I need help with my investing strategy

taxable investing

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In the past I have written about how I have an overarching plan for my financial life. I’m now ready to tackle the next step and am looking for some help. 

The specific step that I’m taking is that I’m going to start investing outside of (at the very least with the intent of) utilizing money outside of my retirement. I have a sizeable amount of money sitting in a savings account and I want to get in the market, potentially through taxable accounts.

I’ve done the preparation

While I think jumping in the stock market is like having your first baby, the timing is never right, now is the time. I have cleared some financial hurdles, got my debt levels (student & auto) down to extremely manageable levels and want to get in.

Something that took me over the edge was Sam from Financial Samurai’s post on patient capital. In it he spoke about how any cash you have that isn’t for a purpose or for emergency type situations is called cash drag and isn’t helping you. Its literally dragging you and your returns down.

Not to mention that two of the biggest factors in investing success are compound interest and time in the market.

I’ve educated myself both through the community and a variety of books. I now feel I can speak intelligently about the decisions I’m making and am aware of the risks.

taxable investing

Source: Pixabay

For anyone looking for a good investing book I’d certainly recommend the following: 4 Pillars of Investing, Unshakeable, Bogleheads Guide to investing, aspirational investor, one page financial plan, random walk down wall street, and simple path to wealth.

If you want any details or opinions on those certainly reach out on twitter (eatmoneyblog) or email me at eatmoneyblog [at] gmail

Money Buckets

There has been a significant amount written on the importance of asset allocation. I agree wholeheartedly in the concept but believe I implement it a little differently.

The gist I get from most of the books is that you need to determine an overall asset allocation you feel comfortable with and then adjust your accounts accordingly.

I view it more as my money in buckets (emergency, retirement, other) and then each one of those buckets has its own asset allocation dependent upon several factors, the most important one being the time until expected use. For instance:

  • Retirement Bucket: I invest my retirement accounts (401k, Roth 401k, Roth IRA) in a combination of 100% equities thru vanguard. I don’t need this money for 35-40 years and focus on investing money into this bucket each month
  • Emergency Fund Bucket: I invest my emergency fund in CDs and hold a portion in my savings account. I hope I never need this money but could have access very quickly if I do.
  • Other Bucket: I will probably invest this a little more conservatively because I don’t know exactly when I will want to use this money. I don’t ever plan on needing this money but will certainly will want to utilize it if the opportunity arises.

After putting my own thoughts down just above I think I will call these different buckets my Retirement Bucket, Emergency Bucket and Opportunity Bucket.

Opportunity Bucket – Potential Uses

I’m not exactly sure what I’m going to do with this money but I do have two distinct ideas in mind. The likelihood of the money being used for one of these uses is extremely high.

The first use that may arise is paying cash for my next house. My wife and I plan on buying a nice home that we’ll own potentially for the rest of our lives. I can only imagine being ~40 years old with a high income and absolutely no debt.

While this option would drain my cash reserves, I’d still have plenty in retirement accounts and would be able to build up my cash reserves very quickly.

The second use that may arise goes back to the plan for my financial life. Building up tremendous cash reserves is focus 2. Focus 4 & 5 are buying real estate or businesses. Just as I laid out in that plan, I’d buy real estate or businesses to increase my income and slowly build my empire.

We are way to early to be predicting but the decision my hinge on what interest rates are when the time comes. If they are less than 5% or so for a new mortgage I may just take on a big mortgage and pay it off over 15 years. If they are higher than that I may lock in the guaranteed return and pay for it in cash.

Inputs for my decision

In my engineering classes I was always taught to take your inputs, determine your potentially applicable equations and work them until you get an output. My financial life and decisions are no different.

There are a few key inputs that I’m taking into account when thinking through this plan.

  1. Because this is not retirement money my time horizon is much shorter. Realistically 8-10 years. Extremely volatility is not something i’m interested in. If the opportunity arises I want to be ready. Fortunately, I will never NEED this money. My emergencies and retirements will already be taken care of.
  2. Time is my most valuable asset. I need an investment that is extremely time efficient. Relative to real estate, high yield dividend investing or other similar options, index investing is extremely quick and easy.
  3. While I will work to mitigate extreme amounts of volatility, I can tolerate volatility. Over the past 1-2 months the market has been on a roller coaster headed down and I have not batted an eye.
taxable investing

Source: Pixabay

The All-Weather Portfolio

During my reading I fell in love with the all-weather portfolio. This portfolio was created by Ray Dalio and popularized by Tony Robbins in each of his financial books. Here are the specifics to the portfolio.

I was bought in. It seemed like the perfect scenario to get modest returns but mitigate extreme downsides.

I was all in. I did a tremendous amount of research on how to implement these ideals via index funds and what mix would work best for me. The output of this research was a massive spreadsheet to help really nail down my asset allocation.

In some forums there were a lot of doubters on if this approach would work in today’s economic environment.

Knowing Your Limitations

I’ll be the first to admit that I’m not an economist and am not trying to make predictions on where things could be. I went back to the bond fund that was recommended in a Simple Path to Wealth and realized the mix of bonds in there is pretty sufficient.

VBTLX includes about 2/3 government bonds of varying lengths as well as several different grades of corporate bonds.

Per usual, indexing for the win.

Where to Invest the Money

The biggest question I have is in what type of accounts I should invest the money in. Essentially do I invest this money in taxable or non-taxable accounts.

The easiest and most flexible solution would keep this money in taxable accounts and keep my retirement accounts my retirement accounts.

The alternative would be to invest all this money into Roth IRAs which would limit my ability to touch the gains made on investments.

Source: Pixabay

Questions for you

With all that being said I have two questions for you:

  1. Do you have an opinion on the investments I have chosen? Specifically these are VBTLX & VTSAX and potentially VTIAX.
  2. Should I invest the money in taxable accounts or a Roth?


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