I have to admit that I got the idea for this blog post from a soon-to-be-released book by the same title.
Just as the cobbler’s kids often have no shoes, many financial advisors do not practice what they preach. It is a bit shocking that not all financial professionals save, invest, and insure like the prudent, logical, trustworthy folks they hold themselves out as. Often, they are recommending prudence and diversification to their clients, while speculating on cannabis stocks and crypto-currency, or gambling with Put and Call options in their own accounts.
I, on the other hand, eat my own dog food…as they say. I figure if I do not follow my own advice, why should anyone else? Admittedly, my financial life is a bit boring, but I have also made my share of mistakes, and my thinking has evolved as detailed below.
- Brokerage accounts – All of mine (401k, Roth IRAs, Trust account) are managed by Surevest’s Investment team. I am in our aggressive growth portfolio (100% equities) because I have more than 10 years before any planned withdrawals, and I’m comfortable with volatility. The portfolio consists of approximately 60 individual stocks, each representing 1-3% of the portfolio. I do not second-guess any of the holdings or ask for any customization or exceptions. Sometimes it is tempting, but I resist meddling and just let the investment professionals do what they do.
- College Savings (529 Plans) – The real value of a 529 plan is the tax-free growth (similar to a Roth IRA) as long as you use the funds for higher education. Therefore, it is best to fund these accounts when your kids are little so you can benefit from 10-20 years of growth. I did not do that. I opened 529 plans when my kids were born so I could check the box (basically say that I had such an account). However, these accounts have remained underfunded. I was prioritizing retirement savings and other competing demands. Nevertheless, I woke up recently and thought, “OMG, I could have three kids in college at the same time!” So, now I am shoveling every spare dollar into these accounts as fast as I can.
- Real Estate (residential rentals) – I own two rentals. I think rental real estate is greatly over-rated as an investment. Nevertheless, I keep mine because they are good diversifiers. I have owned both of my rentals for more than 15 years, have refinanced to low interest rates, and receive market rate rents, yet they are still negative cash flow. If they were paid off, or if an investor bought them at today’s prices for cash (no mortgage), they would only have net positive cash flow of approximately 3.2%. The total return would grow to around 6% if you factored in 2.5 – 3% per year for appreciation (close to the average annual appreciation for residential real estate nationwide over long periods). Real estate investors frequently overestimate price appreciation, which must track reasonably closely to wage growth. My two rentals have appreciated an average of 1.18% and 2.9% respectively over the 16 and 17 years I’ve owned them. I will likely sell my rentals when I get close to retirement and do not want to deal with them anymore. For more, see: Should retirees sell their rentals?
- Real Estate Investments (commercial) – I’ve had bad luck with these. I have personally invested in First Trust deeds, Non-Traded REITs, and a partnership that bought a huge tract of raw land near San Antonio. They have almost never worked out as planned, and overall, I would have more money if I never touched any of these. #expensivelessons
- Life Insurance – I have a bit more than necessary at 15x our annual living expenses. (Don’t tell my wife this. She doesn’t need any more temptation.) All my life insurance is term (no cash value). One policy will run out in 5 more years; then I will have 10x living expenses for an additional 8 years (to age 63). I am not opposed to permanent insurance, but I would only buy cash value life insurance if I were planning to use the cash value to supplement retirement income and would only fund such a policy after I was maxing my qualified retirement plans and other priorities, such as 529 plans. I had such a policy once, but I could not keep up with the funding and then raided the cash value to buy my current home. Not proud of this.
- Disability Insurance – This is probably the most underutilized type of insurance for working families. You are 6-9x as likely to become disabled prior to retirement as you are to die prematurely, but more people buy life insurance than DI. I tried to keep the cost of my policy more reasonable by getting a policy that only pays benefits for up to five years, instead of to age 65 or 67. #tradeoffs
- Emergency Fund – I always have at least 3 months of living expenses in an online savings account. Interest rates are terrible everywhere, but an emergency fund needs to be safe and liquid. Things could be worse. You could live in Germany, where interest rates are negative (yes, you pay the bank to hold your money). I use marcus.com for my online savings account, where the current rate is .80%.
- My Home – I followed the conventional wisdom to buy the worst house in the best neighborhood we could. Okay, so maybe it’s not be the worst house in the neighborhood, but this place is a total money pit. The appreciation has been decent over the past 8 years (avg 4-5% per year), but operating costs are higher than expected. Look for a “for sale” sign out front as soon as child #3 goes to college (in 7 years).
For all this planning, I would be farther ahead if I’d just put all my money in Amazon 20 years ago. Well, at least I didn’t put it all in Blockbuster. As I say, “Never enough to make a killing, and never enough to get killed.”
Wow! I really am boring.
Have a great week.
P.S. Questions and comments are always welcomed. Contact me HERE.