Closing the Gap

It can take a leap of faith to close the gap between where you are and where you want to be.

Getting Momentum on Your Goals

Big planes take a lot of energy to get up in the air over short distances, relative to what takes to move fast at cruising altitude with a tailwind.

Gaining ground on your goals is very similar. Getting started can take a huge amount of effort. Even more effort can be needed to make initial and measurable progress against the goal. It’s easier to do if you remember that it will not always be that hard once you have gained the initial momentum.

There are lots of ways to help out with the initial stages of progress against a goal. The most effective one I’ve found is to seek out a community of like minded people working toward the same, or at least similar, goals.

If your goal is to do a triathlon, join your local tri club (or hire a coach). If your goal is to travel to new places, join a travel group on Meetup.com. If you want to make a job transition, seek out a mentor who is at a place in their career that reflects where you would like to be.

The Way Out is Through

Frost said it best:

“The best way out is always through.”

Robert Frost
US poet (1874 – 1963)

Happiness is a Choice

Sometimes it is an easy choice.

Sometimes it is a hard choice.

Either way, it is a choice.

Your Most Important Conversation

The most important conversation you will have all day is the conversation you have with yourself.

Self talk directly reflects on your own self esteem which directly impacts how you show up to others in every day life and how you interpret things around you.

The way you see yourself ends up being how others see you.

Talk to yourself in a positive way. Be funny with yourself. Celebrate the little good things you do and don’t dwell on the bad.

How to Transform Your Life

Transforming your life does not require massive action or big goals. It requires steady and methodical progress.

If you have set big and lofty goals for the new year, that is ok. Just remember that it is the daily actions that will slowly but inevitably create the big change you are looking for.

Just like interest in a bank account, the small things compound per time. Losing just an ounce a day of body weight will completely remake your physique over the course of a year. Saving an extra $100 a week will amount to big long term savings over the course of a few decades (invested well, it could pay for a child’s college education!). Meditating for just 10 minutes a day can dramatically improve your ability to focus on everything else you do and give you emotional calm and poise when dealing with other people.

Instead of fretting over having to radically shift your daily routine, focus on the small things you can do consistently. Those are the things that will make all the difference. The hard part is focusing on the long term impact of your decisions, and not getting caught up on the need to see massive shorter term progress. Most people will give up on the early part of the curve in the diagram below. Sticking with it is key!

Setting Goals

The presence of a goal is more important than the substance of that goal.

Goals drive focus and a heightened sense of awareness. They provide a context for cause and effect between your actions and outcomes. They start the process of moving toward something worthwhile.

I’ve found that the presence of a goal will have collateral and positive impact on other parts of life. A goal to lose 10 pounds will inevitably help me focus on other things that are not health related – such as work or other creative tasks.

If you are spending a lot of time agonizing over your goals, don’t. It’s more important to pick something that is meaningful, but not perfect, than it is to not pick anything.

Finding the Zone

The trick is to do things that are not too easy, but also not overly hard.

Test the boundaries of the upper and lower limits and do so regularly over time.

This applies to physical pursuits but also to work and other creative tasks.

Asset Allocation Basics

Buying individual stocks is a suckers game (the clowns on CNBC have it wrong). Investing, across a broad range of assets, is not.

Heaps of financial research has shown that asset allocation is the single biggest factor driving investment portfolio performance. “Managed money” in mutual funds or handled by investment advisors almost always results in a lower return over the long run.

The only case I can come up with in favor in picking stocks is when you are wealthy and/or informed enough to have a “seat at the table”, as venture capitalists or large hedge fund investors do. If you don’t have the opportunity and capacity to meaningfully and directly support the company’s strategic direction (like Warren Buffet!) don’t invest in it directly. Otherwise, it’s just plain old gambling.

Cash is safe but will eventually erode in value due to inflation and low interest rates on CDs And money market accounts make those cash-like investments impractical over the long term (unless rates change).

The question then becomes, how does one create a balanced portfolio with the proper asset allocation? Where do you put your money when the bank hardly pays any interest.

The ingredients for a portfolio are incredibly simple:
1. Cash – defined by how much you need to have on hand to cover living expenses day to day.
2. Bond index fund – one that has a mix of short and long term bonds.
3. Stock index fund – one that is globally weighted according to a standard index.

For cash, be super conservative. Keep a large stash of emergency funds. Some financial planners advise an 8 month emergency stash assuming zero income and essential living expenses. Make it a year if your financial situation allows.

For bonds, don’t pick specific bonds. They can be as risky or riskier than stocks! Also watch out for long term bonds that can swing wildly in price. Stick to a broad index of bonds that have a short to mid term duration.

For the stock index investments, the S&P 500 index isn’t enough. You need to have exposure to mid and small cap stocks in the US and also the global stocks not listed on the US exchanges. Doing this will require at least two index fund purchases, one that tracks the US market in total and another that tracks the World market in aggregate (not including the US).

The key thing for bond and stock investments is to buy the absolutely lowest cost index funds that represent a broad based index (not actively managed funds). Over time, even fractions of a percentage of expenses will cost thousands (or tens of our ands depending on your portfolio value).

Most major investment houses (I use Fidelity, but Vanguard is another good one) have low cost index funds covering the required asset classes. To give you an idea of how low the expense ratios should be, I invest in a Fidelity Spartan Total Market Fund that tracks the broad US market (small to mid and large cap) and has an expense ratio of only .10%!

For international index funds you might pay an expense ratio closer to .25% or so. Just look for the lowest cost and make sure it tracks the proper broad based index for the asset class. If you aren’t sure, ask someone who knows or research online . Don’t get duped into choosing an “international” index fund that ends up being European market specific or also invests in the US. Do some homework.

Too many people get tricked (or are just too lazy to do the homework!) into picking funds with fees north of .5 or even 1 or 2%! That’s just throwing money away.

Before buying any of these assets, however, you will ultimately need to decide on your asset allocation. There are numerous online tools and calculators to help you figure this out. It depends on as, near vs long term cash needs and risk tolerance.

One rule of thumb I’ve heard of is to subtract your age from 100 and that becomes your stock allocation. The rest is bonds (this assumes you have a separate cash savings not included in the allocation). This is a crude method….use the online tools to pick an asset mix.

Personally, I have a much more conservative asset allocation, since my career is in a high risk industry (high tech) along with a portion of my compensation (company stock) and I factor this into my overall portfolio allocation decision.

Regardless of what your allocation is, the most important thing to do is have some sort of allocation, period. Don’t put all your eggs in one basket. I know too many people that have invested their entire 401k in Microsoft stock (where I work) over many years, and don’t think twice about it. Whenever I hear this I cringe!

That is gambling. Investing is different. Investing means having a plan…a strategy. It means not trying to time the market or pick stocks, but in sticking with the plan over the long term.

This also applies to investing only in stocks, even in stock index funds. That isn’t a balanced portfolio (unless you have done so with 100% intentionality!). In the past few years, since the financial meltdown in the US, bonds have actually outperformed stocks. They are an important asset class and a great way to minimize volatility with relatively opportunity cost in performance gains.

When in doubt, pick a more conservative asset allocation (more bonds and cash). You can always change your mind later.

Once you have set your allocation, rebalance once a year as the asset classes shift in value to get back to your target allocation.

Good luck.

Tea vs Coffee

I enjoy coffee, I really do. I also like tea and have this feeling that coffee just doesn’t suit me so well. I get very amped up on it, it interrupts my sleep patterns and affects my training and diet.

For the past few weeks I’ve cut back on my coffee habit. I normally drink a cup in the morning….and occasionally another in the afternoon (we get free Starbucks drip coffee at Microsoft so it’s tempting).

Instead of this, I’ve been drinking a ton of tea and Yerba Mate. I don’t care so much about the caffeine content of the tea. I’m more interested in just avoiding the coffee to see what happens. My trip to China last month instigated this. The tea there is incredible and people drink it all day long.

I’ve felt a lot better. I sleep better. I can think more clearly and focus on single tasks for longer periods of time. Coffee makes me a task-monkey, able to get lots of routine things done, but at the cost of creativity. Tea doesn’t have this affect.

I’m also far better hydrated during the day which has a positive impact on my training and diet. The diuretic affect of tea must be less than coffee.

The first week was tough but now I actually am craving tea instead coffee. I prefer loose leaf teas steeped in a French Press.

I don’t know how much of the benefits I can attribute to caffeine differences, as I am consuming a lot of of caffeinated teas. There must be some other stuff in the coffee that doesn’t suit me, or the intensity of the caffeine load in a single cup (compared with having it spread across many cups of tea) has a bad impact.