21 Jan 2021 How Emily and I Invest Our Money (and How We Got to Beacon)

Over the past year there’s been a spate of “How I invest my money” articles where a prominent financial advisor discusses what he or she actually does with his or her own money. It’s a discussion that’s long overdue and was started by Josh Brown, CEO of Ritholtz Wealth Management. As financial advisors, none of us at Beacon Wealthcare take lightly what it means for a client to share their full financial picture. They are being vulnerable and we don’t think it’s too much to ask that we be comfortable doing the same.

So, without further ado, here’s what mine and Emily’s financial life looks like.

Cash accounts

Emily and I take a bucket approach to our cash accounts. Our emergency fund resides in an online-only, high-yield savings account. Right now, “high-yield” means ~.5%, but it’s still better than the point-zero-nothing that most major banks offer.

The rest of our accounts are at our local credit union. Emily and I have a checking account which we keep relatively low, plus three savings accounts. All of our accounts are in joint name and each of the three savings account serves a distinct purpose: One is where we set money aside for Jack and Gwen’s school tuition, another is earmarked for vacations, and the last is where we set money aside for our quarterly tax payments. We don’t do any tax withholding so a certain percentage of each paycheck goes here. (This is a recent change due to becoming part-owner of Beacon. If it doesn’t work out well, we’ll go back to normal withholding.)

Home

We’ve lived in our current home since 2012 and have done some renovations, both small and large, since moving in. We aren’t sure if it’s our forever home, so from here on out any improvements will be done with an eye towards how it will impact re-sale value. You may remember a brief I wrote about a year ago that discussed our decision to refinance and how much it was saving us on a monthly basis. Initially, we decided to use the savings to pay the mortgage down faster. Well, we’ve since changed our mind. After running the numbers, the benefits of investing over paying off debt at 3% were too overwhelming. So, we aren’t paying extra on our mortgage anymore.

529s

Paying for college, within reason, is a priority for me and Emily, so we save each month to North Carolina 529 accounts and to keep things simple we use the Age-Based Aggressive Track. While there’s no incentive to use the NC plan since they no longer offer a state income-income tax deduction, we are comfortable with it because it’s a low-cost plan and fees are the second most important consideration. The first? Whether or not your state gives you a tax-deduction for using their plan.

Retirement accounts

All our retirement accounts are custodied at Schwab, same as our clients, except for our 401(k) plan. My Roth IRA is invested 90% stocks and 10% bonds, using the exact same investments as my clients. My 401(k) is invested 100% in stocks, again, using the same exact funds. They are aggressive, but I’m comfortable with the risk.

Here’s where things get a little “non-traditional” by personal finance standards: My Traditional IRA is all in cash and has been for the past three years. In fact, it’s what Emily and I lived off of for two years when we first joined Beacon.

Prior to being at Beacon, I worked for a local financial planning firm for six years and for the majority of it was quite content. I made a decent living and for a time even considered buying into the practice. However, over time I realized Beacon was where I wanted to spend the rest of my career, but Emily and I didn’t have much liquid savings; everything we had saved was in retirement accounts. Beacon wasn’t offering a salary at the time so to make it happen would require using our retirement accounts which, by my “worst-case” calculations, would last us about two years. Best case, if a few clients came with me, I envisioned a 60%-70% pay cut. So, I was stuck where I was.

Everything I knew about personal finance told me tapping retirement funds wasn’t an option but, after a lot of thought, three realizations finally got me comfortable with it. First, I need to be passionate about my work and to believe in the advice I am giving my clients, and Beacon promised that. Second, I told myself the money was being used to “buy” my own business. It wasn’t frivolous. It was risky. But it wasn’t frivolous. Third, Emily and I created a financial plan. We acted like our retirement savings didn’t exist and that it took us five years to start saving again. Assuming we were aggressive with our savings after that point and the “business” I was building turned into something, it looked like we would be alright.

The experience moving to Beacon, building a business, using retirement funds to make ends meet, taught me a lot about personal finance and how to advise my clients. Too much to write here, but in summary: financial decisions don’t always make sense. Use retirement funds to live off of in your mid-30’s? Are you crazy? Maybe, but for me and Emily it worked because it restored my passion for financial planning and allowed me to look my clients in the eye again. Thankfully, it has provided a solid return on investment, too.

Which leads me to our largest asset.

Beacon Wealthcare, LLC

As we announced last week, Jared, Geoff and I recently purchased Beacon Wealthcare from Sam Bass which makes my interest in the business the largest asset Emily and I have. The process of valuing the business, in particular, valuing my portion of it, provided Emily and I with validation that we made the right decision, that the risk was worth it. (It also allowed me to breathe a sigh of relief that I hadn’t screwed it all up!)

We’re excited about the future and have a tremendous amount of respect for what Sam, and Patty, of course, have built. Our goals are to continue to provide financial leadership to our clients, impact the community, and take really good care of the people that work for us. As Jared said last week, we consider this sacred work.

Miscellaneous

We have a couple different life insurance policies, all term and with different coverage periods. Some will lapse in 20 years, some in 25, and some in 30. There’s also disability insurance which protects my income. If, for some health reason, I can’t work anymore, we’re ok. We also have an old estate plan that we will update. In fact, we have a meeting with an estate attorney next week. Don’t tell Gwen, but there’s no mention of her in our current documents!

That about covers it, but if you have more questions don’t hesitate to reach out to me. You’ll find, though every situation is unique, that what I recommend for my clients is what I do for myself.

At Beacon Wealthcare, we believe that matters.