How I Invest My Money ? An Overview From A Finance Professional

This is a guest post from my friend Gary, from BestDiscountBrokerages.

Everyone has their own investment philosophy and strategy, and just because one earns you a greater return doesn?t necessarily make it right for someone else. This is because each investor has a different financial goal, tax situation, timeline, and risk tolerance. However, it never hurts to know how other investors approach the process of analyzing the stock market and investing their money.

My Background

I?m a finance professional turned internet entrepreneur. I will tell you from the get-go that I am not an ordinary investor. I have a degree in finance and entrepreneurship from a top-ranked university. My background in financial and investment analysis coupled with experience in private equity allow me to take a more hands-on approach. Generally speaking, I am a stock-picker at heart, yet preach that investing doesn?t need to be complex.

How I Split My Investments

While I recommend passive index funds for an overwhelmingly majority of investors, I split my investing between two brokerage accounts ? Vanguard and TD Ameritrade. If you don?t need a wealth manager or financial advisor because you already know what mutual funds you want to invest in and how you want to allocate/diversify your portfolio, working directly with Vanguard is a great choice.

Index Funds

To cover my bases, I invest the first half of my money in passively-managed index funds. I focus primarily on value-oriented, large cap funds tracking U.S. markets, but also incorporate some growth, emerging market, and mid-cap funds. I lean towards value over growth because I prefer best-in-class companies with reasonable valuations over the Netflix and Amazon?s of the world with ridiculous P/E ratios.

The second half of my portfolio is held with a traditional discount broker. I chose TD Ameritrade nearly a decade ago because my parents used the firm and I was familiar with their platform. If I had to go back, I would choose a broker with a lower fee structure, like TradeKing or Etrade. Although I?m no day-trader, the approximately 50 trades I execute per year at the roughly $3 to $5 premium I pay at TDA cost me hundreds more in commissions. And as you probably already know, excessive fees can handicap your returns.

Individual Stocks

At TD Ameritrade, I buy and sell shares in a group of 50 companies that I?ve followed for years. I prefer to stick to my comfort zone because I know these stocks very well. I understand their business models and, because I?ve been following them for so long, generally know when they are over or undervalued. The types of stocks I follow include JPM, GOOG, MA, BX, XOM, CVX, BIDU, AAPL, DIS, etc.

To protect myself, no position ever exceeds more than 10% of my portfolio. The one exception in the past was AAPL when it was about $420 (pre-split) or $60 (post-split) ? that was just a no-brainer.

Robo-Advisors ? The New Wealth Managers

However, new to the wealth management industry are companies called robo-advisors. Robo-advisors are online wealth managers that ask you a handful of questions to determine your financial circumstances, risk tolerance and retirement needs, and then recommend a diversified portfolio comprised of ETFs. Because of this automated process that avoids human intervention and error, robo-advisors offer a cheaper fee structure than traditional advisors.

The two most popular robo-advisors right now are Betterment and Wealthfront. While they both offer essentially the same service, it is important that investors compare Betterment vs Wealthfront to find the best firm for their personal needs. If I didn?t already have a Vanguard account or my background as a finance professional, one of these firms would be my first choice.

Alternatives Worth Considering

In case you haven?t already heard, JP Morgan Chase has teamed up with Motif Investing to offer retail investors and clients access to IPOs. While this is likely to be a boon for the latter, Motif Investing already offered an incredible value-add worth mentioning.

The company?s unique platform allows consumers to invest in specific trends or motifs, such as ?China Internet?, ?Social Networking?, ?Biotech Breakthroughs?, and ?Modern Warfare?. Each motif is comprised of up to 30 stocks or ETFs weighted to represent the investment opportunity, but the real kicker is the cost – $9.95.

For anyone interested in taking a unique approach to creating a portfolio, Motif Investing may be the best way to pursue industries you are passionate about, but don?t know how to invest in. Then again, you may just be over-diversifying and increasing your expenses.

2 thoughts on “How I Invest My Money ? An Overview From A Finance Professional”

  1. This is gold! The robo-advisors are a very convenient go-to alternative for people like me who only have a limited working knowledge in investment. The suggestions on comparative analysis and close study of the market stocks and companies are my main take away from this, though. There are nicely-placed concise comparisons and top picks, as well. This article appeals to both novice and professionals in a very smoothly-paced way that doesn?t make your head explode.

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