*Disclaimer #2: I am not a professional, and MyMoneyWizard.com is an opinion-based blog. Nothing on this website should be considered financial advice.
Back in October 2018, I published the first reader mailbag and vowed to make it a regular series.
Two years later, and I’ve published a whole… three!
WTF!
Clearly, I’ve got some follow through issues.
So without further ado, it’s time to sort through the MASSIVE mail pile and get to some questions.
And then, it’s time to make this the regular series it deserves.
1. I just inherited $1 million. How do I diversify?
I recently inherited $1 million and a $500K paid off home from a family member. I know I need to diversify but I’m not sure how to do that, especially with everyone saying the stock market is due for a recession soon.
I’m debating between hiring a financial advisor, using a roboadvisor, or just attempting to do it on my own. Any advice?”
In the world of investing, there’s probably nothing more boot-shaking scary than the idea of investing a ton of money and then having the rug pulled out from underneath you.
Especially lately, with everyone worried about the market being overvalued, this fear is even more real. (Whether you have a million or a thousand.)
DIY investors have two main aces up their sleeve to deal with this worry:
1. “Dollar Cost Averaging” – This is one of the two ways you can profit from a falling market.
Essentially it means investing a fixed amount per month over a fixed time period. This reduces your entry risk and is usually recommended any time you’ve got a huge sum to invest like you do. Even more recommended if there’s concerns about the market being high.
2. Conservative to start – Take the example of someone with a large amount to invest and sold on the awesome idea of a three fund portfolio. They could take their initial lump sum and invest it really conservatively to start, then adjust towards their long-term asset allocation over time.
For example, say someone has $1 million to invest and they feel a long term allocation of 60% stocks, 40% bonds sounds about right. If they’re worried about an upcoming market crash, they could jump into the market with their $1 million split into say, 80% bonds and 20% stocks to start, and then resolve themselves to reduce the percentage of bonds by something like 10% per year and increase the percentage of stocks by 10% per year.
In four years, you’ll be fully invested in the market with your perfect asset allocation. And if something happens in the meantime, you can take solace in knowing you’re extra protected due to your overly conservative amount of bonds.
With this strategy, you’re basically dipping your toes into the swimming pool and taking four years to submerge yourself completely.
About a Financial Advisor – In general, I think these guys rip a lot of people off. BUT, the one situation where they do seem to make sense is probably yours – somebody coming into a lot of money without any prior experience.
One decent option is to find a “fiduciary” advisor who earns as “fee only” advisor. What you could then do is put together your own DIY plan, line up any lingering questions you have, then meet with a financial advisor for an hour or two to double check that you’re on the right track (while making sure he doesn’t put you in any trash high fee funds or try to earn some kickback off you). It could be a one-time thing and only cost you a couple hundred bucks for some added peace of mind.
The White Coat investor maintains the best list of ethical financial advisors that I’ve seen.
2. Is Personal Capital free?
I am considering signing up for Personal Capital and wanted your two sense on the service as it looks like they do charge fees for the investments. Am I reading this incorrect or do you pay for this?
Personal Capital is totally free if you want it to be. They do have a separate advisor service where they charge a fee. They’ve called me a couple times pitching this service, and I’ve just politely said no thanks.
Personally (ba-dum-tss!) I just use their free net worth tracking and investment analysis tools, which are awesome. And yes, 100% free.
3. What’s your favorite beer?
Hey man, love your blog. You’ve given out so much free advice I think I owe you a beer. What’s your favorite?”
Now that’s my kind of email!
Net Worth Update readers know I spend waaay too much on craft beers. While you definitely don’t owe me a beer, I am a big sucker for lighter Hazy IPAs, classic Wheat beers, and Hefeweizens. 😉
4. How do index funds compound, exactly?
When you mention compound interest – where and how are your assets getting compound interest? My relatively fuzzy understanding is that there’s no interest paid on Index funds, unless you mean the reinvestment of dividends. Am I missing a trick or am I misunderstanding this?”
A good question! When you’re trying to learn personal finance, sometimes wrapping your head around these weird little technicalities is the hardest (and most annoying) part.
The trick here is that the actual price of index funds (and all stocks) compound over time.
As one example, back in the 1980s Vanguard’s S&P 500 index fund sold for $13 a share. Today, it’s over $300 a share. That’s just the purchase price and completely separate from dividends paid.
So imagine a fund selling for $100 per share today. It grows by 5%, meaning by next year it sells for $105. Then, it grows by another 5%, so it’s now selling at $110.25. That extra 25 cents is the beginning of compounding. That gain plus your dividends paid give you your total compounding effects.
It’s not as smooth and predictable as something like earning interest on a savings account. In reality, you’re more likely to see swings both up and down, and over time those average out to a certain annual percentage increase.
5. 20% downpayment or 3% downpayment?
My question is to you, are you someone who believes strictly in 20% down minimum to avoid PMI or okay with the conventional 97 mortgage? (Putting just 3% down)?”
Personally, I prefer 20% down, especially if you have a high savings rate and can build that amount relatively quickly. That’s what I advised Lady Money Wizard to do when she bought our place. That said, she already had the cash on hand and we live in a really low cost of living area.
The question gets harder if you live in a higher cost of living area and/or it will take you a longer time to save up 20%.
If you’re looking down the barrel of 4-5 years of saving before you can put 20% down, well… a lot can happen in 4-5 years. The last thing you want is for the price of homes in your market to run away from you while you’re saving up for 20% down, so sometimes it can actually make sense to put less down, pay the extra for PMI, and get exposed to the real estate market.
Guy on Fire make a good case for putting only 3.5% down using an FHA loan. Here’s Part 1 and Part 2 of his blog posts on the topic.
No matter which option you choose, the bigger key is making sure you buy a home you can afford, and you don’t get caught paying for square footage you’ll never use.
6. How much does your blog make?
I was wondering why you don’t publish the breakdown of the money you make from your blog? I’m curious what kind of extra income your blog earns you.”
This is actually something I’m struggling with lately.
Originally I wanted the site to be an experiment in whether or not I could actually hit financial independence in my 30s. In keeping with that experiment I’ve kept all the website’s income in a separate account. I also think it’s kind of weird when blogs turn into blogs about blogging. I’m not sure how many readers would actually be interested in that, and I don’t really want that to be the direction of the site.
That said, the site has grown far more than I ever expected, and the earnings are getting large enough to impact my financial plans.
I’m thinking about putting out some sort of ebook where I break down the blog’s earnings and give advice to people who are interested in that sort of thing.
I’d definitely be interested in hearing everyone’s thoughts on that.
Got a question?
Send me an email through the contact page and you might get featured in the reader mailbag!
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I would definitely like the ebook about the blog! Maybe you could setup another mailing list for people who also want to hear about it!
Thank you for all the great work you have done!
Thanks for the feedback!
I’d be super interested in how much you’ve made from the blog! I also made extra income online and would be curious on your thoughts about how much time is wise to invest into a side job like that.
Me too!
Awesome to hear!
I would defintely be interested in your blogging income ebook. I’m a long time reader who has always admired how well designed your blog is.
Thanks, Joel!
Thanks for the info, you should update your copyright year each year as it says 2018. Good luck with early retirement!
Haha, that copyright update has been on my to do list since… 2019. Gonna have to get after it…
I just wanted to chime in and say I am very interested in the earnings of this blog. As someone who earns some money from creative projects, I always appreciate when creators are open about and share their real earnings from their projects.
Thanks for the feedback, Mike.
Definitely interested in hearing about the financial impact of your blog earnings! Great post as usual!
Thanks, Dan!
How do blogs like yours earn income? Is it all from ads? Thank you
Sometimes I’ll earn a small commission if you sign up for things through my links, but ads make up the majority of income these days.
I’m glad that you don’t want to monetize your blog by turning your blog into a blog about monetizing blogs! But to date you have not done that and you’re making money, I’m much more interested in you outlining the ways the “earnings are getting large enough to impact my financial plans.”
I’d love to see how modeling in blog income changes your FI date because I think most people in the FIRE community end up earning some amount of income after early retirement, like Brandon from Mad Fientist with his credit card rewards tool or MMM with his coworking space.
And it would be true to the heart and soul of your content to write more about how you can do what you love (writing), for less money than your primary career, and in the process accelerate time to FI. Whether you consider it side hustle or barista FI or whatever, writing about how X thousand of dollars of “side hustle income” can enable you to ditch your day job earlier by supplementing portfolio income, reducing risk by diversifying income streams etc… would be compelling content.
The key in my mind would be to universalize this and not say everyone needs to do it through blogging, because blogging is hard and most people fail to effectively monetize it. Personally, I’d be more interested in that e-book (how a side hustle can accelerate time to FI) than one just about blogging, even though you could use your blog income as an illustration in the book.
I inherited a million and let Personal Capital manage it for me along along with some other funds for the last four years. It’s a smaller part of my portfolio but I’ve been happy with the performance. I get slightly reduced fees due having a seven figure account under management.
Thank you for the link to the financial advisors page. With such a spectrum of competence, trustworthiness and cost, it’s nice to at least have a road sign that indicates a min bar for any of those factors!