Question: I was recently married. My wife is an OB/GYN Physician Assistant and I am a pharmaceutical rep. Together we have paid for our wedding, we have a small but affordable house, no credit card debt, and we save. My wife has about $28,000 in school debt and our mortgage is around $1,200 a month. We make around $230,000 a year, which we are blessed to have. We have about $100,000 in the emergency fund. We both contribute to our 401(k)s. I have $30,000 in mutual funds from an inheritance that we don't touch.
We now want to invest some of our emergency fund that we believe is a little inflated, due to fears of the economy. I've looked around at fee-only advisers, but they all state that you should have at least $100,000 to start investing; otherwise, they don't feel like you are qualified to work with. What should we do with our money? We have about $15,000-20,000 that we want to invest, but we want to do the right thing. Could your staff help with some options? Thank you, Joshua, Riverside, CA
Answer: You both have good jobs. You have many investment options and strategies open to you. How do you choose? What I recommend is putting down investment performance charts. Forget about your financial assets (for the moment). Instead, put up your feet and think about what you and your wife want to do with your lives. The insight will push you toward an investment strategy that supports those values and goals.
Conversation about money and investing are often something of a "head fake." The term comes from a marvelous lecture by the late Randy Pausch, the Carnegie Mellon computer scientist. The 2008 talk Really Achieving Your Childhood Dreams was humorous and deeply moving. You can watch it here. It's mesmerizing.
Pausch openly discussed during his Last Lecture the pancreatic cancer that would kill him in less than a year. The talk became an Internet phenomenon. In it, he talked about the importance of a head fake. Here's an example: "When we send our kids out to play football or soccer or swimming or whatever it is, .... We actually don't want our kids to learn football," he said. "I mean, it's really nice that I have a wonderful three-point stance, ... but we send our kids out to learn much more important things: teamwork, sportsmanship, perseverance."
In other words, a head fake is when it seems we're learning one thing yet we're actually gaining a different -- and far more important -- type of knowledge.
The head fake when it comes to personal finance? We talk and write about investment strategies, savings techniques, smart ways to borrow smartly and to pay off debt, and so on. Yet the conversations about personal finance is really about deciding how to live your life, figuring out what you really cherish and value, and then putting your money behind those goals and beliefs. I always thought Po Bronson's What Do I Want To Do With My Life? is an excellent personal finance book -- even though it has nothing to do with personal finance.
My question to you and your wife is what you want to be doing over the next several years and decades. Sure, some of the thoughts may be dreamy and others practical. The further out you go, the less realistic the scenarios. Still, once you have a strong sense of what it is you're striving for -- knowing that goals and dreams change over time -- it tells you where to invest your money.
For example, you're in a good position to take on a more-than-normal amount of investment risk. What if the good life means a career and life with many transitions, spending some time overseas, shifting to different jobs and so forth. In that case, even though you have the capacity to absorb more risk, you should probably focus on staying with more conservative options. You want the money to be there when you need it to backstop transitions.
Then again, since you have the financial basics well covered, it is reasonable for you to take greater financial risks to reach for a goal. If the investment pays off, you'll easily afford your aspirational goal. If it doesn't work out, you still have the everyday standard of living basics well-covered. Figure out what you want to do first. The money tactics follow.
Fee-based certified financial planners are expensive. Planners prefer working with high-net-worth households, which is why I think you can do better on your own.
In practical terms, my DIY recommendation is to fund these goals with an automatic savings program that regularly puts money into a variety of taxable accounts. Depending on what you decide on your goals, the money could go every month into a savings account, certificates of deposit, Treasury bills and the like. You could also invest some money in a broad-based, no-load, low-fee stock index fund such as the Wilshire 5000, the Russell 3000, or the Standard & Poor's 500. The mix of relatively safe and riskier savings starts out small, of course, but it accumulates over time. The mix also depends on what you and your wife are trying to accomplish.