As someone deeply entrenched in the financial industry, my approach to investing is both strategic and informed. Over the years, I’ve fine-tuned my investment strategy to align with my financial goals, risk tolerance, and market outlook. In this blog post, I’ll provide insight into where I allocate my investments and why each choice plays a crucial role in my overall financial plan.
The Power of the S&P 500: 95% Allocation
A cornerstone of my investment portfolio is the S&P 500, a market index that represents the performance of 500 of the largest companies listed on stock exchanges in the United States. I allocate a significant portion—95%—of my investment capital to this index fund. Why such a heavy weighting towards the S&P 500?
First and foremost, the S&P 500 offers unparalleled diversification across a wide range of industries and sectors. By investing in the largest publicly traded companies in the U.S., I gain exposure to the broader economy and benefit from the inherent stability and growth potential of established market leaders.
Moreover, the statistical evidence overwhelmingly supports the efficiency of index investing, particularly when compared to actively managed funds. Study after study has demonstrated the difficulty—even for seasoned professionals—of consistently outperforming the market over the long term. By investing in the S&P 500, I harness the power of the market’s collective wisdom and avoid the pitfalls of trying to beat it.
Now you might wonder, why I don’t hold any international stocks. And that is for two reasons. 1.) I believe that the U.S. is the strongest country in the world, and after the COVID-19 pandemic, this only strengthened my belief in this. The U.S. is the only major country to recover from the pandemic as strong as it did. We have the best universities and the biggest, most influential countries in the world. We are also control the worlds’ reserve currency. The U.S. is still young in relative historical terms, too. I just don’t see the U.S. going anywhere and Europe and Asia have their own, even bigger issues.
2.) By investing in the S&P500, I actually do get international exposure through the companies in the index because many of these companies generate significant sales from overseas.
The Safety Net: Emergency Fund in 3-Month T-Bills
While the bulk of my investments are directed towards the stock market, I recognize the importance of maintaining a liquid emergency fund to cover unforeseen expenses or financial emergencies. To this end, I allocate a portion of my portfolio to 3-month Treasury bills (T-bills). About 2 months of living expenses, outright, or about 4 months if we include unemployment insurance.
Investing in T-bills offers several advantages for preserving capital and providing liquidity. Firstly, T-bills are backed by the full faith and credit of the U.S. government, making them among the safest investments available. Secondly, T-bills provide a higher interest rate compared to traditional savings accounts, allowing my emergency fund to generate modest returns while remaining readily accessible.
Additionally, investing in T-bills offers me a state tax exemption on the interest earned (I live in NY). This tax advantage further enhances the appeal of T-bills as a cornerstone of my emergency fund strategy.
Venturing into New Horizons: Investing in New Ventures
As someone with a passion for innovation and entrepreneurship, I allocate a small percentage of my investment capital—around 1%—towards new ventures and opportunities. This primarily revolves around online businesses that I startup.
While investments in new ventures carry higher risks compared to established markets, they also offer the potential for significant rewards and portfolio diversification. By carefully selecting opportunities and conducting thorough due diligence, I aim to capitalize on emerging trends and disruptive technologies while managing risk effectively. And since a majority of my income is earned from my W-2 job, and since that job doesn’t pay me enough to achieve the goals that I want to achieve, I look at investing a small percentage of my income into business ventures as something that is risky NOT to do.
Furthermore, investing in new ventures allows me to support innovative ideas and contribute to the growth of promising entrepreneurs. It’s a way for me to actively participate in shaping the future of the economy while potentially realizing attractive returns on my investment. It can also sometimes serve as a creative outlet, at times.
Investing in Relationships: Supporting Friends and Connections
Beyond traditional investment avenues, I’m exploring the idea of investing in personal relationships and connections. Whether it’s providing financial support to friends pursuing entrepreneurial ventures or partnering with like-minded individuals on collaborative projects, investing in relationships can yield both personal and financial rewards. For example, sometimes friends are short on cash and they want to borrow some money. And knowing who my friends are, I am happy to oblige. In a way, it strengthens our friendship.
Please note, that while investments in friends carry inherent risks and require careful consideration, they also offer the opportunity to support those closest to me and contribute to their success. By leveraging my expertise and resources to empower others, I can create mutually beneficial opportunities for growth and prosperity.
Investing in Impact: Giving Back to Non-Profits and Philanthropy
Finally, as I continue to build wealth and achieve financial success, I’m increasingly drawn to the idea of giving back to society through philanthropic endeavors. Investing in non-profits and philanthropy is not only a way to make a tangible impact on causes I care about but also a source of personal fulfillment and purpose.
Research has shown that giving money to charitable organizations can have positive effects on well-being and happiness. Knowing that my contributions are making a difference in the lives of others—whether through supporting education, healthcare, environmental conservation, or social justice initiatives—brings a sense of fulfillment that transcends financial gains.
In conclusion, my investment strategy reflects a balanced approach that combines the stability of index investing, the security of a liquid emergency fund, the potential of new ventures, the value of personal relationships, and the fulfillment of giving back. By diversifying across these various avenues, I aim to build wealth, create opportunities, and make a meaningful impact on both my financial future and the world around me.