Who are you and what’s your story?
Hey hey! Thanks for giving me a chance to share my story! My name’s Adam, and for the last few years I’ve been writing about how to use minimalism, mindfulness, and investing to reach financial independence sooner than you may think is possible over at Minafi.com (pronounced minify; to make smaller).
Like most people, I didn’t grow up learning about personal finance, investing, or any of these topics. My journey started a few months after I graduated college in Orlando, Florida. My mom passed away unexpectedly and left me the house I grew up in, $100,000, and a deadbeat tenant. I’d only just gotten my first “real” job, and suddenly I had way more responsibility at age 23 than I expected.
Over the next year, I cleaned her house from top to bottom and fixed it – a process that led me to look more into minimalism and living with less. The financial side was more of a mystery to me. I graduated without debt thanks to going to a state school on bright futures scholarship in 2000 – a time when tuition costs were much lower. I still had no idea how to invest!
That led down the investing rabbit hole. I started investing with a financial advisor who took a 1% fee and placed me high-fee, high-load funds. Once I learned how much I was being charged in fees, I began consuming everything I could about investing. I was extremely fortunate to stumble upon The Bogleheads Guide to Investing – a tax-optimized, diversified, low-fee, index fund driven route to investing. That’s still the investing strategy I use today!
Fast forward to today: I’m 38 years old, have been retired for 2 years after a whirlwind decade as a software developer and product manager where I put any income and financial success right back into the index funds throughout my career.
What do you invest in?
My investment approach is focused on minimalism. I try not to overcomplicate it. If I can invest in one fund rather than two at a comparable fee and market exposure, I’ll choose the one fund.
That approach led me to invest about 95% of my portfolio in low-fee, diversified mutual funds at Vanguard. My first investment, $VTSAX, is still my largest. In my case, that consists of about:
- 40% in $VTSAX – Vanguard Total US Stock Market Index Fund
- 20% in $VTIAX – Vanguard Total International Index Fund
- 20% in a combination of bond funds between $VWIUX (tax-exempt bond), $VTABX (international bond) and $VBTLX (Total US Bond).
- 10% in cash – This is because we’re retired, and want to hold 3 years of our portfolio in cash
- 5% in $VGSLX – Vanguard’s Real Estate Investment Trust (REIT)
- 5% in speculative investments. In my case, this is a combination of Disney and some stock from my former employer.
The result of all this is that my total fees average out to about 0.11% a year while benefiting from global growth in equity markets. Considering my portfolio is up to $2.3m by now, even a 1% fee would mean paying $23,000 a year – every year! By lowering my fees, that money gets reinvested each year instead.
Walk us through your process of identifying and executing on investment opportunities?
When trying to learn how to invest I tried to learn about all the different routes: day trading stocks, real estate investing, landlording, crypto – you name it. What I began to realize in this research was the difference between speculative investing and long-term investing.
What I mean by that is: do you have to be in the right place at the right time twice (when you buy and when you sell) for this investment to succeed? If that’s the case, you’re speculating that it will move in a certain direction by a certain date.
With long-term investing, the time you buy in is less important. If you’re buying an S&P index fund for retirement, the price today compared to last week isn’t going to have much bearing on your success.
My approach is to invest 95% of my portfolio in long-term investments. The goal with this portfolio is to enable it to grow as much as possible by:
- Reducing fees to the minimum.
- Optimizing taxes by investing in the most tax-efficient way across my accounts.
- Limit buying and selling of funds, especially when doing so is a taxable event.
- Limit the number of funds invested to spend less time trying to over-optimize.
That last one took me the longest to learn. When I first started investing I didn’t have a (mostly) 3-fund portfolio as I do now. I tacked on a fund here or there to “tilt” my portfolio in some way trying to eek out that extra 0.5% of gain for the year. Some years I did accomplish this, but most years it didn’t make a difference.
What did make a difference was that I kept investing! I kept throwing more money into these accounts, with the idea that I’d hold every investment until I needed the money at some future date when I retired.
Since you first started, what have you learned that has had the biggest impact on your success and the growth of your portfolio?
The year I started investing wasn’t exactly… ideal. It was 2006. The housing bubble was ready to pop – and the stock market would go with it. In a year I saw my net worth drop from $300,000 to $60,000 as my investments dropped by half and my new-bought house (after I sold the one I grew up in) went more than $100,000 underwater.
It seemed like I was doing everything right! I was investing in index funds, I bought a house – that’s a good investment, right? At the time I didn’t know how much I didn’t know.
That experience led me away from the idea of pursuing real estate and caused me to focus on learning why my investments declined. Was it something the financial advisor did wrong? Or was this inevitable?
In the late 2000’s I would have been out of luck regardless of what equities I was invested in. Although that wasn’t the advisor’s fault, that research uncovered how much I was being charged in fees. That resulted in me moving away from my investor to self-manage my funds – a decision that has been the most beneficial to date.
Working with an advisor wasn’t all bad! They took the time to explain diversification, index funds and to not panic-sell. Without them, I might have given into fear and missing one of the largest rises in history in the recovery.
What books, platforms or resources have you found useful?
My goto recommended book for investing is The Bogleheads Guide to Investing. It’s an amazingly concise introduction to low-fee, diversified index fund investing. It’s a how-to guide to invest on your own in a responsible, long-term way.
Almost all of my investments are at Vanguard, which I recommend to anyone getting started. What I love about Vanguard is that they’re investor-owned. That means they’re not answering to shareholders or private owners to make a profit. If you benefit, they benefit. This alignment of incentives isn’t possible just about anywhere else.
For analyzing funds, I like to use Morningstar to understand the fees, turnover, holdings, and yield of a fund. It helps to understand how an index fund has performed compared to its peers over the last few years.
In trying to make sense of which funds are the “best” for financial independence, I also created the Minafi ETF & Mutual Fund Directory which gives a FI Rating to each fund. That score is computed based on a combination of the allocation, fees, expense ratio, turnover, what category the fund is in, and a few more criteria.
What advice would you give to someone who’s just starting?
The absolute best place to get started is by joining your employer’s 401(k) program if they offer one. Even if you have debt, an employer company match is the best deal you’ll ever be offered. Take advantage of that match!
What to invest in gets more tricky. When you’re just getting started, I wouldn’t worry about trying to get a perfect asset allocation with a bunch of funds. Pick out a single US Stock Market Index fund with a low fee. Most 401(k) plans offer either an S&P 500 Index fund or a Total US Stock Market Index fund. Pick the one with the lowest expense ratio and put all your money into that.
After you’ve saved up, say, $50,000 in your 401(k), you could start looking into ways of diversifying this account by adding on an international index fund, or a bond index fund.
If you’re not sure about which accounts to use for retirement, I created an interactive planner where you let it know how much you have to invest and which investment account options you have and it comes up with a quick plan for you. It’s great for understanding which accounts to use when getting started.
Get used to looking at this account and seeing it rise and fall in value. As much as you’d like to be, you’re not in control of the value of this account. Get used to seeing it fluctuate without immediately diving in to try to fix it. That’s an essential skill to learn that takes time and experience to get the hang of.
What investment opportunities are you excited about at the moment?
As a long-term index fund investor, I don’t keep my ear to the ground constantly looking for new companies to invest in. But that doesn’t mean I don’t sometimes want to! I set aside 5% of my portfolio for speculative investments, which can be anything. I still try to hold these investments for 1 year for them to qualify as long-term capital gains.
At this moment I don’t have any red-hot picks. There are things I’m very excited about: self-driving cars, augmented reality, interactive at-home fitness, a killer-app use of blockchain. These are areas I do listen to news about and would invest in if I felt a company developed something far above all of their competitors.
Can you share a story about an investment opportunity that you passed on and went on to grow beyond your expectations?
Back in 2011, I kept hearing about this “Bitcoin” thing. I joined a somewhat scammy site named Mt. Gox and decided to try investing a few hundred bucks. Apparently, a lot of other people had the same idea, and to join I had to submit paperwork, have it reviewed, and repeat until they opened my account.
During that month of back and forth, the price of Bitcoin spiked all the way from $0.73 to more than $3! A 300x run-up in a month? That was amazing, but I’d missed it! I decided to sit on the sidelines until it calmed down then put some money in.
You can guess what happened next. Bitcoin was never that low again. I did end up investing in some Bitcoin later on at various price points. $50, $100, $400, $1,000 – but with only a few thousand invested total. In all cases, I still ended up selling once my investment was up 2x or more. At most I had maybe 10 Bitcoin at once. Although it didn’t make me rich, I did learn a little more about risk exposure when those crashed down later on.
Why should you invest in index funds when you can make a lot more money by doing <insert other option here>?
There are many routes to financial independence through investing, but it’s not a silver bullet. It’s easy to look at Reddit or Twitter and think that everyone is making a ton of money and investing in all the hottest, best stocks, but that’s just not the case.
The people who are losing money are quiet. It’s the same thing that happens when people are scammed out of money from confidence men. They’re embarrassed and are less likely to trust again.
In years when the stock market is up, huge profits can be made by investing more aggressively. Unfortunately, it only takes one bad year where you go all-in to wipe out a lifetime of savings.
I’d encourage you to do your research to understand what’s a long-shot investment and what’s more of a baseline place to put your money (like the S&P 500). Limit your long shots to a small piece of your portfolio – an amount you set ahead of time – and throw the rest in index funds. For me, that small amount is 5%.
If you do make a mistake, or invest a lot of money in a losing stock, I encourage you to learn from the experience. Your entire education up to that point led you to make that decision. The You of now knows more than past-you, and you can choose to make different decisions with your money next time.
Where can readers go to learn more about you?
Since I retired, one of my passion projects has been helping people learn how to invest confidently on their own using index funds over at Minafi.com. I write articles about how to invest, have a free investing course, and have used my abundant free time and web developer background to create a bunch of free tools to help communicate difficult investing topics in playful, interactive ways.
I’d recommend checking out the Interactive Guide to Early Retirement and Financial Independence if you’re just getting started.