rogernusbaum

First up is an article from the Wall Street Journal titled No Job, Loads of Debt, Covid Upends Middle Class Family Finances. The article basically shares anecdote after anecdote of families with good incomes (before the pandemic anyway) and the struggles they are having covering all their expenses now in the face of this external shock. The stories involve multiple mortgages and car payments as well as servicing large credit card balances.

I'm fond of citing Nassim Taleb in these instances who said (paraphrasing) we learn from our grandmothers, when we are children, not to borrow too much money and the importance of saving for a rainy day. There is no one who doesn't know they shouldn't spend too much so from that standpoint it is simple. It's not necessarily easy to live below your means but it is a simple concept to understand.

In the few hundred posts I've written on this subject (literally hundreds over 16 years of blogging) I have frequently talked about how much easier it is to cover $4000 of monthly expenses in the face of an extreme, adverse outlier like a pandemic, versus covering $10,000 of monthly expenses. This is an incredibly obvious observation but this is what the article is about. One couple has a $9000 monthly nut. My banging this drum is not insightful in the least because, as I said, we learn the importance of these things as children and we also know that bad things happen to people, like a job loss that is not reasonably foreseeable.

The low hanging fruit to prevent or solve this issue include buying less house than you can afford (one couple in the article has a $4000 mortgage), driving your cars for 20 years (very plausible with Toyotas), not having to service credit card debt and taking care of your health so that you have a good chance of not having to shell out hundreds for prescriptions. Starting these behaviors early also ties into the concept of delayed gratification. If you're at least in your 40's you know time goes by quickly. If you're in your 20's or 30's then you've heard from older folks that time goes by quickly. If you make it to 50 with a low mortgage balance (close to paid off) and small payment, no car payments, have $300k-$400k in a 401k or the like, have six months of expenses set aside in a savings account and in decent health then you are in a pretty resilient place. And even if those numbers don't necessarily make you rich in commonly thought terms, you in fact have great wealth in terms of being able to weather the type of event that the people in the article could not.

I've long talked about doing things for the future you. A few months ago I realized being 50 having your financial house in order and being healthy is the reward for doing the right things in your 20's and 30's; delayed gratification, the future is here. Being 50 (I'm a few years older than that now) and having your act together can be a great time in life. If you're 30, you may not be able to envision 50 but it will be here soon enough and I promise you, you want to be able to enjoy that time.

Changing subjects I want to dig into the importance of having the discipline to do the things you may not feel like doing but that you know are important. First, a real life example with working out. Again, there is no one who doesn't know it is important to exercise. I like to say that not going to the gym is the easiest thing in the world. Similarly, it is important to stick to your workout routine even when you don't feel like going. I'm not talking about being injured, I mean you just don't feel like it. Today is a day I usually workout but man, I did not feel like it. I went anyway and had a fine workout. It is important to have the discipline to stick to things, especially when it's most difficult to do so. While I believe this is relevant to exercising, we all know it is important for investing too.

Whatever investment process you chose as being best for you, you did so based on logic and reason, there were no emotions involved. If your process is that you don't trade a lot, then you should stick to not trading a lot even when the market turns itself inside out like it did back in March. Feeling the itch to trade outside of your normal pattern is the manifestation of some form or emotion, greed or fear depending on which direction the market is going. As a recurring theme, investors know that succumbing to fear or greed invariably works out badly so it is a simple idea but it is not easy when markets are panicked.

Keep things simple whenever possible.