What’s Your Investment Philosophy?

Investment Philosophy Even Steven Money Women Lauging

Over the past 20 years of my life I have made many investing mistakes.  At the same time, I have learned from these mistakes and about who I am as an investor and my strategy to grow wealth.  This education in investing has led me to create my investment philosophy.

What is an investment philosophy?

My definition of an investment philosophy is the overall plan you have for your investments.  Your philosophy is the big picture and the strategy you have built to accomplish your investment goals.  

I look at my investment philosophy in two parts.  First is where I plan to house my investments or what I refer to as investment vehicles.  Think 401K, IRA, H.S.A., and a taxable brokerage account as examples. Second is the investments themselves.  Think index funds, stocks, bonds, and real estate as examples.

Once these two parts have been created you will have the core of your investment philosophy.

I enjoy thinking and talking about money. When I’m not posing for photos I am a financial coach, helping others get their financial lives on track.  Click on the picture to learn more.

Investment Philosophy:  Playing the Long Game

When I think about my investment philosophy ultimately it starts with how will I produce income.  Most of the income produced today is short term income. Long term income will be the main focus of my investment philosophy.

Short term.  The income I need today is from my ability to produce income.  In the past few years it has predominantly come from working a W-2 job, self employment income, and rental real estate.  

Long term.  The income my wife and I will rely on in the years ahead will be income generated from investments in the stock market.

While my wife and I have more aggressive goals than most for investing and creating wealth the short and long term income plans remain the same.  Create income by investing in the stock market. The income may be from dividends or selling the investment after years of compound growth.

The reason I emphasize this is because our long term goal is to rely on income generated from investments.  So it’s important to utilize strategies that make long term investing as efficient and productive as possible.

Benefits & Strategies Retirement Accounts

The best way to produce long term investment results is to use the correct investment vehicle.  A few of the investment vehicles we use to create this efficiency is through retirement accounts.  These investment vehicles have tax advantages that are advantageous to the long term investor.  My current investment vehicles include a 401(k), Roth IRA, and H.S.A. plan.  Let’s take a look and see why I choose to utilize these accounts.


What is a 401(k)?

A 401(k) plan is a qualified deferred compensation plan.  A tax deferred investment vehicle that is usually set up through your place of employment meant for retirement.  

Main benefits of 401(k) account

  • Save money for retirement
  • Save taxes today
  • Company match

Current Strategy

The reason we invest in a 401 (k) is first and foremost to save money for retirement.  In 2019 we have automatically deducted $19,000 which is the current eligible max contribution.  This amount is allowed to grow tax free until we decide to start taking distributions and collecting our retirement income. 

A big bonus today is that this money is not taxed by the federal government. For example if this $19,000 was instead taxed at the 24% tax rate we would pay $4,560 in tax.  By contributing to our 401 (k) retirement account we pay $0 in taxes today.  Instead we have opted to pay taxes later in life and potentially not at all.

Not only are we saving money in taxes but my wife’s company is also matching a portion of her contributions.  The company match is money in addition to the $19,000 she is adding from her salary. This is often spoke of as “free money” and I’m not one to argue with free money and such claims.

By contributing to a 401(k) we save money today on our taxes, invest money for our retirement in the long term, and receive extra money in the form of a company match from my wife’s employer.  This is a big investment money must in our investment philosophy.

Investment Philosophy Chess King

Creating an investment philosophy is king


What is an IRA?

An Individual Retirement Account (IRA) is a government sponsored, tax-deferred personal retirement plan.  

I’ll be talking about a Roth IRA as this is the investment vehicle we use today.  A Roth IRA allows us to invest after tax money and grow tax free over a long period of time.  The big difference from the 401 (k) and the Roth IRA is we have already paid taxes on this money so when we reach the official retirement age our distributions will be tax free. 

Main benefits of Roth IRA account

  • Save money for retirement
  • Save taxes for tomorrow

Current Strategy

Similar to the 401 (k) I primarily use a Roth IRA account because I am investing for retirement.  The big difference in this account is I’m already paying taxes on this money today and then letting it grow tax free until I’m all old and wrinkly.

I tend to think of the Roth IRA account as having options in 30 years.  I certainly don’t know what the tax code will be in 2050, but the plan is to have options when I’m ready to retire.  Having a Roth IRA allows me to take money out of my account tax free, where as a 401 (k) will require me to pay taxes.  One account pays taxes today and one account pays taxes tomorrow. The good news is I will have some options.


What is a H.S.A?

I’m going to let this 4 minute video do the talking on this one as it does a pretty good job.

Main benefits of H.S.A. account

  • Save on taxes today and tomorrow
  • Save for health related expenses today
  • Long term savings for retirement

Current Strategy

My wife and I are relatively young and healthy.   We have what amounts to emergency health insurance.  Because of this we are able to contribute to a Health Savings Account (H.S.A.).  The benefits today are we save money on taxes and any medical expenses. The BIG reason we use an H.S.A. is another retirement account to contribute to.

We contribute the max allowed which in 2019 is $7,000.  This saves tax money today and tomorrow plus even allows the contributions to bypass the 7.65% FICA tax.  For you tax nerds and CPAs out there you know this is a big deal.  

If any minor or major medical expenses occur I pay with my H.S.A. account.  In the mean time when I’m not using this money I am able to invest my contributions just like I would a 401 (k) account.  Then much like a Roth IRA when I reach retirement age I can take this money out tax free.  Pretty good deal if you ask me.

Remember I don’t have any idea what the tax code will be when I’m old and gray, but I do know that having options is a good thing.  Plus not only can I use this as a medical expense account for the next 20 or 30 years, but if I stay healthy I can actually use this account on any expense I want.  Maybe I will start collecting vintage Nike items with my H.S.A. account or a lake house.  I’ll report back in 30 years to let you know. 

Benefits & Strategies Retirement Accounts Summary

The goal of my 401 (k), Roth IRA, and H.S.A. investment vehicles are to create tax savings options both today and tomorrow.  These accounts allow me to invest  efficiently and effectively for income and investment growth in the long term.

Not all of my money can be invested in retirement accounts.  In 2019 we will contribute $19,000, $12,000, and $7,000 for a total of $38,000(Not included in the totals is my new self directed 401 (k)) in our respective retirement accounts.  This is all part of our long term plan, however we have plans to contribute more.  Our goal is financial independence and our investment philosophy includes more.  Investment vehicles that are more readily accessible today.

Benefits & Strategies Taxable Brokerage Accounts

What is a taxable brokerage account?

A brokerage account is an investment account that enables you to buy stocks, bonds, mutual funds, index funds, and other assets deposited in your taxable brokerage account.  This is the first investment vehicle that money invested in or taken out will be taxable.

Main benefits of taxable brokerage account

  • Ability to invest in the stock market for income today and compound investment growth
  • Access of the account without penalties or fees for withdrawals
  • All of my retirement accounts are maxed out and I want access to money before I retire

Current Strategy

Each account or investment vehicle that I have talked about included a strategy to avoid taxes in the short and/or long term.  The retirement investment vehicles allowed us to save money for our eventual retirement and long term investing.

The taxable brokerage account differs.  The investment vehicle itself does not provide any strategies to avoid taxes today or in the future.  The investments themselves offer this, which we have not discussed as of yet, but the taxable brokerage account does not.

Our primary goal with a brokerage account is to grow wealth both today and in the long term.  The ability to receive dividends or sell shares in this account is not restricted or penalized like a tax advantaged retirement account.  The benefit with this type of account isn’t really the type of account but instead the investments that are able to be purchased in this account.

Our taxable brokerage account is used much differently.  We currently use it for short term savings, it’s actually where we house our non-FDIC insured emergency fund.  It’s also a place we create passive income today and long term investment growth and income for tomorrow.   

Now that we have discussed our investment philosophy around our investment vehicles the logical next step is to talk about what investments are in these accounts.  The first part of my investment philosophy has been created.  Make sure to check in next week or subscribe via email to read about my investments and the second part of my investment philosophy.

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(2) comments

Roth contributions are my favorite way to invest as the moment. I would rather pay the income tax now and not have to do the guesswork (or be required to take RMDs) when I’m retired.

We also bought our first rental property this summer. Although it’s not pure passive income, we appreciate owning a tangible asset that can earn income even when the stock market doesn’t.

    Steven Donovan

    As you can see I’m a big fan of filling up those retirement buckets so I like your Roth IRA favorite talk.

    Completely agree that your portfolio should have diversification/asset allocation that reduces risk. We owned 2 rental properties and it was a catalyst to where we are today. Currently we are REIT investors right now, but that could change with the right opportunity. Thanks for sharing Josh!

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