Monthly Archives: July 2015

The Difficult Balance of Financial Wellness

Saving, investing, spending, budgeting, insurance, retirement, and the list goes on… There are so many facets of personal finance that it’s easy to get overwhelmed. Where do you start and how do you find balance?

Ever since I started my journey to financial independence I’ve struggled to find balance. I constantly have to remind myself that financial wellness is a journey, not a destination. It’s not about being perfect, but living an overall financially fit lifestyle. Very similar to physical wellness in a lot of ways. The problem is that I find myself becoming fixated on my family’s financial situation. I’m constantly looking for new opportunities to diversify our income streams, reviewing our expenses and planning for the future. A large part of the fixation comes from the pressure of providing for a family of four. Another part is my strong desire to grow our net worth.  If you follow my blog you’ve probably noticed that I am utterly fascinated by the power of compound returns and its impact on net worth. If not, take a second to read Why Investing is Not like Gambling, there’s a great excerpt on compound returns. I attribute part of my obsessive financial focus to this phenomenon of compounding. I’ve seen its impact on our retirement portfolios over the past decade and in my wacky mind, every dollar spent is a dollar that will not benefit from the profound benefit of compound returns. It’s even reached the point where I no longer debate the immediate cost of a simple purchase, but in my deranged ‘finance first’ mind I’m calculating the true time value of money of the purchase at current rates of return over the next 30 years (seriously guys… I need help).

So where do you draw the line? At what point do finances become overly important in your life? Let’s face it, everyone around us is influenced by money. It’s why we work 9-5, it’s why we plan and save, and it’s what makes the world go round. But what I’ve realized is that it all comes down to balance. Once you’ve established a financial plan there comes a point where you need to enjoy today. There is no better time that I’m reminded of this than when I’m playing with my sons. They are truly the light of my life. Their carefree ways and inquisitive minds constantly remind me what life is all about. They always manage to center me after a stressful day at work or remind me to enjoy the small things. Continue reading The Difficult Balance of Financial Wellness

How I Evaluate and Select Index Funds

16836490731_78fc86d8e3_kIn a world where there are investment options galore, where do you even begin?! When it comes to retirement accounts, I’m a passionate advocate of index funds. Index funds are a large pool of stocks or bonds that are managed to track a specific index. They are typically low cost and provide a quick way to diversify your portfolio. I like to think of index investing as putting your retirement accounts on autopilot. Many people may say that index investing is boring or unsexy, but I will tell you that I have felt incredibly sexy watching my retirement portfolio consistently grow over the past decade.

The first place to start is to determine your target asset allocation. In other words, how much of your portfolio do you want invested in stocks and bonds, and what types of stocks and bonds do you want to own to ensure diversification? Take a look at my prior post on diversifying and balancing a portfolio. It details the exact asset allocation that I use for my wife and my retirement accounts. Now that you have an idea of what types of investments you need in your portfolio, let’s review a few key pieces of information that I evaluate when looking at a specific index fund. We’ll focus on one of my favorite index funds today, Fidelity’s Spartan 500 Index fund (FUSVX).

Expense Ratio:

Unless you’re investing in individual stocks (which I would caution against), every mutual fund, index fund, ETF, etc. will charge you fees for investing your money. Basically the fund manager is managing an overall fund and charges each investor who buys shares of the fund. So how do you determine exactly how much you’re paying? The answer is the expense ratio. Each fund will state an expense ratio which tells you what percentage of your average investment balance you will pay in investment expenses. Notice the expense ratio that’s circled for FUSVX.

This expense ratio indicates that I’m paying .07% to own shares of this particular fund. In other words, I pay about $.70 for every $1,000 invested.

Continue reading How I Evaluate and Select Index Funds

Top 5 Financial Mistakes I Made in My 20’s

8226451812_88007f08df_zSo, I’m rounding out my third decade on this earth as I turn 30 at the end of the year. Looking at my 20’s I feel that I’ve made some great progress toward my financial goals and I’ve learned a ton through the process of becoming an independent adult, getting married, starting a family and beginning the journey of building sustainable and long-term net worth. But it’s hard not to look back and think about the “what if’s”. What if I had invested all of my money in Apple at the end of 2008? What if I had accepted that other job offer? No matter how many successes you experience you will inevitably look back upon your mistakes. Heck, it’s the only way to truly grow. Here are 5 of the biggest financial mistakes or “what if’s” from my 20’s.

#1. Thinking that I’m the Next Legendary Fund Manager

How many of you started off investing with the idea that you would be an epic stock picker? I know that when I opened my first brokerage account I began doing tons of research on different companies, big and small. In my young 20 year-old mind I truly convinced myself that I would be able to beat the market. What I soon found out is that stock picking is not easy and typically not the greatest strategy in building your net worth. What makes you think that you’re able to gain more market information on a company or analyze a stock’s potential any better than the large hedge fund managers or global investment firms? During my stock picking endeavor I uncovered some great winners and some great losers. After about two years, I benchmarked my return vs. the S&P 500 and I realized that I had underperformed the market by a little over 2%! That doesn’t count the exorbitant amount of time that I spent researching companies and evaluating investment alternatives. Nowadays, I’ve used this experience to realize the benefits of index investing. Although it may not be sexy to some (but incredible sexy to me), there are some incredible benefits of investing in index funds. I’ll follow up with a post about index investing soon. In the meantime take a look at how we diversify and balance our portfolio. Continue reading Top 5 Financial Mistakes I Made in My 20’s