Financial Wellness & You - The Basics

Hi there! You're probably reading this because we're already connected, and so you know about me, my expertise, and my interests. But if you've wandered here on your travels across the interwebs, here's a short introduction -- I'm a cybersecurity executive, a travel enthusiast, and a photographer; and I love to share lessons about my financial journey. I started educating myself in 1997, and while I've made many mistakes, I've also learned valuable lessons about simplicity, automation, and compounding that can help you with your financial journey. Hence, this newsletter.

In 2025, I'll be publishing monthly. I'm a fan of being direct and specific. Rarely will you find me saying, "It depends." I'll give you real data, I'll show you how I screwed up, and I'm happy to share my spreadsheets with you so you can use them in your own analysis.

And finally - please do drop me a message ([email protected]) if you'd like more details on a specific topic, want to speak privately, or have a topic you'd like me to write about.

Let's get going with the basics! And as a preview, here's the topic schedule for the first half of the year.

January - Asset classes, the risk/return tradeoff, the investing trinity, 3 things to do this month

February - Compounding & fees, automation, and money gears

March - Retirement & tax deferral - 401(K), Roth, and Health Savings Accounts

April - Tax avoidance and deferral

May - All the insurances (you'd be surprised how many there are!)

June - Deduction bunching etc.

Who Is This Newsletter For?

This newsletter is for anybody who wants to enhance their financial knowledge and make better decisions. We will start with concepts (this month) to give you a base of knowledge. We will quickly jump to specific and actionable advice starting in February.

Asset Classes

Knowing the basics of investment asset classes and how they behave is essential to our investing journey, so let's begin there. These next few paragraphs are a slog, but be patient and get through it. I promise there's a cool graph or two at the end.

Stocks - They're also called equities. When you buy stock, you're buying a small ownership stake in the company. So, yes, when you buy Apple stock, you own a piece (a little, teeny tiny piece, sure) of Apple, the company, and are entitled to share in its profits, vote for its future, and more.

Bonds - When you buy bonds, you're lending money to an entity in exchange for periodic interest payments and the return of your original investment.

Real estate - Typically, this is land, an apartment (flat), or a home. You can also buy stocks that invest in real estate, thus giving you some diversification.

Diversification - A strategy to reduce portfolio risk by spreading investments across different asset classes. Also known as "don't put all your eggs in one basket"ification.

Mutual fund - It's an asset class that pools together investments from many individuals to purchase stocks, bonds, or other assets. The key benefit is diversification.

Index fund - A mutual fund linked to a commonly used criteria. For example, an S&P 500 mutual fund is required to invest in the 500 largest public companies in America; a Nifty 50 index fund is required to invest in the 50 largest Indian public companies; a Dow Jones Industrial Average index fund is required to invest in the 30 stocks that make up the average; and a Nasdaq 100 index fund is required to invest in the 100 largest companies that trade on the Nasdaq stock exchange.

The Market - It's an arbitrary term generally linked to one of the indices mentioned above. In the US, it's usually the S&P 500; in the UK, it's the FTSE-100; in India, it's the Nifty 50; in France, it's the CAC 40. Always check the commenter's context is when they say "The market did X."

Commodities - These include agricultural products such as wheat and cattle, energy products such as oil and natural gas, and metals such as platinum, gold, silver, and aluminum. Investors will rarely dabble directly in these assets (except perhaps for gold).

Treasuries - These are essentially US federal government-issued bonds (see above) to raise money for government spending. They are backed by the full faith and credit of the US government. Other countries have treasury equivalents. Treasuries can be issued for short (< 1 year, called bills), medium (2-10 years, called notes), or long-term (20/30 years, called bonds) periods.

Certificate of Deposit (CD) or Fixed Deposit (FD) - A CD is an asset that holds a fixed amount of money for a set period, in exchange for interest paid by the bank. For example, if you had a $10,000 CD for 1 year paying 5%, you would receive $10,500 from the bank at the end of that year.

Savings Accounts - Users use these for short-term savings. Some interest is paid on the average daily balance of these accounts.

Checking Accounts?(also called Spending Accounts or Current Accounts) - Users use these for day-to-day spending. Interest, if paid, is minimal.

The Risk / Return Tradeoff

So, what's the point of all these asset classes? I should just invest in the one with the highest returns, right?

Not so fast. Assets have associated risks (for example, the company you're investing in could go bankrupt; or home prices could crash in the area you purchased). Assets also have expected returns to compensate you for this risk. See the chart below for where some asset classes fit (hey, thanks for the feedback, Kim Brunnert!).

Risk and return are directly correlated. You can take on more risk to get a higher expected return; or conversely, you can be more conservative to get a lower expected return. It's your risk appetite that drives your investment choices.

And now let's demonstrate how time, consistency, and compounding make magic happen.

The Investing Trinity

Time - I love the saying - "The best time to plant a tree was 20 years ago. The next best time is today."

Every moment that you are not investing is a moment forever lost. I tell everyone I know that it doesn't matter if you only have a small amount of money; don't wait for the right moment to invest. The right moment is today. Just BEGIN!

Not convinced? Check out the graph below that shows the impact of investing early versus investing later.

Consistency - This should need no explanation. Have you ever been in heavy traffic and seen the clown switching lanes every 10 seconds, but he ends up being behind you, who stuck to one lane, in the end? Investing is not for the adventurer. It's for the steady, consistent bloke who sets a strategy and implements it, day after day, month after month. If you start early and are consistent with your decisions, compounding will do the rest.

Compounding - Attributed to Einstein, although it's not clear if he ever said this, "Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it."

Over time, compounding is like a snowball rolling downhill. Here's a wonderful parable from my favorite board game, chess, to illustrate how it works. And the best thing? As long as you start early and stay consistent, compounding will automatically work for you.

See below for the amazing compounding effects of just one investment left alone for 20 years.

Three Things To Do In January

I know this was a heavy introductory newsletter, with more mundane concepts than "sexy" stuff (How can I double my wealth in a year? What's the hottest stock to own? Is Bitcoin worth buying now?). You don't learn to be an expert tennis player without first learning stroke mechanics. We will get there swiftly, but to whet your appetite, here are 3 things you should do in January:

1. Are you employed and does your company offer a retirement investment program with a company match? If so, contribute at least enough to receive the company match. Here's an example: If the company matches dollar for dollar on your first 5% of contributions, contribute at least 5%; with the company matching that 5%, you've just doubled your money. No debt payoff; no investment idea; nothing beats free money.
2. Do you think it's too late to reduce your tax bill for 2024? You're wrong! Here are a few ways you can still reduce your tax bill and/or make good decisions for 2024 (you just have to do them before the 2024 tax deadline, April 15, 2025): (1) You can make eligible IRA and Roth IRA contributions; (2) You can make eligible Health Savings Account (HSA) contributions; (3) Contribute to a Coverdell IRA.
3. Start monitoring the activity on your financial accounts, covering three broad areas:

1?? Transactions exceeding a certain amount.

2?? Transactions of a certain type.

3?? Transactions related to authentication & identity.

Here's an example. This is what I have set on my credit card accounts:

? Transaction amount exceeds $250

? International transaction

? Password updated

? User ID updated

? New card shipped

? Card not present

Send end the alerts to at least two different recipients (text and email, two different email addresses, that sort of thing).

AND ... that's a wrap for January. Be sure to check out my short-form posts if you're interested in more specific and actionable advice before we meet again in February!

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