Last week marked the release of How I Invest My Money, a collection of essays compiled by Josh Brown and Brian Portnoy and illustrated by Carl Richards. A variety of financial professionals contributed to the book, sharing personal stories and glimpses into, as the title hints at, the way they personally manage their own assets.

The book is a relatively short read and each chapter reflects a different perspective and approach to personal investment management. The various entries focus less on providing actionable advice or novel investment insights, and instead come together to create an overarching theme that shows there is no one-size-fits-all solution to personal finances and investing.

The stories also highlight the reality that all of us advisors who dole out advice aren’t robots – we’re very much human, and our lives are just as messy as everyone else’s. Those personal stories and values helped make the book great, and I’ve already shared something similar in my own book and here on my website.

What I haven’t previously shared, however, is how I handle my own assets, liabilities, and spending habits. How I Invest My Money inspired me to do just that here.

As I’ve said many times before, we don’t live in a spreadsheet. But I do feel there’s value in contributing to efforts to make professional investment management more transparent and accessible. So with that said, let’s walk through my balance sheet together.

Breaking Down My Assets

It’s tempting to start with how I invest my portfolio, because that is the title of this article. But to me, the portfolio is just one piece of a bigger puzzle and therefore, it’s not my go-to when I want to check on how I’m doing financially.

If I want to know where I stand at any given point in time, I’ll look at the net worth worksheet I’ve maintained over a decade. You can get a copy of this spreadsheet to use for yourself here.

When I was a kid, I loved seeing hard work translate into earned dollars that I could then use to add to my savings. I worked a bunch of cash jobs throughout the school year and summer – waiting tables, car washing, basketball referee, babysitting, dog-sitting…. While many kids might have been motivated by the potential to spend their summer job incomes, I found watching my cash balance grow more satisfying. Whenever I got paid, I’d add the cash to my top dresser drawer stash and count the entire amount. Seeing the cash add up felt like the best reward for my work.

Perhaps that’s why I’ve consistently tracked my net worth in adulthood. It allows me to see the cumulative results of my financial decisions, and updating my balance sheet every six months helps me stay motivated and aware of my progress over time.

As I’ve grown older, I’ve found other benefits of maintaining an up-to-date balance sheet, too. In addition to providing a sense of accomplishment, it helps me keep perspective because I can see my entire financial picture in one place. It helps facilitate productive financial conversations with my wife, because we can sit down and look at the numbers together. And it also helps us plan for the future, because it reminds us to narrow our focus to what we can control.

So I’m going to walk you through this balance sheet in detail to help explain the full scope of my money allocation. We’ll start with the assets, take a look at the liabilities, and end with spending (as I believe it’s how you spend that says far more about your values than how you invest).

My Non-Liquid Assets

The least liquid assets on my balance sheet are also my biggest. My ownership stake at Plancorp is the largest asset on my balance sheet. It also has a decent-sized liability tied to it via a business loan I took to purchase my share, but more on that in a later section. My stake in Plancorp plus my portfolio assets make my balance sheet closely tied to publicly-traded markets. This reflects where my comfort with market risk lies.

My next-biggest asset is also fairly illiquid: my home. But I don’t actually think of my house as an asset, even though it’s technically on my balance sheet. It’s definitely not an investment either. To me, a house is a form of consumption.

My indifference to thinking of my home as an asset is exacerbated by the fact that my investment portfolio will surpass my home in size and the home will continue to be a smaller and smaller part of my balance sheet. My house today represents roughly 30% of my total assets, but I don’t expect it to appreciate in value by more than the rate of inflation (if at all). Meanwhile I expect my portfolio, which currently represents about 23% of my assets, to average a long-term return above inflation (known as the real rate of return) of 6% or 7%. This return assumption is in line with historical real returns on equities.

As you will see in the next section, I’m also regularly contributing to my investments, whereas I do not plan to regularly contribute money from cash flow into my house in some kind of effort to make its value grow over time. I will continue to spend money on my home to maintain and shape it to my life’s needs, but that is purely consumption.

Another reason I don’t really think of a house as part of my long-term financial planning assets is that I never plan to leverage a reverse mortgage to slowly tap my home value in retirement in order to make ends meet. Essentially, this house is an asset for my kids to liquidate when their parents pass. I will never tap the value myself, and therefore, I mentally account for it more as consumption than asset even though the value shows up under assets on my balance sheet.

My Investment Portfolio

How does the Chief Investment Officer of Plancorp, who oversees roughly $4.5 billion of client assets, invest my own? I aim for simplicity. I own a single mutual fund in my Roth and Traditional IRAs, while my 401(k) uses the most aggressive model portfolio offered.

Roughly 70% of my family’s overall portfolio is in a Roth IRA that was primarily funded when I rolled over my Roth 401(k) plan from my first employer. While I worked at that company, I maxed out my retirement plan via payroll contributions on the 15^th and 30^th of every month over. I never tweaked my asset allocation. I never timed my investments. Every two weeks I automatically invested in the firm’s most aggressive model, which was a 90% stock and 10% bond mix of index funds.

The decision to invest my Roth 401(k) this way was relatively simple because of the way my employer designed their plan. There were only index funds and the model allocations were created by our investment committee. When I made this investment decision coming out of college, I was certain that I didn’t know more than that group of people, so I set it and left it alone.

And boy am I glad I did, because while this highly diversified and low-cost index portfolio in my Roth 401(k) benefitted from uninterrupted compounding during the early years of a massive bull market, I made a litany of mistakes in my other investments, located in a taxable account and Roth IRA.

The deep dive into the investment mistakes I made early in my career is a topic for another day, but most of the mistakes I made can be summed up as me trying to outperform the market via security selection and market timing. I also learned how leveraged ETFs worked the hard way, but again, this is a topic for another time.

I’m not entirely sure what my performance was relative to the market over that period of time – a painful truth for basically all do-it-yourself investors – but fortunately the automation and forced discipline of my Roth 401(k) meant I was, overall, in a good position when I joined Plancorp in 2015.

At that time, I made the decision to roll all of my previous retirement plan’s assets into a Roth IRA and Traditional IRA (company matching contributions are required to be made into a Traditional 401(k) so I rolled those into a Traditional IRA and my own Roth 401(k) into a Roth IRA).

I felt the best way to protect myself from future errors and ensure the largest account in my portfolio continued to thrive was to use a single fund and set up automatic dividend reinvestment. The fund I chose was DFA Global Equity Portfolio (DGEIX), which invests in a global allocation of 100% stocks and utilizes the same systematic factor investing approach we advise for our clients seeking higher expected returns than you would earn in an index fund.

I firmly believe it’s important to eat your own cooking, so that definitely influenced my decision to use the same strategies we recommend for our clients. The strategy isn’t riskless, but I felt at the time that the worse-case outcome over a multi-decade horizon was market-like returns. I currently don’t own any taxable investments – I sold them all to buy into Plancorp – but I plan to purchase the Vanguard Total World Stock Index Fund (VT) in taxable accounts whenever my business loan is paid in full.

I’d never recommend a 100% stock allocation to anyone else because the biggest mistake an advisor can make with an asset allocation recommendation is overestimating an investor’s willingness to tolerate risk. In my experience, this mistake is typically realized amid a market downturn, and dialing back stock exposure once prices have already fallen locks in what would otherwise be temporary losses.

When advising others, it’s better to start a touch more conservative if there is any doubt about an ideal asset allocation (and the investor’s potential behavior or reactions) and get more aggressive at a later date (ideally during a downturn). It’s much harder (and more painful) to realize you need to be more conservative in the midst of a market downturn, so I could never advise someone I don’t know intimately to be invested in 100% stocks.

But for me, having lived through the 60% drawdown during the Great Recession and not panicking made me realize I could handle the volatility of a 100% equity portfolio. My wife’s 403(b) is also globally invested in 100% stocks across three index funds. Our Health Savings Account (HSA), perhaps my favorite type of retirement account, is invested in the Vanguard Total World Stock Index Fund (VT).

But I’m not truly 100% stocks. My 401(k) at Plancorp is invested in an 80% stock and 20% bond mix using the same funds that are recommended to Plancorp clients taking a factor investing approach (we also offer all index and ESG portfolios).

Just like with my previous employer, I make payroll contributions every two weeks to this account and max it out over the course of the year. That means my overall portfolio is slowly getting more conservative as my ongoing contributions to that account grows.

The final decision I made regarding my portfolio when I moved to Plancorp was that I would convert my overall allocation to 70% stocks and 30% bonds on my 50^th birthday. If we are in the midst of a bear market, I will wait until markets reach their previous high before adopting the more conservative allocation. There wasn’t any science behind this decision. It just felt like the right thing and I’m sticking to it.

The only other investment accounts we have are our children’s 529 plans. Between our two kids, we make monthly contributions up to the amount for which we receive a state tax deduction. Our kids go to private school and we are allowed to use up to $10,000 a year from those accounts to meet those expenses – so of what we contribute, $10,000 of it each year never gets invested and is used to pay the current year’s tuition. The remaining balance is invested in the most aggressive age-based model for both kids.

A final comment on all of these investments: I never look at them. I had to look at them all to write this article, but it is only the second time in 2020 that I have done so. The more you look, the more likely you are to make unnecessary mistakes. I have done plenty of due diligence on my fund selections and still do on an ongoing basis as part of my job. But I have a plan and I’m sticking to it – and that’s probably going to be the defining factor in my portfolio’s long-term success.

My Cash

Having an emergency fund is hugely important. In my opinion, you should have three to 12 months’ worth of living expenses set aside to cover the cost of life’s unpleasant surprises. Within that range, the specific size of your emergency fund should correspond with your level of job security and the potential volatility of your income.

I’ve always targeted keeping 12 months’ expenses in cash reserves, but not because I feel my job security and income require it. The real reason is that it gives me flexibility. Flexibility to take a career risk. Flexibility to opportunistic.

I’ve emptied my emergency fund opportunistically three times now in my career. The first two times were to invest in my business. The third and most recent time was during the 2020 market sell-off to invest at cheaper prices. (I didn’t have much of an emergency fund in 2007-2008, so this was the first time I was able to invest in a recession in a meaningful fashion.)

Beyond my emergency fund, I try not to keep a ton of cash on hand. The only extra that sits around is a cash buffer of two months’ expenses in my primary checking account to cover reimbursable work expenses and protect against cash flow mismatches in my automated savings system.

Breaking Down My Liabilities

My mortgage is the biggest liability on my balance sheet. There was a point earlier in my career where I was determined to pay my mortgage off as quickly as possible, but that changed once I took out a loan to purchase a stake in Plancorp. The business loan is the second-biggest liability on my balance sheet and comes with a 5.5% interest rate. I aggressively pay down this loan with every penny of income I earn from my ownership stake rather than make the minimum payments.

Aside from maxing out retirement accounts, contributing to 529s, and building up my emergency fund, all of my excess cash flow goes to paying down my business loan. Once it’s done, I will assess how to use that freed-up cash flow. I want some of it to be invested in a taxable account, but beyond that, there aren’t any solid plans for the use of that money.

What I do know is that I won’t pay down my mortgage in advance unless I have a significant windfall or liquidity event. Examples of such events that I could reasonably imagine (but don’t count on) happening include a corporate action at Plancorp or BrightPlan, receiving an inheritance, or winning the lottery (although we don’t buy lottery tickets, so maybe that’s not so reasonable).

I have no doubt it would feel great to be without a mortgage payment in my 30s or 40s, but I’ve been making mortgage payments since 2010, so it’s like money I’ve never had and I don’t really miss it. The bigger driver for my decision to pay my mortgage on a normal, non-accelerated schedule is that I can’t handle the math differential in return I could earn in the market. If I were going to take excess cash flow to pay off any loan, it would be my business loan with the higher interest rate.

I think I’m allergic to auto loans. I’ve historically saved up for car purchases, then paid in cash. But I did break down and took out my very first car loan in 2017, the day after our second child was born and we realized we couldn’t fit two car seats in my existing car. There was enough cash in our emergency fund to avoid taking an auto loan, but the interest rate was so much lower than my business loan that I couldn’t stomach using cash to avoid a cheaper debt.

I figured it was better to aggressively pay down my business loan and, like my mortgage, maintain a normal repayment schedule on the auto loan. But after a few months of car payments, I couldn’t handle it anymore and paid off the loan in full. When I say “I don’t live life in a spreadsheet,” this is a great example of what I mean.

Breaking Down My Spending

We spend so much time talking about how to save and invest, but I don’t think we spend enough time talking about getting the most out of our spending. My favorite resource on the topic is Happy Money: The Science of Happier Spending. I can’t recommend it highly enough.

I don’t think a ton about my day-to-day spending because I follow a reverse budget. This system requires that I define how much I need to save to meet my goals, automates those savings contributions, and then allows me to spend whatever remains as I please.

We use a few credit cards that earn rewards for all possible expenditures as long as there isn’t a service fee – for example, we can pay our daycare bill using a credit card, but we don’t because they charge 2% to do so – and we automatically pay off balances in full each month. All other recurring expenses are put on automatic bill pay.

I’m not super into “stuff,” but I definitely buy high-quality items when I need something. I drive a relatively nice car, but I drove my last one for 10 years and I intend to do the same with this one. I live in a relatively nice house, which I view as consumption, but again, I see it as a long-term purchase; I intend to live here until I can’t walk upstairs to the master bedroom. I think the best spending habit of mine is that I never buy something on impulse. Even the simple exercise of buying a work shirt takes multiple store (or online) visits for me to make a final decision on how I want to spend my money.

The place I spend most lavishly is on experiences, from vacations and playoff baseball to live performances and special-occasion dinners. Experiences become part of our identity. Unlike most material purchases, the memories from our experiences make us feel more connected to friends and family.

Our family also prioritizes giving back because we are fortunate in so many ways and feel it’s important to help others. For whatever reason, we’ve typically given 2% of our income to charity. I have no idea if that is a reasonable amount or not, but it feels right to us. We’ve also made giving part of our oldest son’s allowance.

Final Thoughts

So there you have it. That’s how I invest (and save, and manage, and spend) my money.

I wish I had done something like this for the conclusion of my book, which remains the best resource if you want to understand the money management systems I believe are best to implement if you want to save well, spend wisely, and invest for long-term growth. I follow my own advice pretty closely, but I’m not a robot and occasionally deviate from what I would be comfortable recommending to others.

If you enjoyed this post, then check out the newly released book that inspired it. And if you’d like some additional resources for learning about money, here are five books that helped me build my own philosophy around saving and here are ten books I listed a few years ago for anyone wanting to be a better investor.

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