Our Investing Strategy & How We Keep it Simple

investing

“My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions, or individuals — who employ high-fee managers.” -Warren Buffett

Investing is one of the most important areas of personal finance, yet it’s a subject I haven’t written about very much on this blog. I’ve mentioned that we contribute to our 401k’s, we have a Roth IRA, and we balance paying off debt while still investing. However, I think the main reason why I haven’t written much about the specifics is that the way we invest is so simple. I’m a huge fan of simplicity when it comes to managing your money, and investing is a prime example.

Don’t Be Intimidated, Keep it Simple

While the basics are straightforward to understand, it’s a message that needs to continue to be told to as many people as possible. In this post I’ll give specifics on how we invest and the main principles I follow.

Many people are intimidated by investing and think it’s complicated. This leads to inaction. I used to be like this with writing out a budget. While I was making minimum wage my mindset was “spend as little as possible, with a few splurges.” I kept telling myself that “I’d write out a budget as soon as I started making a stable income.” Looking back on it, it makes sense why I had that mindset, but it would have benefited me immensely to have gotten started back then instead of waiting. After getting my first salaried job, I wrote out a budget. However, it took at least 3-4 months to get into a groove with a budget that worked. If I hadn’t waited, I could have had a plan already in place.

Get Started Now, Learn More Later

I bring that story up not to kick myself, but instead to display how important it is to get started even if you don’t feel like you have it all figured out. None of us have it all figured out, and we never will. Getting started is a huge first step in the right direction. Don’t let the fear of “investing wrong” keep you from getting started on your journey. Build additional knowledge over time by managing your money yourself and reading a variety of personal finance books and blogs. This gives you more control, you avoid paying higher fees, and builds your confidence as an investor. Most people don’t need a financial advisor, they just need to start small and grow their knowledge through the years.

While lack of knowledge and fear both play a big role in keeping potential investors on the sidelines, another reason is not having enough funds to do so. For people who are in that boat, I’d encourage you to start small. Start with 1% of your paycheck into your 401k and slowly grow from there. The biggest key is to START. This removes the mental block and starts to build a positive habit in your financial life.

Tune Out the Noise, Stay the Course

You’ll see stories every day about whether the next crash is coming, stocks plummeting, the sky is falling, etc. This is how the news cycle is, they sensationalize everything to illicit a reaction from their audience. Don’t pay attention to the doom and gloom. As I’ve said in past posts, stop focusing on what you can’t control. In investing, we have no control over what the market does.

What we do have control over though is HOW we invest, the fees we pay, and our own behavior. These factors are much more impactful than the rate of return.

Dave Ramsey has a line that I love, “The only people who get hurt on roller coasters are the ones who jump off.” This is exactly how the stock market is. You’ll hear about how “unsafe” stocks are. While it’s true that the market is volatile and endures many ups and downs, if you’re investing for the long-term you don’t need to worry about this.

Stocks are only unsafe if you sell them when times are bad. While you may be losing money on paper, stick to your long-term investing plan and let the marker recover as it has time and time again. This post from The Resume Gap describes this point brilliantly: “The stock market has delivered positive 20-year returns in 125 consecutive cycles.” Don’t jump off the roller coaster and try to time the market, just set it and forget it.

Our Strategy

We use a 3 fund portfolio, allocating funds with an 80/20 stocks/bonds mix.

  • 56% Vanguard 500 Index Fund (VFIAX)
  • 20% Vanguard Total Bond Market Index Fund (VBTLX)
  • 24% Vanguard Total International Stock Index Fund (VTIAX)

The percentages we chose are based on a book, The Smartest Investment Book You’ll Ever Read by Dan Solin.

We’ve chosen passive index investing for a variety of reasons. Not only does it take much less time and effort to maintain, but there’s also less risk and significantly lower fees. Many brokers and mutual fund managers spend their whole lives trying to beat the market, and the majority of them still come up short. There are plenty of posts out there describing why this is, and I’d strongly encourage you to do your own research. The bottom line is the best tool for low maintenance investing is index funds.

Final Thoughts

The basics of investing are easy, it doesn’t need to be scary or intimidating. Your savings rate and avoiding high fees are the two factors that will have the biggest impact on your ability to grow wealth. Get started on your journey and continue to learn more over time. If you’ve never invested before it’ll be outside your comfort zone, but those challenges are often the most important for us to pursue head on. Hopefully this post can be a kickstart on your journey to investing and building wealth.

For additional reading, I highly recommend Jim Collins’ stock series and his book The Simple Path to Wealth.

This will be the last Spills Spot post for 2017 as I take the next two weeks off for the holidays. Have a Merry Christmas and Happy New Year! See you in 2018!

Thanks for reading! Be sure to get updates on all of my latest posts by subscribing via RSS, following me on Twitterand liking my page on Facebook!

Please Note: Spills Spot is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. This means that if you purchase one of the books in the above links, I may receive a small commission, but it has no impact on the price you pay.

Disclaimer: I am not an investment professional, this post merely expresses my views on investing. Please do your own research.

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4 Responses

  1. I’m a fan of keeping investing simple. In the three years since graduating university, I’ve only had access to an employer 401k for a few months, so most of my investing has been to my Roth IRA. I use a robo-advisor, Wealthfront, to manage and rebalance it for me. I know many personal finance people rag on robo-advisors and say you don’t really need them but I like having a service that rebalances and picks my low-fee index funds for me. Happy holidays!

    • Matt Spillar says:

      I don’t personally use a robot-advisor as I prefer to just do it myself, but many people like them. Whatever works best for you, the key is we’ve gotten started early! Happy holidays to you as well and thanks for stopping by Colin!

  2. Mrs. Groovy says:

    Yep, I’m a fan of the simple process too. Funny, just yesterday I heard Dave Ramsey address his detractors who don’t believe he can beat the market. He pretty much said any fool could do it. I guess I’m a fool (I still love him). I just don’t want to be bothered. For many of us, unless we’re extremely inclined to analyze everything, when it comes to investing, more thinking means less action.

    Merry Christmas and a happy new year to you!

    • Matt Spillar says:

      I like Dave Ramsey a lot, and think his plan makes a huge difference in the lives of people. Unfortunately his investing advice can be very vague/unrealistic. He usually says “invest in good growth stock mutual funds” and is focused on past performance as being an indicator for future returns. People would be better served to set up a 3 fund portfolio for the long-term and not worry about trying to beat the market. Thanks Mrs. Groovy, Merry Christmas & Happy New Year to both of you as well!

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