Money in College, Investing Strategy, and Phony Savings Rates — Cruising Around (August 20, 2019)

The Cruising Around “best of” series

There is a lot of insightful personal finance content online today. Cruising Around is a series that highlights some of the best material being written. Keeping in line with the Sitting Poolside interviews leisurely theme, each Cruising Around post will take you to the internet’s best destinations. Read on to enjoy each excursion!

The itinerary

  • Create a multi-factor investing strategy
  • Realty check: is financial independence by 40 on $40K possible?
  • How to use and save money in college
  • How to increase your savings rate
    • This one is a bit tongue-in-cheek. If you spend a lot of time on personal finance blogs, you’ll get a kick out of it.

Create a multi-factor investing strategy

Have you considered multi-factor investing? I will be honest, this is not something that I knew a lot about, and it’s not something that I’m currently using personally. But, it’s a fascinating concept. If you’re interested in the details of stock market investing, you will find this series by Kyle from Incremental Returns to be interesting.

The idea is that, in theory, you can reduce volatility and possibly increase your long-term returns by choosing investments that meet 5 criteria. Here’s how Kyle describes them:

Value – Stocks with low prices relative to their earnings, book value, cash flow, etc tend to outperform stocks with high prices relative to those same metrics.

Size – Stocks of very small companies tend to outperform stocks of very large companies over time.

Momentum – Stocks that have performed well recently tend to continue performing well in the short term, and stocks that have performed poorly tend to continue performing poorly.

Quality – Stocks of companies with strong profitability, that are growing, and are well managed tend to outperform the stocks of companies that lack one or more of those characteristics.

Beta – Beta is simply the risk and return associated with owning the entire stock market. It is what you earn when you own a total stock market index fund.

This approach reminds me a bit of Micah McDonald’s Deep Value ETF strategy.

As Kyle himself notes, past performance does not guarantee future results.

Personally, I’m a fan of what I view as lethal simplicity of simple, long-term, diversified ETF investing. But I find Micah and Kyle’s approaches to be thoughtful and engaging. I recommend that you, the reader, do your own independent research and meet with a fiduciary financial planner to discuss the best investing approach to meet your individual financial goals.

Is financial independence by 40 possible?

My friend Cashflow Cop recently wrote a post about how to retire by age 40 on $40k per year (it originally appeared here). It’s a comprehensive breakdown of FIRE (Financial Independence, Retire Early) principles and how you can walk through the math to get there. I thought this post had a ton of value, but Cashflow Cop received pushback from some readers.

Is this really feasible? What about student loans? Was Cashflow Cop too optimistic?

In this follow up article, he addresses these concerns in detail.

The reality is that the vast majority of people cannot reach financial independence by 40.  This is even before considering whether or not someone has the will power, patience or know why they want it in the first place.

But, Cashflow Cop concludes, it doesn’t matter if the odds are stacked against you. You can still improve your life by being intentional with your finances. Even if you don’t retire by 40.

If full early retirement doesn’t not sound attainable or interesting to you, you can also consider early semi-retirement. If you’d like to learn more about Cashflow Cop, check out his Sitting Poolside interview here.

How to use and save money in college

Cashflow Cop’s financial independence article included a discussion of student loans and their impact. The cost of college and related money decisions can have a lasting impact on former students.

I read two insightful articles written for college students to help jump-start their financial adult lives. This is something that strikes a chord with me — I felt disappointed in college at my lack of financial education, despite the fact that I was a business major. This lack of practical knowledge was one of the main motivators in my own interest in personal finance and, later, in starting this blog.

Jeff from The Kickass Entrepreneur wrote a post in the form of a message to his college-age daughter. In the post, Jeff outlines important financial topics that young people need to become familiar with. Jeff also recommends books to address different financial education stages, to help equip his daughter (and the reader).

I love this concept. We can debate whether it should be this way, but the fact is that the burden of providing a financial education is on the individual and on the family. Jeff provides an opportunity for his daughter and other college-age readers to get a solid foundation in financial literacy.

If you’re interested in further personal finance book recommendations, you can read my recommendations page here.

Are you a college student looking for additional practical ways to save? Clint Proctor from The Wallet Wise Guy wrote a post focusing on 40 easy ways to save money in college. I like this post a lot because these are things you can go do today. All 40 tips from Clint are extremely practical including ways to save money on tuition, food, housing, and travel.

If you’re a parent saving for your kid’s future college costs, consider these nine options for funding education.

Increase your savings rate with math

This last featured article for today is a fun one.

Seemingly, every financial writer has their own savings rate calculation that they recommend. Should you calculate it based off your gross income or your net income? What even qualifies as saving — does saving for a short-term goal count? Does paying off debt count?

In my free early semi-retirement workbook, I give my own savings rate recommendation. So I’m guilty of this too!

This post that caught my attention is called How to Make Your Savings Rate Explode with Math, from The Poor Swiss. In the article, Mr. The Poor Swiss talks about a variety of different savings rate calculations you can use. In fact, you can make your savings rate seem as high as you’d like by just changing some numbers around!

This is, of course, not actually very helpful. If anything, this is a cutting commentary about the personal finance blogging community. And it’s a reminder to avoid comparison with other people while you’re on your financial journey. Their savings rate might be twice as much as yours, but you are probably not even using the same calculations to get to those numbers!

I thought this post from The Poor Swiss was a fun one. We bloggers need to not take ourselves too seriously. And to you, the reader, the conclusion is the same one that Cashflow Cop came to — just be intentional with your finances. It doesn’t matter if you hit a certain savings rate or if you become financially independent by a specific age. The real win is taking control of your own life so that you can live out your values and work towards your family’s goals.

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