Tag: PRISM

Reprioritizing My Goals With High-Yield Savings Accounts

About one year ago, I began my journey through the AAII PRISM Wealth-Building Process. Created by AAII Journal editor Charles Rotblut, PRISM is a five-step method for aligning my investing decisions with my goals. Though I went through the entire PRISM Process, I have recently been thinking about how I want to spend my money next year. This caused a shift in my goals, so in the words of Ron Weasley: “She needs to sort out her priorities.”

When I last performed the first step of PRISM, my short-term goals included amassing enough for ongoing lump-sum investments in my portfolio of index exchange-traded funds (ETFs) and saving up for international travel. My intermediate- and long-term goals were eventually buying property and funding my retirement.

I revisited the Prioritizing Your Goals worksheet, which makes it easy to visualize and plan for how much I’ll need for each of my goals.

In an exciting turn of events, my favorite band the Kills is releasing a new album this week, which means a tour next year! In their words, “it’s been a long time coming.” I’m planning to travel to see some shows so I can visit friends. International travel is still folded into the estimated cost, but I’m not sure if it will be as extensive as I previously planned.

At the beginning of 2024, I plan to do another portfolio assessment to see where my investments are at. If I make any changes, I will invest another $2,000 in my Charles Schwab brokerage account. However, if I don’t need to make any changes based on my strategy, I will be leaving my portfolio as is. That’s what makes this goal a lower priority than traveling, it’s more flexible. Sometimes the best thing to do with your investments is nothing!

I’m also planning to move next year. My current one-bedroom apartment has served me well for most of the pandemic, but I’m ready for a change. A new place in a new area (with a dishwasher 🤞) is in order. My estimated cost for moving includes first and last month’s rent, a security deposit/move-in fee and what I’ll need to pay the movers. I’m inflating this estimate a bit to account for the ridiculous rent prices I’ve been seeing.

Buying property in this economy has proved to be extremely difficult, so I changed my time horizon for this goal from three to five years to a range of five to 10 years from now. Who knows what the future holds, I could be living on the moon in 10 years! But I’m sure someone will still figure out how to charge me property taxes 😅.

My high-yield savings accounts are the primary investing vehicles for funding my short- and intermediate-term goals. My SmartyPig account is designated for my short-term goals: travel, investing and moving. I’m currently earning a 4.25% interest rate on my savings in this account, and SmartyPig has a goals feature that helps to gamify the saving process. I keep rounding up on what I think I’ll need just in case. So if I have money left over after paying for my highest-priority goal, it’s like a little gift I’m giving my future self, and the money will go toward my next short-term goal that needs to be funded.

The other high-yield savings account I have with LendingClub is for my solitary intermediate-term goal: buying property. With an interest rate of 4.50% on this account, I’ve saved about 25% of my goal. Though it’s designated for buying somewhere to live, I’ve been thinking of broadening the category for this account. If I choose down the line to not buy, I could use the funds saved up in this account for paying my rent. I could also use it to buy or rent a studio space for making art that’s separate from where I live.

I didn’t change anything to do with my retirement goal. For now, it will sit there looking at me like a joke until I can allocate more of my paycheck to my retirement account. Technically, my investment portfolio is also going toward funding my retirement since I’ll need all the help I can get. Even though this long-term goal feels so far away, I don’t want to lose focus on it just because I’ll always have more short-term goals. Hopefully, everything I’m doing to save while still being able to live my life and enjoy what I have will result in a retirement I don’t have to fear.

Check out AAII Retirement Investing for planning insights at every life phase.

PRISM Step 5: Monitoring Your Allocation, Progress and Life Stages

This is the final post in this initial series. You can read the rest of these blog posts here to learn more about how to use the AAII PRISM Wealth-Building Process!

PRISM is a five-step method for aligning my investment decisions with my goals, created by AAII Journal editor Charles Rotblut. The fifth step details how to use PRISM as a cyclical process that changes as you and your investments age.

The final step of PRISM contains three parts of your financial life to monitor: allocation, progress and life stages. Asset allocation is the process of dividing your investments between different categories like stocks, bonds and cash. Currently, my investment portfolio and my retirement account are pretty much fully allocated to stocks via exchange-traded funds (ETFs), but I have around $80 in cash in my Charles Schwab brokerage account.

Using AAII’s My Portfolio tool, the A+ Investor Asset Allocation Analyzer shows me that the breakdown of my portfolio of index ETFs is a bit off from the AAII Aggressive Asset Allocation Model. The aggressive model calls for 60% invested in domestic stock, 30% in foreign stock and 10% in bonds. My index ETFs round out to 53.5% domestic stock and 46.4% foreign stock, and obviously nothing is in bonds (which, according to AAII founder James Cloonan, is a sound portfolio strategy). I decided to take a look at my 403(b) retirement account as well to see if the average asset allocation of my overall investments could be closer to the aggressive model. My 403(b) has 80.3% in domestic stock and 17.1% in foreign stock. Combined with my index ETFs, my average allocation is 66.9% to domestic stock and 31.8% to foreign stock—definitely closer to the model!

During my next portfolio review at the end of June, I might take a deeper look into my allocation, but for now I’m happy with where I stand.

Next on the list is to check my progress toward my goals. Back in the first step of PRISM, I determined my short-, intermediate- and long-term goals and how much I thought I would need for them. My nearest-term goal is to accumulate $2,000 for the next lump-sum investment in my brokerage account. I’m using my SmartyPig high-yield savings account to track this goal and have about $500 more to go. By my next portfolio review, I should have realized this goal. My goal of buying property in the next three to five years has an estimated cost of $35,000. I’ve been neglecting this goal because the housing market has been ridiculous and, after determining the pros and cons of owning property, I decided that renting is my best option until I feel the need to run away and become a forest witch! Even so, I should be taking more advantage of the 4.25% yield my LendingClub savings account is offering. I currently have around $7,200 and if I can add money more consistently to this account, I could be a lot closer to my goal in the next five years.

The last part of the fifth step of PRISM is to assess any life stage changes that have occurred. Using the Monitoring Your Life Stages worksheet, I determined that nothing has changed, except that I have to walk a lot more to stave off knee and back pain!

Though I made it through all five steps of PRISM, that doesn’t mean I’ll never look at my investments through the lens of PRISM again. When a life stage change occurs, I will need to determine if any revisions are needed to my goals, risk tolerance, allocation and management preferences and apply any of these changes to my investments. PRISM will make its return whenever something dramatic happens to me—I’ll keep you posted!

PRISM Step 4: Selecting and Managing Your Investments

Read the rest of my blog posts in this series here to learn more about how to use the AAII PRISM Wealth-Building Process!

PRISM is a five-step method for aligning my investment decisions with my goals, created by AAII Journal editor Charles Rotblut. The fourth step of PRISM focuses on how to find specific investments that fit my investing strategy.

Charles emphasizes the need for creating buy and sell rules for my investments. There are lessons containing helpful guidelines for buying and selling stocks, bonds, mutual funds and exchange-traded funds (ETFs). Thankfully, I have already been going about this process outside of PRISM, so I have a portfolio and some loose rules in place for the ETFs I own.

Using the list of Buy and Sell Rules for Mutual Funds and ETFs provided in the fourth step of PRISM, I solidified my portfolio rules.

The first question that caught my eye is related to the ETF’s investment approach. Since my investing strategy is to find sustainable ETFs that aren’t destroying the earth, this is an important consideration for my portfolio.

When I first invested in March 2022, I made notes of the ETFs’ current As You Sow grades in AAII’s My Portfolio tool so I knew why they were attractive investments at the time. As You Sow’s screener grades funds based on their investments in stocks of companies that are profiting from the fossil fuel industry, deforestation, gender inequality, sales of guns and military weapons, the prison industrial complex and tobacco.

During my first portfolio review at the start of 2023, I came up with some rules for my ETFs’ As You Sow grades: In order to add an ETF to my portfolio, it must have mostly grades of A and B—with the exception of gender equality, which can have a grade of C. I made this distinction after much in-depth research about sustainable investing and determined that gender equality is the most common holdout on these kinds of investments. The corresponding sell rule to this is if any of the ETF’s As You Sow grades worsens to C and/or the gender equality grade falls to D then the ETF’s sustainable objective is no longer valid for my portfolio strategy and it should be kicked to the curb.

The next guideline is regarding expense ratios. An expense ratio is the cost investors pay for a fund’s portfolio management. Since I am mostly investing in index ETFs, the expense ratios on my investments should be relatively low.

In my first portfolio review, I determined that I did not want to invest in an ETF with an expense ratio of 0.60% or higher. I also noted that I was looking for expense ratio grades of C or better, but I am now rethinking this rule. If my buy rule is for an ETF with an expense ratio below 0.60% and corresponding grade of A or B, the equivalent sell rule is if that expense ratio increases above 0.60% or its grade falls to C.

Below are my very official buy and sell rules:

As I continue my investing discoveries, I will add to this list and share it with you all. Follow along with me as I venture through the PRISM Wealth-Building Process and solidify my financial plan for the future!

PRISM Step 3: Identifying Your Investment Management Preferences

Catch up on my journey through the AAII PRISM Wealth-Building Process! Read my first two blog posts in this series here.

PRISM is a five-step method for aligning my investment decisions with my goals, created by AAII Journal editor Charles Rotblut. The third step of PRISM focuses on the kind of oversight I want for my investments and helps to identify what type of investor I am when it comes to the level of involvement in my portfolio.

Charles mentions the importance of understanding constraints I have on my investments that could help determine how my portfolio will be managed. These constraints include how much time I want to commit to managing my investments, how interested I am in the details of what I’m investing in, my comfort level with selecting holdings, how much I feel supported by the education and resources at my disposal and what my plans are for the future of my portfolio.

I went through the worksheet provided to discover which of the investor types I identified with: fully hands-on, partially hands-on, index investor, fund investor, combo hands-on/works with a planner, bolt-on or adviser investor.

I want complete control over what I’m investing in, but I’m currently only investing in index exchange-traded funds (ETFs). Usually, those investors who want full control over their investments are picking individual stocks. My desire for this control is rooted in my environmental, social and governance (ESG) investing strategy: I don’t want to invest in big corporations that are treating the earth or humanity like garbage. The only other constraint I have is that my 403(b) retirement account is through Vanguard, limiting my options exclusively to Vanguard mutual funds. At this point, I’m still not comfortable investing in individual stocks. So, am I a fund investor?

It turns out that I identify closest with the index investor, since fund investors are investing in actively managed funds—meaning there is someone in charge of the fund making investing decisions. Index funds track a specific index, so there’s not as much investment turnover as there is with an active fund. This also keeps the cost of owning an index fund lower than an active fund.

Do I want a financial adviser? Now that I know what kind of investor I am in this context, I know that I don’t necessarily need a financial adviser to help me with index investing. I think about this every so often, as my parents always rave about their adviser. If I were more interested in active funds, I might consider working with an adviser to help me select some investments. The worksheet asks specifically what I would need professional help with, and the only thing I haven’t done on my own so far is estate planning.

The thought of even having an “estate” sounds pretty farfetched at this point! However and whenever I get to that stage, I know it will be best to work with someone who actually knows what they’re doing.

Given what I learned in this step of PRISM, I might consider adding some active ETFs to my portfolio some time in the future for more of a blended approach. That way, I could have a bit more involvement in what I’m investing in if I care to spend the time doing more research.

Follow along with me as I venture through the PRISM Wealth-Building Process and solidify my financial plan for the future!

PRISM Step 2: Recognizing Your Risk Tolerance and Allocation

Before we dive into the deep end of what the big words in the title represent, if you missed my blog post about the first step of the AAII PRISM Wealth-Building Process, you can read it here.

PRISM is a five-step method for aligning my investment decisions with my goals, created by AAII Journal editor Charles Rotblut. The second step of PRISM contains nine lessons and three worksheets for discovering my risk tolerance for each of my investing goals and how I need to diversify my investments to correlate with the level of risk I can handle.

Charles discusses many types of risk, but the most important seem to be financial and psychological. How much money and sanity can you handle losing on your investments? But risk isn’t just about losing money, it can also lower the purchasing power of the money you already have. This was an argument I heavily relied on when I opened two high-yield savings accounts instead of letting thousands of dollars sit pretty in my joke of a regular savings account. The interest rate on regular savings accounts is far too low to keep up with inflation, so over time that money has less value.

Though risk sounds like a bad thing, Charles says that some risk can be an opportunity if you know how to use it right. For instance, when the market is down (like it was for most of last year) that lowers the price of investments, which in turn gives individual investors more options to buy stocks and funds at a discount.

The Assessing Your Risk Tolerance worksheet can be used for each of my investing goals that I outlined in my walkthrough of PRISM Step 1. For instance, my risk tolerance for retirement is high due to the long-term timing of the goal.

Allocation is the other big word in this step; it refers to how your portfolio is divided among different classes of investments. These include stocks, bonds and cash. AAII has three asset allocation models for different goal time horizons that correspond with how to diversify your investments for each goal.

With my retirement’s long investment horizon, it lands me in the aggressive investor column. This correlates with an allocation of 10% to fixed income, or bonds, and 90% to diversified stocks. My retirement portfolio is 100% invested in stocks, but I think it’s still too early in my investing journey to add bonds to the mix. I will need to do a lot more research before I feel comfortable investing in something I currently don’t understand.

I can apply these lessons to each of my investing goals to ensure that the allocation I have in place supports the investment’s time horizon and level of risk.

Follow along with me as I venture through the PRISM Wealth-Building Process and solidify my financial plan for the future!

PRISM Step 1: Prioritizing Your Goals

Now that I have something of an investment strategy in place, it’s time to take a closer look at how my money will be allocated to my financial goals. The AAII PRISM Wealth-Building Process, created by AAII Journal editor Charles Rotblut, is a five-step method for aligning my investment decisions with my goals.

The first step of PRISM supplies seven lessons and three worksheets to help determine what my goals are, why to start with them, the key components of my goals—including the timing and wealth required to fulfill them—and the importance of prioritizing goals as a jumping off point for building wealth.

I learned that in order for a goal to have any standing, it has to be personal to me. Though it doesn’t need to be the highest priority in my life, it has to be something that I care about and am willing to achieve. Otherwise, I could spend the rest of my days in bed watching the sun go up and down (just kidding, there’s no sun now that it’s December!).

Once I define these goals, they will begin to drive the decisions I make with my money. Charles suggests starting with life stages. What do I want to do with my money at different stages of life? I have a mix of short-term and longer-term goals, but I’m not really sure about the intermediate term.

I’ll admit, some of the worksheets went a bit over my head, but the main Prioritizing Your Goals worksheet was the most helpful. Here I was able to enter my goals, the number of years away each goal is, the amount of time I will need to spend on the goals, their priority, estimated cost and any comments I have about these goals.

My goal that is most imminent is making another $2,000 lump-sum investment into my Schwab brokerage account. Since my plan is for this to occur on the first trading day of January 2023, this goal is my highest priority and will depend on me sticking to my savings schedule.

Next on my list is a little heritage tour of Europe I’ve wanted to go on for years. Germany, Hungary and a little village in what is now Poland where my great-grandfather grew up before he left for the U.S. are high on the list. It will probably also include eating my way through Italy—my true motherland even though I’m 0% Italian! I haven’t entirely planned out the trip, so my cost is super estimated here.

Buying a house or piece of property somewhere, somehow is my third goal. To be honest, I’m not even sure if I want to own property (blog post on that coming soon), but I know that I don’t necessarily want to pay an increasing amount of rent for the rest of my life either. After some very vague number crunching, I came up with an estimated cost of $35,000 for this goal—but it will depend a lot on inflation and the housing market’s status whenever this goal is realized.

My longest-term goal is also my lowest priority: retirement. The upside-down smiley emoji attached to it means that this is probably an unachievable goal, but it’s on there anyway! I did some calculations involving inflation to figure out how much I would possibly need in the year 2062 when I might retire (that’s not a real year!). Charles discusses how some of these goals will be more realistic and others more aspirational. Retirement is a fever dream at this point for millennials and younger generations, but AAII’s lessons always keep it in the back of my mind. One thing that lessened the pain of just how aspirational retirement is for me was when Charles noted that even long-term goals don’t need to be fully funded by the time they are met. Retirement is an example of a goal where I could still be in the accumulation stage of building savings but be able to retire with what I have at the time.

Follow along with me as I venture through the PRISM Wealth-Building Process and solidify my financial plan for the future!