Scott Trench’s Step-by-Step Guide to Building Your Perfect, 1-Page Investment Plan

Mindy:
Welcome to the BiggerPockets Money Podcast, where we discuss how to create an investment philosophy.

Scott:
That’s what we’re trying to do here, is get something simple that can take the philosophies or the key things that you want to carry across many years in your investment plan on a piece of paper, you can align on it with your spouse, for example, or hold yourself accountable and not do things that are crazy one, two, three, four, five years from now. Because you’ve already aligned with yourself, with your spouse on what you want to do long-term.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and with me as always is my investment philosophy plan creating co-host Scott Trench.

Scott:
Wow. Thank you, Mindy. Here with me as always is my financial planning and super master of finance, Mindy Jensen.

Mindy:
I like that. Super master of finance. I’ll take it. Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting, so long as you have a plan.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business or build a financial empire. We’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.

Mindy:
I like that, build a financial empire. Before we jump into today, I am going to say the contents of this podcast are informational in nature and are not legal or tax advice, and neither Scott nor I, nor BiggerPockets is engaged in the provision of legal, tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants regarding the legal tax and financial implications of any financial decisions you contemplate. And the reason I do that is because today we’re going to talk about creating a financial investment philosophy. And I think that it’s really important to have an investment philosophy before you start investing so you’re not just investing in this and investing in that and willy-nilly kind of all over the place in scatterbrained. So Scott, you created a lovely document called Investment Philosophy, one-pager template. Very clever. We talked about this on a recent episode with Zoe, and we’re going to go through it step by step because I think that if you are just getting started in your investment philosophy, you might need a little bit of help.

Scott:
Sounds great. I’m always happy to talk about this and this is something that I found is very powerful for myself.

Mindy:
Okay, well before we talk about creating an investment philosophy, let’s take a quick break.
And we are back. All right, we have a link in the show notes, which can be found at biggerpockets.com/moneyshow362 to a link, which is a download from the BiggerPockets website, which is Scott’s document that he created. The Investment Philosophy, one-pager template. It’s actually more than one page because it’s a fill in the blank. Scott, why should someone create a financial plan or an investment philosophy?

Scott:
This did not start out as a fancy-schmancy document, well this is like two columns in Microsoft Word for me when I put it together, and a little header with all that. Sounds like the BiggerPockets team is making it fancy, which is flattering. But you could do this on a piece of notebook paper, with pen and paper. You could do it in a Microsoft Word. I like forcing a philosophy into a single piece of paper because it’s easier to digest. If your investment plan is 40 pages, you’re never going to review it, you’re never going to be able to stick with it, say, and it forces simplification and clarity. So I like the fact that it’s one page or something simple. There’s a book called The Index Card. That’s a great thing to do. You put your entire financial plan on a single index card.
That’s what we’re trying to do here, is get something simple that can take the philosophies or the key things that you want to carry across many years in your investment plan on a piece of paper. You can align on it with your spouse for example, or hold yourself accountable and not do things that are crazy one, two, three, four, five years from now. Because you’ve already aligned with yourself, with your spouse on what you want to do long-term. So I find this is a helpful tool, it’s a very simple tool. Yes, we provide a template. I’ll be happy to share the things that are in mine, but this has got to work for you. It’s got to realize the goal that you want to achieve with your financial plan.

Mindy:
Okay. I think that’s really important, Scott, the one page versus the 40 pages, like you said, you’re not going to stick to it, you’re not going to review it if it’s 40 pages long. Your document is one page and we are going to go through it. I like how you’ve got different options in, well, we’re going to go through it right now. The reason that I wanted to do this episode is because we speak to people every week about their finances and their investment and their financial situation. And what I see is that people don’t have an investment philosophy. They’re investing, but they’re just investing because they should, as opposed to because they want to, specifically. So your investment philosophy, in my opinion, is your rational calm thinking self, thinking about what you truly want in your investing and for your future. The plan that you stick to that can guide you through those chaotic frantic times when you’re second guessing yourself.
I know I want to put in $1,000 a month into the stock market. So then that means that you put $1,000 in the stock market every month regardless of what’s going on in the stock market. If it’s up, if it’s down, you’re continuing per your investment plan, your investment philosophy, or I want to be 60/40 in real estate versus stocks, then you need to look at where you’re allocating your funds. If you’re putting everything into the real estate market, then you’re not putting 40% into the stock market. You need to frequently come back and review your investment plan. How frequently do you in review your investment philosophy?

Scott:
Rarely, right? I mean it’s there and I execute against it. So what I review much more frequently are my goals from a quarter to quarter basis and what I want my life to look like in a few years. The investment philosophy is intended to be a philosophy that I maintain throughout my life, so I don’t have to review it very often. The power comes, I mean, how many finance Fridays have we had Mindy on the show where someone comes on and they’re like, “What should I do with my money?” And we’re like, “Well what do you want?” In a general sense in life and from your future financial position. It’s almost impossible to answer those questions with that. So one practical application of this, for example, is let’s take an ordinary middle class American making somewhere between 80 and $120,000 a year in household income.
They’re paying down their mortgage, they’re contributing to their 401k. They have a small emergency reserve. Where are they going to end up in 10 years? They’re 30 years old. They’re going to end up with $500,000 in net worth, let’s say 200, 250 in their home equity, 250 in retirement accounts, $3,000 in the bank and $7,000 in credit card debt. Living essentially month-to-month paycheck, doing all of the right things and maxing out their retirement accounts and paying their mortgage down. They’re just not going to have any freedom until they’re 65. And to move for example, that’s hard. Are you going to really going to move your whole house and your whole life in order for financial freedom? Are you going to stop contributing to your 401k? No. But if you have a clear picture of like, “No, here are my investment philosophies. I’ve thought about this and in five years I want my portfolio to look like this.” Or seven years or 10 years.
Now we can begin making large life decisions and say, “No, no, that’s consistent with my philosophy. It’s consistent with the way I think about things, and I can actually make these fairly dramatic changes that will compound in a meaningful way over time in alignment with something that makes sense to me that I can actually back.” But most people, “I just don’t think about it.” There’s not even a concept of, “Oh in 10 years my portfolio can look like this or this. And it’s dependent on where I allocate my cash, my time, and where I rest my head at night.” For example.

Mindy:
Okay, so how frequently would you recommend somebody who is just starting out with an investment philosophy to review it, so that they continue to stay on the path?

Scott:
I think you have to create it and then you have to iterate on it a few times and then you review it as frequently as you need to, to believe it, and internalize it. Maybe it’ll be helpful if we went through some of it, for example, so I could illustrate those points.

Mindy:
Okay, let’s start off with goals.

Scott:
Great. So we have to start with the end in mind. What do I want that portfolio to look like in the future? And I like to start the goal with a statement. So my goal is to maintain and fortify a financial position that sustains permanent financial abundance with diversified income streams across multiple asset classes. That’s an abstract statement. That’s what I want to do, maintain and sustain. I want to build a large financial position, lots of passive cash flow coming from different sources so that I can live the life I want without significant dependence or risk on a single asset or asset class with that. So that’s an abstract statement. Another part of the portfolio though or the philosophy, maintains a target state. So in 2025, for example, three years from now, I want to have a specific financial goal. I want to have a large cash reserve.
I want a certain amount of my position to be in equities, a stock portfolio. I want a certain amount of my net worth to be in real estate. I want a certain amount of my net worth to be in this business, BiggerPockets, that I lead. I want a portfolio of books which for me, are a part of my financial plan and have assets. I want a paid off primary residents or an income producing house hack. I want no consumer debt, and I want a lifestyle that costs less than about $10,000 per month. So that I have a goal at the highest level and I have a target state in three years that I want to back into. That’s a very clear picture that I can begin making large scale asset allocations decisions in order to realize that.

Mindy:
Scott, I love that, I have that as step one, create a goal for your investing, and step two, determine your target state. And you have suggestions in here, but this is something that you’re going to have to determine on your own, the listener, because your investment philosophy isn’t going to look the same as Scott’s. No two people are the same, and that’s okay. Your investment philosophy doesn’t have to be anything like Scott. You don’t have to have any of the assets that he has. You can have a whole different set. You just have to have a reason for making your investments the way that you are making them. Let’s look at how to not second guess yourself when creating a plan and executing.

Scott:
So that comes down to what I call core tenets. What are the things that are never going to change about your philosophy that you can feel really confident in over a lifetime, for example, that’s hard. I have seven core tenets for my investment philosophy that are almost certainly not going to change across the course of my life. So the first one is never spend the principle. When I invest $1, $10,000 or $100,000, I assume I’m never going to spend that in that part of the investment. Only going to spend the returns generated by that portfolio. That’s the only dollars from that investment that I can use to fund my lifestyle, because the principle is what I’m investing and what I want to harvest over a long period of time. I don’t want to kill the golden goose.
So my second tenet takes that to another level. It says I’m going to reinvest most of the returns that my investments produce. So not only am I going to spend the original $10,000 I invest, but if that generates $1,000, I’m actually going to invest more than $500 of the returns generated. Right? Of that 1,000, that’s more than 50% of that. That allows me to continually build the position over time. That feels like a very super strong financial foundation. Now these are tenets by the way that are in the acquisition or the wealth building phase. In a retirement state, I would change some of that and I’d harvest a greater percentage of the returns of my portfolio. So I guess the tenets can change once the philosophy is achieved, the future state is fully achieved there. Third, to invest, one must have capital. So what does that mean? That means that I need to be, if I’m an investor, I’m putting dollars into something, right?
Now, what does that mean? Well, at BiggerPockets, part of my interest is capital interests in the business. I’m the CEO of the business and so I have interest in that. So I’m sort of an investor in BiggerPockets, but I don’t consider those necessarily investments. That’s a form of compensation, for example, I’m a manager of the business more than an investor in a lot of ways. I want to think like an investor in those types of things. But a lot of investors are going to go out and raise a bunch of capital for an apartment complex. That’s great. You’re doing a job and managing a pool of capital to run that business. It’s not investing. So I want to make sure that my portfolio, the future state, is truly investment income and I’m going to separate that mentally from wealth that I’m the steward of, as a CEO for example, or a business manager.
So fourth, I believe that investment returns and related do not correlate with effort. Instead fifth are impacted by knowledge. So I am not going to build a portfolio that requires me to work it over time. I’m going to build a portfolio that where the advantages to that portfolio, the wealth I’m going to produce is impacted by the choices I make at the highest level around capital allocation, which properties I purchase, those types of things. Sixth, this tenet is do not confuse volatility with risk. I maintain a long-term focus. The stock market is going to go up some years by and a lot, and in 2022 it’s going to come down 20%, 25%, right? That’s volatility over 30, 40, 50 years because I never spend the principle. However, I can understand that an investment in stocks is likely to produce that 8% to 10% return and feel very comfortable with that.
I’m very comfortable with the concept of volatility and I separate it, my mind from risk. Risk to me is having less wealth over time or delaying that position in which I achieve permanent financial abundance with diversified income streams, right? Risk is not, the stock market might go down 25% next year. Risk instead is, I invested in bonds at 3% a few years ago, made very little and at a huge opportunity cost to investing in stocks. That’s a higher risk decision for me. And then my last tenet is the best investments are specific to my situation. I have a specific set of skills. I am a real estate investor. I was willing to house hack for a very long period of time. I may do that again at some point. I am an author, I host this podcast. There are specific investments or things that I can do that are going to produce a better return for me if I’m willing to take the time to learn about those things and invest and getting them started or going over a period of time. And I believe that many people have those types of opportunities if they’re willing to look at them or harvest them. And I’m going to spend every 90 days or so, make another bet that is high quality, that is specific to my situation that can help me advance towards the achievement of this philosophy.

Mindy:
How did you come up with these tenets? This doesn’t sound like something you sat down and banged out in five minutes.

Scott:
Interesting question. They have developed over time, and really, I think that it comes from writing. I like to write to collect my thoughts on a lot of things. And so I think I really honed in on them and identified them in the context of a blog post I was producing for BiggerPockets, and I was like, “This is it. This is how I’m going to invest for the rest of my life in a fundamental sense.” And I think that could probably be a powerful tool. This is not overnight stuff. This is stuff that again, you have to iterate on. You ask me, how often do you look at this? Well, I probably obsessed over it for many, many hours in a long-term context to get to something like this. And then I don’t have to look at it anymore because it’s internalized.
At least not that frequently. But you need to have these things done because if you don’t believe, if your philosophy is something other than never spend the principle, it’s going to be really hard to invest in stocks with a 30-year time horizon outlook and watch that thing go up and down 50%, 70%, 90% in the great depression. You know these things are going to happen over the next 30, 50 years. But if you haven’t internalized them with things that you’re very comfortable with over a long period of time, your philosophy needs to adapt to those things.

Mindy:
Okay, that’s a great point. Let’s look at bonus considerations. You have several bonus considerations here. How did you come up with these?

Scott:
Yeah, so these are things that I’ve added to those tenets, and these are probably going to change for me over time. So are not as, these are more fluid, and again, these are personal to me, they’re just examples here. But as if you’re using a document like this, you need to come up with your own core tenets and considerations that you want for your portfolio. So a couple of things that I would add on to those core tenets are I believe that great returns come from concentration, not diversification. Now that’s juxtaposed. But the fact that I eventually want diversified income streams. And I’m comfortable having conflicting ideas in my head with this, right? To get to where I want to go fast, I need to be concentrated. So think about when I’m starting out in my journey, my first investment was a house hack.
I was making 50 grand a year. I had $20,000 in cash essentially and nothing else, after the first year I saved up to $20,000, I put it all into real estate. That’s not a diversified position, it’s a concentrated one. I bought a $240,000 property. It’s five times my annual income for that property. It’s an all-in bet, highly concentrated. And for me that was the right decision. And I believe that that is what accelerated my returns, much more than if I had bought an index fund, well diversified index fund, for example. Today much of my wealth is in one asset, which is the company of BiggerPockets. And so that’s also a concentrated position. I believe that concentration is necessary in getting to where you want to go. But the end goal is diversification, if that makes any sense. So anyways, that’s one bonus consideration for me.
Second, I want to invest for after tax liquidity and lifestyle flexibility. Not the largest possible tax advantaged net worth. What does that mean? That means I want to be able to spend my wealth. And I feel like there’s a lot of ways to play games where you can trap wealth in places. You can’t access it until you’re 50, 60, 70 years old. So this would be, for example, building an enormous Roth position. It’s possible, you can do these backdoor Roths, you can convert pre-tax things and put them in there. You can play games to shelter a lot of things and play those games. It’s not the game I want to play. I want to have access to my wealth in a meaningful sense throughout my life journey rather than optimize the tax situation to have the biggest possible net worth number be able to borrow against those types of things.
So that’s a personal philosophy thing. Some people may disagree with that. My goal is to comfortably fund any desired lifestyle. So the portfolio must generate consistent, spendable and therefore taxable incomes. This is directly related to the above. The portfolio has to generate income. That income needs to be taxable. Because if it’s not taxable, it’s generally not spendable. And so again, I’ve acknowledged that, that allows me, that frees me from having to play a ton of tax games to preserve my wealth. When you talk to CPAs, when you talk to attorneys, when you talk to financial planners, they’re going to give you a lot of advice on how to avoid taxes. And for a while I was building my portfolio with some of that in mind. This frees me from that. I can say, “I’m going to pay more taxes and it’s not going to be efficient. It’s going to be freeing.”
And then last, once my portfolio generates a satisfactory income, for example, two times my conservative estimate of the lifestyle expenses I want to have adjusted for inflation forever, all of the proceeds then can go towards the best long-term investments. So once I achieve my target financial state, then I will begin playing the tax advantage game. I will begin putting my money into investments that produce less cash flow or that are optimized for long-term wealth creation, because that’s adding to the pile rather than establishing my baseline. So again, these are freeing statements for me that are likely to change over time, but are not core tenets in my portfolio. But having them written in my philosophy, it says, “Okay, great, I’m going to do this investment even though it’s not really tax efficient.” For example, I’ll give you a great example.
I want to start getting into more private lending at some point. Private lending is terribly inefficient for me. I earn a high income, when I lend to somebody, that’s going to be interest income. I’m going to pay taxes on it, I’m going to pay at a high tax bracket. I used to think I’m going to only put that in my 401k or my Roth IRA. That’s good tax planning. But because of my goal here, it frees me and says, “Oh no, I can actually have a significant portion of my wealth in after tax loans that I’m providing to people.” And I’m just going to pay interest on that because that’s directly related to the goals that I’ve stated here and what I want out of my financial position.

Mindy:
You’re doing that now or you’re doing that down the road once the portfolio generates satisfactory income?

Scott:
I’m saying that in the near term, the next three years, three to five years, I will be implementing these things that I just said in order to get to my target financial state.

Mindy:
I’m specifically talking about the private lending.

Scott:
Private lending is not a current part of my portfolio. It’s something I intend to explore heavily in 2023. I think there are great opportunities there, and I think that it’s a part of my future portfolio that has not been a consideration in the past. I saw no, I was not interested in investing in debt when mortgage rates were 3%. I thought the equity side is way better alternative. I think that’s beginning to shift and I want more of my portfolio to be in the debt side because interest rates are rising.

Mindy:
Okay. Before we dive into this a little bit further, I just want to reiterate, this is a conscious decision. This is Scott thinking about his future, his short-term future, his long-term future. He’s thinking about how he wants his money to work for him and how he wants to put his money to work. This isn’t just, “I sat down and decided in one day, I’m going to do this.” This is a many weeks. Knowing Scott, it was probably several months’ worth of intense thought, periodically, over the course of several months coming back to, doing research, coming back and doing more research to arrive at this. So while Scott is able to very quickly rattle this off now, this isn’t something that he just sat down and banged out in one day. So I want anybody who is like, “Ooh, I don’t know what I want yet.” You don’t have to know what you want. This is a time to start thinking about it.

Scott:
But it’s hard to advise yourself or even harder to get advice from somebody else on what to do if you don’t know what you want.

Mindy:
Yes, yes.

Scott:
I know what I want. I think I know what I want right now. I could articulate it, I could tell you, it may change. That’s why it’s written on a piece of paper. You can erase it, you can retype it out or whatever. But this is how I feel and this is what I’m doing, I’m taking actions based on the tenets and considerations I just shared with you in pursuit of the future state that I’ve articulated.

Mindy:
Okay, so Scott, somebody listening to this show and opening up this document and wanting to do their own document, what should they work on first? Is step one, the goal up at the top, maintain in fortify a financial position, the core tenets or the target state? What would be the first step that you would encourage people to do?

Scott:
I think you start with the goal, then you work toward the target state. Those are very easy things, relatively, to just put down on a piece of paper. You don’t really have to have, say, I’m the type of person who’s going to put my money in into an index fund and never look at it again except to expend the 1%, 2% dividends that are generated by it over time in decades. That’s something I can do. That may not be something you can do or that you’re comfortable with or that’s practical in your life. So you might say, “No, no, I need to have a rental property that generates cash flow and I’m comfortable with that.” Or, “I want to have horses.”

Mindy:
I think that the target state is one of the most important parts of this document. Although, I mean, everything’s important, the target state and then from the target state, we go over to the asset classes. And I want to say right now, you do not have to be in everything. Make a list of what you do and do not want in your portfolio. And it doesn’t matter what Scott’s doing, it doesn’t matter what I’m doing. It doesn’t matter what everybody else is doing. We’re BiggerPockets. We talk about real estate. Real estate is kind of our thing. But if you don’t want to invest in real estate, don’t feel obligated to invest in real estate. If you don’t want to invest in crypto, guess what? You don’t have to. You can simply do index funds and set it and forget it, which will make your investment philosophy super, super simple.
But if you want to be diversified, if you want to have all of these other things, write out your individual philosophy on index funds and individual stocks and real estate and private business and side hustles and all the other things that come with investments. You don’t have to limit yourself to these that Scott has. I do like that you keep a cash management section in here, Scott, maintain a cash reserve. We were just talking on another show about how Scott has an emergency fund, which I was a little shocked at because I do not have an emergency fund.

Scott:
So I have two columns on this one piece of paper. One has the core tenets, those considerations I just shared with you in my target state. And the right-hand side of it is where I talk about each of the asset classes that I want on my balance sheet in the future state. So for me, and again, it’s completely depends per person, but you got to be able to state what you want. And once you can confidently do that, you can begin working toward it with confidence with that. So my cash philosophy is I want to maintain a substantial cash reserve. My cash reserve is over a year of expenses with that. And that’s how I feel comfortable in my personal life. And Mindy, what’s your philosophy again?

Mindy:
I have enough buckets that I can pull from, that I don’t currently keep an emergency fund, but that doesn’t mean that I don’t have money. It means that I have put it to use someplace else and I’m continuing to invest in the stock market even though it’s down right now. I’m continuing to buy real estate when it makes sense. I’m continuing to invest in individual stocks and in index funds when it makes sense to me. And I don’t keep any cash on hand, and I have a job. So I have a steady paycheck. That’s kind of my emergency fund, is I have a credit card and then I have access to a bunch of buckets that I can pull from to pay off the credit card every month. I’m certainly not racking up a ton of points or a ton of charges on my credit card that I don’t ever pay off. I just have a lot of options. I don’t keep cash.

Scott:
I love it. I think that’s great. I think if that’s how you want to do it, write it down, align with your spouse and do it, that’s great. There’s no right answer to any of this stuff.

Mindy:
Yes, there is.

Scott:
There’s some wrong answers.

Mindy:
There’s a lot of wrong answers. But think about it. The right answer is for you to think about it and have a plan. The right answer is not for you to just wing it and see what happens. And that is exactly not what we have done, is we don’t just wing it and hope that we don’t have an emergency. We don’t just not have an emergency fund, and fingers crossed, everything works. Remember in January, when I had to replace that blower on my furnace because it broke when it was 13 degrees outside, that was awesome, and I didn’t have $700 in cash, but I have a credit card, and then I have a paycheck coming on the 15th, so that covered that. And it’s an unexpected expense, but it isn’t an uncoverable expense, and I don’t think that there are any expenses coming my way that I can’t cover, which is why I don’t carry or have any cash.
But yes, there are right ways to do it and it’s thinking about it, it’s making a plan, and you just said something, Scott, speak with your spouse and get on the same page. I cannot stress that enough. Having you and your spouse on the same financial page is so freeing. Not fighting about money is the best ever.

Scott:
Absolutely.

Mindy:
There you go. That’s the right way to do it. Getting on the same page as your spouse. And if you are not on the same page as your spouse, you should have a money date. Is that episode 157, Scott, of the BiggerPockets Money Podcast?

Scott:
That’s right.

Mindy:
Is how to have a money date. What you should and definitely should not do to align your finances as a couple. Because really, when you’re not fighting about money, your relationship is so much better.

Scott:
Absolutely.

Mindy:
Okay, so Scott, you have several asset classes along the right side of this document. Cash management, index funds, real estate, private business, side hustles, miscellaneous private investments. Do you want to go through these?

Scott:
Yeah, sure. So the pillars of my personal financial position are index funds and real estate located in Denver, Colorado. I got a portfolio here that I own with a partner that I continue to invest in on a regular basis. And I purchased in 2022, I will purchase again in 2023, maybe a little bit more aggressively because I think there’s some opportunities that are starting to materialize. And then I dump essentially all cash in excess of my emergency fund into index funds that’s not allocated for real estate. In addition to those two things, I also have a couple of other assets. First is, again, I mentioned this earlier, BiggerPockets. BiggerPockets has grown substantially, and I joined as an early employee, and this is a big part of my personal wealth, is the ownership stake. Again, I try to separate that as management versus investment here. And again, this is an asset class that I’ve invested in, and it’s a big part of my position, yet my core tenets tell me, I’m not really an investor, I’m a manager, this is my job, but it’s a significant part of my position that I call it out as a part of my asset allocation in my investment philosophy. Then we have books and royalty income. I’ve authored two books, Set for Life and then First Time Home Buyer, co-authored with, I forget who the co-author was actually.

Mindy:
Doesn’t matter.

Scott:
No, that’s with Mindy Jensen, of course. So those are part of my position. I’m not exactly clear on how to value those, but I know I want to write more books, and my wife is also an author. And so we count her books as part of that. And so that’s a part of our position that we want to call out specifically because those are assets and their profession that come into our financial portfolio, unique to us. Some other people have horses. And then last, I wanted to call this out because this is an evolving piece for me, and this is again, completely going to vary from individual to individual, I call miscellaneous private investments. From time to time I think that opportunities are going to present themselves, and these could include things like real estate syndications that I’d invest in or private companies.
I’m really curious about private investments in local businesses. I think there’s a lot of baby boomers that are selling services based in businesses in the local area. Businesses that produce two, $300,000 in cash flow. Could I invest in one of those and partner with somebody who runs that and help them from time to time? I’m really curious about those things. I’m curious about angel investments. I’m curious about private equity opportunities and those types of things. So I call this out in my personal document as a miscellaneous private investments and the way I finance this is I’m willing to leverage against my real estate portfolio or stock portfolio from time to time. I lately leverage those things, so that if an opportunity in this area comes up, I would be willing to pull some cash out, do a margin loan for example, and make that investment paid off, of course, first before I resumed other investments and go into these areas, because I think that over the course of a lifetime, 10, 15, 20 such opportunities maybe great shots to take. And so that will be a larger part of my portfolio in future years. It’s not something I’ve done a lot of meaningful investment in previously. So that’s an aspirational one.

Mindy:
Okay. And I think these are great. I think there’s a lot of different asset classes that you can be in, and this is all personal finances, personal and your investment philosophy is the most personal thing that you can do for your personal finances. So your investment philosophy is probably not going to look a whole lot Scott’s, and that doesn’t mean that your investment philosophy is wrong in any way. My investment philosophy looks a little bit like Scott’s, I have a lot more individual stocks in my investment philosophy. I have a lot less private business in my investment philosophy, although I guess I still do have some, I have more side hustle because I’m a real estate agent. I have just different things. I do more private investments than Scott does, and actually I think that’s kind of a lot like yours. Now that I’m saying it’s different.
My allocations are different, but I’m actually doing a lot of the same things that Scott’s doing. But again, it’s a thoughtful process, it’s not something that I jumped into with both feet when they had those meme stocks and the, what was it, GameStop and the movie theater ones. I didn’t invest a dime into those things. I am $0 in crypto, I’m not anything in gold. There’s a lot of things that I’m not investing in because I don’t want to invest in that stuff, and that’s okay. Scott has dabbled in some of these things more than I have, and that’s okay too. It’s a personal thing, but what both Scott and I have in common, is that we have a well thought out investment philosophy.

Scott:
And you’re comfortable with it and you can live with it.

Mindy:
I am comfortable with it. I can live with it.

Scott:
Where you’re going to get yourself into trouble is if you don’t have something to this effect is, “Oh gosh, I think the market’s going to go down. Should I pull out everything and sit on cash?” If you’re having those types of considerations, that’s probably an indication that you don’t have a strong internalized philosophy about how you’re going to manage your money and what assets or asset classes you’re going to trust.

Mindy:
That’s a good point.

Scott:
And it could just be flexible. Let’s say there’s nothing wrong. Bill Bengen, the guy who founded the concept of the 4% Rule. This is a guy who sold his entire position at the beginning of 2022 and moved it into cash, and that might be a prescient move. But if that’s what you want to do, I just encourage you to write it out. My one of the philosophies. When I feel that asset classes that I’m invested in are overvalued, I’m going to exit those positions, hold on to cash and enter other asset classes that I think are undervalued at that point in time. That’s totally fine. Make that a core tenet of this. And then you’ll feel comfortable when you make those moves. It’s not how I would manage my money. I don’t think I can make those determinations. I think that’s too close to timing the market. But you got to be able to live with your own decisions, and this will help you make those based on a framework that you’ve committed to writing and feel comfortable with.

Mindy:
A framework that you have thought about and committed in writing. Okay, Scott, let’s recap the top three steps that our listeners can take from this episode. Step number one is create a goal for your investing and your investment philosophy. Step number two is determine your target state. And step number three is define your core tenets. Again, we’re going to have this document available in our show notes, which can be found at biggerpockets.com/moneyshow362, and it’s a Google document that you can edit as you choose, make comments on and continue to iterate as you update your investment philosophy over time. But we’ll have Scott’s examples, and then fill in the blanks for your own core tenets, bonus considerations, target state and goals.

Scott:
And I would just say to put a bow on it, if you’re asking the question, what should I do with my money? If that’s a question you have currently, or are comfortable with, then this exercise will solve that for you.

Mindy:
Yep, absolutely.

Scott:
It will answer that question.

Mindy:
Scott, thank you. Not only for creating this document, but for sharing it and walking us through it today.

Scott:
Thank you for asking about it. Again, I was like, we get the question, “What should I do with my money? Help me out.” All that kind of stuff. For me, it is just a Word document that’s typed out on one piece of paper with some bullet points on it. It’s not a fancy-schmancy thing here, although I think we formatted nicely to put it on there. So again, we don’t have to give over mystical way to this type of thing. It’s just a very useful tool if you’re not sure what you should be doing with your money or you don’t feel like you’re marching clearly in the direction of a goal that’s articulated well.

Mindy:
All right, Scott, thank you for your time today. Thank you for joining me on the last 362 episodes of the BiggerPockets Money Podcast. Actually, I think it’s 360. You missed a couple. But I appreciate you so much, and I know our listeners do too.

Scott:
Well, Mindy, thank you so much for allowing me to talk about this document and my personal philosophy for the last 45 minutes here. Really appreciate it. It’s one of my favorite subjects. For those listening, if you are getting value out of this, if you feel like it’s five-star content, please leave us a five-star review on whatever app you listen to the podcast on, Spotify, Apple, or wherever you get your information and wherever you’re listening. If you don’t think it’s five-star content, please keep it to yourself. Mindy, should we get out of here?

Mindy:
We can. We should. That wraps up this episode of the BiggerPockets Money Podcast. He is Scott Trench, and I am Mindy Jensen, saying, may your investment philosophy planning session be smooth.