Introduction
In the world of finance and investing, there's no shortage of advice on how to invest your money. Countless books, articles, and experts offer strategies on asset allocation, retirement planning, and market analysis. However, the book "How I Invest My Money," edited by Joshua Brown, takes a refreshingly different approach. Instead of focusing solely on the "how" of investing, it delves into the equally important question of "why" we invest.
This book provides a unique glimpse into the personal investment strategies of several top financial professionals. By examining their individual approaches, we gain valuable insights into the diverse motivations and goals that drive investment decisions. The result is a fascinating exploration of how personal values, life experiences, and individual circumstances shape our financial choices.
As we journey through the investment philosophies of these financial experts, we'll discover that there's no one-size-fits-all approach to managing money. Instead, we'll see how each person's strategy is tailored to their specific needs, goals, and risk tolerance. This book reminds us that investing is not just about maximizing returns, but about aligning our financial decisions with our personal values and life objectives.
Let's dive into the key ideas and lessons from "How I Invest My Money," and explore how these insights can help us make more informed and meaningful investment choices.
The Personal Nature of Investing
One of the most striking takeaways from the book is that investing is inherently personal. This idea is beautifully illustrated through an anecdote about Sandy Gottesman, a billionaire founder of the New York-based investment firm First Manhattan. When interviewing potential employees, Gottesman always asks them what they own and why. This question isn't about testing their market knowledge or economic predictions; it's about understanding their personal relationship with money.
This approach underscores a fundamental truth: how we spend, save, and invest our money says a lot about who we are as individuals. Our financial decisions reflect our values, priorities, and life goals. They're influenced by our upbringing, experiences, and the unique circumstances of our lives.
The personal nature of investing is further emphasized by an interesting statistic: only about half of all mutual fund portfolio managers in the US invest in their own funds. At first glance, this might seem hypocritical. After all, if these funds are good enough for their clients, shouldn't they be good enough for the managers themselves?
However, this apparent discrepancy is explained through an analogy with how doctors approach end-of-life care. Just as doctors often choose different treatments for themselves than they might recommend for their patients, financial experts may make different choices for their personal finances than they advise for their clients. This isn't necessarily a sign of hypocrisy or lack of faith in their recommendations. Instead, it reflects the reality that different people have different needs, goals, and risk tolerances.
The book uses the example of Morgan Housel, a financial writer, to illustrate this point. Housel and his wife value independence above all else, and this core value shapes their financial decisions. Despite experiencing rising incomes for over a decade, they've maintained the same lifestyle they had when they first married. Every additional dollar earned has been funneled into what they call an "independence fund" - a financial buffer that will allow them to live life on their own terms in the future.
This example highlights how personal values can drive investment strategies. For Housel and his wife, the goal isn't to accumulate wealth for its own sake or to fund an increasingly luxurious lifestyle. Instead, their investment strategy is laser-focused on building long-term financial independence.
The key lesson here is that there are no universal truths when it comes to investing. What works for one person may not be suitable for another. The most effective investment strategy is one that aligns with your personal goals, values, and life circumstances.
Dividend Investing for Stable and Growing Income
The book next introduces us to Jenny Harrington, CEO of Gilman Hill Asset Management and portfolio manager of the company's equity income strategy. Harrington's approach to investing provides valuable insights into how dividend-paying investments can offer a stable and growing income stream.
Harrington's journey into dividend investing began with a client's specific need. In 2001, a 55-year-old client approached her, ready to retire but needing an income that would not only sustain him immediately but also grow over time. This presented a unique challenge, as many traditional retirement investments struggle to balance stability with growth potential.
Bonds, for instance, provide a stable income but typically don't offer much growth. On the other hand, relying on selling stocks for income can gradually deplete the overall investment fund, which is problematic for someone retiring early. Harrington found the solution in dividend-paying stocks.
Dividend stocks represent ownership in companies that regularly distribute a portion of their profits to shareholders. Unlike bonds, which are essentially loans to companies with fixed interest payments, dividend stocks offer the potential for both regular income and capital appreciation.
The beauty of dividend investing lies in its ability to provide a growing income stream. As companies grow and increase their profits, they often increase their dividend payments as well. This means that investors can potentially see their income grow over time, helping to offset inflation and maintain purchasing power.
Harrington emphasizes the importance of choosing the right companies for dividend investing. The best candidates are typically mature businesses with long histories of consistent revenue and profit generation. Well-established corporations like AT&T, Verizon, or IBM are often cited as examples of reliable dividend payers.
However, Harrington also points out that there are opportunities in more niche markets. She gives the example of Douglas Dynamics, a company that produces snow plows. While Douglas's sales can be inconsistent year-to-year due to varying snowfall, over longer periods (typically eight-year cycles), the company shows consistent upward trends in sales and profits. By aligning her investment strategy with these longer-term cycles, Harrington has been able to achieve steady capital appreciation and increasing income for her clients.
This approach to dividend investing illustrates several important principles:
Income and growth are not mutually exclusive: With the right strategy, investors can achieve both a stable income and the potential for long-term growth.
Long-term perspective is crucial: While short-term fluctuations may occur, focusing on companies with solid long-term prospects can lead to sustainable income growth.
Diversification matters: By investing in a range of dividend-paying stocks across different sectors, investors can mitigate risk and potentially smooth out income fluctuations.
Understanding business cycles is valuable: In some industries, looking beyond year-to-year performance to understand longer-term trends can uncover attractive investment opportunities.
Harrington's approach to dividend investing offers a compelling strategy for those seeking to generate a stable and growing income stream, particularly for retirement planning. It demonstrates how a well-thought-out dividend strategy can provide the dual benefits of current income and long-term growth potential.
Investing as a Reflection of Personal Values
The book then introduces us to Dasarte Yarnway, the founder and managing director of Berknell Financial Group. Yarnway's approach to investing provides a powerful example of how personal experiences and values can shape financial decisions.
Yarnway's background is unique and deeply influential in his approach to money and investing. He is the son of Liberian parents who fled to the United States to escape a devastating civil war in their home country. Growing up, Yarnway's family struggled financially, but he describes them as being "rich in love." This upbringing instilled in him a deep appreciation for the things money can't buy, particularly time and family bonds.
One of Yarnway's most poignant memories is of his father working long hours across multiple jobs to make ends meet. While this dedication provided for the family's basic needs, it meant that his father often missed important moments in Yarnway's life, such as his first football game. This experience left a lasting impression on Yarnway and significantly influenced his future financial decisions.
For Yarnway, the most valuable asset isn't money - it's time. This belief is at the core of his investment strategy and his approach to building his own business. In 2015, Yarnway founded Berknell Financial Group, making himself the sole equity owner. This decision wasn't just about financial independence; it was about gaining control over his time.
Yarnway refers to this as "equity in time." By being his own boss, he has the flexibility to decide when he needs to be in the office and when he can step away. This control over his schedule allows him to be present for life's important moments, something he values immensely based on his childhood experiences. Looking to the future, Yarnway envisions being the kind of husband and father who always has time for his family.
But Yarnway's investment in his own company goes beyond personal time management. He sees his role as a "servant-leader," using his business as a platform to make a positive impact on his community. For Yarnway, actions speak louder than words, and running a business provides countless opportunities for meaningful action.
Berknell Financial Group isn't just about generating revenue. Yarnway uses it as a vehicle to demonstrate commitment, hard work, and perseverance to others in his community. His goal is to motivate others to recognize and pursue their own talents and callings. He finds immense satisfaction in seeing others prosper as a result of his example and guidance, considering this the greatest return on investment he could hope for.
Yarnway's approach to investing and business ownership illustrates several important principles:
Investing is about more than financial returns: While monetary gains are important, investments can also yield returns in terms of personal fulfillment, time freedom, and positive community impact.
Personal experiences shape financial decisions: Our background and life experiences play a crucial role in determining what we value most and how we approach money management.
Business ownership can be a form of investment: For some, investing in their own business can provide both financial returns and the ability to align work with personal values.
Success can be measured in multiple ways: While traditional investing focuses on financial metrics, Yarnway's approach reminds us that success can also be measured in terms of personal satisfaction, community impact, and the ability to inspire others.
Yarnway's story serves as a powerful reminder that investing is not just about growing wealth, but about using financial resources to create a life that aligns with our deepest values and aspirations. It challenges us to think beyond traditional notions of return on investment and consider how our financial decisions can contribute to our overall life satisfaction and positive impact on others.
The Power of Simplicity in Long-Term Investing
The book next introduces us to Ashby Daniels, an advisor at Shorebridge Wealth Management. Daniels' approach to investing emphasizes the power of simplicity and patience in achieving long-term financial goals.
Daniels' investment strategy is shaped by his three major financial objectives: saving for retirement, funding his two children's college education, and maintaining an emergency fund. These are all long-term goals, and his current income covers his short-term needs. This long-term perspective fundamentally shapes his approach to investing.
One of the most striking aspects of Daniels' strategy is his portfolio composition: 100% equities. This means his investments are entirely in stocks, which he buys with the expectation that they'll rise in value over time. This approach might seem risky to some, as equities are known for their volatility. The value of stocks can fluctuate dramatically in the short term, which can be nerve-wracking for investors.
However, Daniels sees this volatility as a necessary trade-off for potentially higher long-term returns. He points out that while other investment vehicles, like government bonds, are designed to reduce volatility, they also typically offer lower long-term gains. For investors who have the patience to weather market ups and downs and the time horizon to wait out market cycles, equities can offer the potential for significant wealth accumulation.
To mitigate some of the risks associated with an all-equity portfolio, Daniels invests in a diversified mix of index funds. Index funds are investment vehicles that aim to track the performance of a specific market index, such as the S&P 500. This approach provides broad market exposure, reducing the risk of being overly dependent on the performance of any single company or sector.
Daniels' strategy embodies several key principles of long-term investing:
Simplicity can be effective: Rather than trying to create complex investment strategies or constantly adjust his portfolio based on market predictions, Daniels sticks to a straightforward, consistent approach.
Time in the market beats timing the market: Instead of trying to buy and sell based on short-term market movements, Daniels focuses on staying invested for the long haul.
Patience is crucial: The ability to withstand short-term market volatility is essential for capturing long-term equity returns.
Diversification reduces risk: By investing in index funds rather than individual stocks, Daniels spreads his risk across a broad range of companies.
Align strategy with goals: Daniels' all-equity approach matches his long-term financial objectives and his ability to tolerate short-term volatility.
Perhaps most importantly, Daniels emphasizes the importance of resisting the urge to tinker with investments. He recognizes that attempts to "beat the market" through frequent trading or market timing often lead to underperformance. This is because such strategies incur transaction costs and increase the risk of missing out on the market's best days, which often occur unpredictably and can significantly impact long-term returns.
Daniels' approach serves as a reminder that successful investing doesn't always require complex strategies or constant activity. For many investors, a simple, consistent approach focused on long-term goals can be highly effective. By embracing market volatility rather than trying to avoid it, and by maintaining a disciplined, patient approach, investors can potentially reap the long-term benefits of equity investing.
This strategy may not be suitable for everyone, particularly those with shorter time horizons or lower risk tolerance. However, for those with long-term goals and the ability to withstand market fluctuations, Daniels' approach offers a compelling case for the power of simplicity in investing.
Learning from Mistakes and Embracing New Opportunities
The book then introduces us to Tyrone Ross, a financial consultant widely regarded as a rising star in wealth management. Ross's journey in the financial world is unique and inspiring, demonstrating how mistakes and challenges can become stepping stones to success.
Ross's background is far from typical for a Wall Street professional. He grew up in poverty in what he describes as a "financially illiterate" home. His early years were marked by financial struggle and a lack of exposure to basic financial concepts. In fact, Ross didn't learn what the stock market was until he was 26 years old.
Before entering the financial world, Ross worked a series of odd jobs. His entry into finance came unexpectedly when he found himself interviewing for a position at a financial firm. Despite his lack of experience in the field, Ross managed to land the job, marking the beginning of a steep learning curve.
Ross's early years in finance were marked by financial mistakes, many of which stemmed from his lack of financial education. When he first learned about 401(k) retirement plans, he set one up for himself but quickly emptied it to fund an increasingly lavish lifestyle. He bought expensive jewelry and a fast car, living beyond his means despite earning more than he ever had before.
These financial missteps led to a plummeting credit rating and mounting financial stress. However, rather than being defeated by these setbacks, Ross used them as learning experiences. His journey illustrates several important lessons:
Financial education is crucial: Ross's early mistakes highlight the importance of financial literacy. Without a solid understanding of basic financial concepts, it's easy to make poor decisions that can have long-lasting consequences.
Mistakes can be valuable teachers: Rather than being discouraged by his financial missteps, Ross used them as motivation to learn and improve.
Adaptability is key: When faced with financial difficulties, Ross was willing to take a step back and work at a "chop shop" - a high-pressure, cold-calling operation. While not glamorous, this experience provided valuable lessons about how the stock market works.
Every experience can be a learning opportunity: Ross's time at the chop shop, intended as a temporary measure, ended up opening doors to better opportunities in the financial world.
Ross's career took a significant turn when he landed a position as a trainee advisor at Merrill Lynch. It was here that he truly became an investor, setting up a new 401(k) and investing heavily in Bank of America stock. Working with wealthy families, he gained insights into how America's richest individuals manage, grow, and protect their wealth.
In 2017, Ross took another bold step by quitting Merrill Lynch to establish himself as an independent investor. His current investment strategy reflects his willingness to embrace new ideas and technologies. The majority of his investments are in crypto-assets like Bitcoin, with the remainder divided between retirement and health savings accounts.
Ross acknowledges that his investment strategy is risky, but he's comfortable with this level of risk given his youth and single status. This approach demonstrates several important principles:
Risk tolerance is personal: What constitutes an acceptable level of risk varies from person to person, based on factors like age, financial situation, and personal goals.
Innovation can present new investment opportunities: By being open to emerging technologies like cryptocurrencies, Ross positions himself to potentially benefit from new trends in the financial world.
Diversification is important: While Ross has a high allocation to crypto-assets, he balances this with more traditional retirement and health savings accounts.
Investment strategies can evolve: As circumstances change, it's important to reassess and adjust investment strategies accordingly.
Ross's journey from financial illiteracy to becoming a respected financial consultant is a powerful reminder that it's never too late to learn about money management and investing. His story encourages us to view financial mistakes not as failures, but as opportunities for growth and learning. It also highlights the importance of being open to new ideas and opportunities in the ever-evolving world of finance.
The Importance of Emotional Detachment in Investing
The final section of the book introduces us to Joshua Rogers, the founder and CEO of Arete Wealth. Rogers' approach to investing emphasizes the importance of emotional detachment and the ability to let go, particularly when faced with investment losses.
Rogers draws inspiration from Deepak Chopra's book "The Seven Spiritual Laws of Success," particularly the "Law of Giving." This principle suggests that all forms of wealth are gifts that should be both gratefully received and graciously given. Chopra encourages giving something of value to everyone we meet each day, whether it's a flower, a compliment, or positive energy.
Rogers applies this philosophy to his investment strategy in several ways:
Generosity and open-mindedness: Rogers strives to approach investing with a spirit of generosity and openness. He's willing to take risks and doesn't worry about others making money, believing there's enough wealth to go around.
Investing in people: Rogers prioritizes investing in people he likes and trusts. This approach fosters openness and positivity, which he believes creates greater circulation of wealth and abundance.
Emotional detachment: Perhaps most importantly, Rogers emphasizes the need to maintain emotional detachment from investments, particularly when facing losses.
The ability to let go of losing investments is a crucial skill that many investors struggle with. It's common for investors to become emotionally attached to their investments, leading to poor decision-making. This attachment can manifest in several ways:
Checking portfolios obsessively: Some investors check their portfolios multiple times a day, becoming overly fixated on short-term fluctuations.
Holding onto losing investments: The tendency to hold onto losing investments in the hope that they'll recover is a common pitfall known as the "sunk cost fallacy."
Doubling down on losses: Some investors make the mistake of investing more money into losing positions, hoping to average down their costs.
Rogers argues that these behaviors are often counterproductive. While they might yield decent results in the short to medium term, they can be detrimental in the long run. When investors become emotionally over-invested in their portfolios, they often forget that losses are an inevitable part of investing. This can lead to panic and hasty decisions when things don't go as planned.
Instead, Rogers advocates for a more detached approach:
Accept that losses are inevitable: Understanding that not every investment will be successful can help investors maintain perspective.
Cut losses quickly: The best traders, according to Rogers, are those who can quickly recognize when an investment isn't working out and move on.
Focus on opportunity costs: Holding onto a bad investment doesn't just mean losing money on that particular asset; it also means missing out on potential gains from better investments.
Maintain a long-term perspective: Short-term fluctuations are less important when viewed in the context of long-term investment goals.
Rogers' approach aligns with the concept of "behavioral finance," which recognizes that psychological factors play a significant role in investment decisions. By cultivating emotional detachment, investors can potentially make more rational, objective decisions.
This doesn't mean completely disregarding emotions in investing. After all, factors like risk tolerance are inherently tied to how comfortable we feel with potential losses. Instead, it's about recognizing when emotions might be clouding judgment and striving for a more balanced, rational approach.
Rogers' philosophy also touches on the idea of abundance versus scarcity mindset in investing. By approaching investing with generosity and openness, he believes investors can create more opportunities for wealth creation. This contrasts with a scarcity mindset, where investors might be overly protective or fearful, potentially missing out on valuable opportunities.
Final Thoughts: The Diverse Paths to Financial Success
As we conclude our journey through "How I Invest My Money," we're left with a rich tapestry of investment philosophies and strategies. The diverse approaches presented in this book serve as a powerful reminder that there is no one-size-fits-all solution when it comes to investing.
From Morgan Housel's focus on financial independence to Jenny Harrington's dividend strategy, from Dasarte Yarnway's emphasis on time equity to Ashby Daniels' simple long-term approach, from Tyrone Ross's willingness to learn from mistakes to Joshua Rogers' practice of emotional detachment - each investor's strategy is as unique as their personal circumstances and goals.
Several key themes emerge from these varied approaches:
Personal values matter: How we invest our money is often a reflection of our deepest values and life experiences. Understanding what truly matters to us can guide our financial decisions.
Goals drive strategy: Whether it's early retirement, funding children's education, or achieving work-life balance, our specific goals should shape our investment approach.
Risk tolerance is individual: What feels risky to one person might be comfortable for another. It's crucial to understand and respect our own risk tolerance when making investment decisions.
Learning is continuous: The financial world is always evolving, and successful investors are those who remain open to learning and adapting their strategies.
Simplicity can be powerful: Complex investment strategies aren't always necessary. Sometimes, a straightforward, consistent approach can yield excellent long-term results.
Emotional management is key: The ability to manage our emotions, particularly during market downturns, can be just as important as technical knowledge in achieving investment success.
Mistakes are opportunities: Financial missteps, while painful, can provide valuable lessons that inform better decision-making in the future.
Time is a valuable asset: Whether it's time in the market or time spent with loved ones, recognizing the value of time can profoundly impact our investment choices.
Perhaps the most important lesson from this book is that the "right" way to invest is the way that aligns with our personal goals, values, and circumstances. What works for a young, single professional might not be suitable for a parent nearing retirement. What feels comfortable for a risk-tolerant entrepreneur might cause sleepless nights for a more conservative investor.
This book challenges us to look beyond mere numbers and consider the broader context of our lives when making investment decisions. It encourages us to think deeply about why we're investing, not just how. By understanding our motivations and aligning our financial strategies with our personal values and goals, we can create investment approaches that not only aim for financial success but also contribute to our overall life satisfaction.
In the end, "How I Invest My Money" reminds us that investing is a deeply personal journey. While we can learn valuable lessons from the experiences of successful investors, the most important step is to reflect on our own circumstances, define our unique goals, and craft an investment strategy that feels authentic to us. By doing so, we can work towards not just growing our wealth, but funding a life that truly matters to us.