I realize How I Invest My Money was published at the end of 2020 so I’m not exactly on top of new book releases. But it was a fun, quick read and really shows that even though the financial web might endlessly discuss how to invest money, when it comes to personal finances even the experts deviate from the “optimal” answer given the vagaries of their personal situation.
So even though I’ve mostly written about both big and small picture stuff that captures my attention – either because I want to understand it better or because I think the common narrative is misguided – I thought it might be useful to show what I do for my personal situation as well.
First things first: I’m married and our incomes are about equal. We both work in jobs that are in high demand and very hard to lose so financial security really isn’t a concern. We also live modestly – we save about a third of our income, about a third goes to taxes, and we spend the final third. We’re not FIRE proponents, it’s just that the stuff we enjoy doing is pretty inexpensive and neither us want to spend the time taking care of a giant house, a vacation home, or drive the latest model car (we drive vehicles that are 8 to 10 years old – we bought them new and just held onto them – although we will replace one of them with an electric vehicle soon).
So goal number one is to put most of our personal finances on auto-pilot, use the investing principles that have the highest odds of success, and don’t take unnecessary risks. Which is why all our retirement accounts are in lifecycle index funds that we just dollar-cost average into.
The non-retirement savings are allocated roughly akin to the All Weather Portfolio for mere mortals. The main differences: I have a 10 percent utilities sleeve in addition to a 35 percent global equity sleeve, and the gold and commodities allocation is only 10 percent combined versus the 15 percent of the original. The other 45 percent is in cash, certificates of deposit, and intermediate to long-term treasury bonds.
Why the differences? A couple of reasons:
- It’s really hard for me to own something that doesn’t generate cash flow. The commodities fund tries to optimize the roll yield while maximizing interest on the cash held as collateral against the futures. Gold doesn’t generate anything. But both of these tiny positions help moderate the overall volatility of the portfolio. Additionally, given their individual volatility you can pick up some incremental returns through rebalancing.
- Which brings me to utilities: positive cash flow, solid long-term prospects from the (hopefully!) electrification of America, and utilities have surprisingly low correlation to the overall market, which further dampens volatility.
- 45 percent cash and treasuries at these yields!?! Yes. The returns on the treasuries will not be stellar. But they’ll provide the dry powder I need if any great opportunities present themselves in a crisis, which will more than make up for their current paltry coupons.
The main takeaway from the non-retirement savings is that I want a pot of money that stays ahead of inflation while still giving me a giant amount of real-world optionality.
On one hand the retirement accounts seem super-aggressive since they’re 90+ percent equity right now. On the flip side, the non-retirement savings seem super conservative. Part of it is how much time there is before I’m likely to access the respective assets. Part of it is that I can substitute savings for investment returns.
And then the remaining part is that I don’t have a mortgage on my house anymore and I own a chunk of debt-free productive farmland that makes up about a third of my overall net worth. The farmland is non-correlated to the market and makes for a great inflation hedge. If everything else goes to zero I still have a roof over my head and a modest income from a farm.
You’ll notice that I don’t have any mortgage debt on the house or farm even though mortgage rates are historically low. I wasn’t surprised to see the same thing repeated in How I Invest My Money. The freedom from getting pushed into a credit crunch, keeping my monthly cash flow requirements lower, and maintaining additional pots of untapped equity helps me to more easily sleep at night.
Just for Fun
I promise I won’t spend much time in the future writing about dollar-cost averaging into a lifecycle index fund or periodically rebalancing a conservative All Weather-esque portfolio. What I will continue to write about is a tiny portfolio of concentrated equity bets, how they’re doing, and how I manage it. I might also share the occasional “Lessons Learned” from my investments in alternative assets such as private companies or farmland. Hopefully tax-loss harvesting won’t be the common theme of those lessons. And of course I’ll keep writing about all the zany stuff that happens at the intersection of people and their money.