As young professionals, we’re still figuring lots of things out as we learn how to better manage our money. We’re earning money and trying to grow our careers (to make more money). We’re trying to spend less than we earn, and with any excess left, we are trying to save and or invest it. We’ve heard that adage that it’s important for your money to work as hard as it possibly can for you – i.e. don’t park it in a low yield savings account when you can park it in a high yield savings account. One of my favorite articles I’ve written is on the 8% rule – which TLDR says that on average, the stock market should return 8% annually meaning your money will grow by 8% each year. So, anything below that should be carefully considered (there definitely are situations where a savings account makes sense) but also anything above that should be viewed in comparison to the time, effort and risk vs. parking the money in a low cost index fund.

I’ve been giving a lot of thought to this, especially as Mrs. Money and I embark on an endeavor to get more into real estate. As of my last investment percentage tracking, we’re currently split 47% equities and 47% real estate (with the final 6% cash). That will drastically change in the next 6 months as we sell some stock to purchase a new investment property. I’ve been giving a lot of thought to this project; looking at lots of numbers to think through – ‘is this worth it’. Through my rough calculations, we’ll be getting around a 9% return on this investment property. So yes we’re on paper beating the 8% stock market return, but I wonder will that 1% be worth the extra time and effort that we’ll spend maintaining the house?

After much thought, I’ve broken it down into 3 categories for how I am going to start weighing my investments: time/effort, risk/return, and enjoyment. Sure an 8% return is great in the stock market but how much time am I spending, do I enjoy it, and what’s the risk? I shouldn’t be 100% in stocks, that would be too much risk. But I also shouldn’t be 100% in any one thing (in my opinion) as some level of diversification is healthy. So, hot of the press, here are the new filters I will be applying to my investment strategy.

Time and Effort

The older I get with kiddos and a social life and a house and a wife and hobbies, the more I realize that in many ways I’d rather have time than money. Or maybe to look at this differently – I try to work to earn money so I can have time to spend with friends, families and hobbies. Time is precious and at my stage of life right now, I don’t have a surplus of it. As such, I try to be very focused on how and where I spend my time.

Investments can take time and effort. If you’re into stocks – you’ll likely spend time researching companies, reading their financials, seeing what other analysts are saying about them, and checking the market. If you’re into real estate – you’ll likely be spending time working on the house, fixing the house, finding the next house, cleaning, emails tenants and more. If you’re into something like gold – you’ll spend your time figuring out how to keep that gold safe! Every investment has a time cost with it!

So, in my specific example of a rental house, I’m not overall convinced the extra time is worth that extra 1%. Of course 8% is just an average but I try to make decisions based on averages – that’s what is more likely to occur. With our last rental house purchase, it was a TON of work up front but now it’s in a decent spot. So I’m hopeful that this next tiny house will be similar – and that I can get it in a pretty steady state of not requiring too much work or effort. If and when I can get there, I’ll think that the extra time is worth that 1% because it won’t be that much time!

For you (and future me), look at your own life and your own time constraints as you consider a new investment. Remember that on average the stock market has returned 8% and in general investing in a low cost index fund is mostly a set and forget motion, so any additional work should be worth the additional return!

Risk and Return

There’s an old adage that says, ‘more risk, more return’. I am of the mindset that I would like to maximize my return while minimizing my risk. But I guess I can’t have my cake and be able to eat it too! For me this also comes down to diversification. I haven’t read too much on this subject but I have a feeling that being 100% in stocks might not be the best investment strategy. Sure on average the market will return 8% but there are plenty of years that it doesn’t. For example in 2021, the stock market grew 26%, but in 2022 it fell by 19%.

Real estate I believe is historically less volatile, meaning it’s more of a slow and steady return vs. the wilder swings of the stock market. I haven’t figured it all out, but I am trying to personally diversify a bit more by having real estate. There’s just something about real estate that I personally like – I like being able to own it myself, I like being able to see it, touch it, manage it and know that I can reinvest in it with both my time and money.

Outside of diversification, it’s also wise to consider the risk you are taking on for that return. Going back to my 8% idea, if you’re chasing 10%, 15% or 20% in another investment, stop and ask yourself what the risk is. A good example is me chasing 9% through BlockFi. I should have realized the risk I was taking and drank a little less of the crypto kool-aid as I put money into it. BlockFi is now bankrupt and I’m not sure how much (if any) money I’ll get back. Wah wah. So, chasing higher returns is fine, just consider the risk and how much money you’re throwing after it to chase that return. Or, should you look even broader outside of stocks and real estate into precious metals like gold?

Enjoyment

YOLO, as the kids say, or ‘you only live once’. For me I try to maximize my happiness, and I try to focus on investing my time in money in things that will bring me happiness and joy. I save for retirement today so that one day I can retire and not be worried about money and working. I save for a nice car that we can drive. I save and invest in the stock market to go on nice vacations. If you’re not able to enjoy your time or money, what’s really the point of that?

I’ve tried to apply this enjoyment lens to investing as well. Although 95% of my stock market money is in a low cost index fund ($VTI), I do keep 5% in individual stocks because I really enjoy following and reading about stocks. Mrs. Money and I have also found we enjoy real estate – we both bring our own unique skills and make a great team as we compliment each other.

Or perhaps you’re not really interested in these investments and prefer to spend your extra time and resources elsewhere, well then putting more of your money into a low cost index fund could make a lot of sense. It’s nice too that the stock market offers more than just equities – you can easily invest in real estate or other alternative investments right in your brokerage account!

Figure out what brings you joy and try to spend more of your time there!

Summary Example

So, for us exploring real estate, I walked through an exercise of checking a few boxes.

• Will this bring a return of 8% or higher? Yes, I believe it will through doing some of my own calculations and looking at what we could bring in.
• Will this help me diversify my portfolio? Yes, it’ll actually tilt the scales more into the real estate category, but long term I believe I’ll be able to balance that back out as I continue putting money into the stock market.
• Will this add a lot of extra time and energy? Yes, which isn’t super ideal but my hope is that it’ll be a lot of work up front and then taper out. We are going to hire a management company so I’m hoping it won’t be that much more work for that extra 1%.
• Will this be fun? Absolutely. This property is actually going to be a tiny house vacation home and Mrs. Money and I are just so excited for this opportunity to have something for our family to enjoy now and into the future.

Through this lens and completing the checklist items – I’ve determined this is a good place for us to invest our time and money!