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.


I’m thankful for family and friends and good health and so many wonderful people I’ve had the pleasure of working with at Google.

But I’m also thankful for airplanes: “You want to see your family? It would take months to walk to them, but come sit in this metal tube and thanks to some interesting properties of physics, you can see them later today.”

And I’m thankful for the internet: “Oh, you can’t or don’t want to sit in the metal tube for hours? Press this button and you can see your family instantly from thousands of miles away. You can talk or just enjoy each others’ company.”

Our society and world still needs to improve in lots of ways, but I’m thankful for how far we’ve come in the last century, and I hope we can make things even better in the coming years.

Election Day should be a holiday

I’m looking at this list of federal holidays, and you know what I’m thinking? I’m thinking fuck Columbus Day. Who the hell cares about Columbus Day except for mattress stores?

Instead, let’s scratch Columbus Day and make Election Day a national holiday. Turnout on Election Day was only 36.6 percent in 2014, according to Senator Bernie Sanders from Vermont. If we made Election Day a holiday, it would be easier for people to vote. People would actually start to look forward to Election Day, too. By the way, you know you else would like to make Election Day a holiday? Senator Bernie Sanders. I like that guy.

If push comes to shove, I’d be willing to keep Columbus Day as a holiday and just add a new holiday. But really, do you remember what you did on Columbus Day a month ago? No? Me neither.

I’m thinking we can make Election Day a pretty fun holiday. Vote in the morning, BBQ in the afternoon, and drink or set off fireworks in the evening. That’s a holiday that a lot of people could get behind.


Google has a pretty good culture of doing postmortems. When something fails, someone close to the failure tries to document what happened and why. A good postmortem document should also point the way to avoid similar mistakes in the future. Mistakes happen, but you don’t want to make the same mistakes over and over again. Instead, it’s important to try to get to the root of a problem and fix it there. Failure can be a good thing if you learn valuable lessons along the way.

But it’s also a rule of thumb of software engineering that it’s 10x harder to catch a problem at each new level of deployment. That’s why solid tests (e.g. unit tests) are so helpful; it’s much easier to fix a problem when you catch it earlier. Likewise, requiring code reviews before submitting code changes can avoid lots of stupid mistakes. Once buggy or poor code is checked in, debugging a problem can get much harder. And if a problem makes it out into production, it’s typically even more difficult to fix.

When you take a solid practice like postmortems and think about going further upstream, you land on the idea of a “premortem.” An example of a premortem would be going to each member of a team before a product launches and asking them: “What’s going to break or fail? What’s the mostly likely thing to go wrong?” After all, the people who have been working hard on a project have been steeped in it and are intimately familiar with potential weaknesses and failures.


I first heard the idea of a premortem from a Freakonomics podcast, but the idea is so simple that it practically explains itself. However, there are a couple subtleties. First, don’t bring everyone into one big room and ask “Hey, what’s going to go wrong?” That’s a recipe for groupthink unless there are a small number of glaring problems.

Instead, you want to collect the initial feedback independently and privately so that people won’t be biased by hearing what others are saying. With private feedback you might end up hearing opinions that people are afraid to express in public. If you do have to settle for a big group meeting, ask people to channel their personal voice of doom on their own before opening up the public discussion.

The second subtlety is that “dogfooding,” the process of testing your own product internally before introducing them to the world, is almost like a premortem if you can get good feedback internally. The touchy issue here is authenticity: people want their feedback to be taken seriously, but internal feedback might be biased or skewed for various reasons. Even if you disagree with internal feedback, it makes sense to take a clear-eyed look at what people are saying. And if you do disagree, it helps to explain your reasons for adjusting to feedback or not.

Could a pre-mortem help your next project avoid a massive failure? Why not give it a shot to find out? Premortems can be an easy and fast exercise, and you might get some really useful insights. Just ask the people close to the launch to brainstorm “What’s most likely to go wrong?” before the project launches.

Watching Anita Sarkeesian at XOXO

I had one more experience at the XOXO Festival that I wanted to mention. I really enjoyed Anita Sarkeesian’s talk. You can watch it here:

Sarkeesian explained her experience with humor and grace, and that really resonated with me. I don’t want to join the tone police–passionate voices have a role in this discussion too, and passion may work well for others. But I know it can be hard to take abuse while making your case with civility, and I admired Sarkeesian’s ability to rise above the fray.

As part of my job, I’ve unfortunately become somewhat of a connoisseur of vitriol and threats. My first death threat was over a decade ago in a situation involving the DMCA and the Church of Scientology (before you jump to assumptions, the death threat came from the anti-Scientology side). I got a threat at a 2002 search conference that I considered credible enough that I started carrying a cell phone with me after that. I got an open-ended threat against my family just a couple weeks or so ago, even though I haven’t been working on webspam for months.

But here’s the thing: I’ve never received threats as pointed, menacing, or explicit as Anita Sarkeesian, Zoe Quinn, and others discussing GamerGate have. No one should face threats of physical harm for expressing their opinions. No one should be doxxed or have their personal information posted just for expressing their opinions. That should be the starting point and the bare minimum for any discussion. If you disagree with someone, win them over with your ideas, not with threats.

I should mention that I’m a big fan of clear disclosure of potential conflicts of interest, and I’ve posted my own disclosure page at the top of my blog for over five years. I’ve also been playing computer games since Pong in the 1970s. As a kid, I wrote a script to solve Colossal Cave Adventure on a local university’s PRIMOS system. I subscribed to Electronic Games magazine back when people called them “coin-op” games. By the way, check out that Electronic Games link to see how Nintendo tried to avoid sexist language in games back in 1993. Hell, I feel bad for people who never got to play Raiders of the Lost Ark on an Atari 2600, or Infocom games on a Commodore 64, or marvel the first time they saw the parallax effect in Moon Patrol:

Moon Patrol!

The gaming world is changing, and in my opinion for the better. We’ve got browser-based games like Kingdom of Loathing or Candybox2. We’ve got absurdist wonders like Progress Quest and games you play outside like Ingress. Playing Depression Quest was important for me, because I have friends who are deeply affected by depression. I can’t wait to see where gaming goes next–how about we make virtual and augmented reality work this time around! I hope that gaming can be even more welcoming to new ideas and experiences than it was when I was a kid. I also hope everyone can agree that doxxing and threats aren’t ever welcome.