Nine hard-won lessons about money and investing

Any time you talk about money, you risk sounding like a jerk. I’m going to take that risk in this post. I’ll start out by talking about a couple ways I shot myself in the foot financially and what I learned as a result. Your mileage may vary. Before we start, you might want to review this financial advice from Scott Adams.

You are probably a bad stock picker

I moved to Silicon Valley in 2000, near the end of the dot com craze. Back then, an online broker was offering $400 for free if you opened up a stock trading account with a starting balance of $1000. As a grad student, I had a ~$14,000/year fellowship, so that was two weeks worth of salary for free. Thinking that I was investing with “house money,” I signed up.

All the business magazines recommended Cisco as a safe, conservative stock. So I bought shares of Cisco at about $60/share. Can you guess what happened next? The dot com crash happened, and shares of Cisco plummeted to $12/share. Shaken and nervous, I was able to sell at $18/share after a mild bounce.

Despite what all those business magazines said, the first stock I picked to invest lost 80% of its value almost immediately. On one hand, losing several hundred dollars of my own money, in addition to the “free” $400, was an expensive lesson. On the other hand, what a great lesson–I suck at picking stocks!

It turns out, almost everyone sucks at picking stocks. And the very, very few people who can do it well probably won’t take your money. If I could encourage you to read just one short article about picking stocks, read this one about why it’s a fools game. I may add a lot more references here–I’ve read a lot of books about this over the years–but if you’re trying to pick individual stocks then you’ll probably get creamed. Like, “amateur football player against professional NFL football players” creamed.

No one cares about your money as much as you do

On to my next mistake! I was very fortunate to join Google when it was small, so I did well in Google’s IPO. Research says that if you buy nice things, you adapt to those nice things pretty quickly and then you’re not much happier. I tried to avoid that trap by stashing my money somewhere and not thinking much about it. That’s not the mistake, by the way. I still think it’s pretty good advice if you win the lottery to park your money and take some time to get used to the idea.

My mistake was where I parked my money. Google worked out a deal with “full service” broker to give us free accounts. When I talked to this broker, they recommended that I part my money in “commercial paper.” I didn’t really know what commercial paper was, but the broker said it was safe, easy to pull my money out, and it would provide about 4-5% return on my money.

That worked great for a few years until the entire world financial system almost fell apart. In the early days of the financial crisis, I called my full service broker to make sure things were fine. I remember the phrase that the broker used was that “lightning would have to strike” for there to be any problems. It turns out, lightning did strike, and then the broker said that I couldn’t get my money back–the commercial paper market was completely locked up. The money was still all there, they claimed, but I couldn’t withdraw any of it.

In this case, I lucked out. Someone else filed a class action lawsuit against the financial company, and the financial company returned peoples’ money relatively quickly after that. How many stories have you read about a rock star or athlete who trusted their manager and got burned? It’s your job to pay enough attention to your finances that you don’t get burned. Don’t expect your stockbroker, bank, financial advisor, or really anyone handling your money to care about your money as much as you do.

Wall Street is not your friend

Fred Schwed wrote a book called Where Are the Customers’ Yachts. The title comes from a story about how brokers and bankers all seemed to have yachts, but somehow none of their customers did. Schwed wrote that book in 1940. Things on Wall Street aren’t really any better today.

Honestly, I consider this lesson pretty self-evident after the financial crisis. We’ve learned about companies packaging up toxic assets and betting against their customers. We’ve seen multi-billion dollar settlements for fixing foreign exchange rates and LIBOR (a rate that banks charge each for short-term loans). We’ve seen companies trading against consumers’ interest in dark pools with high-frequency trading. We’ve learned that Wall Street traders think of us as muppets, or worse.

Wall Street excels in taking simple financial instruments and making them more complicated. In that complexity, there’s plenty of shadows for financial companies to hide things that take advantage of you. If it sounds too good to be true, look out. If you don’t understand everything going on with your money, you’re increasing your risk.

So far, this has been a downer, so let’s talk about some positive lessons.

Think about working for equity vs. salary

As I mentioned in my post about Kevin Kelly’s talk at XOXO, there are many different kinds of success, and you should pick your own. One common financial aspiration is to make enough money that you can live off the interest and dividends from that money.

If you’re an employee working for salary, it’s going to be hard to reach that level of independence. That’s one reason I worry about franchises, because it tilts the playing field toward more employees and fewer independent businesses. You can try to radically lower your financial burn rate, and some people do, but few Americans have taken that step. Of course, starting a business completely on your own can be stressful and scary too.

One reason I like startups is that they represent a middle way: you can get some equity or ownership in a business that might turn out very well, but you also get a salary. You can pick your startup to match your personal profile of risk: from founder all the way up to companies with hundreds of employees or more. Especially if you’re young, it can be a good idea to try some more adventurous things like a startup.

If you’re investing, prefer index funds

Okay, let’s suppose you do win the lottery or do well at your own business or startup. Now what? Well, you could double down on new businesses like Elon Musk, but my advice would be to set aside enough money that you can live off the interest or dividends.

It turns out that investing in low-cost index funds in a diversified portfolio is a really good idea. In fact, it outperforms the vast majority of “active” investors. Simple is usually better, like many things in life. I’d also recommend investing in a bond index fund. Bonds tend to do well when stocks do poorly, and vice versa, so investing in both will tend to reduce your risk.

If you’re a regular person working for salary, you might want 60% of your money in a stock index fund and 40% of your money in a bond index fund. If you’re young or adventurous, you can tilt toward more stocks. You want to invest so that you can sleep well at night without moving your money around based on what you see or read in the news.

If you’re fortunate enough to win the lottery, you might want an allocation more like 80% bonds and 20% stocks, or 70%/30%. After all, it’s pretty safe to protect your money and live off the dividends/interest.

Don’t get paralyzed over choosing your allocation between stocks and bonds. There’s a great book called The Lazy Person’s Guide to Investing to walk you through some easy ways to structure your investments. Honestly a 50/50 mix of stocks and bonds (the so-called “Couch Potato Portfolio”) will beat many “active” portfolios where you or someone else tries to pick stocks.

For that matter, you can buy a Vanguard LifeStrategy fund that will give most of what you need with a single purchase. Such funds tilt toward stocks when you’re younger and then transition toward bonds as you get older. You can pick whatever retirement target would make you feel most comfortable in terms of risk.

Prefer credit unions over banks

Earlier, I basically said much of Wall Street is like carnival sideshow designed to separate you from your money. So is there anybody on your side? Well, credit unions can be pretty cool. Credit unions are like banks, except instead of trying to turn a profit on you, credit unions are controlled by their members. That means that they can often provide better rates, have better policies, and generally will try to exploit you less often than megabanks will.

Note that not every credit union is perfect. I once belonged to a credit union that started adding a $1 monthly fee that went to a foundation that the credit union ran. The foundation funds a bunch of semi-random things ($3M for a walkway?). I called up and asked how to remove the fee. “You can’t remove that charge, the foundation fee is mandatory,” came back the reply. I closed my account with that credit union and now I don’t pay that fee.

Do your research on any financial institution’s fees, prices, and policies. In the worst case, check out their website–if the website looks clunky or hard to use, consider skipping that organization. If a company supports two-factor authentication, that’s a bonus point in their favor.

Prefer Vanguard over almost anyone else

Instead of a regular stock broker, I highly recommend Vanguard. Go with Vanguard whenever you can.

In the same way that credit unions are controlled by their members and usually better than banks, Vanguard is owned by their clients and provides a much better deal than almost any other financial company. Even better, their incentives are aligned with yours. Vanguard provides well-balanced indexed funds at a very low cost. You can also buy stocks through Vanguard. At some point, I may write more about Vanguard, but I consider them one of the only companies on your side in the financial world. Check them out.

You probably don’t need a “assets under management” financial advisor

There’s another way that some people take advantage of you: some financial advisors charge outsized fees for what they do. Many financial advisors charge a percentage of “assets under management” (AUM). A 1% fee of assets under management might not sound like much, but that 1% can take a serious bite out of your returns. Instead, I recommend making an appointment with a fee-only financial advisor. Or if you put enough money into Vanguard, they may provide access to a financial planner. A good financial planner can help you determine your risk tolerance and other special factors and recommend a good portfolio allocation for you.

Some newer firms like Wealthfront, Betterment, and Personal Capital offer to provide “robo-advisor” services for lower fees than a human financial advisor. But you’re still paying ~0.25% of your assets for things like rebalancing your portfolio when you can do it yourself in 15 minutes a year.

I use such a simple plan that I don’t pay a financial advisor. I just buy low-cost stock index funds (US and rest-of-world) and bond index funds (US and California). Don’t let anyone make you feel like you need to pay a financial advisor. Remember: they don’t care about your money as much as you do, and with a little reading, you can understand the simple strategies that make up almost all of a diversified, low-cost, low-risk portfolio.

Consider municipal bonds

I have some friends who have left California and moved to lower-tax or no-tax states. For the most part, I don’t mind higher California taxes–I rationalize it as a “sunshine” tax for warm, beautiful weather. Plus California provides the atmosphere where things like Silicon Valley can happen.

But there is a simple trick to minimize your taxes: buy municipal bonds for the state where you live. For example, Vanguard offers municipal bond funds for many states, including a bond fund for California. The interest from a California municipal bond fund is tax-free at the federal and state level. If you’re in a high tax bracket, getting interest tax-free is like getting a much better interest rate.

Bonus tip: tax loss harvesting

I’ve described a pretty simple way to park your money that reduces cost and risk. If you’re willing to do more work, you can try tax loss harvesting. Full disclosure: I don’t do this myself because I consider it a hassle and a lot of paperwork, but it’s relatively straightforward.

The idea of tax loss harvesting is that instead of buying an index fund, you buy individual stocks. If your stock broker gives you 100 free trades, you could buy (say) 75 individual stocks. Then, when one stock goes down, you can sell it at a loss and buy a similar but different enough stock that you don’t violate wash sale rules. You can use the losses to reduce your taxes. This technique is legal and it probably will save you money, but I prefer the simplicity of owning 3-4 index funds.

Bonus tip: prefer donor-advised funds to foundations

If you do win the lottery or succeed at a startup, you might want to use your money to support things that you believe in. I’ve explored both private foundations and donor-advised funds and I’d definitely recommend donor-advised funds in most cases.

A private foundation sounds cool, but the reality is that it takes a lot of time, work and paperwork. You have to file separate taxes, which can be a big hassle. You can find organizations to handle the paperwork and taxes for you (we had a good experience with Foundation Source), but then you’re paying someone a chunk of money to do taxes instead of spending that money on things you support. Foundations also have to give away 5% of their assets each year.

With a donor-advised fund, you don’t have to worry about taxes or paperwork. You don’t have to give away 5% of the fund’s assets each year either. In my experience, donor-advised funds tend to have lower fees. You can donate appreciated stock to a donor-advised fund pretty easily and get a tax break that year for donating to charity. A donor-advised fund isn’t quite as flexible as a foundation, but in my experience you almost never used that extra flexibility. Most of the time you’re looking to donate money to nonprofits or charities, and donor-advised funds work well for that. And as you might expect, Vanguard can handle donor-advised funds for you.


I hope some of the mistakes I made and the subsequent lessons are helpful. If you take this post along with Scott Adams’ financial advice, I think you’ll be more prepared than most people. Are there other financial lessons or advice that you would add? Let me know in the comments.

73 Responses to Nine hard-won lessons about money and investing (Leave a comment)

  1. How do you handle ethical issues when you invest into funds? For example Vanguard is linked to Novartis, which has been found guilty of a cartel with other big pharma companies to raise artificially the price of a Cancer Drug in Italy.


    • Hi Andrea, I don’t know of any specific link between Vanguard and Novartis other than Vanguard buys the stocks of hundreds (maybe thousands?) of companies to try to reflect the broader market, and Novartis is one of the companies in the market. It sounds like you’re referring to socially responsible investing: , which is where you might try to avoid buying stocks that do something you dislike, or maybe you buy the stocks of companies that you support. That’s a choice that each person has to make for himself or herself, along with deciding which companies you dislike. For example, some people might dislike alcohol companies. Other people might dislike a pharmaceutical company.

      If you do want to pursue socially responsible investing, there are a couple paths. First, you can look into specific funds that offer socially responsible investing. If you’re willing to do more work, you can buy individual stocks in an attempt to build your own index-like fund, but leaving out companies you dislike and adding companies you support. Bear in mind that it will probably be a lot of work and you probably won’t build an index fund as robust as (say) Vanguard would.

      As for me, the majority of my money is in bonds, so this less of an issue for me personally. My strategy is to buy stock and bond index funds that reflect the world economy. I want to float like a cork on the surface the world economy–at least with my safe investments. I also do angel investing for companies doing things that I want to succeed. I realize that there’s a certain background level of bad behavior by some companies. Instead of spending my time trying to investigate or separate out the truly bad behavior in a noisy media-sphere, I would prefer to spend my time on areas where I think I’m more likely to have an impact.

      That’s a personal choice though, and reasonable people can disagree. Again, most of my money is in bonds, and I lean toward keeping things simple. But I was talking to a friend today who has bought >50 individual stocks to make a pseudo-index fund, and that approach lets you pick and choose which companies to support.

  2. Great recap and post Matt. I came to San Francisco a year after you and remember taking Larry on the investor roadshow during IPO. The reverse auction was new, and we were all excited. Just joining Google pre IPO and lasting for 10+ years is like winning the lottery that keeps on giving. Bank share performance on the other hand have been horrendous.

    I left Wall St in 2012 to dedicate full time online, and I absolutely love it. I’m thankful Google has been kind to my site and allowed so many of us to break free from Corporate America.

    Personal Finance is the most interesting topic around because it relates to everything that we do! Maybe I can buy you a drink the next time you’re in SF. Hope whatever you’re thinking about doing next is one great big adventure. It’s never as scary as what you might think once you make the transition!



  3. You have no idea how timely this particular post is, Matt.

    I am JUST in the process of figuring out how to invest some money now that I’m finally in a position to as of this year. All of this advice is what I’ve put together for the most part in bits and pieces but hadn’t managed to consolidate. You did all the work for me, and you added about 2-3 things I never even knew about.

    Thanks for that!

  4. Hi Matt. Ironically, Gmail decided to flag your post as spam. You may not see as much engagement as usual!

    • That’s pretty funny. I thought about making the URL for this something like make-money-online and mentioning how affiliates aim for a similar goal (living off passive income), but ultimately decided not to go that far afield. 🙂

  5. This is all good advice for high net individuals. For those like myself without a basement vault to swim in ala’ Scrooge McDuck – I ascribe to a much simpler model: “Whatever I finds, I keeps”.

    Oh pardon me Santos, if that is your real name, Bart Simpson, but your phoney credit card is no good here. Now make like my pants, and split.

  6. Thanks Matt. I agree with all of it, though I go with Personal Capital. I’m just teaching my teenagers the basics of financial intelligence. Starting with paper trading, telling em to put at least 20% of the money they make away before they even see it (pay yourself first), and reminding them that willpower is a glass that starts out full in the morning and slowly empties throughout the day – so take care of your personal goals in the morning. I *think* its working – I’ll report back in about a decade.

  7. Matt, I know you are tech geek and when you write about money and investment I immediately asked myself what you think about the Bitcoin technology because I follow the topic since some time. Are you invested in Bitcoin or don’t you believe in the future of Bitcoin? I hold a small sum of it (although I am no Bitcoin fanatic) and my speculation was that Google Wallet or Paypal could adopt it, or any other news that would lead to mainstream adoption and an increasing price. I only invested what I can afford to lose and it wouldn’t make me sad if it would happen. I like the idea of it but sometimes I also think it could just be a bubble because at the moment it looks more like an experiment and the volatility is quite crazy and not good when we talk about adoption, investment and so. That means I am very little invested and more out of fun. What is your opinion about Bitcoin?

    • Briefly, I think speculating on Bitcoin’s price is a bad idea. Using Bitcoin to eliminate foreign exchange fees or other currency friction is a smart idea. And the distributed blockchain to allow distributed trust is quite interesting. I haven’t invested in any Bitcoin startups myself (seems like there’s a lot of chaos and froth out there), but I’m looking forward to the functionality that some of these startups might build!

      • Yes, the functionality is also one of the main reasons why I follow the whole subject closely. The blockchain technology is indeed very interesting. I am also curious what the startups come up with. Thanks for your opinion Matt.

  8. Disclosure: I am the founder and CEO of GreaterThanZero. To measure is to know. Nothing opens your eyes better than a good look at some cold hard charts and numbers that show you what happened to your money, and what would have happened had you done something else with it. In my experience, the numbers that we provide at GreaterThanZerovery much support the advice that is given in this blog post.

  9. Thanks for this, Matt. It’s helpful, straight forward and encouraging.

  10. I disagree with your advice on bond index funds. This is a terrible idea, especially given the nature of the current environment where bond interest rates will start to rise. Bond mutual funds will get absolutely destroyed over the next 10 years as interest rates rise. People should be in short-term bonds or mutual funds that invest strictly on the short-end of the curve. Anyone holding 5+ year bonds will get destroyed once the Fed stops QE in March 2015.

    • steven2012, I think you’re talking tactics and I’m talking strategy. I’m saying that at a high level, you want to choose a mix of stocks and bonds that reflect your risk tolerance. And if you already have money and you want to protect that money, that will tilt you more toward holding bonds.

      We could discuss things at the tactical level, but I might just as easily answer that right now, stocks are about as expensive in terms of P/E as they’ve ever been, other than 1929 and 2000: So there’s a good argument that stocks will get creamed in the next few years.

      The fact is, no one knows with absolute certainty what’s going to happen in the financial markets in the future. And at a high level, I believe it’s healthy to have a good chunk of bonds to counterweight the stocks in your portfolio.

  11. Hi Matt, I usually enjoy your posts but I felt this one lacking in a major way.

    Investing is something that has huge potential (ie., 100 fold). This is something that I’m sure you’re aware of as an early Google employee (you were invested in the company via stock options, etc). On the other hand, investing has huge downside as well (you can lose all your money).

    Many people are advocating people to take a mindless approach to investing by investing in low-cost index funds. I personally think this is decent/good advice for most people who don’t have the time, energy, experience, skills to make investing a lifetime passion. In other words, for the typical person who just wants to focus on his 9-to-5 job and other hobbies and not deal with the world of investing, then sure low-cost index funds are the way to go.

    However, there are some people who can benefit in huge ways by becoming experts in investing (whether this be in stocks, real estate, businesses, etc). A few disclaimers first… becoming an expert investor is extremely difficult and most people underestimate what it takes. It’s not about “picking” stocks or getting lucky. Rather, it’s about accumulating the skills, experience and expertise to evaluate investment opportunities in a wise and discerning manner, and to do it exceedingly well. I think it requires an immense amount of time and dedication. And I don’t think 98% of the people out there practically have the time, energy, motivation or focus to develop such skills. But for the 1-2%, I think it’s a possibility if they treat it as a serious lifetime endeavor.

    • Dave L, I concede that someone who is willing to put in the time and effort, they may become good at selecting stocks. Then again, they may not: I have friends who have spent a lot of time and effort studying individual stocks without much to show for it. And don’t even get me started on the financial press that’s there to distract and mislead investors into bad choices–yikes!

      In short, I believe that a passive index fund will outperform a majority of professional active money managers, and it’s the best choice for the vast majority of people.

      Furthermore, who would most people name as the greatest investor of the last 50 years? Probably Warren Buffett. Well, guess how Warren Buffett wants his money left to his wife when he dies? Buffett wants the money in an index fund (!). Here’s the article:
      and I’ll just quote a bit:

      My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions, or individuals — who employ high-fee managers.

      So you have to ask yourself: are you smarter than Warren Buffett? Because Buffett is counting on an index fund when he dies.

      • Matt,

        I actually agree with Dave. It is foolish to believe that stock picking cannot do well – sample data is not representative. Most people never do things the right way. I find that in CS just in other trades. It takes sometime to build foundation knowledge why stocks go up and down. This is a good beginner’s book: . Very few understands it, and turn to the media for easy answers. TV wants your attention, the broker wants your commission. It gets more complex than that once you understand fundamentals, revenue, industry, barrier of entry (moats as Warren calls it). Then you also need to learn about market timing. But once you got the fundamentals down, it is easy to identify the goods from the bad. I, in fact, don’t spend any work at all, but I do pick good stocks. All you need to do is make a few long term bets. I am up 40% on one stock, and 25% up on my portfolio. Even my 401K is up 20%.

        Warren buffett offers index funds for those who cannot manage. When he dies, he actually has a few protege to continue managing it. You should read his earnings report, and disclosures all the stocks he owns. He owns AMEX, CC, etc – He buys stocks, then look at his 50 year purchase history. If he finds a good company, it buy it outright.

        I bought stocks since before the market crash, as far back as 2007. I didn’t lose money then. I actually made good money after 2008 crash on stocks picks, real estate.

        Vanguard has some high performance, exclusive ones that provides good yields. If you’re not good at stock picking, buy warren’s buffett or someone you believe in, you certainly will beat the bonds easily.

        • Hi Quoc, regarding “It is foolish to believe that stock picking cannot do well” I’m just going to quote a reply that someone left on Hacker News at :

          Perhaps you’re right; perhaps 1-2% of people (if that) could potentially beat the market in their investments. And the majority of people think they’re in that 1-2%.

          Meanwhile, index funds have the lovely advantage that you can’t do worse than the market.

          If you have extra energy to spend investigating investments, use it to diversify into a handful of minimal-overhead index funds rather than just one. And if you fancy yourself an investor as a hobby, take a small fraction of your savings and play with it, and congratulate yourself if you manage to do better than “buy high and sell low”.

          But in general, most people would greatly improve the status of their investments by just throwing the whole thing into a halfway decent index fund. That’s the most sensible general advice when talking to a large audience of people; get them there first, which takes far less effort, and then let people who really think they can do better attempt to do so.

          I really couldn’t say it better myself.

  12. Re: “assets under management” financial advisor
    Good advice is very valuable. And an honest financial advisor will more than
    make up for their 1% fee (compared to my sorry ass investing, etc).

    • Neal, if you want to pay someone for their advice, by all means do it. But I think a fee-only financial planner will help you almost as much, and will probably save you a ton of money.

      • Hey Matt. I’m a Marketing Manager for a fee-only financial planner in New Jersey. I’m really happy you pointed out such great topics here. You are a very optimistic and straight forward thinker.

        One thing we love to talk about when getting across our value is relieving the stress of managing your own money, as you state, however there is so much more to a comprehensive financial planner. A fee-only financial planner does more than an investment manager. They provide financial life-planning. Thing such as cash-flow analysis, insurance planning, retirement planning, estate planning, and much more. Most importantly, they make sure your life goals and investments are in line with each other.

        As for investing, you are absolutely right, we do invest in mostly Vanguard funds, but also Dimensional Fund Advisors which are one of the best in the world and are similar in tactic, yet only available to fee-only financial advisors. “Asset under management” advisors can in fact be fee-only financial planners, so I hope no one confuses one over the other. A fee-only financial advisor can charge a percentage of assets, yet then convert that percentage into a flat fee that is charged quarterly, yearly, or other ways. I am glad you touched on the fact that they are usually low-cost and they have your best interests in mind rather than a broker/stock picker who may make commissions off of the investments they place you in. I love your content, Matt. Keep putting out great stuff.

        Hope this helps,

        James Gibson
        Marketing Manager

        • You make a good point that a financial advisor can be helpful in setting up plans, thinking about estate plans, and so on. My main point is that after a lot of that initial work, there’s typically not as much follow-on work each year, so an “assets under management” advisor might not be as beneficial after a while.

  13. Very good advice, Matt! I had a very similar experience with yours, and I cannot agree more with everything you said.

    One thing your article reminded me of was this longish article from 2008.

    The first page describes what Jonathan Rosenberg did just before Google’s IPO, for the benefit of all googlers. If you don’t have time to read the whole article, just read the first page, I’m sure you’ll agree it’s an accurate description of what happened at the time.

    • Great to hear from you, Ovidiu, and hope you’re doing well! Thanks for this pointer. I think Google and Jonathan Rosenberg did about as good a job to prepare Googlers as anyone could possibly expect.

  14. I switched to index funds long time ago because i just dont see the point in paying management fee in higher ranges for fund managers dont even beat the market. Of course i am also buying single stocks but not in bug scale and mostly for fun. Had the luck to chose OK but it was mainly luck. Perhaps the strategy only buying stocks in a market i know about (tech) helps but this is just a guess. Never bought stock outside tech.

    Oft course i also try to invest into bricks aka house. But the return is abysmall for private housing but building an office for your own company and lease a floor for other companies might return an OK percentage.

    And being myself an entrepreneur for 10 years i could only underline the sentence that joining a promising startup as employee might be a better choice than starting your own company. There is a great YC class recording on that matter from a facebook Flunder.


  15. This sounds close to a summary of the new Anthony Robbins book released last week.

    • I haven’t seen the book, but that’s interesting.

    • I was thinking the same thing! I’d recommend the Tony Robbins book with one caveat. It’s LONG, and mainly due to the fact he’s also motivating the reader to take action as much as give financial advice. I find the motivational style useful myself, but others might want something that just gets right to the facts.

  16. Michael Angeletti

    Excellent article, thanks. Paying no federal taxes on some municipal bonds comes as a surprise to me. One thing I’d do differently than what you suggest is to put at least 15% of my portfolio into a savings account, rather than having it all in some form of less liquid investments. Also, don’t forget that bonds are not a guaranteed thing.

    • Good points. You should always have a cushion of several months of living expenses in something safe and liquid. That’s covered in Scott Adams’ financial advice too.

  17. I’ve been with Vanguard forever and now make sure I’m buying into Admiral Funds so my fees are nearly zero (0.10%!). And that’s what most people don’t understand about most other investment vehicles. The fees eat into your gains to such a point that any potential edge is usually wiped out.

    There’s also research about active trading versus index funds. In general you can only make one mistake, miss timing the market once (!), and index funds win out. I dabbled with a bit of money on individual stocks and did wind up making some money on AMLN, but in the scheme of things I didn’t make that much more than I did by investing in Vanguard. And I lost out on two other stocks so my active trading was profitable overall but if all that money had been in Vanguard I would be up more.

    Investing in index funds isn’t sexy or fun but it is the smart thing to do. There’s still work to be done though. It’s all about balancing your portfolio so that you have the right exposure and risk profile. You can still ‘play’ a part of the market you believe it strong (say emerging markets or housing) and over-weight that part of your portfolio.

    For me the next step is advisor roles (equity) and determining how much I might use for small angel investments. Certainly a lot more risk there (in the latter) but potential for large returns. Given my track-record of clients I’d have done quite well – did do well with one in fact.

    But even then , for me that’s the ‘slush fund’ money, the stuff left over that isn’t going to my Vanguard SEP IRA. Thankfully, I have some of that the last few years.

  18. Hi Matt,

    Very helpful post.

    Did you research financial managers who follow the original Buffett partnership model? Through investment forums I have heard of Mohnish Pabrai as one such fund manager who has done very well for his investors. I don’t have an investment in his fund (don’t have the savings to make the cut as an accredited investor). I was wondering if you had explored such a fund / fund manager as an alternative?


    • I can’t really recommend any financial manager; I don’t have enough data to do that. I do like that partnerships (as opposed to limited partnerships) mean that partners are on the hook financially for their decisions, so their incentives are better aligned to avoid awful mistakes.

  19. I’d add two book recs: A Random Walk Down Wall Street is one of the best books I’ve ever read, ever. The Millionaire Next Door is also excellent. When most of us think about millionaires we think about Hollywood stars, tech company founders, and finance moguls. But most millionaires are actually normal people who spend below their means and invest what they can, usually in index funds and sometimes in a house. If they marry they don’t divorce (divorce is very, very expensive and modern marriage is a high-risk endeavor).

    Chances are good that most of the millionaires you know don’t live like millionaires—which is why they can be millionaires!

    (I left a version of this in the Hacker News discussion.)

    • Jake, thanks for these suggestions! I’ve read both of these books and agree that they’re good resources. I especially thought that A Random Walk Down Wall Street is required reading.

  20. I had a very similar initial experience (it was due to the first Iraq War 1990) and have pretty much ended up with very similar conclusions as you. It helps to make mistakes early when the stakes are not that high.

    I now stick to Index Funds only which I enter when the market is down (2008-10) but given the current frothy conditions, I’ve moved into all cash positions. It feels like deja vu from 2006 and I am willing to forego any gains in exchange for not having to risk a 30-40% drop in the near future. I almost feel like doubling down and going into bonds. Any advice?

    • Pradeep, it’s really hard to time the market, and you’re likely to miss out on stock market rallies that way. Instead, I’d decide on a portfolio that diversifies against risk to a degree that you can leave it on autopilot and sleep well at night. That’s more likely to work well over a period of decades.

  21. Why hasn’t anyone mentioned I now strongly subscribe to the Bogleheads philosophy when it comes to investing, having been through 2 bubbles, circa 2000 and 2008. is all what you need to know and cut the rest of the noise.

  22. I believe many of the robo-investors, such as wealth front, provide automated tax loss harvesting. You usually get the first chunk managed for no fee, e.g. first $10k in wealthfront I believe. Disclosure: my brother works for wealthfront.

    • Yup, that’s true. I think companies like Wealthfront and Betterment will do most of the financial rebalancing that you need for far less than “full service” assets under management advisor. Something like Wealthfront can be a good step, and then if you get comfortable enough to try it on your own, great!

      • Betterment claims that their automated Tax Loss Harvesting on average generates 0.77% extra per year. (, which (if true) greatly offsets the 0.15% that you pay as a fee.

        I used to do that manually (not that complicated either) and that actually takes some time/effort if you really want to optimize (and that’s actually the main reason why I switched from Vanguard to Betterment, and given that Betterment’s portfolio is mostly Vanguard ETFs, so that’s almost the only difference).

  23. Very well thought out and written post, Matt! Very generous of you to be so open about your situation, including mistakes.

    Very timely too. The same day you posted this, I read a WSJ article stating that only 9.3% of active large cap funds are beating the S&P500 year to date, which is worse the previous low of 12.9% in 1995. (The average is 38.6%.)

    @Ovidiu, very interesting article. Thanks for posting the link.

    Something worth mentioning is that the technical concepts behind investing are very interesting. That surprised me once I really started reading on the topic. I think anyone with a technical bent (probably most of your readers) will find learning about it enjoyable. In particular I’d recommend checking out Fortune’s Formula by William Poundstone or anything by William Bernstein.

    As you know, financial literacy is a topic I care deeply about. Thanks again for taking the time to share your knowledge.

  24. Great advice overall. One note on credit unions as I recently went through changing my checking and saving accounts. Having an account with a local credit union is great for cashing checks and such but new online banks often offer some great advantages for checking accounts. Ally, Scwhab and Capital One all offer some good accounts that pay good interest, wipe out all ATM fees and allow fee-free overdrafts from a money market or other investment account so you can be earning some good interest without worrying to much about keeping plenty in you checking. It’s also very convenient to be able to withdraw cash at any ATM without ever paying a fee. Downside is not have access to bulk sums of cash as they often don’t have local branches and for that I think it does make sense to keep a small account with a credit union. These companies seem to offer these great accounts to potentially get you into their investment accounts where they can charge fees on trades and such but as there is no obligation to do so, would you still advise using a credit union for savings and checking accounts?

    • Online banks can offer great deals. I’d just make sure that you don’t need a local presence. With the introduction of smartphone apps to deposit checks, local branches become less of an issue.

  25. Hi Matt,

    I am enjoying this new facet of your blog. You might need to change the title of your blog to reflect it! Overall, I really liked your advice. There is one point, however, that I think could use more nuanced explanation and that is the conventional wisdom around allocation or being lazy about it. Allocation should reflect how much money you will need in the short term (~2 years). For example, if someone is 40 and has a $1 million in a brokerage account but needs to buy a home and send kids to private school in the very near future than they should be heavily invested in bonds — good stabilizer. If you were invested heavily in stocks in 2007 and then really needed the money in 2009 you were possibly in a serious bind. If you are 65 and have $5 million and have very few immediate needs for the cash than maybe 50% (or more) in stocks might make sense because that person can deal with a downturn that happens in the short term.

  26. Agree completely Matt. However, if you are fairly well off, I think you should put 90% in index funds and other brain-dead but good investments and bet 10% on many small investments where you have a lot of conviction, effectively looking for a ‘positive white swan’ event.

    • Hmm. Personally, I’d lean more toward bonds to churn out regular cash each month while protecting the principal (municipal bonds typically have less variance than stocks, in my experience). But I agree that setting aside a small amount of money for angel investments or other stuff can make you feel like you’re doing something while still protecting most of your money. 🙂

  27. Love it!

    One of the best things I’ve done this year is to really challenge my “normal” bills and see if they’re as important to me as they once, supposedly, were all those years ago since first signing up. I’ve been able to shave off $200 *every month* so far by tweaking three major bills (cell phone, cable, car insurance) and my quality of life hasn’t hardly changed a bit.

    And then to take it a step further (since, “saving money” doesn’t actually matter unless you *put it somewhere* right?) I’ve opened up a separate savings account and have been diverting all this money right into it with the rule of not being able to touch it for 12 months.

    The account has $1,200 in it after three months, and has really opened up my eyes on not only the psychology of money, but also the challenging of all my “stuff” too. I’ve started listing 1 thing on Craigslist every week to pump up this account even more (any “extra” money I find, get, earn also goes into this “Challenge Savings” account), and now I”m decluttering and freeing up my mind as well…

    It’s amazing all the stuff we think we need that we’d be fine without. Especially in return for cold hard cash 😉

    Anyways, just wanted to chime in and say I enjoyed this post. And I read over 200+ for a finance site I built and curate for, so believe me when I say it’s a refreshing take on this stuff. Real life examples – good and bad – always help people learn better than generalities. So thanks for sharing.

    • Great comment! I’ve often scrutinized my monthly bills to see if there’s a good spot to trim, just because the monthly bills are where things add up. And I love the idea of decluttering while raising a little cash by selling things you’re not using. Thanks for stopping by!

      • Anytime, brotha. Featuring this article on Rockstar Finance today to better spread the word 🙂 (I won’t link to it just in case it’s not allowed, but just put a .com on the end if you want to check out…)

        Happy holidays!

  28. Thanks Matt. I’m happy to see discussions about these things. I first bought stocks in 1999 just before the crash. I kept them since and did ok, so I thought. I put all my trades into the free Morningstar portfolio modelling tool and realised I’m actually useless at picking stocks – it seems to be natural to remember the wins and deny the losses, but it’s as stupid for investing as it is in Vegas. Now it’s Vanguard, dollar-cost averaging, global diversification and occasional rebalancing in tax sheltered accounts with low fees – boring but sensible. I loved A Random Walk Down Wall Street. A nice introduction is The Millionaire Teacher. For fellow Brits Tim Hale’s Smarter Investing is well worth a read, with its UK focus. For those more visually inclined this recently published video series on the benefits of passive investing is a great watch with interviews with French, Fama, Bernstein etc: How to Win the Loser’s Game: I’ve been rather enjoying the BillGuard mobile app for tracking spending, it’s delightfully quick and easy to use.

  29. Thanks Matt, nice post with your personal experience. I was planning to invest in shares through online trading accounts, but you know after reading this article i feel that would not be a good idea or it would be too early for me to investing money in market. Like a child in Big black ocean of risks and failures. I need to do some more research. Looks like another financial down time is coming in market. i am listening these kind of news from Japan. All in all thanks for this very helpful article.

  30. On point 1; It’s an incredible amount of work and pain for several years to get trading/investing right, as you must do asset (all kinds, not just stocks) valuation (fundamental and technical) yourself (by first reading many books, and much practice). Anything with a high return is hard to do, though it doesn’t look like it on first glance.

  31. “Okay, let’s suppose you do win the lottery or do well at your own business or startup. Now what?”

    Here’s such a scenario:

    “As Google’s historic August 2004 IPO approached, the company’s senior vice president, Jonathan Rosenberg, realized he was about to spawn hundreds of impetuous young multimillionaires. They would, he feared, become the prey of Wall Street brokers, financial advisers, and wealth managers, all offering their own get-even-richer investment schemes.”

    Read what happened:

  32. Thanks for this 🙂 I’d never heard of donor-advised funds before but hope to need one one day!

  33. Asheesh Vashishtha

    Thanks for the wonderful article, Matt. I’m a big fan of diversified Mutual funds and have been investing in India for the past 6 years. Since the Indian market has risen tremendously this year, my portfolio has gone up by 40% this year alone. However, since I’ve been working in the US for the last 3 years, I was looking for an investment into the stock market here. I found your article timely, and though I have opened a Fidelity account, and have invested around $5k in two mutual funds but I still find your recommendation of investing in low-cost index funds useful. I will take a look at Vanguard and see how it goes.

  34. Great piece of advise, thank you for sharing.
    My question would be rather non numerical… How do you get over the loss when you invest? I’ve rushed into currency exchange the other week, if I have sold it today, I would have made about 4k more. Should have, could have, would have…Although I’m trying not to think about it in terms of loosing, but rather not earning more – how can you put this to sleep once and for all? Can you actually get there? I’ve made some losses in life in the past or shall I say – I didn’t make as much as I could, but this one just seem to have stung me more than anything. Or is it time that heals the wounds? Thank you, Angie

    • Well, ideally you find an arrangement that lets you sleep at night, and you only end up checking your balances every few months. I’d avoid thinking about things is a much shorter time frame than that.

  35. I am 20, student, and have started investing in various investment programs.
    I have set a structured Pizza Pie as to where my money blog blogging should go.
    I have divided my Pizza into 4 parts.
    25% into savings, 25% into living costs/education, 25% into food, entertainment and rest I invest in stocks/mutual funds.
    This Pizza pie has till now made my life quite simpler and I look forward to investing more in various other programs like PPFs, Bonds, Fixed Deposits and investing in Indian IPOs (Yes I am an Indian 🙂 ).
    I am into engineering field and cannot understand finances like a professional, but punching some letters in Google during my summers have helped understand finance well!
    Happy 2015!

  36. Very good article. I am a huge Vanguard fan as well and I generally throw money in my wife and my IRAs and solo 401ks at the start of each year. All this “stocks with take a pounding” talk have me wondering whether I should wait to invest in stocks/index funds until later in the year. I understand the notion that trying to time the market is basically impossible but I wanted to get your take on what you would recommend. Appreciate the time!

    • I’m not a financial advisor, but I feel your pain. Is it better to jump in all at once when things might be about to move quickly? Personally, I would make a plan and stick with it. If that plan calls for investing on a certain date, then I’d stick with it. But you could also optimize for the psychological aspect and break it into smaller chunks and put a little bit in each month. Even if you only broke things into two pieces, you might feel a little better if the market goes way down right after you put your first chunk of money in.

  37. You didn’t sound as jerk at all! Great tips. I’m busy with a foundation at this moment. Just like you said; lots of paperwork and lots of time, but I hope the time will be worthed. We will see.

    Thank you for the tips, very helpful. Cheers, Chris

  38. Hi Matt, thanks for sharing this information. I do agree with you. Now, I know, a search engineer didn’t just know about SEO, a financial expert, too.

  39. Great advice about choosing a credit union over a bank! My husband and I have been members of a credit union for several years now, and we have been very happy with the service! However, I am glad that you pointed out that not all credit unions offer the best choice. My mother-in-law recently had her credit union impose specific fees that she was not very happy with. Nonetheles, it is helpful to have a banking institution who has your best interests in mind when dealing with investments though!

  40. Any time you invest on something, you’re devoting your own time, money, or effort to achieve a greater goal. And before you plan to invest on something, you need to set your goals straight – your financial goals, your time horizon, the type of investment you will make, how much money will you need to reach that goal, how long will you be investing, question like that. Don’t let yourself get away with fuzzy answers like that. Investing demands hard number and you should get used to it. You’ll need to pin down exactly how much will you be investing on. It can be tough and complicated to see exactly what you need in order to reach your destination, but sooner or later that precision will help you stay accountable to yourself along the way. You have a nice article, by the way! This can help those who are planning for a business just as much as how Invisume has helped those who are looking for a job. It’s actually a platform where salespeople, like us, can connect with the best companies.