Millionaire Interview 412, 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 April.

It’s a long one so I’m breaking it into two posts to keep things manageable. If you missed part one, check out Millionaire Interview 412 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?

Just do it.

The false narrative is, “Only rich people invest.” The truth is, “People get rich because they invest.”

Nothing special here: low-cost index funds, primarily in US stocks. In the brokerage account we have:

• 30% VTSAX (Total US market)
• 21% VDADX (Dividend stocks)
• 20% VFWAX (Ex-US international)
• 15% USNQX (NASDAQ)
• 7% VGSLX (Real estate investment trust)
• 6% VBTLX (Bonds)

We’re liquidating that NASDAQ fund to consolidate to Vanguard, but it’s done so well we have a huge capital gain tax bill and are spreading it out over multiple years.

The only individual stock I own is some company stock in my 401(k). 2020 hit us hard, and after one quarterly earnings report when the market had a tantrum, I thought were unfairly maligned and took a position of about 10% of my account. That assumption was true, and eventually it was 20% of my account. I sold half of it last December and figured I’d hold on to the rest since it seems we had momentum (keeping a final exit number in mind).

In January things turned south and went downhill from there. I’m back in the waiting & hoping game with no intention of investing in individual stocks in the future.

I have no desire to touch crypto until somebody can explain to me what exactly I would own if I bought it. Every explanation I’ve heard talks about the value of blockchain technology. I get it – cool, useful stuff. But owning a Bitcoin doesn’t give me a royalty or the claim to anything until somebody else wants to buy it from me. So why is that different from investing in comic books or baseball cards? At least you get to show the latter off to your friends. (PS – I don’t invest in those either).

What has been your best investment?

I married well (got it right the second time). We make an incredible team by covering each other’s blind spots.

Financially, it’s been the choice to start early and not panic when there’s a downturn.

What has been your worst investment?

Hard to say.

I purchased a used car that didn’t work out so well, but in the broad stock market I’d say it’s hard to go wrong if you’re in it for the long haul and not impulsive or swinging for the fences.

What’s been your overall return?

Very hard to say with our brokerage account because since we’ve had something in there since the early 2000s, we started adding slowly in 2015 and then had a big influx in 2020 with the sale of our rentals.

That’s not a fair characterization of my investing prowess (I’m not that good).

In my 401(k) I have earned about 8% per year over 3 decades.

How often do you monitor/review your portfolio?

Weekly. This has been a Saturday morning ritual since I started employment after college, and it has been very revealing:

• The company match is huge. That’s $600K of my 1.9M. Don’t leave that on the table.
• It took nearly 20 years of slow accumulation before the magic of compounding started to really kick in.
• There have been dips, and they have always come back (insert standard disclaimer here). From Y2K and the tech bubble to 9/11, the housing collapse, European debt crisis, a few recessions and bear markets (some not declared), COVID, the printing money sugar-high, inflation collapse, and the recent recovery, the line still reverts toward the exponential curve we all recognize. And the crisis from 15 years ago doesn’t look so bad in the rear-view mirror.

NET WORTH

How did you accumulate your net worth?

ESI Manifesto.

We work, live within our means, regularly invest out of our paychecks, and try to squirrel away some surplus into a brokerage account. It’s simple, but not easy. Patience pays off. If you know the equation for an exponential curve, the most powerful variable is time. There has been no inheritance or home-run stock pick.

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?

Again, hard to say.

Of all the ESI interviews I’ve read, I can’t call us outstanding in any category.

Over the last few years, our income has risen very nicely but not to the level of some high-powered executives who contribute to these pages.

We have a solid savings habit, but not excessive.

And my investment returns have been downright pedestrian.

So we must fit squarely in the center of the ESI Ven-diagram.

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

Yes, I got divorced (a common misstep), and it set me back a bit. But I was young enough that there wasn’t much to fight over.

It’s been said that you get one mulligan; I’d add, learn from it. I certainly did, and when I had truly embraced the logic that it’s better to live alone than to be with the wrong person, it became very easy to avoid drama … which led me to the best outcome I could have ever imagined.

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

Keep on doing what we’ve been doing.

Work, max out Roth 401(k) plans, invest our surplus in the miracle of the American economy.

Nothing fancy; just buy & hold and let the market work its magic.

Our surplus is now going into our cash position to guard against sequence of returns risk in our early retirement. I’m currently trying to formulate an algorithm to help me decide when to rely on the cash and when to liquidate equities. Looking for advice and specific numbers, but something along the lines of:

1. Baseline 1-2 year’s spending needs (~$200K) in a money market account with monthly transfers of funds into checking based on last year’s spending.

2. Quarterly, evaluate investment returns:

• If investments are within 5% of the peak value since the last withdrawal, sell to recharge the money market to the baseline value. If not, continue using the money market to provide for our needs.
• If the money market reserve falls below $50K, eat the market loss and sell investments to recharge it to $100K. When investments recover to the previous peak, recharge the money market to the baseline value.

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

As previously mentioned, that goal post moves.

I think where we are (~$5M) is a reasonable goal, but to feel comfortable I need to see a general growth trend even when we’re retired or I’ll be loath to pry open that wallet.

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

My monthly roll-up at the beginning of February 2013 showed us in the 7-figure club. I was 41 and my wife was 40. I knew it was a big landmark at the time, but far from the end of the race.

I don’t recall any celebration, and that was before the time when I had a target retirement date. But with 2/3 of that locked up in retirement accounts and only 7% in our brokerage account, it didn’t seem real.

We also had two kids in Catholic school, so expenses were relatively high. But we had just purchased our second rental unit and were cash-flow positive in that business, so it was clear things were trending in the right direction.

What personal habits and/or traits have you developed that have made you successful at growing your net worth?

Don’t just do something – sit there.

When learning to fly, I was taught that there are very few things that require a quick reaction. In fact, that usually makes the situation worse. Take a deep breath, flip your checklist to the emergency procedures, and act deliberately.

With finances, we formulate our strategy with calm and cool reflection, but panic sets in when the market hits a bump. If you had a good strategy, it accounted for the inevitable bumps. Anything done in a panic will most likely be the wrong thing. If you’re making a decision without sufficient time to analyze it, you’re playing with fire. If you’re getting pressured to act quickly, that’s an even bigger warning sign.

I could be accused of “paralysis by analysis,” but I have far more stories of being glad I passed on something than I have of wishing I had jumped.

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

I can’t say I have a real crash & burn story.

I made the mistake of mixing finances with friendship. A friend was trying to get his start as a financial manager, so I invested a few years of my Roth IRA contributions in his fund. It’s no surprise to me now, but as a managed fund it naturally underperformed the market indexes. He never claimed it would but said that it wouldn’t go down as much in a market decline. Because I tracked everything, I knew I got the opposite – full participation in the declines but significantly lagging the market gains.

I stuck with him too long, in large part because I met my future wife through him (for which I am forever grateful). There were no hard feelings when I pulled out – it may have been a bigger deal to me than it was to him.

And I’ve made my share of bad decisions, bad purchases, etc. but nothing that was irrecoverable. Just accept the situation as it stands and move forward, making the best from there without brooding over it. If you sense that the last four words of the previous sentence were an attempt at positive self-talk, you may be right!

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

Play the long game. Much of my story revolves around “delayed gratification.” With the power of compounding, there’s so much more gratification if you are patient.

Keep an eye on who’s making money. If you’re hearing a radio advertisement for gold/silver/crypto/real estate/etc., know that the ad cost them money. They didn’t buy that radio spot to share their secret with you out of the goodness of their hearts.

Similarly, there are plenty of professions that make money from your “churn.” If you move to a new house every 5 years, there’s a line of people profiting: agents, title company, inspector, surveyor, movers, etc.

If you really like that new car smell every 3 years, there are lots of people making money off you as well. Be deliberate – pursue without apology what’s important to you, but constant change is expensive.

FUTURE

What are your plans for the future regarding lifestyle?

The immediate future includes no course changes until retirement (not much longer – see below). Enjoying our regular 3-day weekends with local activities has been a pretty good ride.

Financially we’re just in cruise mode, maxing out our Roth 401(k) while we’re still employed and squirreling away additional surplus to bridge ourselves between retirement and age 59-1/2.

Since I first wrote that, we discovered that my 21-year-old car probably won’t make it to age 22, so that’s an upcoming expense. Yes, it was planned for in concept, but now it shows up in the spreadsheet (and challenges my tightwad tendencies).

Our lifestyle goals are to mildly expand our spending where it brings us happiness but keep it under control enough to ensure we have a significant margin of safety.

What are your retirement plans?

There’s a step function in my pension in June of 2025, marking 30 years of employment. It’s not a huge pension as my employer stopped contributing in 2015, but that date has kept my attitude in check for the last few years (although recently that is questionable). Saving up PTO in advance of that date could make my last day in the office in late March, which is the current plan.

I have days where I think about how I’ll really miss many incredibly smart coworkers and the awesome things we accomplish every day, but then the corporate system knocks me back into reality with something that belongs in a Dilbert cartoon.

My wife will retire at approximately the same time but is more open to a reduced schedule such as 2 days per week. She’ll be 51 years old when she breaks the news to them, and I wish I could be a fly on the wall for that conversation.

Of course, there will be a retirement vacation which coincides with our 20th wedding anniversary.

I have big plans to build an experimental aircraft (homebuilt) as a retirement project. This is a multi-year endeavor that will keep me connected with others (yes, there are other crazies like me out there) and keep me mentally engaged as there are so many details and things to learn.

My wife doesn’t have such a clear mission but she has a long list of options which will keep her busy. She is very good at planning vacations, and hopefully we can transition to the slow-travel mode when we go exploring.

We both enjoy fitness and look forward to devoting more time to that instead of squeezing it in between other things.

Finally, while there is nothing on the horizon, we look forward to spoiling grandkids someday.

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

Everybody mentions health care, and I’ll agree that it’s a big expense. But it’s something one can plan for, and it’s worth it. Just because politicians buy votes saying it should be free doesn’t make it so; all that means is somebody else pays for it. When somebody else pays, that somebody else gets to make decisions … and you should want to maintain control of your care by directing the resources to make the choices that are right for you. Those who pine for systems in other countries need to realize that people in those countries with the means to do so come to the United States for their care.

Rant switch: off.

Soap box: stowed and secure.

The real boogeyman in my estimation is the tax man. Nearly everybody reading this is in the category the politicians consider “rich,” and the insatiable government beast has you squarely in its crosshairs. I hope congresscritters find some way to get our financial house in order and don’t renege on the Roth promise.

MISCELLANEOUS

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

In junior high, I noticed that the birthday money and allowance I had put into a savings account accrued interest. I’ve always been a math geek, so I started talking about how that could conceivably be a source of income … and my mom wondered why I couldn’t be like a normal kid and use it to buy a candy bar.

Don’t get me wrong – my parents were financially savvy and planned for my college by saving in a mutual fund, which reinforced my observations of how squirreling money away has a long-term benefit.

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

I was always a precocious twerp growing up, and my parents embraced that for which I am grateful. There was never a time when I thought an achievement was outside my grasp. That didn’t come through a lecture; it was just in the air.

As for heroes, the American founding fathers, Winston Churchill, Ronald Reagan, Milton Friedman, and Walter Williams top the list. These are men who had clarity of thought, saw the world as it was, and had a vision of what it could be within the constraints of human nature.

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?

The favorite of many: “The Millionaire Next Door.” I read this with my boys, and it put what we all know into words with facts and statistics to back it up.

Blogs such as ESI Money and Mr. Money Mustache are entertaining and educational at the same time. While I don’t aspire to be as hard-core as MMM, there is still plenty to learn (and I’m disappointed he has dialed back on the postings).

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

Yes – we give through our church monetarily and with our time (OK, I’ll admit the volunteering is my wife’s doing).

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?

Yes, but as a fortunate outcome of our habits rather than a generational wealth plan. We set our boys up well for their future and would like them to have the pride and accomplishment of making their own fortune like we did. Since we don’t know the day we will die, it’s hard to plan to “die with zero.”

My parents know it drives me crazy when they gig me about “spending my inheritance.” I always respond by telling them to spend every penny – they earned it. I think they’re taking my advice to heart with wonderful cruise vacations, and I couldn’t be happier for them.

My wife heard a joke on Dave Ramsey’s show where somebody didn’t want his kid to become a waiter: waiting for an inheritance. Fictional or not, that kid has been robbed of the pride and dignity of a life well lived.