DIDN’T SEE OUR Huff­in­g­ton Post blog, click here.

We argue with data for all of us to invest in eco-friendly home and cars.



Dan and I hoped you enjoyed read­ing our Sus­tain­able Energy Blog and are encour­aged to start think­ing about re-energizing your home and autos. We are hav­ing a blast sav­ing on energy.

We have much more to share about per­sonal finance. Please come back this com­ing week­end when our new web­site will be avail­able with new mate­r­ial and infor­ma­tion. You can sub­scribe and get our reg­u­lar new posts about finan­cial related infor­ma­tion and answer your questions.

In a blog post I am work­ing on now, we show how we came up with  money for solar pan­els and two 100% elec­tric cars by low­er­ing mutual fund invest­ment costs. Being informed about invest­ment costs paid us huge div­i­dends. How is every­body doing with the invest­ments dur­ing this week of heavy and seri­ous stock mar­ket volatility?

While our blog is for our PreK-12 edu­ca­tors, every­body will ben­e­fit when we show how our plan has weath­ered recent mar­ket gyra­tions. You can set up a sim­i­lar plan. You can expe­ri­ence with us how mar­kets make our port­fo­lios grow over long peri­ods of time and decline dur­ing short peri­ods before grow­ing again. We talk about many dif­fer­ent top­ics, fru­gal liv­ing, mix­ing insur­ance with invest­ments, high cost 403b prob­lems, etc.

Thanks again for stop­ping by. Please return when our new site is up and run­ning by this weekend.

See snap shots of our remod­eled site below.

In the mean­time, look around and shoot us an email in the “con­tact” but­ton in the menu above. Thus, we can remind you to come back and visit us.

Best of for­tunes, Steve and Dan

New website1

New website2

New website3

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Part 3-Morningstar Interview about K-12 403(b) Plans by Fiduciary Attorney Scott Simon

The Next Steps for K-12 403(b) Reform

(This Inter­view was Pub­lished on Morn­ingstarAd­viser on July 9, 2015)

Scott Simon: My inter­view with Steve Schullo, a reform advo­cate for 403(b) plans in the K-12 mar­ket­place, con­cludes this month. If you missed the first two parts, you can access Part 1 here and Part 2 here. Steve’s lat­est book, “Fight­ing Pow­er­ful Inter­ests: Edu­ca­tors Chal­lenge Tax-Sheltered Annu­ities and WIN!,” can be down­loaded (as a PDF) for free. He is also a blogger.

Scott Simon: Please explain the nature of in Cal­i­for­nia and how it may (or may not) be help­ful not only to teach­ers in Cal­i­for­nia but to oth­ers all across the country.

Steve Schullo: Dan Otter, a for­mer teacher in Cal­i­for­nia, launched in 2000. He has been a tremen­dous advo­cate for change in the Cal­i­for­nia K-12 403(b) mar­ket­place. The web­site fea­tures a dis­cus­sion forum and tons of infor­ma­tion about 403(b) and 457(b) plans, and Cal­i­for­nia state insur­ance code sec­tion 770.3 and the leg­isla­tive fights to reform that ancient code. Instead of me telling you about it, your read­ers can see for themselves:

Con­tinue read­ing

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How Do Americans Feel about their Financial Situation?

There is Good News and Not So Good News 

Finan­cial inse­cu­rity is a real­ity for many Amer­i­cans. 56% of peo­ple say they look favor­ably on their finances, yet 57% feel they are unpre­pared for a finan­cial emer­gency. 50% would claim to be finan­cially secure.

6 out of 10 Amer­i­cans who “break even” actu­ally are spend­ing more than they make each month. 1 in 3 has no sav­ings, which inci­den­tally is the biggest worry for Amer­i­cans com­ing in at 83% being con­cerned about it. 71% are wor­ried about cov­er­ing the bills they cur­rently have, and 69% are wor­ried about not hav­ing money to retire. 87% of those wor­ry­ing so much about finances are look­ing for work. 68% make less than 25,000. 76% of con­cerned peo­ple have less than 10,000 in non-housing wealth. 66% are 18–34 year old, which makes sense as they are going to col­lege, enter­ing, and estab­lish­ing them­selves in the work­force dur­ing most of those years.

1 in 5 Amer­i­cans feel like they will never be able to retire. Almost 1 in 3 houses has some­one 55 or older with no retire­ment sav­ings. 37% of Gen X feel that they are not at all finan­cially secure and that is the largest num­ber across all gen­er­a­tions stud­ied. Mean­while 71% of Mil­len­ni­als are con­fi­dent they will meet their finan­cial goals.

personal finance

Source of the above report: 

Dan and Steve Suggest

Thank You “Masters-in-Accounting” for Shar­ing this Survey!

Edu­ca­tion in per­sonal finance (and in gen­eral) makes a dif­fer­ence. But you don’t have to have a Mas­ters Degree in Busi­ness Admin­is­tra­tion (MBA) to dis­cover how to man­age your money and suc­ceed. It’s not that com­pli­cated, but it does take some effort. Dan and I are edu­ca­tors, not finan­cial pro­fes­sion­als! If you can read and do basic 6th grade math, you can be a suc­cess­ful investor and gain finan­cial free­dom. Edu­cate your­self because nobody else is going to do this for you.

Accord­ing to the sur­vey, the Mil­len­nial gen­er­a­tion appears to know this. Young adults tell every­body they know and the media that SS and Pen­sion sys­tems will not be avail­able when they retire in 30 years, yet 71% of them feel con­fi­dent about their finan­cial sit­u­a­tion. What are they doing to earn such confidence?

Pick up a copy of one of John Bogle’s Invest­ing books could help you even­tu­ally feel more con­fi­dent about your finan­cial sit­u­a­tion (here is one: Lit­tle Book on Com­mon Sense Invest­ing, 2007 by John Bogle).

You can also pick up a copy of our book, Late Bloomer Mil­lion­aires, which is for the absolute begin­ner and who might be a late starter and/or this book just released writ­ten by John Bogle’s fol­low­ers, Bogle­heads Guide to Invest­ing (2014).


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Welcome to Our Blog, Los Angeles Teachers!


Scroll down for a CALL TO ACTION!

WELCOME TO OUR BLOG, Late Bloomer Wealth! Our names are Steve Schullo (Taller one) and Dan Robert­son with our dog Sammy in front of our home in Ran­cho Mirage, CA. We are retired edu­ca­tors. Our blog and our per­sonal finance books are about how two edu­ca­tors with­out any for­mal finan­cial train­ing, started sav­ing late, made mis­takes, learned from these expe­ri­ences and still man­aged to save enough for our retire­ment so we could say adios to the class­room ear­lier than most edu­ca­tors who have not saved.

I (Steve) worked as an ele­men­tary teacher at Hoover, Politi and Alta Loma, and was a tech­nol­ogy coach for Cochran MS for 24 years before retir­ing in 2008. Dan is a retired teacher from LAUSD, where he started teach­ing sp. ed. in the 1960s, went on to Cal-State Los Ange­les and sub­se­quently devel­oped a com­puter train­ing pro­gram at the LGBT Van Ness Recov­ery House. He also wrote Spe­cial Ed grants.

We both saved for retire­ment in our 403(b) plans. But before you start your plan, read my free down­load­able book: Just scroll down on the right, reg­is­ter for our blog and get the free book: Fight­ing Pow­er­ful Inter­ests. You can always opt out later. We have tons of infor­ma­tion and links to finan­cial experts that Dan and I trust relat­ing to per­sonal finance. All of our infor­ma­tion is based on our expe­ri­ence. We are not pro­fes­sional finan­cial advisers.

Take a look around. But first, to help you get started here are some impor­tant prior arti­cles and links about the LAUSD’s 403b and 457b plans specif­i­cally for LAUSD employees.

Click here for numer­ous reviews from peo­ple who know about what we have done to help teach­ers save for retire­ment. Here is one exam­ple: Pure, unadul­ter­ated and hon­est finan­cial advice from a cou­ple guys who have per­se­vered through every­thing life has thrown at them. It’s rare to get such a per­sonal account of someone’s finan­cial life, Late Bloomer Mil­lion­aires is really a finan­cial mem­oir.  Steve and Dan walk you through their finan­cial lives and give you an all access pass to their strug­gles, tri­umphs, defeats and their vic­to­ries. I can tell you this, you will NOT read another per­sonal finance book like this one. It is more than just a finan­cial book, it’s a heart­warm­ing jour­ney of love, rela­tion­ship and growth that uses per­sonal finance as the cen­tral theme. This is non­fic­tion at its best and an adven­ture worth expe­ri­enc­ing. By the end you will feel smarter and empow­ered finan­cially and full of hope that you can do this thing called lifeI mean, retire­ment!
—Scott Dauen­hauer CFP, MSFP, AIF 

A. CALL TO ACTION: The 457(b) Roth is Com­ing to LAUSD. BUT Teacher Larry Shoham from Hamil­ton HS needs your sup­port: . Check out his guest arti­cle about the Roth’s phe­nom­e­nal strat­egy and incen­tive to save for retire­ment.


B. All Avail­able 403(b) and 457(b) Options to LAUSD employ­ees

C. Web­sites: Finan­cial Lit­er­acy For Teachers

1. National Endow­ment for Finan­cial Edu­ca­tion (NEFE) • 1331 17th Street, Suite 1200 • Den­ver, CO 80202 • 303–741‑6333. NEFE High School Finan­cial Plan­ning Pro­gram — http://www.hsfpp.orgLOGIN FOR TEACHER OR STUDENT MATERIALS.
Cal­i­for­nia Con­tact —
3. Uni­ver­sity of Cal­i­for­nia Coop­er­a­tive Extension–Riverside
Con­nie Costello:   (951) 827‑5241

D. Here are Mate­ri­als for Teach­ing Per­sonal Finance to your stu­dents for all grade lev­els. Inspired by LAUSD award-winning teacher Rafe Esquith and devel­oped by Van­guard. All grade lev­els. Check it out:


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Enough” by John Bogle: A Review by Two “Late-Bloomer Millionaire” Educators

Steve and Dan's (and Sammy's "woof-woof") Book Review

 Enough: The Mea­sures of Money, busi­ness, and Life

By John C. Bogle

Review by Steve and Dan

The author explains and addresses, head-on, the many prob­lems with the finan­cial industry’s rela­tion­ship to reg­u­lar investors. We have read sev­eral of John Bogle’s other invest­ment books and adapted his index­ing strat­egy. “Enough” pro­vides an under­stand­ing of Bogle’s life and his busi­ness phi­los­o­phy behind his cre­ation of the leg­endary Van­guard Mutual Fund Group. After read­ing this book, read­ers who may not be famil­iar with Mr. Bogle or his invest­ment com­pany he built, will bet­ter under­stand why mil­lions of investors now use Vanguard.


John C. Bogle

Con­tinue read­ing

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Steve and Dan’s Bond Decisions

This Pie Chart is our Diver­si­fied Port­fo­lio as of June 30, 2015

Q2 2015 Asset Allocation

(Click directly on the Pie Chart to Enlarge it)

An Expe­ri­en­tial Insight Into Bonds: Matu­rity (long-term vs short-term) hori­zon, gov­ern­ment vs. cor­po­rate, highly rated vs lower rated (risk of get­ting your money back) and their place in the portfolio.

  1. What are the riski­est bonds?
  2. What are the safest bonds?
  3. Why include them in a portfolio? 

A real life exam­ple of a risky bond: Dan just bought and sold a “risky” bond fund ear­lier this year.

Yeah, bonds are risky and can have excel­lent, double-digit returns. They also can be a tricky invest­ment, if you think that bonds are uni­ver­sally safe by not decreas­ing in value. Well, I have news, they also have risks and can decrease up to 20% in value! Bonds are not as volatile as stocks. Bonds increase diver­si­fi­ca­tion which in turn reduces port­fo­lio risk, and as a pos­i­tive con­se­quence, pre­serves your cap­i­tal. That’s the pri­mary rea­son why peo­ple near retire­ment and those in retire­ment should have a bond allo­ca­tion approx­i­mately equal to their age. For exam­ple, a “Bogle rule” (age in bonds) offered by John Bogle (founder of Van­guard) is that 60 years-olds should allo­cate approx­i­mately 60% of their port­fo­lio to a diver­si­fied selec­tion of bonds. Bogle’s sug­ges­tion is debat­able. It might be worth your while to check out this dis­cus­sion on the Bogle Rule.

Bogle rule or not, accord­ing Your Money your entire port­fo­lio should be diver­si­fied no mat­ter what your age: Our port­fo­lio above shows full diver­si­fi­ca­tion: inter­na­tional and domes­tic stocks, inter­na­tional and domes­tic bonds, infla­tion pro­tected bonds, var­i­ous types of gov­ern­ment bonds, and bal­anced funds which include stocks and bonds. The ready-made bal­anced funds offer­ing both stocks and bonds such as Van­guard Welling­ton for younger investors and Van­guard Welles­ley for older investors are good starter plans (I wanted Van­guard Welling­ton way back when I was a young teacher). Dan and I prac­tice and live diver­si­fi­ca­tion, as shown in the pie chart above.

Bond returns have not kept pace with the infla­tion rate, the pri­mary rea­son why hold­ing 100% bond port­fo­lio is a bad idea for most investors. Like­wise, a 100% equity expo­sure is not proper diver­si­fi­ca­tion. Over time 100% equi­ties have higher returns over bonds, how­ever, there are peri­ods of severe equity declines dur­ing crashes that most peo­ple can­not tol­er­ate. Only investors in their early to mid 20s could get away with a 100% stock allo­ca­tion, but not after 30 years old.

Most investors should have a bond allo­ca­tion, since most of us will need them even­tu­ally as we age, we might as well learn about them when we are young. It’s that bal­ance between stocks and bonds that ame­lio­rates wide swings in our port­fo­lio. Pub­lic and pri­vate pen­sion plans, endow­ments and trusts have a com­bi­na­tion of stocks, bonds and cash. Wealthy investors and retired peo­ple who can com­fort­ably live on their pen­sion plans and social secu­rity may decide to leave their invest­ments to heirs, and thus don’t need their invest­ments to fund their retirement.

“Splitting-Up” Your Port­fo­lio into Stocks and Bonds is Not “Hard To Do,” it’s Essen­tial For Cap­i­tal Preser­va­tion, Diver­si­fi­ca­tion and Keep­ing Pace or Beat­ing Inflation

This table Vanguard’s Model Port­fo­lios was our sal­va­tion on a major deci­sion. It helped Dan and I choose the proper stock-bond allo­ca­tion split of 35% equity and 65% bond allo­ca­tion shown in the pie chart. At our age, port­fo­lio preser­va­tion is our num­ber one pri­or­ity. This allo­ca­tion pre­served our cap­i­tal dur­ing the hor­rific 2008 stock mar­ket crash (Our port­fo­lio declined only 11.8%). Dan and I need our invest­ments for retire­ment income, so we use “Bogle’s rule” of age-in-bonds. 35% equity risk pro­vide the appro­pri­ate amount of expo­sure to ensure our port­fo­lio grew just enough to beat the infla­tion rate. Infla­tion is retirees’ pri­mary obsta­cle to sus­tain­ing our retire­ment lifestyle. Retirees live on fixed income and don’t have “raises.”

Dis­cover the Less Risky Bonds

Bond risks are asso­ci­ated with the increase in their matu­rity date and whether they are issued by the gov­ern­ment or by cor­po­ra­tions. The longer the matu­rity the higher the risk and higher their returns. While cor­po­rate and gov­ern­ment bonds are the most sen­si­tive to moves in the inter­est rate, long term cor­po­rate bonds are the riski­est (and can have higher returns) as cor­po­ra­tions can­not print money, can­not raise taxes and have gone bankrupt.

Dan Bought A High Risk, Long-Term Cor­po­rate Bond

Here is a close to home exam­ple of what some investors are doing, chas­ing high-yield bond returns. Early this year Dan bought Van­guard Long Term Cor­po­rate Index Bond because it returned 25% in 2014 at low cost. I kid you not! This was Dan’s deci­sion as he sold his posi­tion in a cor­po­rate bond fund offered by Loomis Sayles. He decided on Van­guard to lower his cost and to get out of Loomis Sayles as the lead man­ager, Dan Fuss, is in his 80s, so he may retire.

This was a break from our usual bond pur­chase as we decided years ago to only pur­chase short-term (1–5 year matu­rity), inter­me­di­ate term (5–10 years) and mostly high-rated, AAA, AA or A. He got out of the Van­guard Cor­po­rate bond as it sys­tem­at­i­cally lost value soon after he bought it (June 30, 2015 YTD return, .25%). He also knew that long term bonds are the most sen­si­tive to ris­ing inter­est rates and accord­ing to all of the reports for years now, those rates have got to rise sooner or later.

The matu­rity date is the time when the bond holder gets his or her money back with the promised inter­est rate. Longer matu­rity dates yield the higher return, but at higher risk. If bonds are used to keep volatil­ity in check and reduce over­all port­fo­lio risk, it doesn’t make sense to increase bond risk. Port­fo­lio risk should be taken on the stock side of the allo­ca­tion, not the bond side. In today’s low inter­est rate envi­ron­ment, that’s pre­cisely why even short-term bonds and cash have his­tor­i­cally puny returns.

The riski­est bonds are:

1. Cor­po­rate more than government

2. Long-term more than Inter­me­di­ate and short-term maturities

3. B-rated or lower more than AAA, AA, or A rated (rat­ing guide).

The safest bonds are AAA rated, short-term gov­ern­ment bonds.

Bond Books

It is always good to read a cou­ple of books on bonds before invest­ing. Here are two that I read and recommend:

1. Larry Swedroe’s “The Only Guide to a Win­ning Bond Strategy.”

2. Rus­sell Wild“s “Bond Invest­ing for Dum­mies, 2nd Edi­tion.”

Video Series on Bonds

My favorite invest­ment web­site is Bogle­heads and their bond video pre­sen­ta­tions in their Wiki. Bogle­heads are fol­low­ers of John Bogle, founder of the Van­guard Group and the father of the index­ing strategy.

Bot­tom line: Don’t chase high returns on any secu­rity. Con­struct a low-cost diver­si­fied stock and bond port­fo­lio as shown in the pie chart above. Our stock/bond split (35%/65%) is appro­pri­ate for our ages, late 60s and early 70s. No mat­ter what your age, you’ll rest eas­ier with diver­si­fied hold­ings which fit when you need the money and your tol­er­ance for risk.


Best of fortunes,

Steve and Dan


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Portfolio Performance Report

Happy Belated 4th of July!
How did your retire­ment invest­ment port­fo­lio per­form at the half-way mark of 2015?

After years of 24/7 chat­ter about inter­est rates, the Fed­eral Reserve Board announced that it will raise inter­est rates by the end of the year. They haven’t yet, but the mere prospect of higher inter­est rates hit our bond allo­ca­tion. Our bonds lost value because the inter­est rates did go up due to mar­ket forces (not from a change in pol­icy) and thus our port­fo­lio is down about $40,000 off its intrayear high in April (Bond value dis­cussed in more detail here). It’s not a big deal as we were expect­ing this for some time. As you will see our YTD port­fo­lio return is up slightly at .3%, a third of a per­cent gain for the year.

Our port­fo­lio is in the black for one pri­mary rea­son: The major bench­marks, the DOW Jones Indus­trial Aver­age (DOW), S&P 500 Index, and the NASDAQ have all hit all time record highs. Dan and I remem­ber vividly when the last time the tech­nol­ogy heavy NASDAQ hit the record books, way back in March, 2000–it finally just broke that record dur­ing this 2nd Quar­ter. Still the domes­tic stock mar­ket only had a slight increase, but the inter­na­tional equi­ties soared over 10%.
From the bar chart below, our Van­guard Inter­na­tional Explorer (VINEX) returned 10.69%. Below is our fund by fund break­down on how our port­fo­lio pre­formed at the stock and bond mar­ket close on June 30, 2015.
(Click directly on the charts to enlarge them) 

Q2 2015 Returns

To cal­cu­late our port­fo­lio per­for­mance, we included our dis­tri­b­u­tions and excluded our con­tri­bu­tions. Dis­tri­b­u­tions to fund our retire­ment are not mar­ket loses, like­wise our con­tri­bu­tions are not mar­ket gains either. For a cal­cu­la­tion that takes into account the full impact of con­tri­bu­tions and dis­tri­b­u­tions through­out the year, log on to Bogle­heads wiki and down­load a free Excel SS:

An addi­tional way to eval­u­ate our port­fo­lio (and yours too) is by com­par­ing our return with some other investors who reported their returns on Bogle­heads forum and the If your port­fo­lio is 100% equi­ties, then your return should be in the neigh­bor­hood of 6–8%, assum­ing 50% in domes­tic and 50% in inter­na­tional stocks. If you port­fo­lio is 100% bonds, your return should be a slight loss. If you don’t know how your plan is set up and don’t know your return, this is the time to talk with your adviser and find out. We are show­ing you how we eval­u­ate our port­fo­lio returns using the online port­fo­lio ser­vices (After a free reg­is­tra­tion, all you have to do is name your port­fo­lio, insert the ticket sym­bols and the num­ber of shares you own. Each day the port­fo­lio updates auto­mat­i­cally accord­ing to the mar­ket moves for the day. Unfor­tu­nately, annu­ity con­tracts do not use ticker symbols).

Q2 2015 Asset Allocation

Hope this helps.

Have a great summer!

If you have any ques­tions, please ask.

Best of for­tunes, Steve and Dan


Our Book Has 85 REVIEWS!

Late Bloomer Millionaires book cover

Steve Schullo and Dan Robert­son: Co-authors of Late Bloomer Mil­lion­aires. Read the 85 reviews and pick up a copy by click­ing on the cover above. If you read our book, please write a review on Ama­zon. Much appreciated.

If you have writ­ten a review, THANK YOU!  Dan and I want to help peo­ple under­stand their invest­ments, be informed and empow­ered. Don’t get sold an annu­ity, always buy an invest­ment. Know the dif­fer­ence. It’s never too late!

If you want my FREE new book, Fight­ing Pow­er­ful Inter­ests, go to the home page, scroll down on the right, reg­is­ter for our blog and get your free PDF book.


It’s a story about how a group of edu­ca­tors know­ing noth­ing about retire­ment plans and invest­ments and end­ing up with an award­ing win­ning 457(b) plan with the 2nd largest school dis­trict in the coun­try! After read­ing either book, you will have the skills and knowl­edge to rec­og­nize if your employer’s retire­ment plan is low-cost and best-in-class invest­ment options or all high cost, low per­form­ing annu­ities from insur­ance com­pa­nies. Read my prior blog post when I answer the ques­tion, “Is an Insur­ance Prod­uct an Invest­ment?

If needed, you will rec­og­nize and hire a fee-only finan­cial adviser with fidu­ciary respon­si­bil­ity (Gar­rett Plan­ning Net­works or National Asso­ci­a­tion of Per­sonal Finan­cial Advis­ers). Annu­ity agents are not fidu­cia­ries, never have been and there any no plans com­ing from the insur­ance indus­try requir­ing them to be fidu­cia­ries. Avoid them.

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Top Personal Finance Blogs by Young and Highly Successful Do-It-Yourselfers


A Review for the Mil­len­nial Gen­er­a­tion who Seek Finan­cial Freedom:

Mr. Money Mus­tache and White Coat Investor

Have you ever thought of man­ag­ing your own money with­out an expen­sive finan­cial adviser? Or just needed some­body you can trust not to rip you off with com­mis­sions, and high advi­sory fees? If you have fol­lowed our blog here, that’s pre­cisely what Dan and I write about. But, Dan and I are two old white guys who also have a suc­cess­ful life­long story. But many young peo­ple want it now, not later (us older folks for­got how we thought when we were young!). And 20–30 some­thing age young peo­ple want to relate to their gen­er­a­tional peers.

This post is a review of not just two indi­vid­u­als who also have a blog, but two suc­cess­ful 30-something young men, their spouses and fam­ily, and have ten of thou­sands of blog fol­low­ers and man­age their own investments.

Intro­duc­ing Mr. Money Mus­tache and the White Coat Investor. While they pur­sue wildly dif­fer­ent lifestyles, they are extra­or­di­nar­ily alike in their goal of achiev­ing a rich and reward­ing life for them­selves.  Con­tinue read­ing

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Four-Part Series: Investing Basics

A reader asked me to write an arti­cle show­ing how a begin­ner can IMG_1217under­stand, ben­e­fit from and suc­ceed in learn­ing how to invest for retire­ment. Thus, Dan and I devel­oped this four-part series for begin­ner investors.

We were happy to cre­ate this detailed 4-part series on invest­ing basics for the absolute begin­ner. The entire 4 parts are avail­able imme­di­ately by click­ing on the links below. You can pick the part which inter­ests you. For those who need a refresher on basic invest­ing allo­ca­tion tables can jump to Part 3 and 4. If you need a refresher on how to make sense of the finan­cial indus­try, start with Part 1.

Dan and I have spent many years learn­ing how Wall Street works for our ben­e­fit. That’s an impor­tant dis­tinc­tion. We’ll tell ya a lit­tle secret: Wall Street is not that dif­fi­cult to under­stand, once you know which gazil­lion parts to ignore. Part 1 shows how to see through all of its dis­trac­tions and focus on two of its most impor­tant assets: stocks and bonds. That’s it.

We have dis­cov­ered the inner work­ings of the finan­cial indus­try through the prism of a cou­ple of reg­u­lar con­sumers and eager to share with you. Book rec­om­men­da­tions, addi­tional finan­cial blog sites and invest­ment forums are listed at the very end of Part 4. Through­out the four parts are links to advanced read­ing on top­ics that are too com­plex and lengthy to dis­cuss in this arti­cle. I hope you enjoy it as much as Dan and I cre­at­ing this exten­sive blog post.

Best of fortunes,

Steve and Dan

Table of Contents

Part 1 Con­tents. Words for the Finan­cially Wise: Power of “Overlooking.”

  • Defin­ing:
    1. Sav­ings
    2. Spec­u­la­tion
    3. Invest­ments
  • The Rest of the Arti­cle focuses on Invest­ments: Stocks and Bonds.

Part 2 Con­tents. Explain­ing Wall Street. The road to Stocks and Bonds is paved with simplicity.

  • The Stock Market
  • Stocks
  • How the Stock Mar­ket Invest­ments are Organized
  • 27 Mil­lion Busi­nesses in the United States, but only a few thou­sand cor­po­ra­tions are avail­able for investing
  • Going Pub­lic
  • Share Prices
  • Six Core Asset Classes that every port­fo­lio should contain:

1. Large Cap

2. Mid Cap

3. Small Cap

4. Inter­na­tional, the World Stock Market

5. The Bond Market

6. Cash/Liquid Assets


Part 3 Con­tents: The Ratio­nale behind the Cru­cial Stock/Bond Allo­ca­tion Split and Rebalancing.

  • Your Tol­er­ance for Risk and Your Age
  • Bonds-by-Age Rule in Allo­ca­tion Models
  • Excep­tions to the Bonds-by-Age Rule
  • Van­guard Port­fo­lio Allo­ca­tion Models
  • We adhere to the Bonds by age rule for one good Reason
  • Rebal­anc­ing the Portfolio
  • Tar­get Date Funds are very pop­u­lar with 403(b), 401(k) and 457(b) plans
  • Pri­mary Goal of Rebal­anc­ing: Reduce Risk and Hold On to Invest­ment Gains

Part 4 Con­tents: Putting it all together

  • Find­ing the money to build wealth: Pay­ing your­self first through your tax-deferred retire­ment plan.
  • Ignore Emo­tions (or be mind­ful of your resis­tance to save and ignore it)
  • Many Don’t Get Long Term Think­ing and spend every penny they earn NOW!
  • This Evo­lu­tion­ary Think­ing about human adapt­abil­ity is worth a sec­ond look
  • Do you need a budget?
  • Invest­ment Goals
  • Con­struct­ing A Port­fo­lio that Grows
  • The Mutual Fund Industry:

1. Load vs. No-load

2. Actively Man­aged vs. Pas­sively Managed

3. Sec­tors

  • The Prospec­tus
  • Intro­duc­ing the Pas­sive Strat­egy with Index Funds
  • Locat­ing the spe­cific invest­ments and invest­ment companies
  • Why we invest in the Van­guard Group:

1. The Van­guard Group has Three Tril­lion Dol­lars in Assets!

2. Index Funds

3. Very Low Fees!

4. 20 Mil­lion Investors! Not all of these peo­ple can be wrong.


  • Port­fo­lio Exam­ple for a 75 year-old Investor
  • Port­fo­lio Exam­ple for a 25 year-old Investor
  • Words to the Wise: Be Patient
  • Fee-only Finan­cial Advis­ers Pro­fes­sional Organizations:

1. Gar­rett Plan­ning Network

2. National Asso­ci­a­tion of Per­sonal Finan­cial Advis­ers (NAPFA)

  • Lazy Port­fo­lio Authors’ Web­sites for Addi­tional Port­fo­lio Samples
  • Bogle­heads Invest­ment Forum
  • Be Wary of K-12 School Dis­trict 403(b) and 401(k) plans.
  • Addi­tional Reading

Waiver: Dan Robert­son and Steve Schullo are not licensed finan­cial or invest­ment advi­sors, and the infor­ma­tion and expe­ri­ences shared as do-it-yourself investors con­tained herein is for infor­ma­tional pur­poses only and does not con­sti­tute finan­cial advice. Through­out our blog, we share our expe­ri­ences with finances as a cou­ple of ordi­nary con­sumers, not as pro­fes­sion­als. Do not start, change or mod­ify your port­fo­lio based on the infor­ma­tion in this blog post alone. Any ideas, invest­ment strate­gies, links to fee-only pro­fes­sional advis­ers and par­tic­u­lar invest­ment com­pa­nies dis­cussed in this arti­cle or in our blog are a reflec­tion of our expe­ri­ences and should not be con­strued as a rec­om­men­da­tion. Con­sult with a tax or finan­cial professional.

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Stock and Bond Investing Basics, Part 1

IMG_1217Four-part Series on Invest­ing Basics

Easy to Read for the Absolute Begin­ner and a Refresher for All

Part I: Words to be Finan­cially Wise: Power of “Overlooking.”

My intro­duc­tion into the strange world of per­sonal finance came from mis­lead­ing promises of two insur­ance com­pany annu­ities. The early growth of the annu­ities returned 12% a year but dropped to 3% with­out any expla­na­tion. Then I was con­fronted with sur­ren­der fees of $6,000. I felt ripped-off; and then had to lis­ten to insult­ing remarks from an insur­ance agent who rebuked me and my edu­ca­tion col­leagues by lec­tur­ing, “I’ll never rec­om­mend mutual funds to teach­ers because they are too risky.” I ended our “dis­cus­sion” imme­di­ately and began look­ing for alter­na­tives. (Mutual funds will be dis­cussed in details in Part IV.) But I needed to learn the basics myself and for my edu­ca­tional col­leagues. After research­ing the most well-known invest­ment options, I cre­ated the fol­low­ing table to help all of us make sense of the invest­ment choices available.

For­tu­nately, most of the finan­cial industry’s offer­ings can be safely ignored. Let’s break this down to three basic groups.


Sav­ings. Many Amer­i­cans have one of the sav­ings accounts listed. Unfor­tu­nately, mil­lions of Amer­i­cans have all of their money lan­guish­ing in these sav­ings accounts, Cer­tifi­cates of Deposit (CD) or Money Mar­ket accounts. Stay away from Annu­ities: they are inher­ently bad invest­ments due to their com­plex­ity and high costs (see “Annu­ities: Use­ful But Lit­tle Under­stood”).

Finan­cial news out­lets report 2–3 tril­lion dol­lars in money mar­ket accounts. A knowl­edge­able investor doesn’t invest 100% in any one invest­ment. The stan­dard inter­est rate for money mar­ket accounts offers dis­mal returns, which does not keep up with the stan­dard of liv­ing. Over time, infla­tion erodes buy­ing power (See my pre­vi­ous arti­cle on the monop­oly of annu­ities in K-12 school dis­tricts).

Peo­ple keep money in sav­ings for good and bad rea­sons. The good rea­son is a sen­si­ble amount avail­able for emer­gen­cies. Bad rea­sons are a knee-jerk response to the 2008 stock mar­ket losses, mis­un­der­stand­ing risk and miss­ing out on the growth ben­e­fit of long-term investing.

        “Speculation/Gambling” is straight­for­ward. I see spec­u­la­tion and gam­bling, as the tak­ing of exces­sive risk in an almost des­per­ate attempt to get rich overnight. Gam­bling is under­stood by most as a 99% self-destructive habit and a neg­a­tive (and expen­sive) form of enter­tain­ment. Few indus­try experts can ade­quately explain to me, beyond a rea­son­able doubt, a solid rea­son for tak­ing on exces­sive, spec­u­la­tive risk in invest­ing. Hedge funds, deriv­a­tives, pri­vate equity (See Depart­ment of Labor) and the cur­rent fad among bro­kers: sell­ing pri­vate real estate invest­ment trusts (REITS) are all dread­fully costly. Your money is locked up for years. They are also com­plex, too risky and their returns have lagged the mar­ket averages.

The wis­dom of own­ing indi­vid­ual com­pany stocks and gold is debat­able. Most pru­dent finan­cial advis­ers rec­om­mend own­ing all avail­able com­pa­nies, not just one or two stocks. If your com­pany offers a 401(k) match of pur­chas­ing the com­pany stock, take the offer. But as soon as you are eli­gi­ble to sell the stock, rein­vest it in your diver­si­fied port­fo­lio plan (Arti­cle about the cons of own­ing your company’s stock).

For my com­fort level own­ing stocks in all avail­able com­pa­nies reduces the risk by increas­ing diver­si­fi­ca­tion. Invest­ing 100% in any one com­pany (or that sav­ings account) is equiv­a­lent to the adage of “putting all of your eggs in one bas­ket.” The goal is to diver­sify across thou­sands of com­pa­nies located in hun­dreds of coun­tries worldwide.

I like to wear a gold watch, a gold wed­ding ring and even gold in my eye ware. It’s pretty and shiny; but those eye-catching images are not legit­i­mate rea­sons to own gold as a sep­a­rate invest­ment. Thus, the entire gambling/speculation group should be ignored–excessive and inex­plic­a­ble risks does not make finan­cial sense.

To sum­ma­rize, don’t invest in:

  • One com­pany, no mat­ter how big or famous: Apple, IBM, Microsoft, Tesla, etc.
  • Your friend’s bou­tique or his invest­ment recommendation
  • Some­thing you don’t understand
  • Gold, sil­ver, visual art and dia­monds (Only for pleasure)

The art of being wise is know­ing what to over­look. Psy­chol­o­gist and Philoso­pher, William James

Thus, the mid­dle col­umn above shows you what to ignore, which is the pri­mary idea for Part I of this series. Know­ing what to ignore is a sig­nif­i­cant devel­op­ment in your work­ing knowl­edge of the finan­cial indus­try as we move for­ward in this series. It reduces the indus­tries’ com­plex­ity and all of the incom­pre­hen­si­ble jar­gon. Over­look­ing will guide your think­ing to where you should invest.

          Focus on the Third Cat­e­gory, Invest­ments. Know­ing where to put your money with just enough risk and stick­ing with the plan is the chal­lenge and the goal of invest­ments. Finan­cial insti­tu­tions pro­vide excel­lent mod­els that we can copy when we set up our plan: uni­ver­sity endow­ments, pen­sion plans (My pen­sion: Cal­i­for­nia State Teach­ers Retire­ment Sys­tem) and the Bill and Melinda Gates Foun­da­tion invest in the third col­umn in the above table. It is appro­pri­ately titled “Invest­ments.” Real estate invest­ments are a cru­cial choice for finan­cial insti­tu­tions and for home­own­ers. Peo­ple are not afraid of own­ing a home–it is a long-standing Amer­i­can tra­di­tion. Yet  the inclu­sion of stocks and bonds in our retire­ment plan has been prob­lem­atic for most peo­ple. Finan­cial insti­tu­tions have a long tra­di­tion of invest­ing in real estate and stock and bonds. Why not us too? Dis­cov­er­ing and man­ag­ing our diver­si­fied port­fo­lio of stocks and bonds will be the focus of the rest of the series.

This first step in learn­ing about invest­ing is unlearn­ing. Ignore the nearly uni­ver­sal opin­ion that it’s too com­plex. As you dis­cover what to ignore, your tar­get for invest­ing is easy to grasp. When you look for invest­ments that grow with the econ­omy, you’ll see the ben­e­fits of invest­ing in the total growth of the world’s economies. Dis­cov­er­ing invest­ing safely in those some­times “dreaded” stocks and bonds is not as com­plex as you think. After read­ing this four-part series, you will enjoy finan­cial security.

Part Two in this Series on Invest­ing Basics will include:

  • Intro­duc­tion to the stock and bond markets.
  • Under­stand­ing stocks and bond asset classes for diversification.

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