Brian Feroldi is the author of Why Does the Stock Market Go Up, a partner on Long-Term Mindset, a newsletter with more than 50,000 readers, and a Youtuber with over 65,000 subscribers.
He cut his teeth covering the pharmaceutical and biotech industries for Motley Fool before starting his own company. He’s written about finance and investing for over a decade.
I found Brian on Twitter when I saw him tweet some graphics that I found to be super helpful.
I loved the way he simplified complex personal finance topics to make them easier to understand, and I immediately thought that he’d make for a great interview. So I sent him a DM, and he was nice enough to take some time to answer my questions.
When I asked Brian what he thought most investors get wrong about investing, he told me that they often neglect to figure out their time horizon. That is, how long they plan to invest.
“They don’t think of their time frame first. Always start by asking, ‘When do I need this money?”
This is an excellent point. If you’re investing for retirement as a thirty-year-old, your decisions will likely be different than someone who’s saving for a down payment in the next three to five years. If you don’t understand when you’ll need your money, your asset allocation – the investments you make – may not be aligned with a strategy that makes sense for you.
His answer to this first question led perfectly to his answer to my next question, which aimed to identify the best piece of financial advice Brian’s ever received. His response? Short and sweet.
“Think long-term.”
Oftentimes people make mistakes by trying to get rich fast. They trade stocks too frequently, invest too heavily in one stock, or use leverage to multiply their earnings. But getting rich over the long term is actually quite simple. If you’re young and have a decent income, you can practically guarantee you’ll have wealth if you set up a financial system and stick to it.
So what his Brian’s advice for young people looking to create this system?
“Focus on maximizing your income and savings rate, not your rate of return.”
This echoes the advice we heard from Nick Maggiulli. When you’re young, your savings rate and your income play a bigger role in wealth creation than your investments. When you’re older and you’ve invested for longer, your investments may play a bigger role.
This doesn’t mean you shouldn’t invest when you’re wrong. Not at all. This means while you’re young, you can create a larger impact by increasing your savings rate and working to make more money. Ask for raises, earn promotions, and sell more of your services or products – whatever it takes.
If you focus on your rate of return, you may be drawn to riskier asset classes. But it’s crucial to remember: riskier assets offer potentially higher returns because they have to. Those potential returns are not guaranteed. My favorite definition of financial risk is the odds of losing money. So keep in mind, high-risk, high-reward investments often make for poor returns if you over-allocate to them.
So what should we invest in? Well, knowing what to invest in often starts with knowing what to avoid. I love asking the experts I interview what asset classes they avoid. For Financial Samurai, it was “any asset class [he] doesn’t understand.” For Nick Maggiulli, it was commodities. So what does Brian Feroldi stay away from?
“Alternatives like art.”
While you can make a case that alternatives play some part in a portfolio, people tend to overstate their importance. At least, I think so.
Do you need to invest in alternatives? No. You can easily invest in stocks and bonds and create serious financial wealth.
Alternatives may sound interesting, but they’re not necessary. In some cases, they can also hurt your performance. If you are passionate about art, maybe you invest in some. But it’s best to keep alternatives to a relatively small portion of your portfolio.
My take: you’re probably better off building a large portfolio of stocks and bonds. If you want to diversify further, I’d probably opt for real estate.
Finally, what about buying back time? If you’ve read my other interviews, you’ll notice this question pops up regularly. After reading Dan Martell’s Buy Back Your Time, I’ve become a bit obsessed with learning how high performers use money to free up their time and spend more time doing what they love. I thought Brian’s answer to this was interesting because it differs from some of the other folks I’ve talked to.
“Automate bill paying. I do some of my best thinking during boring tasks like laundry and cleaning. I don’t outsource them.”
First, I love the bill automation answer. Financial automation is crucial to my system. As Brian alludes to here, it also unlocks a lot of time. What if you didn’t need to transfer money from your checking to your savings and investment accounts? How about paying off your credit card bills? What other bills do you pay each month and how much time do you spend paying them?
These are tasks that are easily automated. You don’t need to spend time doing these sorts of menial tasks, especially considering they’re not very fun.
The second part of Brian’s answer is what I found to be interesting. My assumption is that he could easily afford to pay for house cleaning and laundry. He deliberately chooses not to. Why? Because that’s time he uses for thinking. Similar to how some people take a walk when they need to brainstorm, Brian uses his time cleaning and doing laundry for thinking. I love that.
What I find especially interesting is that Brian chooses to do this. He doesn’t have to, but this works for him. This answer serves as a great reminder that you should lean into your preferences – not everyone has the same preferences and not everyone should set up their life in the same way.
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