efficient frontier – Live Laugh Love Do

How to Help Someone to Invest (When They’re Not Interested)

admin — Thu, 25 Sep 2025 04:35:24 +0000

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Credit: Chris Guillebeau

Mike: After 15 years of intentional living, Mike is 80 percent of the way to financial independence. Now he’s trying to help friends take control of their own financial future. But what happens when one spouse is eager to learn and invest, while the other isn’t interested?

Michael: For two years, Michael has tracked his net worth monthly. So far, growth has been driven almost entirely by how much he saved. But when will investment returns begin to take over and shift that steady line into an exponential curve?

Alvaro: After 15 years of investing in U.S. and European real estate, Alvaro has a big decision to make. Should he leverage a commercial loan to build an ADU for short-term rental income, or take on more personal debt to expand their family home?

Jonathan: After hearing Paula and Joe discuss the efficient frontier — and then listening to Big ERN, Paul Merriman, and JL Collins — Jonathan can’t help but wonder: has Joe’s perspective evolved? Is the simple path still enough, or is there merit in a more complex approach?

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Mike (2:50): How can I coach friends who want to invest but don’t share the same level of interest or engagement?

I’m 52, about 80 percent of the way to financial independence after 15 years of intentional living. I work as a helicopter pilot, but I’ve also developed a passion for personal finance. I like helping friends and family learn how to spend less, invest wisely, and create more freedom in their lives.

I have a friend who’s 45, married with two kids—one in college, the other in high school. She and her husband don’t want to work forever, but they live financially separate lives. They split rent, food, and bills through a joint account, but everything else stays separate.

He earns about twice what she does, and from what I’ve heard, everything they’ve saved is just sitting in a money market or high-yield savings account. They’re not investing, so there’s no real growth. She’s open to learning, but he’s not very interested. They’re also nervous about stock market crashes.

She’s willing to talk, but without his engagement I’m not sure how far this can go. And since they’re in their mid-40s, time isn’t really on their side. What advice would you give to help them—or to help me coach them—so they can start moving forward?

Michael (26:22): When will market returns start to matter more than my savings rate in growing my net worth?

At the end of every month, I write down my net worth and track it on a running graph. After doing this for about two years, I’ve noticed the biggest driver of change month-to-month is simply how much money I put in. The trend is still very linear—if I save X amount, my net worth goes up by X amount.

I’m wondering when market returns will begin to play a bigger role, so that growth looks more exponential instead of just a straight line.

Alvaro (34:00): Should I build an ADU with a commercial loan for Airbnb income, or add onto our existing home with personal financing?

I’ve been a real estate investor for 15 years in both the U.S. and Europe, and I find the U.S. has many tax advantages. We own a home in Maine in a great location near the ocean. It comes with an acre of land, and we’ve been remodeling it for our own use.

I’m torn between two options. One is to build an ADU, financed with a commercial loan, and rent it out on Airbnb to generate income—while also using it for family. The other option is to add bedrooms onto our existing house to make it more suitable as our family grows. But that would require personal financing, like a mortgage or loan. Our HELOC is already maxed out, so that’s not available.

I’m debating whether to wait, refinance other properties, and add to our existing home—or take advantage of a commercial loan and build the ADU. What’s the more financially savvy move right now: increase our personal loans or pursue the commercial route?

Jonathan (58:50): Has Joe changed his mind about the efficient frontier after recent discussions with Big ERN, Paul Merriman, and JL Collins?

I’ve been thinking a lot about your conversation with Joe on the efficient frontier, along with your later episodes featuring Big ERN, Paul Merriman, and JL Collins. Joe often says JL Collins promotes the simple path to wealth, but then notes it might be worth shifting to a two- or four-fund approach—something Collins himself wouldn’t recommend.

That has me wondering: has Joe changed his mind about the efficient frontier and how applicable it is for most DIY investors? He’s said before that he’s open to changing his views if smarter people challenge him, and he’s even called Big ERN one of those people. I’d love to hear whether his thinking has shifted in light of those recent discussions.

Resources Mentioned:

Interview with JL Collins on Youtube and our website
Interview with Karsten Jeske (Big ERN) on Youtube and our website
Interview with Paul Merriman on Youtube and our website

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#631: Q&A: Is ChatGPT’s Portfolio Better Than VTSAX?

admin — Wed, 06 Aug 2025 12:42:35 +0000

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Jason’s analysis of his retirement plan shows that the simple path beats the efficient frontier. Is he right or is he missing something?

Minerva is worried about the impacts of tax inefficiency to her wealth. Are her investments properly located?

Scott feels frozen because he doesn’t understand the nuances of the efficient frontier. Where can he get a simplified explainer so he can start taking action?

Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.

Enjoy!

P.S. Got a question? Leave it here.

Resources Mentioned:

Episode 577-qa-the-efficient-frontier-was-perfect-until-hr-got-involved/ | Podcast Episode

Episode 547-ask-paula-we-have-2-million-at-40-now-what/ | Podcast Episode

Your Next Raise | Course

Asset Allocation Made Simple | Free Download

The Truth About Making the Efficient Frontier Work in Real Life

Acorns Bonus Link

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Jason asks (at 02:24 minutes): Is it possible that my simple portfolio is already outperforming the efficient frontier? Or am I misinterpreting the data?

I’ve been intrigued by the efficient frontier discussions over the past year, especially episode 577, where Joe helped a listener named Kelsey work through limited 401(k) options. As a public safety officer, I’m in a similar position.

I have access to both a 457(b) and a 401(a), plus a pension that’ll provide a guaranteed income. So, I’ve been fairly aggressive with a 90/10 stock-to-bond allocation. According to Portfolio Visualizer, this mix has an expected return of 13.22 percent with a standard deviation of 14.33.

To compare, I asked ChatGPT to create a 90/10 allocation that would fall on the efficient frontier, using the funds available in my 401(a). It suggested 25 percent S&P 500, 25 percent large cap growth, 15 percent mid cap, 15 percent small cap, 10 percent international, and 10 percent bond.

But here’s the twist: when I plug that allocation into Portfolio Visualizer — using the 30 percent max weight guideline — the expected return drops to 12.9 percent with a higher standard deviation of 16.75.

When I match the standard deviation of my current portfolio (14.33), the return drops even further to 11.65 percent, which seems contrary to what I’ve taken from your episodes. I thought the efficient frontier should help me increase returns for the same level of risk?

I’m perfectly happy with a VTSAX-and-chill approach, but if the efficient frontier really can deliver better returns at the same risk level, I’d love to understand how to take advantage of it.

Am I misinterpreting something here?

Minerva asks (at 37:20 minutes): What’s the best way to avoid paying unnecessary taxes on investments—without doing anything shady?

As we approach retirement, my spouse and I are starting to think about where our investments live. Up until now, we’ve focused almost entirely on tax-advantaged retirement accounts, but we’re ready to build out our brokerage account to complete our tax triangle.

That brings up a big question: Which types of funds belong in each type of account?

Which investments are better off in IRAs or 401(k)s because they generate high tax drag? And which ones are more efficient to keep in a taxable brokerage because they throw off minimal gains along the way?

We’d appreciate a deep dive into tax-efficient asset placement—especially for those of us closing in on retirement.

Scott asks (at 01:19:19 minutes): Do you have any straightforward resources that explain the efficient frontier and offer actionable steps for someone ready to move beyond a basic index fund strategy?

I appreciated Joe’s thoughtful take on the “VTSAX and chill” approach versus optimizing for the efficient frontier. I’m intrigued by the idea of taking 15 minutes to shift my portfolio toward something more efficient—but I’m not sure where to start.

Part of the appeal of VTSAX is how simple and clearly defined the steps are, thanks to JL Collins. Are there any articles, videos, or guides that simplify the efficient frontier in the same way?

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#609: Q&A: How Not To Screw Up Retirement Spending

admin — Thu, 05 Jun 2025 03:31:28 +0000

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Eva is approaching financial independence, but she’s worried about messing up the transition. How does she set her portfolio up for success during the drawdown years of early retirement?

Former financial planner Joe Saul-Sehy and I deep-dive into this question in today’s episode.

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Eva asks (at 03:10 minutes): How should someone approaching financial independence (FI) start shifting from accumulation to decumulation—and what role do concepts like the efficient frontier or risk parity models play in that transition?

I met you both at the Purpose Code book launch in New York this past December, and a question that came up during the Q&A has stuck with me. Someone brought up sequence of returns risk, and it got me thinking about how to manage finances when you’re nearing FI.

I imagine many longtime listeners are in a similar place—we’ve been working toward FI for years, and after a mostly favorable market run, we’re getting close to our goals. So how and when should we transition our portfolios as we move from accumulation to drawdown?

Two ideas come up frequently in my research. One is the efficient frontier, which you’ve talked about recently—the idea that you can lower risk while maintaining return by optimizing portfolio design.

The other is risk parity, which is designed specifically for decumulation. Frank Vasquez has explored this on his Risk Parity Radio podcast, but I’d love to hear your take since I don’t think you’ve done a deep dive yet.

It seems like these two approaches could work together. For example, models like the Golden Ratio suggest a sustainable 5 percent withdrawal rate, which could shift how someone calculates their FI number.

I’d love to hear your thoughts: How should we think about asset allocation, portfolio complexity, and personal risk tolerance as we prepare for decumulation—especially for those of us who are aiming for early retirement or a work-optional lifestyle?

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Synopsis of Our Answer:

When you’ve spent decades building your retirement nest egg, switching to the withdrawal phase can feel intimidating.

Former financial advisor Joe Saul-Sehy joins us to tackle what he calls “the hardest part of financial planning.”

Joe explains that retirement withdrawals require a different mindset than accumulation. While many people focus on simple “safe withdrawal rates,” Joe recommends a more structured approach using a four-bucket strategy:

Lumpy spending bucket – Money set aside for specific big expenses in early retirement (travel, home renovations) that you plan to spend down to zero

Short-term bucket – Two to three years of expenses in cash

Mid-term bucket – Funds for years 3-10 in moderately conservative investments

Long-term bucket – Money for 10+ years in growth-oriented investments

The strategy creates what Joe calls “a personalized target date fund” where you regularly rebalance, moving money from long-term to mid-term and from mid-term to cash.

“The biggest roadblock I’ve ever encountered is you,” Joe says, noting that behavior — not market crashes — typically derails retirement plans.

A clear bucket strategy makes you less likely to panic during market downturns because you understand the precise reasoning behind your allocation decisions.

Joe also highlights the importance of planning for “tax roadblocks” like Required Minimum Distributions and Medicare IRMAA surcharges, recommending you begin transitioning your portfolio about 10 years before retirement.

Ultimately, Joe advises starting with your goals rather than working backward from withdrawal rates: “Begin with the Great Barrier Reef, begin with Machu Picchu” — figure out what you want in retirement, then build your financial strategy around funding those priorities.

Resources Mentioned:

The Efficient Frontier Was Perfect Until HR Got Involved

Practical Investing and the Efficient Frontier with Joe Saul-Sehy

Ask Paula: How To Optimize Your Investments Along the Efficient Frontier – If You Dare

Interview with Bob Elliot

Interview with Polina Marinova Pompliano

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