How I Invest My Money – 2020 Q4


Tom’s Quarterly Reads

Here is what I’ve been thinking about, plus the best articles I read over the past three months, mostly all finance-related. Your feedback is always welcome, and please share this with anyone else who might be interested. Subscribe here.

Just Read This

Save Like A Pessimist, Invest Like An Optimist (Collaborative Fund): 2020 has, if nothing else, highlighted the need to have a sufficient emergency fund in place. But we all need to embrace the cognitive dissonance of maintaining today’s buffer while not passing up the opportunity to invest for the future.

Tom’s Thoughts: How I Invest My Money

As an advisor, I spend time giving people recommendations about their investments and in many other areas of their personal finances. In the interest of transparency, I want to provide a view in the other direction and talk about how my wife and I manage our own finances. This is quite a long piece, and may not appeal to everyone – if you want to skip down to the rest of the articles, be my guest. Nothing here is meant as a recommendation for how anyone else should do things; every situation is different, and what works (or has failed) for me may not be a fit for someone else.

The premise here is completely unoriginal; many advisors and financial professionals who have written similar pieces of late. I’d encourage you to read as many as you can, since each provides a different perspective. In particular you can read posts by Ryan Frailich (another advisor based in New Orleans), Peter Lazaroff, and finally Josh Brown, who turned his post into a book of the same name by collecting a wide array of other professionals’ stories.

Privilege and Luck

Before discussing our current situation, I am compelled to admit that privilege and luck as an upper-middle class white male in the United States have played an outsized role in where our finances are today. Growing up I was extremely fortunate that I never had to worry about money. I learned about saving and investing relatively young, and am privileged to have had a Roth IRA since before I went to college. The fantastic public schools I attended were due to my parents’ ability to choose a strong school district, which subsequently got me into a good college and put me in a position to graduate without student debt, and so on.

All of that background is essential to understanding my financial outlook, which is dominated by a very long-term view coupled with a high level of risk tolerance. Our situation, as I sketch out below, if a very fortunate one. But I didn’t create that through what I’m doing today – hence none of this is a prescription for anyone else to follow.


About 5% of our net worth is in cash; this provides operating funds in our checking account and an emergency fund in our savings account. I tend to view the cash in these accounts in terms of water levels. The checking account always has enough cash to cycle through a normal month without any worry that the water level will bottom out, leaving everything high and dry. When we have a major purchase, we move cash into the checking account from savings (not from the emergency fund) to pay for the purchase and move on.

The emergency fund is just that – for emergencies, like a loss of income or sudden medical expense. An emergency fund is not a cash reserve for great investment opportunities, nor is it a vacation fund. I generally aim to have 3 months’ worth of expenses in the emergency fund, but we will probably increase this a bit over the next year as my wife moves to the end of her training pipeline.

All of our expenses are automated, and the vast majority go on a credit card that provides 2% cash back. We try to keep things as simple as possible when it comes to bills and to credit card rewards. I also have an HSA with a small balance that used to be invested, but that moved to all cash when we entered a period of potentially higher medical expenses.


We currently rent, and have done so for the past 8+ years. And I’m completely fine with that; in that time, we’ve lived in 4 different apartments/homes (in six months that will increase to 5), and never had any measure of certainty about geography due to our careers. So long as there’s a decent likelihood that we will move within 3 years, I’m usually against buying a house because of the transaction costs on each end, the potential for very high maintenance costs, and the extremely concentrated bet on the value of the property.

To parse words (a favorite activity of mine), I believe there’s a large difference between a) an investment property and b) a home. We own an investment property that I bought during my time in the military, which accounts for roughly 20% of our net worth. As an investment property, I evaluate it based on the numbers alone, and we’ll keep it so long as the Excel spreadsheet say it makes sense.

A home, on the other hand, involves emotional attachment and provides a place for our family to live and grow. If we find someplace to settle in the next few years, we will likely buy a home. The purchase price and ongoing mortgage payment have to make sense in the larger scheme of our finances, but the primary criteria will be finding the right place for us to live.

My Business

I started my business just over three years ago, and the place it occupies in our finances shares some characteristics with a home. While it does provide my income, it also provides me with flexibility (as the worker) and control (as the business owner) – enormously valuable qualitative factors, as 2020 demonstrated time and again.


Our investment accounts consist of two taxable brokerage accounts and two Roth IRAs – one for each of us. These accounts are evenly spread between Fidelity and Schwab since they are large investment firms that provide cheap and plentiful investment options. Finding a brokerage firm that doesn’t charge commissions and offers very low-cost index funds is an absolute necessity in my opinion.

We also have a 529 college savings account for our 2-year-old daughter, but it is not well-funded. This will (hopefully) increase as our incomes do over the next 5 years, but it is a few steps down the priority list. Going forward, I will create a business retirement account in the next year or so (as my business grows), and if my wife finds a job where there is an employer match for 401(k) or 403(b) contributions, that will be a priority to set up as well. Both of those changes will once again automate our retirement savings, which will be a significant improvement.

We focus on funding our Roth IRAs first each year because I’m confident – although not at all certain – that tax rates will be the same, or higher, three or more decades from now when we tap our retirement accounts. And given our current low tax bracket, it makes all the sense in the world to utilize Roth accounts as much as we can. As a result of focusing on Roth contributions (and opting for Roth 401(k) contributions when I worked in the corporate world, plus the long time my Roth IRA has been open, our Roth IRAs are a little over 50% of our net worth.

So, how do I actually invest the money we have saved? My focus is on choosing the asset classes (large US stocks, emerging market stocks, US Treasury bonds, real estate, etc.) to invest in, writing down the target asset allocation, and then sticking to those targets. I utilize cheap index funds for almost every investment in order to invest in a diversified mix of assets and take what the market will give me over the long term. We own zero individual stocks; I am not and have never been a stock-picker.

While the mix of investments is diversified, it is also very aggressive. Across the Roth IRAs and brokerage accounts, we own zero bonds or bond funds. An all-stock portfolio can be very volatile, and not something that works for everyone. Since time horizons drive how I look at investments, the lack of any short-term need for the money we have invested means I could take a very long-term view amid the carnage in early 2020. Of course, over time our goals will evolve and if the time horizon for our non-retirement money changes, then the way it is invested will also change accordingly.

Finally, I also have a steam valve account, which is a small pot of money (less than 5% of investments) that sits outside the rule-based investments for our larger portfolio. Having a small account to play with makes it more likely that I’ll leave the rest of our investments alone so they can do their long-term-growth thing. Not everyone needs or wants this sort of arrangement, and how often someone trades is completely individual. Personally, day trading holds no appeal; I made a grand total of two moves in 2020, and don’t have any plans to make another move anytime soon.


I cannot recommend anyone take what I’ve written here and blindly follow it as some sort of recipe for success. Everyone manages their finances differently, and that’s how it should be. The key is to find a system that works for you – then automate everything you can, and write down rules for the portions that you can’t automate.

Current Events

Coronavirus Stimulus 2.0 (Kitces): This is still a moving target given the ongoing political battles over stimulus payments and other items, but this can’t be beat for a detailed overview of the new stimulus bill. The size of stimulus payments may increase from $600 to $2,000, but details on the mechanics of getting they payments can be found on the IRS website.

Biden’s Tax Plan (Lexology): The most concise, yet detailed, overview of the Biden tax plan that I’ve seen so far. The section on individual taxes is below the business tax items. Alternatively, if you like pictures here’s a chart showing current and proposed tax brackets, which comes from a much lengthier piece on the proposals and planning implications.

What I Learned From Reading Over A Thousand Letters To Santa (Defector): A gut-wrenching piece that looks at letters to Santa in 2020. Well worth your time (by all rights it should be the “Just Read This” article), but consider grabbing a tissue first.

Financial Products

Asset Destruction (Blair Belle Curve): Blair’s takedown of sales pitches for life insurance products is fantastic. There is no one-size-fits-all rule, but I completely agree with her view that a term life insurance policy is all that most people need.

Fidelity Charitable Ends DAF Account Minimums (ThinkAdvisor): Just as the cost of trading has recently dropped across the major brokerage firms, so has the minimum needed to open a charitable investment account. Fidelity, Schwab and others have reduced the initial deposit needed to open a Donor Advised Fund, or DAF, creating a very interesting opportunity for charitably-inclined investors who don’t have $5,000 just sitting around. DAFs are very interesting accounts that enable current tax benefits while keeping open your options to grow the money and choose exactly where to donate it later on.

OTC Markets Group Welcomes the Bitwise 10 Crypto Index Fund (BITW) to OTCQX (Yahoo): There is now a tradeable ETF that provides exposure to cryptocurrencies. However, among the myriad things to understand before buying such a product is the massive gap between NAV and actual trading price; as of December 28, 2020 a share the ETF cost more than three times the actual value of the underlying assets.

Macroeconomic Views

The Wages of Fear (Convexity Maven): “The high-end for a COVID relief package is tagged at $3Tn, and the notion of forgiving all college debt would cost $1.68Tn. But this is my bar bill at the club compared to the funding gap to support Social Security.”

The Sharpe Ratio Broke Investors’ Brains (Institutional Investor): “Most practitioners fail to understand that the Sharpe ratio is intended for one’s whole portfolio… Looking at the individual Sharpe ratios of managers or investments inside a portfolio doesn’t make sense.”

Investing in the Intangible Economy (Sparkline Capital): “The rise of the intangible economy has changed the rules of investing. Intangible assets comprise almost half of the capital stock and their importance grows steadily each year. Their omission from financial statements distorts our perception of value at the levels of market, country, industry and company.”

Coming Into Focus (Howard Marks): “In my view, the low interest rates represent the dominant characteristic of the current financial environment, creating the dominant consideration for investors: the lowest prospective returns in history.”

Happy holidays! Claire really enjoyed Christmas but we had to migrate the ornaments towards the top of the tree so they were out of reach.


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