How I Think About Investing

As my kids begin to start earning and investing their own money, it’s past time for me to share my investing philosophy with them. And if I’m going to do that, then I may as well share it with everyone else as well. This post gives a very high-level overview of investing, my philosophy on investing, and lists the specific investments I use. It is by no means complete nor necessarily even accurate but it’s how I think about money.

However, I highly recommend everyone take a deeper interest in money and spend some time learning about personal finance through a good book, website, video, etc. At some point I will go back and edit this post to add detail in the Resources section below.

Categories of savings

Savings can be thought of in three different categories. These are well covered in this article. Having a separate account for each type is a good plan.

  • Emergency Funds: These are funds that are used to cover 3-6 months of expenses (rent, food, insurance) in case your other income (job) stops for some reason (pandemic). This should be funded ASAP by putting at least 10% of your income away each month until it is funded. Because this is money that needs to be accessed quickly, most of it should be in a bank or brokerage savings or money market account, although some could be in a safe, but locked up in the short-term, account like a 3-month CD. I use my brokerage’s money-market fund. Consider getting to 12 months once you have funded your other savings (below).
  • Personal Savings: These are funds for upcoming large purchases such as a car. They should be invested similarly to Emergency Funds. The size depends on your planned purchases.
  • Retirement Savings: These are your long-term savings to fund your retirement. Fund this as much as possible as early as possible in order to retire sooner than later. At a minimum, take advantage of any matching (company 401K matching) or tax deferred IRAs (Roth or pre-tax IRA). The next section talks about investing for retirement.

Retirement Savings

Money being saved for retirement has many advantages in investing:

  1. It is invested for a relatively long time, anywhere from 10 to 60 years (remember, you’ll still have 20+ years to invest while you are in retirement). This means that you can invest more aggressively than short term savings. This means that you have the time to ride out the stock market’s rises and falls, getting a far higher return than a savings account.
  2. There are special brokerage accounts such as 401Ks and IRAs that gets special tax status allowing you to avoid paying taxes until you take cash out of the account. This allows you to earn far more for most of the time and then hopefully be at a lower tax rate, since you won’t have income from work, when you withdraw the money while in retirement.

Here is a great article from Get Rich Slowly on How to invest.

Where to invest

There are many types of accounts where you can put your money.

  • Savings and Checking Accounts: Pays very little interest (money the bank pays you to thank you for letting them hold your money) but is easy to withdraw at no cost. It is guaranteed to not lose money.
  • Money Market Account: This account holds a Money Market Fund which is still very safe, although not guaranteed to not lose money but it has almost never happened, and earns a higher interest rate, sometimes which can be tax-free (although at a lower return (interest rate)).
  • Brokerage Account: This is an account that is meant to hold investments like company stocks and bonds. The risk of this account depends on what you buy with it. Brokerage accounts can be either standard or retirement (401K, IRA, Roth IRA) accounts:
    • Standard account: Pay tax on any gains as soon as you sell the stock.
    • Retirement account: No taxes on transactions but pay tax when you withdraw money from the account so you’ll have more money to reinvest rather than paying in taxes. For long-term savings that you won’t need until reitrement, you should always put as much money as possible into these accounts first. Also, many companies will match your contributions to a 401K account up to a certain amount, such as 6% of your salary. This is like immediately doubling your money; you should ALWAYS contribute enough to maximize this match.

Types of Investments

There are many types of investments. I’m only going to explain two of the most common here.


Owning stock is your owning a (small) part of a company. When a company is formed, its founders “own” the company and therefore 100% of the stock. As they grow the company, they will sell that stock to banks and normal people in order to get more money for the company to use to grow further.

If investors think a company is growing, then they will want to buy the stock, even at a higher price. More buyers drives the price of the stock higher. If investors think a company is shrinking, the stock may be less valuable making investors want to sell which drives the stock price down. This is vastly over-simplified but should suffice.

Stocks can be risky as a company’s fortunes and future expectations rise and fall. Some stocks are far more volatile than others. They can also go to $0 if the company goes belly-up. For this reason, I recommend investing in Mutual Funds as described below.

Stocks can cost anywhere from $0 to $30 per transaction to buy and sell.


A bond is literally a loan to a company. If you buy a bond, you are essentially loaning the company that money. In return, the company agrees to pay you a fixed interest rate for a certain amount of time.

Bonds are incredibly stable if you want to keep them for the duration of their term. However, if you want to get your money back by selling a company bon you bought, the bond could be worth less than what you paid for it. For example, if you bought a bond for $100 that returns 5% interest every year but the following year similar bonds now pay 10% interest, then your bond is worth less than the ones paying twice as much. If you keep the bond, you will still get the 5% interest but if you sell then you may get far less than $100 back. For this reason, I recommend buying Bond Mutual Funds described in the Mutual Funds section below.

Individual bonds can cost anywhere from $0 to hundreds of dollars to buy and sell.

Mutual Funds / ETFs

Mutual Funds, and their related ETFs, are simply a group of stocks sold as a unit. For example, a “Tech Fund” might hold Microsoft, Apple, Amazon, and Google. If you bought one share of this mutual fund, you would be getting a small slice of each of the companies. The advantage of this is that if one company were to go bankrupt, the fund will still have most of it’s money. This tempers the volatility of individual stocks.

When you hear S&P 500 or Dow Industrials, these are essentially a metric based on the worth of a groups of stocks. The S&P 500 is the 500 largest companies in the market. The Dow Industrials is a group of 30 of the largest stocks. While these are just metrics used to track the health of the market, there are mutual funds that mimic these metrics such as the Vanguard 500 Index Fund. Some mutual funds track broad indexes like the above. Some focus on specific areas like Tech or Health stocks. Some mutual funds track international (Europe, Japan, etc) companies.

Mutual funds trade once a night after the stock market closes. ETFs are essentially mutual funds but they update their prices throughout the day based on the stocks they hold and they can be traded at any time. You can think of them as the same.

Mutual funds cost anywhere from $0 to $50 per transaction. One thing to watch for is that some mutual funds also charge up to 5% to purchase AND/OR up to 5% to sell which is called a “loaded” fund. There is almost never a reason to buy a loaded fund as there are usually similar funds that offer the same benefits without the costs.

Mutual funds also have an “Expense Ratio” which is an annual charge that cuts into a funds earnings each year. This helps “pay the bills” and is reasonable. However, some funds charge far more than is reasonable. There is no reason to pay for a fund with high fees when there are plenty with low fees.

ETFs usually cost the same as trading a stock and can other

What to invest in using a Brokerage Account

There are many different philosophies on how to invest your money. Some people like to buy individual stocks and bonds (where you loan a bit of money to a company which is obligated to repay it). This can be risky if you only own a few stocks since if one goes belly-up you lose lots of money. Buying lots of stocks to lower the risk helps but then you have a ton of stocks to manage which is no fun. Buying and selling stocks frequently just costs lots of time and money which is no fun.

My philosophy is to buy a few specific mutual funds and almost never touch them. This is called “Lazy Investing” (another article from Boggleheads) and there is a great comparison of portfolios in this article. I follow one called the Second Grader’s Portfolio which holds only 3 mutual funds: a US equity (equity means stock) fund, an International equity fund, and a Bond fund. Vanguard provides inexpensive, high quality funds. I use other funds that I have been pleased with and have done slightly better than the Vanguard funds. You can’t go wrong with either.

Here are the Vanguard options:

Asset TypeAllocationVanguard FundAlternate Fund
US60%Total Stock Market (VTSMX)MSCI USA Momentum Factor ETF (MTUM)
International30%Total Intl Stock (VGTSX)Vanguard International Growth (VWIGX)
Bond10%Total Bond Market (VBMFX)PIMCO Income Fund (PIPNX)
Fund options

Most of the growth comes from the equity funds and the bond fund provides stability. The farther you are from retirement, the less bonds you should have. Starting at 10% in your 20s, going to 20% in your 30s, 30% in your 40s, etc is a fine percentage.

Here are the various returns based on the percentage of bonds. I use the Portfolio Visualizer Portfolio Backtest to generate these results, which are relatively accurate.

Vanguard returns by percentage bonds

Asset typeTicker
5 yr Return13.5%12.5%11.3%10.3%9.1%8.1%
10 yr Return10.0%9.5%8.5%8.0%7.0%6.4%
20 yr Return6.1%6.2%6.1%6.1%5.9%5.8%
Returns using Vanguard funds by percentage of bonds.

The funds I use haven’t been around as long so I can only list the returns for the past 5 years. Note that these are not all “index” funds like Vanguard, where the fund simply holds stocks used in a tracking index like the S&P500. Funds like MTUM are “actively managed” which means they have managers that choose which stocks to hold. In general, index funds have lower fees and perform better long-term than active funds. Choose active funds at your own risk. The below funds that I use today are not necessarily the right funds for tomorrow and I may go back to index funds at any moment.

5 yr Return20.1%18.6%17.3%15.5%14.3%12.7%
Returns using alternate funds by percentage of bonds.

Note that your investment types will gain at different rates so you should review them every 6 or 12 months and “rebalance”, selling some and buying others, to get back to your preferred asset allocation. Studies show that rebalancing every 12 months is best (better than monthly). Also, when you rebalance, try to only change funds in your retirement accounts which don’t generate taxes on sales (just on withdrawals).

Financial Institutions

Any reputable bank and brokerage is fine but preferably use ones with no, or very low, fees for your most common tasks.

For checking and savings, I use First Tech Credit Union, the original credit union for Microsoft employees, which charges me no fees for accounts with low balances as well as offers higher interest rates than other banks. I would avoid any bank the charges a monthly fee such as for inactivity. Some banks will even reimburse fees charged by other banks for using debit cards at their ATMs.

For longer term investing, I have consolidated all of my funds at Fidelity except for my company’s 401K at Vanguard. I have previously used Schwab and Etrade. All are excellent companies that would be safe stewards of your assets and all allow you to invest your funds at minimal cost to you.

Financial Advice

As you can tell, I like to manage my money. I’ve read about finance for years and I was the head of MSN Money engineering for many years. But I have a financial advisor who I talk with regularly. Why? Because he devotes his entire day to understanding not just investments like stocks but also helps me get my broader finances in order. He can provide suggestions on lowering my taxes by using funds that generate less taxes. He can think think about how real estate fits into the picture. He can run Monte Carlo simulations that help me understand the odds of my not running out of money in retirement. He also listens to me and my needs and delivers what I want; he could be pushing me to different strategies but he is happy to work with me doing what I like (as long as it’s not too insane).

Financial advisors get paid in three different ways, sometimes multiple ways at once:

  1. Fixed rate advisors charge a fixed fee every year. These are few and far between. The advisor I use currently charges $208/mth or $2,496/yr. I highly recommend this type of advisor.
  2. They charge a percentage of your portfolio, so if you have $500,000 invested with them, they will charge 1% or $5,000/year. This is more typical but can get expensive as you have more money.
  3. The buy funds which kick back money to them. So they might put you in a fund that charges a 5% fee on entry and they get part of that fee. So if you are investing $500,000, they will again charge you $5,000 to $25,000 every time they enter, and sometimes even leave, one of these mutual funds. I do NOT like these types of advisors as it’s unclear how they get paid and they are incented to have you buy and sell funds frequently even if that’s not in your best interest.

You need to find someone you trust who charges a reasonable fee. The person should be a fiduciary, which means they put your needs ahead of their own.

I use Jeff Tolsma of Tolsma Investments. He’s a great guy to work with, knows his stuff, respected my investing wishes but nudged me towards funds with slightly better performance, etc, etc, etc. I can contact him at any time, as often as I like. As mentioned, he charges $2,496/yr and has paid for himself not just with his fund recommendations but also by reviewing my accounts and getting me to invest my money appropriately rather than leaving it in cash. I HIGHLY RECOMMEND Jeff. Call or email him.

I’ve also used Robinswood Financial which offers great services at lower, percentage-based fees. I left because I wanted to run things my own way and/or pay lower fees.


Here are some resources that you mind find useful.

Lazy Portfolios: Comparison of returns on various Lazy Portfolios.

Get Rich Slowly: A down-to-earth guide for personal finance.

Bogleheads: General money guidance. Covers priority of investing (what account to invest in first).


Planet Money podcast by NPR: Not investing specific but fun topics that are money related.

Ultimate Buy and Hold Strategy by Paul Merriman: This is what originally got me into the idea of Lazy Portfolios. Here are some good tables from the strategy as well as a really good overview of the strategy from a Marketwatch article. They also have a ton of great articles. I especially like the one on giving a gift to a newborn that will turn $3000 into $50M (in short, put $3000 into an account for your newborn, but I’m a fan of putting as much as you can into an account as soon as possible).

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