Frequently Asked Questions About Shankman Plain Vanilla Wealth-Building System
22 answers covering everything from basics to advanced usage.
// Basics
What does 'pay yourself first' mean in practice?
Pay yourself first means moving money into retirement and savings accounts the instant income arrives, before any discretionary spending. If you don't see it in your checking account, you won't spend it — you'll figure out how to live on what remains. Reframed, you're 'paying retired you first,' putting your future self ahead of everyone else's claim on your income.
Why is time horizon considered the most important factor in investing?
Because compounding rewards time more than dollar amount. A smaller amount invested at 25 and left to grow for decades will outperform a larger amount invested at 45. Time horizon determines which account type to use, how aggressive your asset allocation should be, and how much market risk is appropriate for each goal. It's the single input that shapes every other decision.
What does 'diversification always means apologising for something' mean?
It means a truly diversified portfolio will always have a laggard — one area underperforming right now. That's normal and correct, not a flaw. Diversification means you're never the highest performer and never the lowest; it's the mechanism that protects you when one area gets clobbered. If nothing in your portfolio is disappointing, you probably aren't diversified enough.
What is survivorship bias and how does it distort investing decisions?
Survivorship bias is the distortion of only hearing about investing winners while the losers are forgotten. It makes grand slams look achievable and routine, tempting people to build strategies around outliers. This is exactly why the system avoids individual stock picks and alternative investments — the celebrated success stories omit everyone who tried the same thing and lost.
Is money supposed to just accumulate forever under this system?
No — accumulation is the means, not the end. Money is a tool, not a scorecard. Once you're meeting your savings targets, you should spend on experiences and things that genuinely enhance your life. Hoarding at the expense of meaningful experiences is as much a planning failure as overspending. There's no prize for being the richest person in the graveyard.
// How To
How do I set up automatic contributions across multiple accounts?
Set up automatic monthly transfers from checking into each account: retirement, taxable brokerage, and goal-specific accounts. Configure each to invest automatically according to a pre-decided allocation. Then turn off investment app notifications to prevent emotional trading. At year-end, review the prior year's income and expenses and adjust the monthly amounts, adding any windfall as a lump sum.
How do I know which retirement accounts are available to me?
It depends on your employment type. For-profit employees get a 401k or Roth 401k; nonprofit employees get a 403b; government or hospital workers get a 457 plan; self-employed people get a Solo 401k or SEP IRA. Anyone can also use a Traditional or Roth IRA, subject to income limits. Always survey employer plans first — they have higher contribution limits and no income restrictions.
How do I build a diversified portfolio using only ETFs and mutual funds?
Spread exposure across US large cap, US small and mid cap, international developed markets, emerging markets, real estate as a carved-out sector, and bonds. Use only ETFs and mutual funds so no single company failure can ruin the portfolio. Don't carve out individual sectors beyond real estate — concentrated sector bets can underperform for 10–15 years.
How do I consolidate old 401ks from previous employers?
Roll old employer 401ks into a single Roth IRA where appropriate, so accounts aren't scattered across many institutions where they're easy to lose and hard to manage. Once consolidated, verify every account's beneficiary designation — an outdated beneficiary, like an ex-spouse, overrides your will and cannot be reversed after death.
What's the annual January review checklist for this system?
Each January: confirm retirement contributions are set to maximum; confirm automated contributions to all goal accounts are active; review prior-year income and expenses and adjust monthly savings; check and update all beneficiary designations; verify every account is invested correctly, not sitting in cash; and if concentrated in one area, use new contributions to build underweight areas rather than selling at a high.
// Troubleshooting
My 401k has been sitting in cash for years — what do I do?
Move it into the market immediately. Contributing to a 401k and leaving it in cash or a money market fund is one of the most common and costly errors, because inflation erodes purchasing power over time. At minimum, shift it into a target-date fund or a simple set of equity index funds so it can grow and outpace inflation.
What if I can't afford to max out my retirement accounts?
Start somewhere — the habit matters more than the dollar amount. Aim for a savings rate of 10, 15, or 20% of income, and at minimum contribute enough to capture the full employer match, which is free money. A modest amount started early and compounded over 35+ years beats a large amount started at 45.
How do I stop myself from emotionally selling during a market crash?
Remove yourself from the decision by automating everything and turning off investment app notifications. Emotions cause investors to sell at the bottom and buy at the top; automation removes that failure mode entirely. Frequent checking encourages emotional trading, so eliminate the triggers. If you need to scratch a speculative itch, confine it to a Cowboy Account of 5% or less.
I'm heavily concentrated in the S&P 500 — is that a problem?
Potentially, because the S&P 500 is itself heavily weighted toward large-cap tech, so you're less diversified than you think. A sector correction or 'lost decade' scenario could stall returns for years. Fix it by using new contributions — not sales that trigger tax events — to build up small cap, international developed, emerging markets, and bond allocations rather than selling at a high.
// Comparisons
How does the Shankman system compare to a generic robo-advisor?
Both automate contributions and use diversified index funds, but the Shankman system adds a full behavioral and account-architecture layer that most robo-advisors skip: paying yourself first, matching each goal to a specific account and time horizon, consolidating orphaned 401ks, updating beneficiaries, ring-fencing speculation in a Cowboy Account, and running a retirement drawdown safety check. It's a complete personal methodology, not just an investment allocation.
How is this different from chasing high returns with a stock-picking strategy?
Stock-picking swings for grand slams and relies on being right about individual companies, exposing you to catastrophic single-company loss. The Shankman system deliberately targets 'singles and doubles' — consistent, modest gains while minimizing missteps. Because survivorship bias hides all the losers, grand slam strategies look far more reliable than they are. This system optimizes for fewer mistakes over decades, not for hero trades.
How does a taxable brokerage account compare to a UGMA/UTMA for a child's goal?
A taxable brokerage account keeps ownership with you, so you control how the money is used — ideal for goals you're funding on a child's behalf, like a wedding or bar/bat mitzvah. A UGMA/UTMA legally transfers the money to the child at the age of majority, and they can then spend it however they choose. For goals you control, use a nicknamed parent-owned brokerage account.
// Advanced
Why avoid alternative investments like private equity or hedge funds?
Because you don't need them — everything required to accomplish your financial goals is available in public markets. Alternatives are often opaque, complex, and marketed with promises that sound too good to be true. If you can't fully articulate an investment's thesis, structure, and risks, it belongs in the 'too hard pile.' You don't need access to every new idea to build significant wealth.
What is a 'lost decade' and how do I protect against one?
A lost decade is a period, like 2000–2009, when the S&P 500 produced roughly zero real returns over ten years. It's catastrophic if it coincides with your retirement. Protect against it by diversifying beyond a single index — into small cap, international, emerging markets, and bonds — and by building a 2–3 year cash cushion before retiring so you aren't forced to sell into weakness.
Should I delay Social Security under this system?
Consider it, especially near retirement, because delaying locks in a higher, inflation-indexed income stream that acts as a guaranteed income floor. Combined with a 2–3 year cash cushion, a higher Social Security benefit reduces how much you must withdraw from investments during a downturn, directly mitigating sequence of returns risk. It's one lever within the retirement drawdown safety check.
Are target-date funds a complete retirement strategy?
No. Target-date funds are a reasonable accumulation tool inside a 401k with limited options, but they're not a one-size-fits-all retirement strategy. Their glide paths are generic and may not match your specific retirement date, spending needs, or the cash-cushion requirement for sequence of returns risk. Use them as a transitional tool, but customize your allocation as you approach drawdown.
How should I handle a windfall like a bonus or a strong business year?
Add it as a lump sum during your year-end review, after adjusting your automated monthly contributions for the coming year. Direct the windfall according to your pre-decided allocation and, if your portfolio is concentrated, use it to build up underweight areas. This keeps the emotion out and ensures extra money strengthens your diversification rather than fueling a speculative bet.