Mission:
My fiancée and I want to retire in our 40s. This gives us 10-20 years to generate as much wealth as possible which we will then live off until our 60’s. Once in our 60’s, our retirement assets will become available for us to use for the remainder of our lives. To achieve our goal, we will be investing weekly, DCA (dollar cost averaging) into various ETFs. This is a process I like to call, The Weekly DCAly (pronounced Deek-aly)
In addition to wanted to retire early, I also have 2 other goals. First, I want to capture and share our wealth journey with others in hopes that this information is found useful. Second, I want to beat SPY.
Our Income:
My fiancée and I both changed employers recently. We are now making substantially more money as a result. Combined, we are bringing in $295,000 per year (up over 50% from what it was before). We are also both fully remote and are not living in a super high COL area. Everything we are investing is money we can afford to lose. If a large and unexpected life event were to come up, we have consistent income and a comfortable amount of money in our savings account. We could use those assets before we would need to look at selling our personal investments.
Our Expenses:
We outlined all our expenses and estimate that we spend around $5,000 per month. This includes basics such as rent/food and even small recurring purchases like haircuts. We also included a miscellaneous bucket and an even larger savings bucket. These will offset surprise purchases like gifts, car maintenance, wedding costs (we are getting married this year), and additional savings for a house.
My fiancée pushed for making this more conservative as we can always find our savings are growing and do sporadic $2,000 or $5,000 investments. I was a bit more aggressive initially; but ultimately agreed with her. I also realize that people have a tendency to undervalue our expenses.
Investible Income:
I want to emphasize the need to invest for your futurest self before you invest for your future self. What I mean by this is that you should be properly investing for your retirement (401k, IRA, etc) before you start investing in a cash management account (CMA). The best way to do this is:
- Max your employer 401k match
- Max your Roth IRA – $6,000 per year
- Max the remaining portion of your 401k – $20,500 per year
Notes: If you are over 50 you can contribute even more to your IRA and 401k. Also, if you have an HDHP you should consider contributing/maxing your HSA. I don’t have this, so haven’t considered it, but you can put up to $3,600 here to help with your health care costs and some financial planners recommend maxing it out even before you max your IRA.
Both my fiancée and I have no student loan debt. We are maxing our 401k and our Roth IRAs. If you read the section about our income being just shy of $300,000, you may be questioning how we are contributing to our Roth IRAs despite making more than the $214,000 MAGI income cutoff. We are both doing Backdoor Roth IRA contributions. There is a lot of resources available online on how to do this, but it is basically a loophole that allows us to fund our Roth IRA even at our income level. The only caveat is that we cannot own any funds in any traditional IRAs (IRA, rollover IRA, etc).
Once we take out taxes, our retirement assets, and all our expenses, we were left with approximately $8,700/month. That leaves us with $2,005 to invest, per week.
My Investment Style:
I handle our investments. I want to be clear that I am not saying I control our money. My fiancée makes more money than I do. She earns her money and is free to spend it as she chooses. We maintain a healthy financial relationship and do not question each other if someone decides to splurge or buy a toy from time to time. That said, we both prefer to splurge on vacations with each other. We both also want to retire early and prefer a wealthy life to a rich and flashy life.
My investment style might be classified as a moderate growth investor. I like tech, specifically big tech. I won’t get into why today, but I still see those companies as having high growth potential and systemic undervaluation. In fact, one of the main reasons I wanted the ability to invest in ETFs is because I wanted the QQQ (QQQM) to be a core holding in my portfolio. That being said, my main holding is VTI. There are a lot of different ways to analyze stock charts and patterns, but the one rule that has never failed is that over time, the stock market as a whole will go up. It may trade sideways or even go down for the next 5 years, but I have absolute certainty that if given enough time, the market will resume to ATH at some point in the future just as it always has.
The remaining section of my portfolio are small holdings in sector ETFs. I also have a small percent in some individual stocks which I believed were undervalued in my total asset holdings. What I mean by this is that I calculated what percentage of my total portfolio a stock like Apple contained. As I write, VTI is 5.93% Apple and QQQM is 12.61%. Of course, these percentages will change over time as the ETF passively rebalances, but it is nice to know what percentage of Apple I was “holding” at any given time.
Below is a chart showing my ETF breakdown. In addition, I have a chart showing 31 stocks I wanted to know what percentage of my total portfolio was being allocated to. I have my Excel sheet set up so that I can refresh all my ETF data to pull up to date holdings and then what percentage of my total portfolio is allocated to that specific stock. I can also update that list of stocks to see the holding data on different stocks (ie. Change SPOT to JNJ). I did this to help visualize what stocks my money is actually going into. Many people lose sight of this with ETFs, looking at it as a black box. Though I am an ETF investor, I still like to know which companies my money is going towards. I like growth/tech stocks and prefer those that are cash flow positive with a wide moat (Apple, Microsoft, Amazon, Google, etc).
As I said above, I like big tech. Being that my portfolio is 86% VTI/QQQM, its holdings are unsurprisingly the S&P weighted more heavily on the Nasdaq 100. And before I get called out, yes, I realize VTI is not the S&P (that is VOO or SPY). VTI is about 85% VOO with the remaining 15% being in mid and small cap stocks. I preferred this for my portfolio as it added an extra layer of diversification on my top holdings.
Another reason I like ETFs which I didn’t mention above is that they are tax efficient. If you buy stocks and decide to sell some to rebalance your allocation, you will pay tax on gains. ETFs rebalance quarterly (or however defined by the ETF) and there is no tax triggered event when this happens. VTI may look radically different in 20 years, and I will be holding and benefitting from its rebalances.
Lastly, I want to note that I may tweak and adjust these holdings over time. I am on the fence with my ARK ETFs and given 1-3 years I may pull the plug and move that money into my other holdings. One thing I do not expect to change is my heavy allocation to VTI and QQQM. With the amount of money we are investing for the foreseeable future, I do not see the need to be overly aggressive. We are comfortable with the slower and boring passive investment strategy. Many also find this to be lower stress.
Choosing a Brokerage:
I had a lot of requirements in the broker I wanted to use:
- No fees
- Able to invest in ETFs
- Automatic recurring investments
- Permits joint accounts
- Good reputation
Weighing all these requirements, I was really left with many options. Most brokers only do recurring investments into index funds. Since I wanted ETFs and didn’t want to have to deal with making manual investments each week, I was pretty much left with M1 Finance and Robinhood. Robinhood has a bad reputation. They also do not permit joint accounts which is a huge dealbreaker for us since if something were to happen to me, my fiancée would have a tax nightmare on acquiring our/her assets.
M1 has a handful of really great features, and a few flaws in my mind. I will likely make a post outlining M1 in more detail another day, but for now I can summarize it as:
- Intended for people who want to set it and forget it
- UI allows for a friendly and unique way to view your holdings and growth
- Auto invest tries to maintain pie slice allocation (this is a blessing and a curse)
- Dividends are reinvested into all holdings, not just the stock that earns it
- No easy way to stop investing in an asset without trying to trigger a sell event
- Free trading window is first thing in the morning
- Joint account only has 1 login for both users
Should I Invest Now?
The age-old question. There is a lot going on now between Russia starting a war, oil skyrocketing, China in lockdown, semiconductor shortages, supply chain still being behind, inflation being red hot, Fed raising rates, real estate at ATHs, fear of an upcoming recession, etc.
Ultimately, no one knows what the market will do. Historically the market has done fine during some recessions. About 50% of the time, it has actually gone up. The economy right now is great. Consumer spending has been crazy with people antsy to get out of the house after 2 years of masking and minimal travel. Unemployment is at an all-time low as well. Could this flip on the drop of a dime? Yes. But for now, that doesn’t seem likely.
At the end of the day, I am not an economist, nor can I see the future. The stock market may go down, it may go up, or it may even trade sideways for multiple years. For me, dollar cost averaging removes the emotional aspect out of things. When things go down, I am buying at a discount and lowering my cost basis. When things go up, I am making money. When things go sideways… well I’m just increasing my position, so I have more money to accrue interest when the market does inevitably go up and reach ATHs again (5, 10, or 20 years down the line).
Summary:
While this might not be the most exciting strategy in the world, I think a lot of people get lost remembering the crazy gains they saw someone make on a 1DTE option YOLO. They forget the countless other posts they see of someone turning $10,000 into $3.50. I want to demonstrate investing, not trading. I want to demonstrate the power of consistent dollar cost average while I save for my fiancée and my early retirement. I look forward to sharing weekly updates with pictures of my actual portfolio with you all.
This is, The Weekly DCAly.
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