Bad Advice

Here is some terrible advice to live by.

Contra Advice

Before I offer it, I should mention that I generally recoil from giving advice. I am happy to mention what I think about something or what I am doing, but like to end with my one constant recommendation which is to think for yourself.

Sound Smart or Make Sense?

Here is the basic problem with advice as I see it. When listening to others, I first make a judgement regarding whether they are honest (because everything other than the dishonesty tends to be great when you hear from liars — they beat quarters, outperform, and catch exceedingly impressive trout. The only problem is that it is untrue). Then, I have to decide if they are smart (I like to throw myself deep into the territory of having specialized expertise or relying on specialized expertise of others). Once I’ve narrowed my search for help down to honest, smart people, I am left with the most problematic of issues: whether someone is trying to sound smart or if they are trying to actually make sense. I try to do and write about what makes sense regardless of whether or not it sounds smart. In a pari-mutuel game such as investing, these are often polar opposites.

Bad Advice/Good Ideas

Here are some of the things that I do that have worked out well that I would never advise. They would probably frequently end up badly, but seem to work fine in my experience…

Living Paycheck to Paycheck

This has always been a cliché for living down in the dumps, but it does not have to be. I try to live paycheck to paycheck. In my experience, it is a worthy discipline to reinvest 100% of bonuses and live on a modest salary. That salary covers my small living expenses and that of my family as well as our philanthropy. The fact that I run through it every few weeks has always felt more like a mark of frugality than a mark of extravagance.

Putting it All on Plastic

Financially prudent types often give credit cards a lot of criticism. I love them. I try to get as close as possible to 100% of my spending on cards. The first big advantage is to be able to easily track all spending each year by downloading the data for analysis. Additionally, the cash back rewards can save you several percent on spending. The obvious caveats are to pay off the card each month and to never buy anything because of the card’s rewards. The only exception is if you manufacture spending in order to get the rewards for buying cash equivalents.

ARM Mortgage

People who are careful with their money, especially older people, often celebrate paying off their mortgage. I wouldn’t. If they have one at all, it is typically a 30-year fixed loan. I like adjustable rate mortgages because the rate is so low and it is tax-advantaged. On an after tax basis, it is virtually free money that can free up case for other purposes. If rates spike after five years, then one could just pay off the loan.

Gambling Freebies

My interest in gambling is low and my tolerance for being in a casino is close to zero, but I cannot stay away from an occasionally positive expected value. While they are not too scalable, casinos and other gambling sites often offer up freebies to encourage people to get addicted. I take whatever comped benefits that I can get, knowing full well that I dislike the atmosphere too much to get addicted.

Marriage & Kids

Given the failure rate for both, taking on either is an oversized commitment. If anyone is even close to the line on either decision, I do not recommend it. That being said, I spend time out of the office mostly with them and it makes me happy. They have been my biggest and best bet.