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Investment Log: End Of July Investments

I realized that I haven’t reported what funds I’m actually investing my money in. I think it would be helpful in case you want to compare my investment strategy to another one you’re considering.

Let’s start with my bond investments. I realize there is an impending concern with the value of bonds and potentially soon-to-rise interest rates. I’m in this for the long-run and anticipate (guess) that rates are gonna go up and back down a few times in my lifetime.

Investment Strategy

This is a good time to talk about my investment strategy.

I invest in low-cost mostly passive index funds. These are mutual funds with much lower annual fees compared to the average mutual fund out there.

To give you some perspective my current annual average fees are 0.06% compared to the 5.5% I used to have with a previous investment adviser. With my current portfolio that’s the equivalent of paying $270/yr vs $24,750/yr @ 5.5%. Yea… I’m not shitting you, 5.5% is what I used to pay but back then I only had about $80k invested with Lord Abbett.

Choosing an Investment Strategy

There are a ton of different investment strategies out there, I recommend picking one that makes sense to you and learning a lot about it as you invest over the next few decades. Sure, the scene might change a little and you may have to make small adjustments but not much.

Using¬†real estate as an example, either you buy single family homes and rent them out or you buy distressed properties, renovate and flip them. 2 totally different strategies which undoubtedly will undergo some change over the next few decades… but you’re either in one or the other.

I’ll talk more about this stuff in the future. For now let’s talk about the goodies I bought for my portfolio.

My Bond Fund

VMLTX is the bond fund I hold in my taxable account. Why this one and not another bond fund? Well, mainly because my financial adviser recommended it but also because he explained it to me, gave me some options and this made the most sense.

That’s exactly why it’s awesome having a financial adviser – the person who charges you less than what you pay for your TV/Internet bundle but saves you from losing thousands every month and will make sure that you keep hundreds of thousands in your retirement account.

In my opinion no person should be without friends and no person should be without a financial adviser.

Now, if you don’t care about $ because you are the Buddha then that’s awesome but unless you are able to completely detach your life from currency you will need some form of it stashed and invested. It’s your decision how you do it, either learn the intricacies of investing and keep up-to-date with the changes or hire someone you trust who will help you stay on track. Hire someone who doesn’t make money selling you stuff – someone who is truly an adviser. Pay them an annual, monthly or hourly fee and try to find someone who is gonna stick it out with you over your lifespan.

Having a Financial Advisor

I get no money for recommending my financial adviser and I don’t give two bollocks how/who will manage your finances but if you want a great example of someone competent, without an ulterior motive and someone who is easy to talk to, not a salesperson, then you should talk to this guy.

Back to VMLTX –¬†Vanguard Limited-Term Tax-Exempt Fund. I want to focus on the “tax-exempt” part. You see, I bought this bond in my taxable account. What that means is I bought this with after-tax dollars. The money that’s deposited in your paycheck every 2 weeks is after-tax – well, at least for most of us. Some of you will have to pay estimated taxes off of that.

More on Bond Index Funds

I know this post is getting long, just stay with me because future posts on this topic will be shorter since you will already know this. This fund (mutual fund) is a municipal bond. These are moneys you are lending to the gov’t so they can do whatever they need to do. They are federally exempt. So, if you buy $10,000 worth of bods which go up to $11,000 then you don’t owe federal taxes on the $1,000 that you profited. Most states will go along and also wave the state income tax on it.

This is helpful when you want to buy bonds in your taxable account. Because if you bought bonds, or any mutual fund for that matter, in your tax-deferred accounts (think 401k, IRA) you wouldn’t have to pay taxes on any gains at the end of the year. But in your taxable account, which is your private brokerage account that you open, you are responsible for paying taxes on any gains.

So why municipal bonds? Well, there are all sorts of bonds (lots of info about bonds in this link) and they are categorized based on who they are lent to and the duration of the lending etc. Municipal bonds are favorable for us big ballers who are making a lot of money which puts us in high tax brackets. By selecting tax-exempt bonds we get to keep some of our money and the gov’t can fix potholes and pay those diligent DMV employees.

Okay, so I invested $2k in my bonds. I will now have a total of $6,700 worth of bonds in that private brokerage account. The total balance of that account is $99,600. So my bonds represent 6.7% of my portfolio. The plan is to get that up to around 10%.

On a quick tangent, that’s part of my investment strategy and it’s brilliant if you think about it. Any given month my various investments will move in different directions (that’s the point of diversification), and I will likely buy more of the one asset class that’s lost more value in order to maintain the ratio that I have set out to achieve. If I want 10% bonds, 40% international stocks and 50% US stocks then every 2 weeks I would invest in whatever class lost value to bring it back up to the desired ratio of 10/40/50. This means that I’m usually buying at a lower cost, when the fund is ‘on sale’.

Back to the investments, I invested another $4k in VTSAX in July. I now own $29,600 of this fund, worth nearly 30% of my taxable holdings. I won’t get into this fund with this post because I ran out of wine and I’m tired.

I purchased another $244 worth of VSCIX in my 401k account at work. This is a tax-deferred account so I am not as particular about holding a tax-heavy fund in such an account. Though this fund would be okay to have even in a taxable account.

I purchased $1,100 of VTSMX in my money purchase account, another retirement account offered by my medical group. If anyone is keeping track, I have 4 separate retirement accounts with this medical group. My cash balance plan, my traditional pension, my 401k (profit sharing) and my 401a (money purchase plan).

I have *** accounts in total. A checking account, a private brokerage holding taxable investments, an employer sponsored brokerage account, an IRA account at a private brokerage and wherever the hell they keep my cash balance plan.

Stay tuned for more later but that’s essentially what I do every time I come into some money.

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