How I Manage & Invest My Own Money

My clients always ask me how I manage my own money as if it’s a secret that I keep to myself. The thing about money management is that people often feel like no matter how much they learn about the latest techniques and trends, they’re never quite doing it right, that there’s always some better way to save or to invest.

Well, as a CERTIFIED FINANCIAL PLANNER™ professional who works with wealth management strategies every day, I’m here to tell you that the way I manage my own money is not all that different than how I manage my clients’. The first step is to start with the basics.

Basic Money Management & Investment Tips

Before developing and implementing an investment plan, it’s crucial to make sure all your other financial bases have been covered. You wouldn’t scuba dive before learning to swim, so be sure you aren’t exposing yourself to unnecessary risk before your overall financial plan can handle it.

Here are three general money management and investment tips to consider before we jump into my personal investment philosophy.

1. Emergency Fund

I’m sure you’ve heard this before, but it bears repeating: Make sure you have an adequate emergency fund before investing. An emergency fund should consist of cash as well as access to capital and lines of credit. It is used to cover unexpected expenses or disruptions in cash flow so that you won’t have to draw from your investment portfolio in the event of an emergency.

You may be eager to start seeing returns on your money, and therefore want to put all of your extra cash in high-yield investments, but this is both counterintuitive and counterproductive if you don’t have enough cash on hand to cover your basic expenses. Generally, when growing an investment portfolio, the hope is to avoid drawing from the investments while working toward other financial goals.

If you haven’t already, start saving a portion of your income in highly liquid investments (savings accounts, money market accounts, certificates of deposit, etc). Ideally, you should have 3-6 months’ worth of non-discretionary expenses saved before moving onto investment goals.

2. Net Cash Flow

After you’ve built an adequate emergency fund, it’s time to look at your net cash flow (income minus expenses). Since investments are just one component of a larger financial plan, this step is very important. For many, it is your net cash flow that will act as the funding mechanism for your investment plan. For instance, if you consistently spend more than you earn (deficit), there will be no extra funds to contribute to your portfolio. Consistent negative cash flows actually indicate a larger issue that will need to be addressed before a successful investment plan can be established.

Similarly, a net cash flow of zero (spending as much as you earn) doesn’t allow for any leftover funds to be contributed to investments. It may not indicate systemic issues like a negative cash flow, but it does indicate that spending will need to be adjusted to meet investment goals.

A positive cash flow (surplus) is ideal when assessing how to fund an investment plan. To generate a surplus cash flow, you must spend less money than you earn. This can be accomplished by living below your means and through techniques such as budgeting and tracking expenses.

3. Diversification

After emergency funding and generating a positive net cash flow, it’s time to start building the actual investment plan. For this step, it is crucial that your investments be properly diversified. You spent time and energy building an emergency fund and creating a positive cash flow; the last thing you want is negative returns due to overexposure to risk.

Diversification can’t guarantee a minimum level of return, but it will at least act as a buffer against the inherent volatility of the market. Diversification can be achieved through an asset allocation strategy that considers which components of your plan can move together and which can act as a hedge against downside risk.

How I Invest My Own Money

You might be surprised to learn that the investment approach I use for my family is the same one I use for my clients. Some would say “we eat our own cooking,” so to speak.

I believe this is the hallmark of a successful financial planner. As a duty-bound fiduciary to my clients, I strive to handle their money as if it were my own, which is why the steps I take in my personal management and investment process mirror those I take with my clients.

That being said, here is a brief overview of how I manage my family’s personal investment plan:

• Our investment plan is allocation-based, meaning it is organized by asset type, then class, and sector. This includes investments in U.S.-based securities, international markets (both developed and emerging), bonds (of various types and maturities), and cash.

• We use exchange-traded funds (ETFs) and mutual funds. These types of assets allow us to participate in a broad range of market offerings by buying shares of a single fund. It is a convenient way to increase diversification. Occasionally individual stocks are held as well depending on our portfolio structure at the time of purchase.

• Portfolios are segregated into different “buckets.” Each portfolio has a specific purpose and time frame, such as paying for our children’s college, retirement funding, or savings for future inheritances. By creating separate buckets, we’re able to tailor the investments to a time-specific goal, meaning that goals with longer time frames can generally be invested in higher-risk, higher-return assets.

• Our portfolios are very well diversified. I focus on diversification as a way to reduce the overall risk level of our investments. Because of all this, I do not get too wrapped up in the day-to-day fluctuations of the market. My philosophy is “time in the market” as opposed to “timing the market,” and I have complete confidence that our investment plan and overall management process will achieve our goals.

How We Can Help

Successful money management and investing don’t have to be shrouded in mystery. At Infiniti Wealth Management, our goal is to give our clients the tools and resources to feel confident in their financial plans. If you’d like to learn more about our investment philosophy and how it applies to your portfolio, call our office at 845-278-8638 or send us a message to set up a complimentary consultation.