1999 is back, and I’ve missed it. Ever since then, I’ve been chasing that next 50-bagger, the kind of life-changing winner that helped me come up with the down payment for my first property. But he’s been elusive.

I still remember sitting on the international trading floor at Goldman Sachs at 1 New York Plaza, glued to my screen as internet names like Commerce One and Yahoo soared higher almost daily. My firm had just gone public, instantly turning the partners into decamillionaires. The energy was electric – optimism everywhere, fortunes being made, CNBC blaring nonstop.

Fast forward to today: tech stocks are leading again, crypto investors are buying Lambos, and AI is woven into everything – our phones, portfolios, and daily conversations. San Francisco, once quiet during the pandemic, is buzzing again. Startups are hiring and everyone’s talking about the next big thing.

And I’ll admit, I’m hyped. We have the potential to get extremely rich over the next five years.

Then the 2000 dot-com crash vaporized trillions in wealth and taught me one of the most important lessons of my life: euphoria always feels rational until it doesn’t. Ah, cheers to irrational exuberance.

The Return Of The 1999 Atmosphere

I’m investing in public tech stocks, private growth stocks, a little bit of Bitcoin, and San Francisco real estate, which all feel poised for continued growth.

Back in 1999, I promised myself that if the mania ever returned, I’d lean in harder, but smarter. Now, with investors once again betting on infinite growth, that time has come.

So how do we balance greed with wisdom? How do we ride this wave of innovation without repeating the mistakes of the past? Let’s explore what history teaches us and how to navigate this AI-driven rocket responsibly.

Because frankly, with far more capital at stake, I don’t want to lose my shirt again. But even if I do, I’ve heard the “dad bod” is the most attractive male body type, making us feel approachable, stable, and mature.

What Makes This Time Different (and What Doesn’t)

Yes, this time is different, and that’s exactly what everyone says before every bubble bursts. But there are some key distinctions worth acknowledging.

• AI has tangible productivity effects. Unlike many dot-com ideas that never made money, AI is already saving companies billions.
• Balance sheets are stronger. Corporate debt loads are healthier than in 1999 and 2007, and many firms are flush with cash.
• Strong income and cash flow. In addition, the largest tech companies are generating enormous free cash flow.
• Consumers are also much stronger. Household leverage is lower than in 1999 and 2007 as well.
• Monetary policy is turning supportive again. Amazingly, the Fed is resuming its interest rate cuts with everything at all-time highs, providing a tailwind for risk assets.

That said, the psychology of manias never changes. People overestimate short-term gains and underestimate long-term disruption. AI is real, but that doesn’t mean every AI stock is. Some companies will go to the moon; the vast majority will go to zero.

That’s why perspective and diversification matter more than ever.

How I’m Positioning for The New Mania

Here’s how I’m approaching this cycle, and some suggestions if you’re feeling swept up by the hype. As we should all remember, there are no guarantees in risk assets. Always do your due diligence and invest according to your own goals and risk tolerance.

1. Stay Invested, But Maintain Exposure Limits

I’m fully participating in this bull run but will trim individual positions once they exceed 10% of my portfolio. A concentrated portfolio works, until it doesn’t.

The 10% threshold is somewhat arbitrary. You should come up with your own comfort level. According to modern portfolio theory and supporting studies, holding around 20 to 30 positions is typically enough to achieve most of the benefits of diversification along the efficient frontier, roughly a 3% to 5% allocation per position.

It’s not enough to just monitor your investment portfolio’s composition, you also need to view it in the context of your overall net worth. Look at how much you have in cash, real estate, alternatives, bonds, and low-risk assets.

Personally, I aim to keep public equities between 25% and 35% of my total net worth. That allocation gives me the confidence to stay the course during downturns. If the average bear market declines about 35%, that would translate to roughly a 10% hit to my overall net worth, which I can comfortably stomach.

Ascertain how much of your net worth you’re comfortable losing.

2. Shift More Towards Real Assets

1999 through 2009 taught me that stocks are funny money with no real utility. You can’t drink your stocks, live in your stocks, or physically enjoy them. The only way to benefit is to sell some shares from time to time to fund a better life.

The best asset I’ve found that offers both potential appreciation and real-world utility is real estate. There’s no better feeling than watching your home appreciate in value while you actually enjoy living in it. If you have children, that satisfaction multiplies. You’re not just building wealth, you’re providing stability and memories for your most precious assets.

I’m long as much San Francisco real estate as I can comfortably handle, a primary residence and three rentals. AI companies are expanding, housing demand is rebounding, and real estate remains one of the few tangible hedges against both tech volatility and inflation.

3. Increasing Private Company Exposure

I’m investing directly into AI companies through various closed and open-ended venture capital funds with up to 20% of my investable capital. All of the closed-end venture capital funds charge 2% and 20% of profits or more, and are invite only. While Fundrise Venture is open to everyone and doesn’t charge any cary.

Back in 1999, I had ~$8,000 to invest after receiving my signing bonus ($5,000 + my existing $3,000 from part-time jobs in college). So I invested $3,000 in VCSY, a Chinese internet company that 50Xed. However, to make life-changing money requires a much larger amount of invested capital. So this time around, I’m investing seven figures while staying within my 20% exposure limit.

Below is a chart that should both scare and excite you. Every venture capital general partner thinks they’ve invested, or will invest, in the next AI winner. But as a 20-year limited partner in venture capital, I’ve seen that roughly 90% of investments either go to zero or return only modest capital.

For that reason, a general partner must either have a tremendous track record or the fund must already own companies you strongly believe in before it’s worth investing. I’m hedged by investing in both types of venture capital funds.

4. Maintain Liquidity To Buy The Dip And Survive

After the 1999–2000 and 2008–2009 downturns, I promised myself I’d always keep at least one year of living expenses in cash or cash equivalents like Treasury bills, and I still do. Liquidity buys peace of mind. It lets you both survive and buy the dip when markets crash.

Thankfully, cash and Treasury bills now pay a handsome ~4% risk-free return. That makes the so-called “cash drag” in a 1999-style bull market far less heavy.

Corrections are inevitable. If you don’t have liquidity ready, you’ll be forced to sit on your hands instead of take full advantage.

5. Do Not Buy Risk Assets On Margin

Although the temptation to leverage up in a 1999-style bull market is high, don’t do it. If we really are reliving 1999, remember what came next: the NASDAQ crashed 39% in 2000 and ultimately fell 78% from peak to trough by 2002. Even if you were only 50% on margin back then, chances are you were wiped out.

Today, plenty of investors are making the same mistake in cryptocurrencies (altcoins), leveraging 2X to 50X in pursuit of quick riches. Some have made fortunes, but many have also lost years of hard-earned gains in a single day. That most recent day was October 10, 2025, when widespread liquidations (~$20 billion) erased entire portfolios due to leverage.

If you absolutely can’t resist the urge, limit your speculative capital. Carve out no more than 10% of your investable assets for leveraged punts. And go in knowing the worst-case scenario: not only can you lose everything, you might also owe money to your broker.

In a flash crash, prices can gap down before your broker executes a stop limit sale, leaving you with a negative balance. Investing on margin long-term is a bad idea. Resist the temptation.

https://twitter.com/bon_g/status/1976773795877994861

6. Embrace The Dumbbell Investing Strategy

During manias, investing FOMO often pushes investors to take excessive risk. You buy things you don’t fully understand simply because you can’t stand watching others get rich without you. More often than not, this type of investing leads to ruin.

One way to manage this is with a dumbbell strategy: split your portfolio or new investments between low-risk or risk-free assets and high-risk, speculative bets. This approach lets you capture upside if the mania continues, while still protecting your downside if it fizzles out.

Over the past several years, I’ve been regularly using the dumbbell strategy to invest in both private AI companies and in Treasury bills and bonds. This way, no matter what happens, I’m hedged.

7. Spend And Enjoy A Portion Of Your Profits

Every year during a bull market, I try to buy something tangible with my “funny money” profits. This ensures that if, and when, the bear market returns, at least I’ll have something to show for the gains.

For example, in 2003, I used profits from VCSY in 2000 to buy a two-bedroom condo with a park view in Pacific Heights, a property I still own today. It housed my girlfriend and me for two years and now generates semi-passive income to help fund our retirement.

You don’t have to invest your funny money in real estate. Fine art, rare books, ancient coins, or even memorable experiences like a family vacation or a cruise for your parents all count. Great experiences often appreciate in value in ways that money can’t measure, especially now that we can record them in stunning 4K.

As long as you continue taking profits to acquire meaningful experiences or material things you value, a 1999-style bull market can keep rewarding you long after it’s technically over.

7. Mentally Prepare For Financial Pain & Mental Anguish

A 1999-style bull market will eventually end badly. We could even face another lost decade, where risk assets provide little to no real returns. It could certainly happen again, especially with the S&P 500 trading at 23X forward earnings.

However, once you study history and understand how severe losses can get, the pain isn’t as shocking when they arrive. Here are some key statistics:

• 5% corrections: happen 3–4 times per year on average.
• 10% corrections: happen about once per year.
• Bear markets (-20%+ declines): from 1928–2025, there have been ~16, averaging one roughly every 5–6 years.
• Average bear market drawdown: ~35%.
• Median post-1946 bear market duration: 11 months, with an average decline of 33–35%.
• Median recovery time to all-time highs: 23 months.

In other words, mentally take your equity exposure and lop off 35% of its value immediately. Ask yourself: can you handle losing that much and waiting roughly two years to get back to even? If yes, you’re good to go. If not, you need to make adjustments.

You can even use my FS-SEER formula to quantify your risk tolerance in terms of time, helping you plan your allocations more confidently.

7. Revisit your income streams. 

Your income streams are crucial for staying afloat during a bear market, yet they often get overlooked in a bull market. That’s why it’s important to list out your various sources of income and rank them by reliability. When the bear market hits, how secure will they be?

If you know you’ll always earn enough to cover your family’s living expenses, you can afford to take more risk. But if many of your income streams are likely to collapse in a downturn, you need to adjust your exposure accordingly. Make a realistic estimation of how far they may decline.

The key is to build diverse sources of income before you actually need them. By the time you do, it may already be too late.

8. Focus On Health And Lifestyle

Bull markets can make you forget what really matters: health, friends, and family.

Back in 2009, my stress levels were through the roof as I watched roughly 40% of my net worth vanish in six months that took a decade to build. My back pain made it almost impossible to drive or sit, and I was grinding my teeth relentlessly. My TMJ was so bad I couldn’t talk comfortably for more than five minutes at a time. I had to find a way out of dedicating my life to finance.

Today, I strive for balance, a goal made far easier without a 60-hour-a-week job. I start the day with 1-2 hours of writing, then often play tennis, coach my kids, and remind myself that wealth is meaningless if you don’t have the energy to enjoy it.

In your pursuit of riches, please do not neglect your health! It will come to bite you in the arse eventually.

Don’t Confuse Brains With a Bull Market

It’s intoxicating to feel smart in a rising market. Gains reinforce confidence, and confidence feeds risk-taking. But the truth is, in bull markets everyone looks brilliant, until the rocket blows up.

When the 2000 crash hit, I I watched multimillionaire colleagues lose everything they’d built due to excessive leverage. The barber at the basement of 1 New York Plaza no longer bragged to me about his wins while he cut my hair. In fact, he said he had to sell his two Mercedes after the crash. Markets giveth, and markets taketh away.

Don’t let a bull market convince you that you’re invincible. Let it remind you that discipline is what keeps you rich once you get there.

The Happiness Hedge

It might sound counterintuitive, but one of the best hedges against financial loss is emotional contentment.

During boom times, it’s easy to keep raising the bar – more money, more property, more cars, more partying, more everything. But if you’re already at a 7 or 8 out of 10 on the happiness scale, chasing a 10 might actually send you backward.

Happiness comes from balance: meaningful work, good health, family time, friends, and enough money to control your schedule. Everything beyond that is gravy over your ego.

So yes, I’m leaning into this AI-driven bull market. But I’m also reminding myself that financial freedom is only worth it if you’re actually free. We can prevent ourselves from being slaves to money by having a properly structured portfolio and a financial plan under any scenario.

Ride the Wave, But Know A Jagged Shore May Await

The energy today feels electric, just like 1999. And I love it. I want to see people make great fortunes so they can have the freedom to do what they want. Imagine telling your micromanaging boss to screw off one day. Amazing!

Investors could experience an epic blow off like we 26 years ago. Just know how quickly the music can stop. Diversify, stay humble, and take some chips off the table when you can.

Bull markets make you rich. Bear markets make you wise. Together, they make you complete.

So let’s enjoy the ride, but with our eyes open!

For those who’ve been investing since 1999 or earlier, how does today’s market feel compared to back then? What similarities and differences stand out to you? Does the current AI-driven frenzy remind you of the dot-com boom, or does it feel like something entirely new? Are you positioning yourself for another potential blow-off top that could make us all a lot wealthier or are you bracing for the inevitable hangover? And for younger investors who didn’t live through 1999, how are you managing your FOMO as everyone around you seems to be getting rich again?

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A fresh set of eyes can uncover hidden fees, inefficient allocations, or overlooked opportunities to optimize. A 1999-style bull market has a way of making even the most disciplined investor a little delusional. That’s when proper risk management tends to disappear.

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The grindcore culture is back and grindier than ever. At least that’s what Are Kharazian, an economist at fintech startup Ramp, says. (Disclosure: I’m an investor in Ramp through the Innovation Fund.) For those unfamiliar, Ramp is a corporate card company that makes doing expenses easier.

But here’s the fascinating part: according to Kharazian, usage of Ramp’s product spikes on Saturdays. Not at 9 a.m. when people are finishing their morning latte. But starting around noon and going all the way until midnight. Employees are buying Chipotle and other food items as they work.

Think about that. Twelve hours straight on a Saturday – hours normally reserved for tennis in the park, family lunch, or dinner and drinks with friends – are instead being logged into corporate systems. If that isn’t grindcore culture, I don’t know what is.

And it’s not happening everywhere in America, yet. Kharazian says Ramp doesn’t see the same behavior in New York, Miami, Austin, or Seattle. Nope. It’s happening only in San Francisco so far. He calls it the city’s version of “996,” a term popularized in China in the early 2010s to describe employees working from 9 a.m. to 9 p.m., six days a week.

San Francisco may have its problems, but its work-hard-or-die-trying culture is alive and well. As a resident, I’m so proud!

Appreciating The Grindcore Culture Even With FIRE

Now, I know some of you who value “work-life balance” are probably grimacing right now. Why would anyone romanticize grindcore culture when life is meant to be enjoyed?

Here’s why: because I’ve lived it, and I know the rewards. It’s worth grinding until you can’t take it anymore. Because eventually, you will burn out. Remember, my goal is to help everybody achieve financial freedom sooner, rather than later with their one and only life.

I worked in finance from 1999 – 2012 while also going to b-school part-time for three years. During this window, I also helped kickstart the modern-day FIRE movement in 2009 with Financial Samurai so I could get the hell out. But in order to retire early, I had to consistently work 60+ hours a week to try and ascend. Then I hit a glass ceiling at age 34 where I had enough and could no longer make progress.

Grinding hard in your 20s and 30s while saving and investing aggressively is the single best way to set yourself up for freedom in your 40s and beyond. In other words, grindcore culture and FIRE go hand in hand.

I’ve been free from full-time employment for over 13 years now. My conclusion? The long hours and sacrifices were worth it. It’s not even close when compared to YOLOing in your 20s and then relying on your parents, as an adult. You rob them of their own financial freedom because you never figured out how to launch on your own.

Grind when you’re young. Because one day, your health, energy, and motivation will fade. To keep that edge alive later in life, you’ll even have to play tricks on yourself—like pretending you’re broke—just to get out of bed with the same fire.

Falling In Love With The Grind

Looking back on my archive of 2,500+ Financial Samurai posts, I realize I’ve been a grindcore believer since 2009. Some classics include:

I can feel some of you steaming right now. Why? The beauty of hard work is that it doesn’t last forever. Work intensely, save aggressively, invest wisely, and eventually, you’ll reap the benefits for years, if not decades.

At the time, it might feel punishing. But in retrospect, you’ll look back fondly. You’ll laugh at how you used to arrive before 6 a.m. and stay past 7 p.m. just to snag the free dinner perk. You’ll shake your head and wonder: How did I ever put in those hours and deal with being told what to do by people I despise for so long?

The answer is simple: purpose and necessity. When you don’t have money, don’t have status, and desperately want a better life, grinding feels natural. What other choice is there?

If you grind hard enough, there comes a point where your investments outpace your active income. Imagine a $1 million portfolio rising 23% in 2023, 22% in 2024, and another 10% in 2025. That’s a huge lift compared to earning $100,000 a year from your job. Now picture having $5 million or even $10+ million invested. The compounding effect becomes life-changing.

The flip side is that no matter how hard you work, you can’t shield your net worth from going negative during a downturn. Why? Because by then, your investments are doing the heavy lifting (and dropping). At this stage, work truly becomes optional.

Careful Listening To The Leisure Class

Don’t be fooled by the rich and privileged who already have it all and then preach about taking it easy. Some with multi-generational wealth love to virtue signal with what is sometimes called luxury beliefs.

It’s the trust-fund artist living in a $4 million SoHo loft telling everyone to “fight the power and screw capitalism.” Or the politician who praises socioeconomic diversity in public schools while quietly sending their own kids to a homogenous private school. Or the public company CEO who champions reformative justice and insists on letting 10X repeat offenders roam free, while living in a gated community with 24/7 private security.

Uh huh, sure. Go on now.

Always consider the incentives behind the message. If someone is already wealthy, their incentive to tell you to “chill out” is often self-serving. They’ve already extracted their pound of flesh from the system and now want to look virtuous while reducing competition.

So if you’re going to proclaim that hard work is overrated because you have a cushy trust fund job, and that health and happiness are everything, at least be transparent. Tell us your income, net worth, trust fund size, and how many nannies and housekeepers are on the payroll. Own your good fortune! Otherwise, your advice rings hollow.

Still Grinding After FIRE

Without grindcore culture, I would never have kept my streak of publishing three posts a week for ten straight years – from July 2009 to July 2019. Ten years is the amount of time I believe it takes to gain credibility in any field. But I did so because I made a promise, and I wanted to be productive during a highly uncertain time.

When the anniversary arrived, I told myself, Why stop? Like Forrest Gump, I just kept running, except in my case, writing. By then, the habit was ingrained. And habits, especially the grindy ones, die hard. I’m now 16 years in.

But here’s the reality check: my health isn’t what it used to be.

My left eye gets uncomfortably dry after two hours on the laptop or phone. If I keep staring at a screen, I develop headaches, especially when looking side to side. I’m literally closing my eyes right now as I type this. Even if I wanted to publish five days a week, I couldn’t. To preserve my vision, I should probably cut down to two.

Aging is humbling. At some point, all of us will face physical decline. And that’s when we’ll be grateful for the passive income streams we built during our prime.

The Solution: Profit From Other People’s Grind

So what do you do when you can’t grind as hard anymore?

You invest in companies and people who still can.

Take Amazon, Google, and Meta. When they forced employees back into the office in 2023, many tech workers revolted. “How dare you take away my flexibility!” they cried.

Me? I bought more stock. Management was signaling they valued grindcore productivity over cushy perks. Meanwhile, I trimmed exposure to companies that clung to a fully remote model because their leaders clearly wanted the easier lifestyle. That’s totally rational! But I also made the rational decision of investing my money elsewhere.

I’ve been writing from home since 2012. And let me tell you: during the pandemic, it was comically obvious how little some people were working. I’d play pickleball at 11 a.m. on a Tuesday and bump into software engineers “on a break” for three hours! At one point, I strongly considered taking a day job just to get paid to play like they were.

The lesson? Don’t invest in cushy cultures. Invest in the grinders. It’s your money. Allocate it wisely.

Careful, Work Ethic Fades The Richer You Get

Intelligence and connections matter, sure. But those are often innate or luck-based. Work ethic, however, is a choice.

As an investor, capital allocation is also a choice. If you can’t grind yourself, put your money into the people and companies who will. These are the ones who understand the race to market share is brutal, and they’ll outwork everyone to win.

The problem? Grindcore fades as you get older and wealthier. Spend a decade in Big Tech, pocket a few million, and suddenly your Friday meetings are from the slopes in Tahoe and your Monday calls from the links in the Hamptons. Productivity tanks. Shareholders lose.

The real edge is finding the insecure, status-hungry, slightly narcissistic founders and employees who still have something to prove. I had that fire right out of college, and many of us do. But some people are simply wired to push harder for longer than others.

These are the ones who keep grinding long after wealth should have made them soft. The catch? Over time, it gets harder to find people who would rather be in the office than at home with their kids.

Invest in Younger Companies and Hungrier Founders

The best bet may be to back younger, hungrier founders with nothing to lose and everything to gain. Private startups are where the grind is purest, survival demands it. These founders push themselves to make a name so they don’t have to work this hard forever, often fueled by an idealistic mission that keeps them going well past the breaking point.

Take Ramp, for example—a startup aiming to disrupt Visa, Mastercard, and Amex with better rewards and easier expense management. Their Saturday usage data shows customers working while others are relaxing. The founders themselves are in their early 30s, unmarried, and child-free – an ideal profile for heroic hours of focus.

That’s why a growing share of my capital is flowing into startups through venture capital funds. I want to invest in people with the capacity to grind 60+ hours a week without hesitation. For them, success isn’t optional, it’s survival.

Grind Now, Profit Later

The grindcore culture isn’t for everyone. It’s exhausting, sometimes unhealthy, and often ridiculed by those who prefer balance. But if you embrace it early in your career—when energy is high and responsibilities are lower—you can buy yourself decades of freedom later.

When your body inevitably slows down, you don’t have to abandon grindcore altogether. You can profit from it by investing in those who still have the fire. Because no matter how much the world talks about balance, the biggest wins still go to the hungriest players.

If you’re not already wealthy, grind now so you can enjoy the grind later, even if only vicariously through your portfolio. But if you’re happy with your life and finances, then don’t grind. Embrace the work-life balance you value. Just stay consistent, and resist complaining or growing envious when others pull ahead due to their stronger work ethic.

Readers, what are your thoughts on grindcore culture? Why is there such a strong emphasis on labeling it as unhealthy, when working hard and investing aggressively can set you up for a far better life down the road? By pushing work-life balance so strongly, are we serving younger adults—or holding them back?

Subscribe To Financial Samurai 

Pick up a copy of my USA TODAY national bestseller, Millionaire Milestones: Simple Steps to Seven Figures. I’ve distilled over 30 years of financial experience to help you build more wealth than 94% of the population—and break free sooner.

Listen and subscribe to The Financial Samurai podcast on Apple or Spotify. I interview experts in their respective fields and discuss some of the most interesting topics on this site. Your shares, ratings, and reviews are appreciated.

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As the name of the Vanguard High Dividend Yield ETF (VYM 0.07%) says, it is a dividend-centric exchange-traded fund (ETF). That puts it up against a long list of alternatives, with two of the most prominent being the SPDR Portfolio S&P 500 High Dividend Yield ETF (SPYD -0.71%) and the Schwab U.S. Dividend Equity ETF (SCHD -0.80%). How does the Vanguard ETF stack up? It depends on what you are looking for.

Dividend yields first

The Achilles’ heel of the Vanguard High Dividend Yield ETF is its yield. At roughly 2.6%, it is well above the S&P 500 index’s scant 1.2%. But it is far below the nearly 3.9% yield offered by the Schwab U.S. Dividend Equity ETF, and the 4.5% of the SPDR Portfolio S&P 500 High Dividend Yield ETF.

If all you care about is yield, the SPDR ETF wins. But that is a very narrow way to look at what are three very different dividend-focused investments. A deeper understanding of what each of these exchange-traded funds do is needed to make a final decision.

Simple and complex dividend approaches

The Vanguard ETF is probably the simplest of the trio. It starts by taking all of the dividend paying stocks on the U.S. market. Then it selects the highest-yielding 50% of the list. The stocks are market-cap weighted, so the largest companies have the biggest impact on performance.

The most important takeaway from this approach is that the portfolio is huge, with over 550 stocks. That’s a lot of diversification, which could make this ETF a worthy alternative to an S&P 500 index fund. The expense ratio is a tiny 0.06%.

One step up on complexity is the SPDR ETF. Its starting points are the stocks within the S&P 500 index. That’s a group of 500 or so companies selected by a committee because they are large and economically important.

This adds a little bit of selectivity to the process of creating the ETF’s portfolio. But the overall logic is still pretty simple. The SPDR ETF owns just the 80 highest-yielding stocks in the S&P 500.

They are equally weighted, which helps reduce risk. This is important because buying the highest-yielding stocks will often mean buying companies that are struggling for some reason. The expense ratio is a low 0.07%.

The Schwab ETF is by far the most complex choice. It starts by looking at companies that have increased dividends for at least 10 years. Then it creates a composite score using the ratio of cash flow to total debt, the return on equity, the dividend yield, and a company’s five-year dividend growth rate.

The 100 companies with the highest composite scores get into the ETF with a market-cap weighting. The expense ratio is a tiny 0.06%. What’s unique here is that the Schwab ETF is pretty much doing what dividend investors would if they were picking stocks individually.

The winner isn’t clear-cut

If you are looking for a diversified portfolio of dividend stocks, the clear winner is the Vanguard High Dividend Yield ETF. As noted, the portfolio is so large that you could consider this ETF as a replacement for the S&P 500 index.

But having so many holdings means it goes pretty far down the yield spectrum, which has the effect of lowering the overall yield relative to other alternatives. That will limit the ETF’s appeal for a lot of dividend investors.

The relatively high yield from the SPDR Portfolio S&P 500 High Dividend Yield ETF could make it the winner for some income lovers. But it has the smallest portfolio and will inherently include some of the riskiest dividend stocks. That probably won’t appeal to more-conservative investors.

Which brings in the Schwab U.S. Dividend Equity ETF, which hits an interesting middle ground. It has an attractive yield and is highly selective, attempting to buy well-run companies that are growing and that have high yields.

The Vanguard fund isn’t a bad ETF, but if you are a dividend investor, you have other options that may be more attractive. Unless, of course, your primary goal is diversification.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.

This type of post only surfaces during a bull market, when greed tug at us the hardest, making satisfaction elusive. Ever since making my first public equity investment in 1996, I’ve been hooked, wrestling with the constant mental tug-of-war over how to be at peace with my investment decisions. Maybe you fight the same battles.

During the spring 2025 stock market meltdown, I deployed most of my rental home sale proceeds into the stock market. I started buying too early—in early March—only to watch stocks keep falling. Still, I kept dollar-cost averaging through mid-April. Eventually, the market rebounded.

Of the proceeds I invested during March and April, about $500,000 went into individual stocks, mostly in tech. Of that, $40,000 went into Meta, a long-time holding in my rollover IRA.

My first new Meta buy was on March 10 at $591.76 a share. When it dropped to $488.50, I felt like an idiot, but defiantly bought more. My last dip-period purchase was at $716.64 before rotating into value names.

As a DIY investor determined to outperform, active management can be very stressful. Unless you truly enjoy the investing process, you are better off sticking with 100% passive index funds or ETFs or hiring a financial professional to manage your portfolio.

The Need To Invest a Lot to Make a Lot

For two months, I felt more stressed than when guessing “C” on all the SAT questions I didn’t know. I was also just as nervous as waiting the 30 seconds for my Series 7 exam results to hopefully break 70%. Back at Goldman, failing would’ve been humiliating.

All that time, stress, and effort to put $40,000 into a volatile tech stock and five months later, I’m up ~40%. That’s a great return. But in dollar terms, it’s only $16,000 before taxes. That doesn’t even cover half the cost of remodeling my parents’ two-bedroom in-law unit in Hawaii.

Yes, $16,000 is better than losing $16,000 in a bear market, but it’s a bull market now so I expect to profit. However, the money doesn’t change my lifestyle as I strive to build more passive income. If I reinvested it in a 4% yielding asset, my annual gross passive income would rise by just $640. A couple of traffic tickets and the passive income is wiped out.

In addition, unlike real estate, the funny money gains in the stock market can evaporate quickly given how rich valuations are.

As an active investor with part of my capital, I also take losses. For example, I’m currently down about $6,000 from dollar-cost averaging into UnitedHealthcare since the $300/share level. What a disappointment as the S&P 500 marches higher.

The Courage to Take Big Risks Is Elusive

Looking back, I should have invested far more in Meta during that window or used options for leverage. But I wasn’t willing to take such a concentrated bet on a single stock that was plummeting. Government policy was highly uncertain and stocks were richly valued. As growth stocks ride the escalator up, they tend to take the elevator down.

Fear of loss naturally throttles one from making outsized returns. At least it does for me.

That’s the dilemma: to get really rich, you need to take outsized risks. Without them, it’s tough to outperform the crowd who mainly invest in index funds. But most of us are simply too afraid to take outsized risks because we fear loss more than we appreciate gain.

Take the MBA student from a top 25 school. They build connections, analyze companies through case studies, and learn how to build a business. But what do most do instead? They take well-paying jobs in finance, tech, or consulting.

After two years of lost income and $150,000 in tuition, playing it safe makes sense. That’s what I did, returning to Credit Suisse once my MBA was done. It then took another six years for me to finally take the leap of faith in 2012 and focus more on Financial Samurai.

My Biggest Single Investment Slug

In 1Q 2025, with markets so volatile I wasn’t about to put much more than $50,000 into a single stock. Instead, I mostly bought $2,000 – $10,000 tranches of the S&P 500 as the index was declining.

Then, in 2Q, I made my largest single investment with the proceeds, a $100,000 allocation to the Innovation Fund. Because it’s diversified across at least 13 private growth companies, I didn’t see it as overly risky. It was more like investing $8,000 in each of the companies in the fund.

In my podcast with Fundrise CEO Ben Miller, I asked about the fund’s concentration risk, given OpenAI, Anthropic, and Databricks make up about 50% of its portfolio. Although I may have sounded concerned, the truth is, I want even more concentration for this bucket of money! They’re hyper-growth AI companies, and $100,000 in that space is a bet I’m comfortable with.

Not Going to Get Rich on $100,000 Either

Sadly, investing $100,000 is probably not going to improve my life either.

In retrospect, I should have also invested more into the Innovation Fund, as $100,000 was less than 7% of my home sale proceeds. With Anthropic now valued at $170 billion and OpenAI offering secondary shares at $500 billion, a larger position would have yielded more upside.

My target for venture is usually 10–20% of investable capital, which would have meant $150,000–$300,000 in this case. But somehow, I just decided on $100,000, probably because it sounded like a nice round number. I didn’t think things through, especially as uncertainty and fear abound.

This lack of consistency in investing is why the forced savings aspect of owning a home with a mortgage is such a powerful wealth builder. Even when you’re the most distracted or scared, you’ll stay pay down some principal every month.

Quick Calculation On A Potential $100,000 Return

If the fund delivers a 25% IRR over five years, $100,000 grows to about $305,000—just over 3X my money. Over ten years, it becomes roughly $931,000, or 9.3X. Those are impressive numbers, but at age 53, $305,000 wouldn’t move the needle much. Maybe I’d splurge on a Toyota Tundra in Honolulu, guilt-free, but that’s about it.

At 58, $931,000 could cover a full remodel of my parents’ old house. But after my last gut remodel, I swore I’d never do one again. It’s just too painful and time-consuming.

More likely, I’d put the proceeds toward buying a fully remodeled home in Honolulu. That said, I should already have enough for that once I sell my primary residence in San Francisco and use the tax-free exclusion benefit. So I’m not sure what the money will be used for, except to funnel into new investments.

I Want To Have A $500,000 Position

If I’m willing to save and invest ~$500,000 for each kid’s 529 plan, then I should be just as willing to put $500,000 into private AI companies that might make their college education obsolete.

Now, let’s dream for a moment: if I had invested $500,000 and somehow earned a 40% IRR for 10 years, that would grow to around $14.4 million. That’s truly life-changing money off a single bet.

With an extra $14.4 million, I could fly private, rent $100,000-a-month luxury vacation homes, buy a $200,000 family car, and donate a generous $5 million to help my kids get into college. How obscene! But that’s what the richest people do all the time.

The problem? Sustaining a 40% IRR is nearly impossible without catching lightning in a bottle with an early-stage startup—or three. The other issue is that investing 33% of my stable home-sale proceeds into venture capital is aggressive, especially when my target allocation is 20%.

For context, the S&P 500’s historical average return since 1926 is about 10%. Still… it’s nice to dream big even if most of us won’t really change our spending habits if we make life-changing money.

The Only Real Ways to Get Truly Rich Are:

• Start rich and invest heavily to get richer.
• Invest a large sum in an asset that massively outperforms over the long term.
• Build a successful business where you own a significant chunk of equity.
• Get lucky—by joining the right startup, climbing to the top of the ranks, or knowing the right people to help you get in on a great investment

Clearly, not everyone is born rich, has the skill to build a business, the courage to buy the dip, or can invest a large sum into a risky venture. And while luck is uncontrollable, you can take steps to improve your odds, like moving to San Francisco during the AI boom.

So what’s the solution to potentially make life-changing money as an investor? Consistently swing for the fences with a percentage of your capital.

Carve Out a Portion of Your Capital for High-Risk Bets

The best way I’ve found to overcome the fear of high-risk investing is to ring-fence a small portion of capital and consistently put it into aggressive opportunities. I recommend a 10% to 20% allocation.

Take 10% of your investable cash flow, savings, or financial windfalls and put it toward the highest-risk, highest-reward assets you can stomach. If you lose it all, you’ve only lost 10%. But hit a 10-bagger or greater, and it moves the needle on your overall wealth.

As wealth grows, the instinct is to play defense and protect capital. After all, you don’t want to be forced back into the “salt mines” during the next downturn. But resist going too conservative with everything. Keep that 10% – 20% high-risk bucket alive.

Some sample allocations:

• Age 25, $50,000 investable: $5,000 speculative, $45,000 S&P 500
• Age 30, $200,000 investable: $20,000 speculative, $170,000 S&P 500, $10,000 liquid
• Age 35, $500,000 investable: $50,000 speculative, $250,000 S&P 500, $200,000 real estate, $50,000 liquid
• Age 40–60, $1,000,000 investable: $100,000 speculative, $600,000 S&P 500, $250,000 real estate, $50,000 liquid

Or take a percentage of monthly savings. If you save $5,000 a month, put $500 into speculative bets. Over a year, that’s $6,000. As your income and savings grow, so do the bets.

Practice Letting Go of High-Risk Capital

I already treat the money I contributed to my kids’ custodial accounts, Roth IRAs, and 529 plans as no longer mine. That mindset makes it easier to stomach downturns and stay the course. In fact, whenever the stock market drops, I get defiant and aggressively invest in my children’s accounts to help them build wealth.

Apply the same strategy to high-risk investments. Once you commit the money, mentally write it off. It’s easier to do when it’s just 10–20% of your capital and you still have the other 80–90% safe. This detachment makes it easier to make bets, hold them longer, and avoid panic selling.

Stay Consistent With Your Aggressive Investing

The formula for building serious wealth is simple but uncomfortable: invest large sums in concentrated positions, earn high returns, and repeat consistently. The real challenge is maintaining the discipline to keep funding that high-risk bucket year after year.

Automate contributions to your brokerage account, open-ended venture funds, and other investments. Over time, that steady drip adds up.

Readers, are you suffering from greed and dissatisfaction in this bull market? How do you ensure you’re consistently investing and hunting for potential multi-bagger opportunities? And if you’re not chasing life-changing money, how did you reach the point of being truly content with what you have? What guardrails do you use to avoid overextending in risky bets?

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A fresh set of eyes could uncover hidden fees, inefficient allocations, or opportunities to optimize—giving you greater clarity and confidence in your financial plan.

The statement is provided to you by Financial Samurai (“Promoter”) who has entered into a written referral agreement with Empower Advisory Group, LLC (“EAG”). Click here to learn more.

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Here’s the thing about personal finance advice: what works when you have $10,000 won’t work when you have $1 million. 

Yet most financial guidance treats everyone the same, whether you’re scraping together a $1,000 emergency fund or deciding whether to upgrade to business class.

Nick Maggiulli, author of “The Wealth Ladder,” joins us to break down how money strategies must evolve as your net worth grows. He’s mapped out 6 distinct wealth levels, each requiring different approaches to spending, saving and investing.

The levels start simple. 

Level 1 covers anyone with less than $10,000 in net worth — that’s 20 percent of American households. Here, bad luck gets amplified. A flat tire that costs $200 could spiral into job loss and debt if you can’t afford the repair.

Level 2 spans $10,000 to $100,000 in net worth. Maggiulli calls this “grocery freedom” — you can splurge on the nicer eggs without checking your bank balance. 

Level 3, from $100,000 to $1 million, brings “restaurant freedom.” 

Level 4, the $1 million to $10 million range, unlocks “travel freedom.”

Getting beyond Level 4 — into the $10 million-plus territory — requires business ownership or extreme patience. Maggiulli calculates that even saving $100,000 annually after hitting $1 million takes 23 years to reach $10 million, assuming 5 percent annual returns.

The data shows income matters more than frugality, especially in the early levels. The median household income in Level 1 is $32,000, but in Level 4 it’s $197,000, and in Level 6 it reaches $4.3 million.

We discuss why homeownership dominates wealth in Levels 2 and 3, how investment assets become crucial in higher levels, and why many people in Level 4 choose “Coast FIRE” over the grinding path to Level 5.

Resources mentioned:

The Wealth Ladder Book

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I love index funds and ETFs for their low-cost nature and simplicity of ownership. However, if you want to build generational wealth before traditional retirement age, consider looking beyond just index funds and index ETFs.

Since starting Financial Samurai in 2009, I’ve written extensively about investment strategies, financial independence, and retiring earlier to do what you want.

Based on years of reader surveys and conversations, it’s clear this community is one of the wealthiest on the web. A significant portion of you have already surpassed the $1 million net worth mark, while many more are closing in. In comparison, the median household net worth in America is only about $200,000.

With this in mind, it’s time to acknowledge a simple truth: the richest people in the world don’t rely mainly on index funds and ETFs to build their fortunes. Instead, many use index funds primarily to preserve their wealth, not create it.

Why Index Funds Alone Aren’t Enough

Most of us love index funds for their simplicity, low fees, and historical returns. But if your goal is to achieve financial freedom before the traditional retirement age, or to reach a top 1% net worth, index funds alone probably won’t get you there before age 60.

To get rich sooner, you need either:

• A massive amount of income to consistently invest large sums into index funds, or
• To take more calculated risks in other asset classes

Simply put, index fund investing is best for capital preservation and slower, steadier growth. A potential 10% annual return is fantastic. But at that rate, your investment only doubles every 7.2 years. Hey, I’ll take it, and so would many of you. However, it’s simply not good enough for the richest people.

Your life is finite. Most of us only start working full time after age 18. Forty years might sound like a long time to build wealth, but trust me—it flies by. I’m 48 now, and I graduated college in 1999 at age 22. The past 26 years have zoomed past.

If I had only invested in index funds, I wouldn’t have been able to leave the workforce for good in 2012 at age 34. Don’t forget, there was a “lost decade” for both the S&P 500 and NASDAQ from 2000 to 2012. Relying solely on index funds would have delayed my financial freedom indefinitely.

Besides getting lucky, the only way to achieve financial freedom sooner than average is to take above-average risks by investing beyond index funds and ETFs. Looking back, I wish I had taken more risks.

The Average Rich Versus the Richest Rich

First off, if you’re rich—or feel rich—congratulations! You’re ahead of at least 90% of the world, which also means you’ve bought yourself more freedom than most. Although it’s tough, try not to let someone richer than your already-rich self get you down. The key is appreciating what you have.

That said, it’s important to distinguish between two types of rich, because they’re not the same. The personal finance community mostly focuses on the first kind—The Average Rich—partly because it’s easier to explain and attain, and partly because many financial creators don’t have finance backgrounds.

In fact, the lack of financial depth in the space was one of the main reasons I launched Financial Samurai in 2009. Back then, nearly every blogger only emphasized budgeting and saving their way to wealth. That’s solid advice for most people, however, I wanted to go beyond that. You can only do so much saving your way to wealth.

I wanted to escape the finance industry altogether and retire early. That’s when I started writing about FIRE for the modern worker. With the internet making it possible to earn and live in non-traditional ways, I saw an exciting opportunity to pursue a different lifestyle.

Ironically, it was 2009—during the global financial crisis—when the digital nomad trend really took off, as millions found themselves out of traditional jobs and searching for something new.

Now let’s definite the two types of rich people.

1. The Average Rich

This group includes individuals or households with investable assets between $1,000,000 and $5 million. They tend to be highly educated, dual-income professionals who max out their 401(k)s, invest in low-cost index funds, and own their primary residence.

Most of their investments are in public markets and real estate, and they typically feel financially stable but not truly rich. Some would describe this as the mass affluent class. Many started off or are HENRYs (High Earners Not Rich Yet), but then often slow down their pace of wealth accumulation once kids arrive.

You might think of the everyday rich person as someone with grey hair, a portly figure, and retiring around the more traditional age of 60–65. They’ve got a median-priced home and might fly Economy Plus if they are feeling particularly spendy. They aren’t eating at Michelin-star restaurants, except maybe for a rare special occasion, like a 30-year wedding anniversary.

The Average Rich know they’re wealthier than most, yet they still don’t feel rich. Instead, they feel closer to the middle class than to the truly wealthy.

2. The Richest Rich

These are the people with $10 million-plus in investable assets, often owning second and third vacation homes, flying first class, and making high six-figure or seven-figure investments. Their kids mostly go to private grade school, which they can comfortably afford without financial aid. They also freely donate significant sums of money regularly.

Instead of investing mostly in index funds to get rich, their money came from:

They might own index funds, but it wasn’t a driver for them to get rich. Instead, index funds are a place where they park their money, almost like a cash plus, until they find a potentially better opportunity.

20% plus or minus moves in the S&P 500 don’t phase them as the Richest Rich often experience much more volatile swings. In fact, the Richest Rich often have investments go to zero as they continuously fortune hunt for the next multi-bagger investment. So often, index funds and ETFs are a small percentage of their overall net worth (<20%).

The Richest Rich Tend To Be Seen as Eccentric

The Richest Rich are often viewed as eccentric, agitators, or downright weird by the general public. That’s because they tend to reject the status quo and do things their own way. As a result, they attract critics—sometimes lots of them—simply for not following societal norms.

They refuse to spend their entire careers working for someone else to make that person rich or organization rich. They aren’t spending a fortune to get an MBA only to work for someone else. Instead, they bet heavily on themselves through entrepreneurship and alternative investments. Index funds and ETFs? Boring. Too slow. These folks would rather build something from scratch or swing for the fences.

Many of the Richest Rich also go all-in on optimizing their bodies and minds. They train hard, eat clean, and track every metric they can—often in the hopes of staying fit enough to extend their grind and lifespan.

To most, they come across as quirky or intense. But from their perspective, it’s the rest of society that’s asleep, trapped in a system they’ve managed to escape.

Real-World Net Worth Breakdowns

Here are a few anonymized examples of the Richest Rich:

Example 1 – $30 Million Net Worth

• 30% ownership in business equity they started
• 30% real estate
• 20% public equities (65% individual stocks, 35% S&P 500 index funds)
• 15% venture capital funds
• 5% muni, Treasury bonds, cash

Example 2 – $300 Million Net Worth

• 40% ownership in business equity they started
• 20% real estate
• 20% in other private companies
• 15% stocks (half in index funds)
• 5% cash and bonds

Example 3 – $600 Million Net Worth

• 5% ownership in a massive private money management firm as one of their senior execs
• 15% real estate
• 50% in other private companies
• 10% stocks (half in index funds)
• 20% cash & bonds (~$180 million at 4% yields a whopping $6.4 million risk-free a year today)

None of them got rich by only investing in index funds. Instead, index funds are simply a low-risk asset class to them where they can park money.

Net Worth Breakdown By Levels Of Wealth

Here’s a good net worth breakdown visualization by net worth levels. The data is from the Federal Reserve Board Of Consumer Finances, which comes out every three years.

Let’s assume the mass affluent represented in the chart below is at the $1 million net worth level. Roughly 25% of the mass affluent’s net worth is in their primary residence, 15% is in retirement accounts, 10% is in real estate investments, and 12% is in business interests.

In comparison, for the Richest Rich ($10M+), at least 30% of their net worth is in business interests. Intuitively, we know that entrepreneurs dominate the wealthiest people in the world. Therefore, if you want to be truly rich, take more entrepreneurial risks and investment risks.

Time + Greater Risk Than Average = Greater Than Average Wealth

Building meaningful wealth often comes down to how much risk you take—and how early you take it. When you’re young, lean into bigger bets. Invest in yourself. Build something. Own something beyond just index funds. If you lose money, you’ve still got time to earn it back—and then some.

If I could rewind the clock, I would’ve taken more calculated risks in my 20s and early 30s. Rather than playing it relatively safe, I would’ve gone bigger on business opportunities and leveraged more into real estate. I also would’ve made larger, concentrated bets on tech giants like Google, Apple, Tesla, and Netflix. The CEO of Netflix, Reed Hastings, spoke at my MBA graduation ceremony in 2006 when the stock was only $10 a share.

In addition, I would have started Financial Samurai in 2006, when I graduated business school and came up with the idea. Instead, I waited three years until a global financial crisis forced me to stop being lazy.

But honestly, I was too chicken poop to invest more than $25,000 in any one name—even when I had the capital to put $100,000 in each before 2012. The scars from the dot-com bust and the global financial crisis made me hesitant, especially after watching so many wealthier colleagues get crushed.

Still, I still ended up saving over 50% of my income for 13 years and investing 90% of the money in risk assets, most of which was not in index funds. I’ve had some spectacular blowups, but I’ve also had some terrific wins that created a step function up in wealth.

Don’t Be Too Easily Satisfied With What You Have

One of the keys to going from rich to really rich is pushing beyond your financial comfort zone—especially while you’re still young enough to bounce back from mistakes.

You’ve got to be a little greedier than the average person, because let’s face it: nobody needs tens or hundreds of millions—let alone billions—to survive or be happy. But if you’re aiming for that next level of wealth, you’re going to have to want it more and take calculated risks others won’t.

I was satisfied with a $3 million net worth back in 2012, so I stopped trying to maximize my investment returns. Big mistake. The economy boomed for the next 10 years, and I missed out on greater upside.

Then in 2025, after another short-term 20% downturn, I shifted my taxable portfolio closer to a 60/40 asset allocation. The temptation of earning 4%+ risk-free passive income was too strong. From a pure returns perspective, that’ll probably turn out to be another mistake long term.

To balance things out, I’ve deployed a dumbbell strategy—anchoring with Treasury bills and bonds on one end, while taking bolder swings in private AI companies on the other. And you know what? It feels great. I get to sleep well at night knowing I’ve got protection on the downside, while still participating in the upside if the next big thing takes off.

Final Thought On Investing In Index Funds And ETFs

Index funds are great. I own multiple seven figures worth of them. You should too. But they are best suited for those on the traditional retirement track or those looking to preserve wealth.

If you want to achieve financial freedom faster or join the ranks of the Richest Rich, you’ll need to invest beyond index funds. Build something. Take risks. Own more of your future.

That’s how the richest people do it.

Free Financial Analysis Offer From Empower

If you have over $100,000 in investable assets—whether in savings, taxable accounts, 401(k)s, or IRAs—you can get a free financial check-up from an Empower financial professional by signing up here. It’s a no-obligation way to have a seasoned expert, who builds and analyzes portfolios for a living, review your finances. 

A fresh set of eyes could uncover hidden fees, inefficient allocations, or opportunities to optimize—giving you greater clarity and confidence in your financial plan. The richest people in the world get regularly financial checkups.

The statement is provided to you by Financial Samurai (“Promoter”) who has entered into a written referral agreement with Empower Advisory Group, LLC (“EAG”). Click here to learn more.

Diversify Your Retirement Investments

Stocks and bonds are classic staples for retirement investing. However, I also suggest diversifying into real estate—an investment that combines the income stability of bonds with greater upside potential.

Consider Fundrise, a platform that allows you to 100% passively invest in residential and industrial real estate. With over $3 billion in private real estate assets under management, Fundrise focuses on properties in the Sunbelt region, where valuations are lower, and yields tend to be higher. As the Federal Reserve embarks on a multi-year interest rate cut cycle, real estate demand is poised to grow in the coming years.

In addition, you can invest in Fundrise Venture if you want exposure to private AI companies like OpenAI, Anthropic, Anduril, and Databricks. AI is set to revolutionize the labor market, eliminate jobs, and significantly boost productivity. We’re still in the early stages of the AI revolution, and I want to ensure I have enough exposure—not just for myself, but for my children’s future as well.

I’ve personally invested over $400,000 with Fundrise, and they’ve been a trusted partner and long-time sponsor of Financial Samurai. With a $10 investment minimum, diversifying your portfolio has never been easier.

To increase your chances of achieving financial independence, join 60,000+ readers and subscribe to my free Financial Samurai newsletter here. Financial Samurai began in 2009 and is the leading independently-owned personal finance site today. Everything is written based off firsthand experience. 

JL Collins doesn’t know what the efficient frontier is. The author of “The Simple Path to Wealth” — the guy synonymous with VTSAX and chill — admits this right off the bat when we challenge him with advanced investing concepts.

Collins joins us for Part 1 of a two-part series where we skip the basics and dive straight into the complex stuff. We grill him on whether his simple approach actually beats more sophisticated strategies, and his answer might surprise you.

He concedes that Paul Merriman’s four-fund portfolio probably outperforms his one-fund approach mathematically. But Collins argues that execution trumps optimization every time. Most people can’t stick with complex strategies for 20 years, especially when those strategies require selling winners to buy losers – something that goes against human nature.

Collins prioritizes what works in real life over what looks good on paper. He calls index funds “self-cleansing” because they automatically rotate out failing companies and sectors while rotating in the new winners. You don’t need to predict which companies will dominate next – you’ll own whatever rises to the top.

The episode covers his thoughts on VTSAX versus VTI, international diversification, and why he’d rather put Tabasco than Cholula on his eggs — his quirky way of explaining personal preferences in nearly identical investment options.

Resources Mentioned
Episode 31, Interview in 2016 with JL Collins

Timestamps:

Note: Timestamps will vary on individual listening devices based on dynamic advertising run times. The provided timestamps are approximate and may be several minutes off due to changing ad lengths.

(0:00) Intro

(1:00) JL admits he doesn’t know the efficient frontier

(2:00) Simple vs optimal but complex paths

(4:30) Paul Merriman’s four-fund portfolio vs VTSAX

(6:00) JL concedes Merriman’s approach is mathematically superior

(7:30) Risk parity investing discussion

(8:30) Sequence of returns risk and retirement bonds

(12:30) JL’s birthday email from Jack Bogle

(15:00) VTSAX vs VTI 

(17:00) Total stock market funds across brokerages

(23:30) Mag 7 concentration risk

(27:00) Sears story and self-cleansing index funds

(30:30) International diversification and US dominance

(39:00) World funds versus separate international

(45:00) When to shift to world fund

(47:30) Bond allocation timing strategies

(48:30) Target date funds 

(50:30) One-fund vs two-fund approach

(52:00) Historical diversification and Nifty 50

 

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Austin and his wife are worried about moving to a single-income household while supporting two kids. Should they free up cash flow by paying off a car loan, or tighten up and stay the course?

Paul has been retired for seven years, but still can’t shake his anxiety about not having enough. Is there a good way to know when he’s finally escaped the dreaded sequence of returns risk?

Jonathan wants to build up his taxable brokerage account, but he’s having trouble letting go of the tax benefits of a Roth IRA. How does he get past his psychological hurdles?

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.

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Austin asks (at 01:45 minutes):    We’re at a big transition point—our second child just arrived, and we’re moving to a single income. What are your thoughts on our plan to free up some much-needed cash flow as we make this move?

I’m 31, my wife is 29, and we have two kids. We’ll earn $150,000 plus a $20,000 bonus on our single income. We have $52,000 in emergency and sinking funds, and our monthly spending is $7,000.

Our investments include $500,000 in retirement accounts, $150,000 in a taxable brokerage account, and $12,000 split between two 529s.

Our home is worth between $560,000 and $575,000. We owe $390,000 on a 5.07 percent ARM, which won’t adjust until late 2029. We also have $20,000 in federal student loans at 4 percent and a $16,000 car loan at 5.97 percent, with a $570 monthly payment.

We’re expecting a $5,000 windfall from a vacation payout and some bonuses, which leads to my question: Should we put that toward paying off the car loan to improve monthly cash flow? That $570/month would go a long way during this transition.

The complication is that we have another car. It’s fully paid off and running strong at 260,000 miles. I love this car and hope it makes it to 300,000, but realistically, we’ll need to replace it in the not-too-distant future.

We’d likely spend $18,000 to $27,000 on the next vehicle. So, should we keep managing the current car loan while saving for the next car? Or even dip into taxable investments to pay this one off?

The thought of selling from our taxable brokerage is the part that stings the most. But it feels like we wouldn’t get another used car loan below 6 percent in today’s market. Would it be smarter to free up the $570 now and start rebuilding savings for the next car purchase, or just ride this out?

Paul asks (at 25:19 minutes):      We often talk about sequence of returns risk, but how do you know when you’ve escaped it? I’m 59, and my wife is 52. I’ll turn 59½ this July and get full access to my retirement accounts without penalty.

We have $3.3 million across our accounts: my traditional IRA has $1.6 million, my Roth IRA has $700,000, my wife’s Roth IRA holds $384,000, and her SEP IRA has $480,000. We also have $54,000 in a brokerage account, $61,000 in cash, and we own our home outright.

I left work in 2018 at age 52, when we had $1.7 million between investments and cash. My wife no longer works either. Our annual spending is $70,000.

So, how do we know when we’re safely past the point of worrying about sequence of returns risk? When can we just exhale and know that we’ll be okay?

Jonathan asks (at 41:34 minutes): How do I decide between making the more mathematically sound decision and the more psychologically comfortable one?

I’ve contributed enough to my Roth and pre-tax retirement accounts that, based on growth projections, I won’t need to add anything else. This frees me up to invest $7,000 a year for at least the next decade, with the goal of accessing that money before 59½.

I have two main options: Contribute to a Roth IRA and later withdraw the contributions tax-free, or invest in a taxable brokerage account. From a pure tax perspective, the Roth is better.

But psychologically, I know I’ll struggle with pulling money out of it. Even if I’m just withdrawing contributions, it just feels wrong to touch it.

So, do I go the taxable route, accept the slightly higher tax bill, and avoid the mental hurdle? Or do I use the Roth and reframe how I think about those dollars? How should I approach this tradeoff between psychological comfort and tax efficiency?

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