk about what happened there and what you’ve learned from it”).

You could imagine other characters across the spectrum- mom, close friend, critical friend, etc – depending on your natural tendencies.

Thinking about self talk from the lens of these characters and reminding myself to channel the coach more often has made it easier to implement “be kind to yourself.” Here’s hoping it stays.

If you have ideas/models/habits that work well for you, I’m all ears.