Then, and now

Charley Ellis was on the Capital Allocators podcast with Ted Seides last week. Charley has been in the investment management business since the early 1960s. Today he is one of the most vocal proponents of index funds as the most sensible investment for most people.

I write often about why index investing makes sense, and why it is challenging for active investment management to generate consistent outperformance. While that has always been true, there are some good arguments for why it is harder now than ever for active managers.

On the podcast, Charley offers some reminders about how the world and the stock market have changed since the 1960s.


According to Charley 10% of trading, at most, was done by institutions, and 90% was done by individuals. Most of those individuals were, as Charley describes, “nice people” who were investing their savings in stocks without doing much, if any, research. In other words, there were lots of easy targets for an active manager to exploit.

In the past, it was possible for an analyst to set up a private meeting with a company’s management in order to get an information edge.

Charley estimates that there were less than 5,000 people in the active investment management business.

Securities firms had 10 to 12 analysts who were only searching for interesting investments for the firm’s partners, and were not publishing their research.

About 3 million shares traded each day.


Charley says that 99% of all trading today is done by computers. Most investors involved are highly skilled and have instant access to information. In other words, there is no easy target left to exploit.

Today, under Regulation FD, the SEC requires that any material information that is disclosed must be disclosed publicly. Under Reg. FD It is not possible, legally, to get a competitive information advantage.

Charley estimates that there are over 1,000,000 people in the active investment management business. There are around 154,000 CFA Charterholders in the world today.

Securities firms today have hundreds of analysts with diverse expertise in every major financial hub constantly publishing their research.

More than 5 billion shares trade each day.

The Paradox of Skill

Piling an increasing number of skilled professionals into the investment management business might seem like it would benefit investors, unfortunately it does not. Michael Mauboussin and Dan Callahan explained the paradox of skill in a 2013 Credit Suisse white paper:

In investing, as in many other activities, the skill of investors is improving on an absolute basis but shrinking on a relative basis. As a consequence, the variance of excess returns has declined over time and luck has become more important than ever. Still, differential skill continues to exist. This process is called the paradox of skill.

Put simply, if equally skilled and informed investors are competing with each other, the winner will be defined by luck rather than skill. It is not absolute skill that matters, but relative skill.

If there has ever been a time for active money management to flourish, that time is not now. This shows up consistently in the results of active fund managers; the vast majority of them underperform the index over any given time period.

There is little question that simple low-cost index funds are the most sensible investment for most people. Paradoxically, the case for index funds grows stronger as the investment management industry gets more skilled.

Foreign Withholding Tax

First things first: If your long-term investments are not yet globally diversified, they almost certainly should be. Robust evidence and common sense alike support the wisdom of managing your risks and expected sources of return by investing in both Canadian and international markets. 

But, once you go global, there is a tricky little detail, often overlooked, which can eat into your investment returns. I’m talking about foreign withholding taxes.

When a foreign company pays a dividend to a Canadian investor, the company’s home country will often impose a tax on the dividend. The amount of tax withheld by the foreign government depends on the arrangement between the two countries. 

For example, the US government keeps 15% of any dividend paid by a US company to a Canadian resident investor. These taxes are withheld before you receive the dividend in your investment account. This makes them easy to overlook, but foreign withholding taxes can still do significant damage to your returns. Left unchecked, the impact can be even greater than the management expense ratio (MER) on most ETFs.

While you cannot eliminate foreign withholding taxes, you can seek to minimize them by tending to two main things: the structure of the investment vehicle you’re using, and the type of account in which the vehicle is held.

Thing One: Investment Structure

In the world of ETFs, there are three main structures that a Canadian investor can choose from to obtain global market exposure: 

  1. A US-listed ETF
  2. A Canadian-listed ETF that holds a US-listed ETF 
  3. A Canadian ETF that holds stocks directly

Depending on how the ETF is structured, you may be subject to two levels of withholding tax. In their 2016 white paper, Foreign Withholding Taxes, my PWL colleagues Justin Bender and Dan Bortolotti explained it this way: 

  • Level One Withholding Taxes – These are like a departure tax you pay when flying from a foreign country to Canada. Level One taxes are levied by any foreign country (including the US), on dividends paid to a Canadian investor.
  • Level Two Withholding Taxes – These are like a tax you pay to the US government when an overseas flight has a layover in the US on its way to Canada. It’s an additional 15% withheld by the US government on dividends paid to a Canadian investor by a Canadian-listed ETF that owns a US-listed ETF. Taxes are first withheld when the dividend is paid from a foreign company to the US-listed ETF. More taxes are paid when the US-listed ETF passes that dividend on to you, a Canadian investor.

Thing Two: Account Type 

The account type also matters. 

  • Retirement Accounts – The US government does not withhold taxes on US security dividends if they’re held in an RRSP or other retirement account (like an RRIF or LIRA). This is thanks to the current Canada-US tax treaty. Thus, a US-listed ETF of US stocks will not have any tax withheld on dividends paid to an RRSP account. This special treatment does not apply to TFSAs and RESPs. Also, other countries do not have similar arrangements, which means that foreign withholding taxes will apply on dividends paid from non-US international stocks, regardless of the account type. 
  • Taxable Accounts – In a taxable account, foreign taxes withheld are reported on your T3 or T5, and can generally be used to offset your Canadian taxes. In that sense, while foreign taxes are paid, they are recoverable. In a registered account, there are no T slips, so any foreign tax you pay cannot be used to offset your Canadian tax. This makes foreign withholding taxes paid in your registered accounts unrecoverable.

Thing One and Thing Two: Putting the Pieces Together 

Knowing which types of ETFs to hold in which accounts can save you a lot in the long-term. For details on the various possibilities, I highly recommend Justin and Dan’s white paper. Here are a few key caveats. 

  • Holding US-listed ETFs that hold US stocks in an RRSP account: As I mentioned earlier, you can employ this combination to eliminate any foreign withholding tax. But, as I explain in my video in more detail, you also need to manage additional currency conversion costs incurred by using a technique called Norbert’s Gambit. Once again, Justin’s YouTube channel is handy if you want to learn more.
  • Holding Canadian-listed or US-listed ETFs in an RRSP account: To contrast, this combination will generate an annual 0.25% unrecoverable foreign withholding tax cost, as will holding a US-listed ETF of US stocks in your TFSA account.
  • Canadian-listed ETFs that hold US-listed ETFs of international stocks, in a TFSA or RESP account: I know, that’s a mind-bender. But it’s worth wrapping your head around this scenario, because it’s among the worst offenders for generating double whammy, Level Two withholding taxes: Taxes are withheld by a non-US foreign country and by the US. Moreover, both taxes are unrecoverable.

On that last point, there are Canadian-listed funds that hold international stocks directly, so there is only Level One withholding. Examples include iShares’ XEF and XEC ETFs, and some Dimensional Fund Advisors’ funds. 

Now what? There is both an art and a science to determining which assets should be held in which account to optimize foreign withholding and other tax efficiencies. This is a practice known as asset location. Is it worth it? Find out in my next installment. In the meantime, I’d like to know what you have done to minimize your foreign withholding taxes. Tell me in the video comments … right after you subscribe to receive more Common Sense Investing ideas. 

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In these uncertain times

I am far from being a long-tenured veteran of the financial services industry. In 2007, when the last big drop in financial markets began, I was studying mechanical engineering on a full athletic scholarship. I have no recollection of worrying about the market; all of my expenses were covered as long as I met my athletic and academic obligations (which I did). As far as I could tell, I had financial certainty in my life. 

How blissfully ignorant was I?

Uncertainty is a constant. It is a constant in general, but it is like a spectator sport in the case of the financial markets. Uncertainty shows up immediately in prices. That can be scary. Humans struggle with the idea that there are more possible outcomes than we can plan for.

Making matters worse is our tendency to focus on recent events while largely ignoring the past. One of the most common themes that I hear from other people is the constant feeling that right now is exceptionally uncertain. 

It’s hard to say whether times are more or less certain now than they have been in the past. As much as we try we can’t measure uncertainty. Nassim Taleb explained it elegantly in Antifragile:

Man-made complex systems tend to develop cascades and runaway chains of reactions that decrease, even eliminate, predictability and cause outsized events. So the modern world may be increasing in technological knowledge, but, paradoxically, it is making things a lot more unpredictable.
An annoying aspect of the Black Swan problem— in fact the central, and largely missed, point —is that the odds of rare events are simply not computable.

A proxy for uncertainty in financial markets might be volatility. It is far from a perfect proxy, but if there is a perception that the future holds more risk, asset prices may drop due to increased discount rates. To see if we are living in exceptionally uncertain times as measured by volatility we can look at the historical standard deviation of the US market by decade.

1926 33.49
1936 21.23
1946 12.83
1956 11.71
1966 16.49
1976 14.84
1986 14.98
1996 16.15
2006 15.35
2016-present 8.98

Data Sources: Data source: Dimensional Returns Web, CRSP

It is clear that market volatility has been relatively stable through time. Each of these decades has seen trade disagreements, political scandals, wars, or recessions. Each day in the past, at the time, felt as uncertain as tomorrow feels today.

Today we have less volatility than past decades. This does not tell us much about current or past uncertainty. What it does tell us is that it might not make sense to expect more or less market volatility based on what we perceive as uncertainty today.

Delaying investing due to the feeling of uncertainty is not rational. Uncertainty is exactly why any investor expects a positive long-term return.

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Is Amazon changing the world, and the stock market?

Amazon has been on a tear. Its market cap is expected to reach US $1T. Apple recently made history by accomplishing the same. Headlines have been focusing on this massive growth. It’s almost as if massive, successful, and innovative companies are a new thing. When massive growth companies dominate the market and the headlines it is natural to wonder if it’s different this time.

It is not different this time. At least not yet. New technologies and ideas driving huge growth in the value of companies has been happening for as long as we have data available.

The oldest verifiable example is the Dutch East India company which was worth US$7.9T in 1637 if we adjust for inflation. We might look back on that now and say ah well it was a bubble. At that time, though, they were opening up global trade and exploring uncharted parts of the planet. That valuation did not last, and surely there were people who lost a lot buying at the peak.

The challenge with investing in growth stocks is that we never know when the tide will turn. It is improbable that FAANG will continue their current trajectory. That is not a prediction, it is a common-sense observation.

We have to remember that technology as we know it today with the cloud, web-based applications, and massive scalability is relatively new. Older technologies or even emergent ideas had similar impacts on the market in their time.

  • In 1900 well over 50% of the US stock market consisted of rail companies. 
  • In 1900 Standard Oil was worth US $1T if we adjust for inflation.
  • 20 years ago, in July 1998, AT&T was the largest company in the US by market cap by a significant margin, followed by GE.
  • Adjusted for inflation, AT&T’s July 1998 market cap would be 504B, about the same as Facebook (pre-Facebook’s July crash).
  • In July 1998 AT&T was 3.4% of the total US market cap. In June 2018 Apple is 2.6% of total US market cap. That trend has remained relatively stable over time.
  • The 5 largest companies in 1998 made up 11.6% of the US market. The 5 largest companies in 2018 make up 11.5% of the US market.

I think it’s fair to say that the well-known growth companies today are not anomalous. Similar to past storied growth companies they are leading the market by changing the world which is driving up both their earnings, and their prices relative to their earnings.

None of this makes it any easier to invest in growth companies. The 5 largest companies in the US in 1998 currently rank 18, 44, 5, 27, and 10 in 2018. Growth companies are easy to spot after the fact, and next to impossible to invest in before their massive growth. Even harder than that might be hanging on through their massive growth, which tends to be highly volatile, and then knowing when to get out. Further complicating things is the fact that, on average, growth companies have produced lower returns over the long-term than value companies.

The world is changing. There are innovative companies creating value by changing the world. That innovation is what drives capitalism. This is nothing new for the stock market.

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What are normal stock returns?

2018 has seen modest returns for Canadian and International stocks, both coming in a bit under 2% in CAD at the end of June. US stocks have seen stronger returns, a little over 7% in CAD, driven mostly by currency. These numbers might seem low after years of double digit returns. 
The S&P/TSX Composite has seen double-digit returns in 3 of the last 6 years, the MSCI EAFE has seen double digit returns in CAD in 4 of the last 6 years and the S&P 500 has seen double digit returns in CAD in 5 of the last 6 years.
Are this year’s returns low, or have the last 6 years been unusually high? 
Double digit returns for Canadian investors have been the norm, on average, for the past 47 years.

Here are the compound average annual returns since 1970 in CAD:

S&P/TSX Composite Index (CAD) MSCI EAFE Index (net div.) (CAD) S&P 500 Index (CAD)
10.55% 11.24% 12.23%

Data Sources: S&P Dow Jones, MSCI, Dimensional Returns Web

Positive Returns

Returns have been positive for Canadian investors in Canadian and International markets in 34 of the last 47 years, or 72% of the time. The US market has had 36 positive years out of the last 47.

Of those positive years since 1970, Canadian and International markets have had 26 years with positive double-digit returns, while the US had 27 such years. Canadian markets have had 14 years with returns greater than 20% for Canadian investors, International markets have had 13, and the US market has had 15.
Negative Returns
Since 1970 Canadian investors have experienced Canadian stocks with double-digit drops in 6 years – 2 of those drops were greater than 20%, International stocks with double-digit drops in 9 years – 3 of those drops were greater than 20%, and US stocks with double digit drops in 5 years – 3 of those drops were greater than 20%.
Normal Returns?
20 of the last 47 years have seen Canadian stocks return between -1% and 15% for Canadian investors. International markets have seen 20 of the last 47 years’ returns fall between 9.33% and 29.33%. For the US market 20 of the last 47 years have shown returns between 5.14% and 21.14% for Canadian investors.
Expected Returns
PWL Capital uses a combination of historical risk premiums and current market valuations to determine reasonable expected return assumptions for stocks. As at the last update in December 2017, the expected returns for Canada were 5.95%, 6.68% for International stocks, and 5.50% for US stocks.
The Privilege of Knowledge
Markets will always be volatile. Even extreme negative returns, while less common, are normal in some years. Nick Maggiulli recently had a post extolling the benefits of having past market data available. Before we had easy access to data, there was no way to know what normal was.

However, though buy and hold might seem obvious now, that’s only because we have the benefit of hindsight, ubiquitous data, and modern computational resources.  A century ago, who had access to anything remotely this useful?  No one.  People didn’t have the documented market history and technological capabilities we have today, so why should we have expected them to “buy and hold” back then?  If anything, their history was riddled with banking panics and far more instability, so I can’t blame them.

We do not have the slightest clue what future returns will be, but what we can do is draw on the past to understand how the relationships between different assets work. It is probably reasonable to expect that there will be some risk premium for owning stocks going forward. It is probably reasonable to expect that there will be some risk premium for owning small and value stocks going forward. 

The market outcome of any individual calendar year should not be a concern. Normal is volatile. Normal is random. Understanding that makes us smarter investors.

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DFA International Equity performance since inception

The Dimensional Fund Advisors International Core (DFA295) and International Vector (DFA227) equity funds offer exposure to the global equity markets, including emerging markets, excluding the US and Canada. As with all DFA equity funds, these products offer an increased exposure to small cap and value stocks relative to the market, with the Vector product having the most pronounced small cap and value tilts. These funds also have higher fees than comparable market-cap weighted index funds: DFA295 has an MER of 0.49% and DFA227 has an MER of 0.61% compared to a weighted average MER of 0.27% for an 87%/13% mix of XEF and XEC. Fees tend to be one of the best predictors of future performance, but with Dimensional’s tilts toward small and value stocks, and their careful implementation, we might expect slightly better long-term performance.

DFA vs. Index ETFs

Index returns cannot be captured by investors, so we will compare the DFA returns to live ETFs with their own fees and implementation costs.  There is insufficient data for XEF and XEF, which are Canadian listed, for a since inception comparison. We have instead constructed a hypothetical ETF portfolio consisting of 87% EFA and 13% EEM until October 2012, 87% IEFA and 13% IEMG from November 2012 through April 2013, finally switching to 87% XEF and 13% XEC through June 2018. In a live portfolio an investor would be unlikely to switch ETFs with this frequency due to tax implications and transaction costs. This has been ignored for the comparison. It is also worth noting that IEFA, IEMG, XEF, and XEC offer some small cap exposure, while EFA, EEM only offer large and mid cap exposure.

  • For the ETF comparison we use EFA + EEM / IEFA + IEMG / XEF + XEC

DFA295 Index ETFs Difference
1-Year Total Return (%) 9.24 8.95 +0.29
3-Year Annualized Return (%) 7.83 7.37 +0.46
5-Year Annualized Return (%) 11.89 11.40 +0.49
10-Year Annualized Return (%) 6.00 5.60 +0.40
Since Inception (07/2005) (%) 5.97 6.03 -0.06

Data Sources: iShares, MSCI, Morningstar Direct, Dimensional Returns Web

DFA227 Index ETFs Difference
1-Year Total Return (%) 9.37 8.95 +0.42
3-Year Annualized Return (%) 7.95 7.37 +0.58
5-Year Annualized Return (%) 11.94 11.40 +0.54
10-Year Annualized Return (%) 5.63 5.60 +0.03
Since Inception (07/2005) (%) 6.68 6.83 -0.15

Data Sources: iShares, MSCI, Morningstar Direct, Dimensional Returns Web

DFA295 and DFA227 have managed to outperform index tracking ETFs after fees for the trailing 10-year period. This is no small feat. Some credit must go to DFA for implementation of these strategies, but most of the credit goes to the fact that International small and value stocks have delivered excess performance. Both funds have trailed since inception. This is again driven by the weaker performance of International small and value stocks at the beginning of the funds’ lives.

Tax Considerations

Holding EEM, EFA, IEFA, and IEMG would result in one level of unrecoverable withholding tax from the foreign countries for a Canadian taxable investor. DFA holds securities directly, meaning that the taxes withheld by foreign countries could be could be recovered. Today this is somewhat less of an issue for an ETF investor as XEF holds securities directly. However, XEC continues to hold the US listed IEMG resulting in one level of unrecoverable withholding tax. On after-tax basis we would expect this to further improve the performance of DFA over a comparable International equity ETF allocation.

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Should you be trend following with managed futures?

The holy grail of investing is finding assets that are imperfectly correlated with each other. Adding assets that behave differently together in a portfolio improves the expected outcome. A reduction in volatility has obvious behavioural benefits, but it can also increase long-term wealth creation by smoothing returns.

There is little question that stocks and bonds belong in a portfolio. There is also substantial credible research demonstrating that adding exposure to certain factors – quantitative characteristics of stocks and bonds – increases portfolio diversification and expected returns. While many factors such as size, value, and profitability are relatively well-known, there are others that are discussed less frequently: trend following is one of those factors.

Trend following strategies are implemented with managed futures. Managed futures attempt to capture a factor known as time-series momentum, or trend momentum. This factor consists of long exposure to assets with recent positive returns and short exposure to assets with recent negative returns. The strategy is agnostic to the type of assets, meaning that it can be implemented with equities, fixed income, commodities and currencies.

Managed futures have historically proven to have strong returns, low correlation with stocks and bonds, and low volatility in general. Notably, the Credit Suisse Managed Futures Liquid Index returned 23.05% in USD in calendar year 2008 while the Russell 3000 – an index of US stocks – returned negative 37.31%.

This was not the first time that managed futures offered strong returns in bad markets. In a 2017 paper from AQR titled A Century of Evidence on Trend-Following Investing, the authors found that the performance of this strategy has been very consistent, including through the Great Depression and other substantially negative market events. Beyond the returns being strong, the asset class has maintained nearly no correlation with stocks or bonds, providing a substantial diversification benefit over time.

Research Criteria

We do not consider implementing an investment product unless it is backed by great research. To meet that criteria, the research must show that a strategy is persistent, pervasive, robust, sensible, and investable. The research on managed futures does check many of these boxes – it is persistent, pervasive, and robust. The biggest questions are whether or not there is a sensible explanation for managed futures to outperform going forward, and is it investable?


Small cap and value stocks are riskier assets and therefore it is sensible that they would have persistent higher expected returns. The explanation for managed futures’ outperformance is harder to grasp. From the AQR paper:

The most likely candidates to explain why markets have tended to trend more often than not include investors’ behavioral biases, market frictions, hedging demands, and market interventions by central banks and governments. Such market interventions and hedging programs are still prevalent, and investors are likely to continue to suffer from the same behavioral biases that have influenced price behavior over the past century, setting the stage for trend-following investing going forward.

This is a bit of a stretch as far as expectations for the future go. Betting on persistent risk premiums makes sense. Betting on persistent behavioural biases and market interventions is not something that I am comfortable with. Is it reasonable to bet on behaviour persisting? Human behaviour can change, especially when we have knowledge about our past behaviour. Behavioural errors are notably different than risk premiums.


To be investable a strategy has to be cost effective and tax efficient to implement. We can look to a real-world example to examine how investable the managed futures strategy is.

In Canada, Horizons launched the Auspice Managed Futures Index ETF (HMF) in 2012. It closed in 2018 due to a lack of assets. A managed futures index is quite different from a typical low-turnover total market cap weighted index; managed futures indexes use a pre-defined quantitative methodology to follow the managed futures strategy. Similar to any momentum-based strategy, managed futures have an inherently high turnover.

HMF had a management expense ratio of a little over 1%, but it also had a substantial trading expense ratio in each year of operation due to the high turnover of the strategy. The TER is a real cost that reduces returns and must be considered.

Horizons Auspice Managed Futures Index ETF TER

2012 2013 2014 2015 2016
0.68% 0.68% 1.56% 1.39% 0.69%

Data Source: Horizons' HMF MRFP

As a point of reference, the Dimensional Fund Advisors US Vector Equity fund, which is a US total market fund with a heavy tilt toward small cap and value stocks, typically has a TER of 0.01%. This is not an apples to apples comparison as the two strategies are vastly different, but you see the difference in implementation costs between a small cap value strategy and a managed futures strategy.

The total costs of implementing this strategy are high, exceeding 2% in some years. These costs could be justified with a sensible reason to continue expecting substantial outperformance, but I believe that aspect of this strategy is too uncertain to bank on.

High turnover leads to tax inefficiency. Much like expenses, taxes lower investor returns. A managed futures fund could be held in a tax-preferred account to mitigate this issue, but the tax inefficiency is another drawback to contend with.

Does It Belong in a Portfolio?

I cannot argue with the fact that managed futures look excellent in a back test, and there are a lot of people much smarter than me selling managed futures products based on these back tests. Without a sensible risk-based explanation, the high costs and tax inefficiency of this strategy will keep me away for now.

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Cash flow ≠ wealth

There is more to being wealthy than having a high income.

Cash flow can come and go. Ben Carlson recently had a post citing research from Thomas Hirschl at Cornell. The research shows:

  • 50% of Americans will be in the 10% of income-earners for at least one year during their working lives.
  • 11%+ of Americans will be in the top 1% of income-earners for at least one year.
  • 94% of Americans who make it to the top 1% income status will maintain that position for only one year.
  • 99% of Americans who make it to the top 1% will lose their top 1% spot within a decade.

Johnny Depp might be the most current and extreme example of this; he has reportedly squandered $650M of earnings on a lavish lifestyle with nothing left to show for it.

Cash flow

Cash flow is not wealth. High spending during years of strong cash flow may afford the appearance of wealth, but when the cash flow is gone the lifestyle goes with it. Saving a portion of that cash flow can lead to a base of assets.


Growing a base of assets is by no means easy. It takes some combination of planning, discipline, and luck. The fortunate side effect is that anyone who has applied planning and discipline to build up their assets is likely to maintain their planning and discipline into the future.


Without discipline, a large asset base can be easily spent. Based on this someone with substantial assets relative to their neighbour may not be wealthy. Wealth is assets relative to current and future expenses. This is where the intersection of assets and expenses becomes interesting.

Take a financially independent 45-year-old with an $8,000 per month lifestyle. They would need about $3.8M to be financially independent, and each additional dollar of desired lifestyle spending would require about $40 of additional assets. That magnifying effect works in both directions; the required assets to fund financial independence for a 45-year-old drops to $1.5M if they can manage to live on $3,000 per month.


Expenses are the link between cash flow, assets, and wealth. If wealth is defined as independence and freedom, then low expenses can be one of the strongest drivers. Lower expenses lead to a higher savings rate while also reducing the amount of assets required for financial independence. It is easy to spend more by becoming accustomed to luxuries while effectively robbing your future self.

Spending wisely is an idea that has been popularized by Mr. Money Moustache, among other frugality bloggers:

When you wriggle yourself into the narrow nook of luxury, your perspective on the world, and your ability to survive and thrive in it, also constricts dramatically. Like any drug, it can be fun to indulge in occasionally. But to seek to constantly maximize luxury in all areas of your life to the limits of what you can afford? Pure insanity.

There is, of course, a balance between frugality and comfort. The takeaway is the true cost of expenses. If you have cash flow, high expenses reduce your ability to build assets. If you have assets, high expenses reduce the value of those assets relative to your lifestyle, making financial independence less attainable.

Wealth is relative. Not relative to other people, but relative to your own expenses.

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