Good Reads: The Wealthy Barber by David Chilton

I am often asked if I know of any good books on investing for those just starting out. Many times this is for the children or grandchildren of my clients. While I do know of many such books, I find a few challenges. Investing books can be somewhat dry and boring, especially if you are not all that interested in the subject matter. While I think investing is definitely important, and investing well can make a huge impact, I also find that learning about investing without the basics of handling your financial affairs to be somewhat like putting the cart before the horse. By not paying attention to some of the basics everything can be destroyed in the blink of an eye. If we do everything correctly with basic financial management and planning, investing well becomes the icing on the cake.

A big turn-off to reading almost any book about money is the snooze factor. Many are about as entertaining as watching paint dry. The Wealthy Barber by David Chilton, however, takes a novel approach, providing some personal finance education in a narrative/story form.

It’s the story of three young adults who realize they don’t know anything about how to create a long-term financial plan for their future. They turn to a parent for help who points them to an unlikely expert: The local barber. This barber has managed to turn a low-wage job into a comfortable lifestyle with millions of dollars in the bank. Their monthly meetings include plenty of humor and enough character development to keep it interesting. The barber imparts such wisdom as the value of saving, wills, life insurance, retirement, housing, investing and taxes. The secrets imparted are simple, easy to follow, and illustrate that you don’t have to have high paying job to live the good life.

In my opinion, this book imparts valuable wisdom that is not only easy to read, it is also easy to comprehend and retain. It’s one of the first books I recommend anyone read on financial planning.

4 great places to retire…Seattle???

In a recent article, Fortune magazine named our wonderful city as one of 4 great places to retire.  They identified four archetypes of next-generation retirees and found a place for each of them a college town for the academically minded, a city for the urban-inclined, a mountain town for lovers of the outdoors, and an overseas destination for explorers.

Personally I was quite surprised to see Seattle top anyone’s list.  We all love living here and enjoy the great beauties that surround us, however all you hear from everyone is that it rains a lot and the skies are always grey.  Journalists will often highlight the abnormally high occurrence of those diagnosed with Seasonal Affective Disorder (SAD), which refers to episodes of depression that occur every year during the fall or winter months.  However, in this article Seattle was highlighted for the urbanite based on the city being a mecca for the arts with a small-town feel despite the size, and top-rated health care facilities.

(more…)

Lessons learned in a market downturn

It was not that long ago when the equity markets were down over 50%, buy-and-hold investing had been declared dead, and many investors had little faith that the markets would recover during their lifetime.  Two years later the equity markets have risen significantly.  Many investors may not understand why as the recovery has occurred during a period of soaring deficits, major bank failures, increased tensions in the Middle East, rising prices for oil and gold, and uncertainty over the financial stability of the European Union.

This article by David Callaway offers lessons that many investors have learned during this most recent downturn:  The market has always recovered without the ability to see nor predict the turning point until after the fact. Buy-and-hold investment strategies are not dead, and investors who stayed the course through thick and thin did quite well. Diversification works, and diversified portfolios have helped to capture the best of market movements.  Quite possibly the most important lesson we can all learn is that as the daily noise of the news grows louder and louder, often times the best thing we can do is tune it out.

Splitting Portfolio between DFA and Vanguard

I currently have allocated my retirement funds to your Vanguard buy and hold strategy as listed on your website. I have half of the allocation in DFA Funds as I noticed  that some of the Vanguard Funds have performed better over the 5 year period as compared to the DFA ones so that is why I have a combination of the 2 fund families making up the entire suggested investment plan.  I do pay a management fee for the whole portfolio though as all the assets are under the advisors care and maintenance. In your opinion is this a winning strategy to invest in the best performing asset classes from each fund family?

This is a very good question, one which in one way or another is on the minds of many investors these days.

I think the core question you are asking is something like this: Once I have figured out the asset classes I want, shouldn’t I use the funds in those asset classes that have performed best over the past five years?

You are implying two other questions:

  1. Which is better, Vanguard or DFA?
  2. Why has DFA underperformed Vanguard in several asset classes over the past few years?

(more…)

Sell TIPS to hedge against higher interest rates?

Is now the time to buy more TIPS in my 401(k) or to sell TIPS as a hedge against rising interest rates next year? I’m 57 years old and wonder if I should buy a short-term investment grade bond fund before interest rates go up. Or is it better to buy them when interest rates are much higher?


I cannot recommend what you should do because I have very little information about your situation, other than your age. But I can give you some pointers that might help you think about these questions.

You are asking questions involving market timing and also about your overall asset allocation. To get answers that make sense, you need to think clearly and logically about this. Bonds and bond funds are not quite as simple as you might think.

As Paul Merriman has written before, there are three rational reasons to own TIPS and other fixed-income funds. First, you might want to buy low and sell high in order to make a profit. Second, you might want these funds so you can collect the income they provide. Third, you might want them in order to dampen the volatility of the equities in your portfolio. (more…)