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    Jonathan's Investor Policy Statement

    Thu Apr 09 2020
    Personal FinanceCareer OutlooksInvestor Policy StatementDebt PayoffEmergency FundInvestment StrategiesAsset AllocationMarket VolatilityFinancial Planning

    Description

    The episode covers various topics related to personal finance, including career outlooks, creating an investor policy statement, paying off debt, building an emergency fund, investment strategies, asset allocation, market volatility, and planning for uncertain times. The speakers emphasize the importance of understanding goals, having a long-term perspective, and being flexible in financial planning. They also discuss the significance of having a robust emergency fund and the subjective nature of personal finance.

    Insights

    Certificate programs like Salesforce offer a cost-effective way to pivot into a new career with great income potential and remote work flexibility.

    This can be a viable option for individuals looking to change careers in response to negative industry changes.

    Creating an investor policy statement is important for understanding your financial situation and goals.

    It helps individuals define their investment goals, risk tolerance, and other key factors that guide their financial decisions.

    Having a robust emergency fund is crucial for financial security.

    While the optimal size may vary, it provides peace of mind and protection against unexpected expenses or income disruptions.

    Asset allocation and investment strategies should be based on long-term goals and a balanced perspective.

    Avoid getting caught up in short-term market fluctuations and focus on maintaining a diversified portfolio aligned with your risk tolerance.

    Flexibility and understanding the world as it is are key principles of financial independence thinking.

    Being adaptable and open to alternative options can help navigate uncertain times and mitigate risks.

    Planning for both good and bad times is essential in financial planning.

    Consider various scenarios and have contingency plans to ensure financial stability in different circumstances.

    Regularly update and iterate your investor policy statement to reflect changing circumstances and goals.

    Financial planning is an ongoing process that requires adjustments as life situations evolve.

    Communication and buy-in from your partner are important when creating a comprehensive financial plan.

    Ensure alignment in financial goals, spending priorities, and charitable contributions to achieve shared objectives.

    A comprehensive financial plan safeguards your family's future.

    By considering various aspects of personal finance, you can create a roadmap for long-term financial security.

    Take the time to think through the conceptual framework of financial planning for long-term benefits.

    By understanding the underlying principles and strategies, you can make informed decisions that align with your goals.

    Chapters

    1. The Changing World and Career Outlooks
    2. Creating an Investor Policy Statement
    3. Paying Off Debt and Financial Independence
    4. The Importance of an Emergency Fund
    5. Investment Strategies and Asset Allocation
    6. Allocation Strategies and Market Volatility
    7. Planning for Uncertain Times
    Summary
    Transcript

    The Changing World and Career Outlooks

    00:00 - 06:43

    • The world has changed a lot over the last several years, negatively affecting many industries and career outlooks.
    • Certificate programs like Salesforce offer a cost-effective way to pivot into a new career with great income potential and remote work flexibility.

    Creating an Investor Policy Statement

    00:00 - 06:43

    • Creating an investor policy statement is important for understanding your financial situation and goals.
    • The core components of an investor policy statement include goals, investments, perception of home ownership, spending, and giving.
    • The investor policy statement takes into account variable income and the impact of global economic turbulence.

    Paying Off Debt and Financial Independence

    06:16 - 13:13

    • Jonathan shares his experience of aggressively paying off student loan debt and transitioning to full-time podcasting.
    • The financial plan should be based on understanding and goals
    • Saving 30-50% of income allowed for paying off debt quickly
    • Monthly expenses range from $3,500 to $5,000
    • Financial independence number is calculated as 25 times annual expenses
    • Target financial independence number is between $1.3 million and $1.5 million
    • $2 million would provide a buffer for unexpected expenses
    • A safe withdrawal rate of 3.25% is considered conservative
    • Goal is to reach a net worth of $1.5 million by age 45 and $2 million by age 50
    • Plan to pay off mortgage before drawing down on net worth
    • Emergency fund size varies based on personal preference and risk tolerance

    The Importance of an Emergency Fund

    12:43 - 19:21

    • The speaker emphasizes the importance of having a robust emergency fund.
    • They acknowledge that their approach to emergency funds is more conservative than the interviewer's.
    • The speaker believes their emphasis on a larger emergency fund is due to their personality traits and past experiences.
    • They mention that they would be susceptible to fear and panic during uncertain times.
    • To mitigate this, they maintain a significant amount of cash as an emergency fund, even though it may not be mathematically optimal.
    • The speaker acknowledges that their net worth might have been higher if they had invested the money instead of keeping it in cash.
    • However, they prioritize peace of mind and being able to sleep well at night.
    • The interviewer shares their own approach to emergency funds, which includes one to two months of expenses in a local bank account for cash flow purposes.
    • They also keep three to six months of expenses in a high yield savings account.
    • In their investor policy statement, they allow themselves the flexibility to sell investments if fear or uncertainty arises.
    • This provides them with a safety net during challenging times without jeopardizing their entire investment portfolio.
    • Both speakers agree that personal finance is subjective and there is no one-size-fits-all approach.

    Investment Strategies and Asset Allocation

    18:58 - 25:40

    • The speaker keeps three to six months in a high yield savings account and an additional three months in the market.
    • Retirement and tax advantage accounts are with different providers, such as Schwab, Fidelity, and Vanguard.
    • All retirement accounts are invested in index funds.
    • Taxable investments are made through M1 Finance, using ETFs like VTI for 75% of the allocation.
    • The speaker reserves around 6 to 10% for individual stocks they find promising.
    • M1 Finance helps maintain asset allocation by automatically adjusting new investments.
    • The current investment plan is not being changed at the moment.
    • The speaker emphasizes the importance of having a long-term perspective and not getting caught up in short-term market fluctuations.

    Allocation Strategies and Market Volatility

    25:26 - 32:10

    • The speaker is currently 100% invested in equities and exposed to volatility.
    • As the speaker's retirement approaches, they plan to gradually shift towards a more conservative position with a higher allocation to fixed income.
    • Paying off the mortgage is considered a fixed income play as it reduces mandatory expenses.
    • The speaker feels confident with their current allocation due to having six months of expenses set aside in a high yield savings account and one to two months of cash flow.
    • Being a small business owner, the speaker acknowledges the impact of market volatility on their business but still plans to make small contributions into the market as long as emergency savings are not depleted.
    • The speaker has assessed their worst-case scenario and believes they can tolerate the risk of 100% equities due to alternative options such as going back to work or pivoting into other industries if necessary.
    • Flexibility and understanding the world as it is are key principles of financial independence thinking.

    Planning for Uncertain Times

    31:40 - 38:00

    • Having flexibility in your career can be beneficial during uncertain times.
    • Consider having a side hustle or alternative job options to increase financial security.
    • It's important to plan for both good and bad times.
    • Know your own circumstances and limitations when creating an investor policy statement.
    • Update and iterate your investor policy statement as needed.
    • Include spending priorities and charitable contributions in your financial plan.
    • Communicate and get buy-in from your partner regarding the plan.
    • Creating a comprehensive financial plan is not just homework, but a way to safeguard your family's future.
    • Take the time to think through the conceptual framework of financial planning for long-term benefits.
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