2million's Personal Finance Blog

A must read for everyone - this book is a core reading to establish how to invest your money as a laymen. It is divided into 4 sections, each a fundamental part of becoming a successful investor.

The 4 Pillars of Investing:
Theory - The author first goes into the basic theory of investing and the efficient market theories. Its a very good overview of risk vs return, the importance of asset allocation, and why you can't beat the market.
History - The next part of the book gives an overview of the history of investing. I probably took the most away from this section of the book. The author covers manias like the the Diving Mania in the late 1600s, the South Sea Bubble, and the Go Go market of the late 1960s. This section peaked my interest about learning more from the history of investing to improve my resolve in today's investments. The author has some additional reading recommendations to learn more about past events that I plan to pick up.
Psychology - The author covers common psychology for the average investor -- overconfidence, chasing trends, risk aversion, and investing in the next big thing. I think it was pretty obvious stuff, but the author was able to organize it in the way that tied well with the other fundamentals covered in the book.
Business - Finally the author covers the financial service industry. Kudos to the author for spelling it out - bottom line, the financial services industry's ultimate goal is to take your money. He recommends low cost index funds from a few large companies (primarily Vanguard).

Perhaps a unique twist on this was I read this book at the same time as I was listening to Rule #1 Investing by Phil Town. They basically on are opposite sides of the investing spectrum - Four Pillars of Investing touts the Efficient Market Theory (EMT), while for the most part Phil Town's investment technique is built on Ben Graham value investing theories with some technical analysis built in. I found myself one day agreeing with sections of Four Pillars and the next reading Phil Town's book and recalling key points of the "Intelligent investor" by Ben Graham that contradict some of the market generalizations in the Four Pillars. Back and forth it went.

After some reflection I believe both theories are reflected in the market- in general the EMT is sound and most of the time Mr Market gets it right. This means for any investor who cannot systemically beat the market, they will likely have better performance in the long term by following the recommendations of Four Pillars. However, I take issue with the assertion in the Four Pillars that the success of value investors such as Warren Buffet is merely by random chance. Its clear to me that for some, systematic success through value investing is achievable.

The question for me is can I systematically beat the market performance with my value investments? My current track record (albeit short term) says no - for the last 2 months I have trailed passive indexes.

The Four Pillars of Investing is a must read book for everyone - especially if you haven't read a good book on EMT. Overall its advice is excellent and the majority of individuals should follow it. Even for those folks who think active investing is the way to go this is a must read to understand the other viewpoints.

I turn 32 today(ugh!). However I am the one giving out the gifts.

We have a $50 SmartyPig giftcard to give away to one of our readers. To enter to win, 3 requirements:

• Subscribe to 2million's RSS Feed
• Leave a comment, tell us you are a subscriber or have subscribed, and let us know what you're saving for (if you want to)
• You must have a US mailing address.

Smartypig is a pretty innovative product that has recently launched to help people save towards their goals. There are already so many reviews out there that I will simply share a couple reviews here and here if you want to learn more about the product.

This contest will run till next Tuesday, May 13, 2008 at 9:00 pm EST. We will pick a winner at random and will notify them via email.

Good luck!

April brought above average monthly returns for our stock investments but also brought higher expenses as we took a couple trips to explore what we could in Asia. Its been an amazing experience to travel around the other side of the world and in my opinion worth the higher expenses to see it. Its just too bad we can't do this every month - at least not until we hit our financial freedom goal.

Highlights for April

• All credit card debt (except current month's purchases) is in the form of 0% APR balance transfers earning interest in my savings accounts.
• We continued to move money from our house savings goal and pay down our mortgage to cancel PMI. Given the return is ~6.7% after tax I think its has a decent return for only giving up a little liquidity. We are now somewhere in the 78-80% LTV and my next step is to call Chase to press them to cancel the PMI.
• My wife and I are starting to wind down our assignment in China by taking as many trips and visitors as possible. This month we hit Kuala Lumpur, Singapore, Beijing, and Xian. As a result, our expenses are higher than usual this month and next.
• I reviewed our 2007 passive income
• Here is an explanation why our housing values have remained constant.

Additional Stock Investments for April (Outside of 401k & ESPP):

• April Investment Transactions still being gathered
• March 2008 Monthly Investment Report
• Future Investment Transactions will be covered in the monthly investment updates

You can see my previous monthly net worth updates here.

In the last 6 years, I have taken my (now our) net worth from $18k to nearly $500k. I am pretty satisfied with the results - we are making good progress on our financial freedom goals. I think there a couple things I/we have done that contributed significantly to our progress.

We didn't do any radical. We worked hard to increase our income. We spent significantly less than we earned. We also invested our savings. Sounds easy enough right?

Here is a more granular account of some of the things we have done to reach this point:

• I set financial goals (hint: It's the title of this blog)
• I measure our progress with monthly net worth reports
• I started my career in a higher-starting salary field - Engineering
• I lived like a college student for as long as possible
• My car is a means of transportation -- I still drive the used car I bought in college
• I focused on career growth and acceptedgrowth opportunities at work and look for opportunities like my international assignment
• I took advantage of 0% Balance Transfer arbitrage
• I max out my retirement contributions
• I married someone who spends within her means
• We only use insurance to cover catastophic events, and self insure as much as possible.

Ofcourse we are still early on our journey to financial freedom and we might still be taking some wrong turns. Stick around to find out how soon we make it.

This rebate for international purchases was posted previously, but its probably worth repeating given the deadline is May 1, 2008 [extended to May 30, 2008]. A class action settlement is being proposed for those people who used their credit cards for international purchases

Members of Settlement Class
Anyone who used a Visa, MasterCard, AmericanExpress, Diners Club brand credit, charge or debit card between February 1, 1996 and November 8, 2006.

File for Claim
Submit your claim via mail, fax, or online at www.ccfsettlement.com.

Option 1: EZ Claim for $25. Even if you strapped for time, submit the claim with Option 1 to at least put your claim in for $25. Option 1 is recommend for those individuals who made less than $2,500 in foreign transactions or traveled outside the US for less than one week during the claim period.

Option 2:A Total Estimated Refund for those that travelled internationally for more than 1 week to estimate your total travel during the class period.

Option 3: An Annual Estimated Refund option if you made some big transactions or traveled extensively during the class action period and are willing to provide annual information on your international transactions.

I submitted my claim using Option #2 for 130+ days outside the US. I didn't realize I had spent so much time previously outside the US till I added it all up.

As a reminder the due date for submission is May 1, 2008 [extended to May 30, 2008].