I Will Teach You To Be Rich: No Guilt. No Excuses. No BS. Just a 6-Week Program That Works

Asset allocation is “the way you distribute the investments in your portfolio between stocks, bonds, and cash” (221). In the context of investing, an asset is a specific investment, for example a stock or bond. Asset allocation is essential to Sethi’s investing advice, as he emphasizes that many people operate under the misconception that the key to lucrative investing is picking the right stocks. He argues that, in fact, the key to lucrative investing is spreading investments out over asset classes in order to mitigate risk.

Conscious spending is Sethi’s answer to the draconian budgets recommended by personal finance books and blogs. “‘Create a budget’ is the sort of worthless advice that personal finance pundits feel good prescribing, yet when real people read about making a budget, their eyes glaze over,” Sethi writes. (127). People know they should track and limit their spending, but even people who do set up budgets fail to follow them for long. Sethi argues that budgets don’t work because they work against human psychology, so he instead suggests a Conscious Spending Plan that allows readers to save and invest a certain percentage each month and then spend the rest on what they love, guilt-free, while cutting out what they don’t need.

Diversification is the principle of buying a variety of different assets of a single type, for example, multiple kinds of stocks or multiple kinds of bonds. The three primary types of stock that Sethi identifies are small company, mid-sized company, and large company stocks. Diversifying means owning small, mid-sized, and large company stocks. Similar to asset allocation, diversification protects against risk. If the price of one kind of stock drops, it won’t undermine the value of the entire portfolio because the portfolio is spread out over asset classes and kinds.

As an adjective, “fiduciary” means “of, relating to, or involving a confidence or trust” (“Fiduciary.” Merriam-Webster); as a noun, “a fiduciary” refers to someone who holds responsibility of trust or confidence. This term is central to Sethi’s discussion of financial advisers and wealth managers. Sethi repeatedly tells readers that financial advisers and wealth managers who are paid on commission manipulate customers. He devotes Chapter 6 to debunking the “myth of financial expertise.” He contrasts these professionals with those who are “fiduciary (i.e., if they’re required to put your financial interests first)” and regulated by the SEC (199). If readers insist on working with an adviser, Sethi insists that the potential adviser is a fiduciary.

FIRE stands for financial independence and retiring early. The idea is that “money makes money, and at a certain point, your money is generating so much new money that all of your expenses are covered” (217). People in this situation are equipped to retire early. There are two kinds of FIRE: “LeanFire,” where people retire early and live off a minimal amount of money, and “FatFire,” where people retire early with a lot of money and live luxuriously. Sethi presents FIRE as the goal for his readers. When you reach the “magic of financial independence, […] you can choose to work or not—after all, you could spend the rest of your life spending down your investments” (217). Simultaneously, however, Sethi warns against focusing too intently on reaching FIRE; life is best lived “outside the spreadsheet” (220), so he encourages readers to balance their focus on financial management with enjoyment of their lives.

investment product that “buy[s] stocks and match[es] the market” (235). Index funds use computers to automatically match an index, or class of stocks, for example, the S&P 500. Passively managed, index funds try simply to match, rather than beat, the market. As Sethi reiterates in Chapter 6 on “the myth of financial expertise,” because even professionals fail to beat the market, individual investors like Sethi’s readers are best served by investing in index funds or target date funds and leaving their money invested regardless of the vagaries of the market.

Mutual funds are investments that gather together different kinds of assets that are then actively managed by professionals who buy and sell individual assets in order to try to beat the market. Mutual funds are often advertised as the easiest and most convenient way to invest, but they charge large fees, and Sethi argues that even the professionals who manage them fail to beat the market 75% of the time. Sethi therefore advises against mutual funds and recommends passively managed funds instead, for example, index and target date funds. Sethi’s commentary on mutual funds emblematizes his philosophy on investing: The goal is to match the market over the long term because nobody can actually predict what the market will do.

A Roth IRA is a type of tax-advantaged retirement account that individual investors open for themselves. Whereas a 401(k) is opened by a company for an employee and invests pre-tax dollars that are then taxed when money is withdrawn, a Roth IRA is opened by an individual with post-tax dollars that are not taxed when the money is withdrawn. Both accounts can be withdrawn without penalty when the investor turns 59.5 years old.