This Nurse is Hella Boring- Ep. 12
Simple Ways to Invest: My Investment Philosophy
Let's talk about investing y'all. With every risk, there is the possibility of a reward. The same is true when it comes to investing.
Yes, there's a risk in investing. But I firmly believe it's the path to building wealth.
In this post, I'm going to break down my investment philosophy. I hope you enjoy the simple approach. Make sure you listen to episode 12 to hear the full story about how I got started on my wealth-building journey.
I have to add this disclaimer though. I am not a financial advisor. On the podcast and in this article, I am sharing my personal story. What I say is not meant to be taken as financial advice. Before you begin investing, consult a professional if you need help. You can also talk to the person at your job who runs your retirement plan.
I cannot say that my path is perfect. But I hope by sharing my story, you will realize it's vital to take action. Investing is taking risks, but not investing is a great risk too.
Ok now that that's out of the way, let's dive in.
Don't follow the trends
My inspiration for this article came to me a few weeks ago. A friend asked me how I felt about investing in cannabis or Bitcoin. The truth is, my friends, ask me often what do I think about investing in things like Nike because of Colin Kaepernick or cryptocurrency, foreign exchange, or whatever's hot at the time.
Our investment talks usually come up when the news is also talking about investing.
But I don't invest based on the news. As you get to know me, you might find that I am boring when it comes to my investments. But my simple strategy works. Plenty of people with a simple investment strategy like mine have built significant wealth.
Strive to Beat Inflation
It’s true some people see investing as gambling. But you can’t just leave your money in a bank account. In a basic savings account, you're not even getting a 1% interest rate, and inflation rises at 3%. So in this situation, you are actually losing money.
Women especially like to hoard money in bank accounts or not do anything with it. That money then starts losing value, because it's not keeping up with the rate of inflation. And so that's not safe. The same goes for if you keep cash in your mattress. Your mattress can burn.
So make the decision to invest and learn more about investing so you make informed investment decisions. Not sure how to get started? Consider paying for investment advice.
Avoid Costly Mistakes
Investment advice does not have to be expensive. There are a lot of fee-only advisors out there. Just make sure that the person is a fiduciary, meaning that your best interest has to be considered before they recommend any investment. You guys I bet you think this is common sense, but it’s not. Always ask if the person is a fiduciary.
Also, XY Planning Network is an awesome resource. Regardless of your age or assets, they have the investment advisors that are dedicated to working for your best interests. So I would definitely check them out.
If you're looking for an advisor, Hilary Hendershott was my investment advisor. She does require a minimum amount of investments, but she's awesome. She is somebody that you can reach out to.
Start with your job
Let me tell you a story about a guy who was working at the same job since he was in his 20's. He didn't immediately contribute to his employer's retirement plan, which is unfortunate. Investing just 10% of his income would have allowed him to retire ten years ago. Since he did not take immediate action, he couldn't take advantage of time and compound interest. So, he's still working today.
Stories like his drive me crazy.
I have to admit I have not always been great at investing. I changed my approach to investing in 2017. After paying off my debt, I wanted to become a better investor. Finally, I was out of school, working a steady job, and receiving a consistent paycheck. So it was the perfect time to level up my investing.
What is my investment philosophy?
Today, I am in a higher tax bracket. I am a high-income earner working as a nurse in the San Francisco Bay Area. So our salaries are pretty high. And in California, we have hella taxes. Therefore, everything that I do is based on trying to minimize the taxes I pay to the IRS because I don't like messing with the IRS.
For me, my investment philosophy is either I'm going to pay myself, or I am going to pay the IRS. Ten times out of ten, I will always choose to pay myself first.
Contribute to the Max
RETIREMENT PLAN 1: 403(B)
I max out my 403(b), which is equivalent to a 401k. As of 2019, the max I can contribute to my retirement plan is $19,000 year. My retirement money is currently invested in Index Funds with very low fees.
One of my index funds follows the S&P 500, a group of top U.S. companies that are publicly traded on the stock market. If you guys aren't sure how your funds are invested in your employer retirement account, I have an amazing resource for you. First, I encourage you to reach out to a professional financial advisor.
Secondly, you can also do an analysis with Blooom.
Blooom breaks down how much you're paying in fees and shows if there are ways for you to save more. Best of all, the analysis is free. If you sign up, the fee for Blooom is less than what you pay for a month of Netflix. It’s like $10 a month to have Blooom manage your investments.
I've seen people run an analysis and found ways to save thousands of dollars in fees. You can also earn more by changing your retirement allocations. So this service is like a drop in the bucket and eventually pays for itself.
Click Image to learn more information.
RETIREMENT PLAN 2: IRAS
In addition to my 403(b), I fully fund a traditional IRA. My account is with Vanguard. I use Vanguard because they are discount brokerage company meaning that their fees are lower than most companies out there. Plus they're investor-owned, which means they don't have shareholders in charge that don’t have your best interest at heart and often drive up the fees.
In a traditional IRA, you can contribute up to $6,000 a year. In the past two years, I contributed $5,500 because that was the previous max amount before the 2018 tax legislation passed.
Then, once a year I convert the money in my traditional IRA into a Roth IRA. Converting money from a traditional IRA to a Roth IRA is called creating a backdoor Roth IRA. A backdoor Roth is apart of my investment strategy because of the differences between a traditional IRA and a Roth IRA.
A traditional IRA is an account where you invest pre-tax dollars, meaning that you contribute to the IRA money from your paycheck before taxes are taken out. Then, at the end of the year, you get a deduction when you file your taxes. On the other hand, with a Roth IRA, I wouldn’t get the deduction on my taxes at the end of the year. But when I go to pull that money out at retirement, I don't have to pay any taxes.
Technically, I don't meet the income requirements to contribute to a Roth. So the only reason I can invest in a Roth IRA is thanks to the backdoor IRA strategy, a perfectly legal loophole.
In 2019, the income limit for contributing to a Roth IRA is $122,000. So if you make more than $122,000 a year, you can't directly fund a Roth IRA. But if you make less than that, as a single person, you can contribute to a Roth.
The contribution limits are subject to change each year so make sure to do your research if you want to fund yours to the max.
RETIREMENT PLAN 3: 457 ACCOUNT
I'm also excited to say that since I am now a benefitted employee where I was previously per diem, I am now able to contribute to a 457 account. This is a deferred compensation account. The contributions I make, reduce my taxable income, in the same way, that my 403(b) lowers my taxable income.
So, in my 403(b), I able to contribute up to $19,000. Then I can also contribute up to $19,000 into my 457 account. I just opened my 457, but I plan to contribute each paycheck until the end of the year. Next year, my goal is to max out my 457 too.
The reason why this account is the bomb you guys is because this is an account that many folks in the FIRE movement use to save for their early retirement. When you quit your job you can take your 457 with you.
Whatever reason I decide to leave my current hospital, I can have access to those funds, penalty-free. A 457 account is not like most retirement accounts. I don’t have to wait until the typical retirement withdrawal age of 59 and a half to spend this money. However, I do have to pay taxes on the money at the time of withdrawal.
People in the FIRE movement who manage to retire early, use 457 accounts as a tool to save so they have money they can access outside of retirement funds. But until I can retire early, the account is reducing my taxable income.
I get to pay less in taxes and that is my primary reason for investing in these two retirement accounts. I'm not trying to play with the IRS, but I am saving for myself and my future.
So just to recap, I have three retirement accounts that I am maxing out. I contribute $19,000 to my 403b, I will start to contribute $19,000 to my 457 in 2020, and then $6,000 is contributed to my traditional IRA and converted to a Roth IRA.
College Savings Plan
Every year I also contribute to my daughters’ college funds. I'm currently doing my own investment experiment. For my oldest daughter, I invested in a 529 plan through Vanguard. So I'm just going to leave the money there.
But for my baby, I just opened her529 with a company called CollegeBacker. This is a different user and mobile-friendly platform which allows you to collect money from others (family, friends) through crowdfunding.
Vanguard also has this capability but it’s a bit funky.
I am waiting to see how they perform because they have different fee structures. I promise to keep you guys posted.
Stock Up
When it comes to my stocks, I am hella boring. As I said before, I invest in low-cost index funds. They're not in crypto or risky stocks. My investment strategy is based on automatic contributions to boring stocks of companies with household names like Apple and Amazon.
Nevertheless, the index funds are building my net worth. Since I am not planning to touch this money for a very long time. My portfolios are mixed, but mostly include stocks, less than 10% in bonds, and there are equities too.
Getting started in investing, is what most people miss. But investing can be simple. Get started by investing in one thing, consistently. Investing regularly and as much as possible is a core principle in the FIRE community.
Some members of the FIRE movement save and invest as much as 50% of their income. That's definitely my goal. For now, I try to keep the amount that I invest as high as possible. But you don't even have to do that. You should just strive to invest more than you did last year.
Set a goal to save and invest more.
Once you put your money into the market, don't touch it. You're investing in your future. If you're not close to retirement age, you don't have to worry about the ups and downs of the market. If you are closer to retirement age, seek financial advice, but you can still invest. A professional can give you advice specific to your situation and your retirement funds.
What Else to Do
Make sure that your retirement funds aren't sitting in basically a savings account. Check your statement and confirm your funds are being invested.
If you're risk-averse, remember, there are risks to everything. If your money is sitting in a basic savings account, chances are, your money is not growing more than rising inflation. So you're losing money. And if you're scared, just try to increase your investments incrementally, and take time to learn more about investing.
What you can’t do, is let fear control your lives. We have to do better. If you're scared, talk to an investment advisor. Also, start surrounding yourself with people who invest regularly.
Read blogs, listen to podcasts, or chat with people who are on the path to retire early or already retired.
The bottom line is, your money has to be working for you. That means it needs to be invested. Compound interest is the eighth wonder of the world. Over time you will start to see your money grow. You might even start to get excited about taking a small amount of your income to do more investing.
What’s Next
Personally, I want to get back into real estate investing. So I invested in a pro membership to Bigger Pockets, which is an excellent real estate website for beginners and pros. On their site, I’m learning about different kinds of investments you can do. For example, you can be a hard money lender, invest in tax liens, or be a landlord. There are so many opportunities, and you don't have to have a lot of money to get started.
Also, I'm excited to learn about trading. I want to do more stock trading, like day trading. I believe learning about this will help me enhance my investment knowledge. And I'm looking forward to working with people that I know in the personal finance space like Tela Holcomb and Teri Ijemoa.
So stay tuned to the blog and podcast to hear more about my adventures and learning. So you guys, in a nutshell, that's my investment philosophy. I hope that this inspires you to take action or at the very least push you to give investing more thought. Come up with a plan on how you can improve your investments.
Do you have any questions about investing? Make sure to hit me up via email or join the Nurses on the FIRE Facebook group.
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The way to fast track wealth building is through investing. Oftentimes investing only comes in the conversation when people are asking about something they heard on the news; cannabis, cryptocurrency or NIKE when the market crashes. The truth average millionaire has a pretty basic investment approach. This has been the investment route I have taken. Learn how I invest, it's hella boring ya'll.
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TRANSCRIPT:
Naseema McElroy: 05:01 All right, so we're going to get into my investment philosophy and how I invest my money. And my inspiration for this episode is a couple of weeks ago, a friend asked me how I felt about investing in cannabis or bitcoin or something. I can't even remember. But I was like, you know what? I need to talk more about how I invest. And truth be told. I'm asked often about how I feel in investing in things like Nike, around the Colin Kaepernick thing about cryptocurrency, Forex, all these different things. And it usually comes up when there's some kind of investment thing in the news. And so, what I really want to emphasize is that I'm probably really boring when it comes to my investments and I'm going to share how, and then what really got me thinking is that the person that asked the question happened working at the same job since he was in his twenties and had he pulled some triggers from the time that he started working, like if he would have like invested even 10% of his income and the accounts that he has access to on top of the pension that he's already receiving, he could have retired 10 years ago.
Naseema McElroy: 06:20 And it drives me crazy because he still has not gotten to his retirement stuff together even though like I'm begging him and I even offer advice, I'm like I'll sit down and help you. But anyway, you know, know better, you do better. So, I have to admit also that I have not always been graded investing. I recently just learned about investing and changed my approach to investing in 2017 after paying off my debt. Initially, when I started on my journey, it was to become a better investor because for the first time I was out of school, I was working a steady job. I had a steady paycheck and I was like, finally, I have time to sit down and learn about investing. But then that's when I discover that a lot of the keys to my financial success wasn't that I wasn't investing.
Naseema McElroy: 07:18 It was that I had this tremendous debt load and I wasn't understanding where my money was going. And so when I took those two and a half years to pay down my debt and get my finances basically at ground zero in 2017 I was like, okay, now it's time to really tackle this investing thing. And then honestly, during that time I was also scared to invest when I first kind of step foot in the investment space. I thought that real estate investing was the way to go because I don't know, in my family and traditionally in a lot of black families that I know, the only form of investing that we typically do is in real estate. And that's been what I was
surrounded myself with. That's all I know. So when I was in Grad School in 2014, I bought my first rental property and I bought a couple more properties as to where I had to, well my primary residence in Inglewood, California, two property, a duplex in LA, two single family houses as a rental in North Carolina and single family rental in Atlanta and the suburbs of Atlanta.
Naseema McElroy: 08:40 I'm bugging y'all, I totally said 2014 was when I started investing. I meant 2004 is when I was in graduate school and I bought that first investment property, which was my primary residence. Then the subsequent investment properties in those properties were purchased between 2005 and 2007 I believe. And then you guys know what happened, the market crash, which led me to have two foreclosures, two short sales and then caused me to ultimately file for bankruptcy. And so it put me at a little, an uneasy place about investing. And then while I was paying off my debt, because you know I had so much debt and I was using the Dave Ramsey approach, which said that you don't invest in dad while you're in debt. I totally just shut off the investing part of my brain. Even though before then I had been investing 10% of my check into retirement funds.
Naseema McElroy: 09:53 But when I started using the Dave Ramsey method, I stopped my investing. So what changed is that I said I was introduced to the FIRE movement in 2017 thanks to Jamila Souffrant and the ChooseFI Podcast and I was exposed to JL Collins at that point who wrote a book The Simple Path to Wealth and I tore that book up and it gave me the confidence to start investing around that time. Also, like in the last podcast episode, I shared that I invested in myself and my own personal financial advice. So, I was in Hilary Hendershott's Wealth Mastermind in 2018 and that helped me to establish my investment philosophy as well. But I had to come to an understanding that investing is the key to financial freedom and I know that people are scared to invest and this is something that's common. I know amongst my friends and family just it's about based in fear and just because a lot of people around us aren't investing and some of us look at it as like gambling, but it's not the same thing.
Naseema McElroy: 11:14 What you have to keep in mind is that everything that you do is a risk. There's a risk with keeping cash in your bank account because typically you're not even getting a 1% interest rate and inflation rises at 3% so it was a risk because you're losing money and women especially like to hoard money in bank accounts and not do anything with it. And that money is losing value because it's, you know, not even keeping up with the rate of inflation. And so that's not safe. And then like if you like keep cash in your mattress, your mattress can burn if you keep cash in a safe in your house. I have this one friend, he was a barber, so he has a lot of cash on hand and I can't tell you over the years that I've known him, how many times someone who's been really close to him has stolen tens of thousands of dollars from him.
Naseema McElroy: 12:12 So, talk about risk you guys. It is not a game like you take risks no matter which approach that you take. And so yes, there's risks in investing, but it's truly the path to building wealth. And there's multiple ways that you can invest and you can take less risky paths to wealth building, but you have to understand that there has to be some kind of risk involved. And like I said, making a choice not to invest is also a risk. So let me just put this disclaimer out there that none of this that I'm sharing with you can be taken as investment advice. I am not an investment advisor. All I am doing is showing you what my investment philosophy is just so that you can understand how I can invest and it can give you something to share with an investment advisor. I always recommend that you reach out to an investment advisor, talk to your person at your job that is running your retirement plan. So on and so forth. Seek professional help and advice when applying this to your own life. Alright, so what is my investment philosophy? Okay, so you guys know I am in a higher tax bracket. I am a high-income earner for unregistered nurse 'cause I work in the San Francisco Bay area. So our salaries are pretty high. And in California, we have hell taxes. So everything that I do is based on trying to minimize the taxes that I owe to the IRS because I don't like messing with the IRS. Okay. I don't mess with them people. Okay. 'Cause they got ways to just come after your money so we don't play games with it. So, my investment philosophy is like either I'm going to pay myself or I am going to be paying the IRS and 10 out of 10 times I want to pay myself.
Naseema McElroy: 14:25 So number one, I max out my 403B, which is an equivalent to a 401k. But I work in a government entity, kind of like hospital classification, which right now in 2019 the max is $19,000 a year. My funds are currently invested in index fund, with low fees within my retirement fund, and so I invest in that and it's the S and P. It's an index fund that tracks the S and P 500 and like I said, it's low cost. Now, if you guys aren't sure how your funds are invested in your retirement funds at work, I have an amazing resource for you. I always encourage you, again to reach out to your investment advisor, but I also encourage you to do the due diligence in the form of running a Blooom analysis. And you can do that. Remember that Blooom is spelled with three o's by going to financiallyintentional.com/blooom with the three o's.
Naseema McElroy: 15:39 Okay? It's like a blooming flower, but with three o's and they can do a free analysis for you, which breaks down how your money is invested, how much you're paying in fees, how much could you be saving if you were to distribute your retirement account differently, then you can take that free analysis and talk to your investment advisor and see how you can better maximize, reduce your fees and increase your, how much you can earn on your investments or you can have Blooom do it automatically through your investment accounts. And to do that, they charge less than Netflix 'cause Netflix fees went up. So it's like $10 a month to have Blooom manage your investments. And when I've seen people run this analysis, it saves them multiple tens, hundreds of thousands of dollars, or they can earn hundreds, save thousands of dollars in their fees and they can gain multiple thousands, hundreds of thousands in their retirement funds if they change their retirement allocations. And so, this service is like a drop in the bucket. It more than pays for itself. So I highly recommend that you go over to a financiallyintentional.com/blooom and run an analysis at the very least your retirement accounts, even if you don't plan on using their services. It gives you some context on how your retirement funds are being allocated.
Hey there I’m Naseema
My dream is for everyone to know that financial independence is attainable with a little intentionality. Learn how I can help you finally break the cycle of living paycheck to paycheck.
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