Today, I run a platform called BetterWallet to help people take control of their finances and build wealth, inspired by my own experience paying off $80,000 after college to become debt-free. But the first few years after college, even though I was working in the financial industry, I was living paycheck to paycheck. I felt like my debt was keeping me from accomplishing other money goals, like buying a home or investing.
Back in 2012, when I was a new stockbroker, I was working with a client that had six figures in a Roth 401(k). When she called me up with another question six months after that first meeting, I noticed how her account had passively grown. Compound interest had helped her build wealth. It was a lesson I never forgot.
To me, personal finance is like building a house: You want to make sure your foundation is strong before building on top of it. So as I got a handle on my loans, and finished paying them off in July of 2020, I remembered that client, and turned my attention to how I could invest my money to help me grow my own wealth.
Over the last year, I've been able to build a six-figure portfolio. Here is how I developed my approach to investing.
Before I delved into investing beyond an employer retirement account, I wanted to have a solid budget, and make sure every dollar that was coming in had a job. When I budget, I use a simple excel document that includes the following sections: total income, fixed expenses, and variable expenses. I even made a template based on mine, for anyone else looking to start their own budget.
Every two weeks, I look at my budget and make adjustments to make sure I'm staying on track with my financial goals.
When it came to paying off my debt, I started with my high interest loans first, for a key reason. If you had a credit with an 18.24% APR, for example, at first glance, this may not seem to be a big amount, but consider that this is close to $1,800 per year for a $10,000 outstanding debt balance. Over five years, this could be close to $9,000.
Knowing this, it was important to me to knock out that kind of debt first so I wasn't adding to my balance over time.
As I paid off my debt, I implemented the hybrid method. I started with the debt avalanche method and then switched to the debt snowball method to help me stay focused and motivated.
Video by Mariam Abdallah
The only investing I did while getting my budget together and paying off my high interest debt was retirement investing. Why? Three words: the retirement match. A retirement match is when an employer matches your retirement contributions up to a certain percentage. Your match percentage is based on your employer plan's rules, but typically it's between 3% and 6%.
Remember, some companies have "vesting periods," meaning that you have to wait a certain amount of years before you fully own the match the employer contributed.
For me, my employer match was 5% while I was paying off debt so I contributed up to 5% to get the match. This meant that 10% of my annual salary was being invested into my 401(k) each year.
Video by Tala Hadavi
Two of the three companies I joined after college had a vesting period, so I waited until I was "fully vested," or in other words I owned 100% of the employer match, before I moved to another company.
The employer retirement match is an employer benefit that many employees can forget about. Additionally, people forget that the employer match is part of your total compensation, so forgoing and not taking advantage of your match means that you're losing out on some of your annual compensation.
I consider the following variables before I start investing: my investing goal, my risk tolerance (how I react to risk), my risk capacity (how much risk I can afford to take), and my time horizon (how much time do I have until I need this money). All of these variables help me land on my investing strategy.
My personal investment strategy is what is called the core and satellite method. The "core" is made up of passive investments into major market indexes like the S&P 500, and the "satellite" is made of more risky investments into individual stocks, for example. I like this approach because I can take a more of a passive, diverse, hands-off approach to investing while putting a few select investments into companies that I love.
I invest into mutual funds or ETFs that track major stock indexes like the S&P 500. So 90% of my portfolio is invested in passive, broad-based, low cost mutual funds or ETFs at the core, for both domestic and international exposure.
Video by Courtney Stith
Because I have years before I need to access this money, I'm good with having it mostly be in stocks for the time being. I allocate 10% to individual stocks and cryptocurrencies I believe in over the long term. Rather than a potential "get rich quick" strategy, I see cryptocurrency as a diversification tool.
Depending on your own goals, time horizon, and risk tolerance, you may want to take on more or less risk. And when choosing an individual company to invest in, I ask myself a few key questions as part of my research and decision-making process.
- Do I understand what the company does and how its business model works?
- Am I able to explain what the company does to a 5-year-old?
- Do I know who runs the company, and do I agree with them morally?
- Do I believe in the company long term, over more than 20 years?
Before doing any more research on the company's financial history, as a last gut check, I ask myself if I feel comfortable suggesting the stock to my grandmother.
Ultimately, by making sure I have a solid financial foundation and by using the core and satellite strategy, I am able to invest over the long term, not worry about short-term swings in the market, lower my overall investment fees, diversify my portfolio, and work toward reaching my investment goals, which include reaching a FIRE (Financial Independence Retire Early) goal of $1,250,000, and one day buying an investment property.
How I approach investing will likely be different from your approach. This is what has worked for me, and is meant for informational and educational purposes only, and should not be construed as personal investment advice. Be sure to do your own due diligence before you start investing, and find the strategies and tools that are right for you.
Marc Russell is a foster child turned financial educator. Coming from a low-income family, he put himself through college and paid off $80,000 in debt after graduating. Marc spent much of his career at two of the largest financial institutions in the world, where he consulted thousands of households on how to manage their money: the right way. Now, the owner and founder of BetterWallet LLC, Marc teaches people all around the world how to make money work for them.
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