26. Tending Your Portfolio with David Stein of Money For the Rest of Us

David Stein is the host of the Money For the Rest of Us podcast and the author of Money for the Rest of Us: 10 Questions to Master Successful Investing. David was an institutional investment advisor who managed money for endowments, foundations, and financial planners. Eventually, he knew that he wanted to branch out on his own, and he started Money For the Rest of Us. 

According to David, his new book distills the financial information that he has been talking about for the last 20 years. He breaks the chapters down into 10 questions that we can ask to build a framework for investing. He says that we don’t have to be experts to invest, but having a plan and a framework to work through can help us ask the right questions to discover which investments are right for us. 

He says that portfolios don’t have to be complicated and can be as simple as two or three funds. In this episode, David walks us through his 10 questions and shares insight and wisdom from his financial experience. He shares the difference between optimzing and diversify and why you can think of your portfolio as a flower garden with a diverse range of plants. He also gives his advice for people who are just starting out with investing and saving. 

Highlights from This Episode 

[00:44] David was an institutional investment advisor for about 17 years. He managed money for endowments, foundations, and financial planners.

[01:02] When he was in his mid-forties, he realized he wanted to do something else.

[01:16] He now works for himself and runs the Money for the Rest of Us Podcast where he teaches people about investing and how money works. 

[01:58] David Stein is the author of the book Money for the Rest of Us: 10 Questions to Master Successful Investing where he has distilled everything he has been talking about for the last 20 years.

[02:40] His book is geared towards individual investors to give them a sense of confidence.

[03:13] David wants to help individual investors find a way to analyze all of their options. This book will help them decide how to make decisions around investing and what to invest in.

[04:08] The book does include some tactics but those are to reinforce the strategic plan.

[04:35] The book is structured with each chapter having a question to ask ourselves before we invest. Together these questions form an investment discipline.

[05:45] Question 1 begins with what is it. If we can explain what we're investing in then it may not be the best option.

[07:22] Question two asks whether it's investing, speculation, or gambling. Is there an income component? Will the return be positive or negative? Gambling has a negative expected return. We do it for entertainment value.

[09:24] We should be spending money on things that help us figure out our purpose in life. When people leave the military they are often not sure what to do next.

[11:18] Be aware of the return on your investment whether it's college or another investment.

[12:54] The next two questions are what is the upside and the downside. Investments can be broken down into cash flow, how the cash flow is growing, and what are investors paying for that cash flow stream.

[14:35] The downside is the maximum potential lost that could happen and what the impact of that would be.

[15:30] Understanding how to measure risk helps us to make allocation decisions.

[17:18] We've been in a 10-year bull market with stocks. Don't assume recent events are going to continue.

[19:33] The next question is who's on the other side of the trade. Knowing who's selling something and why can be valuable information, because you'll know how motivated they are.

[22:46] Trading is a zero-sum game and there's a loser for every winner. When you trade Forex or options you're competing against institutions. Those institutions know more about trading and the flow of the orders and the drivers of the market.

[29:14] Question number seven is what does it take to be successful. In real estate, you need to separate the underlying expenses and cash flow.

[31:00] Question eight is think about who's getting a cut of the return. A lot of the return can go to taxes. Recognize taxes and fees. Having to pay taxes does mean you've been a successful investor.

[32:22] Question nine is how does it impact your portfolio. This comes down to asset allocation. Think of it as a flower garden that you want to diversify. You don't optimize your garden, you diversify it.

[35:33] Question 10 is should you invest. 

[37:24] Answering these questions will help you form an investing discipline.

[37:34] David's book was endorsed by Annie Duke. We shouldn't beat ourselves up for the outcome of our decisions.

[38:15] Professionals have a framework or checklist to guide them.

[39:45] Thrift Savings Plans have the G fund which is a government bond fund. It has a higher yield than many bond funds. The price won't fall as interest rates rise.

[40:42] You could invest in a TSP and then put your taxable money into an ETF or Index Fund.

[41:37] Portfolios don't have to be complicated. Investing can be as simple as owning two or three funds. 

[45:54] Start small with investing and about investing. You'll always be learning more. Set the discipline to start saving. Try to allocate 15 to 20% to savings. 

Links and Resources

Money For the Rest of Us

Money for the Rest of Us: 10 Questions to Master Successful Investing

David Stein on LinkedIn

Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts