Homework: How I Invest My Money


At the end of their recently released book, “How I Invest My Money”, where 25 financial professionals wrote short essays outlining how they invest and why, editors/contributors Joshua Brown and Brian Portnoy invited readers to write their own essay outlining how they invest their own money. This post is my version of that essay.

Enjoy!


“How I Invest My Money” is illustrated by Carl Richards. So, I decided to do my own sketch to mimic the book’s style.

Introduction

I’ve had an interest in the topic of money for as long as I can remember. My earliest money memory is from when I was playing Superman on an elementary school swing set and caught a flicker of light bouncing off the ground as the swing rocked back and forth; it was the sunlight alerting me that someone had dropped a coin of some denomination, and I was free to stop pretending to fly so I could claim the prize. (I repeated this process during many a recess.)

My life is filled with memories that shaped my relationship with money. In this post, I will share some of these stories that influence how I currently invest my money.

My income, from my job as an underwriter, is a combination of a fairly nice salary combined with some quarterly bonuses. Earlier in life, I struggled with a self-inflicted financial wound known to many as credit card debt. As I worked through that debt, I avoided lifestyle creep where possible, choosing to pay down my other debts or investing the money instead of increasing my spending. This practice has benefited me in that I currently live on just over half of what I earn. (I had to pay off A LOT of debt.)

The only debt I have left is my mortgage. The fact that I am single with no kids also helps with my savings rate.

When the economy largely shut down due to COVID-19 in March of 2020, my employer, along with many others, went exclusively to a work from home setup for almost every employee, which meant I didn’t have to make the 40 mile round trip to the office and back every day. I cooked at home more and ate out less, even after restaurants began to reopen.

From a purely financial perspective, I have to say I actually benefitted from this pandemic; I know that not everyone can say that. I believe that generosity is step zero of any financial plan for almost anyone who is fortunate enough to earn an income, so I have tried to increase my giving in various ways throughout the year.

Of course, this post is about how I invest and why. So, here we go.


How I Invest for the Future…

When I started at Auburn University, my major was Chemistry. I had an interest in investing, but that interest had taken a back seat to my love of science during this period of my life. Investing would take the wheel, however, in early 1994. (I would eventually earn my degree in Economics.)

I had gotten a job at a nuclear power plant through Auburn’s Cooperative Education Program, and was about to qualify for participation in my employer’s 401k plan, despite only working every other quarter. One of the plant’s technicians counted investing as a hobby, and would offer a bit of mentorship. I would not only get a heads up as to how I might invest within the 401k plan, but also how to invest in individual stocks through dividend reinvestment plans to accumulate some investments while avoiding some of the high brokerage commissions of the time.

The parent company of our employer, Southern Company, would announce a 2-for-1 stock split around this time, so retirement planning and investments would have a more widespread presence in our daily conversations than in previous months. It was during these discussions that I would find my inspiration for planning my retirement.


“I want to be able to retire by the time I turn 55.”

– Richard (my old boss from the power plant)

These words were spoken by my foreman, Richard. You may see it as somewhat of a diet version of some FIRE (Financially Independent Retired Early) practices we see today. The key, for me, was the “be able to” part. When I asked my boss about this phrase, he would explain that he had no intention of necessarily walking off the job on his 55th birthday; he liked working and liked his job. The important element of the “be able to” was the option to walk away from an income, if he decided he no longer liked the work, without causing an adverse impact on the other parts of his life.

Retirement wasn’t exactly at the forefront of my mind at age 21, but I had always thought of 65 as a normal retirement age. Seeing that someone else had a more lofty goal changed my perspective on things.


To invest for a future where employment is more option than obligation, I invest my money in the following accounts.

  • Pension – provided by my current employer. This is money that is invested for me, not by me, but its presence is worth noting. The main factors in how much this fund will contribute to my future financial life are how long I am employed and long-term bond interest rates (specifically, the U.S. 30-year Treasury).
  • 401k – I invest in 4 different mutual funds, mixing actively managed and passive index funds. I contribute enough to maximize the company match, and automatically increase the withholding percentage by one percent each year; this will continue until my 401k withholding reaches 15% of my salary. Funds are rebalanced every 6 months to keep the allocations as close to the amounts below as possible.
    • 30% Large Cap Stock Index (Passive)
    • 30% Small & Mid Cap Stocks (Actively Managed)
    • 25% International Stocks (Actively Managed)
    • 15% Bond Index (Passive)
  • Emergency Savings AccountTo minimize the number of times life knocks me over and interrupts the rest of my investment processes. When Mr. Murphy brings his lousy law into my life, I can handle the situation and move on much more quickly.
    • I automatically fund this account with direct deposits out of my salary and any bonuses I receive from my employer.
  • Roth IRA – Investments are in individual stocks of 5 large cap companies.
    • Roth IRA provides tax diversification, since the money invested here grows tax free, and will not be taxed when I withdraw the funds as long as I meet a few requirements.
    • I automatically fund a taxable brokerage account with direct deposits out of my salary and any bonuses I receive from my employer, and transfer the funds to this IRA until I have maxed out for the year. (That amount will be $6,000 in 2021.)
    • I enjoy investing in individual stocks and researching the companies behind them. I don’t have time to look over every filing and listen to every conference call, though. I feel like investing in the more well-known and established companies allows me to check in on my investments a little less frequently.
    • If I didn’t enjoy the processes involved in investing in individual stocks, this account would look a lot like an extension of my 401k.
  • Pay down mortgage – Without making additional payments, I would pay off my mortgage in November 2031, a few years after I turn 55. I add just a little bit of money to each payment to try to pay off my house a little closer to my “be able to” target. The interest rate is pretty low, so I’m not being too aggressive. My history indicates that I will eventually throw a lump sum at the mortgage when the principal gets low enough for me to see the remaining payments as more of an annoyance than anything else.

…And, How I Invest for Today

I moved into my house in early 2005. My neighbor, Jim, was a retired steel worker who had moved to Alabama from Pennsylvania to be closer to his family. In the years we were neighbors, Jim and I would engage in what I refer to as my “old man training.” (We sat in chairs on Jim’s porch, talked, and waved at people as they drove by.) Our conversations covered a variety of topics like lawn care, travel, current events, sports, and the occasional story from our everyday lives.

One discussion that stands out in my memory centers around a conversation Jim had had with another retired gentleman when he was in the waiting room of a doctor’s office. Jim was a bit of an extrovert, and seemed to have little trouble meeting new people wherever he went. And this anonymous retired man’s words would serve to be some thinly-veiled advice from Jim to me. (Actually, the look on Jim’s face as he relayed this part of the story indicated the advice wasn’t veiled at all.)


“When I was working and thought about being retired, I pictured myself retired on a beach. I pictured myself retired on a boat. I pictured myself retired on a plane traveling the world. I can’t remember a single time I pictured myself retired in a doctor’s office, but here I am.”

Anonymous retired man (via my neighbor Jim)

This statement is a near-constant reminder that the future is under no obligation to be as nice as I would ever imagine it to be. So, along with the process of investing for the future, I need to make room for some present day goals that may be too big to fit into an average monthly budget. I’m thinking in terms of travel, better seats at concerts and sporting events, that new piece of technology, or an occasional “wherever and whatever I want” factor when dining out.

Most of the accounts I invest in for my future are tax-advantaged, which comes with certain rules about how and when I can access the money. I need to be able to access my “today” investments a little more easily. But, when red tape goes away, the tax advantages tend to follow. Tax implications obviously don’t stop me from investing, but they are something I have to be aware of as these investments grow and I access these funds. (Among my 2021 goals are to hire an accountant and to try to start a relationship with a financial advisor to make sure I’m actually doing this thing right.)


In order to invest for today, where I can occasionally splurge on those larger than usual items, I have set up the following accounts.

  • Discretionary Savings – For more immediate goals. Depositing money into this account, rather than my checking account, slows down my everyday spending, making it possible to splurge on the occasional bigger-ticket item or small luxury.
    • I automatically fund this account with direct deposits out of my salary and any bonuses I receive from my employer. I sometimes add some cash from credit card rewards; it’s usually not much, but it helps.
    • I have this account subdivided into buckets to prioritize goals based on how important they are, how expensive they are, and how often I would like to spend on them.
  • Taxable Investment Accounts – Even though these accounts are listed as “Investing for Today”, that doesn’t mean I intend to access them in the very short term. But, if a goal becomes more urgent and important to me, I want these funds to be available.
    • These accounts get funded through direct deposits from my salary and any bonuses I receive from my employer after I have maxed out contributions to my Roth IRA.
    • Stock Investing – Investing in five individual stocks, different than the ones in my Roth IRA, with a long-term outlook.
    • ETF Investing – In this account, I own exchange-traded funds that focus on industries I am interested in. In a couple of cases, FRDM (not advice) and NERD (also not advice), I have actually met the founder/manager of the funds and decided to invest after meeting them.
    • Trading Account – Individual stocks and maybe the occasional derivative.
      • I plan to only add funds to this account when my paycheck includes a quarterly bonus.
      • I call this account a trading account, but I don’t trade in the truest sense of the word. It just means I am not going to keep as close of an eye on these companies as I do in the other accounts.
      • I have a plan for how to sell some of my shares on the way up or down to take profits or cut losses.
      • I consider 20-40% of my original investment to be “ride or die”; I intend to keep the shares until they make me rich or I decide that I’ve invested in a pile of garbage.
      • I have considered renaming this account “dart board” after the manner in which I take aim (research the company and its stock) and then throw money at an investment (pronounced: spe-kyə-ˈlā-shən).
  • Rally Road – Investing in some alternative assets.
    • When I was younger, I collected baseball cards and comic books. Rally Road gives me a chance to invest a little in the more high-end items of these spaces. I only recently opened my account here; it’s been fun, so far.
    • I plan to only add funds to this account if my paycheck includes a quarterly bonus.
    • Rally Road also offers other investment options such as cars, watches, and wines and spirits. I intend to stick to comic books and sports memorabilia for the foreseeable future. It’s what I know.
    • For the most part, I intend to hold on to these shares until Rally Road decides to sell the assets.

Individuality & Evolution

If you get a chance to read the book that inspired this homework assignment of mine, which I recommend, you will notice that all of the contributors go about investing in a little different way (at times, in a big different way). There’s no single investing approach that perfectly fits the life of every individual. This post describes investing in a way that fits me…today. As I wake up to new todays, each one looks a little bit more like the future. And, how I invest my money will almost certainly change as time passes.

I hope you enjoyed this post, and that you will take some time to look at how you are investing your money. Do your investments reflect your “why”? Do they fit into the life you want to live today AND the life you want to live in the future?

Thank you for reading.


For some other “How I Invest My Money” essays that aren’t in the book, click the links below:

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