I recently read a book called How I Invest My Money. In this book, 25 financial experts, a group of portfolio managers, financial advisors, venture capitalists and financial journalists, share how they save, spend and invest. Many provide details of their financial upbringing and how it affected their financial lives today. Each chapter was only a few pages long but provided interesting insights. The biggest, for me, was how few practiced what they preached. Many tell their clients that you cannot beat the market, yet, while they had some index funds in their portfolios, they also picked individual stocks and invested in their friends’ investment funds. I am not sure if I am disappointed in their hypocrisy or pleased with their honesty, maybe both. Anyway, since getting a peek behind the curtain of how people actually handle their finances is so interesting, I thought I would share my story with you!
My earliest money memories are from when I was 7 years old. My Dad had owned a small firm that went under following the 1973-1975 recession. We went as a family to California and stayed with my cousins while he was looking for work both in California and Massachusetts. He eventually landed a job at a large company but was never satisfied with the “corporate” world. He was employed at and founded a number of different companies throughout his career. He finally found the ultimate success he worked so hard for by being able to sell his company at the age of 56. He then semi-retired and fulfilled his passion of coaching high school football and doing volunteer work.
My Dad always looked for additional ways to bring in money besides his regular job. While lots of people have “side hustles” today, it wasn’t as common when I was growing up. In one year, my Dad earned money 20 different ways! These included owning a soccer camp, selling Christmas trees, broadcasting and producing cable television shows, newspaper reporting, umpiring baseball games and refereeing basketball games.
I got my start at a small retirement plan administration and consulting company two weeks after graduating college. While the company was purchased twice, I never left until I semi-retired at age 51 to found Fourth Quarter Retirement Strategies. I also never had a side hustle. Perhaps seeing all the ups and downs in my Dad’s career led me to seek safety and security in mine. It also shows there is no one “right” way to have a successful career.
From a financial standpoint, here is how I organize my life. I have tracked my Net Worth every weekend since 1991 and my spending every weekend since 2003. I know this is weird and unnecessary but it works for me and helps me maintain a sense of calm and control over my life (I think this is why I enjoy folding laundry too!). While I don’t recommend this frequency for my clients, tracking your spending for a few months can be very valuable to help ensure your spending aligns with your values. Tracking your Net Worth at least annually helps you to know if you are on track to meet your goals.
I am a big believer in the importance of asset allocation, asset location and tax diversification. Because of this, my wife Karen and I have a combination of pretax 401(k) accounts, Roth 401(k) and IRA accounts, a Health Savings Account (HSA) invested for retiree medical spending, an outside brokerage account and 529 accounts for the kids’ college spending. Because we are semi-retired and living off our assets, we maintain a 50% stock, 50% fixed income portfolio. This provides us with both long-term growth and the ability to deal with sequence of return risk if the market is down in our early years of retirement. For the stock portion of the portfolio, we are 100% invested in low-cost index funds and ETFs, with 60% in US stocks, 30% in developed international stocks and 10% in emerging markets stocks. For the fixed income portfolio, we use the stable value funds in our 401(k) plans and bond index funds. By keeping our fixed income in pretax accounts, our equities in brokerage accounts, and our most aggressive investments in the HSA and Roth accounts, we are minimizing the tax drag of the portfolio.
As Fourth Quarter continues to grow, I will open a Solo 401(k) Plan. Prior to semi-retiring, I maximized the use of my retirement plans at work. This included fully funding my pretax 401(k) and making traditional after-tax contributions to the plan so that I could do a Mega Backdoor Roth Conversion. We also made Backdoor Roth IRA contributions each year and fully funded and invested my Health Savings Account.
For spending, we have focused on staying off the hedonic treadmill. We purchased our house in 1994 and resisted upgrading during the housing frenzy of the early 2000s. After multiple mortgage refinancings as interest rates fell, we completely paid off the mortgage prior to semi-retirement. This allowed us to reduce the amount we need to spend in retirement, keeping our taxes and healthcare costs lower. We also generally purchase slightly used cars and drive them until they are no longer economically reliable.
We’ve always believed that the most important purchase we could make was financial independence. Having the ability to spend our time doing the things we love with the people we love is “priceless”.
Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.