ChooseFI Podcast Show Notes

Episode Summary: This episode provides a comparative analysis of various popular investment portfolios within the financial independence (FI) community, referred to as "the horse race." Hosts Brad Barrett and Jonathan Mendonsa discuss strategies, insights from financial experts like JL Collins and Paul Merriman, and the importance of tracking performance over time.

Key Takeaways:

• Understanding different investment strategies within the FI community.
• The value of taking actionable steps towards financial independence.
• Analyzing performance data of various investing approaches.

Timestamps and Topics:

• 00:00:00 Podcast Intro
• 00:01:00 Introduction to the Horse Race: Exploring popular investment portfolios within the FI community and their performance over time.
• 00:02:00 Brad's Update and Community Engagement: Discussion on recent community meetups and encouraging listeners to engage with local FI groups.
• 00:14:00 Overview of Investment Strategies: Breakdown of long-term buy and hold investing.
• 00:20:00 JL Collins' Wealth Accumulation: Introduction to JL Collins' one-fund strategy using VTSAX or VTI (total stock market index fund).
  • Returns: 127% over the past five years.
  • Wealth preservation strategy: 96% return.
• 00:28:00 Paul Merriman's Approach: Discussion of Merriman’s diversified portfolio strategies focusing on small-cap and value investing.
  • Returns: 78% over the past five years.
• 00:39:00 Jillian Johnsrud's Target Date Funds: Use of target date funds for a more hands-off investing strategy.
  • Returns: 62% for a 25-year target date fund.
• 00:42:00 Frank Vasquez's Investment Pies: Analysis of Frank's basic accumulation strategy and his golden ratio approach.
  • Basic accumulation: 147% return over five years.
  • Experimental risk parity level: 79% return.
• 00:53:00 Discussion on Portfolio Tracking: Importance of assessing portfolio performance and making informed decisions on strategy adjustments.

Actionable Takeaways:

• Engage with your local FI community for support and networking.
• Consider investment strategies that align with your financial goals.
• Regularly track and analyze the performance of your investments.

Key Quotes:

• 00:05:00 "Taking actionable steps is crucial for improving your life."
• 00:18:16 "Investment strategies are diverse and flexible."
• 00:25:35 "Investing in a total stock market index fund allows ownership of all major U.S. companies."
• 00:33:31 "Strong investment theses are proven by consistent buying during market dips."
• 00:42:05 "Investing is key to avoiding losses; staying out entirely is the real risk."

Discussion Questions:

• What does financial independence mean to you?
• How do you choose your investment strategy based on your personal goals?
• What strategies have you found most effective for building wealth?

Related Resources:

• JL Collins - The Simple Path to Wealth: https://jlcollinsnh.com
• Paul Merriman's Investment Strategies: https://paulmerriman.com

Podcast Extro: "You've been listening to ChooseFI Podcast, where we help middle-class America build wealth one life hack at a time."

Navigating the Horse Race of Investment Strategies

Understanding investment strategies within the financial independence (FI) community can be overwhelming. However, making informed choices is crucial for your wealth accumulation journey. In today’s discussion, we'll delve into several investment strategies highlighted in a recent podcast episode by hosts Jonathan Mendonsa and Brad Barrett of ChooseFI. Here, you’ll gain actionable insights and principles from leaders like JL Collins and Paul Merriman.

The Importance of Taking Action

To improve your financial journey, the first step is to take action. Whether it’s investing in a total stock market index fund or engaging more deeply with your FI community, taking decisive steps is essential. Remember, the only way you truly fail is by not having anything invested.

Exploring Diverse Investment Strategies

The investment landscape consists of various strategies, all aiming at financial independence but differing significantly in their approaches. Below are some of the noteworthy strategies discussed:

Long-Term Buy and Hold Strategy

Most individuals in the FI community, approximately 90-95%, identify as long-term buy-and-hold investors. This approach emphasizes patience and discipline, where investments are held over an extended period without regular buying and selling. It reflects a commitment to the underlying value of the investments.

JL Collins - The One Fund Strategy

JL Collins, often regarded as a mentor in the FI community, advocates for a straightforward and simplified investment strategy. His approach revolves around a single fund—Vanguard's Total Stock Market Index Fund (VTSAX).

• Why This Strategy Works: By choosing VTSAX, you essentially own a piece of every publicly traded company in the U.S., which enhances diversification and reduces risk. Collins emphasizes that investing in such a fund can yield higher returns than attempting to pick individual stocks.

Paul Merriman’s Nuanced Approach

Contrarily, Paul Merriman presents a more nuanced strategy that diversifies investments across various asset classes, including small-cap and value stocks.

• Strengths of Merriman's Strategy: His philosophy reinforces the idea that investing isn't limited to index funds. Small-cap stocks often outperform larger companies over time, providing additional growth potential.

Jillian Johnsrud's Target Date Funds

Jillian Johnsrud employs Vanguard Target Date Funds, emphasizing their convenience and suitability for hands-off investors. These funds automatically adjust their allocations as the target retirement date approaches, yet they carry the risk of becoming overly conservative too early.

Frank Vasquez's Experimental Risk Parity

Frank Vasquez's innovative approach combines several ETFs to achieve a balanced portfolio aimed at minimizing risk through diverse asset classes. His method focuses on achieving a negative correlation among holdings, which can lead to more stable returns regardless of market volatility.

Why Diversification Matters

Diversification is crucial for mitigating risk. A well-diversified portfolio ensures that not all investments react the same way during market fluctuations, protecting your wealth from drastic downturns. Investing in different combinations, such as growth and value stocks or bonds, can help smooth out returns over time.

Evaluating Investment Performance

It’s essential to track and analyze the performance of your investments. By assessing return metrics regularly, you can make informed adjustments to enhance your portfolio.

• Key Insight: Students of each strategy should recognize that past performance is not indicative of future results. Understanding your investment’s historical behavior complements your decision-making process.

Actionable Steps for Financial Independence

To apply the lessons learned from these investment strategies, consider these actionable steps:

1. Engage with Your Local FI Community: Networking with like-minded individuals can provide motivation and accountability. Join local meetups or online forums to exchange ideas and strategies.

2. Simplify Your Investment Strategy: If you're feeling overwhelmed, start with a simplified investment strategy akin to JL Collins’ approach. Investing in a total stock market index fund can be an excellent way to begin your journey.

3. Track Your Investments Regularly: Set a schedule to review your portfolio and its performance. Consider whether it aligns with your overall financial goals and risk tolerance.

4. Consider Your Risk Tolerance: Be honest about how much risk you're comfortable taking. Strategies entail different levels of risk, so align your approach with your comfort level and financial objectives.

5. Create an Investor Policy Statement: Outline your investment goals, risk tolerance, and preferred strategies. This document can serve as your guiding framework during your investment journey.

Conclusion

In summary, navigating the investment strategies in the financial independence community can be simplified into actionable insights. The key takeaways are taking swifter actions towards investing, considering diversification, and aligning your strategies with your personal risk tolerance. By understanding various perspectives presented by influential figures like JL Collins, Paul Merriman, and others, you can empower yourself to build a sound financial future.

For more information about the “horse race” between these various investment strategies, consider visiting ChooseFI.com/pie, where you can access detailed comparisons and continue your education on financial independence and investing.