Q4 Client Letter

Tyler Linsten Client Letters

The first month of the new year is almost over, but we can’t close the book on 2014 just yet. No year is complete without a Q4 Client Letter, so without further ado, here it is:

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What’s Your Number?

Tyler Linsten Personal Finance


No, not your phone number. Not your social security number. Not your license plate number. Not your portfolio’s value.

I want to know how much money you need every month, on average over the coming year, to fund your lifestyle. I know mine and you should know yours. Especially if you’re in or near retirement. You should be able to recite this number on demand.

This is your number. There are many like it, but this one is yours.

Tally up EVERYTHING you’ll spend money on in the coming year. The staples like housing, groceries, gas and insurance are the easy ones. Next, add the discretionary/random items like vacation, a non-zero amount for medical expenses, eating out and spending on entertainment.

Add in the gifts you plan to give little Jimmy for his birthday and Christmas. Love a morning latte at Starbucks, every morning? Add $150 per month. Don’t forget about the dog food. Or the hot dogs at the fair. Or the drinks on the fairway the golf course.  You get it – it’s everything you’ll buy or pay for. Most importantly, you have to make sure you’re not creating a list of what you’d like to spend – there’s no room for financial denial here. Finally, take the sum amount and divide by 12 – this is your number.

Your number will now be a reference point for many things. It’ll help you rein in unnecessary expenses if you happen to be closing in on your number towards the end of the month. Have a smartphone? There are many good options for budget tracking. Knowing your number will help you create a budget for retirement contributions if you’re still working or it will help you determine income needs during retirement while providing a better idea about your ability to tolerate financial risks.

(Not for the faint of heart, you can also take the Alder Cove Challenge: develop a sick obsession with lowering your number like yours truly and you’ll become a certified cheapskate)

It might be a painful process to tally up all of your expenses. You may have to carry over more zeroes than you planned, but knowing your number is the very first step to getting your finances in order. It’s all downhill from here.

So, what’s your number?

2015 Market Forecast

Tyler Linsten Investing

The post you’ve surely been waiting for all year is finally available. The “interns” would really appreciate your feedback, please leave a comment below!

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Do you have a High Tide Strong Buy recommendation the “interns” haven’t discovered? Let me know.

Young People: Please, Pay Yourself $141,169 in 2044

Tyler Linsten Investing, Personal Finance

If you absorb nothing else from me, or this blog, just make it this post. Only young at heart? This still applies to you, too. 


Important choices about how you allocate your retirement savings could very well be worth millions of dollars in the future, depending on your income level. Future You will really appreciate you making the right call here. I’ll explain below but it’s really nothing more than the most important force in the financial world: compound interest. Learn about it, love it, it’s your new best friend always and forever.

Let’s say you’re 30 years old and you have committed to starting your retirement savings today. Let’s also say you’re a good saver and, on average, will be able to save $7,500 per year for the next 30 years, retiring at age 60. This is saving 15% of a $50,000 income today, a healthy amount but not unreasonable by any means. This sum can be any combination of 401(k) contributions, employer matching contributions, Roth IRA contributions, whatever. You’ll likely get a raise every year so this $7,500 doesn’t even account for that inflation; it will be a lot easier to save this amount in, say, 2025 dollars.

Now that you’ve committed to piling the cash in your accounts, a very wise first choice, your big decision is now at your feet. Are you going to commit to taking a low-cost approach to allocating your accounts or are you going to be tricked into chasing the expensive products the embedded powers of the financial world have been so successful at selling people just like you?

Hint: take the low-cost approach.

Sticking to a diversified portfolio of low-cost index funds is akin to having a secret badge that allows you to pay Wal-Mart prices for Nordstrom-quality goods. Once you understand how the badge works, you’ll never see investing the same again. By opting for passive index funds versus active funds, quite literally you are paying less for a better quality product. Over the long run, index funds outperform active funds yet their expense ratios are much, much lower than active funds.

Quick explanation on “active” versus “passive”: index funds are the best equivalent we have to investing WITH the market as opposed to giving money to some guy in New York who is actively trying to BEAT the market (an active fund). It costs much less to passively run a fund to mimic a preset benchmark like an index (think S&P 500 or Russell 2000), as compared to adding on all of the extra expenses it takes to run an active fund (like research, tons of transaction costs, interns, and fancy offices with expensive coffee machines and couches). This doesn’t even account for the fact that the “active” guys only rarely beat their benchmarks! Further, it’s pretty much impossible to reliably predict who might beat their benchmark consistently.

It’s very likely you have these cheaper, better performing funds offered in your 401(k) but often times they have boring names or the company managing your plan puts them towards the bottom of the list because they don’t make any money from index funds. Trust me: in this case, you want boring. Boring is going to really, seriously pay off in the future.

Sometimes I think investors pay little attention to the costs of investing options because the numbers seem so small. “What’s the big deal with paying 1% extra for this ‘fancy’ seeming fund? I’m used to paying 9% sales tax and tipping 20% at dinner so 1 measly percent extra isn’t a big deal,” you might say. Wrong. The power of this 1% is the key to your big bonus at retirement.

It is very reasonable to assume you will be able to position your investments to enjoy a yearly return at rates one percent higher per year than active funds by keeping expenses lower with index funds (and by default, receiving higher returns due to active funds being perennial underperformers).

I’ll show you the simple calculation.

— Invest $7,500 per year, earn a reasonable 8% return on average per year for 30 years using a low-cost, index fund approach:

Ending value = $849,624

— Invest $7,500 per year, earn 7% on average per year for 30 years because your funds are more expensive and perform worse than index funds:

Ending value = $708,455

Hypothetical difference in 30 years from picking the “boring”, low-cost option =


Put another way, this $141,169 is worth an extra 18 years of savings at $7,500 per year. Or you could see it as setting yourself to get paid a nice retirement bonus of nearly three years salary.

With this same scenario, imagine you’re fortunate to enough to earn $150,000 per year and you can still save 15% every year. The potential difference in account balance at retirement from choosing index funds versus active funds? $423,505.

This isn’t a complicated choice, nor is it a complex equation. It’s really as simple as it gets. Be relentless in your saving, minimize expenses to achieve better yearly returns and let the power of compound interest do the rest. A complete no-brainer.

Diversification Is…

Tyler Linsten Investing, Personal Finance

Doing the laundry.

Taking out the garbage.

Taking your medicine.

Feeding your dog.

Feeding your young child.

Stopping at the stop sign when nobody’s at the intersection.

Paying your car insurance premium.

Taking your vitamins.

Visiting the doctor once a year, every year.

Visiting the dentist twice a year, every year.

Visiting your in-laws.

Mowing the lawn.

Brushing your teeth.

Taking notes when you think you know the content.

Letting that guy merge on the freeway.

Eating a salad instead of a burger.

Changing the toilet paper roll.

Doing the dishes right after dinner.

Paying attention in the safety meeting.

Calling your grandmother.

Sweeping the sidewalk in front of your house.

Holding the door open on a bad day.

Checking your tire pressure.


What was the point of that, you ask? Diversification is another thankless task, just like all the others above. Just hang with me on this.

There exists a Future You and many, if not most of the activities you undertake every day in present time have a direct effect on Future You. Pretend Future You is somebody who just invisibly observes you all day, every day. You’re the only person he/she has.

Future You is lying in the tall grass, hoping you diversify.

Future You is lying in the tall grass, hoping you diversify.

With every thankless task, like the “boring” notion of making sure your portfolio is spread among multiple asset classes with low correlation – otherwise known as diversifying – your Future You gives you a small pat on the back because those tasks mean the world to him/her. Future You is completely depending on what you do today, especially when it comes to investing to meet your future goals. Future You is retired and does not have a job.

It sure doesn’t feel great to pay your car insurance premium every month, especially when you have yet to see any tangible benefit since you began the policy. But when Future You gets t-boned by an uninsured motorist, Future You is going to be very thankful you paid up for full coverage.

The same goes for your doctor visits, the vitamins you take and the other daily tasks extending to the other lives you interact with. Like all of these tasks, diversification is just something you absolutely have to do – no matter how big of a waste it seems in the present. It is foregoing something shiny today for something dull for many years. You’re never going to beat the hottest stocks or outperform every index with your boring (and smart) portfolio, but Future You depends on you to spread out the risks you take because you’re the only one who can help him/her thrive.  You absolutely can’t blow this for Future You.

It’s intriguing to pile your money into one stock or one asset class – but I promise you that it won’t work out in the end, no matter how good the prospects look today. So just take your medicine now. Why risk it?

After all, someday you inherit the sum of these choices when you become Future You.