After reading Josh Brown and Brian Portnoy’s recent book How I Invest My Money, I’ve decided to toss my own hat into the ring. As financial advisors, we’re tasked with giving advice and helping shape the financial futures of our clients, but what I found so fascinating about the book was how many different ways advisors invested their own money and the sheer variety of philosophies around personal finance.

Many of my personal money habits were instilled in me at a young age, including the importance of saving, delayed gratification, and investing for the future. I credit my parents with teaching me these lessons, along with sparking my interest in the stock market at an early age.  

One of my first money memories involves getting to stay up late on a school night – I had a little bit of money in a savings account, and my folks thought it would be prudent for me to put those dollars to work in the stock market rather than leave the funds in the bank earning pennies per year. Naturally as a 9-year-old living in Seattle, my 2 stock picks in 1997 were Pacific Northwest stalwarts Microsoft and Starbucks. I was hooked, checking The Seattle Times daily to see how my stocks had done, and bursting with excitement when Microsoft split and I suddenly had twice as many shares! 

My Investment Process

Today my overall investment process is much more intentional, and in fact, those shares of Microsoft and Starbucks are the only individual shares of stock that I’ve ever purchased (I subsequently sold these shares in 2011). As a finance major at the University of Washington I quickly came to learn the benefits associated with diversification, and that systematic risk couldn’t be eliminated, but unsystematic (company specific) risk could be. By nature, I’ve always been a rules follower, so taking the academic approach to investing fit my personality.  

I also came to learn the lesson of investing early and often. Particularly for those early in their career, your underlying investment return in order of magnitude is less important than your overall savings rate. Even 11 years into my career, I’ve tried not to let lifestyle creep takeover, as witnessed by my 2001 Subaru Outback that gets me from Point A to Point B as efficiently and effectively as any car 20x its value. 

Getting down to the meat and potatoes – how do I invest my money? First – I try to automate everything that I possibly can. Ramit Sethi’s book I Will Teach You to Be Rich has literally been worth more than its weight in gold (I checked my math and am confident that the last statement is literally true). Specifically, his system for automating finances which essentially involves paying yourself first and setting up automatic investments both inside and outside your retirement accounts so that you don’t have to think about things. Inertia is a powerful force and I want to do everything I can to let it work for me! 

Automating Your Finances

Source: https://www.iwillteachyoutoberich.com/automate-your-personal-finances/

My Saving Buckets

With each paycheck I have funds directed into different buckets. I’ll include a quick note on each bucket below:

401(k): Given my age and that I can’t touch these dollars without penalty for another 26+ years, these dollars are invested very aggressively. Risk and return are related and given my time horizon I can stomach additional volatility if it means higher long-term returns. My overall 401(k) allocation is approximately 95% stock and 5% bonds, and is comprised of the same investment funds we use in client portfolios – the vast majority of which are put together by Dimensional Fund Advisors (DFA – a kissing cousin of Vanguard that prides itself on low-cost market based portfolio construction).  

Down Payment For A House: Within my individual investment account I’ve been automatically setting aside money for a down payment on a house since 2011 with the ultimate goal of being able to put 20% down. Ten years since I started, I’ve more or less reached my original dollar goal, but as anyone familiar with the Seattle housing market will know, prices in the area have increased substantially so I still have a little ways to go. Given the short to mid time frame of this goal, these dollars are invested much more conservatively in a combination of high-quality fixed income, REITS, TIPS, and international bonds. Once again, these are the same funds we use in client portfolios.  

General Savings: In addition to keeping an emergency fund of 3-6 months’ worth of fixed expenses in the bank, I make small automatic additions to another portion of my individual investment account intended for mid to long term expenses. This is invested in a mutual fund that invests in global equities (stocks from the US and around the world) and intended to cover unknown costs in the future.  

Roth IRA: Each year I contribute to my Roth IRA. These are my most aggressive investments, and primarily comprised of mutual funds that invest in Emerging Market stocks, International stocks, and Small Cap Value US stocks. Given the tax-free nature of the account, I don’t plan on touching these investments for a long time, and thus am okay taking on additional volatility.  

529 College Savings Plan: Admittedly this is a little bit over the top – but in 2014 I opened a college savings plan for a kid I don’t have with a girl I have yet to meet. This account is held in the Utah my529 Plan, alongside our Washington State clients who are saving for college. I’m currently listed as both the owner and beneficiary, but someday hope to change the beneficiary to my child. With each paycheck I make very small automatic contributions to this account and for the time being those dollars are invested 100% in stock. In the scheme of things, this one is much more about the principle and much less about the actual money (though the additional years of compound interest don’t hurt!) I put a big emphasis on the importance of education, so I want to be able to tell my child that I started saving for their college well before they were born or even a twinkle in my eye.  

Find What Works Best for You

Everyone’s personal finance system is different, but I’ve found this system works for me. Occasionally I’ll look at my checking account and wonder why it’s perpetually flat or trending down, but then I’ll review my other buckets and realize that it’s simply a function of the automatic system working its magic in the background, allowing me to focus my time and energy on my passions.  

Lastly – a quick acknowledgement to Carl Richards who illustrated each chapter of How I Invest My Money, and lives on my personal Mount Rushmore of the financial planning and investment management industry. His back of napkin drawings have inspired me to simplify my communication and be more personal with clients. Carl – if by happenstance you found this post and have made it this far, the only thing this post is missing is a 60 second sketch 😉