Portfolio voyeurism is what drew me to personal finance blogs. I know what statistics say I should do with my investments. But I love seeing what others are actually doing.
So I reached out to get an advance copy of the new book How I Invest My Money as soon as I heard about it. The book is a collection of 25 essays written by financial experts, ranging from financial advisors, journalists, authors, and professional portfolio managers. All shared what they actually do when it is time to put their own money where their mouths are.
Read on to discover patterns I observed, lessons I learned, how my thinking was challenged, and whether this is a book that will help you decide how to invest your money.
You Can’t Escape the Past
A common theme that ran through most of the 25 essays in the book was growing up in households where money was a source of stress. This played out in different ways.
Morgan Housel wrote of starting his life “dirt poor” as one of three kids his parents had while his father was completing school and training to become a doctor. Tyrone Ross wrote of growing up in a financially illiterate home where “scratch off tickets saved us plenty of days when money was short.”
Shirl Penney shared that for a period between the ages of age 11 and 14 he “was homeless and lived with various neighbors.” Nina O’Neal wrote of her childhood, “Financial stability never seemed to find it’s way to my home.” Others shared similar narratives.
It’s hard not to connect the dots between stories of people who share painful memories around money in their childhood who go on to devote substantial time and energy in adulthood to mastering money for themselves and as a service to others.
Many people in this audience are good savers. We don’t save because we have special will power or it’s easy due to having massive incomes. This is important to remember.
We save because it feels good. Saving is associated with security. Many of us associate a lack of money with childhood stress and unfulfilled desires.
It’s worth taking time to uncover what is behind your motivation to build wealth and invest as many of these writers did. Otherwise, it may be challenging to shift from saver to spender and enjoy what you’ve worked so hard to save and invest in order to achieve financial independence.
It’s Not About Optimizing
I was surprised that in a 200 page book featuring 25 money experts, no more than a few paragraphs were devoted to how portfolios were optimized to get maximal returns or minimize volatility, fees, and taxes. Instead, there was a clear trend towards emphasizing feelings of safety, security, and happiness as higher priorities.
The most obvious example was the number of people who listed home ownership as one of their biggest, best, or most important investments. None had illusions of beating inflation. No one wrote about house hacking.
Most emphasized the mental benefit of a paid off home and having a place to create memories with family and friends. Only a few mentioned taking advantage of low mortgage rates to chase higher returns in other investments.
I’ve called paying off our mortgage quickly a “mistake” that helped us reach financial independence sooner, because it gave us courage to take risks in other areas. I understand the logic. Still in times with ultra-low interest rates, I was surprised so many financial experts took a similar path.
Ryan Krueger provided another example of choosing a particular investment without worrying about optimal financial return. He purchased a lifetime income annuity in his wife’s name while in his mid-40’s.
His reasoning was that she fully invested in raising their five kids. He invested in peace of mind that she would be taken care of forever if anything happened to him. It is a powerful reminder. We can measure return on investment in more ways than annualized returns.
Another trend I noticed was that most of the essayists are entrepreneurs who have a substantial amount of their net worth concentrated in their personal businesses or funds they created. Almost all acknowledge the risk that comes with lack of diversification.
They balance the risk in other parts of their portfolio. The sense of control and purpose a personal business provide trumps the risk.
Several people mentioned that being in the financial industry gives them unique knowledge and insights to investment opportunities. A few mentioned investing in particular funds because they wanted to support friends. Others cited investing in funds that furthered a social cause they believed in.
I try to separate emotion from investing to avoid acting on my worst impulses of fear or greed. Having a written investment policy statement helps towards those ends.
Reading these essays made me realize that keeping emotion and investing separate is an overly simplistic view. If having a cause or person you want to support incentivizes you to save and invest more, that can pay off in many ways.
Ted Seides wrote an essay for How I Invest My Money. He wrote, “I hold index or factor ETFs in absence of something better to do, but I much prefer active management. This bias comes from my positive experience with select active managers throughout my career.”
I have no doubt Seides believes what he writes. He not only invests his own money this way, he famously made a one million dollar wager with Warren Buffett. Seides bet a selection of hedge funds would outperform the S&P 500 over the decade 2008-2017. If you don’t know how this played out, you can read the concession Seides wrote before the bet officially ended.
A number of people who manage other people’s money mentioned that they “eat their own cooking,” meaning they invest at least a portion of their own money in the same portfolios as their clients with a similar risk profile.
On the surface, this sounds great. Like Seides, they also must truly believe what they say. After all they’re putting their own money where their mouth is.
However, we should step back and ask a few questions before accepting this as a good thing at face value.
- Seeing that these smart and respected investors are each subject to their own biases and have different sets of beliefs, do we want to invest based on any one of them?
- Have you ever believed something and later realized you were wrong?
- Should we pay for someone else’s personal beliefs and biases?
Paying for Other’s Beliefs
Multiple people profiled in the book share Seides affinity for stock picking and actively managed funds, despite a lack of evidence in their beliefs. Another example of the bias represented in the traditional financial industry is that only 2 of the 25 essays mentioned investing in real estate outside of their primary residence.
In my book I outline three valid and reproducible investment paths used by people who achieved financial independence quickly:
- “Simple Path”: A high savings rate + investing in index funds,
- “Active Path”: Investing in your own business,
- “Hybrid Path”: Investing in real estate.
The financial advice industry is changing for the better. Many of the people profiled in this book are leading that charge. Still, we all have our own biases.
The vast majority of these leading financial thinkers completely ignore the proven path of real estate investing. Simultaneously, many choose the challenging at best approach of picking individual stocks and actively managed funds. This phenomenon is a relic of a financial industry that traditionally made money writing about and selling “the best” stocks, bonds and investment funds.
It’s important to remember this before you unquestioningly follow the advice of a financial advisor or anyone you read or listen to in the media.
Challenging My Thinking
Two essays challenged my way of thinking. Each made me question an aspect of my approach to life and money.
Carolyn McClanahan’s life followed a path similar to my own. She started in the medical field and her interest in personal finance grew out of a dissatisfaction with the financial advice available to her.
Where we differed is that I focused on retirement as an escape from my career as a physical therapist. She used the financial independence she created as a physician to create a second career as a CFP, focusing on continuing personal growth, learning, and creating opportunities to help and serve others.
Her final paragraph rang true for me, as it may for others that tend to over romanticize retirement. “My biggest takeaway for everyone is…invest in yourself. Your ability to work is your safest and highest returning asset. By lifelong learning, and taking care of your physical health, mental health, and relationships, you are much more likely to lead a secure and satisfying life without regrets. Isn’t that what it is all about?”
Perth Tolle’s essay focused on the Freedom 100 Emerging Markets ETF that she founded and that makes up over 50% of her total portfolio. I recently wrote about ESG investing. I concluded that it was a good idea in theory but unlikely to have much impact in practice.
Reading about Tolle’s approach to investing in an ethical way and her passion for it inspired me to keep the door open on the idea that your investments can have a positive impact while being personally profitable. At the very least, I will do more research into her fund and others like it.
Investing in Happiness
Shirl Penney’s essay led Kim and I to discuss how we conceptualize our investing approach. At the start, we consolidated all our investments into one general “bucket.” Later, we started a second “bucket” to save for our daughter’s future.
Penney conceptualizes his allocation of capital into four quadrants: personal (money for he and his wife’s needs including retirement), family (saving for his kid’s future), giving (money dedicated for philanthropic purposes), and fun (spending on assets focused on personal enjoyment rather than financial returns).
Now that we’ve reached a point in life where our family’s basic needs are met indefinitely and we’ve opted not to pursue a traditional retirement, we’re thinking about ways of contributing future investments into the giving and fun quadrants.
We always gave to charity, but we’ve done it in a haphazard way. Seeing Penney’s thoughtfulness and intentionality inspired me to rethink our strategies to give more generously and more effectively.
Penney shared that his fun quadrant was dedicated to “houses and (thoroughbred race) horses.” He wrote of the priceless memories that were created around each.
Our tastes and budget are much more modest than his. But having a framework of investing in fun reshapes considerations of spending we previously spent way too much time and energy overanalyzing.
Examples include debating purchasing a family climbing gym membership prior to COVID and currently planning a cross-country RV trip for next summer. Neither are cheap or necessary. Both would enable comfort, convenience, and the creation of lifelong memories with our daughter. Going forward, we’ll focus less on cost and more on fun.
Final Thoughts on How I Invest My Money
How I Invest My Money is a thought provoking read. In this collection of short easy to read essays, you’re sure to find a few that resonate and challenge your assumptions. And those that don’t can easily be skimmed or skipped without losing context.
Josh Brown wrote a compelling introduction and Brian Portnoy did the same with the conclusion. Together they did a nice job as editors collecting and organizing these essays.
Carl Richards did a sketch to capture the theme of each essay and introduce each chapter. His sketches give the book character.
I try to read widely and only choose a handful of investing and personal finance books each year. I’m glad I chose How I Invest My Money. If you enjoy seeing what other people do with their money as much as I do, check it out for yourself. The book is scheduled to be released November 17th.
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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. Now he draws on his experience to write about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. You can reach him at email@example.com.]
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