This post is part of the How To Invest Your Money & Why series put together by Alexander at Wall St. Nerd.
Years ago, I started investing for some arbitrary goal known as retirement, a vague notion that someday I would be 65 and ready to hang up my metaphorical “working” hat. Little did I know at the time of the FIRE movement or my future participation in it. But here I am, years later, with the monies amassed to live a life full of spontaneity thanks to it.
For that, I am grateful.
I now look back at my ponderings of a traditional retirement as archaic at best, indoctrination at worst. And while I respect everyone’s choice to work how they see fit, the prospect of being constrained by a prototypical 9-to-5 for decades bores me.
Why? Because I want the freedom to travel the world, where I can learn about radically different cultures and then question my belief system. I desire to traverse the varying landscapes that make up our beautiful planet. I wish to eat the various cuisines developed over millennia, even if they confuse my taste buds. And importantly, I desire the ability to disconnect and hike midday, even if it is only around my neighborhood.
The future I see gives me the privilege to be a stay-at-home dad for the future child my spouse and I will raise — one where we don’t outsource instilling the values we want our child to have — a future where family takes precedent, always.
This is my “why” when I say that I invest.
My entrance into serious investing
I became exuberant when I first discovered the Financial Independence, Retire Early movement. By frontloading ones savings into investments, I could retire early to chase the life of my dreams.
Such a premise is intoxicating, and consequently, I began saving and investing heavily.
However, years into my FIRE journey, I discovered that I didn’t care about early retirement. And, if you are curious about my reasoning, I suggest reading my guest post over at Budgets Are $exy titled: Enjoy the Pilgrimage as Much as the Destination.
For those not up for the tale, its essence boils down to a desire for freedom. Sometimes that means working. Other times it doesn’t. However, Financial Independence is all one needs for such a life. Thus, I burned the Early Retirement off of FIRE for myself.
Nowadays, I work two part-time jobs that I love without touching my nest egg. I work on my schedule, and I love the balance my sporadic life provides.
Notably, I still save and invest!
Some days I work, others I play.
My life is beautiful and sporadic, and I rarely know what day of the week it is. I love it.
Some would call me a quitter, and others would say I have found Coast FIRE. But, I demur.
I discovered financial independence, and it is bliss. If I want to travel, I travel. If I want to go out to eat, I do so. When my spouse and I harbor a child, I will have the ability to cease work. That is FI. The ability to do what you want, when you want, and how you want it.
The secret sauce: compound interest
Besides luck and hard work, the secret to my FI success has been investing because none of this reality would have been possible without it.
Why? Because ordinarily, if you save money without further action, it will diminish in value due to inflation. We call this loss of value diminished purchasing power in economic terms.
But, if you take action and move your cash into productive assets, you have the opportunity to beat inflation over the long haul.
To me, productive assets include stock market investing. For others, it could be building a business or house flipping. But, since this is a finance blog, I will cater my discussion to investments.
Hence, how does investing beat inflation? The answer lies in something known as compound interest.
Through compound interest, your interest earns interest since your assets are continually accruing value. Therefore, compounding balloons wildly and outpaces inflation over time, which is why Compounding Is Beautiful.
For example, investing $10 a week for 30 years in the stock market could create nearly $230,000 in wealth versus $36,000 in a bank account; talk about surprising!
So, how do I invest my monies? I’m glad you asked.
Investing is beautiful. Here is what I do.
As a part-time financial advisor and finance blogger who tailors his content towards demystifying finance, one mountain at a time, I am sure how I invest my money is of some interest (though candidly not that much).
I invest predominantly in index funds as they are more likely to outperform their active brethren. Furthermore, I diversify across domestic and foreign companies to lower my overall risk while maintaining my returns. And while Buying International Stocks Is Essential, But Not Exciting, the data says such efforts are worthwhile.
Lastly, when it comes to a portion of my portfolio, I have taken strategic gambles and placed my domestic small-cap exposure towards value-oriented companies due to historical data of outperformance while also tilting towards REITs for (hopefully) more consistent returns.
However, you should not invest how I do since this portfolio is custom-built for my desired risk-to-return outcome through various modeling scenarios.
Further, it would be best to tailor your investments to your needs, as everyone is different. If you are looking for a guide to investing according to your risk tolerance, please read my article: You’re Investing Wrong: How To Use Portfolio Construction.
So, without further ado, here is my exact investment breakdown:
•30% Large-Cap Domestic Stock Index Funds – FNILX & VOO
•10% Large-Cap Domestic Stock Actively Managed Funds (these are a gamble and are in funds that have consistently outperformed the broader market over long time horizons) – FDGRX & FAGCX
•20% Foreign Total Stock Market Index Funds – FZILX & VXUS
•20% Small-Cap Value Stock Index Funds (due to historically higher returns than other asset classes) – FISVX & VTWV
•20% REIT Index Funds (due to historically lower volatility and improved portfolio returns) – FSRNX & FREL
Investing has grown my money substantially over the years that I have saved, and it has required little ongoing effort on my part.
I created a plan, and I stick to it, occasionally rebalancing my portfolio as needed.
Some people like to do fix-and-flips to grow their money, and others may want to start a business, while I prefer to invest.
There is no wrong way to put your money to work other than Ponzi schemes, but the simplicity of investing in the stock market trumps any other alternative for me.
So, what are you waiting for, reader? If you aren’t investing in something, your cash will deflate. Take action today, and do not delay! Oh, and as always, have a great day!
Please let me know in the comments below why you invest, and as always, have a great day!
Mile High Finance Guy
finance demystified, one mountain at a time