"How I Invest My Money"
That is the title of a new book from Josh Brown and Brian Portnoy that curates thoughts from 25 investment professionals who also write about investing. Here are three links to take in a little more about this upcoming book here, here and here. I've delved into this somewhat over the years in terms of using the blog to track my life from before my career had any meaningful traction through what might have been the peak of managing an ETF for a few years, speaking at multiple conferences every year and appearing on stock market television once a a week for one short run to what I think of now as being a real sweet spot for enjoying my career without often feeling like there's somewhere I need to be.
I've been lucky enough to make a fine living for a long time but it's not like I make hundreds of thousands of dollars every year. A fine living does not equate to a very high income but I've said before that we are fortunate that the life we want costs quite a bit less than we make. This equation could be true for someone who makes $40,000 living a $20,000 lifestyle or someone making $400,000 living a $200,000 lifestyle. We're somewhere in between those extremes.
In figuring out what to do with your money, I believe you need to understand your priorities in life. Too many folks get this wrong and so they end up spending money on things that don't make them happy and struggling to save enough to cover what they incorrectly think they need for retirement. Figuring this out early on is a path to a much easier financial life.
Our fixed monthly expenses are just under $3300 which does not include the mortgage on our Airbnb rental, the rental pays for itself plus a little more, it has a 15 year mortgage that will be paid off when I am 66. The $3300 does include a $1400 15 year mortgage (one of the many benefits of living in a small town) that should be paid off when I am 56 which would take our fixed expenses down to $1900. I should note that we have been going with cheap (read lousy), temporary health insurance. We can do this thanks to being in good health. If our luck persists on this front then as I understand it, every four years we'd have to get expensive ACA coverage for one year which for the coming year would be an additional $1100/mo on top of what we're paying now. So worst case scenario our fixed monthlies add up to $3000 in today's dollars starting at 56. We pay car insurance and propane as lump sum costs but if we budgeted those monthly they'd combine to add another $300/mo.
So let's stick with the $3300/mo starting at 56 and pad it by $1000 for unexpected one-off events like new tires and veterinary bills. We haven't had any car payments since 2009 and I am not sure when we will again so that is a variable I can't precisely account for but am at least aware of.
So that backdrop hasn't changed a lot in the last few years other than the addition of the rental income from the property we bought in 2017. And it is against that back drop that I assess what we should do with the money we save, how we should allocate it. If you read the links above, they all touch on the importance of doing what makes sense for you. As I lay out what we do, please keep in mind that what we do is not right for anyone else (probably) but is right for us.
We have 18% of our liquid assets in taxable accounts, 11% in our HSA, 14% in Roth-type accounts and 57% in traditional IRAs. I've said before that because our primary income derives from the ups and downs of the stock market, that we have very little invested in risk assets, we are sitting on a lot of cash, we have about 30% invested in risk assets and the rest in cash. One thing that I appear to be good at is not responding emotionally to stock market crashes. I believe that is the case because I am not over-levered to the ups and downs of the stock market. If I was panicked about a decline in our accounts it would detract from my ability to meet the expectation I set for myself as an advisor. Over the years I have frequently taken calls or emails from friends in the business who need someone else to remind them that crashes happen occasionally and that markets will recover. I don't ever want to get to the point of my emotions possibly interfering with my job and while I don't know if that would ever happen or not, at 30% it does not happen. If you've been reading my posts for a while, you might recall my regularly saying something along the lines of if your financial plan is relying on normal stock market growth... Ours really doesn't so our exposure is low.
I included an estimate of $4300/mo for expenses before we go on Medicare. Assuming Medicare costs skyrocket in a manner no one is expecting, let's stick with $4300. My full retirement amount (FRA) from Social Security at 67 will be $3000 in today's dollars. My wife's spousal benefit when she turns 67 would be $1500. My preference would be to wait until 70 if possible which would take my FRA up to $3500. Our Social Security would cover our fixed monthly expenses plus one-offs and the positive cash flow from our Airbnb rental would more than cover discretionary purchases like clothing, hobby stuff and eating out. Our Plan A is that we don't need our savings to live on, ideally it would cover taking trips and serious expenses like maybe paying for our next car. Also included in Plan A is that I continue to manage money until the end and while I doubt that means doing it when I am 90, I am quite confident I will still be going strong at 70. As a quick technical note about SS, the $3500 plus $1500 would exceed the monthly household maximum by a couple of hundred dollars so maybe my wife would take it a little earlier than her 67th birthday.
Our Plan B is that something goes wrong with the above and we need to rely on our savings to generate a regular monthly income. Plan C likely is that I am not managing money for some unforeseen reason and am trying to supplement our income working for an incident management team (IMT) or filling in on temporary assignments in the IMT world. Plan D is probably selling our current properties and downsizing into a very small house (not a true tiny house which implies it's on wheels) somewhere. I've made jokes before about having a Plan D but we really have one, and a lot would have to go wrong to get to that point and if God forbid a lot does go wrong we won't be left trying to figure it out from scratch.
The vast majority of the risk assets we own are a mix of broad based equity funds, a little bit in the diversifiers I have mentioned owning for clients and a small dose of individual stocks. In reading the links above, one of the contributors to Josh and Brian's book was excerpted as owning a couple of lottery tickets. We own two lottery tickets, Bitcoin via the woefully inefficient GBTC and I own a few shares of Maven (MVEN) which is the company that hosts my blog. I've disclosed owning a little MVEN before. The idea is that I have heard the story first hand and while I don't believe it will pan out they way they hoped back in 2017 when I first heard it, there is no reason for me not to own a little in case that story from 2017 comes to fruition. This is likely a kind of FOMO but for as little as I own, it could go to zero without impacting our financial outcomes. GBTC is a little different. I pretty much bought at the low about two years ago. I bought just a little bit but it is up a lot. I am emotionally prepared to watch it go to a bazillion or zero without selling until it becomes enough to meaningfully impact our life. If it went to zero from here, that would be a bummer but I wouldn't lament it. At some dollar figure that is less than life changing and higher than where it is now, holding on as it went to zero would be lamentable, bordering on regret but my initial outlay was so small that I view it as house money.
One other way we allocate money is that I have used my accounts as an incubator of sorts for specialized holdings (so not talking about individual stocks) I might use for clients. More recently, I did this with Standpoint Multi-Asset Fund Institutional (BLNDX) last January and then bought for clients a few months later. The best way for me to understand whether a strategy is meeting the expectation its managers set is to own some. A few weeks ago I bought a new ETF that tracks a broad market index with an options overlay. It is too early to know whether it is meeting the expectation the company has set for the fund but the risk to me is not that it cuts in half in an up 10% world, the risk is that the fund is underwhelming, that it doesn't quite meet expectations and that it drops 20% in a down 15% world.
If I had to "retire" now we have enough to pay the bills comfortably but would not have as much for fun/lifestyle as we might like and that new car waiting for us in the future would be a little more difficult to pull off. A little more realistically, at this point in our lives we are still saving money at a good clip but our need to do so is less. This is all about optionality. We are living the way we want to live, are lucky enough to have money left over to save for the future and still a little more left over to have some fun.