Millionaire Interview 301

Here’s our latest interview with a millionaire as we seek to learn from those who have grown their wealth to high heights.

If you’d like to be considered for an interview, drop me a note and we can chat about specifics.

This interview took place in October.

My questions are in bold italics and their responses follow in black.

Let’s get started…

OVERVIEW

How old are you (and spouse if applicable, plus how long you’ve been married)?

48.

My wife’s age remains a mystery to me. She said her age froze once it hit 28, though that’s a number of years ago already.

We have been married for 20 years.

Do you have kids/family (if so, how old are they)?

2 kids – age 14 and 12.

What area of the country do you live in (and urban or rural)?

Urban area on the West Coast.

What is your current net worth?

$5.5 million.

What are the main assets that make up your net worth (stocks, real estate, business, home, retirement accounts, etc.) and any debt that offsets part of these?

The breakdown is as follows:

• $2.0m Cash and Cash Equivalents (more on that later)
• $1.75m Stock
• $1.45m Primary home equity. Nothing fancy in our neck of the woods.
• $250k Rental Property
• $150k Preferred Stock
• ($100k) Mortgage left on Primary home

From another angle, I break down our balance sheet into the following categories:

• $1.5m Non-Accessible Assets (401k, 529 plans)
• $1.7m Real Estate
• $2.4m Accessible Assets (Brokerage accounts, Cash and Cash Equivalents)
• ($100k) Mortgage left on Primary home

I keep a very high cash and cash equivalents balance because:

• I think the market is quite high. After running up gains of 60% in the S&P500 in the last 3 years, there is more risk/less reward potential.
• Now that I am retired, I need to be prepared so that I won’t be forced to sell if the market turns sour.
• I am assessing other investing opportunities, but EVERYTHING seems to be expensive now. Holding cash is not that bad after such a long bull run, even taking inflation into consideration. The alternative of buying too high and later regret it is not a good alternative.

EARN

What is your job?

I am retired.

Though I aspired to be like Michael Jordan, who retired from professional basketball, came back to the highest level of the game, retired again, and came back to the NBA as a player a final time before finally done with professional basketball.

Before my current retirement, I was in middle management in the software industry.

I started out as a software engineer, moved to management a few years into my career. I moved through the ranks and became a director of engineering.

The next step in the career ladder would be VP of engineering. The problem was, I was neither very good, nor very interested in that level of management. After two decades in the industry, I retired for the first time in 2019 after a corporate “reinvention”.

Currently I am a full-time investor. I would come back to tech if the right opportunity would arise.

My wife is a stay-at-home mother. She is the rock of the family.

What is your annual income?

From our 2020 tax return, our income was $154k with the following breakdown:

• $21k Dividends/Interest
• $115k Capital Gains
• $18k Rental Income

Unrealized investment gain is about $500k a year for the past 3 years.

Tell us about your income performance over time. What was the starting salary of your first job, how did it grow from there (and what you did to make it grow), and where are you now?

My first job was at a McDonald’s right out of high school. The pay was $5 per hour. I still remembered that job fondly. It let me practice hard work, respect of others, and enjoy the fruit of my labor. I ate a lot of Sausage McMuffins during that summer.

I started college and majored in Computer Science. I did a couple of internships while I was in college. I forget how much they paid now (probably $12-$15 an hour?). The more important aspect of the internship was to get a taste of what the working world was like and built up the relationships with people at the firm. I must have done well enough, as they extended an offer to me to come back after I graduate. I accepted the offer.

While Computer Science was considered an up-and-coming field, it was nothing like what it is today. My starting pay was $35k, pretty comparable to other engineering disciplines at that point. Though my employer was not a Tier 1 (FAANG) company, the Tier 1 offers were in the $42k-$43k range. I think the Tier 1 companies are now paying around $150k to $200k to a fresh grad on a total compensation basis (base+stock+bonus). That’s a lot of money.

I left my first job after a couple years for the following reasons: 1) My commute was about 45 min each way. Though it was not super long, I could find another job that cut my commute in half and offered better job prospects, which led to the second point. 2) I wanted to work myself towards the high-tech industry. You see, my first employer was in industrial manufacturing. I thought to myself, why not moved my career towards the high-tech industry? The long-term financial impact was pretty big based on my research.

My second job was at the local government. You might think, that’s quite a way off from the “high-tech” industry! That is true. However, I got a 20% bump in my pay to $48k, and it was much closer to where I lived.

While it was not the eventual destination I envisioned, it was a nice upgrade from my previous position. I stayed there for a year. I left because of the following reasons:

• The pace of the job was just too slow for me. I was in my mid 20’s at that point, I needed a faster pace environment.
• The gap in perks between the Tech industry and my local government’s offering continued to widen as the dot com era evolved.

I did enjoy my time at both places. I had great colleagues, positive working environments, and I learnt a lot professionally at both places. Each position I considered as a stepping stone for my next step in my career. If you have an eventual destination in your career you want to get to, it is ok to take some intermediate stepping stones.

My third job was at a start-up. By now, I had enough experience under my belt to try something more demanding. Something with a higher risk/reward potential. This was at the height of the dotcom craze (remember pets.com?) I felt I was young enough to give it a try. Worst case scenario was the company went under and I would need to start over. I was 3 years out of college at that point, and thought I was young enough to take the risk.

I moved to an e-commerce company. It was a contract to hire position, and the pay was $100k. If I subtracted the benefits, I estimated the base pay would be around $80k, which would be an 60% bump. I converted to full time a few months later.

Now, start-ups were interesting beasts. Some crashed and burnt along the way, some got acquired, some stayed private for extended period of time, and some eventually went public (IPO). We were bought out by a larger competitor, I thought primarily for the talent. For we never turned a profit, and our product was probably a decade too soon for the market. In retrospect, if we were not bought out, we probably would become another dotcom bubble casualty. I was thankful that we were acquired. I felt I made it to the big league.

After we merged with the larger company, it really started to get interesting. While this company IPO’d already, it was still a relatively small company. I had the most fun at work so far in my life. There was a lot of challenging work, a lot of deadlines. The team was super capable, I felt we built an empire along the way. It was a very satisfying journey. My initial package was $70k base + bonus and stock options. By the time I left two decades later, total comp was in the $300k range.

What tips do you have for others who want to grow their career-related income?

Once I heard somebody said in Real Estate investment, it’s more important to be in the right neighborhood than getting the best individual property in a less than ideal neighborhood. Because when the market moves, there is so much momentum that moves the better neighborhood, even the best individual property in a less than ideal neighborhood will have a hard time keeping up in appreciation.

My experience was somewhat aligned in growing career-related income. Being in a field that has room to grow certainly make growing career-related income easier. Tech is certainly one of those areas, but that is not the only area. If you are starting out, or considering a career change, pay attention to what the growing fields that are of interest to you.

Be not afraid to take (calculated) risks. I took the risk to join a start-up at the height of the dot com bubble. I was thankful that it worked out, but it could have gone the other way.

However, my mentality at that point was, even if it didn’t work out, I was young enough to start over. I said it was calculated because the worst-case scenario was not too bad, I thought. If I was in a field where opportunities were few and far between, then my propensity of taking risk would be lower.

What’s your work-life balance look like?

Right now? Great!

When I was working, it was stressful.

I do not mind the deadlines and pressure as an engineer or engineering manager. It was kind of fun, pushed me to my limit. Sometimes we needed to pull all-nighters, but those were extreme examples that were few and far between, and we could take a day off afterwards to recharge or something like that. I think I averaged 50-60 hours a week as an engineer.

As a director though, that was when it started to become less appealing. It was not so much about the hours I worked; it was more to do with the always ON type of mentality.

As an e-commerce operation, there was no such thing as an off day. While each engineering team has their own staff to deal with off-hour issues, many times issues would be escalated.

And then there are the politics. The higher the position gets; the higher stake is the game. The truly unplugged time for me was when I was on vacation or at church service only.

Do you have any sources of income besides your career? If so, can you list them, give us a feel for how much you earn with each, and offer some insight into how you developed them?

Investment condo – $18k

We bought a condo after I stopped working. My parents were into real estate (mom and pop landlord). They always had investment properties they rented out as far as I remembered. So this comes natural to me.

However, earlier on I did not buy any investment properties because I was too busy at work, and I didn’t want someone else to manage it for me. I was concentrated in the equity market instead. Now that I have more time, it’s time to start being a landlord.

Dividend/Interest – $21k

These are from our stock holdings and preferred shares. Not a lot here, as interest rates is low, and my portfolio is geared towards companies that either don’t pay or pay little dividend.

Capital Gains – $115k/$500k (realized/unrealized)

Because a portion of my wife’s (when she was working) and my compensation was equity based, we had company stocks for a long period of time. The earliest grants, of which we still hold some, are worth at least 30x. I would sell some of that and other appreciated assets from time to time to rebalance and fund our expenses.

SAVE

What is your annual spending?

Our spending was about $150k a year:

• $30k mortgage and property tax
• $15k health insurance premium
• $8k health related expenses
• $15k private school
• $10k extracurricular activities for kids
• $14k utilities
• $6k eating out
• $12k grocery, household items
• $10k car expenses (gas, maintenance, insurance)
• $15k tithing
• $3k travel – no big trip last year
• $12k – other incidentals

Do you have a budget? If so, how do you implement it?

We don’t have a budget per se. I have a mental picture of how much we are spending on a monthly basis. I will look at the main checking account to see how much went out in a month and called it good.

We do track our spending in a spreadsheet though going back 10+ years. That informed me on our spending pattern.

What percentage of your gross income do you save and how has that changed over time?

When both my wife and I were working, we saved at least 60% of our gross income.

After we started a family and my wife stopped working, we saved 10-20% of our gross income.

That grew to again about 60% before I retired.

What’s your best tip for saving (accumulating) money?

Start saving early. That by far was the best tip I can share, because wealth takes time to accumulate (compounding).

Try to identify investment vehicles that have the best chance of appreciating, and STICK WITH IT. Compounding does not work if you keep switching vehicles all the time. And transactions inevitably caused some inefficiencies (think selling cost, taxes, etc).

Be aware of the macro environment. We were in a hugely accommodating monetary environment for the last couple decades. That may or may not be the case going forward.

What’s your best tip for spending less money?

If you are inclined to find a mate, marry the right person.

On the positive side, the right spouse, someone who is generally compatible with you in spending pattern, will not spend much in areas that will cause you grief, and vice versa.

On a slightly negative side, a divorce can cost a fortune, literally.

With these two points, you will spend much less, or feel like you are spending less money.

What is your favorite thing to spend money on/your secret splurge?

Travel, period.

We used to do a family trip a year, 2 weeks overseas type. We don’t need fancy hotels etc., but would still cost about $15-20k for a family of four, give or take.

While they are expensive, the memories we created as a family will be priceless (I hope), when we looked back later.

INVEST

What is your investment philosophy/plan?

The main drivers are the slow and steady win the game type of mentality. Again, it takes time for compounding to work in generating wealth. Real estates have been appreciating about 5% on a yearly basis in our local market for the last 2-3 decades. Some of our stock holdings were from late 1990’s and are 30x. They illustrate the point here.

In equity, we were both individual stock investors and index investors. It worked well for us, because the stock market has been appreciating in general, so the high tide lifts all boats.

We held quite a bit of our company stock over the years. We were thankful that it did very well for us, but I understand that could have gone the other way easily as well.

I think the key there was we believed in what our respective companies were doing, therefore did not sell early (though we did sell some along the way to diversify). Our judgement was correct so far.

Going forward, my plan is to spend more time in studying individual companies’ business, performance, and culture. I may switch more away from index investing, as the macro environment may not be as conducive to the high tide lifts all boats type of scenario.

What has been your best investment?

My wife. Though her investment in me is probably equally good.

I cannot stress that enough. A supportive spouse, and a healthy/functional family is the best investment you can invest in.

What has been your worst investment?

I bought some Citibank stock in 2007. I remembered I was thinking, well, Robert Rubin, the former Secretary of Treasury, was an advisor at Citi at that time, it couldn’t be that bad as a bank, right? Well, I bought Citi at $50+, and sold it at $5 I think, for a 90% loss.

Moral of the story, even with those who should know what they are doing, is not a guarantee of success.

What’s been your overall return?

11.3% – that is growth of total assets.

I don’t track investment return only.

How often do you monitor/review your portfolio?

Every day now.

NET WORTH

How did you accumulate your net worth?

It’s a combination of earning, investing, and persevering.

Both my wife’s and my parents gave us a wonderful family, and we graduated debt free from college. These were blessings to us.

Both of us had a good job when we started out of college, but neither company was a leading company that was known to be a long-term wealth builder. We prepared ourselves so that when the right opportunities came up, we were ready to seize them. My profession in the software engineering field paid me well. I am always grateful for that.

With the earn side of the equation out of the way, here is the save side of the equation. We don’t consider ourselves as frugal, though we always live within our means with a large cushion of saving socked away. We don’t need the status symbols. In fact, one thing I grew up with was the belief that who I am is much more important than what I have.

I was playing a particular sport with some rich kid in high school. He came with the expensive racquet, all the right gears, and the designer look. Unfortunately, he just was not very good at it, so I beat the crap out of him, with my average racquet, gear and look.

When it comes to investing, it has been a rewarding ride in the last 20 odd years since I left college. We went through the dot com era, the financial crisis, and the covid induced market downturn. I am thankful that we come out stronger each time so far.

I think the following factors helped us through the storms:

• Use leverage with caution. For us, other than the mortgage on our primary home, we have no debt. That allows us not needing to unwind any leverage when downturns come.
• Do not panic when downturn comes. Ideally, one should be in defensive positioning already when downturn arrives, so there aren’t that much bad apples left needing to be unloaded in the first place. But even if one is holding some less than desired assets when downturn arrives, it’s rarely prudent to unload into the panic. For it is already too late. Might as well hold on and hope for the best.
• Cash flow is important, for it allows you to ride through downturns. Without significant cash flows like me, a significant cash reserve is prudent, so I don’t have to force to sell if/when an extended downturn comes.

What would you say is your greatest strength in the ESI wealth-building model (Earn, Save or Invest) and why would you say it’s tops?

I would say Invest.

I say that because that’s something I am genuinely interested in.

Software engineering was a well paid profession, but I was not a computer wiz kid whose passion is into technology. So earning through my profession by trade is not my greatest strength.

Saving was a function of what we made in earning and the fact that we like a simple lifestyle. We were good at it but it we didn’t specialize in it.

Invest is where my passion is, which I will talk about later.

What road bumps did you face along the way to becoming a millionaire and how did you handle them?

In the grand scheme of things, not much.

I did lose some money on individual stocks over the years, but what I made vastly made up for it. Other than that, it was a pretty smooth ride.

What are you currently doing to maintain/grow your net worth?

Investing.

I will mainly be focusing on investing in companies with great prospect, leadership, and balance sheet to match.

I will invest more in the local real estate market. Though, there is too much money chasing too few investable assets right now.

Do you have a target net worth you are trying to attain?

$5 million.

I think I remember Barry Diller once said someone (not him) needs at least $5m to retire. Though it was like 10 years ago he said this, so $5m probably needs to double by now. But if a billionaire thinks someone needs $5m to retire, then $5m will be plenty for me. That had stuck in my mind ever since.

How old were you when you made your first million and have you had any significant behavior shifts since then?

34. Our behaviors did not change much after that.

What money mistakes have you made along the way that others can learn from?

Given a different set of circumstances, I would have started real estate investment earlier.

That would have taken more of my time but it would have created a much stronger cash flow later.

Since property is much more expensive now, the cash flow generated with properties bought now will be much weaker.

What advice do you have for ESI Money readers on how to become wealthy?

Read more on ESI Money and model your behavior after what you read.

Start early, save often, be patient. Let time does its things (compounding).

Try not to take on debt as best as you can, as it acts as an anchor to wealth growth.

Take on leverage with prudence. I wouldn’t say not to use leverage under any circumstances. Just so happens I choose not to use it as a tool (other than mortgage on primary home).

FUTURE

What are your plans for the future regarding lifestyle?

I already retired from my first career. Though if something interesting comes along I will think about.

Other than that, I am learning to adjust to this new stage of life. I will spend a lot more time on investing.

For example, I can spend all day reading up on 10-Q/10-K etc. One thought, the internet (or technology in general) democratizes investing so much. Imagine 30 years ago, most business news relied on printed media (or cable TV) to bring it to the masses. The time lag is usually enormous, and/or medium to consume quite limited. Now, most business news is broadcast through the internet right after it was released.

The cost of trading also dropped dramatically and can be done much more conveniently. This gives the average retail investor substantially better access to tools to make timely, informed, and efficient investment decisions than before.

What are your retirement plans?

Financially, keep on generating more wealth than what we need each year.

From activities stand point, investing will be a good portion of my time as I mentioned above. I will also spend more time in volunteering.

Are there any issues in retirement that concern you? If so, how are you planning to address them?

Not really.

Many people mentioned health insurance. That is on my mind, but I wouldn’t say I am concerned about it.

At this point, we are purchasing insurance through Obamacare. We are paying more and getting less benefits than my employer’s coverage. That sucks of course. However, the max per person out of pocket amount is about $15k (excluding premium) a year. That’s something we can deal with if needed.

MISCELLANEOUS

How did you learn about finances and at what age did it “click”?

I always was inclined towards business and finance.

I remember I would pour over the business section of the daily newspaper when my dad brought it home when I was a kid.

In high school, my favorite subject was Economics. I did not consider studying Economics in college only because I didn’t know what a student graduated with an Economics degree would do.

I still remember there were two types of magazines in the library attracted me the most when I was growing up: Car magazines, and Business magazines. Reading up on Fortune, Business Week were a fascinating pastime of mine.

Who inspired you to excel in life? Who are your heroes?

My parents. They set wonderful examples for me in life.

When it comes to financial matters, that would be my dad. He would bring me to their rental properties when I was young, talking to the trades people who helped them fixed up the place before renting it out. They seldom take on debt when investing, that’s also how I am doing it now.

Do you have any favorite money books you like/recommend? If so, can you share with us your top three and why you like them?

Sorry to say I don’t have any new insights in this area.

The couple I read and liked were “The Millionaire Next Door” and “Rich Dad, Poor Dad”.

Do you give to charity? Why or why not? If you do, what percent of time/money do you give?

We give 10% to our local church and other charities.

We did it because this is in our faith teaching.

Do you plan to leave an inheritance for your heirs (how do you plan to distribute your wealth at your death)? What are your reasons behind this plan?

We will leave a good portion of our inheritance to our children, after distributing a portion of it to other charities. That’s the plan for now.