Thursday, March 1, 2018

I'm Back - Update on Total Assets....

It's been a long time since I have written anything so I decided to kick start things with an update on my total assets by year since 2003.  The last few years have been good but not good enough to reach $100MM net worth by the time I am 50.  I have 9 years left on my Journey.  I will be writing about the things I am doing to kick start my net worth.  More to come.....let me know what you are interested in seeing!

Sunday, March 9, 2014

An Investment Strategy That Has Worked For Me

Last week I wrote about 10 ideas that, if implemented with discipline, have the potential to make you a millionaire.  This week I am going to show you how I have implemented several of these ideas in the form of my investment strategy.  I hope that by sharing how I have implemented these ideas you can do the same and successfully build the wealth you desire.

To start, the 5 ideas or philosophies have guided my investment strategies and plans were part of my last post:
  1. It is more important to invest NOW than to invest perfect
  2. It is more important to invest MORE than to invest perfect
  3. Make your investments automatic
  4. Invest in low cost options to build a strong base
  5. Reinvest dividends
My investment strategy based on the 5 ideas above can be summarized as:
Start investing as soon as possible with as much as possible into low cost mutual funds that build a strong wealth base.  As your income grows, continue to build your gross investment amount as well as the amount you invest as percentage of your income.  Make all of this systematic by setting up automatic transfers and investments that ensure you are paying yourself first.  Realize the impact of compounding by automatically reinvesting dividends.  Last step, watch the net worth statement grown beyond what you ever imagined possible. 
How does this look in practical terms?  How have I applied this, in what amounts do I automatically invest and into which investments?

We can start with the investment vehicles I use and in which priority order I have chosen to fund each vehicle.
  1. Maximize 401(k) pre-tax
  2. Maximize IRA
  3. Maximize 401(k) after tax
  4. Contribute to Taxable Mutual Fund Account
  5. Contribute to Brokerage Account
  6. Contribute to 529 College Savings
  7. Contribute to Build/Maintain Safety Net & Opportunistic Fund
Now, let's look at some of the details of how I go about funding each of the items above.

Fully Fund Tax Advantaged Accounts (Pre-Tax).

My first priority is to fully fund tax advantaged retirement accounts.  I first fund 100% of the maximum allowable to our 401(k) and IRA accounts.  These accounts are automatically funded by, 1) direct paycheck withdrawal for the employer sponsored 401(k), and 2) by direct withdrawal from our checking account for the IRAs.  We have selected low cost index mutual funds as our investment choice in each account.  We have been successful at fully funding each of these accounts from our second full year of employment after college.

Fully Fund Tax Advantaged Accounts (After Tax).

Next, I fund our 401(k) account to the maximum extend possible on an after tax basis.  The total contribution limit for employee and employer contribution on a before and after tax combined basis is $52,000.  We contribute enough on an after tax basis to meet the $52,000 limit on myself and wife's account (including our company's 8% match).  Again, this is done automatically from paycheck deductions.  The deductions must be adjusted each year as our salaries grown but we set the deduction amount at the start of the year and forget about until next year.  Even with these contributions on an after tax basis, we benefit from these contributions in that our earning grow tax deferred.  If you are contributing early and often these tax savings can add up quickly.  It took us several years of working and increasing our salaries to get to a point where we could meet the maximum total contributions on an after tax basis but we are now doing this each year.

As Your Income Grows Start Funding a Taxable Low Cost, Low Maintenance Mutual Fund Account.

After taking full advantage of tax advantaged retirement vehicles, I fund two taxable low cost mutual funds.  One is a Total International Stock Index Fund and the second is a Target Date Retirement Fund.  These are both low cost and low maintenance.  I have $2,000 per month directly debited from my checking account and invested in a Vanguard Target Date 2040 fund.  This fund adjusts the allocation of stocks, bonds and cash over time to account for a retirement goal of 2040.  I like this option since allocations are changed automatically over time with no intervention from me.  I have $1,000 per month directly debited from my checking account to fund a Vanguard Total International Stock Index Fund.  I chose this fund to provide some diversification since much of my investments are in the U.S. securities.  I first started funding these investment in 2008 when our incomes had grown to a point where we were beginning to stack up some cash that was going un-invested.  With these first three categories funded in the easy to maintain way I have described, you will be on your way to a substantial wealth base that takes very little time to manage.  Your time is an extremely valuable asset and investing in low cost, low maintenance mutual funds can ensure you have ample time to start considering investments in individual stocks as I will describe in the next step.

With a automatic system in place to build a substantial wealth base, start funding a Stock Brokerage Account to invest in individual stocks.

With the above investment since in auto-pilot mode, I now move $1,000 per month into a brokerage account.  I move this money automatically from by checking account, however, I do not make automatic investments into individual stocks.  I takes lots of time researching companies before making investments in individual stocks.  As I build a cash reserve in my brokerage account I look for the next best investment opportunity.  When I find the right company, I have funds to make an investment.  I sometimes go 6 months without an investment in an individual stock.  I can afford to take this long since I have a substantial monthly amount of investment dollars being contributed to the items I have listed above.  Most of the individual stocks I invest in are high growth companies that have an early mover advantage.  They are also very high risk investments.  This individual stock portfolio is the best return on investment portion of all of my investing dollars but it also takes the most amount of my time and attention.  This is my "get ridiculously wealthy" bucket of money.  it is also the portfolio that is the most interesting  to manage and affords me the best opportunity to continue to broaden my understanding of how different business and industries work.  I plan on balancing this portfolio a bit with some more stable and established companies that have dominating positions in high return on capital employed industries.    

Fund a modest amount to a 529 College Savings Plan.

I invest $500 per month into a target date fund to provide some funding for our child's college education.  I have not decided yet, if we will increase this amount to ensure we can fully fund a college education.  This will probably be a topic of an upcoming post. 

Finally, move any left over disposable income over to a savings account that can serve as a "rainy day" or "opportunistic" investment fund.

With what's left, I fund a savings account that can serve to fund an opportunistic investment in a major broad market downturn or a real estate downturn.  I have had the opportunity to use funds from this bucket once during the market downturn in late 2008/2009.  This also serves as a reserve fund for major unexpected expenses so the funds in this bucket can fluctuate drastically and I don't worry about that too much.

To summarize, I have constructed the table below that lists all of the account I contribute to on a monthly basis and the investments I make in those accounts.

This accounts for all of the investments my wife and I make.  We have not always been able to contribute the amounts listed in this table.  When we first started working we scratched by to maximize our pre-tax 401(k) and IRA contributions.  As we progressed our careers, we have slowly and surely worked to the amounts listed in this table.  The contribution amounts listed above represents a very large percentage of our combined salaries and rental income.  We have attempted to essential live off of the income we made when first starting our working careers and invest almost every penny of each raise we have received since that time.

I am interested in your investment philosophies and strategies and how you have translated those into the investments you make each month!

Until next week,
Happy Investing

Sunday, March 2, 2014

10 Ideas That Can Make You a Millionaire

Last week I wrote about the reason I chose a target of $100 Million net worth.  This week I will share with you the 11 things I have done that I believe were most important in obtaining the wealth I have today.  I believe that anyone can do these things and become a millionaire.  The list I am going to share are things I have done since I began investing in 2001 and I have carried on to today.  They have worked for me and I believe they can work for almost anyone.  The list is simple and easy to understand.

10 Things To Do That Can Make You A Millionaire:
  1. Get a good paying job in a high demand industry.  I know this is a balance between doing what you have a passion for and taking up a career that you know will result in a steady and substantial paycheck.  In some cases (like mine), these two things collide.  I have a passion for what I do and it happens to be in a field and industry that pays well and is normally in demand.  This might not always be the case.  And some would even argue, "Do what you love and the money will come".  I am not so sure this often cited mantra is the formula for success.  Successful people are passionate about what they are doing because they are passionate about being successful.  They would have been passionate about anything they found themselves doing because they have a passion for success.  For the best start to successfully building wealth find a good paying job in a high demand industry even if it is not where your 'passion' lies.  With a early successful start, you can leverage your success and explore those areas of 'passion' that might not at first provide the paycheck substantial enough to build a substantial base of wealth.      
  2. Ensure your financial priorities, strategies and plans are aligned with your spouse.  If you and your spouse are pulling in opposite directions it will become almost impossible to reach any goal that is more than mundane.  You need to be a team.  To be a team your priorities need to be aligned.  For your priorities to be aligned you need to share a common set of goals and develop plans together.  You must have a shared vision of success and plans that are mutually agreed.
  3. "It is more important to invest NOW than to invest perfect"Start investing as soon as possible.  Getting time on your side is one of the most important things you can do to build wealth.  The earlier you start investing the more time you have to compound your returns.  And you know the power of compounding over time.  Better to start NOW than to wait for that perfect opportunity.  I started seriously investing as soon as I had a steady income stream from my first job after graduating college.  I wasn't perfect in my investment choices and even made a few major mistakes.  However, just getting into the game early has made a big difference for my net worth today.  I know it can be daunting if you have goal to build $1 million or more in net worth and you start our of college with $0 or even worse with lots of debt.  Believe me, if you take disciplined approach and get started early you will be surprised in your balance sheet a few years down the road.  Just take a look at my  Net Worth Page to see how quickly your net worth can grow if you start early and put time on your side. 
  4. "It is more important to invest MORE than to invest perfect".  It is far more important to maximize the amount you invest than to rely on superior returns as a way to invest less.  Far too many people invest a meager amount - maybe 5%, 10%, 15% of their earned income - with the belief that they will achieve out of the ordinary returns on their investments that will overshadow extra money they could otherwise invest.  It is much more important to focus your energy on ways to invest a higher percentage of your income than to find the perfect investment that might the 'big fish' you can brag to your friends about for the next few years.  I suggest you focus on , 1)  finding ways to invest a higher percentage of your income through managing your expenses, 2)  increasing your current main source of income through career management or growing your business,  and 3)  finding new streams of income from a new business, rental real estate, consulting services, etc.  I make an effort each year to grow the amount I invest through each of these methods and have successfully increased the gross amount invested each year as well as the amount I invest as a percentage of my income. 
  5. Read as much as possible.  I strongly believe that the better you understand how the world works at a basic level the better investor you can be.  I also believe that reading can be the best way outside of direct experience to gain that understanding.  I read all types of information; history, current affairs, business and management, leadership, personal finance, investing.  I believe you should read non-fiction that helps you understand at a basic level how the world works.  I believe you should read investment newsletters that help you generate ideas for investments, understand differing perspectives, investment philosophies and strategies.  I believe you should read newspapers and magazines to keep up with where the world is headed, what broad trends are developing and what businesses have the best products that you should consider as an investment.
  6. Set Goals.  Develop Plans. Measure Progress.  Even if your investing philosophies, strategies and plans are flawed, setting a goal can take a long way towards building the wealth you desire.  You don't have a chance to adjust your strategies and plans if you don't first set a goal and measure progress towards achieving that goal.  Set a goal - even if you aren't sure if the goal is the 'right' goal.  Sometimes we obsess over how we should arrive at our 'number'.  We lose valuable time by not putting a goal out there for ourselves that we can start to measure against and adjust plans as necessary.  Develop plans that move you from your current situation to your goal.  Make your progress measurement against you plans systematic and routine.  You will begin to manifest wealth and opportunities into your life by setting a goal, developing plans, taking action and measuring progress against your plans.    
  7. Make your goals ambitious.  As I wrote in last week's post, I think it is important to aim high when setting your goals.  Isn't it better to fall short of an audacious goal than to reach one that was set too low?  How will you ever stretch yourself to consider new businesses, news streams of income, new partnerships if your goals are only set based on what you know you can achieve today?
  8. Make your investments automatic.  When it comes to the mechanics of investing this one has to be one of the most important to building wealth over time.  It takes time and energy to make decisions.  So do your homework and make a decision to invest once and then put it in automatic mode.  Decide that you will maximize your 401(k) plan.  Decide you will invest that 401(k) in a low cost broad market index fund like the Vanguard S&P 500 Index (see number 10).  Then put it in automatic mode by contributing an equal amount every month, every year for the next 30 years.  Do the same for an IRA.  Do the same for a taxable account.  I do this for all of my accounts.  Most of my accounts automatically draft from my bank account and invest directly into my chosen investment.  The only exception is my brokerage account for which I automatically transfer an equal amount each month to the brokerage account money market and then make investments into individual stocks when I have completed my research and feel it is the right time to buy.  You will feel free when you know you have made the right decision once and then put it in automatic mode with the assurance you are executing your plan and on your way to financial freedom.
  9. Invest in low cost options to build a strong base.  You have all read about how high fee mutual funds or brokerage fees associated with active trading can eat away at your returns.  I don't propose that you ignore investment opportunities that can provide superior returns because of fees.  I do, however, believe the base of your wealth should be invested in low cost options like index funds such as the no load funds offered by Vanguard or other low cost mutual fund companies.  If you believe in items 4, 5, and 9 above, you should get started as soon as possible investing automatically as much as much as possible in a low cost mutual fund like a S&P 500 index fund or total market index.  You should start here and as you build a substantial wealth base then venture out into other investments such as individual equities. 
  10. Reinvest your dividends.  There is no better way to handle dividend payments than to automatically reinvested.  I know this may depend on where you are in you investing career.  If you are later in the game you might be relying on these dividends to cover your living expenses.  If this is not the case, find out how to automatically reinvest your dividends.  You will be surprised at how quickly those dividends begin to compound and make a real difference in your portfolio.
There you have it.  Those are the 11 ideas that have gotten me to almost $3 million dollars net worth in about 13 years.  I think these ideas can work for anyone.  They are not hard to understand or implement.  It just take a commitment and some discipline. 

What are the ideas you have established that have help you grow your net worth?  I am interested in hearing your ideas so I can adopt some of them as I make plans to achieve $100 million dollars in net worth!  Waiting to hear from you!

Saturday, February 22, 2014

So, why $100 Million? It's about the Journey!

I received a few questions from folks about my goal of reaching $100 million net worth. How did I arrive at $100 million? Why not $5 or $10 or $50 million? What is so special about $100 million. 

I think I can sum it up with a quote from Michelangelo:
"The greater danger for most of us lies not in setting our aim too high and falling short; but in setting our aim too low, and achieving our mark."
The journey towards a goal is more interesting to me than attaining the goal itself -- and the more audacious the goal the more exciting the journey.  Let's make this journey an exciting one with a goal if $100 million in net worth!  The process of  a) establishing the goal, b) setting out a strategy to meet that goal, c) establishing plans aligned with the strategy, d) taking actions laid out in the plan and finally e) seeing your actions translate to results is exciting .  If the path to move from point 'a' to 'e' is clear and easy the journey is less interesting.  Less interesting for me and certainly less interesting for someone else to follow along and learn from the journey.  If my goal was to move from where I am today to a $5 or $10 or $20 million net worth, I have a clear path to get there.  I can continue what I have been doing and have great certainty the journey will end with my goal attained.  It might only be a matter of degree.  I might need to cut a few dollars in spending to invest more or I might need to add another rental real estate property or two.  My established plans today will get me to these less audacious goals. 

I am setting out on this journey with you to develop those plans that will take me to $100 million.  This will take exploring areas for new investment and additional ways of generating income.  I will have to learn and grow in areas that I know nothing about today.  This is where I believe you and I can learn together.  I also hope that by setting such an audacious goal and making clear progress towards reaching it that I might inspire others to start a journey of their own with a goal that they once thought impossible.

Secondly, part of my definition of financial freedom is to have the flexibility to participate in the building of exciting new businesses that will change the world.  By participation I mean venture capital funding.  To participate in a meaningful way, I believe I need to have substantial means.  $5 or $10 million might be enough to ride away into the sunset and enjoy a life of luxury but it won't be enough to enjoy a life of luxury, participate in building new ventures and go to bed each night with little to no worry. 

To recap, here is a summary of why I have chosen my net worth goal to be $100 Million:
  1. I want an audacious goal that makes this journey more exciting for me and for you to follow along.  If there is not some level of risk to attaining the goal it wouldn't be a very exciting ride.
  2. I want to have the means to substantially participate in building exciting businesses that will change the world.  To do this I believe I need more than just a few million dollars.
  3. Let's face it - $100 Million Net Worth sounds cool.
What's your goal and how did you chose it?

Until next time, happy investing!

Saturday, February 15, 2014

How I Got to Where I am Today....A History of Building My Asset Base

Last week I introduced myself, wrote about my high level goals and some things I would write about here. This week, I am going to give an overview of my assets and how those have grown since I started my journey in 2001.

In 2001, I graduated from a well respected engineering school and joined a large corporation. My starting salary was average for someone in my field of engineering with a Bachelors degree. To my benefit, I grew up understanding that you lived within or below your means. My parents instilled this value early and they set a good example by living their financial lives within their means. While in college, I worked with the corporation that I would eventually join full-time. During that time, I had the opportunity to learn further about personal finance and for the first time investing from a very wise retired engineer. I rented a room from this retired engineer and he took special effort to mentor me in some very basic concepts of personal finance and investing that I have carried on to this day. He also shared with me the details of his assets, investment choices, lessons learned and how his investments had grown over time. Seeing this first hand from an engineer just like me provided more lessons than any book, article or investment newsletter I have read since. The most important thing I learned was to start doing SOMETHING. Start contributing to a 401(k), an IRA, invest in a few individual stocks. Whatever it is just get started. So I did just that - I got started and early compared to many.

Saturday, February 8, 2014

My Journey to Financial Independence

I am 37 years old and started my journey to financial independence when I graduated from college in 2001. My goal is to achieve financial independence by the age of 50. I define financial independence as the ability to live the lifestyle I chose with little to no financial constraints. That lifestyle choice may or may not include a '9-5' job. It may or may not include extravagent trips around the world. It could include the freedom to start a business or invest in one for which I have a passion. It might include the freedome to make a large gift to a cause or group that is fighting a noble cause. Bottom line, I want those choices to be mine without constraint of my bank account. So, what is the dollar amount that equals financial independence for me? I am not sure. I have set goals along the way but not yet discovered what dollar amount will be. That will be part of my journey here with you.