56 thoughts on “20 Steps to Effective DIY Investing”

  1. That’s a very good start to finish, step by step list for all beginners! It can get overwhelming to try and do everything all at once si breaking it down into bite size steps can be very helpful! Thanks for the guide!

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  3. Could you do a blog post about how to rebalance allocations and keep assets sequestered in their tax efficient locations? For instance, if I keep my 10% allocation of REITs in a tax-advantaged retirement account and my 30% allocation of Large Cap Growth funds in my taxable account (per usual advice) how do I rebalance these assets when the ratios skew? It seems to me, that if the REITs grow to 15%, I will have to sell 5% and then I’ll be left with cash in my tax-advantaged account, but I need to buy assets outside of that account….how?
    Yes, I know a lot of rebalancing can be done solely with new contributions, but not all of it. And, how about rebalancing when no longer making contributions?

    Reply
    • Thanks for the question, Peter. I’ll add it to the list of future posts. The short answer is tax-inefficient assets should be held only in tax-advantaged accounts, but tax-efficient classes can be held in all accounts. I keep US stocks in every “bucket”, allowing me to exchange to and from my REIT and bond allocations.
      It gets a little trickier the more you slice and dice, and the narrower the bands you try to maintain. I tilt to small and value, but I’m not rigorous in tracking or maintaining the extent of that tilt.

      In your case, you could exchange 5% of REIT to an asset class that is now underweight. In the taxable account, when one class becomes overweight, stop contributing to that class, and put future dollars towards an underweight class (perhaps international).

      Reply
  4. Great Stuff. I could easily see a book in your future that expands on some of the steps and even adds a few like saving for college. I also enjoy reading articles on SeekingAlpha. Keep up the great work.
    cd :O)

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  5. Great reference for the young and aged investor alike.
    Just caught a minor thing – in section four you have 90% stock allocation but section six you describe your allocation as 80% stock. I am being picky around a very very useful article. ?

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    • Thanks, Mr. PIE.

      I’ll try to clarify that further in the text.

      My portfolio is 90 /10 overall (stock / bond) where “stock” includes US stock, international stock, and REIT, and “bond” includes bonds, fixed income, and cash.

      If you include REIT as “stock”, my portfolio is 90 / 10. REIT funds are often referred to as “alternatives”, but behave more like stocks, so in a 2 class breakdown, I count it as part of the stock portion.

      Reply
  6. Great read – most people know the ‘what’ they have to do (save money, spend wisely, etc) but they don’t know the ‘how’ to start…or even where to start. They maybe have been reading and know so much on the topic already, but there is a difference between knowledge and action – question – is this the order you would recommend for anyone starting? Educating yourself first I get but would you have the ‘investor policy statement’ and ‘insurance’ be towards the end? Again, great read…

    Reply
    • Than you, JonA. I put this guide together as a go-to resource because it’s tough to tell someone how to get started without knowing a lot of detail of where they’re at with knowledge and planning.

      I don’t think the order is terribly important, and some people will have already completed at least a handful of these steps, if not most.

      It’s tough to write an IPS if you haven’t completed most of the earlier steps, which is why I put it last.

      It’s vitally important to be insured; I put it towards the end because it’s somewhat indirectly related to the topic at hand, but your portfolio could be reduced to rubble without appropriate insurance coverage.

      Best,
      PoF

      Reply
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  8. Top slice your income to invest… don’t do it from the “left overs” at the end of the month!

    Read, read and read more… you educate yourself to be a medic… do like wise to be a DIY-Investor!

    Mick (author of Picking Winning Shares: ISBN 978-0-9564899-0-6) and founder of diy-investors.com.

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  9. Great post! Can’t agree more with #16. I facepalm every time when I hear someone who signs up for an cellphone insurance plan for $9.99/month.

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  10. Additional step, perhaps even step 1 – Determine the end goal of your investing, how much money do you need to have?

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  11. Great list. As an aside, do you expect DIY physicians to need to worry about estate planning? I roughly ran through the numbers and even if I work until normal retirement age (I hope I don’t!), I may not reach the net worth that warrant estate planning. Assuming that the cut-off doesn’t get raised and I do end up in the high tax-bracket estate, I expect to be able to draw down on it through charities so my heirs don’t get hit.

    Perhaps I should’ve picked a better medical specialty!

    Reply
    • Better paying doesn’t necessarily = better, but it’s true that the more you earn, the more you can save, invest, and grow.

      You may not have to worry about the estate tax, but that doesn’t excuse you from estate planning, which includes having a will, a living will, and necessary insurance against an untimely demise.

      Reply
        • True. Those probat laws are very state dependent.

          If you have beneficiaries named, the main thing that probate can tie up is property. But it’s wise to talk to someone familiar with your state’s laws, and that’s definitely not me!

          Best,
          -PoF

  12. This is a phenomenal list! Such great detail – that’s fantastic. I like the idea of having a 5% fun fund. The worst part about “smart” investing is that it’s not exciting. I’ll have to remember to keep a few dollars around for these fun investments. Thanks for the great idea!

    Reply
  13. Another great post! I used to follow another blogger, Jason Fieber, in his Dividend Mantra blog. You said you max your 401 plan in stocks and bonds. Do you have all in index funds? Why do you have the dividends and capital gains transferred to your bank account, instead of re-investing them? Also, what stock brokers do you recommend? I know there are a few companies who don’t charge (like Robinhood). Thanks for sharing! I understand you may not be able to answer all my questions, but would appreciate a response!

    Reply
    • Thank you, Selena. Most of your questions will be answered in this post,The PoF Portfolio and the followup PoF performance post.

      I do re-invest dividends, but in my taxable account, I first send them to a money market fund within the Vanguard account. I then decide which fund to reinvest in. Automatic reinvestments could wreak havoc with tax loss harvesting and create an unintentional wash sale. I don’t buy or trade individual stocks, and the only broker I use is Vanguard, and I do recommend them.

      I hope that helps. Thanks for reading.

      Best,
      -PoF

      Reply
  14. we max out 401K account.

    we do not qualify for roth IRA

    Currently cant do a backdoor roth due to having a rollover IRA

    Should I contribute to traditional IRA (even though there will be no tax deduction)?

    OR just open a taxable brokerage account?

    Any recommendation regarding using Vanguard vs Betterment?

    Reply
  15. If you have any outside income ($20 from online surveys or mowing a lawn), you can start a business, obtain an EIN, and roll that IRA into a solo 401(k), so you may be able to do the Backdoor.

    A non-deductible IRA contribution isn’t a bad idea as long as you keep a paper trail to prove that it wasn’t deducted. You’d hate to pay taxes on it again.

    Betterment just raised fees, and you can easily do it yourself. But if you prefer to be hands off, you could consider a robo-advisor.

    Cheers!
    -PoF

    Reply
  16. 1) Can you please recommend some online survey to make money?
    2) is it true that Vangaurd solo 401K does not allow roll over?
    I am already looking at Fidelity if Vangaurd does not allow roll over.
    I hope i can make this all happen so that i can contribute to 2016.
    Thank you

    Reply
  17. Great post! What are your thoughts on muni bonds in taxable? Saw a recent post on WCI on that. Interesting idea. Looking between VWITX and VTEBX (or the ETF version VTEB). Any thoughts on those two?

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    • I like bonds in tax deferred, but I’ve read WCI’s arguments. He argues for stocks in Roth, and I do have 100% stocks in Roth, so I guess we’re not that far off in our thinking.

      One factor that he doesn’t consider (because it’s unlikely for physicians) is the possibility of being in the 15% federal income tax bracket (0% capital gains bracket) in retirement. That could change the equation drastically. State tax is also not factored in.

      I do like his point that the money in a tax deferred account isn’t all yours. If you plan your asset allocation as if all monies are equal, you might have a more aggressive allocation than planned (if bonds in tax deferred) or less aggressive than intended (if tax deferred is 100% stock and bonds are in taxable).

      The bottom line is anyone agonizing over the merits of asset location to this level of detail is probably making lots of good choices and will be fine whether they put bonds in tax deferred, munis in taxable, or both.

      I haven’t looked at the particular funds you bring up, as I simply buy the Total Bond Fund in my tax deferred accounts.

      Cheers!
      -PoF

      Reply
  18. Pingback: How to access your retirement accounts in early retirement: Roth Conversion Ladder - The Grounded Engineer
  19. Fantastic post PoF. I will share this with my friends who are mindlessly giving money to a financial adviser to handle their simple investments. Great tips for investing nerds as well. Bookmarked!

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  20. Pingback: Top Five ways to manage your money - Stocks Masters
  21. What are your thoughts about Long-Term Care (LTC) insurance? Are you self-insuring here, or considering this as part of your retirement expenses. Covering this additional expense by 25x (4% rule) with my net worth is likely going to add possibly 2 more years of savings/working and would like to know your thoughts.

    Reply
    • If you plan to live on a FIRE budget of about $80,000 as we do, you can probably self insure. If you make it through the first 5 to 10 years without a particularly nasty sequence of returns, you should be golden.

      Best,
      -PoF

      Reply
  22. To your reading list I would add

    Bogle on Mutual Funds; New Perspectives for the Intelligent Investor by John Bogle. It’s the real deal, not the baby versions you have listed.

    The Invisible Bankers by Andrew Tobias

    Insurance for Dummies

    Better Investing’s Mutual Fund Handbook by Amy Crane. Worksheets for using Morningstar’s MF sheets for comparing mutual funds. Hint: use an index fund appropriate for the types of mutual funds you are comparing. Forms for stock and bond mutual funds. Can be used for money market funds too. Uses Bogle’s eternal triangle of risk, reward, and cost to compare funds.

    Reply
  23. thank you for this amazing article.
    I believe your point on insurance at 16 should be at 1-2.
    totally agree about the boredom with index investing and i get the logic behind play money.

    what about using play money for a “well thought out” covered call on index? or a steady healthcare stock?

    Reply

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