Microconf

Here’s the notes/outline from my Microconf Remote talk:

Investing for Founders

1. About Matt [Slide]
   1. Former OG Personal Finance Blogger (2006-2011)
   2. Founder and CEO of MarketBeat (2011-Present)
   3. Author of 8 Business & Investing Books (2014-2019)
   4. Angel Investor + VC (2016 – Present)
   5. Husband to Karine. Father to Micah & Ady.
   6. Not a qualified financial professional in any way. No certifications. No letters after my name. I’m just a guy with money that’s figured some stuff out over the years.
   7. com
2. Building Your Financial Fortress // Prerequisites to Investing
   1. Think of your personal finances as a business. [Slide]
      1. The goal is to “stay in business” (e.g., not have to go get a job). The way to stay in business is to not run out of cash. As long as you have some money to cover expenses, you can live to fight another day.
      2. You have a personal balance sheet and a personal p&l every month, whether or not you do it.

• Your goal is to minimize risk (reduce debt), extend your runway (reduce expenses), and develop a cash cushion so that you can survive bumps in the road (develop an emergency fund).

1. Save an emergency fund of 3-6 months expenses. [Slide]
   1. This is an insurance policy for when an unexpected financial disaster happens in your life (medical bills, car issues, etc.).
   2. Put in an online savings account such as Capital One 360 or Ally Bank.
      1. Don’t invest the money in stocks, crypto, or any investment that has volatility. It could go down right when you need it the most.

• Don’t believe the financial guru who says you only need a $1,000 emergency fund to get started.
  1. #1 – That advice hasn’t changed since the 90’s and I doubt a plumber would come to your house and fix a leak for the same price they would in the 90’s.
  2. #2 – As someone who is self-employed, your income is likely going to be uneven from month-to-month and it’s good to have more of a buffer in place than a W2 employee.

1. Pay off high interest consumer debt. [Slide]
   1. Paying down debt provides a guaranteed rate of return on your money.
      1. If you are not paying 5% interest on a car loan, that is the same as getting a guaranteed 5% on your money.
   2. It also reduces your baseline monthly living expenses, which allows you to extend your personal runway.

• Prioritize paying off anything that has a 5% interest rate or more in today’s environment (credit cards, some car loans, and other consumer debt).
  1. Start with the highest interest rate debt first.
  2. Paying off your home is not a huge priority given that it’s secured debt and has a long-term fixed rate on it.

1. Get basic insurance in place. [Slide]
   1. Health Insurance
      1. The best option varies state-by-state. It can also change year-to-year.
      2. If your spouse is employed and has employer-sponsored insurance, that is usually the best deal.
      3. If that’s not an option, it’s worth working with an independent insurance agent in your state that sells health insurance to find the best deal for your state and your situation.
      4. Sometimes ACA plans are the best option. Sometimes small business plans are the best option. We use a small business plan through Wellmark and that works well-enough for us.
      5. You can also look at religious-based healthcare sharing programs such as Medishare and Christian Health Ministries.
         1. They’re much cheaper than insurance, but people have had mixed experiences with them.
         2. Probably only do that if you’re healthy though.
      6. Homeowners Insurance + Car Insurance
         1. No tips here other than work with an independent agent and bundle them for discounts.

• Life-Insurance if you have kids
  1. Buy term. Buy enough to cover your salary.

1. Umbrella Insurance
   1. Do this if you have money that someone might want to sue you for ($1M+ in liquid assets).
   2. Adds additional liability coverage above what your home and auto policies provide.
   3. In my example, car insurance provides $500K of liability. Umbrella insurance provides an extra $2M of liability coverage.
   4. Not super expensive. May cost you $1,000 per year.
2. Principles for Investing [Slide]
   1. Understand what you are investing in
      1. Do I understand how this investment makes money?
      2. Investing in things you don’t understand is a great way to lose money.

• Don’t trust someone else “Well matt thought it was a good idea”

1. Know what fees you are paying for.
   1. Paying too much in management fees is one of the best ways to underperform the market long-term. If you’re paying a 1% annual management fee and the other person is paying 0.5%, you are going to underperform the market by 0.5% each year and that really compounds over time.
   2. What investment fees am I paying?
2. Understand the tax implications of your investments.
   1. Taxes are the other big thing that bite into your investment returns.
   2. What are the tax implications of this investment?
3. Evaluate your opportunity costs
   1. What can I not do if I invest in this?
   2. Is this the best investment opportunity I have available right now?
4. Avoid creating unnecessary complexity.
   1. Am I creating unnecessary complexity in my life that I will have to manage later?
   2. Could my spouse manage this investment?

• Don’t do what I did and invest in 75 startups and end with 75 K-1’s each year.

1. Know your exit strategy upfront
   1. How will I get my money back?
   2. How will I unwind this investment in the future?
2. What should I invest in? [Slides]
   1. Mostly Index Funds for Long-Term Investing
      1. Broad exposure to owning a small piece of every publicly traded company.
      2. Will allow you to get the market return.

• Very low management fees
  1. VTSAX – 0.04% annual management fee.

1. Real Estate
   1. Real estate can be great if you do it right.
   2. You can make it your side business if you want to
      1. Lots of people are doing very well with short-term rentals right now.

• You can also do it passively like I do.

1. Fun Investments (Crypto, Side Hustles, etc.)
   1. Limit to 10-20% of your portfolio.
2. Investing Order of Operations [Slide]
   1. General Principal: Max out tax deferred and tax-free investing before you to do anything else. Taxes and fees are the two things that will limit your long term returns the most over time.
   2. Employer Retirement Match (if available)
      1. If you or your spouse have a day job with a retirement plan, take advantage of any matches available on your 401(K) or 403(B) plan.
      2. Companies often offer a 100% match on the first 3% of your salary invested.

• Where else are you going to get an immediate 100% ROI on your investments, besides the right NFT?

1. Roth IRA
   2022. $6,000 for you + $6,000 for your spouse in 2022.
   2023. No up-front deduction. 100% of gains are tax-free.

• Generally preferable over a traditional IRA because it’s unlikely tax rates will go down in the future.

1. Do this through a low-fee broker such as Vanguard, TD Ameritrade, or Fidelity.
2. I suggest doing a total stock market index fund such as VTSAX.
   1. You probably aren’t going to outperform the market by picking stocks.
   2. Spending time trying to come up with some unique investing strategy can become a major distraction from your business if you are not careful. Does anyone know anyone that has spent way too much time on NFTs in the last few months?
3. If you are above the income limit, investigate backdoor Roth IRA’s.

1. Health Savings Account (if available)
   2022. $3,650 for families and $7,300 for families in 2022.
   2023. Need a qualifying

• “Triple Tax Advantaged”
  1. Up-front tax deduction for contributing.
  2. Appreciation inside HSA is not taxable.
  3. You can spend HSA money on medical expenses tax free

1. Loophole is currently that you don’t have to reimburse yourself right away, so you can keep a file of medical expenses and reimburse yourself years down the road if you want. I am guessing this loophole will go away though.
2. HealthEquity.com is who I use for HSA’s and they have Vanguard funds available.

1. Self Employed Retirement Plans
   1. Several different options available: Solo 401(K), SEP IRA, Simple IRA
   2. I chose to go with a Solo 401(K) plan because the contribution limits are high and you can do it through Vanguard.
      1. You can put up to $61K per year away in a Solo 401(K) plan in 2022.
         1. $20,500 as your individual 401K contribution
         2. $40,500 as a match of 25% of your salary.
      2. Taxable Investments
         1. For the people that have more money than they know what to do with…
         2. Consider low-turnover index funds.

• Also consider commercial real estate if you can find a good firm to work with in your area.
  1. Generates cashflow.
  2. Good appreciation.
  3. Inflation proof.
  4. Great tax benefits.

6. Should I work with a financial advisor? [Slide]
   1. If you don’t want to think about your investments ever, yes.
   2. If you want to geek out on personal finances, no.
   3. If you do want to work with an adviser, look for one that is fee-only.
      1. This means the only fees you pay are an annual management fee.
      2. In today’s market, I’ve been seeing 0.5%-0.75% as a kind of a baseline. Number used to be much higher but has been competed away over the years.
   4. Look for someone who is a registered investment advisor.
      1. They are required to act as a fiduciary, meaning do stuff that’s only in your best interest.
   5. Look for a personality fit.
   6. What I use an advisor for.
      1. Stuff I don’t want to mess with.
      2. Backdoor Roth IRA. Health insurance. Life insurance. Company 401K plan.
   7. Investments to Avoid [Slide]
      1. FOMO Investments
         1. Your friend just made a bunch of money on an NFT does not mean you should go out and buy the same NFT after it’s already appreciated.
         2. Buying investments whether they’re stocks, crypto, or whatever, right after they appreciate in value, is usually a losing bet.
      2. Robo Advisors
         1. You pay the fee of a financial advisor without getting the advice they’re supposed to be providing you.
         2. If you want a set-it-and-forget it solution, there are better options. Look at age-based portfolios from Vanguard and other low-cost brokers.
      3. Bonds
         1. I am generally not a “Time the market” person, but it’s probably one of the worst times in history to own bonds.
         2. Interest rates are low. Inflation is high. We know rates are going up.

• When rates go up, bonds go down. If a bond fund as an average maturity of 5 years and rates go up 0.5%, your bond value will go down 2.5% to match the market.

1. Private Placements / PPMs
   1. These are funds and investments setup by private equity funds, usually to invest in private businesses or real estate.
   2. I put these on the “avoid” list because you really have to understand what you’re getting into on these things.

• They often tend to be high fee and illiquid and most of the time you won’t get your money back for a long time, if ever.

1. There is a place for them, but that place is after you have $5-$10M investments and are looking for diversification outside of stocks, bonds, and real estate.

1. Whole Life Insurance
   1. It’s expensive compared to term life insurance.
   2. Policies tend to have high fees.

• “Buy term and invest the rest”

1. I think they only make sense after you max out 100% of your tax-advantage accounts.

8. Limit fun investments to what you can afford to lose. [Slide]
   1. If we only invested to maximize our long-term return and minimize risk and complexity, we would put 100% of our money in an index fund.
      1. People invest for other reasons too: to learn, build relationships, and for fun.
   2. Examples of fun investments
      1. Cryptocurrencies
      2. Venture Capital Funds

• Angel Deals

1. Single Stocks
2. Art

1. Limit to 10-%20% of your portfolio depending on risk tolerance. Do “smart stuff” most of the time and it’s okay to do “dumb stuff” every now and then, like wildly speculate on NFTs. If you do everything right with your 80-90% of your money, it won’t really matter

9. Follow-up Resources [Slide]
   • Dough Roller Money Podcast – doughroller.net
   • The Money Guy Show – moneyguy.com
   • The Simple Path to Wealth by J.L. Collins
   • Unshakeable by Tony Robbins (yes, that Tony Robbins)
   • Get the notes: mattpaulson.com/microconf-notes/