Todd Tresidder graduated from the University of California with a BA in Economics and has a passion for creating successful businesses. He’s a serial entrepreneur since childhood like I am, and he went on to build his own wealth as a hedge fund investment manager before retiring at 35. He grew his net worth from less than zero at 23 to the point of financial independence just twelve years later. It’s no surprise I wanted to have him on the podcast and how he’s maintained his wealth is by remaining an active investor and using a risk management system for investing. He’s also the author of several books like How Much Money Do I Need to Retire? We all have that question pending in our head.
I’m always interested to find out what that story of origin was. Since you talk about being an entrepreneur since childhood, can you take us back to one of your first entrepreneurial ventures as a kid?
I had my first paper route as a kid. Then I realized that if I’ve got a cool motorcycle, even as a little kid I could ride around the neighborhoods and deliver more papers and make more money and have fun. That was that first thing in finding efficiency and doing it faster, better, and cheaper. I made pretty good money in paper. I bought my first car at sixteen and then had a sailboat refinishing business, had a pool supply business, on and on and on. They just weren’t on top of the other, all the way through college and into adulthood.
I was also someone who had a paper route and I don’t know about you. I grew up in the Midwest, so I did deliver the papers in all kinds of weather including the sub-zero snow. What I think that taught me, and I’d like to see you learned some lessons is I did knock on these doors door to door. “Do you want to subscribe to the paper?” I had to sell it. Then I had to be the one to deliver it and then I had to go at the end of the month to collect the money. It was a full stop experience of what it takes to be an entrepreneur. Did you have similar life lessons from being a paperboy?
Absolutely, how do you grow your route? I would get extra papers and I would just start tossing them on people’s doorsteps and then the ballsy little kid would show up and try to collect for it when they never asked for it. I was such a crazy little kid. I didn’t know that that was unethical. People were nice. They go, “I’d never asked for it, but here, I’ll pay for it this month, but you don’t need to continue.” Then some people would continue. They’d like the paper and they go, “That was nice of you to start me, I’ll keep going.” It was funny how you build a business. I think even more so, John, it teaches discipline. Getting up early in the morning before school every day and you have to go deliver those papers. You run the business and you have to run your life in the meantime. I think there’s a beingness in that that transfers over in your professional life that is just powerful.
Let’s double click on the discipline because obviously you made a decision at a young age that you were going to be financially independent by 35. How much discipline did that take and what specific disciplines did it take?
Not that much, actually. I hate to disappoint you on that. Because what happened was I had the insight that if I want to be financially independent, I had become a master investor and so I skipped all the traditional routes. Most people, if they’re interested in finance and investing, they would go and become a broker or a financial adviser. I skipped that whole thing. I went straight to the hedge fund business, which is the rocket science of investing. I started developing quantitative risk management system and statistical risk management systems straight out of college. I was programming my own stuff. I had to build my own databases. I’m 57, so this is back in the 1980’s. It was very early on in computers. IBM came out with his first PC, Apples were still being made in a garage with Wozniak and Jobs. It was very early on. There were no databases for that you could even get a stock date. I had to hand key punch all my data in order to develop the methods. We’re talking early pioneer here.
What I learned was I had the insight that I had to become a master investor. I developed that skill and then we grew the business rapidly because we actually had it right. We knew what we were doing. We grew that business rapidly. My income grew tremendously straight out of college. As a result, I had a large income, but I didn’t spend much because I started college lifestyle days. I lived on a tiny fraction of what I made, socked away the rest. I never had to discipline myself. I could spend pretty much what I wanted and achieve financial independence rather rapidly.
For someone who doesn’t have your skill set about algorithms and math, do you have any suggestions on what they should do if they’re working for someone else or if they’re starting their own company and money’s tight, they don’t say like, “I’m putting all my money into my company. I’m not saving anything,” which is a story I hear a lot from entrepreneurs.
The thing about being an entrepreneur that’s dangerous is there’s a real tendency to put all your money back into your business. You do have to pay yourself and you have to carve money out of the business and get it over to your personal net worth. That way all your assets are tied up in one location. If something happens to you, happens unfavorable to the business, you still have a nest egg to show for the years that you built that business. You have to start separating out the equity and start transferring stuff over the personal side and keep a separation between it.
It’s almost like paying yourself first.
I try to avoid the clichés. That would be one way of saying it. You can also just set up retirement plans, government-funded retirement plans. The nice thing with those retirement plans is they have a penalty if you break into him and people would say, “That doesn’t sound very nice, Todd.” It actually is because it keeps you from using it. It creates kind of a little bit of a firewall around when you pay a penalty plus you pay tax to get into it. You look and say, “If I pull a buck out, I only get to keep fifty cents of it so what the good is that I may as well leave it in there.”
In your book about how we should plan our retirement, you talk about The 4% Rule. That’s not a cliché. How did you come up with that and what is it?
The 4% Rule was actually created by William Bengen long ago, a couple decades back in research on US data. The 4% Rule basically says that on a 30-year retirement, so it’s a 30-year time span, you can spend 4% of your portfolio fairly safely. It’s pretty safe. The failure rate is extremely tiny on US data. It does fail on international data, however. When we say 4%, what you do is you spend 4% first year and then you adjust it for inflation every year thereafter. The amount adjusts for inflation. The reciprocal of The 4% Rule is the Rule of 25. The Rule of 25 gets a little more intuitive and a little simpler. When it says is you have to have 25 times your annual spending in assets.
This is all for conventional passive index asset allocation portfolio. Is it accurate? No, it’s not. It’s not perfect, but it’s close enough that you can use it as an indicator or direction to point for how much you need to save. Another even more intuitive way to understand it is the rule of 300. The Rule of 25 comes from the reciprocal of The 4% Rule. 25, 4% equals 100. The rule of 300 is the same thing, but it breaks it down to a monthly amount. That’s what makes it intuitive. It’s 25 times twelve months, 300. What it is 300 times your monthly spending amount.
For every $1,000 you spend per month that you need to support your lifestyle, it requires $300,000 in a conventional asset allocation portfolio. Then if you want to be more conservative you could make it $400,000. It would be the Rule of 400. That would be a very conservative approximation. 300’s probably workable, 400 for conservative. We can go into how it varies. It varies with market valuation and interest rates, so in as we record this, you’d probably want to be on the conservative side and you’d probably want to push towards the 400 number.
In your book, you talk about your simple three rules that allowed you to retire at 35. Can you share with us what those are?
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John Livesay, aka, The Pitch Whisperer, is a keynote speaker to brands and shares lessons learned from his award-winning sales career at Conde Nast. His keynote talk '"Getting To Yes" shows companies' sales teams how to become irresistible so they are magnetic to their ideal clients. After John speaks, the sales team becomes revenue rockstars who form an emotional connection and a compelling brand story with clients. Listen to his TEDx talk: Be The Lifeguard of your own life which has over 1,000,000 views. He is also the Co-Founder CMO of QuantmRE which helps homeowners get cash for the equity in their home without taking on more debt.
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