The Moneyaires have been investing their money for over two decades and these are some investing rules I follow.  I started investing small amounts of money in a discount brokerage account in college.  I have made a lot of mistakes and I have learned A LOT.  I’ve lost money and luckily, I have, over time, more than made up for those mistakes. Along the way, I have learned some important investing rules.

In this post I go over what I’ve learned.  These are the big things to keep in mind.  I’m going to go over what you should look out for and how you should invest. 

Investing Rule #1: Avoid Fees

You want to be a complete cheapskate when it comes it fees.  Fees, even “tiny” 1% fees, can eat away nearly 30% of your gains over time. When I first started out and was finally making enough money to really get serious about investing, I worked with a Financial Advisor.  I was charged load fees, an AUM (Assets Under Management) fee and fees for the funds he recommended.  Initially, I brushed it off.  I mean, to make money you had to spend money, right?  Right? WRONG!! 

When I think about all the money I spent in my early years on fees alone, I cringe.  But it was a very valuable lesson.  Plus, when I was younger, I didn’t know a Roth IRA from a 401k. He helped me get started. Without his help, I probably wouldn’t have opened a Roth IRA when I did or started my quest to learn all things personal finance.

I used to pay a 5% load fee every time I bought into certain funds into my Roth IRA I had opened with my Financial Advisor.  At the time, I thought it was okay – I mean when I bought or sold even a single share at my brokerage account, I was charged for the transaction.  However, I was putting about $50 a month away into this IRA and paying a 5% fee to do so – on top of the financial advisor’s fee and the fees in the funds themselves.  So expensive!  If you ever have to pay a load fee to invest in a fund, run.  Don’t do it.  There are so many ways to invest today, for free.  You should never, ever, ever pay upfront load fees or transactions for funds you’re investing in.

Stay away from funds with a high expense ratio

Aside from avoiding load and transaction charges, avoid funds with high expenses.  Fund fees are called “net expenses,” “expense ratio” or “management fees.” Keep these fees under 0.25% for any fund you invest in.  I used to think that actively managed funds with higher fees were superior.  Paying for performance, right??  NO!!  80 to 90% of the time, over the long run, expensive actively managed funds perform below the market. Expensive funds are beaten by the market – they don’t get it right.  Only go for passively managed index funds or exchange traded funds (ETFs) with low fees.  The Moneyaires are invested in IVV and VTI – both with low fees (see below for more information). 

Another thing to consider once you know the basics; fire your financial advisor.  Financial Advisors aren’t bad people, and they do serve an important role.  However, a lot of financial advisors are salespeople.  Many earn a commission when you open a life insurance or annuity policy or buy the funds they recommend.  They’re trying to sell you insurance or the hottest fund of the day or an annuity.  Every dollar you pay in fees is less money that can work for you. Look to Financial Advisors to teach you about the basics if you need their help getting started. But when you’re comfortable investing on your own, bid them adieu and save that money for more investing!

Be aware of your financial advisor’s fees

A lot of financial advisors also call themselves “fiduciaries.”  A fiduciary is someone who has to put your financial interests before theirs.  It’s a great thought, but it’s a term I see loosely thrown around by advisors who don’t have this qualification.  You need to become your own fiduciary and take control over managing your own money. If you’re just starting out and would feel better using an advisor, think of them as training wheels until you can navigate by yourself.

Fee Based vs. Fee Only

If you do work with an advisor make sure to ask your financial advisor how they are paid – are they “fee-based” or “fee-only”?  Fee-based means they charge you an Assets Under Management (AUM) fee that charges you a fee based off a percentage of your total assets under their purview, an hourly fee or a retainer PLUS they earn commissions on the products they sell you.  Fee-only means they’re just charging you a retainer, hourly fee or an AUM fee.  Either way you’re still going to pay fund expenses, too. 

If you are just starting out investing or have less than $1mm in investments, you don’t need a financial advisor. Open the account type you’d like at a discount brokerage like Fidelity or Schwab and invest in broad based ETFs and Index funds with low net expense ratios. If you feel you need some help, that’s perfectly okay. Getting a second opinion to see how you’re doing could be valuable and hiring an advisor to check your portfolio, for a fee you write a check for, may help you put your mind at ease and perhaps even give you some great ideas.

Get Financially Educated

Do your own research – educate yourself. Do not rely on a financial advisor, however. The more you know the more confident you’ll become. When you have a strong basic understanding of investing it’ll actually help your conversations with a financial advisor. You’ll be in a position to ask better nuanced questions, think critically about the advice you receive and get more out of their services.

Investing Rule #2: Make passively managed ETFs and Index funds the core of your investment portfolio.

The Moneyaires invest mostly in index and exchange traded funds (ETFs). I recommend that you invest most of your money, especially your retirement money, into passively managed index or exchange traded funds with low fees.  Chances are you’re not going to pick the next Tesla or Amazon.  Now, the Moneyaires do invest in both Tesla and Amazon and several other individual companies – but only after they became proven winners and I see they have room for growth or are stable winners. 

I read up on these companies, including their 10K reports and follow the news on them closely. Its a big time investment. I also love it because I’m a nerd. When you’re just starting out, go the passive route. Once you have investment money to spare, go ahead and buy stock in a favorite company – of course after you’ve done your due diligence. You can introduce more risk into your investment portfolio once you’re comfortable, or not at all.

But… just keep it simple. And cheap.

Remember, professional ivy league trained money managers don’t even get it right over the long run. Chances are you won’t either. For most people, spending a couple of hours a day reading Barron’s or a 10K or whatever else is too much of a commitment. For those folks, invest in passively managed index or ETF funds and spend your time on the fun things in life, like Frolf – a favorite low cost activity Mr. Moneyaire enjoys.

Investment Rule #3: Don’t Get Fancy

Don’t get fancy with life insurance or annuity products. Don’t use insurance as an investment! It’s a terrible mistake I made and paid dearly for. First, not everyone needs insurance. If you have people who depend on your wages to live, that’s when you need insurance. Skip universal and whole life policies. You only need a term life insurance policy – anything else is going to eat up your money in high fees and expenses.

If you’re considering buying an annuity, buy bonds. An annuity promises to pay you a certain amount at a certain interval for a certain period of time. Bonds can do that for you at a much lower cost. Consider Series I Savings bonds instead? Perhaps Muni bonds? You can even buy corporate bonds. Annuities are a great way to give a salesperson, err, I mean, “Financial Advisor” a bonus.

Kids don’t need life insurance.

An unscrupulous financial advisor or insurance salesman may approach you to open up a life insurance policy for a child. This happened to my parents when I was a kid. Newly minted to the middle class, my parents weren’t very savvy about personal finance. When a financial advisor “friend” came calling to help secure money for college, they thought he was a God send. He explained that whole life insurance policies could create a cash value and pay for college. It turned out to be a very expensive financial mistake. The cash value represented a small fraction of what my parents had paid in premiums. Had my parents just invested in savings bonds, even at very low interest rates, they would have come out much further ahead in saving for college.

Whole life or universal life policies are marketed as a savvy way to pay for insurance and invest at the same time. If you’re looking to invest in your child’s future consider opening a 529 Plan or buying them savings bonds. In a 529 plan, after-tax dollars are invested, grow tax-free and used tax-free towards higher educational expenses or for private school. If you qualify, government savings bonds, like the Series I, are very secure financial products that can be used tax free towards higher education. Children do not need any kind of life insurance.

Avoid risky untested “investments”

Stay away from Crypto, meme stocks and NFTs and the next latest and “greatest.”  Bitcoin mining?  What?  The Moneyaires don’t do this. These things are highly volatile and can ruin a fledgling portfolio if you don’t know what you’re doing.  If you want to ride a rollercoaster, go for it.  However, if you want to become independently wealthy, stick to the boring cheap stuff.

You should be able to explain your investments in three succinct sentences. Invest in tried and true, boring and simple. Everything else, as Papa Moneyaire would say is, “smoke & mirrors.”

Investing Rule #4: Last Year’s Winners are Just That.

I remember sitting in my financial advisor’s meeting room looking at pamphlets of funds that went bananas the last couple of years.  We could have made $32k off a 10k investment in “Bananas Fund” these last 5 years.  The fund manager went to MIT.  We’d move money into the fund, wait with anticipation.  Money, Money, Money!!!

But no, typically what would happen is we would buy into the Bananas Fund and it would have a super mediocre year – not even beating the market average.  Sometimes, the fund would do so badly for a couple of years it would close.  Time and time again. 

Say it with me.  Past performance is not indicative of future performance. Chances are you’re not going to pick the next hottest fund or stock.  The US Stock Market in general has always gone up.  Invest in the market at large.  You’re more likely to pick a hot fund that goes cold than one that outperforms over time.  Passive broad market index funds are the way to go.  

Investing Rule #5: Don’t Wait to Start

What are you waiting for?  I have heard comments from folks saying they’re not rich enough to invest… yet. They are waiting to hit a magical earning or net worth number first. This is the wrong way to think about it. Rich people become rich because they invested their money and over time their money makes them money. Do you have an extra $10? You can get started.  The longer you wait, the longer you give inflation to take a toll on your cash and you’re missing out on the compounding effect.

Time is one of the biggest factors that can work for you or against you. Just check out these two who started investing at different times and their results.

Investing Rule #6: Buy Low, Sell High

This sounds so trite. We hear it all the time when it comes to investing. However, very few people actually do this. Typically, unsuccessful people buy in when a stock or the market has already taken off and sell when there’s a pull back.

I have been successful by buying when share prices pull back and selling after they go back up. For example, during the financial crisis, I bought shares of JP Morgan Chase. There was a lot of upheaval in the finance industry but JP Morgan was seemingly the strongest banking institution amongst the rest. They seemed like a strong bet and I bought shares. Chicken producer share prices took a hit during the avian flu scare. I didn’t think that people would stop eating chicken. Its a staple food, especially in America. I bought shares of a large chicken producer and after the avian flu scare my shares rose and ultimately the company was purchased by Pilgrims Pride. During March 2020, the height of the global COVID pandemic, I doubled down on investing. The COVID crash had an equally dramatic comeback and I’m glad I took advantage of that market pullback.

Just sit tight.

If you’re scared or anxious about the market and think prices are going to fall, sit tight. Better than selling, it’s probably an excellent time to buy. This is a contrarian strategy that has served me well over two decades. When I see well run companies or the market at large taking a beating from something I know they can come back from, I buy more shares.

There have been studies done that show that the pain of an investment loss is greater than the joy of an investment gain. Its hard to watch your investments go into the red. I know, I’ve been there. The best thing you can do when everyone else is panicking is to stay calm, stay invested and put more money into the market.

Once you sell a stock at a loss, you make those losses real. In most cases, if you’re investing in broad ETFs or Index Funds like VTSAX or VTI or IVV… those shares will eventually go back up. Just sit tight.

Investing Rule #7: Diversify

To help mitigate risk, you’ll need to diversify your portfolio. Early on, I was 100% in US equities. As I’ve gotten older and learned more about other investments, I’ve branched out to include more conservative investments by adding bonds and more diversity to my portfolio by going international and investing in Real Estate Investment Trusts. Below I break out some of the funds or trusts I invest in. I recommend David Swenson’s book, Unconventional Success, on how to allocate money to these various kinds of investments.

Stocks

Investing in passively managed broad based ETFs and Index funds is key. When you purchase a share of an ETF or index fund that tracks the S&P 500 or the entire US Market, you’re buying into hundreds or thousands of companies. Chances are there will be companies that don’t do well, or even fail. However, most of them will do well. Over time the US Market has gone up. You’re automatically diversifying your investments across industries and company sizes by buying into these kinds of funds. Investing into these funds is a great first step. Here are ones we’re invested in:

Ticker	Name	Fees	Description
VTI	Vanguard Total Stock Market ETF	0.03%	This ETF is made up of shares from all of the companies in the US Stock Market (3,000+)
IVV	iShares Core S&P 500 ETF	0.03%	This ETF is made up of the biggest 500 companies in the US Stock Market
QQQ	Invesco QQQ Trust	0.20%	This ETF tracks the Nasdaq 100 – this is a tech ETF.

Bonds

Next, to diversify even further, invest into US government and corporate bonds. I recently wrote a post about buying Series I bonds which are offering a 7.12% interest rate through April 2022. This is a great, super safe way to invest and earn an incredible yield. You can also buy actual corporate bonds offered by some of the largest companies out there, like Toyota, or Microsoft. That can be a bit complicated and it would be easier to buy into broad based bond funds like BLV.

Ticker	Name	Fees	Yield
BLV	Vanguard Long-Term Bond ETF	0.05%	2.87%
EDV	Vanguard Extended Duration Treasury Index Fund ETF Shares	0.07%	1.94%

International Stocks and Bonds

We have a small portion of our portfolio invested internationally. Investing internationally will help you diversify and help to spread your risk. Here are the two we like:

Ticker	Name	Fees	Yield
VWOB	Vanguard Emerging Markets Government Bond Index Fund ETF Shares	.25%	4.09%
VXUS	Vanguard Total International Stock ETF	.08%	2.61%

Real Estate

We earn a handsome cash flow from our investment properties as well as enjoying the property value appreciation. However, being a landlord is not “passive.” It takes a lot of effort to rehab, rent out, manage and maintain property. Its the hardest work you’ll ever do for passive money. Its still a great investment, though. Most millionaires in the US count real estate as a big part of their net worth.

Now you may not be ready to become a landlord, and that’s okay! You can still get into the real estate game by investing in REITs or Real Estate Investment Trusts. REITs have to pay their share holders all the profits from their real estate dealings, so an investment in a REIT can also provide a handsome passive payout, sans the landlord headaches.

Some of the REITS we’re invested in are:

Ticker	Name	Fees	Yield
VNQ	Vanguard Real Estate Investment ETF Fund	0.12%	3.10%
VNQI	Vanguard Global ex-U.S. Real Estate Index Fund ETF Shares	0.12%	2.02%
AMT	American Tower Corp	NA	2.02%
O	Realty Income Corp	NA	4.48%
DLR	Digital Realty Trust Inc	NA	2.85%

Rule #8: Keep Learning!

Things change. Rules and policies change. You don’t have to dedicate hours every week or even every month going through financial literature. When you have an opportunity, read a book or follow a blog (like this one) to learn and get new ideas about investing, saving, budgeting and money. No one knows everything. In fact, you probably don’t give yourself enough credit for what you do know.

I created this page as a way to keep track of good blogs I like to visit to learn. Also, if you have other blogs you recommend, please leave me a comment so we can all check it out.

Books

These are some great books I’ve read:

• A Simple Path to Wealth, JL Collins
  • The author wrote this book for his daughter to guide her to save and invest.
• I Will Teach You To Be Rich, Ramit Sethi
  • A no nonsense book on the steps you need to take to live a rich life. I love his chapter on automating saving and investing.
• Unconventional Success, David Swenson
  • David Swenson ran Yale’s endowment and beat other managers time and again with his success. He goes through how ordinary investors should invest.
• Rich Dad, Poor Dad, Robert Kiyoaski
  • A great read on how the traditional path to success doesn’t necessarily lead to wealth.
• The Millionaire Next Door, Thomas J. Stanley
  • A great book on the profile of your typical American millionaire.
• Choose FI: Your Blueprint to Financial Independence, Brad Barrett, Chris Mamula, and Jonathan Mendonsa
  • From the podcast credited with starting the Financial Independence movement, its a good read on how to get started on the path to becoming financially free.

Podcasts

I personally love NPR’s Money Life Kit podcast. They have great shows, especially for beginners.

Good Luck!

Whether you’re a seasoned investor or just getting started I hope you got some good information from this post and I hope it helps you successfully make money investing. If you have rules you follow, let us know about them in the comments below.

Mrs. Moneyaire