How Mr Beerver Invests
So, we talked about debt and conscious spending recently. We talked about reducing expenses and then BAM! Mr Beerver goes out, buys a car and puts his budget out of whack for the sake of a depreciating asset.
He better hope the car gives him more opportunities for work and saves him lots of commuting time so that he at least gains from the intangible benefits of car ownership.
Whether buying a car was a smart move or not, two things have changed in Mr Beerver’s life:
1. Come beerless hell or high water, he has a new monthly payment to hand over to the bank.
2. His budget’s so tight that ANY change in circumstance will see him bankrupt in less than 6 months.
The first item is pretty much a fact of life for most American Graduates who are typically $35,200 in debt and so probably have about $408 in monthly payments. A steady salary of over $45,000/year would be required to safely repay this amount of debt.
And that bring us to the second point: When debt is stretched to the very limits of a budget as Mr Beerver’s done with his car purchase, it puts you at increased risk for when life happens. What if you lose your job? What if you get in a car accident? What if you get sick? What if your home gets burglarized? Etc etc.
With Mr Beerver’s budget wound so tightly, any of these would be a major disaster and would destroy overnight all of the work he’s put into his investments for over a year now. That’s some risk!
After spending hours upon hours searching the internet for something that comes close to a visual representation of Mr Beerver’s budget balancing act, I think I finally found it. THIS, THIS is the kind of feat Mr Beerver must now achieve with his budget to safely navigate his new set of liabilities!
Since he’s taken on so much risk here, he’d better make sure his portfolio management is steady and rock solid! Here’s how Mr Beerver manages that part of his finances.
As I mentioned earlier, every month he puts 100$ into his retirement portfolio. Funds are currently spread out as follows:
The red lines here represent assets that have too much money. The green lines are assets that are just right and the blue lines are assets that don’t have enough money in them.
The colours change automatically based on the weightings of the portfolio holdings and help simplify investment decisions. In this table, colours change if the “Money to Target” column is off by more than 10% of the total portfolio value.
The REITS row for example is in blue because Mr Beerver needs to put in $400 to this asset to be balanced. The $400 required here is more than the $250 cut-off line so the colour is blue to reflect the underweighting of this asset.
As you see, individual stocks are in red so even if Mr Beerver found the perfect stock to invest in today, he wouldn’t put new money there as he’s already got too many stocks. If he gets new money, he’ll most likely put it into a REIT to help rebalance his holdings and so automatically lower his risk.
Automation like this helps to reduce human error brought on by getting emotional about stocks. That’s a problem pretty much EVERYONE has and is one reason why the average person buys high and sells low.