I love books that swing for the fences.
They almost always include things I disagree with. And they’re not the sort of books that will average 5 stars on Amazon.
That’s how I’d describe The Last Safe Investment by Bryan Franklin and Michael Ellsberg. It relates to finance and investment but treads very different ground to most books in the arena.
The book goes broad and deep in unexpected ways. It got me more excited than many other books I’ve read recently, especially in the domain of personal finance.
It resonated with me, which isn’t to say it will resonate with you.
I endorse this book, with a massive dose of salt
I am not endorsing everything Franklin and Ellsberg (who I’ll refer to as “the authors”) say in this book. There are some areas where I completely disagree. For example:
“Many people think that a 401(k) plan [ie, a retirement savings plan, like KiwiSaver], home equity, or mutual fund [ie, managed fund] is a form of savings. This is a greatly misguided view. These are investments, and subject to the same risks as all investments. Our view is, you should not risk money simply to get more money (as in stock investments). The money you risk (in the form of investing in yourself, as described in this book) should be in service of something that will improve you, further your purpose, as well as increase your income. The thing to do with money that isn’t being invested in yourself is to save it for real, in a boring savings account, or in CDs or money market accounts, or perhaps in inflation-adjusted bonds.”
This is BS.
The authors also go to great lengths to say that what they’re offering is different to “Financial Advice Commonly Delivered” (“FACD”), and in doing so totally strawman the beliefs and approaches of many financial advisers. For example: “the FACD plan has led you to believe [that retiring with at least $3 to $5 million in cash in the bank] is what you need in order to be happy”.
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Wrong, wrong, wrong.
I’d characterise the book as a personal development book with a strong financial focus. To the extent the authors talk about anything related directly to money, I’d take their comments with a massive dose of salt.
But like I say, this is a book that is swinging for the fences. I wouldn’t normally forgive the authors for these misstatements, but somehow I could get past these sticking points.
Here’s an example where I disagree with the details but agree with the general philosophy:
“If a financial adviser is handling your portfolio, and the stocks she has chosen rise 10 percent, she knows (a) that her choices led to that result, (b) exactly what the result was, and therefore (c) exactly what her reward or compensation will be, based on any contractually specified management fees. Without precise quantification, there is no compensation. If she was instead to recommend investing your money into cooking classes in order to eat more healthily at home, for example, she wouldn’t know (a) whether that recommendation led to any financial gains at all, (b) if so, exactly what those gains were and how much could be attributed to this investment recommendation, and therefore (c) there’s no way she could get compensated for such a recommendation.”
I disagree with the quantification side of the equation. But I agree with the broader statement: recommending cooking classes doesn’t sound like a financial investment. But it might be the best investment you can make right now.
I also think there’s an element of truth to this: “No compensation, no recommendation. That’s how it works with traditional financial advisers. And that’s why you don’t hear them talking about the kinds of investments we talk about in this book.”
Despite these (pretty major) caveats, I really enjoyed this book and agreed with much of what it had to say.
The last safe investment is… YOU.
The central idea of the book can be captured in this sentence: “The safest investment is the thing you have the most control over: yourself.”
The authors encourage you not to just look at your balance sheet, but to consider your “financial ecosystem” much more broadly.
Give up on the dream of passive income!?
The authors have a very different view of the world to, say, Mr Money Mustache.
This ain’t a book advocating FIRE (“financial independence, retire early”).
The authors say, upfront, that “we want you to give up on your dream of passive income”.
But they follow: “we don’t want you to let go of your value of freedom.”
This reminds me of the maxim that there are many paths up the same mountain.
When you think about it, “financial independence” is an instrumental goal rather than an end goal. It’s not valuable in itself, but because of what it can give you.
And for most people, among other things, the idea of financial independence is valuable because it’s tied up with a sense of security, freedom, comfort, and confidence.
If you think you need to be financially independent in order to have a sense of security and freedom, then that’s your jam.
But if you can get into a position where you can do work that you enjoy, and you’re confident that you can add value and find work that fits in with the type of life you want to lead, then that’s arguably going to get you to the same end point. It’s just a different path up the same mountain.
Mr Money Mustache himself almost says as much in his 2018 article explaining why “Money and confidence are interchangeable”:
It turns out I didn’t need all that money, because my needs and wants will never be more than I earn from my natural desire to do useful work. You don’t need to be a musclehead in order to have friends or meet attractive people or deter bullies – normal fitness is just fine and being friendly and open is much more attractive – whether your goal is finding love or running a powerful enterprise.
You don’t have to OVERACHIEVE at everything you do – you can be strategically great at things you truly enjoy, carve the rest of the unnecessary crap out of your life, and spend your days in a much healthier balance of work and play.
Many of us are focusing our energy on building up the wall of protective money and insurance policies around us to ever-greater heights, working one last year and funding one last insurance policy against an obscure risk, when really our deficit is not in money. It’s in confidence.
The same mountain. Different paths.
In this spirit, the authors suggest that “for the vast majority of readers, investing in active earning potential requires less knowledge, less risk, and results in more gains than investing in passive income”.
They point out the irony of people slaving “away at jobs they hate, working up to eighty hours per week, even giving up holidays and weekends to try to meet a financial goal of earning $100,000 per year—which was meant to be an expression of the internal state of financial freedom. Giving up freedom as a strategy to get freedom.”
At a personal level, I’m very happy to earn less, work longer, and do so in a sustainable way, where I enjoy the journey. That might be the case for you, too.
The authors also make an excellent point:
“passive income may offer you the choice of playing Xbox all day, but it rarely gives you the opportunity to sit on the board of the nonprofits that inspire you most, have dinner with your living heroes like Sir Richard Branson or your favorite musicians, or be invited to be the keynote speaker at a cutting-edge conference in your field of choice.”
On the blog Get Rich Slowly, there is a guest post written by Bob Clyatt, with commentary from J. D. Roth, titled “Fifteen years of semi-retirement: A real-life look at what it’s like to live more and work less”. It’s a clear-eyed assessment relating to early retirement, detailing some of the pros and the cons. Something that resonated with me was this:
“When you leave life in the fast lane a decade or two before your peers, some of the folks you know will go on to become Big Dogs at a time when you’re feeling more like a Chihuahua!”
“I have friends who are entering their sixties with large career accomplishments are becoming directors of significant public companies, an ideal semi-retirement role. Others who have done well financially are in a position to engage in philanthropy at a level I simply can’t.
“In addition to the genuine good they’re doing through their gifts, they’re invited into advisory roles where they can help steer the vision and activities of their chose charities. This work is deeply meaningful for them. These roles also bring accolades that keep the older semi-retiree feeling appreciated, respected, and useful in a significant way, while remaining connected to other high-achievers.”
It’s also worth noting that if you’re valuable and in demand, you have a lot of flexibility in terms of determining when you work, where you work, and how you work.
Again, this book is swinging for the fences and goes a little extreme for my taste. I think there’s value in terms of building up wealth and some form(s) of passive income. I think you can find a good middle ground.
Be valuable to other people
One of the points the authors reiterate in this book is that you need to work on increasing your value to other people.
In short: “your earning potential, via an increased value to others, is that leverage point in your financial ecosystem”.
Ultimately, “being valuable to others’ will never be obsolete, irrelevant, or valueless”.
The book goes into a lot of detail about how to improve your value to other people. I’ll touch on some of them briefly.
Develop “market skills” and “super skills”
“Market skills” are skills that are valuable in your particular domain of work.
“Super skills” are skills that benefit “all areas of your professional and business life”. A super skill is “any skill that has a virtually guaranteed return on investment regardless of your professional circumstances. Super Skills increase your value to nearly every business, as well as the value of all your other skills”.
They categorise super skills into four categories: interpersonal, creative, technical, and physical.
(“Physical?” You may be asking. The key here is being able to bring energy to your work, and increasing the longevity of your working life. Plus, increasing your attractiveness (or lack of attractiveness!), since more attractive people tend to earn more than the rest of us. On another note, this is the first personal finance book that spends time talking about why you should pay special attention to your sex life…)
The authors suggest that “[i]f you invest $5,000 to $10,000 in developing your Market Skill and one or two additional Super Skills each year, you will continually be upgrading your value to others”.
Cultivate “adviser equity”
The authors spend a lot of time talking about a concept they call “adviser equity”. I won’t discuss this in any detail here, although it’s something I’ve been mulling over a lot.
It’s not necessarily a formal type of equity, like shares in a company. The key idea, as I understand it, is that if you provide value to the right people at the right time, even with no immediate expectation that you’ll get something in return, you will accumulate a number of people who feel a sense of gratitude and will provide you with opportunities and other benefits over the long-run. For example, a successful entrepreneur may offer you opportunities with future ventures, or someone who feels grateful to you may let you use their bach every now and then.
Build a “tribe”
The authors also spend a lot of time talking about cultivating a “tribe” of people (of 15 people or more) with shared values. They go into this in a fair amount of depth.
One point they make on several occasions: “The best way to meet people at networking events is to host the networking event.” In other words, if you want something to happen, don’t want for it to happen. Make it happen.
“Spending” and “investing” are sometimes the same thing
I’ve mentioned that I don’t agree with some of the authors’ specific investment advice, but on this big point, I agree with them.
Thinking of investing in terms of just putting money into financial assets, or property, or into ventures you’re involved with, is myopic.
You can invest in lots of different ways. One of these ways is by investing in your education (formal or otherwise). You can invest in your health (because after all, your health is your wealth.) You can invest in friendship.
The authors go even further. Every dollar you spend is a form of investment. As they explain, “The idea of spending and the idea of investing, as they are usually held, have an adversarial relationship.”
And in this sense, You should “evaluate how any particular piece of spending improves every other context in your life, aside from its original context”. In other words, every dollar you spend, whether it’s on fueling your basic needs (such as for food or accommodation) or contributing to your well-being in other ways, is a form of investment that should be considered systemically within the broader context of your life.
They explain: “When you view spending this way, suddenly you realize that you have a lot more gas in the tank. Instead of investing a few thousand dollars per year, which is all that most Americans are typically able to save per year, now you are investing the sum of all your expenses, each year”.
Final thought: kill your idols
In sum: I liked this book. The authors swing for the fences. Sometimes they hit home runs, and sometimes they strike out. At the very least, the book is thought-provoking. And I liked it a lot.
My “default” mode of reading/listening/watching is to automatically agree with what I’m reading. There are moments where something might wake me up, but in general, it takes active effort to read/listen/watch more critically. This might have something to do with the type of writing/media I seek out. But I think I have this tendency to agree because I’m human.
One of the best things about this book is that (a) I found myself reading more critically than usual, because there was a lot I disagreed with. But (b) I found myself reading more critically, because it was drawing such a stark contrast with many of the core tenets in the financial blogosphere.
At minimum, it has given me a better vocabulary for thinking and explaining how financial decisions need to be considered from a very broad perspective, and reinforced to me that decisions that are suitable for one person can be very different to decisions that are suitable for someone else.
As with everything, take what is right for you, and discard the rest. The only person who can know what is right for you is you.
Bruce Lee said it well: