This is the third and final post where we are being completely open with the history of our income, spending, saving, and investing. If you have not already done so I encourage you to read the history of our income, and history of our spending and saving first. This final post in the series is about the history of our investing and will be the shortest and probably the least interesting one since our investing history is fairly boring, as I feel it should be.
I guess this is the part where I should provide an important disclaimer that this post discussing our investing history should only be considered informational and educational about our specific situation and circumstances. Nothing I write should be considered advice of any kind! As I also say in my profession, always do your own research from as many reputable and quality sources as you can. Then you can make your own judgements and decisions based on that research. Please don’t consider this post, or anything I write to be your single source for information about investing.
Ok with the obligatory disclaimer out of the way, here is a look at our investing history…
The not really sure what we are doing phase
Unlike my previous two posts on our income, spending, and saving history I am not going to write about our individual history during this time period, because we really followed similar investment paths, just separated by several years. I am also going to group this by phases, starting with the “we are investing, but not really sure what we are doing” phase.
When we started our teaching jobs, we both participated in the Florida Retirement System (FRS) and we were contributing the same amount of our salary, just over different periods of time. I was in the FRS system from 2000 – 2006, while my spouse entered the system in 2006 and stayed in the system until 2015. I will just start by saying that at the time I was in the system the investment options were awful compared to better options that they have today. I did not have access to index funds or even target date funds. Most of the options were unique funds created specifically for the FRS system that all were less than ideal. Taking a quick look at the current options, it looks like they did a complete overhaul to the available options in recent years, and it looks a lot better for current FRS participants. Based on the options available we both invested in the exact same fund, the FRS Select Aggressive Balanced Fund. It was one of the few options that had reasonable fees and came the closest to an allocation that at the time we thought we should be following. I will say that we were a lot more thoughtful about our selection during my spouse’s time in the FRS since by that time we actually had a plan for our investing.
At the same time I was investing in the FRS system I also had a Roth IRA that I used to supplement my retirement savings. Most of the money invested in my Roth was invested in Fidelity’s Contrafund for no particular reason other than at the time I thought it seemed like a good fund. I also had a few individual stocks in the account as well. Again, being completely honest, at this point in my life (2000 – 2006) I really did not have a good system or reason that I invested in this fund or the individual stocks. Looking back, I am glad that I was investing during the time, but the fees paid and choices I made were not ideal. My return in both accounts was fairly decent over that period, but that was more a function of entering the market after a lot of the Dot Com bubble was shaking out. That is to say a lot of our early returns had to do with market timing luck, especially in the individual stocks I invested in!
Shifting to an interest in, and learning a lot about personal finance
Starting in 2008, right around the time I was finishing my Ph.D. degree, I really started to get interested in personal finance, and finance in general. Some of this interest started when I aligned part of my research agenda with areas of finance that included financial literacy, problem solving, and complex financial scenarios. My academic area is Learning Sciences, and at the time, part of my focus was centered on cognition and theories of learning in diverse domains, especially those that had or required complex or ill-structured problem solving. One of these domains was finance and money and I became fascinated with how people navigate money, finance, and investing. It was especially interesting looking at it from different theoretical perspectives of how people think and learn. I still do some of this research today, and it has at times even included working on research teams where we use will use an fMRI as part of our research into financial behavior and thinking.
All of this work really took hold in my personal life and the way I looked at my finances. I became so interested in personal finance that while I was searching for my first full-time faculty position, and had extra time, I completed a financial planning degree, and also took and passed the Series 65 exam. I thought about sitting for the CFP exam, but never took it that far because I was mostly interested in learning about (and possibly teaching) personal finance, not doing actual financial planning work. Even to this day I am still very interested in teaching and helping others with personal finance, and some of that, in addition to other reasons I discussed, drives my purpose for this blog.
Investing Now and Going Forward
After what I will call the financial awakening in our lives, our investing plan has become very systematic, and better structured. Most of our liquid assets are invested in very low cost funds and ETFs in both our taxable and pre-tax accounts (403b, 457b, IRAs, and ORP). While we have slightly different funds depending on the account, and target a specific allocation that we rebalance twice a year, and sometimes more frequently if certain thresholds are triggered. In our taxable account we generally prefer ETFs rather than mutual funds. We also invest 5-8% in actual stocks from carefully selected companies. At first the individual stock investing was not a significant amount of money, but lately it has started to grow larger with our net worth. I am not going to encourage or discourage anyone from investing in individual stocks, but we have very specific (and personal) reasons that we give ourselves the flexibility to invest in about 8 individual companies. We do this for a lot of reasons that in a small part includes a desire to actively participate in company governance and have a very small voice as tiny shareholders. As for the specific funds and ETFs we invest in I am going to avoid listing them in this post. It is not that I am trying to be less open in this post, it is just less relevant because some of the funds are based on choices that are available inside the UNC retirement plan system, and I am a little hesitant for anything in the post to come across as an endorsement or recommendation. Outside of our investing, we do keep a very specific amount of cash ($100,000) set aside that I am going to talk about in a separate post. This amount is far beyond what would be required of an emergency fund, but we have a very thought out rationale for why we have that specific amount. One is that with that amount we are able to generate a safe nominal return of about 8% a year, or around 5% after adjusting for inflation with this amount. Once I write the post I will add the link here on how we do this easily and with almost zero risk.
When I first started writing this post, I tried to follow the same format as the posts on our income, spending, and saving. After about three complete rewrites, I gave up. The problem was that I could write about the specific funds we invested in at what periods of time, but it really did not make much sense, or in most cases, aside from our time in the FRS system, our investments have been pretty consistent. We have worked hard to automate our investing and create a system that removes a lot of the behavioral tendencies out of our decision making. We work to keep fees at a minimum and in most cases now they are about as close to zero as they can possibly be. We put a lot of work and thought into designing our system and allocations that we were comfortable with, and now we focus most of our time optimizing our income, spending, and saving. Investing is a very important element for long term financial success, but only to the extent that you avoid self-sabotaging behaviors, and are able to focus on saving money to invest in the first place. This is only possible if you are in a position to increase your income, lower your spending, or both so that you can save.