Money For the Rest of Us

#205 If the Federal Reserve has printed over $2 trillion dollar and given it to banks to lend, why is U.S. inflation still low? More information, including show notes, can be found here.Episode SummaryMany people wonder if the Federal Reserve is really printing money. Varied schools of thought exist behind the value of money, how it gets injected into a country’s economy, and how it impacts the private sector. On this episode of Money For the Rest of Us David offers insights into this complex subject, all while giving you the best information regarding the Federal Reserve, its open market operations, bank reserves, and why we aren’t experiencing hyperinflation. It’s sure to be an educational episode that you don’t want to miss.Can the Federal Reserve create money without printing it?The US Federal Reserve is not able to produce physical money in the form of coins or bills. That’s the responsibility of the US Treasury, their Bureau of Engraving and Printing, and the US Mint. The Federal Reserve, however, can “print money” when it purchases U.S. Treasury bonds with money it creates by adding to its member bank reserves.Kimberly Amadeo, a writer at The Balance, explains this buying/selling of US treasuries by saying, “One of the Fed’s tools is open market operations. The Fed buys Treasuries and other securities from banks and replaces them with credit. All central banks have this unique ability to create credit out of thin air. That’s just like printing money.”How do banks create money for individual borrowers?Contrary to what many believe may happen, banks do not transfer money from a different account or withdraw it from a central vault for loans. Rather, David explains that banks “create money out of nothing” and withdraw it when loans are repaid. Thus, excess central bank reserves are not a necessary precondition for a bank to grant credit and therefore create money. Banks typically only have to have 10% of all accounts in reserves. If a bank lacks the reserves to cover the payments, it can be borrowed from an inter-bank market or central bank system.Why haven’t we seen hyperinflation due to these processes?The United States hasn’t seen an influx of hyperinflation because the private sector hasn’t been willing to borrow enough funds to strain the current capacity of the economic machine. David further explains the lack of inflation by using the two money aggregates that exist in the US: M1 and M2. M1 is composed of currencies, paper, bills, notes, traveler’s checks, and checking accounts (demand-deposits). M2 is made up of everything in M2 plus savings accounts, CDs, retail money market funds, etc. In March 2009, at the height of the recession, M1 levels were around $1.6 trillion. As of April 2018, the M1 was at $3.7 trillion – a 130% increase! Does this mean households are wealthier? Not necessarily. The majority of them simply have more liquidity, because Treasury Bonds were sold to the Federal Reserve in exchange for checking account deposits.Episode Chronology[1:15] Is the Federal Reserve really printing money?[6:40] Two ways to address this question[11:50] So how do individual banks create money for borrowers?[21:20] Monetary aggregates in the US and how they indicate the level of wealth and liquidity[23:50] Why hasn’t this led to hyperinflation?See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

#204 How low real interest rates contribute to low returns for stocks and other risk assets. How real interest rates are determined. More information, including show notes, can be found here.Episode SummaryLow investment returns are never the best news for financial investors. On this episode of Money For the Rest of Us, David examines the relationships between real interest rates and investment return, who or what is driving real rates, and offers historical information on previous periods of low rates. His insights will shed light on this concerning issue, so be sure to give this episode your full attention.The US and the world are in a period of low real interest rates and real returnsUniversity endowments, retirement funds, and individual portfolios are currently affected by low-interest rates and low investment rates. If this continues, overall portfolio values could decrease after adjusting for inflation and spending. In the United States, we have seen an average 6.5% real return on stocks since 1900. The global average for real return rates has been hovering around 5.2%. However, these rates have been lower in the past 2 decades than they have been in the previous 80 years.There’s a linkage between real interest rates and subsequent asset class returnsDavid delves into research on the relationship between real interest rates and subsequent investment returns on this episode of Money For the Rest of Us. He explains that when real rates were higher, the returns were much higher. For example, when real rates reached 9%, real returns on stocks were as high as 10.8%. Today, the real rates hover around 0% or even dip into the negative percentages. The real return for stocks at these rates have historically been just over 4%.What drives these low real rates?After hearing all of this information, listeners may be asking, “So who or what is driving these low real rates? And can they be manipulated to be higher to produce higher returns?” David quotes Former Federal Reserve Chairman Ben Bernanke who explains, “But what matters most for the economy is the real, or inflation-adjusted, interest rate. The real interest rate is most relevant for capital investment decisions, for example. The Fed’s ability to affect real rates of return, especially longer-term real rates, is transitory and limited. Except in the short run, real interest rates are determined by a wide range of economic factors, including prospects for economic growth—not by the Fed.”Essentially, no group or institution can manipulate these rates. What DOES influence these rates is the balance between those who save and those who borrow. Currently, the world is in a period of high savings and less borrowing, resulting in lower interest rates and lower returns. The tides for these rates will change, in time.Very long periods of time are required to balance out the good and bad luck for investment returnsKeep in mind that all of the data discussed in this episode of Money For the Rest of Us are for relatively short periods of time. A recent historical analysis shows that countries have seen periods of negative real returns for as long as 16, 54, and 55 years in the US, France, and Germany, respectively. Still, the long-term historical record shows positive real returns for stocks. It just takes patience.Episode Chronology[1:00] Why are investment returns so low?[11:00] The correlating relationship between real interest rates and subsequent returns[15:40] Who or what exactly drives real rates?[27:17] Returns can deviate from these low interest ratesSee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

#203 How to make better investing and life decisions. More information, including show notes, can be found here.Episode SummaryDavid asks the question, “Is investing more like poker or chess?” on this episode of Money For the Rest of Us in order to help you better understand why investing is inherently unpredictable. The book, “Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts” by Annie Duke inspired this episode. David ponders big ideas such a reflexive vs. deliberative thinking and why the differences between causation and correlation must be considered. If you’ve ever wondered about how to improve your investing decisions while combining analytical research with skilled intuition, this episode will answer many of your questions.Investing and life are like poker – not chess!Many investors approach financial decisions like a game of chess, where there are correct and incorrect moves. However investing, and real life, are more closely related to poker, a game of uncertainties. Duke explains in her book that a term known as “resulting” drives poker games. “Resulting” is the belief that the quality of a decision affects the quality of the outcome. However, David explains that a great decision is a result of a great decision-making process, regardless of the end outcome. Learn how to improve your decision-making process by listening to this episode.Don’t assume causation when there’s only correlationOne of the biggest threats to a good decision making processes it the belief that there is always a direct causation linking the process and the end result. Even with the best knowledge and highest levels of skill, investing still contains an element of uncertainty. Sometimes there aren’t any connections between the decisions investors make and the end goal. For example, if you purchase a house, fix it up, and sell it 3 years later for a 50% profit, does that make you great at real estate investing? Maybe. But it could also have been a result of an overall uptick in the housing market, and any buy/sell transaction would have been profitable. David wants his listeners to know that correlation between good investing decisions and profitable outcomes do not always mean the same result will occur.How can you improve the quality of your investing decisions?Since investing is strongly related to the uncertainties and variables found in a game of poker, there are never surefire ways to ensure every decision will be profitable. But there are ways to increase your chances of succeeding. Duke explains that “The quality of our lives is the sum of our decision quality plus luck.” Investors can enhance their decision-making skills by considering market trends and understanding that no one knows for sure what market variables are going to do. David shares more tips for improving the quality of your investing decisions on this episode.Deliberative thinking vs reflexive thinking and the idea of wu-wei in investingDavid outlines two main patterns of thought on this episode: reflexive (fast) and deliberative (slow). Responsible investors utilize both methods on a continual basis. Always reacting to the market and going off of intuition is not a sustainable way of making investing decisions. However, utilizing only deliberative thinking could result in missed time-sensitive opportunities. That’s when the idea of wu-wei comes into play. David explains that wu-wei is “A state of perfect equanimity, flexibility, and responsiveness that is unrestrained by the conscious mind because it does not attempt to predict variables.” Essentially, it’s the idea of embracing the unknown and keeping the balance between fast and slow thinking.Episode Chronology[0:57] Is investing more like poker or chess?[7:02] Investing, and life, are like poker – not chess[12:05] Don’t assume causation when there’s only correlation[13:38] How do we improve the quality of our investing decisions?[18:45] 2 ways of thinking about investing: fast & slow[23:00] The idea of wu-wei and how it relates to investingSee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

#202 What are the impediments to the mass adoption of electric vehicles. More information, including show notes, can be found here.Episode SummaryOver the past few months David has been traveling across the country and throughout the trip, he’s covered thousands of highway miles and seen countless vehicles. This inspired him to ask the question, “Will my next car be electric?” On this episode of Money For the Rest of Us he outlines how the vehicle market is changing, the benefits of electric vehicles over gasoline-powered vehicles, main factors prohibiting widespread adoption of electric vehicles, and the impact governments can have on consumer buying decisions. Conversations behind renewable energy and reliable transportation abound, and you’ll want to listen to this episode for the latest information on this heated debate.Cars are changing: they’re safer, but we’re purchasing less of themIn 2017 there were 40,109 reported motor vehicle deaths, down 1% from 2016 figures. The number of deaths per 100 million vehicle miles traveled has been on a downward trend for decades. This is due in part to enhanced motor vehicle safety laws but also refined manufacturing techniques. Cars are getting safer! However, consumers are purchasing fewer vehicles than in years past. Vehicle sales peaked at 17.9 million for the year ending in March 2018, compared to 18 million in the prior year. In 2017 electric vehicles surpassed 1% of the entire market – a nominal figure compared to future projections of 25% of the market being comprised of electric vehicles by 2040.Electric cars are extremely efficient compared to gasoline-powered vehiclesPerhaps the most common argument in support of electric vehicles is their efficiency. Popular models such as the Ford Focus Electric and Chevy Volt top the list of efficiency on a kilowatt-hour (kWh) to miles per gallon (MPG) scale comparison. These two models boast 19-20 kWh used per 100 kilometers driven. Conversely, a traditional gasoline-powered vehicle that achieves 20 MPG efficiency requires 131 kWh of energy to travel 100 kilometers. As the world moves towards cleaner, greener, and more renewable sources of energy, efficiency will become an even more important factor in the debate.What’s preventing electric vehicles from being widely adopted?Since electric vehicles are far more efficient than their fossil-fuel powered counterparts, what’s preventing their widespread adoption? David outlines 4 main reasons on this episode of Money For the Rest of Us:High upfront costCost of batteryProduction limitationsLimited infrastructure for charging stationsNew electric vehicles start at around $30,000 and only go up from there. While battery costs are down from $1,000 per kWh of storage to $200, the cost is still prohibitive for many consumers. Battery replacement (while extremely uncommon) could have a price tag of over $5,000. Production lines are currently unable to mass produce electric vehicles at scale, which is an issue that must be corrected if the vehicles are to have a mainstream place on our highways. Finally, drivers must have reliable and widespread charging stations at home, work, and travel destinations in order for electric vehicles to be convenient.How governments can encourage consumers to focus on electric vehicles for their next car purchasePutting data and costs aside, one of the biggest questions David poses on this episode is, “Do consumers want electric cars?” There are many differences between traditional and electric vehicles that consumers will have to adjust to, such as the lack of engine noise, differences in braking, charging routines, etc. For example, David explains that even though the Chinese government offers financial incentives to purchase electric vehicles, consumers are still more interested in gasoline-powered SUV-style vehicles. Countries such as Norway, India, France, and the UK are all making progress towards mandating electric vehicles, and legislation can encourage manufacturers to pursue cheaper and faster production methods. Electric vehicles are here to stay, now it’s a matter of determining how many of them and for how much.Episode Chronology[0:35] David asks the question, “Will your next car be electric?”[4:18] Why are cars safer?[6:44] Cars are changing[7:39] What’s preventing electric vehicles from becoming widely adopted?[22:43] Do consumers want electric cars?[26:58] Government policy can encourage or prohibit adoption of electric vehiclesSee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

#201 Why most conventional portfolios make huge and often unintended bets on the stock market. How role based investing can lead to a more balanced portfolio. More information, including show notes, can be found here.Episode SummaryHaving a balanced portfolio is a key to financial success. It offers a secure future and provides a level of security to your day-to-day lifestyle. On this episode of Money For the Rest of Us, David considers the question, “Is your portfolio unbalanced?” A new member of Money For the Rest of Us Plus introduced him to the book “Balanced Asset Allocation” by Alex Shahidi and it was the inspiration behind this podcast episode.4 main reasons behind market volatilityShahidi writes, “The ultimate goal is to capture excess returns over time, with as little risk as possible. The more volatile the return, the greater the risk of capital loss.” David explains that there are often unintended consequences of single-track investment strategies and that having too much of your portfolio invested in one asset class is not a good strategy.Here are three main reasons as to why the market is volatile:A shift in the economic environmentShifting risk appetitesA shift in expectations of future cash rates (future path of short-term interet rates)Every market segment has inherent biases in various economic environmentsThe key to avoiding market volatility is to hold multiple asset classes. These various types of assets will allow you to benefit in any type of market. For example, slowing economic growth is better for traditional bonds, while accelerating growth is better for stocks. TIPS and commodities do better when inflation is increasing. Even though most investors have a heavy bet on economic growth because of their stock-heavy portfolio, the arguments outlined in Shahidi’s book encourage otherwise.Don’t be in the unenviable position of not receiving returns on your portfolioThe single most important takeaway from this episode of Money For the Rest of Us is this: Don’t rely on any single asset class to provide financial returns. Shahidi writes, “Own asset classes that are as volatile as stocks, but that perform better in different economic regimes.” Shahidi recommends 30% in long-term Treasury inflation-protected securities (TIPS), 20% in commodities, 30% in long-term bonds, and 20% in stocks. Collectively, this type of portfolio could generate excess returns above cash, although many investors might find the volatility of the underlying segments unsettling.Why David DOES believe you can identify shifts in the marketInvesting will never be 100% predictable, it’s the nature of the game. But David does believe, contrary to what Shahidi writes in his book, that you CAN identify shifts in the market. Before a shift occurs there are often red flags that can be identified and researched, even if it takes a dedication to objectively watching market conditions.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Joshua Sheats, host of "Radical Personal Finance," engages in a lively debate about the U.S. national debt's sustainability and the alarming trajectory of fiscal policies. They dissect the complex interplay between government spending and economic productivity, while also considering the impact of income inequality. Optimism about innovation and entrepreneurship emerges as a counterpoint to concerns about tribalism. The discussion highlights the ethical dynamics of modern America and the privileges of freedom compared to struggles abroad.

#199 How a bank panic led to the creation of the Federal Reserve, and why having diversified sources of money can protect us in case we have a bank panic today and can't get access to our bank deposits. More information, including show notes, can be found here.Episode SummaryAsking the question “What kind of money is it?” may seem a bit unnecessary. Everyone knows what money is, what it does, and why it exists. However, on this episode of Money For The Rest Of Us, David explains the different types of currency, why the bank panics of the 19th and early 20th centuries defined American banking today, and why it is so important to diversify your types of money holdings.How the Panic of 1907 defined the American banking systems we see todayThousands of Americans sadly learned that grand architecture could not shore up failing banks during the Panic of 1907. Massive amounts of money were lost due to failing institutions, party because only 5% to 25% of all deposits were held in cash. When citizens caught wind of the failures and wanted to immediately withdraw their holdings, the banks and trust companies could not fulfill their requests. A similar situation happened during the financial crisis of 2008 when the liquidity for banks lending to Wall Street dried up. David takes these complex scenarios and breaks them down into manageable ideas.Why were bank panics so common in the 19th century?Events such as the Panic of 1907 were common in the 19th century because there was not a central bank that could provide liquidity in times of crisis. Each state and national bank had their own currency. This proved to be unstable. The U.S. central bank, the Federal Reserve, was created as a reaction to the original Panic of 1907, and the US dollar as issued by the Federal Reserve began in 1914. The original gold standard lasted until 1933 when Americans could no longer redeem their notes for physical gold at the Federal Reserve.The 7 main characteristics of money, no matter the typeThere are seven main characteristics of money that tie different forms of currency together. They include the issuer, the form, the accessibility, the transfer mechanism, the availability, interest-earning capabilities, and the level of anonymity. Different types of currencies have some or all of these characteristics and each has a varying level of liability attached to it. David weighs the pros and cons of bank deposits, cash, central bank reserves, cryptocurrencies, and gold.Diversification in your money is important for those “just in case” scenariosDavid and many other investors are strong proponents of diversifying the different types of money you hold. Understanding that no system is fail-proof, and having different types of money that you can access at different times, will ensure your financial survival in the event of a financial crisis. While a panic that approaches the level of severity of the 1907 crisis is uncommon, nothing is impossible. Smart investors have a backup plan that could support their livelihood in the event of a system disruption.Episode Chronology[0:14] David introduces his topic for this episode, “What kind of money is it?” and discusses the Panic of 1907[6:10] The financial crisis of 2008 as it relates to the 1907 crisis[8:25] Why were financial panics so common in the 19th century?[11:12] Hoarding gold resulted in a complete shift in how money is backed during the Great Depression[15:43] The main 7 characteristics of money[23:16] Using gold as a currency[23:53] Cryptocurrency and its taxonomies[25:12] What happened during the Panic of 1907?[26:00] Why diversification in your money is so important[29:13] What’s coming up on the 200th episode of Money For the Rest of UsSee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

#198 Why save for retirement if capitalism is going to collapse and/or universal basic income will be available. How millennials can lead the next work transition. More information, including show notes, can be found here.Episode SummaryCapitalism, universal basic income, socialism, and artificial intelligence are all tied together in America’s current economy. Today’s millennials are asking big questions about the future of the national economy and what place AI has in the job market. On this episode of Money For the Rest of Us, David tackles these questions and contemplates the idea of a universal basic income. The keys to successful capitalism and fulfilling employment are also discussed.Why aren’t millennials saving for retirement?David explains on this episode of Money For the Rest of Us that 66% of millennials have nothing saved for retirement. Why aren’t millennials investing in their own future? Some aren’t committing to a savings plan for retirement because they don’t believe capitalism will exist by the time they retire. Some even think socialism could it be a great retirement plan. There are, of course, many different degrees of socialism, including some that emphasize a market economy. David shares some of the negative consequences of state controlled socialism as practiced in Venezuela and Cuba.Artificial intelligence is not going to take over the world, but it will lead to a cultural shift and a consideration of universal basic incomeWhy artificial intelligence is accelerating rapidly, AI is not going to take over the world as in some dystopian horror story. AI machines do not have the ability to be creative or complete multifaceted, complex tasks. So-called “weak” AI that is currently available can only complete one-track tasks, all of which must be pre-programmed. However, AI machines will eliminate the need for humans to complete repetitive and routine tasks. Since millennials are already shirking these factory-like positions, the only thing that will change in today’s economy once artificial intelligence becomes mainstream is the way we think about employment and entry-level positions. Since AI is set to potentially replace 50% of jobs over the next 20 years, significantly increasing the productivity of the economy in terms of the ability to produce goods and services with less resources, businesses, households and governments will need to grapple with how people will get income to pay for the ample supply of goods and services that will be available.State controlled economies should be feared, not something to look forward to in the American economyA top down, state controlled economy lacks the bottom up, creative dynamism of capitalism, although even capitalism has rough edges that need to be addressed in terms of an adequate social safety net. David explains what is currently occurring in Venezuela. The Venezuelan government has completely destroyed their nation’s economy, with 50% of the GDP collapsing since 2012. High-ranking politicians are using food vouchers as incentives for reelection votes and basic human needs are being preyed upon for political success.Capitalism occurs when passion, creativity, and market needs intersectCapitalism flourishes when people unite their creative passions with market needs. David explains that when people “have their soul in the game,” projects take off and success comes much easier. It starts small, often grows into a full-fledged business, and can grow exponentially from there. But creativity is often dampened in a state-controlled environment. Individuals need to feel fulfilled and excited by their work. While universal basic income could serve as a safety net within the broader scheme of capitalism, it cannot be the only option.Episode Chronology[0:42] David introduces his topic for this episode, “Capitalism is Creation”[1:55] Why aren’t millennials saving for retirement?[6:07] Why artificial intelligence is not going to take over the world[8:45] Massive job decimation due to artificial machines and the idea of universal basic income[11:34] How constrained capacity is eliminated through AI[12:27] Why state controlled socialism is something to fear and the Venezuela case study[16:04] Unique, fulfilling work often starts with an idea and a passion to create[22:40] Investing, just like capitalism, starts small and growsSee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

#197 Why having less things and activities gives us more freedom and happiness. Why low probability risks are unacceptable if the consequences affect all of us. More information, including show notes, can be found here.Episode SummaryThe inspiration behind this episode came from the idea of the power of local and less, from Nassim Nicholas Taleb’s book Skin in the Game. David discusses the power behind experimenting at the local level in order to avoid systemic risk, as well as why less is more when it comes to happiness.Living in a via negativa mindset can set you freeTaleb writes extensively about “via negativa” in his book, which explains that “The act by removing is more powerful than acting by addition.” If having nice things means working long hours at a job you hate while sacrificing time with your loved ones, then perhaps having nice things shouldn’t be the end goal in life. If you’re not concerned with physical “stuff,” then you are free to live your life and pursue your greatest joys without the burden of material goods. David argues that if you’re not happy with less, then you certainly won’t be happy with more.By removing the negative aspects of your life, you can increase your level of overall happiness.A simple landscaping example illuminates this idea perfectly. If a wonderful hotel has impeccable landscaping, but the surrounding grounds are littered with trash and clutter, then the only thing one must do to improve the overall situation is to remove the clutter – not add more landscaping! Since via negativa states removing unnecessary or unwanted parts of your life will result in greater levels of happiness, it only makes sense to conclude that adding things will not give you the same result. People spend decades collecting items that they do not need or truly want. And the more they seek, the less happiness they find. For true happiness, one must appreciate all the good things in life and simply live day to day in a joy mindset.Why taking action against climate change is so critical, due to the precautionary principleWhile seemingly unrelated to via negativa, the second major principle discussed on this episode is just as critical. The precautionary principle is what drives Nassim Nicholas Taleb to take action against the global threat of climate change. Taleb argues that If an action could potentially destroy the planet, it is on those who pollute to show a lack of tail risk. So much of the controversy regarding climate change is about the accuracy of the scientific models, but what would the correct policy be if we had no reliable models? We only have one planet. Even a risk with a very low probability is unacceptable when it affects all of us – there is no reversing a mistake of that magnitude. If we don’t fully understand something, and it has a systemic effect, we should avoid it completely. This episode of Money For the Rest of Us makes an undeniable case for why every single person should care about climate change, and you need to hear it.How to change the world at the micro level, starting with a single businessChanging the world on the macro-scale sounds romantic, but it is simply not feasible for the vast majority of people. To truly do good in the world and make a difference, David urges his listeners to simply start at the local level. Start a business in your community and spend freely at other local businesses. Get to know your neighbors and care about their lives. Take bounded risks, don’t attempt to change the entire system, and tinker at the micro level until you see some good come from it. All this and more is covered on this encouraging episode of Money For the Rest of Us.In This Episode You’ll Learn[1:00] David introduces his topic for this episode, “the power of local and less”[2:12] The first main idea for the episode, via negativa, is discussed[6:47] So how do we solve this pursuit of unreachable happiness?[9:29] A second example of living through via negativa[12:45] David shares a third example of a via negativa lifestyle[15:51] Why David and author Nassim Nicholas Taleb believe in taking action against climate change, due to the precautionary principle[21:20] How to change the world by starting a businessSee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

#196 Why relying on averages is dangerous given our fate is often determined by extreme events and how we react as financial markets, the economy and our own lives evolve. More information, including show notes, can be found here.Episode SummaryAs people age, one of the most common questions asked is “how can I survive financially?” The world is filled with unpredictable markets, unforeseen circumstances, and lifestyle events that may impact your ability to be financially secure. On this episode of Money For the Rest of Us, David explains some key concepts for fiscal survival long into old age. You don’t want to miss his insights, so be sure to give this episode your full attention.How you can survive financially even throughout a long lifespanDavid begins this episode by describing a man he met that is in his 101st year of life. This man has survived long past the median lifespan prediction for the United States and he is still living independently while being financially secure. In order to live happily into old age, you must first survive. You cannot begin to plan for retirement without first having your basic necessities taken care of. After you have secured the main pillars of survival, there are ways to have an investment portfolio last 40 to 50 years of retirement. David explains that “time removes the fragile and keeps the robust.” The longer your portfolio survives, the likelier it is to continue surviving.What truly matters is how you react to the unpredictable risks that enter your lifeEven the best financial consultants and investment specialists cannot predict the minutiae of life. Markets will rise and fall, family dynamics will shift, and your personal circumstances will always be ebbing and flowing as you age. Long-term financial success comes from understanding how much risk you are willing to take with your investments, evaluating the potential returns, and understanding that “the world cannot be solved, it must be lived.” David encourages his listeners on this episode to be self-aware and understand how to handle dramatic shifts in circumstances. Learning how to properly mitigate negative changes to ensure your financial security is also critically important.So how can you combat these unforeseen variables?In addition to being self-aware and knowing your own decision-making strengths and weaknesses, David explains that there are multiple ways to protect your financial future. You can mitigate the tail risks of stocks by investing in the following different areas: public securities, public entities, gold, land, and single premium immediate annuities. The added layer of Social Security is also a good thing to keep in mind, however, it should not be solely relied upon.The 4% spending rule and the importance of having multiple streams of incomePerhaps the biggest idea to take away from this episode of Money For the Rest of Us is the 4% spending rule, as explained by David after he read the article “Does The 4% Rule Work Around The World?” by Wade Pfau. Pfau explains that historically with a US-based portfolio, one could live comfortably financially by spending 4% of your portfolio for the first year of retirement and then adjusting that percentage for inflation in every subsequent year. However, given the high valuations for stocks and the low yields for bonds, a spending rule of less than 4% would be more appropriate, especially considering the possibility of a 50 year retirement. By combining the a conservative spending rule, multiple streams of income, and a high level of self-awareness regarding your tendencies, you can protect your financial future and survive well into retirement.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.