Being born and raised in Las Vegas, growing up around slot machines and poker/blackjack tables, perhaps helped desensitize me a bit to the appeal of gambling. In my early twenties, I worked as a web developer and programmer for a local gaming company and it helped solidify in my head the notion that ‘the house always wins.’ As much as I love the idea of getting rich quickly, I knew that – at least in casinos, the cards were stacked against me.
After we paid off our student loans, I started to take some of that monthly income and began investing. Fortunately, I had already been reading content from The White Coat Investor for years; and his philosophy on refinancing, saving, investing – it was ingrained deeply within me. Now, there is A LOT to investing – certainly too much to cover for a mere post where the author tends to write extemporaneously i.e. here. There are countless books, websites, blogs, podcasts and forums in which to educate yourself and start the journey.
As always, I am happy to share with you the little information I have gleaned over the years. For starters, I subscribe to a FIRE (financial independence, retire early) movement; in which adopting a certain disciplined lifestyle and setting financial goals helps someone achieve freedom from the workforce. Of course raising your annual income, lowering your expenses, increase your saving/investing rate, maximize retirement accounts, reducing your tax liabilities, living below your means, etc. – it all feeds into successfully reaching this goal. Also, familiarize yourself with the 4% rule. In order to sustain a 30-year time horizon in retirement (adjusted for inflation), your nest egg should have about 25x what you expect to spend annually stored away.
Which brings me to my next point – calculate your savings rate and track your monthly/annual expenses. In addition to using our Mint account to budget and track expenditures, I also use an Excel spreadsheet to simply monitor our overall finances (monthly income, account balances, investment gains/losses, etc.). Consciously (and maybe, subconsciously?) seeing these numbers regularly not only keeps us organized and informed, but (for me at least) motivates me to improve/correct some spending habits. Generally my family stays within a 30-50% savings rate every month. Depends how early you start, but I have read a 20-25% rate (at least) is typically what you want to shoot for.
In order to start investing, I created an account (brokerage and retirement) with Vanguard. I love the story of Jack Bogle, the founder of The Vanguard Group – which was really my only deciding factor to open my accounts with them. I imagine Fidelity, TD Ameritrade, Charles Schwab, etc. have just as good (if not better) platforms set up as well. All my ‘long-term’ investing is done in Vanguard. There is some ‘uncompensated risk’ that goes along with investing in individual stocks and specific companies. Theoretically, a company can go bankrupt and you stand to lose everything. My distribution or asset allocation in my Vanguard account looks something like this: 1/3 Vanguard Total Stock Market Fund, 1/3 Vanguard Total International Stock Market Fund and 1/3 Vanguard Total Bond Market Fund. Every month, whatever I can contribute, gets split evenly amongst these three. The growth has been steady enough over the years, and there is a certain serenity in knowing my risk is drastically minimized because index funds are highly diversified. Another reason I have come to love Vanguard is because their fees and expenses to purchase and own these funds are so low compared to some other companies.
About a couple of years ago, I opened up a Robinhood account as well. All my ‘short-term’, active trading takes place there. Every month, a very small percentage of the money I set aside for investing purposes gets deposited here. Honestly, I consider this ‘play’ money – it affords me an opportunity to invest in companies I like (i.e. Apple [ticker: AAPL], Tesla [TSLA], Costco [COST], Netflix [NFLX], Berkshire Hathaway [BRK.A – which I can’t afford, and BRK.B]), and dabble in speculative stocks like GameStop (GME) if I so desire.
It has been interesting to see how my Vanguard (i.e. long-term, passive trading) compares against my Robinhood (i.e. short-term, more actively traded) account performs. The Robinhood app makes it super easy to execute trades; and within that simplicity, I think a lot of people succumb to their emotions and either 1) sell in a panic when the market or stock price is down or 2) buy in big on hyped-up meme stocks that are supposedly ‘going to the moon.’ Investing 101 teaches you either of these can be dangerous and really cut into your long-term gains. Timing the market is impossible. In my own experience, giving myself a fixed allowance every month to ‘dabble’ with has worked well; it allows me to keep myself in check and not get too carried away. If I happen to randomly pick some winners, great! However, in my mind, every single dollar I have placed into that Robinhood account is mentally money I have come to terms with completely losing. And just FYI, my Vanguard account is currently well out-performing my Robinhood gains.
The same appeal, and that ‘rush’ people get in casinos by putting it all on red (a reference to the game roulette in case it was missed) – that is a similar adrenaline high I get when putting a purchase order in on the Robinhood app. It can certainly be addictive, and really get you into some trouble. Which is partially the reason that I have not ventured into cryptocurrency trading, I do not feel I understand that investment vehicle well enough yet.
Arguably one of the most famous investors of all time, Warren Buffett, said quite a few things pertinent to my topic today. He said:
On Earning: “Never depend on single income. Make investment to create a second source.”
On Spending: “If you buy things you do not need, soon you will have to sell things you need.”
On Savings: “Do not save what is left after spending, but spend what is left after saving.”
On Taking Risk: “Never test the depth of river with both the feet.”
On Investing: “In the business world, the rearview mirror is always clearer than the windshield.”
Of course we all want to maximize our returns while minimizing our risks. However, there will be investment fees and expenses, market corrections/depressions, and asset classes that underperform just to name a few. Most investments just need TIME. The concept of compounding interest works; and for those individuals passionate enough to educate yourself, responsible enough to control your lifestyle, relentless and patient enough to withstand (and minimize) the failures along the way – I think they will earn the right to FIRE.
Thanks for taking the time to read this post! As a full disclaimer, I do not possess a business degree, have no formal financial training, do not stand to benefit any monetary gain from the companies mentioned above, and – for some – would recommend you seek assistance from a financial consultant or trained professional before beginning this endeavor. As always, feel free to ask any questions or leave any comments for me!