Before we dive deep into the world of investments, I want to make clear I am not a financial adviser. What I write should not be taken for advice. I don't even know if I'm doing this thing right!
That being said, I've received a few emails asking me what I invest in, what my investments look like, and what Bartholomew likes to eat for breakfast.
Rather than reply individually, I've promised a post that delves into the nitty-gritty details. But first… a bit of background.
I was exposed to the stock market fairly early in life. My 5th grade teacher did a project where we “got” $100k to invest in whatever stocks we chose. We checked the stock prices each day in the newspaper for a month. I think the winner won a candy bar. I didn't come anywhere near winning, but it was a great first lesson on the market.
Several years later, I remember my mom and stepdad being furious when their K-Mart shares became worthless in the blink of an eye (Sears bought them out). That was an excellent teachable moment and they answered all the questions I had about the process. We also never shopped at K-Mart or Sears again!
Then, of course, came my senior year of high school, better known as 2008 and the start of the Great Recession. I was mostly unaffected as I had only cash to my name. I did have a small inheritance from my grandma, but it stayed flat. Grab a pencil and draw as straight a line as you can imagine. That's what my account balance looked like. I have no idea what it was invested in but I didn't lose any money. I also didn't see any gains in the recovery. That account became the basis for my taxable investment account several years later.
I transferred that money over to a taxable investment account started by my stepdad's broker after I discovered MMM in college and started getting serious about my money. I also started a Roth IRA with the second payment of my military sign on bonus around that time.
A short time after that, I started my internship and opened my 401(k). I didn't get to put much in it, since I was “just” an intern. I am grateful, though, that not only were we allowed to open a 401(k), but we also got the match from MegaCorp. When I started with them full-time, I added an HSA.
That is the full breadth of accounts I have: 401(k), Roth IRA, Taxable Investment Account, and an HSA.
As for what that $110,893.83 is invested in…..
I follow the JL Collins' method of investing: KISS. Keep It Simple, Stupid. If you haven't read The Simple Path to Wealth or his Stock Series, you need to do that ASAP. It doesn't have to be done all in one sitting. Take your time, really read what he's saying, and absorb it.
I invest in the best option possible for the account. My 401(k) is with Fidelity, so I invest in their S&P 500 Index Fund, ER .01%. One of the best benefits of working for a very large company is super low fees! At the very beginning, I also bought some bonds but quickly stopped doing that. It's like, 99% Index Funds now. My HSA is through Wells Fargo, I think, and required a minimum of $3k to invest. I get charged $7.99 per trade, so I convert the cash into shares of VTSAX twice yearly. Not ideal, but it's triple taxed advantaged so I deal with it.
My Roth IRA and taxable investment account are with my broker at Baird. I have been meaning to move this account to Fidelity but haven't gotten around to it yet. One day.
Why Fidelity over Vanguard? It's where my 401k and HSA are, so it's more for the ease of my use than any other reason. Fidelity and Vanguard have very comparable fees nowadays.
I use Personal Capital for the sole reason of tracking my investments. Mint isn't very great at that, in my opinion. PC can't track my 401k either, but at least it creates less of a stink about it than Mint does. Plus, PC does this really cool thing where it tells you what your asset allocation is.
Obviously, I'm a weeeee bit heavily weighted towards US Stocks. Not very surprising when I invest the vast majority in VTSAX and my Fidelity S&P 500 Index Fund.
Currently, my investments make up the vast majority of my net worth. I would like to think I'm prepared to weather a recession, but I won't know that until I actually go through one. Since I'm so heavily weighted towards the US Market, I'd be particularly susceptible to any downturn.
Hence, the reason I am diversifying my investments and turning towards real estate! Having at least one property in my portfolio will help out a ton, so just imagine what 3-4 properties will do for me! If I weren't in a place to buy a property, I would invest in a REIT. However, great deals are everywhere around me and should only increase in a downturn.
Currently, my investments are mostly in my 401(k). I will continue to max it out each year since I'd be a fool to pass up that tax advantaged space.
“Uhhh, Gwen…. aren't you doing just that by not having a traditional IRA?”
Kinda. Shh. I'll get there in a minute.
For now, enjoy a graph of what my overall investments look like:
Now that my attempt to distract you with pretty pictures has failed, let's revisit that whole Roth vs. Traditional discussion.
I like Roth's for the ease of getting into the money. After 5 years, I can withdraw the contributions (not the earnings!). This is super useful for somebody retiring early (i.e. me). Roth IRA's also have the added benefit of no RMD's when you hit 70 and aren't taxed extra upon taking the money out, since it was after tax money added in the first place.
I also think* my income will be lower in retirement than it is right now. That lends itself to the Traditional IRA (plus my taxes would be lower with the deduction), since I have a fairly high income now. I'm just not sure I'm under the threshold for the deduction after my raise.
It would also thoroughly complicate things in the future if I can get access to a mega backdoor Roth before Congress revokes that loophole. Plausible, but probably not going to happen.
Finally, I don't want to switch over because I've got a good setup right now and don't want to change it. I'd have to open a new account with Fidelity and recharacterize my contributions for 2016 and 2017.
So now that you've seen how my investments are laid out, please let me know what you think in the comments!
*: That's what the projections say anyways. Who knows what could happen!
Is there anything glaring that pops up? Any optimizations you would make? What do your investments look like?