Today’s Financial Independence Podcast show is two episodes for the price of one!
Brad and Alexi from Travel Miles 101 joined me to talk about the power of travel hacking but since they both also write about financial independence on their personal finance blogs, Richmond Savers and Miles Dividend MD (respectively), we had a great discussion about investing and early retirement as well!
Take a listen to find out why peer-to-peer lending should be avoided, how financial independence can lead to entrepreneurship, and why you should get into travel hacking now if you plan to travel after you retire early.
When you finish listening to the episode, make sure you go over to sign up to their free travel-hacking course at Travel Miles 101 and if you want to take your family to Disney World for free, join the free Keys to the Magic Kingdom Challenge over at Richmond Savers!
- Using FI savings to become an entrepreneur
- Dealing with extreme lifestyle inflation
- Why P2P lending is like investing in extra-junky junk bonds
- How travel hacking increases your options and decreases the stress of travel
- Why travel hacking is the perfect hobby for fientists
- Travel Miles 101
- Richmond Savers
- Miles Dividend MD
- The Shockingly Simple Math Behind Early Retirement
- MMM vs. Chase
- How to Go from Middle Class to Kickass
- Sacred Cows
- JLCollinsNH – Stock Series
- The Little Book of Common Sense Investing by John Bogle
- Dual Momentum: A Year in Review
- Flyertalk Travel Community
- Travel is Free
On today’s show, we have Brad and Alexi from TravelMiles101.com. They’re here to talk about travel hacking and how to use miles and points to pretty much travel for nearly free. This is definitely a subject that’s really close to my heart because we do a ton of traveling and it really is not a big part of our budget at all just because we’ve been able to utilize miles and points and all the other tips and tricks that are talked about so much in the travel hacking space.
Brad and Alexi are actually both in the early retirement financial independence space as well. Brad’s site, RichmondSavers.com and Alexi’s MilesDividendMD.com both dive into lots of financial topics that are related to financial independence.
So I’m excited to have them on the show because we can not only dive into the cool stuff they’re doing over at Travel Miles 101 and the travel hacking space, but I also really want to chat with them about a few things in the financial space as well.
So without further delay, Brad and Alexi, welcome. Thanks for being here.
Brad: Thanks for having us, Brandon.
Alexi: We’re super excited to be here. Sorry, we’re talking over each other.
Mad Fientist: Yeah, I’ll do better to address each of you individually so you don’t have to worry about that. But yeah, I’m excited to have you guys on. And obviously, we’re going to chat a lot about travel hacking.
But before I do, I do know you guys are both in the financial independence/early retirement space as well, so it would be good to get some of your background before Travel Miles 101 started. Just talk about how you got on the path of financial independence and talk a little bit about your other sites.
So Brad, do you want to kick off?
Brad: Sure! Sounds great! Again, thanks for having us. This is great. I’ve been a Mad Fientist fan for quite some time, so it’s cool to be on the podcast.
Mad Fientist: Nice! Thanks.
Brad: So, my site, my personal finance site is RichmondSavers.com. So I actually live in Richmond, Virginia and I just started this as a little side project, just kind of like a passion project. Obviously, I wouldn’t have named it Richmond Savers if I thought I was going to be some huge site probably, but it was just kind of getting my financial thoughts on paper (or digital paper, as it may be).
I’ve always been frugal. I’ve always been interested in early retirement probably even before I thought about it on that concrete of a level. So it’s just been something that’s part of my life. So yeah, I just started this site.
And then, I guess, what got us some notoriety or acclaim, I’d say, was this trip to Disney World that we had put together using rewards miles. This is how it all ties in to travel hacking and travel miles and such. I wound up getting mentioned in the New York Times and on NBC and CBS for this essentially free trip that we put together for my family of four to head down to Disney World. It just resonates with people.
So that was really the beginning of the shift from just a generic finance blog into a travel rewards coaching service which is what I pretty much started. I had helped people 101 just get started with travel miles.
It’s a pretty confusing concept. We’ve all spent probably hundreds of hours each studying this.
Mad Fientist: Absolutely!
Brad: There’s so many rules and so many details. Just regular people don’t have time for that kind of stuff. If I could help cut through with a 20-minute phone call or an email or something, that’s a job well done. So it felt nice. It was very psychologically satisfying to help people.
That’s kind of the arch from Richmond Savers, the personal finance blog to how I got into really helping people with travel rewards.
Mad Fientist: Nice, yeah. And when you were saying you wouldn’t have named it Richmond Savers if you thought it was going to be big, I was just thinking back to all your TV appearances and things that had happened because of the Disney trip. It didn’t matter too much that your name is focused on Richmond when you’re on such big news outlets and everything.
And yeah, we’re going to dive definitely into a lot of the travel hacking stuff. But you’re also a CPA, right? In your day job, prior to doing these things full-time, you were a CPA?
Brad: Yeah, that’s right.
Mad Fientist: So the finance system is something that’s been in your blood for a while.
Brad: Absolutely! Yeah, I was in corporate tax for really my whole career after graduating college. And yeah, I actually just left my job earlier this year. So I’m moving certainly closer towards financial independence and early retirement and that kind of stuff.
Yeah, it’s been a real interesting ride. I never could’ve imagined when I started this website 2 ½ years ago that I would be able to quit my job. And obviously, much of that is due to discipline saving over the years. It’s not this new business or anything like that. It’s definitely a neat thing.
Mad Fientist: That’s amazing, yeah. So you’re not fully financially independent, but you used your savings to be able to cut ties with your other job and take entrepreneurship seriously which is an amazing thing because I think that’s what a lot of people are – maybe they do have ideas or maybe even fledgling businesses that are just trapped in the ‘get the paycheck, spend the paycheck’ cycle. They can’t even think about maybe doing something riskier but potentially more rewarding. It sounds like you did exactly that. And your savings towards financial independence helped make that possible. Is that a…
Brad: Yeah. No, that’s a great way to summarize it, for sure. It’s so much easier psychologically knowing that a) we live so far below our means, if you will, if that even means anything. We’re frugal, we don’t frivolously waste money. Our expenses are low. That makes it easier in and of itself. And then, sure, we have been, like I said, saving so diligently for so many years. It just makes it dramatically easier to take a risk because the risk is minimized. There’s essentially no risk just because the monthly expenses aren’t that much.
So I totally agree. It definitely ties into it, for sure.
Mad Fientist: That’s excellent. And Alexi, you’re a doctor by trade, is that correct?
Alexi: I am. I’m a cardiologist, actually an electrophysiologist which is a specialty within cardiology that specializes in arrhythmia. So that’s my day job.
Mad Fientist: Nice! So how did Miles Dividend MD come about?
Alexi: It was kind of an interesting route. It’s almost an exact mirror of what Brad described. I actually came to early retirement from travel hacking. My impetus for travel hacking is born out of my personal situation which is that my wife is Japanese. When we first got married, I just told myself, “This woman is moving to America to marry me. It’s an absolute priority that we get back to Japan every year no matter what. That’s something that we’re going to do.” And we did.
When I first in med school and she moved out to New Orleans where I was going to med school, it was very, very cheap. You can get a round trip to Japan for like $400 from New Orleans, just crazy!
But times change and it had gotten more expensive and our family grew. At some points, now, we’re not getting one or two tickets to Japan. We’re getting five tickets for my wife and me and our three kids. And so we were looking at six or seven grand just in airline fees to go over there.
I make a very good salary. But no matter what, six or seven grand out of pocket expenses gets your attention.
And so when I booked that trip a few years ago for, I think, it was almost $7000, I thought, “There’s got a better way of doing this.” I started diving into Flier Talk and all of the blogs. I just became totally entranced with this idea of getting value by just thinking a little bit outside the box.
I just got pretty passionate about it as I tend to do. Somehow, I came across Mr. Money Moustache. I think the first post I ever saw of him was when he was talking about his issues with affilliate links and how he had to give up his chase income because they wanted him to take something about badassity off the banner of his site.
But somehow, I got to his surprisingly simple math post about the 4% withdrawal rule. That just really struck a chord with me almost immediately. I immediately saw that these two areas were very, very similar. It’s just something that’s very obvious and right in front of you and it’s an opportunity that everyone can take advantage of. It just requires thinking a little bit differently about the way to live or the way to plan your travel. And so I started getting very into that.
I think that was actually bolstered by my life experience because becoming a doctor is not a traditional career path. You don’t start out at an entry level and then you get some raises and you move up the corporate ladder and your life suck kind of gradually inflates. What happens is you make a very modest living.
For me, after med school, I had seven years of training. You start out making $30,000-something a year. By the end, I was probably making $50,000-something a year. And then, you go out into practice and all of a sudden, your salary triples or quadruples. So you get this amazing increase in the amount of money you’re bringing home. It taught me a lot of lessons at least.
So if you want to really understand lifestyle inflation, then go from making $60,000 a year to making $275,000 a year and realizing that there’s not that much money on your bank account at the end of the month and you’re not materially more happy.
So I had the chance before I ever even thought about early retirement or freedom or things like that to experience the limits of what purchasing can buy you in terms of happiness. So that was a very important lesson that I had learned before I even thought about early retirement.
And then, from there, the calculation was simple. To me, it just meant that every purchase I made had to buy me more happiness than saving it and investing in my freedom.
It really had nothing to do with stopping working. I’ve trained for so long to become a doctor that I want to practice for at least 15 years before I think about cutting back because I get a lot of value out of being a doctor, but it was more from the idea of buying my own freedom and getting to the point where, “I’m going to work. And sometimes, I don’t want to go to work, but I go to work anyway, but I’m doing it out of my own volition because this has meaning for me. This is not because I don’t have another choice.” That’s the goal for me more than not working.
Mad Fientist: Yeah, that’s a very powerful thing. It just completely changes your entirely outlook and feeling towards work. That’s something I don’t think I really expected, but it’s been one of the best benefits, yeah. When you’re not forced to, you enjoy it more. At least I’m not as stressed out. I’m sure your job is a lot more stressful than typing some code into a computer.
Alexi: It is stressful. But at the same time, living so far below my own means and realizing that I already have everything that I could possibly need means that I have this wiggle space. I don’t know, they would call it FU money. But I just have this big buffer between me and worrying about my family’s survival. So I tend to be more optimistic and sunny than I was before I started pursuing this. I tend to be happier. It’s not like I’m giving up my time now for some time in the future. Actually, my time now is better than it would’ve been if I were pursuing this.
Mad Fientist: That’s great. So how long were you on the lifestyle inflation route before you realized that you weren’t any happier even though you were spending potentially four times the amount as you were just a few short years ago?
Alexi: I would say about three years. I would say about three years out of practice. And a lot of it is actually just the changes that happen. You go about and make a big purchase. I have to raise a bunch of money for a down payment. So, some of it is already savings, but your expenses go through the roof. So there’s a lot of it that’s not – I mean, imagine going and buying a Porshe or something like that. Your spending just naturally expands to fill your salary.
And then, it reached a point where I paid off a loan from a family member for my downpayment and my cars were paid off. So there actually was more money coming in and it gave me this kind of natural areas there, “Okay, all this money goes into figuring out the best way to leverage it for freedom.”
So I’d say about three years was right about when all these changes occur.
Mad Fientist: And did you stumbled upon Mr. Money Moustache before you started making these changes or was it stumbling upon his simple math for early retirement that it flicked the light switch in your head?
Alexi: I would say I was primed by the travel hacking. I realized that there are ways of not spending money, that money doesn’t buy happines, that you could get more pleasure out of your life by taking a different approach. And then when I saw that post, it crystallized it for me. And then, that’s the point in which I said, “I realize there’s a very specific number that’s going to be my number. And at that point, I will consider myself financially independent. At that point, I’m not going to do anything for money. I’ll do it for other reasons and other value.”
So it gave me a concrete goal and made it much easier to connect to you. I find it’s very difficult to commit to savings when you have no sense of when you’ll have saved enough or no sense of incremental growth towards a goal. So that was very helpful. He had some very, very well-written posts and it really simplifies a simple equation. It really lets you see that there’s a certain amount of money you need to live on and there’s a certain amount of money you need to save. And once you reach there, then you’re making a probabilistic choice at that point to consider yourself financially independent.
Mad Fientist: Yeah, excellent! I’ll link to that. And the badassity chase post from Mr. Money Moustache in the show notes because they’re both excellent posts to read.
Brad, how did you stumble on the idea of early retirement? Did you see anyone doing it in your CPA days or…?
Brad: No, that’s a great question, Brandon. So early retirement would have come around by reading Mr. Money Moustache as well and, frankly, reading your site. I think it has always been in my mind to save a significant amount and to live far below my means. But I’m not sure that there was ever any concrete nature to it. I’ve bene like that since I graduated college.
I recollect moving back in with my parents and literally saving essentially every dollar that I’ve earned, something crazy, like 70% or 80% of my income to save up for a downpayment on – we lived on Long Island, so I bought a coop apt. That was within two years of graduating college. It just kind of all rolled from there.
So I’ve never been a spender. I’ve never been someone who’s interested in cars or material goods by any means. So yeah, I can’t say there’s one light switch moment, but actually seeing it on paper. My favorite article as well is Shockingly Simple Math by Mr. Money Moustache, followed by, I think it’s from Middle Class to Kick Ass. That’s another great article you should link to. Those are the two that I send to everyone. It’s the theory and then it’s the practice of how you can live.
And my wife, I’m really fortunate, my wife, Laura, is probably even more frugal than I am.
Mad Fientist: Nice!
Brad: So yeah, it’s been great. It’s never been an issue with us. We look at it as a gain in a sense, basically living this middle class life just a little bit smarter.
So from all outward appearances, we live a nice upper middle class life, nobody knows we’re not the same people with debt up to their eyeballs like everybody else. It’s just a couple of tweaks.
It sounds easy to say it’s a couple of tweaks. But for most people, they start somewhere, right? They can do a couple of things and let those compound on each other, a couple of little habit changes. And eventually, you’re at a point where this doesn’t feel like we’re depriving ourselves.
And I’m sure you guys would agree. I know Alexi mentioned this before, kind of like the utility of each additional purchase. I don’t feel that I’m depriving myself. I feel like I have everything I could ever need. I don’t understand how everybody else spends so much money. I literally don’t know the math of it.
Mad Fientist: Exactly!
Brad: It seems crazy to me. But very clearly, the three of us and everyone listening, we are a minority. And that’s what’s so cool about your site Mr. Money Moustache and Jim Collins’. You feel these are kindred spirits. That’s the cool thing about this online community that we’re part of. It’s hard to find people in “real life” that are like this because we don’t go around broadcasting it. Maybe that’s part of it.
Mad Fientist: No, I competely agree. And it’s even more amazing when you get to meet up in person. Brad, obviously, you and I have hung out quite a bit. Alexi, I haven’t met you in person yet, but hopefully, next year in San Diego at one of the conferences potentially. And yeah, me, Mr. Money Moustache and Jim, just hanging out with the 1500s that we’ve all been lucky enough to do, it’s just an amazing experience.
I just recently got back from Ecuador. A lot of readers were down there and it was just an amazing week of just chatting with people that get this stuff.
I want to figure out how to do more of that because the Internet is great and it helps reach a lot of people, but it’s really the in-person chatting and bouncing ideas off of people that’s really, really valuable.
I don’t know a good way to foster more of that. So if any listeners out there have any ideas, just send me an email. But kindred spirit is a great way to put it.
So yeah, we’re definitely going to start to chat more about travel hacking, but there’s a few other financial things I wanted to chat with you guys about.
Alexi, Sacred Cows is a post of yours that I think is maybe one of my favorites, if not the favorite (which I will link to in the show notes). I’ve read a lot of things about peer-to-peer lending over the years. And hopefully, I’m not putting you on the spot because this is probably quite an old post of yours.
Alexi: No, I remember the post. It’s about lending club, right?
Mad Fientist: Right, exactly. And it’s literally the only P2P lending post that I actually really agreed with. So would you mind just talking a little bit about that? And apologies if it’s out of your mind and I didn’t prep you for it, but I think it’s worth talking about.
Alexi: I carry my opinions about what peer-to-peer lending to this day. I don’t think much has changed since I wrote the post.
But I think a background of that post is kind of about – the interesting part about it is there are actually two aspects. One is, “Is peer to peer lending a good investment strategy?” and that’s an interesting question and tough to answer. And then the second question is, “How do we make our decisions?”
And I think from our conversation just now, obviously, we’re incredibly influenced by those around us. So Brandon, when you write a post about the triple value of happiness (and I might be messing up the title there a little bit) which I thought was an amazing post, that crystallizes something in my mind. Or when Mr. Money Moustache writes the Surprisingly Simple Math post, it crystallizes something. We get this power from other’s people thinking.
But I think that the flipside of that is that we get in these communities and it becomes the case that because someone who you respect greatly about one thing has an opinion about it, it becomes incredibly influential.
So in thise case, what I was writing about was peer-to-peer lending. And it’s something that Pete has advocated for and had very good luck with. I was kind of running about, “Well, is it really a wise thing to look into?” The spoilers, I think it’s probably not a good way of investing your money. There are reasons for that.
The first one is that there’s just no track record. So a lot of its appeal is it’s kind of based on this, “Oh, it’s this new culture of lending money to someone else. It’s this different mode. You’re getting into this market that was previously not available to you which is this peer-to-peer lending, the social networks. Isn’t that great?” So that’s some of the appeal.
But when you’re investing your money, I think your real question should be, “Will I get a better return here than anywhere else?”
And so the way that I found it most useful to look at, peer-to-peer loans was as kind of a junkier form of junk bonds. Junk bonds are just high yield bond. So it’s debt for corporations that have poor credit ratings. So they’re carrying a lot of debt already, there’s a risk of bankruptcy so you get a higher interest rate for lending to these bad companies than you would for lending to world capitalized company.
And so I thought it would be useful to look at what are the positive sides and the negative sides of looking at buying junk bonds or junk bond funds.
So the positive is obviously that you get a higher dividend. So you’re getting more money in the form of a coupon for the amount that you lent. But the negative is that you’re taking more risk.
And so, you can’t think of it as, “I’m buying a treasury and I’m getting more interest rate for it.” What you’re buying is a risk asset, so you’re basically replacing stocks with a form of bond. And so you’re getting all the risks of stocks with a limited upside because the most you can get is the interest rate that they’re offering you.
And then, where that fell apart is that when you’re lending to a corporation, they have assets. You’re actually lending against collateral. So if they go bankrupt, the first people who gets paid back are the lenders. And then, the shareholders get paid back. They have things like trucks and buildings and infrastructure.
Whereas if you’re lending to some guy who wants to get money to pay off his credit cards, that’s a non-collateralized loan. And if they decide not to pay it, you really have no recourse to get money from them. So it’s even more risky. It’s a junkier junk bond.
Mad Fientist: Right! It’s an amazing post.
Alexi: And the final thing is because of its risk, when you’re buying into an asset like that, you’re basically not getting any diversification. If you buy a low-yielding treasury, you’re getting something that’s going to often move in the opposite direction of the market when the market goes down. When you buy this, it’s going to go south. The exact same time, stocks go south.
And then the kicker is the most important thing in selecting investment really regardless of what it is is the cost to invest. When I look at investment options, I’m always looking at the expense ratio first because, really, nothing else is guaranteed and they’re charging something like 1% off the top. Would you ever buy a mutual fund with a 1% expense ratio? I sure wouldn’t.
So, it ended up being all these reasons why I think it’s a terrible idea. They’re not liquid. If you want to get out of them at a time where you need money to something else, they’re very difficult to sell in a secondary market. And so, it was about why I don’t think it’s a good investment option.
And then, it was also about kind of the group thinking. Just because someone who you respect – and I deeply respect Mr. Money Moustache. If he’s doing something, that doesn’t mean it’s a good idea for you to do something. We all make mistakes. We’re all human and you’ve got to rely on your own analysis especially when you’re investing. The margins are so thin with investing that you’ve got to make smart decisions. And if you chose to do anything other than invest in low cost indexing approach, then you’d better have a pretty good reason to do it and you’d better have thought of it for yourself.
Mad Fientist: Oh, that’s excellent. Thank you very much. I encourage everyone out there to go ahead and read it. There’ll be a link in the show notes. I couldn’t agree more with everything you’ve said. And yeah, the post is very well-written. It’s really interesting when you compare them to junkier junk bonds. That puts it in a completely different perspective which is necessary because that’s exactly what they are.
So since we talked a little bit about investing philosophy and things like that, I don’t know if you guys would mind maybe just covering an overview of what you guys do. Are you guys index investors? What do you mainly invest in?
Brad, if you want to kick us off.
Brad: Sure, sure. Yeah, man. I think Alexi just touched on it which is low cost. Obviously, you talk about that all the time, Brandon. After reading Jim Collins’ stocks series – and I’m sure you’ll link to that if you haven’t many times already…
Mad Fientist: I will link to that. We mentioned it in Mr. 1500’s post and Jim emailed me. He’s like, “Hey, where is my link? You guys talked about it.” Jim, I won’t make that mistake again. I will link to it in the post.
Brad: Yeah, I mean, that was a real eye-opener for me. Really being part of this online community has been just such an educational experience for me frankly. I’ve always felt that I’ve known my stuff on some level. You learn something new every day by reading people’s sites that you respect. That made me realize just how essential it was to stick to low cost index funds.
I think I’ve read The Little Book of Common Sense Investing by John Bogle of Vanguard. That’s definitely a good read. I’d highly recommend grabbing that from your local library. It just drills home the point even further.
So essentially, all of our money is in Vanguard ultra low cost index funds. I think mostly VTSAX. I don’t remember the other symbols off-hand, but essentially, everything is there.
I will sheepishly admit that I have some money in lending club. I got caught up after hearing Alexi railing and I’m sitting here saying, “Oh, man! I don’t know if I should mention this or not.”
Alexi: Don’t get me wrong. It’s a great investment. I don’t know how you could’ve possibly gotten the idea I’m not a fan of lending club.
Brad: No, no, no. It’s funny. I think your larger point about having really thought it through. I can’t say that I’ve sat here and spent any significant amount of time. But to me, it’s a fun investment.
Mad Fientist: I think everybody has room in their portfolio, at least a little bit of a percentage to, either, yeah, pick stocks even though we know we shouldn’t or pick some other fun investments to do. So yeah, you don’t have to feel guilty about that.
Brad: Yeah, that definitely is a great point. This is not 50% ofmy portfolio. It’s a tiny little percentage. It’s fun! I like logging into lending club every once a week for 30 seconds and picking up some more loans.
I’ve done reasonably well with it so far. But to Alexi’s larger point. Who knows what will happen the next recession or such? It’s unclear because there’s no track record. So that’s a tiny, little, fun percentage. So yeah, that’s kind of the overview.
Mad Fientist: How about you, Alexi?
Alexi: So, the way I invest would be one of those “do as I say, not as I do” sort of a thing. I’m a little hesitant to share, but I will share it.
So traditionally, I’ve always been a low cost diversified index fund investor. It’s a little bit more complex than just like target gate funds. I am a believer in the value premium, in the size premium. I’m really a big believer in international diversification just as a way of de-risking your portfolio. I think we all have a tendency to lay over weight the stocks from whatever country we happened to have been born in. The U.S. has been a great stock market to date, but that doesn’t mean it’ll be the best market in the future.
So I believe in weighting stocks towards the actual world economy. So about 50% U.S. and 50% international. And then, over weighting value in small, putting a little portion of your portfolio into small value funds in order to get those premiums. You either risk premiums or not, but over the long course of time have been proven to increase returns and risk adjustment returns. So that’s traditionally what I’ve done.
So for my taxable holdings, I put them all into betterment which I think is a fantastic place, particularly for taxable funds because the tax loss harvesting feature is huge. I’m at a pretty high marginal tax rate. I make much more money from tax loss harvesting that I spend in the expense ratio which is 0.15% for amounts over $100,000.
And I find it to be behavioral. I never have to rebalance, so I’m never tempted to change my portfolio. I just literally put money in there and they do everything for me. I think it’s worth the expense that they charge personally…
Mad Fientist: I completely agree. I read a whole article about it, the fact that tax loss harvesting alone could blow that 15 basis points fee out of the water. Yeah, I completely agree.
Alexi: Well, I think last year wasn’t particularly volatile. And I think the amount that I ended up harvesting was a little bit less than two grand. So you figure you have 50% marginal tax rate, if you include state taxes, that’s like an extra tax there. It takes a lot of money for 15 basis point expense ratio to get to that much money. So I’m compounding more money than I would without them.
Now, whether that will be the case 15 years from now, it’s easily verifiable every year. I can always move it out if I’m not happy with the service. But to date, I’ve been very pleased with that.
And then, another big change in my portfolio was about 15 months ago. I changed to more of an active approach using low cost index funds called dual momentum.
Mad Fientist: Hmmm… yeah, you wrote a post on that too I could link to.
Alexi: I’ve written a lot of posts on it. I’m actually working on one which looks back at the past year and the performance of it relative to the S&P 500 and to what my portfolio was before I switched on before. So you can look forward to that in the coming days.
But I think that if I have to distill down the two things that I believe most about investing, number one is you’ve got to keep it cheap and number two is that you have to preserve your capital. And so my goal is really always been to diminish draw downs more than to increase returns on any given year.
And so what dual momentum is it essentially uses two forms of momentum. One of them is relative momentum which looks at the relative performance of one asset class relative to another. It puts all of your money in that asset class – foreign equities versus U.S. equities or gold versus versus loan treasuries or whatever you choose to do. It takes advantage of the momentum anomaly which is that things that have recently done well over the course of 3-12 months will tend to do well over the short-term which is the next month or so.
And so it’s a very low frequency trading strategy. We trade maybe once or twice a year and change our position.
But really, the part of it that kills me most is the so-called absolute momentum aspect of it which basically says that there are periods in the market where risk is higher at other times. And if you just exit the market during those times and forgo some of the upside during those times, you can avoid the massive draw downs that can really eat away at returns. You can really avoid 2008, 2001, the big recession in the ‘70s, ’89. You can really mitigate those losses.
So it’s a form of trend following. People might be familiar with getting out of the market when the 200-day moving average, when the price of the stock drops below 200-day moving average. It’s similar to that. So it’s a fusion of those two strategies.
But in the past, say, 40 or 50 years, what that’s done is it’s markedly reduced draw downs and increased compounding returns. Now, whether that will be the case in the future, I don’t know. I’m pretty confident it will decrease the big draw downs, but for me, it just fits behaviorally.
But it’s not something I really recommend to others unless they’ve done their own due diligence and seen what it’s like to have negative tracking error which you’ll have with any active strategy.
Mad Fientist: Sure! I look forward to your post on how it’s been doing over the past little while. But I’ll also link to all of the other posts that you’ve written on it so people can check that out. And yeah, I imagine by the time I’ve published this, you’ll have published the post that you’ve just mentioned.
Alexi: Oh, it’ll just be a couple of days.
Mad Fientist: Yeah, perfect. I’m definitely not that quick. So yeah, I’ll put that in the show notes as well.
I could talk about this stuff all day with you guys. We’re already quite a way in and we haven’t even started talking about travel hacking, one of my favorite hobbies as well. So Brad, maybe tell us a little bit about how Travel Miles 101 came about and the service that you guys offer.
Brad: Sure, that sounds good. So yeah, we started Travel Miles 101 earlier this year. I think it’s January 2015. Alexi and I have been friends for a couple of years now and share our mutual love of travel hacking. We just kind of talked about creating some type of step-by-step course that could help regular people get started with travel hacking because it is difficult.
Like we talked before, there’s a lot of information. There are great blogs out there that provides you everything you could possibly need. But the issue is they don’t curate it. It’s just this massive dump of information, 10 articles per site per day. People get overwhelmed.
I’m frankly lucky that I didn’t give up at the beginning because I did see the value in it down the road. But there were times when I said, “Can I really do this? There’s so many details, so many little things to worry about.” Once you get into it and once you have the grasp on it, it does become a lot simpler.
Alexi, I’m sure, will talk about the intellectual aspect of it and how much he enjoys that side. And I do as well. It’s a fun game. But that’s once you’re down the road a little bit. We realize that people need a little bit of help getting started.
So yeah, we joined together. We advertise this course that we created. And it was actually originally Miles for Moustachians. That’s how we started it. We’re both, as you can tell from the conversation, both huge fans of Pete’s and are active on the forum. We just wanted to make – we realized that people in the financial independence, early retirement and Mr. Money Moustache group, we’re especially suited for travel hacking. You know what I mean? It’s not for everybody obviously. This is credit card related. So that throws out 80% to 90% on the country who carry debt month to month. I mean, clearly, this is not for those people. And we try to stress that from the beginning.
But for people who pay their credit cards on time and in full every month, travel hacking is just an amazing way to really jump those rewards that you get back which, what, for most cards, it’s about 1%. And most people are happy with that. They get a check at the end of every year for $200 or something and they’re thrilled.
But if you can take that normal spending and just be a little bit smarter about it and open up very targeted cards, you can earn $5000 to $100000 in free travel every year. And I know Alexi will tell you how he – I mean, he makes that look like chump change, which is kind of a cool aspect of the Travel Miles 101 course, that Alexi and I do come at this from traumatically different perspectives – maybe not different perspectives. We both see eye-to-eye on it. But he…
Alexi: Different degrees of fanaticism…
Brad: Yes, yes, yes. Yes, that’s a perfect way of describing it. As you can tell from the conversation, I crave simplicity. To me, I just want to do my thing and Alexi has this intellectual desire to maximize everything. It’s big for you. It’s a cool thing. I’m envious. Believe me, I wish that that was me.
But what’s neat about our perspective is we show that pretty much anyone can succeed at travel hacking, whether you want to go the Alexi method, as we call it, or the Brad method. So I think that adds a lot of value.
Really, it’s a course to where you sign up that we’ve created. People sign up for it. They get emails every day. We have a social media aspect to it too. We have a community forum and a private Facebook group. It really engages. People are able to ask questions and it’s a safe place. It’s a happy, little corner of the travel hacking world…
Mad Fientist: …which is hard to come by if you ever dove into Flier Talk or Mile Pointer or any of these places. Yeah, there’s not too many friendly, smiling faces helping you…
Brad: And that’s why I brought it up exactly. People get yelled at. You go to Flier Talk, you have some noob question and people get mad at you. To me, that is ridiculous. This is a hobby where we get to travel the world for pennies. To me, that’s something to get on the rooftops and scream about in joy. It’s a wonderful thing. People look at it like, “Oh, this is my hobby. I don’t want you to involved.” And to me, that kind of exclusivity in any aspect of life just doesn’t work. I recoil in horror from that. So we wanted to create something that people could get started with.
And listen, people are going to move on eventually. They’re going to move on to Travel is Free, which Brandon, you and I have talked about, Drew’s site. It’s probably the most advanced and the best travel hacking site there is. But people need a place to start. And that’s what we think Travel Miles 101 has done.
We expect to grow with them as well. We start from simple topics to significantly more advanced stuff. So I think it definitely caters to everybody. But originally, certainly, it was for the beginner looking to make it work for his or her life.
Mad Fientist: Yeah, absolutely. No, that’s great. What you said about how you can take it to many different levels, you don’t have to do the advanced stuff to really benefit a ton from it. You could completely change the way you travel.
And even if you can’t take a lot of trips, it completely changes the way – at least for me, it has reduced mostly all of the stress of travel. I’m not flying business class or first class all the time or anything like that. It’s just having a lot of different options when the cash price is too high to have five different options to use miles for the same thing. It’s just amazing.
I was flying to Miami. I called the airport because I was late, “I’m not going to get into a midnight. Are you going to be able to pick me up?” and they said no. And even though I booked with miles that were non-refundable, I just called Hyatt and they refunded my miles, no problem, actually even though it wasn’t legitimately allowed. And then, I looked at all my other miles and I booked a free hotel with a different type of point.
I did all these from my phone. I didn’t have to use any cash or spend a fortune on last minute hotel rooms or anything. It just made everything so much easier.
Mad Fientist: Yeah, that’s great, what you guys are doing.
Brad: One little tip for Hyatt, actually, their Twitter account is fantastic! It’s @hyattconcierge. They answer essentially any question you have in minutes. Recently, my wife and I were going to go on an anniversary trip and my daughter, unfortunately, got sick that morning so we couldn’t leave. We were supposed to check in probably seven hours from then and we should not have been able to get our points back. I just sent a real quick direct message to @hyattconcierge and boom, the points were back in my account within two minutes. It was amazing!
Mad Fientist: That’s great.
Brad: So that’s a little insider tips. The airlines and hotels definitely have very robust Twitter customer service. They’re fantastic. Keep that in mind.
Mad Fientist: Nice tip. Really great! Alexi, you were going to say something.
Alexi: Oh, no. I was just going to echo what you said, Brandon, which is about options. Optionality is the ultimate form of freedom. So if you have the ability to do multiple different things depending on what the environment throws at you, then the environment stops becoming so scary.
I think that you’re absolutely right, having all these different miles, it doesn’t mean that you’re going to go on 15 vacations a year. It means that when someone gets sick in your family – a perfect example. Unfortunately, my wife’s father became very ill this last summer. We were planning on going in the middle of the summer as a family, but he became very ill. So literally, on a Saturday, after my wife got the call, I had her booked on a business class ticket to Japan the next day. She went there for a week. She came back a week later. A couple of weeks later, we went as a family. And then, he unfortunately ended up dying several weeks later. But again, just last minute on the plane, maybe they weren’t the best redemptions, but it was zero stress because it was all points. I always have enough points because of this hobby.
So there’s always going to be stress in your life. But taking away these friction points (which frequently has to do with money) is incredibly liberating. And it gives you just amazing optionality.
Mad Fientist: Yeah, that’s an excellent point. It still blows my mind, what you can get by just focusing on this little, tiny bit. I’ve probably been to almost 50 countries at this point. And yet my savings rate are still very high and it’s not like I make a ton of money. It’s only because the miles let us travel as much as we want without really even making a dent in our budget. It just blows my mind every day, the things that we’re able to do.
Like I was saying to you guys before the call, after we finish this call, I’m calling American and rebooking a trip from Japan to Jordan in which we’re going to be stopping I think six or seven times along the way for 24-hour layovers and these cool cities that we want to go to.
Alexi: Oh, that’s awesome.
Mad Fientist: The whole thing is going to be in business class because it’s only an extra 7500 miles compared to the economy price. So for 30,000 American miles, we’re going to have this week-long vacation within a vacation because when you’re flying business class, it doesn’t feel like travel. It’s actually an amazing experience. You’re getting free foods, you’re getting free drinks every time you get on a plane. So it’s going to be a week of free food, a week of free booze. We’re going to see six or seven cities for 24 hours. And obviously, we’ve picked the cities either we’ve been to before or we only think we want to stay 24 hours in. And yeah, it’s all for 30,000 miles plus $90 I think I paid in taxes or something. It’s just insane!
Alexi: That’s going to be awesome!
Brad: Yeah, that’s truly an amazing redemption. That’s the Mad Fientist version. But the cool thing about this – I can’t wait to see your post on that. People are going to be just blown away.
The neat thing about travel hacking when we’re talking about options is, people, there are different ways to succeed with this. I think that’s really important. People listening to this might say, “I have a family. I have two kids. I can’t fly business class from Jordan to wherever. But I want to go to the Carribean or I want to go to Disney World or Hawaii,” that’s the aspiration. There are always ways to save. There are ways to do this without worrying.
I think people hear frequent flier miles and they say, “Oh, it’s going to be impossible to redeem these things. There are black-out dates,” all the usual reflexive horror stories that people have heard of. I mean, a) I think, we, in the course (and certainly a lot of information online) show that many of those are just simply not true. There are many, many ways to redeem miles. And certainly, flexibility is essential.
Sometimes, even plus or minus one day will make the difference between finding the reward availability and not…
Mad Fientist: That’s why it’s so great for the financial independent early retiree crowd because it’s like, “Well, we have the flexibility. We don’t like spending money and we like to optimize things. It’s the perfect hobby for people like us.”
Brad: Yes, it’s so true.
And then for people who can’t do that, hotel rewards are simple. Pretty much every hotel is not at full occupancy almost every single night of the year. You can use your points then. That’s just a generalization obviously, but you look for the low hanging fruit.
“Okay, I don’t want to be bothered with frequent flier mile seats because they’re too difficult,” somebody hypothetically says that. Well, Southwest is simple to fly across the country. That’s the biggest airline in America now. There are no reward limitations on Southwest. There are no change fees. It’s the easiest airlines to use possible. So that works for families. Hotel rewards work for families because they’re so easy to book.
Then everybody has seen the Capital One venture commercial I’m sure with Jennifer Garner and whatever. While they aren’t the amazing redemptions like yours, Brandon or Alexi’s to Japan in business class, they still work for some people. It’s going to save them $500 on their next trip and it requires no thought.
I’m just trying to paint the picture of this really does work for everybody. It works no matter how much or how little flexibility, whether you’re employed full-time or you’re financially independent. This is really a marvelous hobby and it does work for everybody.
Mad Fientist: I completely agree. And so your course is completely free at TravelMiles101.com?
Mad Fientist: Okay! So to sign up, just head there, I’ll put a link and yeah, if you are new to the hobby, then this is a perfect way to start. And even if you’re an advanced travel hacker, you’re definitely going to learn some stuff. So I will put a link in the show notes to that as well.
Is there anything else you guys wanted to touch on with travel hacking?
Alexi: Well, I think one thing that I would just say to echo what you guys are saying is that it’s a perfect hobby both for people who are working towards early retirement and people who are already retired for the reasons you already stated.
But the interesting thing about it is that the value is very flat across different income levels which is not always the case. Usually, if you’re very wealthy and you get an asset, it’s worth less to you than someone who is not very wealth. It’s the same asset. But just in terms of the amount of value you get, it actually ends up being very flat.
And the reason I would say that is if, let’s say, you’re making $30,000 and you add travel hacking to your list of skills, it essentially allows you to have a $10,0000 a year budget on travel for free. And maybe you’re spending a $100 or $200 to hit all of your rewards, but you’re getting $10,000 a year, so you’re getting a 25% boost in your pre-tax earnings basically.
Because you’re making $30,000, you’re actually bringing home much less now. You’re probably bringing how $20,000. So you’re getting a 50% increase in your after tax amount of money or of capital available for you to use as long as you use some of it for traveling.
And then, conversely, if you’re at the high end of the income spectrum and you’re making that same $10,000, well, that $10,000 is not as much of a percentage of your wealth. But if you’re getting taxed at a higher rate, there’s really no taxation on points. They’re seen as a refund, a personal refund for a purchase.
So if you’re getting $10,000 of purchasing power, that’s the equivalent of making $20,000 extra that year. So each dollar that you get is actually worth twice as much. Each dollar you spend is worth twice as much as it would otherwise be.
So if you already spend $10,000 on travel and instead of using money, you use miles, you’re essentially giving yourself another $20,000 a year of income to invest towards your retirement.
So it kind of works on both ends with the tax efficiency for the wealthy and with just the amount of value you get nominally for the people who are just wealthy. It’s an amazing thing!
Mad Fientist: Oh, that’s a great point. That’s something I never actually thought about. But yeah, that’s an amazing way to put it. And yeah, you guys are helping people get even more value out of these points which is a great thing. I think a lot of people get points and then use them unwisely. They’re still valuable obviously for the reasons you mentioned. But yeah, if you can actually extract all the value that’s possible out of them, it’s just an amazing, amazing hobby that helps you do a lot of fun things that you wouldn’t want to cut out of your life and yet you’re still able to save a ton of money and fly even sooner.
Any other last minute travel hacking tips or discussions before we start wrapping up?
Alexi: I don’t think so.
Mad Fientist: People can just head over to Travel Miles 101.
Alexi: Yeah, I think we covered most of the high points in the course, I really do.
Mad Fientist: Perfect! Yeah, I’ll put a link there.
I usually end every episode with just asking my guest what advice they would give to somebody maybe either starting on the path to financial independence or maybe further along the path. Brad, do you have anything that you would say?
Brad: I would say – yeah, that’s a great question, Brandon. I would say keep at it because a) it’s such a fantastic journey. To me, it’s psychological. I think we’ve talked about this before. It’s about reclaiming the power in your life. Whether you decide to keep working like Alexi’s doing or whether you stop and travel the world or do whatever it is, you can reclaim the power in your life.
So not only is it exciting on the front-end, knowing along the way that it’s a journey, but then once you reach that destination, then you have an unlimited number of choices.
So it might be outside the norm for your family and people might look differently, your friends or some such. But know there’s a community of people online here at Mad Fientist and other places. These are the kindred spirits that we’re talking about before. We’re all here to support you. I think it’s really a wonderful goal.
Mad Fientist: How about you, Alexi?
Alexi: I think my advice would be to jump in with both feet. Don’t hesitate. This is not just about financial independence, but really, about anything.
I think about last winter when Brad and I were talking about this course. Finally, we just said, “Look, we need a deadline. When are we going to get the first thing out? Why don’t we say February 1st?” We basically put together the whole curriculum in a month and a half. We wrote all these articles and adapted them and created this whole infrastructure. Both of us had full time jobs at that point. It’s just something that we did on our free time and we got so much value out of it.
Brad has taught me so much about redemptions and about entrepreneurship and about online web businesses. I’ve just gotten so much value out of this exercise. It was kind of a diversion. We’ve done better than I thought we would.
So even if you think you’re really, really busy – I’m a proceduralist who does heart procedures all day and I have time to do all these stuff. So, it’s a value added thing to just jump in with both feet and do a little bit of what seems like work because it ends up being some of the most meaningful stuff you’re going to do.
Mad Fientist: Yeah, I completely agree.
Brad: If I can just jump in on that.
Mad Fientist: Yeah, absolutely.
Brad: It’s a funny story actually how we started the course. We literally advertised this thing before it existed. It was amazing! We said to ourselves, “We are going to do this. We can provide value to people. Let’s just do it!” It’s a sink or swim moment. We were pretty sure that we were going to swim obviously. We made sure of it. We produced a pretty solid piece of output certainly that we’ve had 2000 people go through this course already.
Mad Fientist: And the great testimonials you guys have had from happy customers…
Brad: Yeah, it’s amazing to hear. You get an email saying, “Hey, we just took our family to Amsterdam and Florence and Paris. We could’ve never done it without you.” It’s just amazing. I can’t tell you how satisfying that is.
This is something that we just did as a fun side project. And I think, to Alexi’s point, you can always do more than you think you can, something that might seem insurmountable. We’ve had lots of challenges just because we’re an accountant and a doctor trying to make a web course. We didn’t have any idea what we were doing. But you learn something new every day even if it’s outside your comfort zone.
I think that is so important for life. Forget online business or whatever you want to call this. It’s just so important to learn new things, to stretch yourself, to set goals. These are crucial things. It makes you just grow as a human being.
Mad Fientist: Absolutely! No, I couldn’t agree more. Yeah, go ahead, Alexi.
Alexi: I was going to say I think Brad and my next course is probably going to be teaching everyone about the inefficiencies of the web-based business models because it’s a really hilarious sort of thing. It’s such an inefficient economy. You think it’d be super efficient, but it’s not. We’re still making it work and it’s been a ton of fun.
Mad Fientist: Nice! Well, is Travel Miles 101 the best place to find you guys or if people want to get in touch, can they find an email address there or just Facebook group or…?
Alexi: Either of our web pages both have the banner to take you to Travel Miles 101 or you can just go directly to the website where you just enroll.
In the near future, we’re going to be changing it to a twice a month course as opposed to a once a month course, so you won’t have to wait more than 15 days to get started.
Mad Fientist: Perfect!
Brad: Yes, so just sign up, join us in the community. We’d love to have everybody. Like you said, Brandon, whether you’re just starting out or you’re an advanced travel hacker, we’re really trying to create a nice community here and we’d love to have anyone interested.
Mad Fientist: Nice! Thank you guys so much. This has been amazing. I’m sorry we went a little over time, but every time we start talking about something, I would think of something else I wanted to chat with you guys about. So I really appreciate the time. Thanks a lot, guys.
Alexi: I had a blast. Thank you, Brandon.
Brad: Thanks a lot, Brandon.
Mad Fientist: Alright, take care. Bye!
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