How We Invest Our Money

I get a lot of questions asking about the best stocks to invest in. Full disclosure: I have no idea.

The truth is, I’ve only bought one individual stock since 2010. I don’t have the patience or knowledge to beat the market consistently, so I don’t even bother trying.

My wife and I save a majority of our income, about 75%. We keep approximately six months of living expenses in our bank accounts and invest the rest. Last year we maxed out my 401k, her TSP, two Roth IRAs and an HSA. We put the remaining savings in a Vanguard taxable account.

I used to follow the Permanent Portfolio allocation and while I believe it is a solid strategy, it is meant more for wealth preservation, not wealth accumulation. We’ve only been working and seriously saving for about four years, so we are definitely still in the accumulation phase.

Therefore after much consideration, we decided to be more aggressive with our investments. Most of our portfolio is in VTSAX. As of January 2, 2017, this mutual fund has a .05% expense ratio (they take $.50 for every $1,000 invested) and is invested in 3,619 USA companies. Basically we have the entire USA public sector working for us for mere pennies! This strategy is popular in JL Collins’ stock series and book, both of which I highly recommend.

I’ve said it before and I’ll say it again, your savings rate is much more important than your portfolio performance. I’d rather have a 5% return on $50,000 saved than a 10% return on $10,000 saved. 

We may become more diversified as the years go on but for right now we are in the accumulation phase of our wealth building journey and a total stock market fund is one of the most aggressive ways to build wealth. Once we have a seven figure portfolio, preservation will become much more important. But for now, we feel secure with diversified incomes and a healthy emergency fund. 

Feel free to reveal your thoughts and personal asset allocation in the comments!

This article has 6 comments

  1. Greg harris Reply

    Great comments, especially regarding savings rate vs stock picking. I work in financial markets and don’t try to pick individual stocks, except for a defined subset of portfolio as a hobby.

  2. @Guyon_FIRE Reply

    You certainly living by “K.I.S.S” (keep it simple stupid) and there is nothing wrong for that. As you mentioned, you do not have a stock picker’s knowledge or insight. This is an amazing way to automate and passively invest. Why spend more time and energy than necessary? Historically, the market provides 7-10%. Keep accumulating and investing my friend. I’ll see you at the top.

  3. TJ Reply

    I had similar thoughts, particularly in the early stages of accumulation. Focus more on boosting your savings rate vs. managing your portfolio.

    I even started with the permanent portfolio mutual fund (PRPFX) …..but over time I transitioned to the mostly boring 3 fund portfolio of Total Stock, Total Bond and Total International that most people write about. I did dabble in individual stocks, but thankfully not with any real big money.

    I’ve deviated a bit from the indexes the past couple years, most of my retirement accounts have been in Vanguard Equity Income Fund. VEIRX takes $1.70 for every $1,000 invested. That’s cheap enough for me.

    I have some other holdings as well, notably Vanguard REIT Index, a bond fund, a small cap fund, and I plan to open a small position in both of the new Vanguard International Dividend Index Funds in the pretty near future.

    I’m in the awkward financial life phase of wanting to have some preservation, but not wanting to be over-conservative with my investments. When I do go back to work after the hiatus, I imagine that I would transition back to a more aggressive strategy until I’m financially independent.

  4. Personal Finance King Reply

    Great point about return versus savings. There is so much discussion of finding 1 or 2 points higher return, and that’s good, but you have a lot more control over how much you save. And you can end up with a much larger pile of cash if you are really good at socking it away.

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