|Our investments include money in our Roth IRAs, 401Ks, and taxable accounts. This does NOT include money in our checking and savings accounts. This does NOT include the value of our home equity, as I don't consider our home an investment.|
I'm excited to share a peak into our financial process. I just logged into mint.com and noticed that our total investments have surpassed $100,000 in value! While reaching $100,000 in investments isn’t a lot of money by today’s standards, it is a significant and meaningful amount of money for us. It is certainly not enough money for us to proclaim that we are financially free, but we are definitely headed in the right direction.
When it comes to investing, we were both a bit late getting started. My wife started her working career in 2006, and I started working in 2008. Like most working Americans, we had no future game plan towards financial freedom. Like most people who haven’t started investing, we both thought that we needed to “earn more money” and “read everything there is about investing” before we ever got started.
The only financial advice we had ever previously received from our parents was to “stop wasting money” and “don’t forget to save money.” Anyone else out there have parents that say this?
When my career plans became stable, I took a large loan from my family and used it towards the down payment on a home (with 30 year mortgage attached). We started making good money, but most of it went towards paying the bills, the mortgage, eating out, and buying a lot of shiny crap. Next thing you know, we were both literally living paycheck to paycheck.
We were basically living for the moment, with no clue on what else to do with our money. We were living the “American Dream” of owning a home, driving nice cars, eating at pricey restaurants, and buying fancy electronic gadgets. And yet we didn’t even have $1,000 in our savings account.
“Is this all there is to life?” I asked myself.
I went to my local library and checked out every book on investing I could get my hands on. When I had questions, I searched for answers on google. Eventually I found bogleheads.org and now it is my number one source for learning about investing. When you do a lot of reading about investing, a lot of similar concepts get repeated.
As it turns out, investing does not have to be difficult. We have applied much of what we learned into our lives. Earn more money, save more, invest the difference with low cost index funds, contribute regularly, and stay the course.
We’ve built up 6 months worth of cash for our emergency fund. We have been investing now for about 2.5 years, and have learned so much along the way. You can read more about the Bogleheads investment philosophy here and read my investing primer here.
We are not investing in any individual stocks, precious metals, or any exotic investments. As I regularly mention, we are investing in a simple Boglehead 3 fund portfolio. This allows us to own a piece of over 3,600 US stocks (like Apple, JP Morgan Chase, Google, and Chevron, over 5,500 International stocks (like Nestle, Toyota, HSBC, and Samsung), and over 6,300 individual US Bonds. Whenever people talk about how well Apple or Google stock is doing, I just nod my head and say “yea I own that stock.”
The stock market will go up, and the stock market will go down. We never try to time the market, and we regularly make contributions by dollar cost averaging.
Our current asset allocation is made up of 90% stocks (70% domestic stocks, 30% international stocks) and 10% bonds. Our 401K funds are set up to mimic Vanguard’s Total Stock Market index fund.
Depending on your risk tolerance, you need to come up with your own asset allocation. As you get closer to retirement, you should consider lowering your stock investments and increasing your bond investments and cash holdings.
Our portfolio is easy to manage and we sleep well at night not worrying about the volatility of any individual stock. If the market decides to correct itself and crash (no one knows when this will happen), we will continue our same plan by purchasing more stocks on sale!
Are you still waiting to start investing? You’ll never achieve financial freedom if you don’t. If you have a job and are making money, you should be thinking about your exit strategy. Do you want to work until the day you die? Don’t let your future self look back with regret: I should have saved more, I should have invested earlier, I should have contributed to my own retirement.
Start investing in your IRA with a simple Target Date Fund from Vanguard. Pick your fund based on an asset allocation you are comfortable with. As you accumulate more wealth, you can start to divide up your Target Date Fund into individual mutual funds.
Stay tuned for future investment updates from us; we still have a long way to go and other milestones to reach along the way!