I’m a Financial Planner. Here’s How I Invest My Own Money.

Even if you have a solid understanding of the general concepts around investing, choosing specific investments can be a struggle.

In some cases there are literally thousands of choices with an almost limitless amount of information available about each one. How are you supposed to sort through all of that information and pick the right mix of investments for your personal goals?

Today I’d like to share my personal process for doing just that. I’m going to explain both my overall investment plan and the specific investments I’ve chosen to implement it.

To be clear, this is not a set of recommendations. Your personal investment decisions should reflect your personal goals, needs, and preferences. The right portfolio for me is not necessarily the right one for you.

My goal is simply to detail my personal thought process with the hope that it helps you think through your own decisions and make better choices.

For anyone who likes to dig into the details, my investment philosophy is heavily influenced by Dave Swensen’s “Unconventional Success.” It’s a great book for anyone who really wants to understand the nuances behind building a portfolio.

With that, let’s get into it!

My Overall Investment Philosophy

There are six principles that make up my overall investment philosophy and drive my decisions when I make individual investment choices.

1. Good enough is good enough.

As much as I’d love to find the perfect mix of investments that provides the maximum return with a minimal amount of risk, I know that’s an impossible task.

I also know that I don’t need to be perfect or beat some kind of benchmark in order to reach my personal goals. All I need is for my investment portfolio to be good enough to help me achieve the things that are important to me and my family.

So that’s what I strive for: “good enough.” As long as my investment choices are good enough to get me where I want to go, I’m happy.

2. Minimize costs.

This one is simple. Research shows that when it comes to investing, cost is the single best predictor of future performance, with lower costs leading to higher returns.

So I always strive to minimize costs, from mutual fund expense ratios, to account maintenance fees, to taxes and trading fees. I know that the less I pay, the more likely I am to succeed.

3. Index funds are king.

There are plenty of reasons to prefer index funds over actively managed funds, but at the end of the day it all comes down to the simple fact that the best research we have shows that index funds consistently provide better returns.

I know that the likeliest outcome of trying to beat the market is losing to it, so my goal is simply to mimic the market at the lowest cost possible. Index funds make that easy.

4. Start with a high-level asset allocation.

As investors, our asset allocation is the primary tool we have for managing risk and return. The balance we strike between stocks and bonds does more than any other decision to determine how much risk we’re exposed to and how much return we can expect to receive.

I’ve decided that a mix of 70% stocks and 30% bonds is the right balance for me and my family, and one of my primary goals when choosing investments is to match that high-level asset allocation as closely as possible.

To be clear, this is not an incredibly scientific pick. I’d probably be okay moving as much as 10 percentage points in either direction.

But this decision falls squarely in the “good enough” camp. It allocates enough money to stocks to expect a reasonable return, while keeping enough money in bonds so that my entire portfolio isn’t sacrificed during a market crash.

5. Then, a more detailed asset allocation.

While my high-level asset allocation is most important, I do have a slightly more detailed asset allocation that I try to follow whenever possible.

For the stock portion of my portfolio, I like to use a 50/50 split between U.S. stocks and international stocks. This roughly represents the actual proportion of the U.S. stock market to the global economy and it ensures that I have exposure to whichever industries and companies are currently performing best, no matter which country they reside in.

For the bond portion of my portfolio, my primary goal is protection instead of return. More than anything else, I want the bonds in my portfolio to serve as a buffer when the stock market is down, even at the expense of long-term returns.

For that reason, my preference is to invest exclusively in U.S. Treasury bonds. They’re backed by the full faith and credit of the U.S. government, which means there is minimal risk of them defaulting. And when the stock market is crashing, history shows that they provide better returns than corporate bonds, which are issued by many of the very same companies whose stocks are struggling during those crashes.

I do like to split my bond holdings between two different types of Treasury bonds:

  • Intermediate-term Treasury bonds: These provide a decent approximation of the entire market of Treasury bonds.
  • Treasury Inflation Protected Securities (TIPS): These provide a lower initial interest rate than regular Treasury bonds, but they provide protection against sudden inflation.

6. Buy, hold, and rebalance.

I have no interest in trying to time the market. I know that any attempt to do so is more likely to hurt me than to help me.

My strategy is simply to buy the investments I want, hold onto them for the long-term, and occasionally rebalance back to my target asset allocation.

My Specific Investment Choices

With that as my overall investment framework, let’s talk about the specific investments I’ve chosen to implement that plan.

First, whenever possible, I choose Vanguard as my investment provider. They’re customer-owned, low-cost, they essentially invented index funds, and it’s easier to keep everything at one place.

So, assuming I’m at Vanguard, here are my preferred investment choices:

Vanguard funds all come in several different classes, and each of those funds is also available as lower-cost Admiral shares or ETFs. I personally use the Admiral shares whenever I qualify, but the links above go to the version of each fund with the lowest minimum investment.

What If My Choices Aren’t Available?

Sometimes I can’t choose those exact investments, either because I don’t have enough money in a particular account to meet the minimum investment requirement on each of those funds, or because I’m choosing investments within something like a 401(k) that has a limited set of investment options.

In those situations I typically take one of two approaches.

The first is to look for a target-date fund or other all-in-one fund that approximates my target asset allocation with minimal fees. That’s generally my preferred choice as long as the underlying investments are a reasonable approximation for what I want to achieve.

The second is to look for at least one inexpensive U.S. stock fund and one inexpensive U.S. bond fund that I can use to match my 70/30 asset allocation. It may not be quite as diverse as I’d like, but sometimes it’s the best I can do.

That’s My Plan and I’m Sticking to It

So that’s it! That’s my overall investment plan as well as the specific investments I’ve chosen to implement it.

Again, this isn’t meant to be a recommendation. Everyone’s personal goals, timelines, and preferences are different, and you may very well be better served by a different mix of investments.

But hopefully this helps you understand a little more about how a financial planner thinks about investing so that you can make a better set of decisions for yourself.

Matt Becker, CFP® is a fee-only financial planner and the founder of Mom and Dad Money, where he helps new parents take control of their money so they can take care of their families.

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