Investing: Your Financial Advisor is Wrong!

Bad Advice

I’m a doctor. I am not a financial expert. So you’re right to wonder why you would want to take financial advice from a doctor. Well, it turns out that our health is heavily impacted by our spending (see here). Moreover, the vast majority of financial “experts” will give you bad advice. Even the ones who truly have your best interests at heart.


Here’s the problem, even the best advisors will tell the typical person to invest 10% or, if they are very aggressive, 20% of your income into the stock market. They say this so that you have enough money left over for your “necessary” expenses and “discretionary” expenses. But the science of wellbeing tells us that much of our spending does little for our happiness or worse, it actually reduces happiness.


Despite More Spending, Happiness is Declining

Home sizes, for example, have nearly tripled in the last 100years and yet our levels of happiness as a society have only declined in the last few decades. This should tell you something – that we can spend a lot less money on consumer goods without adversely impacting our well-being or happiness.


If you’ve read the previous blog post, then you’ll understand and embrace the philosophy that the best things in life are largely free of cost once you’ve met your basic needs. This opens up the possibility of investing a much bigger part of your pay than you would otherwise think possible. Once you understand this, the rest is easy.


Investing is not nearly as complicated as it may seem. If you want to get returns on your investment that beats out well over 90% of professional money managers, just place your investments into index funds. There are various types of index funds. The Vanguard 500 index fund is an example of a great low cost fund. As you can see in the graph above, in the last hundred years, gains in the market is about 9.8% per year.


As you get closer to retirement, you should reduce risk by incorporating more bonds and less stocks in your portfolio. If you don’t want to have to worry about changing your ratio of stocks and bonds as you age then just put your funds into a target-date index fund. Here’s how to do that:


Follow these simple 4 steps and outperform >90% of professional money managers

    1. Open an account at a discount brokerage firm (Vanguard, Charles Schwab and Fidelity are a few of the most popular)
    2. Purchase the appropriate target date index fund. Careful, don’t confuse these with non-index target date funds. Choose the year closest to your target retirement date.
    3. Continue to invest even when the market is crashing; continue to invest even if the market is setting record highs.
    4. Invest as much as you are able and as often as you are able. Be sure you have enough aside to meet living expenses. Be sure to also have enough to cover for inevitable emergencies that are bound to come up from time to time.

Once you are able to cover for your daily living expenses with the amount you generate from your investments, you will be financially independent of your employer.



Happier. Healthier. Wealthier... Video Series