Note from the Editor: This is a guest post from long-time reader Horton. I love Horton’s thesis and the tight wrap! Remember if you have something to share and you don’t want to bother creating a blog of your own, please contact me. Enjoy!
Many people – myself included – have a tendency to view investing as a journey to find the perfect portfolio. We backtest myriad portfolios looking at compound annual growth rates (CAGRs), standard deviation, max drawdowns, Sharpe ratios, safe withdrawal rates, and so on. Most of us do this for fun and curiosity, but, whether we realize it or not, this analysis is a small rock when it comes to our personal finances.
Living a successful life is driven more by the big rocks. I want to talk about how each of us has a unique edge that you can leverage to achieve your goals. I will explain my edge and then I look forward to hearing about yours.
I am married to a woman I love and have two beautiful children. My biggest goal is to be the best father and husband that I can be. My wife and I invest time in our relationship with one another and with our children. This is my biggest rock and I try to remember that every day.
Early in our marriage, my wife and I discovered a Bible study focused on Christian financial principles. I know religion is not a typical topic of conversation here so I will share some upshots. We paid off our student loans (over $100K) in a few years after graduating. We give away more than 10% of our annual pre-tax income to local and national charitable organizations. We spend less than we earn so that my wife can stay at home with our children. We are on track to pay off our home within the next four years, which will provide a significant amount of security for our family of 4. We paid cash for our most recent vehicle purchase. We have adequate emergency funds, life insurance, disability insurance, and estate plans for protection in case of unfortunate events. We are aggressively saving and investing to be able to afford to retire in our mid-fifties.
Professionally, I am an actuary who helps design and manage retirement and health benefit programs. I endured 5 years of studying after graduating from college to obtain my actuarial credentials. I worked 60+ hour weeks for the first 8 or 9 years of my career with intermittent travel, which allowed me to develop expertise in my field and increase my salary. In short, I spent many years investing in my own human capital and now I am reaping the dividends from that investment.
I enjoy my work. I find it intellectually stimulating. I enjoy working with my colleagues. I earn enough for my family to have everything they need (and basically everything they want). And, I have the flexibility to spend time with my family. This definitely may change in the future – but meaningful paid employment is an edge that can offset bad investment returns and many other unfortunate events.
Early in my career, I invested in a number of actively managed mutual funds within my employer’s 401(k) plan. By chance, I was introduced to the Bogleheads and John Bogle’s book The Little Book of Common Sense Investing. Since then I have been a devotee of index fund investing.
Most recently, I discovered Robert Merton’s views on retirement income-focused investment strategies. Merton favors the use of TIPS ladders and/or inflation-adjusted annuities to provide secure retirement income. Merton’s strategy resonates with me as a retirement actuary who is frequently advising corporate pension plan sponsors on liability-driven investment strategies. I acknowledge that this is a more risk-averse (and expensive) way of funding retirement as compared to the “4% Rule”, or other proposed Safe Withdrawal Rates, but it suits my nature and I am saving enough for it to be an option.
My edge is that I have identified and prioritized my big rocks. In case you are wondering, I listed them more or less in order from biggest rock to the sand I will throw in at the end. Of everything I wrote, I anticipate you may want to discuss or debate my views on retirement income, but remember…it’s the smallest rock of them all!
So, what’s your edge?
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Our big rocks were the amount of income we were willing to contribute to our 401k plans, Roth IRAs and a taxable account. As we’ve aged we have adjusted our asset allocation but still keep earning more than we could ever have imagined. The investments do the heavy lifting and we pay no attention to the news.
The sand we add is how we approach our purchases. We only purchase high quality products (as needs or wants) but always search for the best price we can find.
Our philosophy is to not pay more than necessary. Patience is a virtue when buying a ‘want’.
“I listed them more or less in order from biggest rock to the sand I will throw in at the end. ”
Where can I find this list ?
The list largely follows the outline of the post. The most important though is my faith and family. Then, focus on human capital, giving, getting out of debt, saving, etc.
Ash K says
Just read the HBR article in the link by Prof.Merton. A “must” read for anyone who peruse’s this site, or any of the other personal finance (PF) blogs. I highly recommend it.
After all, what is the main point why any of us visit these types of sites? For me, the main point is to have a comfortable retirement with dignity. The rest my friends, is gravy (a life well lived). The goal is having an income – when you no longer have one from your work/job.
Thanks for sharing it on this well written post. Cheers!