Book: If You Can: How Millennials Can Get Rich Slowly by William J Bernstein

If You Can: How Millennials Can Get Rich Slowly by William J. Bernstein (5/5)

A comprehensive primer on personal finance for young people. A good read, as well as reference book. It’s a 30min read that will inform your financial life going forward.


Recommended investment strategy

Takes fifteen minutes of work per year, outperforms 90 percent of finance professionals in the long run, and makes you a millionaire over time:

Start by saving 15% of your salary at age 25 into a 401(k) plan, an IRA, or a taxable account (or all three). Put equal amounts of that 15 percent into just three different mutual funds:

  • A U.S. total stock market index fund
  • An international total stock market index fund
  • A U.S. total bond market index fund

Over time, the three funds will grow at different rates, so once per year you’ll adjust their amounts so that they’re again equal. (That’s the fifteen minutes per year, assuming you’ve enrolled in an automatic savings plan.)

If you can follow this simple recipe throughout your working career, you will almost certainly beat out most professional investors. More importantly, you’ll likely accumulate enough savings to retire comfortably.

If you can, but there are five hurdles.

Hurdle one: People spend too much money.

Even if you can invest like Warren Buffett, if you can’t save, you’ll die poor.

A plumber making $100,000 per year was far more likely to be a millionaire than an attorney with the same income, because the latter’s peer group was far harder to keep up with.

Hurdle two: You’ll need an adequate understanding of what finance is all about.

Finance isn’t rocket science, but you’d better understand it clearly.

Stocks vs bonds

Stocks – ownership stake in a company

Bonds – loan to a company

From the investors’ perspective, an ownership stake (a stock) is much riskier than a loan to your business (a bond), and so the stock deserves a higher expected return than a bond.

  1. Bond ownership has no other upside beyond the full repayment of interest and principal, so it needs to be safe
  2. Stocks need to have their potentially unlimited upside to entice investors who must endure their high risk
  3. If stocks and bonds were equally risky, no one would own the bonds, with its limited upside; conversely, if stocks and bonds had the same return, no one would want to own the stocks, with their higher risk

This raises a more subtle point, and one that is often not well understood by even sophisticated investors, which is that the interests of the owners of stocks, who are willing to take considerable risks to get higher returns, and the owners of bonds (or, in the case of a small business, the folks loaning it money), who care only about safety, are very different, and it’s a company’s stock owners who get to vote, not the bond owners. For this reason, loans to businesses — corporate bonds — are in general a bad deal, and it is a good idea to confine your bond holdings to government offerings.

Is it possible to predict when such declines might occur, and so avoid them? Don’t even think about it: in the past 80 years, no one, and I mean no one, has ever done so reliably.

Is it possible to find a mutual fund manager or advisor who can beat the market? Again, no: several decades of careful research have shown that managers with superb prior performance usually fall flat on their faces going forward. (Over the past decade, even Warren Buffett has failed to beat the market by any significant margin.)

There are only two kinds of investors: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third kind: those who know they don’t know, but whose livelihoods depend on appearing to know.

If I had to summarize finance in one sentence, it would go something like this: if you want high returns, you’re going to occasionally have to endure ferocious losses with equanimity, and if you want safety, you’re going to have to endure low returns. At the end of the investing day, only two kinds of assets exist; risky ones (high returns and high risks, namely stocks), and what are known in finance as “riskless” ones (low risks and low returns, like T-bills, CDs, and money market funds). Job one for the investor is to figure out the appropriate mix of the two. For example, the three-fund portfolio presented at the beginning of this book consists of two thirds risky assets and one third riskless assets.

Hurdle three: Learning the basics of financial and market history.

Those who ignore financial history are condemned to repeat it.

There is no great cause of mischief to the small investor than the confusion between the health of the economy and stock returns. It’s natural for people to assume that when the economy is in good shape, future stock returns will be high, and vice versa.

The exact opposite is in fact true: market history shows that when there’s economic blue sky, future returns are low, and when the economy is on the skids, future returns are high; it is a truism in the market that the best fishing is done in the most stormy waters.

The biggest profits are made by buying at the lowest prices, and stocks only get cheap when bad economic news abounds; therefore, the highest returns are earned by buying when the economy is in the toilet, and vice versa.

Learning market history isn’t just about knowing the past pattern of returns (though that’s helpful). In addition, it’s about learning to recognize the market’s emotional environment, which also correlates with future returns.

When the shoeshine boys started offering him stock tips, he knew it was time to get out.

Why the correlation between popular interest and subsequent low returns? Simple: Driving the price of any asset higher requires the entry of new buyers, and when everyone is invested in stocks, real estate, or gold, there’s no one left to join the party; the entry of naive, inexperienced investors usually signals the end.

When all your friends are enthusiastic about stocks (or real estate, or any other investment), perhaps you shouldn’t be, and when they respond negatively to your investment strategy, that’s likely a god sign.

A working knowledge of market history reinforces this sort of profitable but highly counterintuitive behavior — i.e. to have seen the movie before.

The discipline of maintaining a fixed allocation, such as the 33/33/33 portfolio mentioned at the beginning of the book, is an easy and effective form of market timing, since it of necessity means that you will be buying more stocks after significant market falls, when pessimism reigns, and selling some stocks after prolonged and dramatic price rices, when the market seems to be making everyone rich. The real purpose of learning financial history is to give you the courage to do the selling at high prices and the buying at low ones mandated by the discipline of sticking to a fixed stock / bond allocation.

Hurdle four: Overcoming your biggest enemy – the face in the mirror – is a daunting task.

The real risk you face is that you’ll be flattened by modern life’s financial elephant: the failure to maintain strict long-term discipline in saving and investing.

We have met the enemy and he is us.

Long-term planning, of course, is what investing is all about, and it’s a predisposition that our maker most definitely did not endow us with.

Ninety-five percent of what happens in finance is random noise, yet investors constantly convince themselves that they see patterns in market activity.

Runs of 4 or more heads or tails are perceived as a nonrandom pattern, when in fact they are the rule in random sequences, not the exception. Stock market participants frequently make this mistake, and an entirely bogus field of finance known as “technical analysis” is devoted to finding patterns in random financial data.

Hurdle five: As an investor, you must recognize the monsters that populate the financial industry.

The financial services industry wants to make you poor and stupid.

To be avoided at all costs are: any stock brokers or “full-service” brokerage firm; any newsletter; any advisor who purchases individual securities; any hedge fund. Most mutual fund companies spew more toxic waste into the investment environment than a third-world refinery. Most financial advisors can’t invest their way out of a paper bag.

A ready routine for deflecting approaches from friends and relations in the finance industry is an essential survival skill.

Still, you’ll need to exert extreme care with mutual funds. Except the Vanguard Group, a mutual fund or brokerage company has two sets of masters: the clients who purchase the mutual funds or stocks and bonds in the funds and brokerage accounts, and the shareholders who own the stock of the brokerage or fund company itself. Every company’s goal is to maximize the bottom line of the latter — its real owners — and mutual fund and brokerage firms can only do this at the expense of their clients — that is, you.

Act as if every broker, insurance salesman, mutual fund salesperson, and financial advisor you encounter is a hardened criminal, and stick to low-cost index funds, and you’ll do just fine.

Nuts and bolts

  1. Get out of debt; until that point, the only investing you should be doing is with the minimum 401(k) or other defined contribution savings required to “max out” your employer match
  2. Emergency fund placed in T-bills, CDs, or money market accounts — this should be enough for six months of living expenses, and should be in a taxable account (Putting your emergency money in a 401(k) or IRA is a terrible idea, since if you need it, you’ll almost certainly have to pay a substantial tax penalty to get it out.)
  3. Then, and only then, can you start to save seriously for retirement. For most young people, this will mean some mix of an employer-based plan, such as a 401(k), individual IRA accounts, and taxable accounts. Ideal strategy for most young people —
  • Max out 401(k) match
  • Contribute the maximum to a Roth IRA (assuming they’re not making too much money to qualify for the Roth, approximately $200,000 for a married couple and $120,000 for a single person)
  • Save in a taxable account on top of that

Two kinds of IRA accounts: Traditional and Roth

  • Traditional – you get a tax deduction on the contributions, and pay taxes when the money is withdrawn, generally after age 59.5
  • Roth – you contribute money you’ve already paid taxes on, but pay no taxes on withdrawals in retirement

In general, the Roth is a better deal than a traditional IRA, since not only can you contribute “more” to the Roth (since $5,500 — the current annual contribution limit — of after-tax dollars is worth a lot more than $5,500 in pre-tax dollars), but also you’re hopefully in a higher tax bracket when you retire.

Your goal, as mentioned, is to save at least 15% of your salary in some combination of 401(k) / IRA / taxable savings. But in reality, the best strategy is to save as much as you can, and don’t stop doing so until the day you die.

A frequent problem with 401(k) plans is the quality of the fund offerings. You should look carefully at the fund expenses offered in your employer’s plan.

  • If its expense ratios are in general more than 1.0%, then you have a lousy one, and you should contribute only up to the match.
  • If its expenses are in general lower than 0.5%, and particularly if it includes Vanguard’s index funds or Fidelity’s Spartan-class funds (which have fees as low as Vanguard’s), then you might consider making significant voluntary contributions in excess of the match limits.

Example of kinds of index funds you’ll want to use.

  • If your 401(k) is lucky enough to have Vanguard funds, look for, respectively
    • The (U.S.) Total Stock Market Index Fund
    • Total International Stock Index Fund, and
    • Either the Short-term Bond Index or Total Bond Market Index Fund
  • The Fidelity Spartan series is also excellent: the Total Market Index, International Index, and U.S. Bond Index (or Short-Term Treasury Bond Index) funds

Recommended Reading

  1. The millionaire next door by Thomas Stanley and William Danko — the most important book you’ll ever read, because it emphasizes the point that there’s an inverse correlation between spending and savings. Dissects the the corrosive effects of our consumer-oriented society on both personal and societal well being in a lucid way
  2. Common Sense on Mutual Funds by John Bogle — perhaps the best introduction to basic finance that’s ever been written
  3. Devil take the hindmost by Edward Chancellor — a compendium of stock market manias. The lives of most investors encompass the two different kinds of markets described in these books (Devil Take the Hindmost and The Great Depression), and they will provide a beacon that will guide you through both the best of times and the worst of times
  4. The great depression by Benjamin Roth — a portrait of how things look at the bottom. The lives of most investors encompass the two different kinds of markets described in these books (Devil Take the Hindmost and The Great Depression), and they will provide a beacon that will guide you through both the best of times and the worst of times
  5. Your money and your brain by Jason Zweig — if Jason can’t save you from yourself, then no one can
  6. How a second grader beats wall street by Allan Roth — nuts and bolts
  7. All about asset allocation by Rick Ferri — nuts and bolts

Spreadsheet showing effects of varying returns rates and saving rates in terms of real, accumulated assets after 20, 30, and 40 years

I am participating in Book Riot’s 2017 Read Harder Challenge

Here’s my reading list and why

BOOK RIOT’S 2017 READ HARDER CHALLENGE

My most important criteria is it has to be good on audio, as I’ll be doing my “functional” reading in print, and my “curiosity” reading (this list!) on Audible.

Here we go.

  1. Read a book about sports.

I started taking weekly tennis lessons three months ago. Also, it’s a bestseller on Audible, with lots of people saying it’s the best audiobook they’ve listened to, ever. It’s comforting to learn how crazy Agassi feels all the time and how, in spite of that, he’s managed to become a master in his sport.

2. Read a debut novel.

Well, it’s been on my to-read list forever.

3. Read a book about books.

My friend Liz Froment described it as, “The book itself was really a love letter to reading” in her Monthly Reads for December 2016.

4. Read a book set in Central or South America, written by a Central or South American author.

This was required reading my freshman year in high school. I loved it. I just don’t remember why. Would love to revisit. I had no “Central or South American” lens then, so reading with this in mind will an interesting experience too.

5. Read a book by an immigrant or with a central immigration narrative.

I loved the Serial podcast and have been wanting an excuse to read the rest of Adnan’s, a Pakistani-American, story. This reddit non-AMA, “I am Hae’s brother” was an interesting read. (Hae is Adnan’s Korean ex-girlfriend he was convicted of murdering, the story around which the Serial podcast explores.)

6. Read an all-ages comic.

I guess an audiobook defeats the purpose for this category. Will have to check with my local bookstore for this one.

7. Read a book published between 1900 and 1950.

I browsed Books That Shaped America: 1900 to 1950 and recognized Upton Sinclair’s name. Ryan Holiday constantly recommends another Sinclair book, The Brass Check, because “Sinclair deeply understood the economic incentives of early 20th century journalism and thus could predict and analyze the manipulative effect it had on The Truth.”

As for The Jungle, an Audible reviewer wrote,

Even though Upton Sinclair wrote this book primarily to improve the poor man’s working conditions, it mostly changed the food industry of America, and bills were passed after its publication to regulate cleaner practices of preparing food in mass quantities.

I’d love to write a book that fundamentally makes the Philippines a better country someday.

8. Read a travel memoir.

It was a close match between this and Wild by Cheryl Strayed. In the end, this Audible review got me:

The detailed account of how people strive so hard to achieve an almost unreachable goal despite the fact that they might die is almost unbelievable. I do not understand why climbers would put themselves through the suffering one must endure to stand atop Everest, nor do I have the desire to climb Everest, but I found this book completely enthralling. It is a testament to the human spirit and what man can and will do once he/she has set their mind to it.

9. Read a book you’ve read before.

A “culture book” or list of personal and business principles from Ray Dalio, the founder of Bridgewater Associates, the world’s largest hedge fund. I consider it a handbook for life. Review of my second reading. I learn something new, something important, every time I read it.

My friend Sebastian Marshall recommends it as the best book on learning to be effective.

10. Read a book that is set within 100 miles of your location.

I’m a Filipino but I’ve worked with Americans all my professional life. So I’m really interested in the history of America’s relationship with the Philippines. Sad that there’s no Audible version!

11. Read a book that is set more than 5000 miles from your location.

Trevor Noah is a comedian and this is his book of stories from his childhood during “the twilight of apartheid in South Africa.” I discovered Trevor Noah through this clip, which I must have watched and force-watched others at least 5x!, while on a standup comedy kick.

12. Read a fantasy novel.

I searched for the bestsellers under Science Fiction & Fantasy on Audible. The reviewers are ecstatic.

13. Read a nonfiction book about technology.

I have this on hardcover. Good timing as I’m planning to apply for a PhD (maybe in bioinformatics, or something data science-related) soon. I love Tim Ferriss’s interview with Kevin Kelly on his podcast.

14. Read a book about war.

Dan Carlin introduced me to Genghis Khan in his Hardcore History podcast. I want to learn more. Also, “Genghis Khan considered wrestling to be an important way to keep his army in good physical shape and combat ready.” Would be amazing to hear about Mongolian wrestling in the book, if ever.

15. Read a YA or middle grade novel by an author who identifies as LGBTQ+.


This list
says it’s a classic in the lesbian young adult genre.

16. Read a book that has been banned or frequently challenged in your country.

The Conjugal Dictatorship of Ferdinand and Imelda Marcos by Primitivo Mijares.

A book about life during martial law in the Philippines.

This article says, the book was

systematically plundered from every book store and public institution in the US, including the Library of Congress. Eight months after his book vanished Mijares himself disappeared.

It’s now available as a free PDF in Ateneo’s online library. About time I deep-dived into this topic.

17. Read a classic by an author of color.

It’s not a classic, but everyone’s been raving about it.

18. Read a superhero comic with a female lead.

This one’s gotta wait for a trip to the bookstore too.

19. Read a book in which a character of color goes on a spiritual journey.


Recommended as one of the most-gifted books
in Tim Ferriss’s Tools of Titans. It’s a novel set in India.

Siddhartha, a young man, leaves his family for a contemplative life, then, restless, discards it for one of the flesh. He conceives a son, but bored and sickened by lust and greed, moves on again. Near despair, Siddhartha comes to a river where he hears a unique sound. This sound signals the true beginning of his life — the beginning of suffering, rejection, peace, and, finally, wisdom.

I’m so familiar with this (Buddha’s) narrative I’m not even sure if it’s fiction, or is it the story of the Buddha sitting under a tree until he reaches enlightenment?

20. Read an LGBTQ+ romance novel

I browsed Audible’s LGBT bestsellers for this one. Since my other LGBT book in #15 is lesbian, thought this one should be gay. I’m a freestyle wrestler, and wrestling is a solid base for MMA, thought this might be interesting.

21. Read a book published by a micropress.

What is a micropress? I am not sure. But I think a story studio by three guyswould qualify as one. I am a big fan of one of the founders, Johnny B. Truant, back when he blogged on personal development. I watched him transition to his real dream of being a fiction writer. Glad to get the opportunity to finally read his fiction!

22. Read a collection of stories by a woman.

From an Audible reviewer:

I have never lived these lives, which are pulled mostly from the lower echelon of American society. I promise you will see our country differently through this author’s skillful narrative and characters whom you feel you are living with in just the first few words.

23. Read a collection of poetry in translation on a theme other than love.

I have to admit, this is the category I feel most apprehensive towards. I never understood the deal with poems, but I guess this is what makes the category one of the most important for me. It’s a blind spot.

I have never heard of Rumi before Kevin Kelly mentioned him in Tim Ferriss’s podcast. A little research shows his work is mostly translated from Persian, and he is America’s most popular poet.

24. Read a book wherein all point-of-view characters are people of color.

Um. Before resarching this category, I thought people of color = black. Apparently, the term encompasses all non-white people… Anyway, this one’s about Indians.

Beautiful review on Audible,

The English certainly left an indelible mark in India and post-independent India never recovered. In one sense, this is the story of moving-on and yet it is also the story of longing for the old ways.


Well that’s my list. I’ve never stretched my reading so much. I’m so excited to #ReadHarder in 2017. I look forward to sharing what I read with you.

Should you start reading “great” books in 2017?

A good book can teach you about the world and yourself?

I’m reading a book. The title is “How to Read a Book.”

It’s about learning how to read a book for understanding, rather than information or entertainment (ex — popular fiction, business, self-help). Books from authors like Homer, Nietzsche, and Jean-Paul Sartre. There’s even a list of recommended books at the end, listed in order of the authors’ birth, from 9th century B.C. to 1918–2008.

But what good are these books? Are they really so great? Should I prioritize them — with their dubious usefulness in my life — over business and other immediately practical books?

I am not into philosophical discussions (of the useless kind), especially of “shoulds,” that can never be true in the real world — things like, why people *should* all be equal, “good” stuff like yourself as a professional or your products *should* succeed without having to market, or good intentions *should* be enough.

I have no interest in becoming a pompous, pretentious, navel-gazing prick that’s useless to the world.

Still, I love reading. Learning the skills to be able to enjoy and appreciate the great books would be an end unto itself.

I’m reading Brothers Karamazov by Fyodor Dostoyevsky. I’ve been ogling War and Peace (recommended by Mark Manson) and Ulysses (recommended by Neil Strauss) in the bookstore, wanting to buy them… But stopping myself, because they will just add to my pile of abandoned books.

Hope to finish these guys someday

I have this vague idea that they will write their way into my heart and enlighten me in some life-changing way. Teach me life’s most important questions like why are we here, where do we go, and how come it’s so hard (thank you, Jack Johnson).

Do they “work?” I don’t know. I’ve never finished them.

Really, I am just wondering if you can help me understand the value of attaining the skill of reading the great books, the books over my head, that will stretch me. Will reading them lead to a life well-lived, a life I could not have accessed otherwise? Or is it just to become a know-it-all who talks everyone’s ears off about having read all these books that only other people who’ve read them care about?

What “great books” (however you define it) have you read? How has it made real life better for you?


This post first appeared on Medium.com.