Before I reveal my investment stack, I want to share something important with you. The first $100,000 are the hardest to save up. Usually you are saving towards your first $100,000 when you are a new grad or starting fresh in life. You make little, expenses are high, and you’re new in the workforce so promotions aren’t around the corner. You have to scrape every dollar you earn and put it aside until you have $100,000 in savings and investments, trust me when I tell you this. Why is it important to get to the first $100k as quickly as possible?
Its because money works on momentum, it obeys the laws of motion. Specifically Newton’s First Law of Motion which states, “every object will remain at rest or in uniform motion in a straight line unless compelled to change its state by the action of an external force.” This applies to your money as well. When you have $0 in assets, with no seed money, your money is essentially at rest and not wanting to move. You have to exert “external force” aka you saving and investing aggressively to get it going. However, the good part is that once your money is in motion, it will tend to stay in motion.
This is why I am arguing that the first $100k is the hardest to save up to. Trust me I am not the only one who thinks this. Charlie Munger, the famous investor and Warren Buffet’s partner, says the same thing “accumulating the first $100,000 from a standing start, with no seed money, is the most difficult part of building wealth. Making the first million was the next big hurdle. To do that a person must consistently underspend his income. Getting wealthy, he explains, is like rolling a snowball. It helps to start on top of a long hill—start early and try to roll that snowball for a very long time. It helps to live a long life.”
Another version of this quote by Munger which I like better because of its no nonsense delivery, “The first $100,000 is a bitch, but you gotta do it. I don’t care what you have to do—if it means walking everywhere and not eating anything that wasn’t purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit.”
Let’s dive into the snowball theory here a little bit. Why does the first $100,000 matter so much? Its because once you get your first 100k, compound interest becomes significant, your savings habit have solidified, and the next 100k is easier to get to.
For example, say you save $10,000 every year and invest it into the stock market. Assume a 9% – 2% (inflation) = 7% return, this would mean it will take you a tad under 8 years to get to the $100,000 figure. Great! you made it to your first milestone! Now, how about the next $100k? How long will that take me you ask? Not 8 years that’s for sure, you will actually reach the $200k mark in 5 years! The next $100k? You’ll hit the $300k mark in another 4 years. The $400k in another 3 years. The time between each $100k saved or invested becomes shorter and shorter. The momentum of your money not only continues but gets stronger. As Einstein said, “the most powerful force in the world is compound interest.”
The math is there and it checks out, save consistently and you WILL be a millionaire with a long enough investment horizon. Do today what others are not willing to do so tomorrow you can do what others cant. Invest, invest, invest, and scrape every dollar you gain. I understand life is not easy and society is not structured in a way to allow you to gain this freedom through saving, but there is always an expense you can cut or a coupon you can use.
Get a roommate and split the rent and bills. Aim to live closer to work if possible and commute via bike or public transit. Cook your meals at home and limit take out. Set aside a budget for your hobbies and interests because at the end of the day you will live your life and not just drudge on by as a robot built only for saving money.
Now that I hope I convinced you about saving aggressively with math to back it, what is my investment stack?
I categorize my investment stack into four “buckets”: Ultra safe, moderate risk, risky, and high risk.
- Ultra Safe Bucket: Savings account through Marcus by Goldman Sachs and Yotta Savings. Marcus is a traditional online savings account which gets .5% APY…Not much to say there. Yotta is a savings account which gets you weekly cash prizes via weekly tickets based on amount deposited. So far this has been netting roughly 2.0% APY. Both of these are FDIC insured so I don’t lose sleep over them.
- Moderate Risk: I have a Wealthfront account and a 401k account that are both fully invested in broad market index funds. These are also low fees to ensure maximum return on my investments.
- Risky: I have a TD Ameritrade account and a Robinhood account which are both taxable personal accounts. I use both of these to pick individual stocks that I believe will be long term winners. This is a small amount from my total net worth and even if I picked losers my overall return will not be too hampered.
- High Risk: I have some cryptocurrency (bitcoin and Ethereum) through Coinbase. I exposed an extremely small amount of my net worth to cryptos in the off chance their values skyrocket. I would like to be in on the ride to the top.
That’s it! I’d like to think this is a simple investment stack doable by anyone. If you would like a referral code from me please comment and I can get you my referral code which would get both of us a little something depending on the app you choose.
This post is somewhat of a continuation of a previous post regarding FIRE and financial independence. You can read that article here!
Please comment about what you like and don’t like so far in my posts. I would love some feedback and ideas about future posts and how I can further improve my writing.
Thank you,
– E J
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