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FI Weekly – April 13, 2021

Live Event Tonight

We’re testing recording the ChooseFI podcast in a live format, and the Stereo app I mentioned previously wasn’t quite ready for what we needed. So, the experiment moves on: 

We’re doing a Facebook Live tonight (Tuesday 4/13) at 7:30 pm ET with Frank Vasquez, host of the ‘Risk Parity Radio’ podcast and a prior guest on one of our most popular episodes (Episode 194 about the role of bonds in your portfolio). 

Tonight’s live is about the nuances of investment portfolios, asset allocation, drawdown, and how to build a portfolio with non-correlated investments. 

With this event you can actually join us live (video and audio) on the show, so click the link below and have some technical questions ready for Frank! 

Join the Live Event

1% Better: Impact of Investment Fees

Mary sent in a response to last week’s FI Weekly that I wanted to highlight: 

“Just wanted to update you about our LITERAL 1% better this week was detaching our financial advisor from our accounts. One email later our investments don’t need to change and we dropped her 1% in fees! Thanks as always for your content!” 

Every few months I want to remind you just how detrimental the compounding impact of fees on your investments can be: 

In an older article on my Richmond Savers site I set up a scenario where you start with $100,000 invested, add $1,000 monthly for 40 years and assume a 9% annual return before fees (a bit ambitious on the return, but the example holds): 

Balance at Year 40 with that 9% gross annual return: $7,195,531 

But here are your realistic options, since there are fees on your investments: 

  • Option 1: 8.95% net annual return assuming you’re invested in a low-cost index fund with a 0.05% expense ratio: $7,084,479 balance. $111,052 lost to fees, which is about as good as you can get. 
  • Option 2: 8% net annual return assuming a 1% expense ratio fund (or could be an advisor’s 1% fee): $5,281,130 balance. $1,914,401 lost to fees. 
  • Option 3: 7% net annual return assuming 1% advisor fee and 1% expense ratio on fund: $3,893,067 balance. $3,302,464 lost to fees. That’s almost half of the total net worth! 

Fees matter a great deal. In Mary’s case, her “literal” 1% now will likely mean a 35%+ higher net worth a few decades from now. That’s about as powerful an action as you can take to help your future self! 

Having Money Saved is a Lot of Fun

Ryan wrote in: “I’m a high school personal finance teacher, and I love your podcast content. I’m constantly telling my students, “you know what I just heard on this podcast…” Haha! I even made a poster with a Jean Chatzky quote from Episode 190 for my classroom wall that I love. She said on your show, “Saving money is not fun, but having money saved is a lot of fun.” That really hit home with me and I think that high school students can relate to that one. I knew I had to put it up on my wall as soon as I heard her say it!” 

Having money saved gives you options. Having money saved gives you power. Having money saved truly is a lot of fun. 

It all starts by taking action today. 

ChooseFI Community Taking Action This Week

  • Brandie said, “This week I made life 1% better by giving my notice that I’m leaving work in 2 months. Our FI-oriented financial decisions over the past 2 years (all of the 1 percents I didn’t email about!) have given us the flexibility for me to leave now that I am pregnant with our second child. You have always said that independence can mean different things to different people and for us, this is the next step for our FI plan for now!” 
  • Bonnie said, “1% better…. every Thursday I have a phone reminder to pay an extra $405 towards my student loans. My goal is to be student debt loan free before I turn 40. I have 20 months and $45,000 left. Given that this is my third no spend year in a row, I’m excited to see the light at the end of this debt tunnel.” 
  • Lauren said, “My 1% gain was watching “Playing with Fire” with my husband; it was a great reminder for me, but more importantly it articulated FIRE to him in a relatable manner that I haven’t been able to. He has always been supportive but after watching the documentary he became more invested in the process and started asking questions about where we were at and what we needed to be doing. We received our economic impact payment and his immediate reaction was “Let’s open our brokerage account!” This is the first step we are taking as a couple towards FI and I couldn’t be more excited!” 
  • Lindsay said, “I made the final payment on my last student loan. Between the two of us, my husband and I had approximately $42-45k in student loans and now they are all paid (along with our car loan) and the only debt we have is our primary home mortgage. We graduated in 2005, so these student loans have been part of our lives for a long time. It feels so good to be rid of them!” 
  • Joey said, “I stopped living alone by moving out of my studio and into a townhouse with a roommate. I’m now saving $500/month on rent!” 
  • Rachel said, “I feel that my 1% was actually gained by paying it forward. I was asked to give a lecture to a small group of graduate students in their last month of training. At the end of my talk, I took the opportunity to get on my FIRE soapbox and tell them they are the perfect point in their lives to jump on board with FIRE. I have already had one student reach out for more information, so hopefully the FIRE continues to spread!”

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What Are You Optimizing For? | Chris Hutchins | Ep 423

Sometimes on the journey to FI, we ask ourselves the following; do I really need to spend money on this? Do I really have the time and resources for that? These questions may be easy to dismiss by saying no in order to stay on track with your financial goals, but by dismissing them, you could be missing out on something that is beneficial to your personal journey! This week we are joined by friend of the podcast, Chris Hutchins, to talk about the hacks for optimizing your life, the differences between cheapness and frugality, and the importance of valuing your time and what it can lead to. Saving money is an important part of achieving FI, but you should never feel so restricted that you miss out on investing your time and money in things that bring joy and value into your life. While saving is important, it’s okay to spend money. Whether it’s on a trip or investing in something new, there are ways to make it work without feeling guilt or shame. Prioritizing and valuing your time can introduce new experiences and provide happiness as well as perspective while on this journey! 

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