Investing Philosophy

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peterwantstosave
Posts: 85
Joined: Fri Nov 24, 2017 8:28 pm

Investing Philosophy

Post by peterwantstosave » Sun Oct 07, 2018 8:15 am

Friends,

I welcome your advice. It's taken me a long time to write the philosophy below.

Investing Philosophy

I am an automated total market index fund investor. I believe in keeping fees low, in centralizing investments and in being as passive as possible while remaining invested in the market. I invest cash in an emergency fund, cash in a checking account, funds into a total market index fund inside a roth ira for retirement and funds into a total market index fund inside a brokerage account to build wealth. For simplicity, I house them all at the same financial institution. I am in the market for the long haul. My financial goal for 2019 is to have no sell transactions. While I may scale my automated amounts up over time, I am starting relatively small to ease into the process. I am terrified of the process (as a former, unwise user of lots of debt), but I am learning, through Bogleheads and other resources. I carry no debt and work to keep my financial picture as simple as possible, believing that a simple strategy is likely to be replicable across time, space, market conditions and life circumstances.

Background

35/Male/Single
South Carolina
Income ~$50,000/year
Expenses ~$2,000/month
No debt, two open credit card lines (CLs $3,400 & $5,000)
Contributing up to 403b match (also in total stock market fund)
$10,000 Emergency Fund in Brokerage
Paid for House

Flyer24
Posts: 460
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Re: Investing Philosophy

Post by Flyer24 » Sun Oct 07, 2018 9:24 am

What is your question?

peterwantstosave
Posts: 85
Joined: Fri Nov 24, 2017 8:28 pm

Re: Investing Philosophy

Post by peterwantstosave » Sun Oct 07, 2018 10:29 am

Hi Flyer24, no question exactly, but I welcome any feedback that folks may have for me. I feel like it's an accomplishment for me to get myself to write that philosophy and be committed to sticking to it, so I just felt like sharing with the group. Hope that's OK. I owe a lot of my financial good decision making to Bogleheads.

ExitStageLeft
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Joined: Sat Jan 20, 2018 4:02 pm

Re: Investing Philosophy

Post by ExitStageLeft » Sun Oct 07, 2018 10:38 am

It looks like a good statement, especially if it will help you stay the course when you see the market drop 30%.

You might want to put in a statement about how you'll invest future increases in income. Do you have a target percentage that you wish to save?

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ruralavalon
Posts: 14267
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Location: Illinois

Re: Investing Philosophy

Post by ruralavalon » Sun Oct 07, 2018 11:50 am

peterwantstosave wrote:
Sun Oct 07, 2018 8:15 am
Friends,

I welcome your advice. It's taken me a long time to write the philosophy below.

Investing Philosophy

I am an automated total market index fund investor. I believe in keeping fees low, in centralizing investments and in being as passive as possible while remaining invested in the market. I invest cash in an emergency fund, cash in a checking account, funds into a total market index fund inside a roth ira for retirement and funds into a total market index fund inside a brokerage account to build wealth. For simplicity, I house them all at the same financial institution. I am in the market for the long haul. My financial goal for 2019 is to have no sell transactions. While I may scale my automated amounts up over time, I am starting relatively small to ease into the process. [emphasis added.] I am terrified of the process (as a former, unwise user of lots of debt), but I am learning, through Bogleheads and other resources. I carry no debt and work to keep my financial picture as simple as possible, believing that a simple strategy is likely to be replicable across time, space, market conditions and life circumstances.

Background

35/Male/Single
South Carolina
Income ~$50,000/year
Expenses ~$2,000/month
No debt, two open credit card lines (CLs $3,400 & $5,000)
Contributing up to 403b match (also in total stock market fund)
$10,000 Emergency Fund in Brokerage
Paid for House
peterwantstosave wrote:
Sun Oct 07, 2018 10:29 am
Hi Flyer24, no question exactly, but I welcome any feedback that folks may have for me. I feel like it's an accomplishment for me to get myself to write that philosophy and be committed to sticking to it, so I just felt like sharing with the group. Hope that's OK. I owe a lot of my financial good decision making to Bogleheads.
Good plan :) :) :). It's great that you are debt free, have above average income, keep your living expenses low, and use total stock market index funds. I think you are wise to automate the process as much as possible, and keep it simple.

I suggest increasing your contributions now if practical. A high contribution rate is as important as anything else you can do when starting out in investing. Don't start small to ease into the process.

If there are any decent funds offered in your 403b, then instead of investing in the taxable account I suggest contributing to your 403b more than just enough to get the employer match. What are the funds offered in your 403b with the lowest expense ratios, in each of these categories: (1) domestic stocks; (2) international stocks; and (3) bonds? Please give fund names, tickers and expense ratios.

It looks like you will have everything in a domestic total stock market fund. You state that you are "terrified of the process". Broad diversification can reduce portfolio volatility (risk). For better diversification you could also consider adding a good bond fund (or other fixed income investments) and a good international stock fund to your investments.
Last edited by ruralavalon on Sun Oct 07, 2018 12:05 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

2015
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Joined: Mon Feb 10, 2014 2:32 pm

Re: Investing Philosophy

Post by 2015 » Sun Oct 07, 2018 12:05 pm

peterwantstosave wrote:
Sun Oct 07, 2018 8:15 am
Friends,

I welcome your advice. It's taken me a long time to write the philosophy below.

Investing Philosophy

I am an automated total market index fund investor. I believe in keeping fees low, in centralizing investments and in being as passive as possible while remaining invested in the market. I invest cash in an emergency fund, cash in a checking account, funds into a total market index fund inside a roth ira for retirement and funds into a total market index fund inside a brokerage account to build wealth. For simplicity, I house them all at the same financial institution. I am in the market for the long haul. My financial goal for 2019 is to have no sell transactions. While I may scale my automated amounts up over time, I am starting relatively small to ease into the process. I am terrified of the process (as a former, unwise user of lots of debt), but I am learning, through Bogleheads and other resources. I carry no debt and work to keep my financial picture as simple as possible, believing that a simple strategy is likely to be replicable across time, space, market conditions and life circumstances.

Background

35/Male/Single
South Carolina
Income ~$50,000/year
Expenses ~$2,000/month
No debt, two open credit card lines (CLs $3,400 & $5,000)
Contributing up to 403b match (also in total stock market fund)
$10,000 Emergency Fund in Brokerage
Paid for House
I really, really like this. Very smart. Really like the lack of debt. Love the simplicity (no nonsense here!).

Being terrified, even paranoid, is an excellent antidote to overconfidence. I use it all the time. Every day even. It has really, really, really paid off. Looks like it has and will continue to do so for you, too. Again, great job.

Edited to add: Agree with adding a total international stock and total bond fund for diversification. Good idea to think through your comfort with maximum losses possible associated with various asset allocations. Think through scenarios regarding what asset allocation you would be comfortable with and that would let you sleep well at night in the event of a 2008 bear market repeat. Then set asset allocation between stocks and international stocks, and stocks/international stocks and bonds. This will maximize your diversification.

livesoft
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Re: Investing Philosophy

Post by livesoft » Sun Oct 07, 2018 12:30 pm

It is laudable that your goal is not to have any sell transactions in 2019. I try to do the same thing, but there are a few quite legitimate reasons to have sell transactions. For instance, if one had to do some tax-loss harvesting in the taxable account, then selling is good.
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alex_686
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Joined: Mon Feb 09, 2015 2:39 pm

Re: Investing Philosophy

Post by alex_686 » Sun Oct 07, 2018 12:58 pm

I think this is a decent aspirational plan. 2 notes.

First, investing is a pragmatic practice, not dogmatic. For example, why no sales? This implies no rebalacning.

Second, and building off the first point, this is a action plan, not a philosophic investment. Investing philosophy should be why you think passive investing and equity investing are the right paths. There is a fair amount of risk in investment in equities. In my investment philosophy I have firmly tied together that to generate high returns - which are necessary to reach my goals - I must take a certain amount of risk.

peterwantstosave
Posts: 85
Joined: Fri Nov 24, 2017 8:28 pm

Re: Investing Philosophy

Post by peterwantstosave » Thu Oct 11, 2018 8:21 am

Thank you all. I'm appreciative of all the feedback.

On the pragmatic side, here's how I've got it laid out (automated). VSBSX is Vanguard Short Term Treasury Index Fund Admiral Shares. TIQRX is TIAA Equity Index Retirement Class. VTSAX is Vanguard Total Stock Index Fund Admiral Shares. VTSMX is Vanguard Total Stock Index Fund. CHK stands for checking (where paycheck is deposited). I am paid once per month, on the last Friday of the month.

Purpose Ticker Location Amount Date Source
Emergency Fund VSBSX Brokerage $100/month 5th day of every month CHK
Retirement TIQRX Roth IRA $458.33/month 5th day of every month CHK
VTSAX 401k 9%Pretax&6%Roth=15% Total Every Month on PayDay Paycheck
Build Wealth VTSMX Brokerage $100/month 5th day of every month CHK

I've tried to be as clear as possible, as simple as possible, and to follow my original posting as much as possible.

Feedback welcome and appreciated.

Peter

bloom2708
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Location: Fargo, ND

Re: Investing Philosophy

Post by bloom2708 » Thu Oct 11, 2018 8:59 am

Good start.

Are you only contributing to the match in your 403b? How much is the match? Are you doing Pre-tax or Roth?

Do you have a regular Roth IRA?

As your income rises, work toward maxing Pre-tax 403b ($18,500) and Roth IRA $5,500. It may take several pay raises or getting married to get you there, but that is the goal.

You will be well ahead if you stay the course and increase your saving rate as your income rises.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

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ruralavalon
Posts: 14267
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Investing Philosophy

Post by ruralavalon » Thu Oct 11, 2018 5:40 pm

peterwantstosave wrote:
Thu Oct 11, 2018 8:21 am
Thank you all. I'm appreciative of all the feedback.

On the pragmatic side, here's how I've got it laid out (automated). VSBSX is Vanguard Short Term Treasury Index Fund Admiral Shares. TIQRX is TIAA Equity Index Retirement Class. VTSAX is Vanguard Total Stock Index Fund Admiral Shares. VTSMX is Vanguard Total Stock Index Fund. CHK stands for checking (where paycheck is deposited). I am paid once per month, on the last Friday of the month.

Purpose Ticker Location Amount Date Source
Emergency Fund VSBSX Brokerage $100/month 5th day of every month CHK
Retirement TIQRX Roth IRA $458.33/month 5th day of every month CHK
VTSAX 401k 9%Pretax&6%Roth=15% Total Every Month on PayDay Paycheck
Build Wealth VTSMX Brokerage $100/month 5th day of every month CHK

I've tried to be as clear as possible, as simple as possible, and to follow my original posting as much as possible.

Feedback welcome and appreciated.

Peter
Asset allocation.
You stated "I am starting relatively small to ease into the process. I am terrified of the process . . ." To reduce risk increase diversification. You have almost everything in domestic stocks.

In my opinion at age 35 a bond allocation is warranted, in addition to the emergency fund. I suggest about 20 % in bonds. This is expected to substantially reduce portfolio volatility (risk), with only a relatively modest decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification". Please see the wiki articles Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk", and "Asset allocation".

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box (upper right, this page).

Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.

Prioroitizing contributions.
You stated "I am starting relatively small to ease into the process. I am terrified of the process . . ." Please consider Increasing your rate of contributions as much as practical. Don't "start small."

Apparently you are contributing just $7.5k ($50k x .15 = $7.5k) per year to your401k. If there are any decent funds offered in your 401k its a good idea to contribute more than just enough to get the employer match, the annual maximum employee contribution allowed is $18.5k. This should be a priority ahead of taxable investing. What are the 4-5 funds with the lowest expense ratios offered in your 401k? Please give fund names, tickers and expense ratios.

Here is a general account funding priority that usually works well for many people (when there is no high interest debt or HSA use):
1) Contribute to the work-based plans (401k, 403b, 457, TSP, etc.) enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute the maximum to an IRA, traditional or Roth (or backdoor Roth technique), depending on eligibility and personal circumstances;
3) Contribute the remainder of the maximum employee contribution to the work-based accounts; and
4) Contribute to a taxable investing account.

"If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA." Please see the wiki article "Prioritizing investments".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

pkcrafter
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Location: CA
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Re: Investing Philosophy

Post by pkcrafter » Thu Oct 11, 2018 8:59 pm

Peter, what you have written is an investment policy statement.

https://www.bogleheads.org/wiki/Investm ... _statement

These can be difficult to write because the investor must get all the facts together and write up an organized plan. There are strong benefits in writing an IPS: It provides a clear plan and helps the investor stay on course. Jack Bogle is known for saying "stay the course."


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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