The Market is Melting

Warren Buffett

Hi everyone - in this post, I want to share why I invest and how I approach this process in a thoughtful way.

These thoughts and strategies are what keep me grounded while seeing my brokerage account lose tens of thousands within weeks - I hope they can offer you the same caliber of support and level-headedness as they do me.

In this post, we’ll cover:

• The only reason I invest my money

• How I deploy funds for the long-term

• What else I’m doing to build long-term wealth

• How we’re going to begin shifting our focus

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The Only Reason I Invest My Money:

That’s the simple answer. It’s probably an answer we all might have heard at some point in our lives - but, it’s true. I remember working at Amedisys (AMED) asking myself “Is this really it? This is what I’ll do for the next 40 years?”

I’ve always been very focused on investing - after being introduced to the idea once the waves of 2008’s recession rippled through my family’s lives. But it wasn’t until I began working full-time out of college that I truly understood the value of money and just how powerful it can be.

Upon graduation, I had to build my first budget.

I’ve been in Dave Ramsey’s tribe for a while, so I’ve frequently used his EveryDollar budget builder. This allows me to think meticulously about how much of my post-tax income went toward my rent, my water bill, my home-cooked meals, my car payment, and other expenses.

Only after I had a bird’s-eye view of exactly where every dollar was going - did I understand money.

I built a model in Excel that mapped out the next 10 years of my life - including major financial goals I had set for myself.

Only after I built this model - did I begin to see exactly how much picking up Chick-Fil-A on my way home from work was costing me annually.

Only after I built this model - did I begin to see exactly how much my $440 / month car payment would cost me over the coming years.

Only after I built this model - did I begin to truly understand the most important lesson with money I’ve learned thus far.

Spend your money on what makes you happy - not other people. 

I sold my $440 / month car and bought a beater. It was a 15-year-old sedan I paid ~$7,000 for in cash. But, considering I was saving more than $500 / month (insurance premiums dropped dramatically), I now had this awesome feeling inside of my bones knowing I have no excuse not to retire a millionaire investing through a Roth IRA.

We’ll get to that + everything else I’m doing in a moment. But the feeling of security I had at this point in my life was insane. Despite driving a junker an hour to and from work everyday, I was really happy.

The end goal (and I italicize that for a reason) is to stop trading time for money. We all know we’ll get there in the end - it’s called retirement. We’re usually over the age of 60 because it’s taken us several decades to reach this financial triumph.

Knowing my end goal was now guaranteed by just selling my car (shown below) - it’s time to work toward shifting the time frame.

Age: 25

Retirement Age: 65

Amount in Investments: $0

Amount Invested per Month: $500

Average Annual Return: 8%

Estimated Retirement Savings in 40 Years: $1,745,502

Estimated Taxes Owed: $0

Perfect, I’ll retire a millionaire in 40 years.

Now, how do I make that 35 years? 25 years? 15 years?

If you haven’t heard of it yet, there’s this really interesting concept when spending your retirement savings called the 4% rule. Essentially, if you withdraw 4% of your entire portfolio’s value every year to live off of - you’ll never run out of money.

Sounds too good to be true. Never is a strong word.

Generally speaking, the stock market increases by ~8% annually (averaged out over several years - shown below), so if you’re only skimming 4% off the top to live off of.. you’re set.

Easy enough.

Let’s do some math and figure out the true value I need in my retirement savings in order to comfortably live off of 4% annually.

Remember that budget I built?

Yep. I used it exactly for this. As a 25-year-old living in a world where every experience is shared and bragged about on Instagram, Snapchat, and TikTok - it’s hard looking in the mirror and coming to the realization of choosing a different path.

Right now, I can live comfortably spending $3,000 / month.

Before you go up in arms, remember, I’m a 25 year old with no kids that has no immense desire to spend hundreds of dollars at bars, restaurants, or traveling. Beyond seeing family, I haven’t taken a vacation trip in 5 years.

Spend your money on what makes you happy - not other people.

$3,000 / month equates to $36,000 / year.

$36,000 / year is 4% of $900,000. I’m not saying I’ll be able to comfortably live off of $3,000 / month forever, but I think it’s a fair start considering by the time I retire in 40 years I’ll have my house paid off and be entirely debt free.

I’ve got my budget, my retirement savings goal, and a spending strategy enabling comfortable living for when I reach it. Living so comfortable that I won’t be forced to trade time for money anymore.

Now the question becomes “How exactly do we get there?”

How I Deploy My Money for the Long-Term:

This part isn’t too complicated - it’s just a ladder.

This ladder prioritizes free money, no taxes, and growth - in that order.

Starting at the first rung of our ladder, free money.

For some people, this sounds like a gimmick, but it’s certainly out there - especially if you work for a large corporation. Big employers tend to offer a retirement savings vehicle called a 401(k) plan.

Here’s a link to a deeper explanation as to what a 401(k) plan really is.

Generally speaking, a 401(k) plan is a retirement investing vehicle that encourages employee participants to invest for the long term. Similar to having a brokerage account on Public.com, this a brokerage account managed by your employer (usually they sub out the work to a Merrill Lynch or Fidelity) that you contribute money toward directly from your paycheck.

When I worked at Amedisys (AMED) I was tossing a few hundred per month toward mine.

What makes this rung of the ladder first is, again, the free money aspect. Usually, employers will match a predetermined percent of your annual salary. For example, Amedisys matched 4%.

I was making about $70K there - so let’s do the math together.

4% of $70,000 is $2,800 in free money added to my retirement account every single year - just for contributing money toward my own retirement account.

Age: 25

Retirement Age: 65

Amount in Investments: $0

Amount Invested per Month: $108

Average Annual Return: 8%

Estimated Retirement Savings in 40 Years: $377,029

By just contributing toward my own retirement through my employer’s 401(k) plan - over my lifetime I’d receive $377,029 in free money. Money I never contributed myself. Money that was simply a part of my “match.”

Mind you, this is assuming I stay exactly at a $70,000 salary throughout my entire career. But for illustrative purposes, this example rings loud as to why it’s the first rung on our ladder.

Next, we have the second rung of the ladder - our own retirement account.

This is what I was alluding to in the first section of this article. The Roth Individual Retirement Account.

Here’s a link with more details.

This account is pretty straight forward - with a few rules, that if followed, will allow anyone to retire a millionaire over time.

1. Must make less than $140K in annual taxable income

2. Must not contribute more than $6,000 per year toward it

3. Cannot withdraw the funds until 59.5 years of age

If you’re comfortable with and meet the above criteria - you’re in.

Since learning about the wonderful world of Roth retirement investing from Dave Ramsey in high school, I’ve subbed out my retirement investing to Betterment. In high school, I wasn’t too sure as to what I was supposed to be investing into - which is why I chose them.

They’re a robo-advisor - so they select the best investments, tax loss harvest, and conduct other strategies to compound my money over time.

By contributing $500 / month toward my Roth Individual Retirement Account, I’ll retire with $1.7 million in retirement savings by the time I turn 65 years old. But remember, this is my own money - not free money - which is why it’s the second rung on my ladder.

The best part?

All $1.7 million of that money is completely tax free. Unlike the 401(k) plan at work, this retirement account is not taxed. Just part of its perks.

Finally, let’s talk about the third rung - the one that begins to close the “total time to reach retirement” gap.

This is the everyday, not tax-efficient, money.

This is your traditional brokerage account on Public or Fidelity - wiring money from your bank account to an app or website where the funds will be strategically deployed into ETFs or individual stocks.

This account has one purpose and one purpose only - strategically compounding wealth.

Think about it - you’ve already pulled all of the right levers to retire a millionaire in your old age. Now, in your young age, it’s time to invest aggressively into companies and ideas you truly believe in. By doing so correctly, you might shave years (or decades) off the time it takes for you to reach your “retirement” goal - $900K in my case.

This is the few hundred (or few thousand depending on your financial situation) you set aside every month to invest into long-term winners like Affirm (AFRM), Amplitude (AMPL), Upstart (UPST), or Cloudflare (NET) - knowing all of them will be worth multiples more in the coming 5 years.

This is the account I share with you all in my Google Sheets.

This is my “close the gap on $900,000 as fast as possible” account. Since COVID began in early-2020, the account has more than doubled in size - allowing me to skip several years (or even decades) of slow Roth IRA investing.

This rung is the most thoughtful and strategic - as people do not understand what they’re actually doing here. Most people think they’re buying numbers on a computer screen or moving averages on a stock chart.

Think about it like this:

Since I began creating personal finance and investing content online, I’ve been given the opportunity to personally invest into budding startups. Before these opportunities presented themselves to me, I had a very hard time truly understanding the long-term value of a business.

For example, a company I’m an early-investor in is Modern Mammals. They’re a haircare product for men who don’t want to use chemical-rich shampoos to cleanse their luscious locks.

The company was launched about a year ago and eclipsed $1 million in sales in the first 12 months - with clear peaks and valleys tied to an uptick in strategic marketing spend.

I was able to invest into this company with a “market capitalization” of $4.5 million. After sitting down with their CEO and talking through his strategy for growing revenue, brick and mortar distribution, as well as direct to consumer acceleration through their awesome website - I was confident in this company’s future.

I did some research around the market he’s operating in, and after seeing them being the first company to appear on Google when searching for “men alternative shampoo,” and being named The Best Shampoo Alternative by GQ - I was convinced.

Of course, I did more research into the men’s personal care market ($76B TAM growing +6% CAGR) as well as their “competitors” (Dr. Squatch, Everyman Jack, Duke Cannon, Cremo, etc).

Think about what I just described - looked at their financials, listened to what their management team had to say about future growth levers, analyzed their total addressable market, and considered the company’s respective popularity / market share within it. These are the same steps I take when analyzing a publicly traded company - because it’s a business.

Unfortunately, when people begin to build the third rung on the ladder they get caught up in stock prices and moving average - and forget about what they’re doing. They’re buying equity ownership in a business.

Let that always be your north star.

Buy businesses. Forget the numbers on your computer screen. Think about your ownership in the company.

Beyond buying businesses, I’m doing a few other things to compound my wealth in my young age.

What Else I’m Doing to Build Long-Term Wealth:

This entire sub-section of my portfolio also falls into the third rung of my ladder - closing the gap as quickly as possible through diversified and thoughtful investments.

Keeping things relatively short, considering there’s not much to talk about here - I’m mainly doing 3 things to achieve this goal.

1. Entrepreneurship

This is, in my opinion, the fastest way to grow wealth - build it yourself.

Start that side hustle, start that YouTube channel, learn that new trade - anything and everything you’re passionate about. Learn how to monetize your interests.

For me, this was my TikTok account.

I’m passionate about personal finance and investing - I spent thousands of hours researching, composing, and creating content online that I published for free to TikTok, Patreon, Twitter, etc.

This work awarded me the opportunity to work with incredible brand partners - allowing me to monetize my interests at a capacity where I could quit my full-time job and still make ends meet.

If you have the time and energy - try being an entrepreneur.

1. Real Estate

This is pretty simple - I have exposure to real estate in two different ways. The first is through owning my house, and the second is through Fundrise.

I’ve been doing it since early 2019 and have had the opportunity to work with them on a professional level. I use them and I’m a happy customer. Here’s how it works:

• Within just a few minutes — you can create an account, choose a portfolio strategy, and begin investing as little as $10 across a series of diversified investment funds.

• After your initial investment is placed, Fundrise keeps you posted on new additions to your portfolio with no additional investment required on your end. This means that your diversification in the real estate market is increasing over time without any effort by you.

• Fundrise works directly with real estate developers and operators, handle their own financials, and manage their own deals — allowing for reduced fees and a more low cost way to invest in real estate than anywhere else I’ve seen.

• By keeping the financials in-house, Fundrise is able to reward investors through dividends. Since 2014, Fundrise investors have also earned more than $100 million in dividends alone — which can automatically be reinvested for you at no additional cost.

If you want to get started, follow this link and reply to this email with any questions you may have.

1. Cryptocurrency

Funny enough, this has likely been the biggest game-changer for me. I began buying Bitcoin in 2017 around $1,200 per - and I’m sure you can imagine what that’s like now.

I hold a few cryptocurrencies - Bitcoin, Ethereum, Chainlink, AAVE, and The Graph. I think everyone should have 5-15% of their net worth invested into cryptocurrencies.

1. Angel Investing

As I mentioned before, I’ve been asked to advise budding startups since building a TikTok presence - something I take very seriously. It’s well-known that every company is not successful. Every company will not be the next Uber or Snapchat.

But, I like to think I’m investing into rockstar management teams with compelling ideas operating in growing markets. I have no idea what this will turn into, but for now, I’m treating it as alternative asset investing.

If you want to see the company’s I’ve invested into, click here.

How We’re Going to Begin Shifting Our Focus:

Over the last ~2 years, I’ve been investing into companies that I believe in - and I won’t stop. I’ve invested into budding businesses new to the stock market. I’ve invested into old, slow companies who have been paying cash dividends to their investors for decades.

We’ve seen our winners, and we’ve seen our losers.

Going forward, I want to begin investing with much more structure around allocation - becoming a lot more strict as to the companies I have positions in. Clearly understanding (and frequently checking in on) their 5-year plan for growth as well as their execution on that plan.

Similar to boiling water - I understand how immense time and energy spent (fire under the pot) does not immediately translate into shareholder returns (a rolling boil). It takes years and years of strategic planning, laying the bricks, and moving the ball forward to see those returns.

Heading into the new year I’ll be sharing reports with you all completely re-evaluating each and every stock in my portfolio. I’ve already done a rough pass on this and I’ve sorted them into “Long-Term Mega Caps,” “Long-Term Mid Caps,” and “Moonshots.”

By doing this, I’m able to be much more strict with my capital - allocating it in such a fashion that over the next 3-8 years I’ll be able to generate substantial alpha while protecting my downside risk in a much more responsible fashion.

I’d rather have a handful of companies I understand like the back of my hand and believe in with every fiber of my being - opposed to 60 companies continually moving on news and events that a single person can’t realistically keep up with.

Will I miss some insane run ups by cutting some stocks?

I’m sure of it.

Will I sleep better at night knowing I have my money invested into long-term major winners with proper allocation toward budding companies?

Absolutely.

Before January 1st I’ll share 4 installments with you all:

1. Long-Term Mega Caps

2. Long-Term Mid Caps Part 1

3. Long-Term Mid Caps Part 2

4. Moonshots

In each of these installments I’ll explain my positions, their weightings, and why I’m including these stocks in this strict new portfolio.

2020 & 2021 were a lot of fun for the stock market - we made a lot of money.

2022 will be the year I invest for the next 5 years of my life - into companies with strong management teams, selling high margin products, and operating in secular growth trends.

Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.