Learning how to build your wealth is a lifelong journey. Kind of like staying in shape, it's a muscle you need to continue to exercise.
In that spirit, this week we're excited to share a conversation with Tom, The Savings Captain. In 2022, Tom left the financial services industry after a 32 year career that included working alongside the famous John Bogle, founder of Vanguard. Over his career he was an advisor, brokerage manager, and Certified Financial Planner.
Despite managing his own personal investments over 30 years, Tom recently embarked on a fun experiment, where he decided to build a portfolio from scratch.
Our discussion on this topic and others, formatted for clarity, follows:
Building a portfolio from scratch
Why did you decide to build a portfolio from scratch?
Tom: Last December I started a portfolio for my Producer, Radish (aka "The Hardest Working Dog In Podcasting"). I started this portfolio for two reasons. First, to serve as a guidepost and to demonstrate the importance of consistently investing each week and how even small contributions compound. The second reason I started this account was to provide a tracking tool for my listeners to see what stocks and ETF's I personally invest in. Almost one year later, Radish's portfolio has grown to almost $2000 by slow and steady weekly contributions. Interestingly, after 34 years of personally investing I have re-learned what it is like to embark on being a new investor.
What would you recommend to someone building their first portfolio?
Tom: I firmly believe that utilizing Index ETF's is the best approach. Vanguard, Fidelity, Schwab and Blackrock all have great offerings that will kickstart an investor in achieving a diversified, low cost and tax efficient portfolio. I don't think individual stock selection is a smart idea when starting a portfolio. Before adding individual stocks I believe an investor should be able to answer yes to the following questions: Do I know what I am doing?, Do I have time to monitor individual stocks?, Do I know my buy box or objectives. Some experts say you can add individual stocks once you achieve a dollar threshold of say $10k. I don't think that is the best proxy. In my experience investing is largely qualitative, less quantitative.
How do you determine your allocation between stocks and ETFs?
Tom: Pretty simple. My portfolio is 80% ETFs and 20% Individual stocks, oh and I own some Bitcoin. Here is more specifically how my portfolio is structured. About 75% of my ETF holdings are in Vanguard Total Stock Market ETF (VTI) and 25% in Schwab U.S. Dividend Equity ETF (SCHD). I own the following individual stocks: Coca-Cola (KO), Duke Energy (DUK), Walmart (WMT), Realty Income Corporation (O), Meta Platforms (META), Apple (AAPL), Agree Realty Corporation (ADC), Cava Group (CAVA), Costco Wholesale (COST), McDonald's (MCD), Hershey (HSY), Tesla (TSLA), Starbucks (SBUX). I also target a beta slightly below the market, currently my portfolio is about .91 beta. I also hold a cash position of close to 20% for the first time in my investing career. I'm having trouble justifying valuations, I guess I am in good company with Buffett.
How do you pick stocks?
Tom: My guiding principle in picking stocks is, "If I don't plan to own it forever I won't buy it ever". That doesn't mean I will never sell, but I do a very heavy screening process that centers on financials, management, moat etc. Recently I went a stretch of 2,558 days without selling...I sold when the stock no longer met my objectives and walked away with a double in 5 years on the position.
What are your investment goals?
Tom: I am 56 and recognize my financial goals may not be congruent with especially younger investors. And they shouldn't be. Some say act your age, I say invest your age. What I mean by that is it is essential to truly know where you are in your investing journey and where you want to be. I am still looking for growth but have a focus on capital preservation as well. This is why I no longer invest in momentum stocks. If my portfolio returns 8% per year for my duration I will be fine.
I have started putting in place a geopolitical hedge in my portfolio using a combination of bitcoin, gold and cash. These assets have performed the best during such geopolitical black swan events or periods of uncertainty.
Trying to pick specific stocks based on which candidate one expects to win is a fool's errand. It is unclear who will win and markets tend to do well irrespective of who is in the White House...as long as we have clarity on the election results and there are no delays in acceptance of these results.
Want to follow Tom's thoughts on investing and conversations with others also on their wealth building journey? Tune in to his weekly Money Happy Hour podcast. You can also follow him on X and Threads.
