Personal Investment Policy
For me, as of this writing, I’m both the client and advisor.
I started with the outline developed by The White Coat Investor.
My whySection titled My why
I want to be able to cater to the most constrained with my time and knowledge. These folks may not be able to afford the fees for coaching, mentoring, and consulting. With that said, I need to ensure my survival; secure my own mask before helping others, so to speak. Hustle culture holds little interest for me. I’d rather trade value for money than time for the same.
I want to travel and fade into the background whenever I want without worrying where my next meal comes from.
Coast FI stack revisited April 16, 2022:
FI number is 750,000 USD, higher than initial estimate of 500,000 USD.
This is because estimated spending in retirement was increased to 30,000 USD based on 2021 tracking.
Coast FI 1: 221,477 USD
- Starting at age: 42
- Achieved by age: 44
- Retire by age: 67
- Starting net worth of: 126,000 USD
Coast FI 2: 269,207 USD
- Starting at age: 44
- Achieved by age: 45
- Retire by age: 65
- Starting net worth of: 221,477 USD
Coast FI 3: 360,763 USD
- Starting at age: 45
- Achieved by age: 47
- Retire by age: 60
- Starting net worth of: 269,207 USD
Coast FI 4: 507,630 USD
- Starting at age: 47
- Achieved by age: 50
- Retire by age: 55
- Starting net worth of: 360,763 USD
Coast FI 5: 647,878 USD
- Starting at age: 50
- Achieved by age: 53
- Retire by age: 53
- Starting net worth of: 507,630 USD
This adjusts my original target from FI by 52 to FI by 53. I’m hoping I can increase revenue m outside the day job.
Would you like support my work and goals?
InvestmentsSection titled Investments
- I’ll strive to minimize the effects of taxes and expenses on my investment return by maintaining a portfolio expense ratio of less than 0.5 percent.
- My primary investment vehicles will be broad-based index funds.
- I’ll leverage tax-advantaged accounts and vehicles as much as possible.
- I’ll buy, hold, and not panic during market corrections; unless I lose all faith in American businesses, governments, and money.
- I’ll use limit whenever possible.
- If purchasing 3 shares or more, I will use 3 limit orders; one at two cents above initial price, the second at 1 percent less than the initial price, and the third at 1.5 to 2 percent less than the initial price. If possible and practical, the will be 15 percent of the total contribution amount, the second will be 30 percent, and the third will be the remaining total contribution. (Buy low.)
- My savings rate and returns will be determined on a per paycheck basis as a result of the Building Wealth Paycheck to Paycheck workflow.
- I’ll do what I can to vote with my dollars on the individual level and spread the level evenly in my investments; for equities this means somewhat evenly across the total New York Stock Exchange based on market capitalization, value, and growth.
- I’ll strive for 20 percent or less in any one sector.
- I’d prefer the portfolio not have more than 1 percent in a single company’s stock.
- I’ll contribute at least 10 percent per paycheck to long-term savings (striving for 50 percent or more); dollar cost averaging will be my primary mode of contributing.
- I’ll use a modified total stock market and chill strategy.
- I’ll approach my liquid investments as a single portfolio regardless of tax treatment. This means the portfolio will have a cash component and would not include collectibles, homes, or similar assets that take more than a few days to sell.
Note: Each bullet is aligned to my financial character.
Asset allocationSection titled Asset allocation
- I’ll take advantage of all four tax buckets.
- I’ll seek to minimize the number of funds used to achieve the desired asset allocation.
- I’ll avoid tax-loss harvesting until I understand the nuances better.
- Debt will be included as a portion of the portfolio despite being a liability in accounting parlance.
- Each position in the portfolio will have a range above and below the target percentage.
I have created multiple allocations based on the portfolio’s net worth using the Coast FI stack above:
- Mark 0: Coast FI 1
- Debt: 0 to 1 percent; target of 0
- Cash: 3 to 9 percent; target of 6
- Alternatives: 0 to 1 percent; target of 0
- US Treasuries: 0 to 1 percent; target of 0
- Equities: 91 to 97 percent; target of 94
- Mark 0.2: Coast FI 2
- Debt: same
- Cash: same
- Alternatives: same
- US Treasuries: 0 to 2 percent; target of 2
- Equities: 74 to 97 percent; target of 92
- Mark 0.4: Coast FI 3
- Debt: same
- Cash: same
- Alternatives: 0 to 2 percent; target of 2
- US Treasuries: 6 to 10 percent; target of 8
- Equities: 67 to 97 percent; target of 84
- Mark 0.6: Coast FI 4
- Debt: same
- Cash: same
- Alternatives: 3 to 5 percent; target of 4
- US Treasuries: 13 to 19 percent; target of 16
- Equities: 59 to 89 percent; target of 74
- Mark 0.8: Coast FI 4
- Debt: same
- Cash: same
- Alternatives: 10 to 16 percent; target of 13
- US Treasuries: 17 to 25 percent; target of 21
- Equities: 48 to 72 percent; target of 60
- Mark 1: Coast FI 4 and beyond
- Debt: same
- Cash: same
- Alternatives: 15 to 23 percent; target of 19
- US Treasuries: 20 to 30 percent; target of 25
- Equities: 40 to 60 percent; target of 50
This progression ensures I reduce volatility based on the net worth of the portfolio, not my age or calendar year.
I have a high risk tolerance and capacity; in part because I don’t think I’ll stop earning income and I’m content with my minimal lifestyle.
As of this writing I’m able to cashflow my lifestyle without needing assistance from the portfolio. I enjoy what I do most days, so, I don’t see my income dropping dramatically for the next few years at least.
Rebalancing the portfolioSection titled Rebalancing the portfolio
I am of the mind that rebalancing should be minimal, if ever and use a hybrid approach.
Rebalancing, for me, means bringing the value of the holdings to within the specified range for each holding, not necessarily to the target. Therefore, if each asset class is within the specified range, the portfolio is considered in balance, regardless of underlying holdings.
- I have a fixed cash allocation, but no floor (specified minimal cash amount) at the moment.
- I’m in accumulation mode and use the “while you’re at it” approach when purchasing; and would do similar in drawdown mode.
- I’ve also combined the calendar and percentage-of-portfolio approaches, which I’ll call the event-driven, date-executed strategy.
- Decide which portfolio from above is the target; Mark 1, for example.
- Establish one or more rebalancing intervals and dates; I’ll start with annually around my birthday. (I’ve seen many suggestions—sometimes they even contradict one another and are all based on past performance, which doesn’t guarantee future peer. Further, if everyone rebalances on the same day, weird stuff can happen, so, random dates are good.)
- Choose the event-based criteria:
- if the portfolio goes out of balance and you don’t hold a rebalancing token, receive one rebalancing token;
- today’s date:
- must be greater than the token’s creation date,
- must be greater than the date of the previous executed rebalancing, and
- must be greater than the rebalancing date following the creation date of the token; and
- when rebalancing is performed, the token is spent (no longer in my possession).
This might sound complicated, and that’s kinda the point; I’m dissuading myself from doing a “full” rebalance out of emotion and a possible false sense of urgency. However, this method gives me flexibility in execution.
Let’s say it’s June 2020 and the portfolio goes out of balance; I receive a rebalancing token. July 2020 comes along; I’m able to spend the token to rebalance the portfolio using the valuations on that day and I decide to rebalance. August 2020 the portfolio is out of balance; I receive a rebalancing token, but I can’t rebalance again until July 2021. July 2021 comes along and the portfolio is in balance, so, I decide not to rebalance at that time; I retain the token. December 2021 comes along and the portfolio goes out of balance again and I decide to rebalance at that time; I have the token, December 2021 is greater than July 2020 and July 2021.
Note: These are guidelines and guardrails, not hard and fast rules. Further, sometimes restrictions in an account may cause me to change how I go about certain things.
For example, as of this writing, my 401k is out of balance and there is a dip in two of the three holdings. I’d like to take advantage of those dips. I’m limited by how much I can put into this account; therefore, I am selling the highest performing fund to buy the two dipping funds.
Personal portfolioSection titled Personal portfolio
I’m in accumulation mode. I’m pursuing my Coast FI 1 number, therefore, I’m building toward the Mark 0 asset allocation. This portfolio has as its macro-allocations: cash and equities. I’m using four fund types to achieve this:
- Cap-weighted, total US equities fund; roughly 4,100 stocks.
- Cap-weighted, extended US equities fund; roughly 3,700 stocks. This helps achieve even distribution across small-, mid-, and large-cap stocks.
- Multi-factor fund of funds; roughly 550 stocks. This helps achieve even distribution across value, blend, and growth.
- S&P 500 fund; roughly 500 stocks. This is the fund found in most 401k plans I’ve been exposed to and helps tip the large-cap away from growth.
Because most of the funds are cap-weighted, cover most of the market, and are different, there will be overlap at the individual stock level, which is fine.
Emergency fundSection titled Emergency fund
I see emergencies as having two qualities:
- the urgency and
- the impact.
For the most urgent emergencies, I will use debt and mitigate the cost for each specific type of emergency.
- A personal loan is used for instances of my expense account becoming overdrawn. This ensures I avoid one-time fees and the loan can be paid back separately compared to other forms of debt. The available limit of this line of credit will be equal to roughly three month’s worth of living expenses, which can’t be paid by way of credit cards.
- I’ll maintain a total credit limit equal to one year’s worth of expenses.
Liquid cash will be held in the allocation stated in the previous section and described in my personal budget.
If the emergency is such that loans and liquid cash are not enough, other options should be sought prior to using the portfolio to resolve the emergency.
Debt (and leverage)Section titled Debt (and leverage)
- Debt will be avoided whenever possible.
- Debt will be paid off immediately, when possible while maintaining a consistent contribution to long-term savings and investing.
- Debt will not be used as part of long-term saving and investing strategies; directly or indirectly.
SpendingSection titled Spending
- I will not seek to purchase my own home.
- I will either have a rent payment for housing or a vehicle, but not both. Two events had the greatest, positive impact on me financially. The first was being homeless and no longer carrying the burden of traditional housing expenses. The second is being car-free and no longer carrying the burden of traditional vehicle expenses.
- The amount I spend on dining out will not exceed the amount I spend on purchasing groceries.
- I will not spend money I do not have unless it’s an emergency.
- I’ll track, and reflect upon, my spending every two weeks with deeper reflections monthly, quarterly, and annually.
- I’ll only replace items when the current item is deemed unsuitable to its intended purpose; or, the replacement items demonstrate a marked improvement over the current item.
- I’ll consider total cost of ownership in every purchase.
ChangesSection titled Changes
- This policy will be revisited regularly; at least once per year.
- Will be changed based on the primary financial goal at the time.