Millionaire Interview 358, Part 2

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 September. It’s part 2 of a series. If you missed part 1, see Millionaire Interview 358 to catch up.

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

Let’s get started…

INVEST

What is your investment philosophy/plan?

My investment philosophy is to make sure you understand what you are investing in and to keep it simple.

I also don’t have to ‘beat the market’. The intent is to at least follow the market.

What I have learned over time is that investing doesn’t have to be complicated — unless you want it to be. We use a small number of broad based index funds in all our accounts.

What has been your best investment?

Shifting our accounts to Vanguard to leverage their low-cost index funds, plus managing the accounts together had been the best ‘investment’.

What has been your worst investment?

When my husband left his corporate job, he didn’t want to manage his investments but he wanted to roll over his 401K. He initially handed it off to a financial advisor his CPA recommended. He talked a good game, but ultimately his funds were very conservatively invested, plus he was paying advisor fees on top of that.

After more than 2 years, I finally convinced him to move the money out and let me manage it on his behalf. We moved it to Vanguard, cleaned up the trash that he was invested in and now have his accounts in a small number of broad-based low fee index funds and it quickly improved.

The same financial advisor above also invested part of my husband’s money in an annuity. If we moved it out before 10 years, it would be eaten up by all the fees. Instead we have waited and only have a year before we can move it out — with fewer fees/charges.

What’s been your overall return?

I am not sure overall, but for the last 10 years our return has been around 9%.

The good years really do offset the bad, especially if you keep investing.

How often do you monitor/review your portfolio?

I review my accounts on a weekly basis using Personal Capital. I also use Personal Capital to track our monthly spending, but I document it on a spreadsheet I have been using for years.

I review all of our accounts on a quarterly basis and annually. I track our progress using spreadsheets.

If there are major shifts in the market, I might review more closely — especially in the case of where it might make sense to do a Roth Conversion sooner than later in the year.

My husband has little interest in managing our portfolio or overall finances other than to know how we are doing.

NET WORTH

How did you accumulate your net worth?

I did not make a lot of money and I didn’t start investing until my late 20s, but as soon as I settled in a position that came with 401K and other benefits I took advantage. I set up my 401K and started by investing up to the match. Around the same time, Roths were just picking up steam so I started one at my credit union before transferring to a brokerage.

Given I wasn’t making a lot at the time ($25K), I had to find the right balance of money for the future, for emergencies, and for day-to-day. Once I built up an emergency savings account, I made a concerted effort to increase my investing in my 401K and Roth IRA. I knew that investing early and often would help me grow my long term savings.

What I did from there wasn’t very exciting, but it was sometimes a challenge given my lower income. From that time onward, I made sure to invest annually in my 401K and IRA. If I was between jobs and didn’t have a 401K — I made sure to fully fund my IRA. I didn’t start my brokerage account until my mid-30s. I set up an account and created a monthly transfer at the minimum amount of $50. It wasn’t a lot but setting up the automatic transfer got me the habit of seeing it as a regular monthly bill. Over time the monthly transfers increased. Any other extra money would also go there.

What I didn’t do was panic and sell during the Dot Com Crash, the Housing/Financial Crisis, the Great Recession or the COVID Crash. In fact, I kept adding what I could to my accounts and didn’t look at the bottom line until things improved. I learned not to pay close attention to the market in the downswings and only review them quarterly. Over time, the markets recovered and my accounts did as well.

When I left my first job that came with a 401K — I quickly rolled that over to an IRA so that I could have more ‘control’ over my investments. I kept investing and never sold. The amounts and accounts varied annually depending on income and circumstance, but by then, it had become a ‘monthly bill’ that was just factored in. What was simple, became easy just by making it a habit and by automating the process.

Eventually I consolidated all of our accounts over to Vanguard where they are today.

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?

By far, I would say my greatest strength is Save.

I never earned more than $86,000 annually, but I always managed to save something.

The other side of Saving is ‘not spending’. I made a conscious effort no matter how little I made to keep some funds in reserve, which carried me through breaks between jobs, a large car repair bill, deposit on an apartment, etc. It wasn’t always easy but it was my security blanket. I kept my debt to a minimum, especially credit card debt.

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

I started investing later in my life, at about 28. I didn’t let that deter me. I knew I had a long time to go before retirement. (Early retirement was not a thing back then.)

I never made a lot of money, but I made saving for retirement a priority once I was able. I knew that I would not have the security of my parents who both have pensions based on their careers (government/teacher). I knew Social Security would not be enough to live on so felt responsible for building up my retirement.

I also educated myself in a myriad of ways to be able to manage and invest myself and not rely on others.

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

This year we are living off our cash accounts while the market has been volatile. We did sell some investments late last year when the market was higher as a way to fortify our cash and pull some profit out of the high market.

We don’t expect to have to touch our investments until mid-2023 or later. We plan to start pulling our dividends out instead of reinvesting them. Until my husband hits 59 ½, we will just pull a portion from our brokerage accounts annually to meet our expenses.

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

As a couple, we thought having at least $3 million in investments would be our target more than our overall net worth which includes our home. More than that, we also wanted to ensure we had our investments in diverse accounts — including a good hunk in our brokerage account to be accessible before we reached retirement age. When I left work last fall, that account was over $800K — so it was plenty to rely on for the next 4-5 years. It is less than that now due to the market, but still good for our planning.

Personally, I had a target net worth of at least $1.25 million. Since my parents divorced when I was young, I always wanted to be self-sufficient, regardless of relationship status. When my parents split after almost 20 years together, my mother had no credit. She essentially had to rebuild her credit and financial life at the age of 40.

While they split their assets, she was still at a distinct disadvantage. Any loans they took out together (mortgage, car), or accounts they held jointly were all considered under my father’s credit and not hers. I know ‘times have changed’ but I still hear stories from my contemporaries where banks have defaulted to the husband on joint accounts/mortgage and not the wife — even when the wife is noted as the contact.

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

I personally didn’t hit a million until shortly after turning 50. I was getting close and then the pandemic slowed things up for a bit.

Once my investments were over a million, I mostly stayed the course but I did reallocate some of my investing from my retirement accounts to increase my brokerage account and my cash savings. I did this in part because I was already not enjoying work and thought if I left, I want to make sure I have a good cushion to rely on in the near term. I lasted more than a year past that point, but it did prove helpful.

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

I am sure I have made mistakes but I feel fortunate that nothing was so bad to impair me financially long term.

One thing I would have done differently is start my brokerage account sooner. My IRA and Roth IRAs were well established before I actively started investing outside my retirement accounts.

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

• Don’t be discouraged if you don’t make a lot of money. Maybe you don’t retire in 10 years, but you can retire comfortably and build a decent amount of wealth without having to invest in high-risk enterprises.
• It’s not too late to start if you didn’t have the ability to start in your twenties. Start where you are. You will be surprised at how fast your savings/investments can grow.
• Automate your savings and take advantage of matching funds for 401K savings. Start your own IRA and/or Roth IRA. Treat it as a bill for your future self.
• Start a brokerage account early on and set up automatic investment there as well. Start small and increase the amount when you can. Stick to low fee index funds. This will give you funds outside of your retirement to use for other items in the future as needed.
• Always have some cash funds set aside for emergencies. There is different advice on how much this should be, but explore what percentage feels right for you.
• Manage your own money. Educate yourself. It is so much easier to do these days with reputable sites, blogs and books to learn from. Don’t invest in what you don’t understand.
• Limit debt. If you have debt – try to have a plan on how to pay it off. I have had debt – car loans, school loans, mortgage, credit card. I never liked it hanging over me and did my best to pay it off sooner that I had to.
• Along the same lines — don’t spend what you don’t need to. My husband said the best advice he got was to ‘live like a student’ as long as he could after he graduated, even once he got a good job. Basically, don’t buy the new car if your older car is still working. Don’t keep up with the Jones. Don’t shop for retail therapy.

FUTURE

What are your plans for the future regarding lifestyle?

My husband plans to continue working his semi-retirement job. For him, it is fun and something he would do anyway.

I may look for interesting short-term activities starting next year — help with our neighborhood group, volunteering, one-off projects, etc. I am not sure that I want anything long-term to allow us flexibility to travel when we want to.

Longer term, we would like to move to a cooler climate. The long hot summers of Texas are getting to us…okay me. The plan is to spend more time traveling and spending time in different locations to see if we can find a new location that works for us. The alternative is to stay where we are and plan to travel to cooler climates during the hotter 3-4 months of the year.

What are your retirement plans?

We are essentially living a retired/semi-retired lifestyle at present.

My husband is semi-retired right now. His business keeps him busy enough but allows him to take vacations and have flexible hours. It does tie him down to some degree but I think he will continue to work at this level for at least another 5 years.

After that, he may aim to ramp down. I think it seems hard for him to think that far out.

I essentially retired from corporate work. I have been mainly decompressing from the corporate world for the last year. The longer I have been away the more certain I am that I do not want to return.

As noted above, I have thought about doing occasional work — like around the holidays or helping during our local elections — mainly for something to do, get more involved in our community, and to try something different. (Any money made would be incidental.) I was not ready to do this during the height of the pandemic. Also, I expected I would want time to decompress based on what I had read of others experiences.

This fall we have several trips planned so I won’t be getting involved in anything until sometime next year.

We would like to travel more, domestically and internationally. We love to ‘slow travel’ – spending at least a week or so in an area before moving on. We generally prefer smaller places versus big cities like London or Paris or New York. We also love traveling in the off-season. Not having children afforded us this ability early on. In fact, we prefer not to travel during the winter or summer holidays if we can help it. Although we are considering spending part of the summers in the mountains, or otherwise cooler climates than Texas!

I would also love to do some ‘great American road trips’ to see friends and family but also explore along the way.

We are also homebodies at other times. We enjoy doing projects around the house and spending time with our friends. We are both ravenous readers as well. I have a never ending list of books to read, mostly fiction.

As mentioned above, we have toyed with the idea of moving in the future, but we have no idea where other than somewhere more temperate. Our older bodies are less resilient to the summer heat. (Strange I know, many retirees look to get out from the cold and snow but we are not the only Texans who are ready to get out of the relentless heat!)

Financially, I believe we are in a good position. We have our investments in diverse holdings to allow us access prior to turning 59 ½ and plenty beyond. We will have to pull money out, not just rely on dividends.

I know the transition from ‘save’ to ‘spend’ will at times be mentally challenging, especially in the first few years. (And especially since 2022 has been a mostly down year market-wise.)

Logically, I know our plan works, emotionally, it is still a challenge to be completely at ease. Overall, I think that’s good. If I were too confident, I would wonder if we really oversaved, or were missing an important component of our spending plan.

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

Health care is the biggest issue — namely because of the unknown.

We have planned a rather large chunk of our expenses for health care at least until we are eligible for Medicare which is 10+ years out. I am hopeful the next few years will be less than we expect due to our lower income level and ACA subsidies but it is hard to have confidence beyond the next few years.

We will not go without health insurance given our chronic health conditions. I continue to hold out hope that there will be a better path for affordable health in the US sooner than later.

MISCELLANEOUS

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

I learned budgeting and how to be frugal through early family life, and living on less as a student on my own. I did not really learn about finances and investing, until my late 20s when I had more money coming in than ever before. It really started to click in my mid-30s — after spending a great deal of time and energy learning about investing.

I took advantage of some initial seminars offered by my company 401K provider. I read money magazines, I also read the newspaper columnists like Scott Burns and Michelle Singletary. As more information became prevalent on the internet I read personal finance blogs, plus sites like Morningstar, NerdWallet, Motley Fool, and the sites for Vanguard, Fidelity and Charles Schwab. I read some financial forums but they could be hit or miss.

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

My parents inspired me to enjoy life but also be responsible and look out for others. Although we weren’t wealthy by any means our family donated to various causes. They also directly helped families in need in small but essential ways — like helping immigrant and low income families with their annual tax return, making food for soup kitchens and volunteering to serve, marching for the rights of others. Even in their 80s now they still do some of these things — like volunteering at a food pantry, helping with tax returns, helping out at their churches, etc.

My mom and her husband were able to retire early based on their savings and school pension. Mom also took advantage of an “early out” plan they had at the time as well, since she was a little behind in terms of years in. They both did things like proctor SATs and other short term jobs with the school district after they retired to add to their income for the first few years. They were a great example of showing that it can be done, even on a middle class level.

My father didn’t retire early but was a good example of supporting his family and valuing hard work but also a good work/life balance. Even though he picked up a side hustle/part-time job for a while after the divorce, he also made time to attend our school and sports events. Today he is a millionaire but still living in the house we grew up in gardening, traveling, and enjoying an active retired life.

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?

I came into my financial education mostly through online sources: blogs, financial sites, and forums, etc.

With that said, the book I would recommend would be: The Simple Path to Wealth by JL Collins. I pretty much devoured his blog posts that were the basis for the book and feel it is one of the better current financial books out there today. It is a very approachable process he describes. It is readable and relatable.

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

We do give to charity.

The amounts fluctuate annually but we do give a base amount monthly and usually some one-time donations throughout the year.

It averages out to be about 1-2% of our expenses right now.

I would like to increase this in time, once we have a good idea on retirement/semi-retirement spending.

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 do not have children but we do have straightforward wills in place to leave an inheritance for our extended family.

We did this soon after we bought the house, to protect each other since we were not married at the time.

We do need to review/revise them in the next year or so as our circumstances and extended family have changed. We are considering a trust after seeing a relative’s trust documents.