Investing is a Long-Term Game

Did anyone panic when they saw the market downturn on Monday? I know I received quite a few panicked texts throughout the day.  A lot of people frantically checked their investment balances and let worry set in. I didn’t even check my balances. When it comes to long-term investing, small corrections and market dips really don’t matter.

Building wealth and financial security is at the forefront of many people’s lives. There are a number of strategies to build net worth over your lifetime, but what I’ve realized is that the most effective strategies take time.

The value of time may be the single most powerful tool in building a healthy investment balance and attaining financial independence.

How many of you have had a friend or colleague explain some new strategy to make money fast; like a multi-level marketing scheme or a new cutting edge stock that was guaranteed to have triple digit returns? I can’t count the number of times that I’ve carried on these conversations, and in each case, the money making endeavor never seems to come to fruition.

When I first started my path to financial independence and began investing in the market, I quickly realized that investing for short-term gains is a losing proposition. I was confident that I’d be an incredible stock picker. But what I found out is that pursuing wealth with a short-term mindset will have the unintended effect of ruining your rate of return and your ability to build net worth.  This is exactly why I invest in index funds for my retirement accounts.

I think Warren Buffet said it best when he stated, “if you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.” Continue reading Investing is a Long-Term Game

4 Lessons Learned from Job Loss

I started my first “real” job at a global risk consulting firm in Seattle. I had completed an internship at the firm my senior year of college and was selected for a full-time consultant position following graduation.

I was halfway through the CPA exam and was studying for the last two sections while gaining the experience hours necessary to get my license. I remember my first few projects at the firm. Great clients and fantastic opportunities to develop on the job. At the time, the world was my oyster and I couldn’t have been happier with my new career path.

As you can tell by the title of this post, not everything went to plan. In 2008 the great recession hit. By the middle of 2009, our firm’s consulting contracts started to dry up and we were experiencing company-wide layoffs. The Manager that I was working for at the time was let go in the first round of cuts. It was pretty disappointing since I had spent the past year being mentored and building rapport with him.

I continued to see the office numbers dwindle as I survived the first few rounds of layoffs. But eventually I received that ominous email for a meeting with the Managing Partner of the firm.

I was still at that phase in life where I thought I was fairly invincible, so I was a bit in shock when they let me go. The job loss definitely impacted me. It forced me to reflect on my life, my financial plan and career trajectory. Shortly after being let go (and a couple of nights of debauchery later), I vowed that I wouldn’t let the layoff define me.

Here are four key lessons that I learned from a job loss and how surviving a layoff, reviving my career and dedicating myself to building long-term net worth has propelled me to new heights. Continue reading 4 Lessons Learned from Job Loss

Financial Predictions and Goals for my 30’s

Recently I covered some of the biggest financial mistakes that I made in my 20’s. Looking back at your mistakes and evaluating the progress you’ve made is a great way to ensure that you not only continually improve your financial situation, but improve as a person as well. It’s equally if not more important to look forward. What do you expect to accomplish in the next 1, 5 and 10 years? What type of financial plan do you have in place? I started thinking about the next decade (as I’ll be turning 30 very soon) and trying to envision not only where I’ll be financially but what my career and lifestyle will be in my 30’s.

NET WORTH

The past decade has been a great starting point for me to begin accumulating net worth and benefiting from the long term effect of compound returns. Financial independence was something that I focused on early in my 20’s but it was a slow process. Although I’ve always maintained a healthy savings rate (as a % of income), my salary and investment balances were low. It wasn’t until we started to see some great market upswings starting in 2010 that I began to see the tangible effect of compound returns. By the end of 2014 I realized that saving early and often is the only way to accumulate substantial net worth at a young age. Not counting home equity or other personal assets, our investment and savings accounts have grown well into the six figures. Looking back, there are plenty of things that we could have improved to better position us financially, but I think that we’ve made some great progress toward our goals. So now as I enter my 30’s, I have high expectations for where we will be financially by the end of the decade.

In order to be conservative, I assume a 5% average annual rate of return on our investments over the next 10 years and that our contributions or gross savings will not change (although I plan to increase my income as well as my savings rate). With these assumptions I project that our investments should total approximately $750K – $1M before I enter my 40’s. I think as long as we continue to invest in a balanced and diversified portfolio, we should be able to hit that goal. Ultimately, I truly believe that if we’re diligent during our 30’s, we may be able to amass even more net worth, especially if we take into account home equity and other personal assets.

Goal #1: $1M in investments and liquid accounts before I turn 40. Continue reading Financial Predictions and Goals for my 30’s

Sunshine Blogger Award

I was recently nominated by Erik from A More Successful You for the Sunshine Blogger Award. As a new finance blogger I really appreciate the nomination. I started this blog as a creative outlet to cover topics that I’m passionate about.   It’s been a great experience so far and a perfect outlet for an extroverted finance geek stuck in a structured 9-5.  One thing that I’ve realized is that the personal finance community is an incredible group of extremely helpful and knowledgeable individuals. So, thanks Erik! Glad to participate in this award and as a nominee I’ve been asked to answer a few questions:

1. What is one that thing that you couldn’t go without each day?

I’m going to justify a stereotype of the millennial generation by saying my smartphone. I use my phone on a daily basis for research on the go, managing all of my various email accounts for my 9-5 and side gigs, and maintaining contact with my wife and kids throughout the day.

2. If there was one topic that you wish you were an expert in, what would it be?

Oceanography! In college I took a few oceanography courses and even considered adding a minor in oceanography to my Accounting and Information Systems degree. In the end, I didn’t pursue the field any further but I’ve always been fascinated by marine sciences and the many incredible animals that inhabit the ocean. (After looking at my answer to this question I’m starting to realize that even if I didn’t pursue accounting and finance I’d still be a nerd…no matter what field I chose…)

3. In 3-5 years, where do you want to be in life (could be financially, mentally, physically, etc.)?

Well-balanced. From finances, to career, to family life, to physical wellness; I want to lead a balanced lifestyle. I truly think that’s what it’s all about. I definitely want to excel in each aspect of my life, but not at the sacrifice of the others. I believe that leading a happy and fulfilling life requires a healthy balance in all facets of how you live everyday.

4. Describe your perfect day. What steps are you taking to build towards having that day?

My perfect day would start with waking up to the sunshine coming through my window and not my alarm clock (or my kids jumping on my chest). Having a great cup of coffee and breakfast to get the day started, right before getting in some exercise. Then it would consist of spending a full day with my family doing something awesome. Whether we head into Seattle to go to the zoo or aquarium (oceanography nerd still intact), hit the Olympic national forest for a hike, or just relax poolside with the little ones.  Hopefully, if I stick to my financial plan I will reach financial independence and everyday can look like this.

5. If you could start all over in a new profession, which profession would it be and why?

This is a tough one. I’ve thought about how different things would be if I had pursued law school, computer science, or the marketing field. In the end, I think if I had to start over I’d pursue software development. There are so many great opportunities for developers and there is something satisfying about coding and creating something. Whether you’re troubleshooting bugs or creating your own system, it seems like a very challenging and rewarding profession.

I’d like to nominate DC at Young Adult Money and John at Frugal Rules. Nominees are encouraged to answer the questions below, nominate some additional bloggers and provide five more questions for those bloggers to answer. Thanks!

  1. What is one of your biggest failures or mistakes that you’ve made when it comes to personal finance?
  2. What is one of your biggest successes that you’ve experienced when it comes to personal finance?
  3. If you had to compare yourself to one animal, which would it be and why?
  4. What is the best piece of advice you’ve ever received?
  5. If you could wake up in the body of someone else, who would you pick and what would you do?

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Photo cred: Captain Chim

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

How to Become a Financial Superhero

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photo by tom_bullock

Wouldn’t it be great to be Bruce Wayne or Clark Kent? Except instead of swooping in to save citizens in distress you were able to help your family, friends and colleagues with their personal finances?! Okay, maybe it’s not as sexy as having super powers or an awesome bat cave. But I’d like to think that becoming a financial superhero is equally rewarding. In fact, it’s the primary reason that I started this blog.

Finances are universal. Everyone we know is affected by finances in one way or another. I’m a proponent of the idea that everyone has the ability to be financially successful, no matter what your background is. Whether you’re a natural finance guru or you’re just starting out. Anyone can learn the keys to financial success.

Research and Education

The first step is to get educated. I’m not talking about majoring in finance or attaining a certification (although that will never hurt). There is an abundance of finance information and research all around us. In fact, I started this blog specifically to provide as much personal finance information as possible. Before I started this blog, I followed hundreds like it and gained valuable (and different) information from each one. Here are a few great finance blogs that I follow to get you started:

I became a CPA in 2010 and in all honesty I’ve learned more about personal finance from my own research than passing the CPA exam. Don’t get me wrong, having a CPA background has been very beneficial, but I have no doubt that there is more than enough information out there for the average individual to educate themselves and become a financial superhero. Continue reading How to Become a Financial Superhero