Investor Policy Statement: 2020-2025

This is my first time developing an Investor Policy Statement (IPS). Rather than speaking at length about something that I’m learning for the first time, I figured it would be best to offer this background and instructions for creating your own IPS here. Many of the bullets and words below are taken directly from his post, and reworked for my philosophy, so I want to also be very explicit in giving him credit for this piece that he inspired.

Objective:

  • Attain $2,000,000 net worth by December 31, 2025, to become financially independent so our family may pursue our passions with less concern of the financial consequences

Our Post-FI Motivations (because the “why” is critical):

  • Self: Running for public office; affording to work on Capitol Hill; starting a family law firm; buying/selling collectables full-time; starting a family business flipping houses; and getting into the best shape of my life
  • Spouse: teaching overseas; becoming a consultant; leading a school system; serving as an education policy expert
  • Mutual: traveling more; gaining location independence; reducing stress

Philosophy:

  • Stay focused
  • Invest most money in a diverse portfolio of low-cost index funds, keeping expenses low
  • Accept market returns, rebalancing with monthly investments
  • Tolerate risk to gain greater returns
  • Streamline and simplify whenever possible
  • Automatic actions are strongly preferred
  • Avoid paying off low interest debt

Asset Allocation:

  • 50% US Stocks, 20% international stocks, 20% real estate; 5% collectables; 5% cash
    • U.S. stocks: 40% large-cap, 30% small-cap, 30% mid-cap
    • Int’l stocks: 70% developed, 30% emerging markets

Investments:

  • Max-out employer 401(k) (self and spouse) with $39,000 in contributions (2021)
  • Max-out HSA (spouse) with $3,600 in contributions (2021)
  • Max-out FSA (self) with $2,750 in contributions and use appropriately so no waste at end-of-year (2021)
  • Annual backdoor Roth contributions $6,000 (myself) in January
    • Explore setting up Roth backdoor contributions for spouse
  • Max-out 529 account (child) with $2,500 contribution in January to maximize state tax deduction
  • Use monthly budget surplus and/or all unexpected funds to:
    • 1) reach a $50,000 emergency fund;
    • 2) invest in a non-tax-sheltered brokerage account; or
    • 3) fund REIT transactions to keep 20% of investments in Real Estate

Real Estate

  • Maintain current investment properties and seek new opportunities once our family position permits it
  • Be professional about real estate endeavors, even while owning only a small number of properties
  • Invest in REITs, starting 2022 after accredited investor status is conferred

Child Education

  • Pay for child’s college with $2,000 to $4,000 cash (if income makes us eligible for the American Opportunity Tax Credit), then tap 529
  • Provide set amount each year ($15,000) for four years – to provide support along with accountability for child’s financial decisions
  • Align child’s asset ownership and court documents to maximize merit and other academic financial support

Drawdown Thoughts:

  • Side hustles and/or work post-FI may be sufficient to cover living expenses
  • Receive dividends and capital gains as cash transfers to bank account
  • Roth conversions as appropriate to optimize taxable income
  • When cash is needed, sell taxable assets and minimize / optimize capital gains
  • Withdrawal rate < 3% when fully retired

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