NO MATTER HOW MUCH money we currently have, there’s always the temptation to want more. This is understandable—we like the idea that the future will be brighter than today—but it also carries risks.
There’s the obvious danger: We’ll never feel satisfied with what we have. For most of us, the big financial finish line is retirement. How much do we want saved up by then, so we can retire in comfort? Even if we later revise that number,

ARE WE DEVOTING OUR time and money to things that are important to us—or are our actions driven by what we want others to think? This sort of signaling is often associated with conspicuous consumption. Folks may buy the big house and the luxury sedan because they imagine these possessions will make them happier. But they might also do so to signal their financial success to others. This is one of the downsides of a society where we don’t openly talk about how much we earn and how much wealth we’ve amassed.

IT SEEMS ALMOST everything can be rented today—clothes, movies, music—and often renting makes financial sense. Still, it isn’t the road to wealth. When it comes to key parts of our financial life, we should strive to be owners—provided we have a long enough time horizon.
For instance, if we plan to keep a car for more than three years, we’re usually better off buying rather than leasing. Indeed, that’s typically the only option with a used car,

WE GET TO MAKE LIFE’S financial journey just once, so we should do everything in our power to ensure the trip is successful. But how? As you might expect, we at HumbleDollar strongly suggest approaching the journey with a healthy dose of humility.
Think of it this way: We may have just one past, but we’re confronted with all kinds of possible futures—and we should try to ensure we’ll be okay financially,

OUR LIVES ARE AN ongoing struggle between the shortsighted desires of our current self and the financial needs of our future self. This is a battle that our current self wins with alarming regularity. Think of the diets that fail, the commitments to exercise that fall by the wayside and all the dollars that somehow never get saved.
We can blame all this on the instincts we inherited from our hunter-gatherer ancestors. They didn’t need to worry about dieting,

ALBERT EINSTEIN DIDN’T say, “Compounding is the eighth wonder of the world.” But if he had, the praise would have been richly deserved.
As many investors are aware, investment compounding—coupled with heaps of time—is the leverage that can turn modest savings into huge sums. A simple example: If you invested $1,000 and earned 6% a year, you’d have $10,286 after 40 years. What if you invested $1,000 every year? After 40 years, your $40,000 total investment would grow to $164,048.

WE ALL LIKE TO THINK we make smart, level-headed financial decisions. A slew of research suggests otherwise. Our missteps have been detailed by academics focused on behavioral finance, happiness, behavior change, evolutionary psychology and neuroeconomics.
What’s the common theme running through all this literature? It seems our instinctive reactions—bequeathed to us by our hunter-gatherer ancestors—frequently let us down. We’re hardwired to act in certain ways, and it often takes great effort to behave otherwise.

AS WE TRY TO WRAP our arms around this sprawling thing we call a financial life, we might begin with what’s often our most valuable asset—ourselves. Economists refer to our income-earning ability as our human capital. Our regular paycheck—or lack thereof—should figure into a slew of financial decisions, including how much debt we take on, how much emergency money we need, how much we should save for retirement, what insurance we purchase, and what mix of stocks and bonds we buy.

WHAT ARE THE MOST important financial ideas? In this chapter, we don’t focus on specific financial terms, like diversification, correlation and momentum. Instead, the goal is to offer up larger ideas that can help us think more clearly about our financial life and our own behavior.

Humility
Simplicity
Control
Instincts
Future Self
Hedonic Treadmill
Signaling
Human Capital
Be an Owner
Risk and Reward
Opportunity Cost
Negative Bonds
Compounding
Present Value
Skewness
Risk Pooling
Enough

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WE ALL HAVE LIMITED money, so we need to weigh carefully how best to use our dollars. That means pondering not only what we’re getting, but also what we’re giving up. This is one of life’s great financial tradeoffs, rivaling the tradeoff between risk and reward.
Indeed, at times, the two notions overlap. Suppose we stash our money in bonds and notch 3% a year. Yes, our wealth will grow. But if we had bought stocks instead,

ALTERNATIVE investments—including hedge funds, real estate partnerships, natural resources and venture capital funds—have long fascinated investors. Folks love the idea of owning sophisticated and often exclusive investments that not only have the potential to post gains when stocks are suffering, but also could deliver outsized long-run returns.
Indeed, in recent decades, there’s been much chatter about the so-called endowment model, which is closely associated with the late David Swensen, who oversaw Yale University’s endowment.

AS INDEX FUNDS garner ever more assets, proponents of active management have all but given up claiming that there are reliable strategies for beating the stock market averages. Instead, they’ve sought to persuade folks that they should avoid index funds, because indexing is bad for the smooth functioning of the stock market.
In essence, investors are being told, “We know that, on average, indexing beats active management. But you should still trade stocks and buy actively managed funds,

IN THE FINANCIAL world, making money is the most popular pastime—but having a good argument is a close second. What do folks argue about? In this chapter, you’ll get the skinny on 15 of Wall Street’s greatest debates.

Money Buy Happiness?
Are Investors Idiots?
Hire an Advisor?
Beat the Market?
How Much Abroad?
Add Alternatives?
Stocks Overpriced?
Indexing Dangerous?
Bonds or Bond Funds?
Buy a House?
Invest or Reduce Debt?
Term or Cash Value?

DEPENDING ON THE valuation measure you look at, U.S. stocks have been more richly valued than the historical average since the late 1980s or early 1990s. Faced with those higher valuations, pundits have regularly warned that a great reckoning is at hand and that share prices will soon revert to more normal valuations. But normal valuations have not returned.
Why not? Some observers contend that today’s higher valuations should be expected, given the lower interest rates of recent decades,

AS BOND YIELDS HAVE fallen in recent decades and stock market valuations have climbed, some experts have suggested that the standard 4% portfolio withdrawal rate may be too high—and that retirees who spend that much risk running out of money.
A refresher: The 4% rule assumes retirees withdraw that portion of their nest egg’s value in the first year of retirement. Any dividends and interest payments that are spent count toward the 4%. After the first year,