Introducing budget-based investing…using M1 Finance

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    How to pick and invest in individual stocks automatically using your budget
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    Support your investments every time you shop
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    Become financially independent earlier with higher returns (i.e. 12% plus)...does budget-based investing provide higher returns than index fund investing?  I sure hope so!
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    Make investing great again with a super cool platform called M1 Finance!

Sounds great, right?  Must be a scam.  Only ponzi schemes make consistent 12% returns.  Oh, and whatever fund Dave Ramsey invests in...  Read on.


It's hard to be a personal finance blogger and not be a fan of Vanguard and index funds.  But, I gotta tell you, that sure is a boring way to invest, you feel helpless during the stock market corrections, and you're still always tweaking your asset allocations or possibly even your whole index fund strategy.

Recently, I came across Phil Town's Rule #1 investing book, podcast, website, etc.  He says for a mere 15 min a week, you can study investing and make 15% returns.  I think that's a bit of an exaggeration.  He talks a lot about Warren Buffett and Charlie Munger, some of the best investors around and how they pick stocks and make 20%+ returns.  But saying that you can invest like them for only 15 min a week is a bit bonkers.  These guys are geniuses, spend all their time reading the news, financial statements, and when they do buy a company, they usually own a major portion of it, so they can influence it to make sure it makes them a good return.

So yes, if one can just pick individual stocks by buying them on sale and making 15% returns by spending only 15 min a week studying companies, go for it.  I just think that's a bit un-real.  But it did get me thinking about a more realistic way...

What if you simply invest in the companies that you spend your money on? 

 Shop at Kroger?  Buy Kroger.  Drive a Honda?  Invest in Honda.  Excited about your new Iphone X?  Get you some shares of Apple.  Insurance, banking, Netflix, traveling, buy the airline you usually fly on.

Do you have a Christmas budget for this year?  Where will you be spending it?  How about picking up some of those companies...Best Buy, Walmart, Hobby Lobby, you name it.

Now sure, not everywhere you spend money will be a publicly traded stock that you can invest in...but many will, and for those that aren't, you can probably find something close.

Why budget-based investing?

After thinking about stock picking for a few weeks, I realized its very difficult to make a stock pick and be confident about it.  There are only a handful of stock pickers that have reliably beat the market for their whole investing careers.  Some of the big names, Carl Icahn, Bill Ackman, etc. have struggled to match the market's performance for the past few years. 

The second issue after what stocks to pick is what percentage of your portfolio should they be?  It's the age-old debate of stocks/bonds 70/30, 60/40, 95/5...without predicting the future, its difficult to know!  

Not so with budget-based investing.  Your stock picks are the companies where you shop, and the allocation is based on the dollars that you spend there.  There are still factors that can be tweaked, but a lot of the work is done for you just in looking at how you spend.

Step 1:

This will take some basic knowledge of Excel...

Download your transactions from your bank/credit card company for the past six months.  

This is easy if you just have a checking account and use a debit card.  It can be more complicated if you have several accounts/credit cards.  Not to worry, though.  Excel can solve that problem.  Just download the transactions from all your accounts, put them into a table in Excel, and then start filtering the transactions by the companies where you shop the most: Amazon, Walmart, Kroger...

Why six months?  Well, you want to invest in companies that you have been shopping at recently.  You could do a year's worth of transactions as well.  Just if you do your grocery shopping at Kroger, and then switch to Food Lion or some other obscure store for some reason, you'll want to stop investing in Kroger.  If you decide to take your business elsewhere, take your investing elsewhere too.  Pretty simple, right?

Step 2:

This will take some basic knowledge of Excel too...

Filter your list of transactions by company (publicly traded companies).  

Your goal is to find out what percentage of your spending is at various companies.  The hypothesis behind this whole approach is that you'll want to invest more into companies where you spend more money.  Now some of your purchases will not be in publicly traded companies...  You can just remove those transactions, or replace them with a company that is publicly traded.

Find out if a company is publicly traded by googling "company name" stock.  If it doesn't readily come up, it's probably not publicly traded.  Sometimes this will involve some funny business, like Buffalo Wild Wings is publicly traded, but the company that owns Buffalo Wild Wings (Roark Capital Group) which also own's Arbys, is not publicly traded.  I also found out that DineEquity (DIN) owns IHOP and Applebees.  So if you eat at one of those locations a lot, you might want to consider investing in DineEquity.  

You could end up with something like this:

Many of the companies where you shop will be 0% of your spending, depending on how much you spend, I would probably just filter those out and just invest in companies of 1% of your spending or more.  1% is also the minimum for a slice of pie in an M1 Finance portfolio, which is the investing platform I'm using for this style of investing.

Are you intrigued yet?  I hope so!  This is a fun way to invest!

Step 3:

I am an affiliate for M1 Finance.

Open an account with M1 Finance and build out your portfolio.

There are several things that make M1 Finance a great investing platform:

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    It's free!
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    It uses fractional shares so that every dollar is invested and you don't have to own entire shares of any one stock
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    It re-balances your portfolio every time you add money, so if you start with $1000, and add $100 monthly, each month it invests that money appropriately to re-balance the portfolio

Here's how the above portfolio looks in M1 Finance:

I really like how the logos show up!  It's more real that just using ticker symbols to track your stocks.

It also shows backtested performance of your specific portfolio:

Step 4:

There are many ways to apply the ideas behind budget-based investing.  If budgets are sexy, 😉 J$, budget-based investing is even sexier!

Try some other ideas: How about a budget-based portfolio in various asset classes, and not individual stocks?

If you use a budgeting program like Mint, Every Dollar, YNAB, or even your custom-made Excel budget, it may look something like this:

M1 Finance also has options for investing in categories that might work well for the above budget... here are some that they have:

You can click on each one and find out what specific companies its invested in and the percentage allocation...

There are several other options to mix and match to create your perfect pie!

If a simple 3-fund Vanguard portfolio is your slice of pie... it can do that too!  I added some gold for stability in case this market tanks...

So there you have it!

Budget based investing has arrived.  In style too!  using M1 Finance.

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