My clients always ask me how I manage my own money as if it’s a secret I keep to myself. The thing about money management is that people often feel like no matter how much they learn about the latest techniques and trends, they’re never quite doing it right. There’s always some better way to save or to invest.
Well, as a CERTIFIED FINANCIAL PLANNER™ professional who works with wealth management strategies every day, I’m here to tell you that the way I manage my own money is not all that different from how I manage my clients’ money. To help peel back the onion on how I manage and invest my own money, here are five essential investment guidelines I use.
1. Fully Funded Emergency Fund
While it’s not technically an investment in the traditional sense, my emergency fund is critically important for my family and our personal circumstances. An emergency fund can cover unexpected expenses or disruptions in cash flow so that you won’t have to steal from your investment portfolio in the event of an emergency. While I advise clients to keep 3 to 12 months of living expenses in their emergency fund, I maintain 12 months because of the nature of my business and as mine is the only income in the household.
2. Heavy Allocation of Stocks
Since I have a healthy amount of cash, I keep my investments 100% in stocks and nothing in bonds. This is a more aggressive investment strategy and is certainly not appropriate for everyone. In fact, taking on too much (or too little) risk is one of the biggest financial mistakes that I see. In my situation, though, I have a long-term time horizon on needing to use this money and have adequate savings to cover myself in the short term. Additionally, I am comfortable with the added volatility that a 100% stock portfolio inherently brings.
3. Diversified Investments
I typically use well-diversified index funds and actively managed mutual funds to put together my investment portfolio. However, when there is a great buying opportunity (such as the plummeting prices during the initial stages of the pandemic in March of 2020), I do invest in individual stocks. Again, this is certainly not the right strategy for everyone, as single stocks can be more volatile than diversified investment funds. For myself, however, I do think there is a time and place when investing in individual stocks is appropriate.
4. Long-Term Focus
All of the money that I invest is anticipated to be used many years and even decades from now. However, while I do consider myself a long-term investor, I don’t simply buy and then hold for the next 30 years. Every position in my portfolio has a place when I make the initial investment, but I am not married to anything in my portfolio. If a better investment opportunity comes along, I will make a change. This is particularly important when it comes to tax-planning strategies, which need to be continually reviewed.
5. Use Multiple Account Types
Quite often I see people who have most, or all, of their money in one account type, which leaves them with little wiggle room if they want to retire before 59.5, if they are laid off, or if they simply want to use those funds for something other than retirement. While it might make sense to max out your retirement contributions, it also might make sense to contribute a lower amount and use the remaining investments for a non-qualified brokerage account, which you can access at any time without penalties.
As for myself, I use a SEP IRA for retirement and a 529 for half of my children’s college education goals. The rest of my investments, for myself and my kids, go into a non-retirement investment account, which will have fewer restrictions and easier access to the funds. Should my children decide that college isn’t right for them, or they don’t need as much as is currently anticipated, the money saved outside of the 529 plans will be free from penalties as its use is not restricted.
Lastly, while not an investment, I set aside a portion of my income to donate to multiple charities every year. Because I enjoy helping others, I make giving a part of my money management just like I do my retirement savings.
Creating Your Investment Strategy
If you don’t yet have an investment strategy you feel confident in, we invite you to get to know us at Center for Wealth Management. We’re here to help you create the right investments so you can retire on your terms. If you’re ready to see if we’re a good fit, please give me a call at (248) 220-4321 or email firstname.lastname@example.org.
Justin Williamson is a Senior Partner and Co-Owner of Center for Wealth Management, an independent, fee-based wealth management company in Troy, MI. Justin has been serving clients in the financial services industry since 2001. He spends his days helping his clients achieve their financial goals and make the best decisions for their families so they can spend time on what they love and experience financial peace of mind. Justin is known for his dedication, integrity, personal touch, and ability to simplify complex issues. Justin specializes in serving engineers and other professionals who are close to retirement or recently retired, helping them maximize their benefits and create a retirement plan they can rely on. He is a seasoned public speaker, presenting at numerous corporate events each year on retirement planning, Medicare, Social Security, and other financial topics. Justin has a bachelor’s degree in Business Administration majoring in Personal Financial Planning from Central Michigan University and is a CERTIFIED FINANCIAL PLANNER® (CFP®) professional.
Outside of work, Justin enjoys spending time with his family. He lost his wife of eighteen years, Heather, to brain cancer in 2020. He and his son, Carter, and twin daughters, Jaden and Kelsey work to honor her and make her proud each day. You can often find him coaching baseball, softball, and basketball, and spending time with his family at their cabin at Higgins Lake. Learn more about Justin by connecting with him on LinkedIn.