People ask me all the time about how I invest my personal money. I don’t think I’ve ever written about this before, in more than ten years of blogging!
Very simply put, I’m a mixture of active and passive, a mixture of mutual funds, individual securities and ETFs, a mixture of public and private assets. What is consistent is that almost everything I do is with a long-term bias. I don’t day trade or swing trade, because I’m bad at it and I feel as though those activities are a full-time commitment. I don’t want to commit to any investing style that requires my attention all day long because I’m building and running a company. My priority is my firm, my clients and my employees. So when I invest in something, I usually intend to stay invested.
First things first, the bulk of my net worth is in my house, with no mortgage, and we’ve been spending money on remodeling over the last few years – not for any kind of payoff, but because we intend to live there forever. So this is more of a psychic investment than it is a financial one. I love my home and have no intention of selling. We’ve renovated and decorated it for ourselves and our own happiness. If I sold today, there’s no way I’d see a profit over what we’ve put into it. So what.
My other big investment is the thirty-something percent I own of Ritholtz Wealth Management. We did a dilution last year in order to facilitate the first wave of equity partners buying in. Our intention is to be employee-owned, and to only make decisions that will benefit our clients and employee-partners going forward. The firm is entirely bootstrapped from day one – no private equity, no debt, no outside investors. This is both strategically and emotionally important to us.
My 401(k) is invested in the exact same asset allocation model as we use for our clients. I own the same funds, in the same proportions, that my clients of comparable risk tolerance own. I’m in an all-equity model because I’m relatively young, can bear risk and will not be accessing this capital for at least another 25 years. Important side note: Every employee of Ritholtz Wealth is invested in the same asset allocation models as our clients. This was a very important decision we made early on. We eat our own cooking with our own personal retirement accounts. I consider the combination of my 401(k) invested in our client strategies along with my equity stake in the firm to be my “real money.” I’ve made the bet of a lifetime on our advice and our business.
I’ve got a SEP IRA and some rollovers from previous employers. I utilize the tax-deferred benefits of those accounts to hold individual stocks along with some of the ETFs my friends have launched over the years, that aren’t part of our client strategies. I believe in supporting my friends when they launch stuff. Wes Gray, Eddy Elfenbein, Perth Tolle, Meb Faber and others I am friends with have brilliant minds and great ideas. I don’t mind having them run a portion of my money and I never judge it against the S&P 500. I just don’t care about that. I have enough invested in Vanguard indexes already.
The Wall Street Journal’s Liam Pleven once looked at the personal investments of Jack Bogle. Jack Bogle’s son had managed hedge funds and currently manages active small cap funds, which charge a hell of a lot more than the index funds at Vanguard. Jack, the godfather of passive investing, invested in his son’s active funds.
I liked this bit, (bold is my emphasis):
But Jack Bogle, a relentless advocate for low fees, does poke fun at his son’s prosperity.
“I often tease him,” Jack Bogle says. His son’s firm manages about $1.1 billion and its small-cap mutual fund charges annual fees of 1.35%, much higher than the 0.24% annual fee for a Vanguard index fund that tracks similar stocks, but about average for active managers offering similar services.
John Bogle has a ready reply: He is making money for clients and for himself. “Is there anything wrong with that?” he said once in response.
This year, John Bogle’s fund has generated total returns of 40%, through Tuesday, according to Morningstar, compared with 35% for the Russell 2000 and 34% for the similar Vanguard fund, according to Morningstar.
Even his father benefits. He is an investor in the small-cap fund. “We come about it very differently, but we end up pretty close to the same place,” the elder Mr. Bogle says. “He’s done what he’s done very well…Will it work forever? I don’t know. But I’m not going to bet against him.”
Indeed, the elder Mr. Bogle’s stake in his son’s mutual fund is one of his few nonindex investments. “We do some things for family reasons,” he says. “If it’s not consistent, well, life isn’t always consistent.”
That’s right. Life isn’t always consistent.
I also own two dozen individual stocks. Mostly companies where I am a fan, user and customer of their products and services. JPMorgan, Slack, Dunkin, Shake Shack, Twitter, Apple, Amazon, Google, Schwab, Disney, Verizon, etc. I buy these things and don’t sell them. I add to them when opportunities present themselves. I automatically reinvest the dividends. When I’m paying my Verizon wireless bill or my Fios cable bill, I smile knowing that I’m contributing to my own company. It’s a mental trick I’ve developed to keep me from bailing on them in tough markets.
Another advantage of the IRAs is that I’m not taxed on REIT distributions, which would normally hit me as ordinary income. So I’ve been building a position in STORE Capital and Invitation Homes, two of my favorites, using dividend reinvestment. I root for them to go down so that when I get a distribution, I can buy even more shares at a lower price. A friend of mine who is a major real estate developer on Long Island talked me out of buying real estate on my own, or in the private market. He explained how futile it would be for me to do something like that as a hobby, or with smaller dollar amounts than the real players. His arguments were convincing, so I turned to REITs instead of getting clowned in the commercial RE market.
I’m not buying individual stocks because I think I’m going to generate alpha. I just love stocks and have ever since I was 20 years old. And it’s my money, I get to do whatever I want with it. Life isn’t always consistent.
I did my children’s 529 plans with the state of New York, which is Vanguard index funds. Their kids’ grandparents funded most of what’s there when they were born, and we add to it each year. I probably see a statement every three years or so, LOL. I have to look up how to log in and see it, I have no clue. Better off. My oldest won’t be going to college for five more years.
Finally, with taxable money that’s left over, we fund the Liftoff account that’s meant for the kids when they get older. If I’m able to help them out in their twenties by doing this now, it’s probably the best thing I could be investing towards. Liftoff is an automated advisory service, built in collaboration with Betterment. You can watch the video with Jon Stein and Dan Egan about Liftoff. You can try the service for yourself if you’d like. It’s pretty simple to start an account and get going. There’s no minimum.
I have to balance the need to put money away for my kids when they’re older with the desire to do things for them now, like going on family vacations and travel sports. Can’t do everything. My wife and I had my partner Kris come over and do a financial plan for us a few years ago, which helped us out a lot in making these decisions. So not only do I invest alongside my clients, I get the same financial planning advice as they do too!
Outside of these traditional investments, I am an investor in a small handful of startups that I believe in. I’ve got shares of Vestwell and Riskalyze and serve on the advisory boards of both companies. We love their software and use it within our practice. I’m proud to be affiliated with Aaron Schumm and Aaron Klein and all that they’ve built. I have a small stake in StockTwits, which keeps me plugged in to what’s going on with Howard and Justin and Ian and the gang.
I also have some founders shares of Digital Assets Data Corp, which is building the Morningstar for Crypto – founded by Michael and Ryan Alfred, two of the brightest and most effective fintech founders in the industry. When Mike asked me for an early investment, it was a no-brainer. I had a great experience as a shareholder in his prior company, Brightscope, which was sold a few years ago. I’ll be more involved with Digital Assets down the road, when crypto becomes a real asset class within the wealth management space. It’s the longest run bet I have on right now. The other backers of the company are like a who’s who list for the crypto currency space, I’m really excited about that one.
My asset allocation and outside bets make sense only for me, just like your portfolio ought to make sense only for you. There is no such thing as a one-size-sits-all portfolio, because we all have different time horizons, risk factors, wants and needs and emotional triggers. I figured out what works for me, but only after a lot of trial and error over the last two decades. And lots of mistakes. A skilled advisor is not just someone who knows investments – it’s someone who knows their clients well enough to know what combination of investments will work for each person.
If you want to talk to one of our advisors about your own situation, and whether or not you’re taking too much risk (or not enough!), we’d love to talk with you. Check us out here.
This post originally appeared here on July 16th, 2019