Asking to Assess My Asset Assumptions

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A few days ago I had a conversation with a fellow finance nerd-friend about asset allocation. She asked how I make my investment decisions — I pointed her to my reading list and explained my general approach that I’ve explained here. Following that conversation, I realized I am overdue for a checkup — while I have my 401(k) set to rebalance automatically, that’s not true for my brokerage account or Roth IRA. I don’t believe in following my investment performance on a regular basis, but occasional check-ins are important to make sure we’re still on track. And not lying to our friends. It was keeping me up at night (not really), so I decided this would be a good time to see if I what I said I was doing was really in fact what I was actually doing.   Continue reading Asking to Assess My Asset Assumptions

Investing 102: I am a Robot

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I’ve been distracted recently and haven’t given this blog the attention I’d like, with several other creative projects (more to come on this!) taking priority, plus the taking-longer-than-wanted-but-not-unexpected basement refurb. Thankfully, though, my finances are robotocized (that’s a word, I swear) and I don’t have to worry about making sure I’m on track.

So how do I robotocize my financial life?

  1. Direct deposit. Did you know you can set up a direct deposit to multiple accounts? I only figured that out recently. I get paid every two weeks and set up direct deposit with my employer. The general amount I need for living expenses (or at least what I budget) is deposited to my checking account and the rest goes to my savings/brokerage account at Schwab.
  2. Automatic bill pay. Many banks and credit cards offer options to set up automatic bill pay through your accounts directly. I’ve taken a more piecemeal approach and set up automatic payments through each billing account, but now I don’t ever have to worry about making sure my bills are paid on time, including everything from my mortgage and car insurance to electricity and gas to state and federal taxes to full payment of my credit card balances every month.
  3. Automatic investing. Once my paycheck gets deposited in my Schwab brokerage account, a few days later I have a semi-monthly automatic purchase of $300 of a total stock market index fund. This means I invest $600/month without even thinking about it. Through my employer, I also have my 401(k) withdrawal with every paycheck — I front load it with a whopping 50% of my paycheck at the beginning of the year.
  4. Automatic dividend reinvestment. Whenever I buy a stock or fund, I select the option to automatically reinvest dividends — free money to invest before I even know I have it.
  5. Automatic rebalancing. I have my 401(k) account set to automatically rebalance once a year. This ensures that the asset allocation I’ve selected will stay generally the same from year to year — in a nutshell, if I have a great year in stocks, I’ll shift some of the gains over to bonds, and vice versa, ensuring maximum diversity for maximum growth over the long haul (there’s an important life metaphor in there somewhere!).

Easy peasy, nice and breezy! Now if only I can find a way to robotocize the rest of my responsibilities …

Investing 102: Watch Out for Robots

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I was reading an outdated New Yorker at a doctor’s office recently and came across this column about electronic trading and the rise of the new robot overlords who control our every financial move.

OK, maybe it’s not quite that dramatic, but it provided a good, nugget-sized summary of why an individual trying to time the market or trade individual stocks is almost never going to succeed based on anything other than dumb luck:

In the popular imagination, investing is about economic fundamentals. Investors scrutinize companies, weighing factors like cash flow, product lineup, and merger plans. They keep in mind general stuff like interest-rate hikes and what’s happening to the dollar. But most trading these days has nothing to do with any of these things. Instead, it’s all about what the market is going to do in the very short term—often a matter of milliseconds. Most of this trading takes place too fast for humans to be involved, so the decisions are left to computers.

Market swings are generally driven by algorithms, computers, and large-scale institutional traders (think CalPERS, the retirement system for the state of California and largest pension fund in the U.S., which manages over $300 BILLION in assets; that’s more than even Donald Trump!). As an individual, I know there’s no way I can keep up — while I might do well occasionally, on average I am never going to beat the market, which is why I focus on trying to match it instead.

FTPH: Lost, Annoyed, and Bored by Investing

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Dear Cheddar,

You know what I hate the most? Trying to figure out how to allocate my retirement investments. I know some of the basics about retirement: I’m comfortable with a considerable amount of risk/aggressiveness at this point, I put quite a significant percentage of my income into retirement pre-tax, I also have a Roth and max that out every year. But when it comes to choosing the funds where my money should sit, I am lost. And annoyed. And bored. Is this conversation over yet?

I have tried to figure it out, I’ve talked to a complimentary advisor my financial institution provides, I have bribed myself with rewards like wine or chocolate for doing the necessary research on funds, I am sort of familiar with the online tools. But my money is still strewn around funds haphazardly, because for some reason this is the most tedious subject in the history of the universe to me.

How do you choose funds wisely? What are the most important indicators to look at? Is it worth paying someone and what do these people even charge? I know the socially conscious funds aren’t necessarily as progressive as I might hope, but I do hate guns; how do I choose a good socially conscious fund? Will you send me a reward if I get my act together and allocate better?


Maybe I Just Need More Chocolate

Dear Chocolate,

Congratulations! You are doing amazing things! You are saving for retirement, max out your Roth every year, think about where to put your money, and ask great questions! You know what? You are beating 143% of the people out there who are not saving for retirement, and that is a statistically accurate fact. Continue reading FTPH: Lost, Annoyed, and Bored by Investing

Investing 101: Allocation, My Ass(et)!

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Figuring out an appropriate asset allocation can be one of the most confusing and stressful parts of investing, and its intimidation factor seems to keep many people from investing at all. I’m here to tell you a secret as a new investor: you don’t have to worry this — if the fear of finding the “right” allocation is holding you back from investing, it’s OK to skip this step.

(As I hear the collective gasp from financial advisors everywhere, this is probably an appropriate time to remind you that I am not a certified investment advisor, accountant, financial planner, or anything else of the sort, and the advice I’m giving here is what’s worked for me. It might not work for you — but what I know definitely won’t work is hiding your money under a metaphorical mattress where it has no room to grow.)

There are so many moving factors that can make investing complicated — different accounts (for example, I have a Roth IRA, a 401(k), and a brokerage account); different goals (retirement savings, stable investments to beat inflation with my emergency fund, and making more short-term cash); and a gazillion different investment choices (mutual funds, bonds, individual stocks, ETFs). If this feels paralyzing, that’s normal. But you know what’s even more paralyzing? Letting your money sit in an account where it does nothing except lose value over time due to increasing inflation. Continue reading Investing 101: Allocation, My Ass(et)!