SVIC Facebook Q&A Discussion:
Advice on Where and How to Start Investing
Question for the group:
*This question was asked to the community last March 22, 2022:
I earn almost 7 figures at a FANG company but have made almost no investments other than retirement accounts and a personal home. I just don’t know where to start. I’ve considered hiring a fiduciary advisor but haven’t really found anyone great. I try to follow conversations here but seems like most people are serious investors and usually skip the basics. Appreciate any advice on where and how to start investing? What are other folks in Silicon Valley generally do? I’m looking for long term, medium risk investments. For example, real estate always looks intriguing. Thanks!
Is now a good time to start putting 60-70% in index funds ?
Answer #1: Real estate is not slowing down
“Speaking as someone in South Carolina. Real estate investment dollars flowing from California have really super charged the market and it doesn’t look like it is slowing down.” —SVIC Member
Answer #2: Getting out of software zone
“You are like any other Silicon Valley smart software engineer. We are rich but not at all wealthy and end up spending most of our professional life working and thinking of just work. I recommend getting out of software zone and explore the world of finance. Klipinger is a great magazine to subscribe and start reading. I prefer reading a magazine or a book instead of online garbage. Nobody can manage your finances – it’s always going to be you and yourself!!” —SVIC Member
Answer #3: Index funds & personal preference
“So it’s more of a matter of how much of your net worth do you want to put into index funds? And what is your time horizon for this money? Do you need it back immediately? If so, that’s probably not your best bet. If you have a long time horizon, then it could make sense. And do you want to regularly invest in them over a set period of time (i.e. instead of just making one large purchase, break it down into multiple pieces and buy a bit at a time)? A lot of this is a matter of personal preference and your comfort with risk. Again, thank you for this great question! Take the day off with full pay.” —Jordan Thibodeau
“One doesn’t have to throw a bunch of money into index funds all at once. You can always use dollar cost averaging.” —SVIC Member
“It always is [a good time putting in index funds] in my opinion. Unless you plan on retiring within the next 10 years, maybe a conservative approach is the way to go, otherwise you’re probably not going to time the market at the bottom and invest a lot there.” —SVIC Member
“Of course now is the best time [to put in index funds]. The best time is 10 years ago. Or now. Pick an asset allocation and start saving. Simple” —SVIC Member
“Don’t worry about the timing of your index buys.” —SVIC Member
Answer #4: Avoid bonds, avoid real estate
“Don’t overthink it. Keep your costs low and don’t plan on living in high-cost, high-tax California forever.
Max out 401-k and IRAs. You are already long tech (because of all of those stock options) so avoid tech at all costs in your investments. Invest 75% in a US index equity fund and maybe 25% in REITs. Avoid bonds, esp if you are a CA resident. I’d avoid real estate unless you really take the time to learn.” —SVIC Member
“I haven’t read what others are saying, but it’s probably good advice. From a psychological standpoint, I think there’s 2 things you need to understand.
1: it isn’t rocket science. You’re most likely more than capable of handling this on your own.
2: you have to want to think about it. Again, it isn’t difficult, but the barrier for most people is the desire to look at their finances. It seems like you got over this hurdle, but make sure you keep it somewhere on your list of priorities” —SVIC Member
Answer #5: Investor policy statement
“Write yourself an investor policy statement. Once you’ve written out your internal preferences, goals, and practices that can often guide you to go out and learn about the best investments to suit your needs. One size certainly does not fit all. If you’re wanting to look at a few of the options outside of stocks, bonds, crypto, and gold I recommend the book, The Alternative Answer.” —SVIC Member
Answer #6: S&P 500
“S&P 500. Done. Every time I deviate from it, I regretted it. This is basically the wisdom from the book random walk down Wall Street. I took the time to read it and bought the analysis and logic. I encourage you to read it.” —SVIC Member
Answer #7: Working with a professional
“While I agree that taking responsibility for your own finances and investments is the ultimate path, there is something to be said for working with a professional to set yourself up with proper goal setting and identification of correct investment types for you. Someone indicated that retail level private wealth guys are the lowest on the totem pole, which is true, but if you really are earning close to seven figures, you probably are at a level to access wealth management at Goldman or JP Morgan where you are not going to be working with people on the bottom rung. I would ask your colleagues to see if they have someone they work with at a firm like this and see if they would take you on (you would be at the low end for them but given your potential earning power going forward they might take you on).” —SVIC Member
Answer #8: Understanding the principles of investing
“The sad truth (not so sad) is, you have to do the hard work of understanding the basic principles of investing (not that hard to do) and be responsible for your own money/asset allocation and understand what you are doing. This is the only way to increase your wealth through investment. Nobody can do that for you, but many people can help you.” —SVIC Member
Answer #9: Reddit – Personal Finance
“Reddit – Personal Finance has good 101 docs, start from there. The G in FANG has also great internal discussion group on personal finance with very knowledgeable people. I wouldn’t be surprised if your company has something similar.” —SVIC Member
Answer #10: Don’t overthink, live below your means
“Don’t overthink it. Just put it into a simple 3-fund portfolio and live below your means.” —SVIC Member
Answer #11: Equity fund
“A solid private equity fund is probably the best overall return to risk profile long term.” —SVIC Member
Answer #12: Disney, Microsoft, Apple, and Google
“Throw it all in Disney, Microsoft, Apple, and Google. They ain’t going anywhere.” —SVIC Member
Answer #13: What are your life goals?
“My first recommendation would be for you to speak with a CFP (Certified Financial Planner) that charges by the hour. The goal is for you to figure out your personal goals and what a financial plan might look like for you. There is always a context when talking about money and investing. Your age, marital status, etc. will (should) impact your decision making and choices. What are your life goals? What happens if you become ill, injured or otherwise unable to work? One thing I’ve learned over the years is that once you reach a certain amount of wealth more money becomes a “game” and buying toys (You can only drive one car at a time). Another thing I’ve learned is that there are lots of people who want to “help” you for a slice of your money. Be somewhat wary. If you are looking at investing in stocks, one of the classic books is “The Intelligent Investor” by Benjamin Graham. For magazines, someone suggested Kiplingers. I used to subscribe but I’ve found it leaves a lot to be desired. I do subscribe to Barron’s. I use it as a starting point for ideas and themes but then do additional research and due diligence. Another thing you need to consider about investments is how hands on you want to be. That will inform the types of investments you choose. Just a few thoughts.” —SVIC Member
Answer #14: Donor Advised Fund at Schwab
“A good default is just a basket of ETFs that you force yourself to forget about for a few decades. It has proven difficult to come up with a game plan that seriously outperforms that plan. So: don’t overthink it. (Investing is one of these areas where it’s very easy to “learn enough to be dangerous” —most of the worst retail trades made in the past decades were by relatively experienced traders.) Hilariously enough a lot of the value that a financial advisor brings is keeping you from shooting yourself in the foot, i.e. making some nothing gets done with your portfolio. Don’t use Schwab Intelligent Portfolio, just either buy the e.g. Vanguard ETFs yourself directly or use Wealthfront.
Kids aren’t mentioned but if yours (or those you want to help fund) may go to college, tucking away a 529 for them and max’ing it out is a good idea. Mega Backdoor Roth with fully-max’ed out contributions is a great idea for as long as this loophole stays open. If you are interested in having a charitable impact, setting up a Donor Advised Fund at Schwab will take you two shakes of a lamb’s tail. You can donate appreciated securities to your DAF and write off the complete current market value at time of donation while paying zero cap gains taxes. The DAF then liquidates the securities and you can turn around and make large cash grants to charitable causes of your choosing. This is a very powerful and tax-advantaged way to donate. And it doesn’t cost a dime. This also lets you separate when you want a charitable deduction (e.g. during a high-income year) from when you actually cut the checks to charity. So totally fine to make a huge DAF contribution in early December because you realized you are going to have a big tax bill and then issue your grants in an unhurried way over the next few months. Deworming and malaria projects have enormous bang for the buck in terms of your impact on the world. We helped build some elementary schools in Bangladesh with our $PLTR gains last year, which felt great.” —SVIC Member
Answer #15: Here’s what I have done
“There are a ton of excellent opinions noted in this matter, though much of the advice is likely a reflection of their own strategies. Even so, I agree with nearly all of the recommendations. Finding what’s right for your situation, goals and desired level of effort is important. Here’s what I have done:
I spent several years treading water in self-selected stocks and mutual funds. I hit the eject button, hired an investment firm that aligned with my goals. I have made strong returns and continue to be happy with my decision 7 years later. Yes, they charge a fee, but I am still way ahead and have offloaded the time required for investing to someone else. For me, money well spent for performance and piece of mind. I also invest heavily in index funds (S&P500 & Nasdaq). I don’t need an advisor (or their fees) for this type of investing. This also provides capital for higher risk investments (crypto and stocks you like) and a source to fund bigger projects like real estate when you’re ready. Investing in real estate (outside of my home) is very attractive, but is something I have avoided. Never say never. Good luck!” —SVIC Member
Answer #16: VTI or VOO
“Two line answer: Buy VTI or VOO in any stock brokerage app. You are way ahead of the game if you do that. Check this article: An Engineer’s Guide To Building Wealth” —SVIC Member
Answer #17: Boggleheads
“Boggleheads is a great online community with very classic and good investing advice. There’s tons of info there at all levels starting at beginner.” —SVIC Member
Answer #18: Healthy finances vs Putting money to work for you
“I actually think of investments in 2 ways:
1. Healthy finances. This is just making sure you are staying healthy in a budget and making smart month on month or year on year decision making or planning. With this framework you can better understand how much you want to save and how much you want to spend on your lifestyle and happiness.
2. Putting your money to work for you. This is taking the growth and assets you have and minimizing taxes and maximizing growth.
I personally find value in doing reviews on #1 and sometimes paying for it, but I try to keep it a separate discussion vs #2.
healthy finances should be seen similar to going to the doctor for an annual check up, paying a personal trainer, or consulting a life coach. It is something you can read up on and do alone, your company may offer some consultations, or you can pay for it. For this service I personally like keeping this cost separate from my investments. For my payment I get check-ins, help rolling over all my retirement investments (Roth IRA, back door Roth IRA), and general things I don’t like doing at the end of my working day. Could I do it myself for free, yes, will I remember to do it or push myself for any rollover work, or homework tasks, unlikely. For this reason alone I am willing to pay for it. As you want to learn more, I would highly recommend driving a parallel track or learning about both.” —SVIC Member
Answer #19: Vanguard Fund
“Invest in a Vanguard Fund. You can select the risk that you want.” —SVIC Member
Answer #20: Brk.a & Brk.b
“Brk.a if you can swing it 😄 if not brk.b is the alternative” —SVIC Member
Answer #21: Stock Series
“Stock Series /jlcollinsnh.com/stock-series/” —SVIC Member
Answer #22: Bitcoin
“Bitcoin” —SVIC Member
How about you? Do you have any advice on how to start investing?
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