How I Invest My Own Money

Today I’m going to put my mouth where my money is and talk about how I invest my own money. My hope is that sharing how I make & implement investment decisions in real life will help you become a better investor (or at least understand why you might want a professional to do it for you).

Let’s start with what I’m not going to talk about: I’m not going to give you any hot stock tips or make predictions about the economy. I’m not going to talk about ratios or valuations or metrics or any technical jargon. Ok?

What I am going to tell you, though, is much more important: I’m going to tell you how I think about all sorts of questions around investing so that you can make better decisions with your own money. Maybe I’ll say something that resonates with you and you’ll think, “oh, I can do that too.” Maybe something else will rub you the wrong way and you’ll think, “no way, I’m not doing that.” Either way, it’s a win; if you are more confident about your own investment choices at the end of this episode – whether you agree with me or not – that’s a good thing. 

So here’s what I’m going to share today:

1. Why I Invest

2. How I Think About Risk & Time

3. When I Buy Investments

4. When I Sell Investments

5. My Investment Strategy

By the way, I’ve been throwing around the idea of a follow-along investing newsletter. It's still taking shape, but the way I imagine it is that you would see how I invest my own money every month and how those investments perform, whether good, bad, or ugly. This will be purely for educational purposes and not investment advice, but I think there is a real opportunity to see in real time how the sausage is made. If you’re interested in learning more, please visit iselerfinancial.com/follow.

Ok, let’s start with why I invest in the first place.

Why I Invest

I'll cut to the chase right away and then give you some context. I invest my money so that someday I can remove the obligation to work. That's it. I want maximum autonomy of my time. Whether I choose to continue working at that point is up to me, but that's why I do it: to someday have that choice.

We can all appreciate that, right? Even if you totally love your work, it would be nice to do it because it's rewarding – and not because you have no other choice.

But investing is risky and cash in a bank account is safe. So why choose to invest over just saving a lot of money?

It's true that cash is king in the short-term. Money in the bank is very secure and you'll feel like an absolute genius if you have cash available when shit hits the fan. But cash loses spending power each year due to inflation. Even if your savings account pays the highest available interest rate, the buying power of your cash loses value every single year.

These days you could probably get about 3.5% interest on a high-yield savings account, and that’s not a bad rate for essentially no risk. But with inflation in the 2.5-3% range, that means that the spending power of that money is only increasing by about 0.5-1% per year. And, to be perfectly blunt, at that rate it just isn't possible for you to put enough of your income into a savings account to ever get to the level where it will replace income. The math doesn't bear out.

So if you’re like me and would eventually like to make work optional, you need a way for your money to grow significantly faster than inflation. And, because your time is limited, you need it to grow even when you aren't paying attention. Investing your money in a diversified mix of stocks & bonds lets you do that.

Now, investing does come with risk. The stock market tends to be extremely volatile in the short-term, meaning prices go up & down and down & up every second of every trading hour. That short-term volatility is part of the deal and there isn’t really a way around that. But if we're talking about having enough money to support you for the rest of your life, we're not really talking about the short-term. 

Instead of focusing on today or this quarter or even this year, our focus should be in terms of what is likely to work over many years and decades. And, over long periods of time, investing in stocks & bonds is surprisingly reliable for building wealth. It’s volatile in the short-term, but has been remarkably reliable in the long-term.

Investing your money for the long-term is the best way that I know to get to a point where work is optional. And that's why I invest.

How I Think About Risk & Time

Ok, now let’s look at how I think about risk & time when investing. But first, a slight detour is useful.

This might seem counter-intuitive, but the best way to manage investment risk is by keeping enough cash in a savings account. Your number one super power as an investor is the magic of compound growth, which only works if you let it happen for a very long time. Keeping a lot of cash on the sidelines helps you navigate the inevitable ups & downs of life without selling your investments too soon, which interrupts that compounding. (By the way, this is true whether you have an aggressive, stock-heavy investment mix or a conservative balance of stocks & bonds.)

Everyone should keep enough cash in an interest-bearing account to cover at least the next three months worth of expenses or, if you are self-employed or have an up & down income, you should aim for at least six months worth. 

So the first way I think about investment risk is to prioritize my savings account. It won’t have the same long-term potential because of inflation, but you can’t beat the short-term stability of cash in the bank. 

Now let's look at risk & time within those investment accounts.

Risk and time are inversely related. The faster that you need something to happen, the more things need to go exactly right in order to reach your goals. That opens you up to more risk because, generally speaking, the rest of the world is not motivated to make things happen exactly the way you want.

Let's say you need to come up with a lot of money in the next two months to pay for a new car. Think of all the things that are completely out of your control that could impact the outcome: interest rates could go up, dealer inventory could go down, another priority could pop up that requires a bunch of cash, etc., etc. A short time frame means that your plans can fall apart if only one or two key factors don't go as expected. All of that uncertainty is a form of risk.

Now let's say that you need a lot of money to buy a new car anytime in the next two years. Takes a lot of that pressure off, right? That extra time lets you shop around, you can wait a bit to see if interest rates or dealer inventory change in your favor, and you have more time to recover from other unexpected expenses. More time makes it easier, both financially and emotionally, because it reduces the need for everything to go your way. 

Put another way, the longer your timeline, the more wiggle room you have to navigate risk.

It's the same with investing. If you need your investments to grow like crazy by the end of the quarter, then you need everything to go your way or it won't work. That's very risky because the odds are always against everything going your way. But if you need your investments to grow like crazy over the next 25 years, let’s say, you can manage more ups & downs and still reach your goal.

So when it comes to managing investment risk, having a very long timeline offsets a ton of short-term uncertainty. You can't talk about investment risk without also talking about time.

As I said a minute ago, the reason I invest is to eventually have enough money to make work optional. My biggest priority is autonomy over my time. I don't mind letting you know: I'm a long way from reaching that goal. Plus, even if/when my investments hit an amount where I can live off investment income, I still need those investments to last the rest of my life. So my timeline is essentially the entire rest of my life, which – if I'm lucky – will be quite a long time.

That long timeline changes the risk calculus. What seems risky in the short-term makes a lot more sense when you're thinking in terms of decades. (Remember that car buying example: a longer timeline means more opportunities for things to go your way and more time to recover when they don’t.)

Since I still have a long way to go until work becomes a choice, that short-term volatility doesn't matter as much to me. I'm playing a totally different game, one in which staying invested for a really long time is the goal so I can enjoy all of that compound growth. Remember, compound growth is a super power, but it only works if you stick with it for a long time.

Now, that doesn't mean I'm taking unnecessary risk or choosing every hot new stock that has a lot of buzz. Instead, it means I am comfortable keeping nearly all of my investments in stocks – which are very volatile/risky in the short-term – because I'm making decisions for the long-term and I know that the stock market becomes much more reliable the longer you stay invested.

Does everything make sense so far? The longer your timeline, the more you can afford to take on investment risk. If you're a long way from reaching your goals, like I am, then long-term growth should be a bigger priority than minimizing short-term volatility. That usually translates to a stock-heavy investment mix. If you're really close to reaching your investment goals, on the other hand, then you can dial down the risk exposure by balancing stocks with bonds & cash.

When I Buy Investments

Now let’s talk about when I buy investments. Spoiler alert: I virtually never buy because I think the stock market is going to do one thing or another. I think that's a fool's game, so I don't play it.

My answer to the question "when do I buy investments" is kind of cheeky, but also (in my opinion) the correct way to think about it: I buy investments whenever I can afford to.

I beat the drum all the time about the importance of having cash on the sidelines. That extra cash helps you manage emergencies, act on opportunities, and pay for nice things like vacations and gifts. Having the right amount of cash is great.

But above a certain amount, there is no benefit to holding more cash. As I mentioned, keeping too much of your money in cash is actually a risk because it loses value each year due to inflation. The right amount of cash will make you feel like the smartest person in the world when you need it, while too much is like a leaky bucket that can never be filled.

Full disclosure: I've been burned in the past by cutting my cash reserves too close. Sometimes I need to learn things the hard way, but hopefully you can avoid some of that painful trial & error. In the interest of transparency, here are my cash targets:

• Checking account - 2 months' worth of expenses (or 1 month with 100% margin of error)

• Savings account - 6 months' worth of expenses

If I can hit those two targets, then I am already living large. I like nice things and fancy restaurants as much as the next person, and keeping that much cash on hand lets me live the life I want. But above those targets, I shove everything I can into investments.

So the way I decide when to buy investments is whenever I have extra money. That can be a recurring monthly transfer, it could be when I have an unexpected windfall (like an IRS refund, for example), or when my business has a particularly good year. I invest as much as I can, as often as I can. 

And, to really hit this one over the head: it doesn't matter at all to me what is happening in the stock market. If I have money when the market is up, I buy. If I have money when the market is down, I buy. If I don't have any extra money, I don't buy.

It's up to you to decide what cash reserve target is right for you, but I think the way I do it makes a lot of sense. And I hope this is obvious, but if you're saving up to buy a house or car, you're going to want to keep that in cash. Don’t invest money you know you’ll need in the next 1-2 years.

Once you exceed that amount, though, it's time to put your money to work for you by investing it. This is true whether you have an aggressive growth investment mix (like 90% stocks, 10% bonds) or a more conservative, preservation-oriented mix (like 50% stocks, 50% bonds).

When I Sell Investments

If we’re talking about when I buy investments, it makes sense to also talk about when I sell. 

If you’ve made it this far into the episode, it should be clear that I'm a big fan of keeping a long-term perspective when investing. I think it's completely essential to being a better, more successful investor. Keeping a long-term perspective helps you a) adopt much, much easier strategies; b) take advantage of the power of compounding, which really only works over long periods of time; c) avoid a lot of unnecessary buying & selling, which helps you save on taxes; and d) ignore the noise in the financial media, which is mostly a bunch of bullshit anyway.

So I advocate for buying investments that you can own for a really long time, potentially for the rest of your life. Low-cost index funds fit that description, but so does buying real estate. (Though real estate investing comes with its own set of headaches, which I shared in a previous episode called “Is Buying A Home A Good “Investment”?.)

But the purpose of all that compounding growth is to eventually have enough invested that your investment income can support your quality of life. Whether you call that retirement, financial independence, or just having the ability to choose whether to work or not, eventually you'll have to start selling investments to augment or replace earned income.

Here are the reasons why I would sell investments:

1. When I have enough that I can live off just investment income. I'm not there yet, so this is an aspirational reason. But when/if I reach that amount, I'll gladly sell investments as needed to cover expenses. Remember, though, that those investments need to last the rest of your life, so you're not going to turn it all into cash as soon as you hit a certain age or dollar amount.

2. When an investment grows too large relative to everything else. This is called concentration risk. (Imagine all of your eggs and just one basket and you get the idea.) Everyone will have different ideas about how much concentration risk is too much, but my opinion is that if each individual investment is less than 20-30% of your total investments, then you're probably cool. But if one investment grows disproportionately large relative to everything else, then I'll sell a few shares and use that money to buy other investments.

3. When I no longer believe in an investment thesis. This is not very common when you're dealing with broad, diversified index funds, but happens fairly often when investing in individual stocks. Here's a real life example: I used to own some Facebook shares (before it was called Meta), but, like a lot of other people, I came to believe that the company is a net negative on society and I sold my shares. Even though my investment account would be bigger now if I had held onto those shares, I feel totally good about that decision because I stopped believing in the thesis. That's a good reason to sell.

4. And finally, the most obvious of all: when I need the money. The reason we save & invest now is so that we'll have more & better options later. So even though my goal is that my investments will last for the rest of my life, there are times when turning investments into cash is a huge benefit. Here are two examples: 1) I got married in 2023 and – not sure if you've heard this – weddings are really expensive; and 2) we bought a car in 2024 and – not sure if you've heard this – cars are really expensive. In both cases, I was able to turn investments into cash to make everything better & easier. (By the way, this is an excellent reason to keep a "regular", non-retirement investing account: you can quickly turn investments into cash without paying the penalties that come with taking money out of retirement accounts at the wrong times.)

Note that, just like when I buy, my selling decisions have absolutely nothing to do with what so-called experts or the financial media say is going to happen in the stock market. That's all noise and can be ignored. When (or if) I sell investments depends solely on what makes sense with my life. Sometimes that's circumstantial (like when I need money), sometimes intellectual (like when the thesis stops making sense), sometimes it's to manage risk (like when too much of my money is in one holding), and sometimes aspirational (like when/if I have enough to make work optional). But I pretty much never decide to sell because I have a hunch or read some hot tip about the markets.

So to recap, my ideal holding period for every investment I own is forever. But the world is dynamic and constantly changing, so there are times when forever stops making sense. I've shared my reasons for selling in the hopes that you can learn to be a better investor yourself (or at least understand why hiring someone to help you make those decisions could be a good idea).

My Investment Strategy

All right, it's time to wrap up this conversation by talking about the investment strategy I use for my own money. While I’m not going to give you any stock tips or recommend one fund over another, I am going to tell you exactly how I think about strategy and allocation (which is just a fancy word for the mix of investments you own).

I invest my money using a strategy called "Core and Satellite", though truthfully I didn't know it had a name when I started using it. It evolved over time, so I think it makes sense to present it chronologically.

I started working quite young, and it's pretty easy to save money (even at sub-minimum wage) when your ambitions are buying packs of baseball cards or comic books for $1. So saving money is a deeply rooted habit that has served me well, especially as I was getting started as a recording engineer in my early 20s and making very little money.

But I knew absolutely zero about investing until my early 30s. I was on tour with another sound engineer named Matt Littlejohn and he laid this on me: "if you're not investing, you're throwing your money away." All that stuff I shared earlier about money in the bank losing value due to inflation? I had never thought about any of that until that conversation with Matt. 

The next day I googled "how to start investing" and decided to use the simplest strategy I could find: open an IRA and invest in a target-date fund. A target date fund adjusts over time, starting out very aggressive (meaning stock-heavy) and becoming more conservative (or bond-heavy) as the target date approaches. It's a good set-and-forget option.

Since then, I decided that target date funds are actually a little more conservative than I would like and now I put around 90% of my retirement money in low-cost stock index funds and around 10% in low-cost bond index funds. Those index funds offer instant diversification and they definitely fall into the “I could own this forever” category. Now, I happen to have a very high risk tolerance and a 90% stocks/10% bonds mix works for me, but I want to point out that it’s a more aggressive mix than is comfortable for a lot of people.

FYI – I don't worry about adjusting the allocation each year (like a target-date fund) because my motivation is growth, rather than preservation, and stocks are great at growing over long periods of time. 

I mentioned a minute ago that my strategy is called Core & Satellite, and what I just described is the Core: most of my money is invested in a simple, conventional approach that is designed to work well over the long-term. Think of the core as set and forget, rinse and repeat, etc. It doesn't require much ongoing thought or maintenance, which is how I like it. Again, this is where the bulk of my investment money goes.

But after a few years of contributing to my IRA, I got to thinking that I ought to at least understand how to buy individual stocks. Even though I like low-cost index funds, even though I know that it's mostly impossible to outperform the market in any given year, I thought I could become a better investor if I learned how to buy stocks. 

But I didn't want to change anything in my retirement accounts, so I opened a non-retirement brokerage account for this purpose. Then I signed up for a well-known stock picking service to help me understand how to get started. 

One of the deals I made with myself when I started buying individual stocks was that I would hold each investment for as long as possible, ideally forever. So, even though I wasn't buying index funds in this account, most of my principles were still the same: buy stuff that I believe in, that I think will succeed over the long-term, and own it for a long time.

This is the Satellite part of my strategy: a smaller portion that is carved out for high conviction – but also higher risk – investments. While the core represents the normal, conventional thing, the satellite represents higher potential reward in the long-term with higher risk in the short-term.

Here are some insights I would like to share about this Core & Satellite strategy:

• It has worked very well for me. My retirement accounts (core) chug away with little to no interruption from me. My non-retirement account (satellite) has seen both amazing successes and complete failures, but – because I hold most investments for a very long time – the successes far outweigh the failures.

• Most people only need the core. And I truly believe that. Most people are generally risk-averse and don't really enjoy paying attention to the stock market, so they don't need to go any further than a diversified mix of index funds that match their goals & timeline.

• The satellite is risky. It is not for everyone, and probably not for most people. Again, I have a very high risk tolerance and can stomach watching investments go up & down dramatically, because I believe that it will benefit me over years & decades. But most people get freaked out by that much volatility, so please don't feel like you need this part of the strategy to be a good investor.

Ok, that wraps up this conversation on how I invest my own money. I’ve told you about why I invest, how I think about risk & time, when I buy, when I sell, and my overall strategy. I hope you've enjoyed it! If you are the type of person who likes to see things written down, I’m going to share everything I talked about today in a blog post on my website, which you can find at iselerfinancial.com/blog. 

And, should you wish to learn more about a potential follow-along investment newsletter, please visit iselerfinancial.com/follow. I plan to lay out some ground rules about what I’ll do and why, then each month I will use my own money to buy investments and you can follow along to see in real time what works and what doesn’t. This will be purely for educational purposes and not investment advice, but I think there is a real learning opportunity for people who are interested.

Thanks,

Timothy Iseler, CFP®

Founder & Lead Advisor

Iseler Financial, LLC | Durham NC | (919) 666-7604

Iseler Financial helps creative professionals remove stress while taking control of their financial lives. We'll help identify current your strengths and weaknesses, clarify and refine your long-term goals, and prioritize decisions to improve your financial well-being now and later. Reach out today to take the first step.