Gauging the Weight of Your Portfolio
Episode 277
Episode Guide
Episode Timestamps
ChooseFI Episode Show Notes
Episode Summary
In this episode, Brad Barrett and Jonathan Mendonsa discuss updates to your investor policy statement, emphasizing the importance of an equal weighting strategy within index funds. The conversation also includes fitness tips, notably the benefits of incorporating burpees into daily routines. They highlight how small changes can lead to significant long-term benefits and encourage listeners to assess their narratives and habits relating to financial and physical health.
Key Topics Discussed
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Burpee Challenge Discussion
- Brad shares details about participating in a month-long burpee challenge.
- Burpees as a full-body workout: how they can significantly impact overall health.
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Investor Policy Statement Updates
- Importance of having a clear investment strategy.
- Setting goals and regularly evaluating your investor policy statement.
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Impact of Daily Habits
- Discussing the significance of small incremental changes in routines.
- Building effective habits and re-evaluating personal narratives.
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Evaluating Investment Strategies
- Importance of diversification and understanding your risk tolerance.
- The approach to equal weighting in investment portfolios.
- Discussion of negative correlation in investments.
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Community Wins
- Highlights of listener achievements shared within the community.
Actionable Takeaways
- Try doing 10 burpees today to break your routine.
- Evaluate and update your investor policy statement regularly.
- Challenge yourself to integrate one new healthy habit this week.
Key Quotes
- "Every small action is a vote for the person you aspire to be."
- "Imagine living life with the same intensity and dedication as your toughest workouts."
- "If you don't ask, you'll never know the possibilities."
Related Resources
- Atomic Habits by James Clear: Buy Here
- Paul Merriman's Portfolios: Explore Here
Frequently Asked Questions
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What is the importance of an investor policy statement?
- Guides investment decisions and sets clear objectives.
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How can small changes in daily habits affect life outcomes?
- Incremental improvements in habits can lead to significant benefits in health and finances.
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What is negative correlation in investing?
- Assets that move inversely to each other act as a safety net during market downturns.
Conclusion
Listeners are encouraged to assess their habits, both in fitness and finance, and take actionable steps towards improving their overall health and investment strategies. The community's collective wins serve as motivation to implement those small changes that have the potential for lasting impact.
Podcast Intro: You're listening to ChooseFI. The blueprint for financial independence lives here. If you're looking to unlock the secrets to financial independence and early retirement, you're in the right place. Stay tuned and join a community of like-minded people who are getting off the hamster wheel and taking control of their lives in the pursuit of financial independence. ChooseFI, your home for financial independence online.
Podcast Extro: You've been listening to ChooseFI Podcast, where we help middle-class America build wealth one life hack at a time.
Maximizing Your Financial and Physical Health: Insights from ChooseFI
Achieving financial independence often requires a holistic approach, combining fiscal strategies with personal wellness practices. The recent episode of ChooseFI, featuring hosts Jonathan Mendonsa and Brad Barrett, articulates how small daily actions can lead to significant long-term benefits in both investments and lifestyle choices. Here’s a detailed guide on how to implement these insights into your own life.
The Importance of an Investor Policy Statement
What Is an Investor Policy Statement?
An Investor Policy Statement (IPS) is a critical document that outlines your investment goals, strategies, and guidelines. Creating an IPS helps you maintain focus and discipline in your investment choices. Here’s how to craft your IPS effectively:
- Define Your Investment Objectives: Are you aiming for long-term growth, income generation, or a mix? Clearly stating your goals helps guide your strategy.
- Asset Allocation: Determine how you'll allocate your assets across different investments. Consider using an equal weighting strategy where you're not overly reliant on large-cap stocks, as discussed in the episode.
- Regular Review: Make it a habit to review and adjust your IPS regularly, especially in response to significant market changes or personal life events.
Incorporating Equal Weighting in Index Funds
One of the essential points made in the podcast is the value of equal weighting in index funds. This strategy allows you to evenly distribute your investments among various assets, reducing concentration risk and enhancing diversification. Here’s how to implement it:
- Diversify Across Sectors: Ensure that you're investing in various sectors of the economy to buffer against downturns in any single sector.
- Use Automated Tools: Platforms like M1 Finance can help you set up and maintain a diversified portfolio with ease.
The Connection Between Physical Health and Financial Health
Small Daily Actions Lead to Big Results
In the episode, Brad Barrett discusses how small incremental changes can culminate in substantial improvements. This principle applies to both health and finances:
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Burpee Challenge: A simple exercise like burpees can boost your physical health. Commit to doing 10 burpees a day to break away from inactivity. This kind of action symbolizes taking charge of your health, and it reinforces the idea that small actions can result in larger changes in your life.
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Micro Changes in Finance: Just like adopting a new exercise habit, consider making small financial changes. These might include cutting back on unnecessary expenses or changing your approach to daily spending. Even cutting out a daily coffee run can lead to significant savings over time.
Recognizing and Challenging Your Narratives
Brad and Jonathan emphasize the importance of challenging the narratives we construct about ourselves and our capabilities. To make a significant life change:
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Question Norms: Ask yourself what you’ve accepted as the “norm” in your life, whether it's regarding your financial habits or lifestyle choices. What else have you failed to question?
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Take Action: Take a small action today that counters your usual habits, whether that’s exercising, saving money, or learning a new skill. Every small action counts.
Evaluating Investment Strategies
The Significance of Diversification
Diversification minimizes risk across your investment portfolio. Here’s how to ensure you're effectively diversifying:
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Mix of Assets: Combine stocks, bonds, and possibly real estate or alternative investments to shield your portfolio during downturns.
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Negative Correlation Strategy: Consider investments that traditionally perform well when the market does poorly. As mentioned in the podcast, including assets that have a negative correlation can provide a safety net during economic downturns.
Regular Assessment of Financial Decisions
Investing requires continuous evaluation. Regularly revisit your investment strategy against your IPS and overall financial goals:
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Performance Review: Analyze your investments periodically (e.g., quarterly or annually) to assess their performance and make adjustments as necessary.
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Educate Yourself: Stay informed about market trends, economic shifts, and new investment vehicles. Knowledge is power when making informed decisions.
Building a Community of Support
Learning and Sharing Wins
ChooseFI emphasizes community wins, which reinforce the importance of having a supportive network. Consider:
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Engaging in Communities: Join forums or groups that focus on financial independence. Share and discuss outcomes, strategies, and lessons learned with others.
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Celebrate Progress: Don’t overlook your successes, no matter how small. Celebrating wins encourages continued momentum.
Take Action Steps for Immediate Impact
To integrate these concepts into your life effectively, consider these actionable steps:
- Perform Daily Burpees: Start a simple fitness regimen that includes burpees or similar workouts.
- Update Your IPS: Take an afternoon to draft or revise your Investor Policy Statement.
- Reach Out: Connect with someone from your network you haven’t spoken to in a while; rekindling connections can lead to new opportunities.
Conclusion
By intertwining physical fitness with financial strategies, you can create a balanced approach to health and wealth. Adopting small, consistent habits—whether in your workout regime or financial decisions—can yield impressive results over time. Embrace the principles discussed in ChooseFI, challenge your current narratives, and take actionable steps towards both financial independence and personal health. As you focus on these incremental changes, you'll discover that a fulfilling life of balance and success is within your reach.
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What You'll Get Out Of Today's Show
Setting up your financial life includes updating your investor policy statement and examining the rationale for equal weighting inside your index funds.
Brad is giving his physical fitness a boost in December with a month-long burpee challenge. A full-body exercise that can be done quickly at home without any equipment, Jonathan asks what would change about your life if you took the challenge of doing 10 burpees every day for the next year?
Brad was inspired to take on the burpee challenge after watching Alan Donegan and his wife, Katie, in a video they posted of themselves doing burpees. They weren't holding anything back and completing each rep with a high degree of difficulty. He wondered what it would look like to give everything your all in life, like Alan and Katie were with their burpees?
Jonathan reflected on how he is often more focused on getting to the end result than he is in the quality of the movement, which he likens to the old saying about losing sight of the forest for the trees. We should focus on systems, processes, and workflow, over results.
Get up off the couch and do something that will make your life better in some small way. Cancel a subscription, get rid of convenience, meal plan, do something that makes your life 1% better. And if you start doing burpees as a result of this episode, send in an email to let Brad and Jonathan know.
Although we often talk about and identify the massive actions people can take to make their financial lives better, the community has been very receptive to the idea of aggregation of marginal gains.
This year, Jonathan has been having conversations with his wife about their investor policy statement and what changes they might make to it since they feel like they are in a place of calm and unemotional decisions can be made.
Brad and Laura believe in thinking long-term, lowering their expenses, continuing to invest, and having things on autopilot. Their investments are almost entirely in low-cost brand-based index funds, like total stock market and S&P 500 funds. they also do have some bonds, international stock funds, and rental real estate.
Jonathan and Dani have similar investing strategies. They invest for the long-term and diversify in low-cost funds to avoid fees.
Recently, Brad and Jonathan discussed the difference between a total stock market index fund and an S&P 500 index fund and how with a cap-weighted fund you a disproportionate amount of the largest companies. A lot of investors believe you should try to have small and mid-cap companies equally weighted in your portfolio.
It used to be difficult to set your portfolio this way. Recently, online investment firms have come online, such as M1 Finance, Betterment, and Wealth Front, whose interfaces have made this significantly easier to do.
Jonathan recently conducted an experiment with his own investments following one of Paul Merriman's portfolios that can be found on M1 Finance. Fifty percent went into a total stock market index fund, and the other 50% went into an equally weighted fund. With the impact COVID had on small businesses this year, the equally-weighted portfolio was crushed.
However, when pursuing FI, we are interested in performance over the long-term and Jonathan notes that the smaller companies that have been crushed this year, might actually be on sale.
Because Jonathan doesn't like sitting on a bunch of cash, even in an emergency fund, the idea of negative correlation is appealing to him. He wants his emergency fund to hold steady or go up when the market is down and is willing to sacrifice a little bit of return to achieve that.
Your options to equally weight index funds may be more limited at large institutional firms, but with M1 Finance, Jonathan was able to set up a Negative Correlation pie, a Can I Pick pie, and an Equities pie.
Jonathan's M1 Finance account acts like an emergency fund but is also a growth machine. It is more conservative than his 401Ks. He views these taxable investments as another form of savings.
Some of Paul Merriman's recommended ticker symbols are VIOO, the Small Cap 600, IJS, the Small Cap 600 value, VOV, the 1000 Value index fund, VOO, the S&P 500, and others like VEA and VWO.
While many of us want to keep things simple and do not want to be stock picking, when investing in something like an S&P 500 Index fund, we are essentially stock picking. Understanding that, Brad still chooses to invest mainly in total stock market index funds.
In episode 194, Frank Vasquez talked about after taking a hammering in 2008, he wanted something in his portfolio that would go up when others were fleeing the market. He discussed corporate bonds, precious metals, and US treasuries were some of the types of investments people flee to.
Jonathan and Dani decided to invest in precious metals, which will hopefully be more effective than a savings account
While Brad doesn't believe in investing gold, Jonathan notes that if there is ever a loss in confidence in government, people will flee fiat currencies.
It's good to understand that these different tools are out there and react to market conditions differently.
A year-end review is an excellent time to decide what to invest in rationally and from a point of understanding your own psychology.
The first week's community win winner is Chris, who recently became debt-free, max out his 401K and HSA, as well as he and his wife's IRAs. They also began investing in a taxable account and contributing to their son's 529 accounts.
The second winner is Khang, who negotiated faster internet for less money using online chat. It never hurts to ask, but if you never ask, it's always a no.
Resources Mentioned In Today's Conversation
While You're Here
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