Stop Ironing Shirts

Achieving Financial Independence Through Corporate Employment

Can You Give Me Investing Advice?

A question I received a number of times over the last year has been “Can you give me advice with my investments?” Leaving my job at thirty six exposed me to friends as someone who knew what they were doing with money. I’ve been talking to more people about FIRE in person and I also enjoy writing about advanced investing topics. However, the answer on investment advice is….NO. I’m not an investment adviser, have no desire to be paid to give investment advice, and can only give direction and point friends to other resources. (see Site Disclosures )

The direction I send friends is often to give them guidance about what I wish I had done differently. I recently send a long email to a friend to help them and thought I would share some of the guidance I provided them below.

Think about investing on your path towards Financial Independence in two parts:

Phase 1: Up to $1,000,000 in Total Investments

Phase 2: More than $1,000,000 in Total Investments.

Phase 1: If you are starting out or building your net worth/invested assets up to $1,000,000, the best returns come from investing in yourself. Morgan Housel eloquently writes this (better than I ever could) in his article The Biggest Returns. Early in someone’s financial independence journey, generating invested assets through increasing income, reducing expenses, building skills, and managing taxes is far more important than chasing investment returns.

I personally spent hours upon hours researching stocks and putting work/effort/stress and subsequently achieving a return around what the market made early in my journey. I chased a CFA designation, only to decide hand calculating derivative valuations isn’t for me. After thousands of hours of time, I eventually moved to 70%+ in low cost index/mutual funds in the last few years of my working career. Looking back it would have been better to figure out how to earn more and save more instead of chasing investment returns. I now give this message to any friends who ask about investing: Keep it simple for the first million.

What is my specific advice for people in the first stage? Follow The Simple Path To Wealth. Invest in low cost index/mutual funds and invest the majority in a stock index fund plus some in a total bond market index fund to smooth the ride.

The Index Fund Route: Option #1 Own a two fund portfolio, one Total Stock Market Index Fund and one US Bond Index Fund. The examples below use one of the three low-cost investment firms, Vanguard, Fidelity, or Charles Schwab. The fourth applies to any other investment firm:

Vanguard Total Stock Market Index and Vanguard Total Bond Market Index. (VTSAX and VBTLX).

Fidelity Total Market Index and Fidelity US Bond Index (FSKAX/FZROX and FXNAX)

Schwab Total Stock Market Fund and Schwab US Bond Index Fund (SWTSX and SWAGX).

All Other Brokers: Purchase an exchange traded fund (ETF), which operate just like a stock. I prefer to use the ETFs are sold by Blackrock/iShares. Total Stock Market Index is ITOT and the Bond Index is AGG.

After figuring out what options your brokerage provides, the next decision to make is what percentage to put in each, anywhere from 60% to 95% in the Total Stock Market Index and 5% to 40% in the Bond Index. I encourage you to put as much as you are comfortable with into the Total Stock Market Index, then as you approach early retirement, move the Bond Index percentage should be.

Option #2: The One Fund Approach: Betterment, Personal Capital, and robo-advisers are all the rage. However I think the most economical actively managed route comes through Vangaurd in a mutual fund started in 1929: The Vanguard Wellington Fund (VWELX). I personally own over $100,000 in this mutual fund, it owns around 65% Stocks and 35% and carries a low expense ratio. Currently you can buy into this for a 0.25% expense ratio for the first $50,000 which drops to 0.17% once the account exceeds $50,000. Not even Vanguard’s robo adviser can beat this cost. Its important to note the Wellington Fund can only be bought through Vanguard and it can serve as a one and done fund choice.

Phase #2: Exceeding $1,000,000. Once someone exceeds a million dollars, I encourage seeking professional advice. Go see an estate attorney first, leaving a chunk of money for the court to probate is being a jerk to your family. After that, consider how much effort you want to put into your investments and doing your taxes. If you want to do it yourself, its time to start reading. If not, consider finding a fee based financial planner and find a good CPA. The goal is to find someone will work with you for a fixed fee, write a plan, and discuss goals/risks/returns/and asset allocation.

Goals can change and preservation of capital becomes important at this amount of invested assets. I believe intensive personal research and/or professional advice could help lower the overall volatility of your portfolio while only making minimal sacrifices in returns. This level of net worth is a serious about amount of money, sequence of return risk is real, and markets never do exactly the same thing. The saying goes “Markets don’t repeat, but they do rhyme.” Absorbing a 40, 50 60% drop with a long, drawn out recovery is the ultimate sequence of return risk that could be devastating to goals.

Other considerations at this level: You become an accredited investor once you reach $1,000,000 in invested assets, opening up syndicated investment opportunities. Non-correlated assets like long-dated treasury bonds might have a place in your portfolio. What exposure do you have in real estate? Does the lower volatility and lower returns of a dividend growth strategy make sense? You may look at all of this and still decide a simple index fund or two is right for you, but understanding goals and risk adjusted returns are important when you need to preserve capital.

So what about the investing commentary I post on this site?

I share our asset allocation and/or write about different investing ideas, they are written from the perspective of someone already in the second phase and deciding to use personal research. For the person with a decent income early or mid-way through their financial independent journey, pick the simple path on your investments and control what brings the biggest returns today. You will have time to learn as much as you want later in your journey.

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10 Comments

  1. Barrett Sundberg

    Stop Ironing Shirts, excellent article. This is the basic stuff that an early stage investor needs to know, written clearly. I really like that you included the part about investing in yourself being more important at first than time spent on details of your portfolio. Am planning to use this as a reference article when friends are at appropriate life crossroads.

    • Stop Ironing Shirts

      Thanks for the comment! I look back and wonder what the heck what I doing with $150,000 saved and spending hundreds of hours trying to beat the market by 2%. So I earned maybe $3,000 for all this extra time? People today have the benefit of the gig economy and can go earn that. It was sad that at the same time I thought “it took too much time” to churn credit cards for rewards.

      Many people are perversely invented to make investing difficult and prey on mid career professionals with high AUM fees. Keep investing simple in the beginning then there’s a time and place for professional help and advanced strategies.

      • Leenore

        What does a high AUM fee look like to you?

        • Stop Ironing Shirts

          My old regional bank would do a pretty decent financial plan for a flat fee around $3,500 and something that only needed to be updated every few years. This did not include recommending proprietary products. That’s my baseline. So maybe 35-40bps on a million dollars invested? I just don’t like the AUM model, I want to write a check if I am paying for advice. There’s a special level of focus and attention vs a monthly/quarterly account debit

  2. katsiki

    Great post as always. What is your take on 100% stocks for the first million? It seems pretty safe to me personally but I suppose that depends on some variables and personal comfort level. I’m curious if you have thoughts on that.

    • Stop Ironing Shirts

      Interesting question – I think it depends on a lot of variables, but if you’re someone who has $900,000 and going to save $50,000+ in the year, there’s nothing wrong with that. You have to have a strong stomach and be willing to keep investing if that $900,000 becomes $700,000 in the span of months.

      The saying goes “The market goes up more often than it goes down, but it goes down a lot faster than it goes up!”

  3. Leenore

    I had a lot of the Wellington Fund in a taxable account, and I got slammed with capital gains one year. Was rather furious at myself. I’m still a little gun shy about that fund.

    • Stop Ironing Shirts

      Great point! We’ve only had it in IRAs and active management (and bonds) are a beating in a taxable acct

  4. Hello, great article. What is your thoughts on International investing? Do you agree with Bogle (limited international 20% or less), or Vanguard (20-50% international stocks) I know the last 10 years international has done really poorly.

    But considering USA CAGR’s per decade it might be good to diversify out of USA

    CAGR per decade USA
    ==================
    1900 7.11
    1910 -3.19
    1920 12.97
    1930 0.85
    1940 5.43
    1950 15.13
    1960 4.47
    1970 0.018
    1980 9.88
    1990 12.17
    2000 -2.02
    2010 9.83

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