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What the Wealthy Accountant Owns and Why

In my last post I discussed how difficult it is for personal finance bloggers to find fresh material. There are a few areas where fresh material is always available: spending reports, net worth reports, and investment reports. My spending is boringly low so I rarely share those numbers. Net worth reports are fun to watch as people go from zero to millionaire; afterwards it becomes bragging and tends to discourage those starting out.

Even though we all have a timeline where we reduced/eliminated debt and built our net worth, each personal story is a marker along the road to financial independence. Readers love these stories because it provides a framework as they reach for their financial goals.

Killing debt is hardest once the habit is established. It seems impossible for those buried in debt to see any light at the end of the tunnel. Hell, they think the tunnel is a bottomless pit. And it can be if they don’t crucify their old habits! Dear Debt is an awesome example of a young woman breaking up with debt and getting her life back. She said it better than I ever could because I didn’t dig the hole as deep in my younger days. And not because I am smarter. I just had fewer opportunities to be stupid. (Note: You are not stupid, Melanie!)

Net worth reports are great for illustrating how fast a nest egg can grow. When you start it looks so small at first. Debt is gone and you amassed a whopping $10,000. Big deal. Well, it is a big deal! Financial independence is gained one dollar at a time. Watching others further along in the process is motivating for some. Here is another young woman well on her way to financial independence at the ripe old age of 26. She will reach FI sooner than she plans. It’s how it works. And here is a blogger who planned on reaching FI in 1500 days and showed up early. How rude! They should have made an appointment first.

Investment Reports

All I have to share is my investment report. Annual updates would be redundant as things don’t change much over decades. I guess you could bookmark this page and go “Oooooo” once a year, acting like there is something new.

Before I share what I own it is important to understand how I got to my current portfolio. Back in 1982 I graduated from high school. My grandfather was about as conservative as you can get (financially, politically he was liberal). You saved money in the back. Good thing bank deposits were pushing double digits back then.

Treasuries were paying even more. You could buy a 30-year Treasury with a 14% coupon back then. Before I tell you how smart I was by backing up the truck and loading her to the top with 30-year Treasuries, I didn’t. Missed the entire thing. Never bought a bond. Okay! Maybe I bought a very, very small amount of a corporate bond. (I did, and made money. A real little pile of money. Sold the darn thing a year or so later.)

Vanguard existed at the time, but was relatively unknown, especially in the backwoods of NE Wisconsin. During high school I fell in love with the 1929 stock market crash and its causes and knew I had to be in stocks if I wanted to be rich.

My first mutual fund investment was American Funds. I’ll save you the story of how I was sold my first fund. What you need to know is American Funds were all the rage back then. They also had an 8.5% load! What can I say? I was young and stupid. (I also bought some MFS MIT fund with a load.)

Dumb as I was, my account still grew nicely in the bull market of 1982 to 1987. My portfolio had two load funds with most new money going into no-load growth and income funds (if only I can remember the name of the fund family). I was sold on the idea growth and income funds were the best way to invest.

The Wall Street Journal was delivered to my doorstep every day back then and I read it like the Bible. Hated as Vanguard was, I eventually shifted all my money to their index funds. I also had a small brokerage account at a local bank used as a mad money investing account. The mad money account is now at E*TRADE serving the same purpose, as a place for me to flesh out ideas so I don’t do anything stupid with my core index fund holdings.

Then came the 1990s. Every tax office was supposed to offer securities, too. The income was incredible! I am sad to say your favorite accountant really messed up. I did what everybody else was doing. I became a stock broker, Series 7. Even got my insurance license so I could sell annuities. Still have it. Haven’t sold a policy in years.

There was another problem with having a securities license. The broker dealer required I report all investments to them (it was and still is the law) and that I hold no investments outside their firm. I was back all the way in load funds. The good news is that as a broker I paid no load, but the funds were actively managed. I put everything in the MFS MIT fund, the very first modern mutual fund started in 1924 (I think).

Needless to say, I had a falling out with the broker dealer. To make a long story short, I didn’t want to sell the way they did. I like my clients and saw no value in raping them for a few more dollars. I broke ties with the broker dealer and the industry on less than positive terms. And I had a portfolio of load funds.

This is where I normally drop the f-bomb, but it is tax season and I am a professional. I refuse to say fuck in this blog post out of sheer professionalism.

What I Own and Why

By 2000 I had everything out of load funds and into index funds at Vanguard. It took a few years as I planned the tax issues of moving to a different fund family.

My portfolio has remained static since that time. I make few changes other than adding to the pile. The few changes I make are outlined below. I still have the mad money account mentioned above. For me, I love researching companies and I need a place to put my ideas to work without betting the farm. I know my limitations. I am no Warren Buffett.

Bear Bull Market Stock Exchange Shares Securities

Core Holdings:

VFIAX: I keep around 70% of my index fund holdings in Vanguard’s S&P 500 Index Admiral Fund.

VTIAX: 30% of my index fund holdings are in Vanguard’s Total International Stock Index Admiral Fund.

VMMXX: A very small portion of my holding are in the Vanguard Money Market account.

Every 12-18 months I re-balance the funds 70/30. There is no science to it. I check my investment account at Vanguard about as often as I get my teeth cleaned. (Come to think of it, I get my teeth cleaned twice a year and usually only look at my Vanguard account around tax time to get my tax documents.)

These two holdings account for over 95% of my liquid investments.

Mad Money Account:

Boring is always the best investment. Excitement usually includes some level of blood and I faint at the sight of blood, especially mine. I do keep ~$100,000 in an account at E*TRADE for my crazy ideas. Over the years the account has done well. I own a little bit of a lot of things and will give my logic as to why I own these individual securities. The account has crept above the six figure threshold recently and I need to decide what I will cut or just let he account get bigger than planned. In the past I always pruned the account when it hit six figures, reducing it by a third to half. My current holdings are more long-term in my mind so I may let them ride for a decade or so and let the chips fall where they may. I have enough other funds so if the E*TRADE account gets butchered it will have zero effect on my life or lifestyle. Only pride is at stake.

AFLAC (AFL): Well-run company with a nice dividend, growing profits and a simple, easy to understand, model. AFL is my worst invest based on fundamentals. I owned the duck for a very long time so I let it ride.

Facebook (FB): I missed the train when it left the station, but recognized the profit potential when they killed it with their advertising model. Early missteps irritated users, but has been modified for a friendlier user experience. Return on Invested Capital is massive. It takes nearly no additional investment to increase revenues and profits. The main risk: people stop using Facebook. Social media is a finicky beast.

Altria (MO): Phillip Morris is a stock I have owned for decades. I started investing in their DRIP (dividend re-investment plan) back in the 90s and moved it to E*TRADE later. Dividends accumulate in the E*TRADE account now, held for other investments. I know, I know. Cigarettes are bad for you. But they are good for your pocketbook.

Altria has a few other positives. The ROIC is high. So is the dividend and it keeps growing every year. Another point most people miss is that a smaller percentage of people smoke each year, but more people smoke each year as the population increases. Get it? Altria should be a great investment for decades to come.

Netflix (NFLX): Reported ROIC is low because current large investments have not fully worked their way into revenues yet. NFLX will either be swallowed up by a media giant with a dividend or will eventually reduce their content production, sending profits through the roof. Then we see a dividend. Content after a certain point is a choice. NFLX also has massive unexploited international potential.

Phillip Morris International (PM): PM entered my portfolio as a spinoff of Altria. The same dynamics of Altria apply to PM. The money I made on cigarettes in my life is obscene.

TBT: TBT is an ETF which moves in the same direction as the interest rate of 20-year Treasuries. I think interest rates will rise over the next few years so I jumped in. I was early so it is my only holding with a loss currently. Before you pat my back for all the other successes, let me remind you how much the stock market has risen recently.

Tesla (TSLA): Tesla is hard to value and ROIC is negative due to massive investments not fully operational. Tesla, in my opinion, is Amazon 20 years ago. The potential of Solar City and Tesla merged is incredible. The risks are also high. Tesla still needs more funding to produce growth. I think TSLA will do for the transportation and energy sector what Amazon did to retail. Tesla’s potential over the next two decades is mind-boggling. The risk: Elon Musk takes a header. Musk’s genius fuels this company.

Wells Fargo (WFC): When Wells Fargo made the news for the wrong reasons I started reviewing their financials and examining the damage and fines. I concluded WFC would survive and return to good graces. I bought all my current holding in September 2016 when WFC stock was down. I made three purchases that month. WFC is my newest holding. The investment is up 23.4% as I write. Lucky me.

Other Investments

Over the years I invested in some strange stuff. Sometimes I do it so I can understand how it works.

I didn’t put a value on each holding because, frankly, it’s none of your business. I guess if you read close enough you can figure out my net worth within a few percentage points. But you will keep guessing as I neither confirm, nor deny any estimate. Another reason is because I own a business, farm and office building. Real estate and business values are hard to determine without a market analysis. Since the value means nothing since I have no intentions of selling, any value I list would only be a guess.

Farm: I live on a 10 acre farm with a 2 ½ acre pond and a few animals. It is my retreat from the real world. Purchased in 1995.

Office Building: My accounting practice consumes the entire office building I own. I pay me rent. (For the record: my landlord is a slumlord and tenant sucks!) Purchased in 1998.

Tax Prep & Accounting Services, Inc.: Started in 1982 part-time, full-time in 1989, the company organized as an S-corporation in 2003. TPAS currently serves over 1,000 clients around the world.

Gold: I have two other investments worth mentioning only because they teach a lesson. I bought a gold coin (one single ounce) back when gold was three digits and held it since. If I invested instead in an index fund it would be worth more. But it is pretty!

TIPS: My last investment to mention is an on-going experiment. I bought one $1000 Treasury Inflation Protection Security bond many years ago through Treasury Direct. I also invest TPAS working capital in short-term T-bills at Treasury Direct. (Not for the last few years as interest rates were so low. But maybe soon.) The TIPS is up in value with inflation and pays 2.5% interest, plus the inflation rate. I’ll save you the details and how they work and effect a tax return. I’ll keep the thing as an on-going experiment. I’ve had worse hobbies.

There is my life financially. I own a little bit of a lot of stuff and whole bunch of index funds at Vanguard. Wealth is a simple process. Buy good stuff and hold forever. Damn! I’m starting to sound like Warren Buffett.

Why I’m Getting Rid of My Mad Money Investment Account | The Wealthy Accountant

Friday 25th of January 2019

[…] lower level mad money account is where I play with all my crazy ideas. This account also holds more of my recent purchases, including: TSLA (recently disposed), AAPL (a slow build meaning it will end up in the higher level […]

Joe Lombardi

Friday 17th of November 2017

Hi Keith, I have 3 buildings worth approx $7,000,000 with no debt,and have owned for 38 years,which means I have no depreciation left to deduct. I've looked at doing a 1031 exchange, but don't want to operate the new buildings. My income is now totally taxable due to no depreciation . I've started looking at doing a 1031 exchange into a DST(Delaware Statatory Trust) .What do you think of these DST's. ? thanks for your help


Tuesday 20th of March 2018

Hi Joe,

Have you thought of taking out a mortgage to reduce your taxable income? I wouldn't do this personally, but a client does this regularly. He pulls out the cash - which is tax-free since it's a loan, then lets the rents pay it down, reducing his income.

It worked for him, and he preferred pulling out the loan. I personally think that the 1031 for an $8,000,000 building, three $2,500,000 buildings, or even a $20,000,000 one might be better, but thought I'd throw out that option.

Keith Schroeder

Friday 17th of November 2017

I don't have an opinion on DSTs, Joe. The facts and circumstances will determine the correct course which may or may not include a DST. There are tax advantages, for sure, if that is your best/preferred option. A DST is simpler to run and report taxes than TIC.

For readers unfamiliar with DSTs, here is a short description:

In the above article TIC stands for Tenant-in-Common.

One caveat. If you don't live in Delaware you may have issues in your state with Blue Sky laws and other securities issues. Check with a qualified attorney in your state to verify the rules with a DST with members in other states.


Thursday 1st of June 2017

Hi, I heard you on ChooseFI's recent podcast and was hoping to hear more about accounting tips regarding rental real estate investments. In any case, I just assumed you owned rental real estate outside of your office building but it doesn't appear so. What is your take on rental real estate? And why don't you own any more than you do?

Keith Schroeder

Thursday 1st of June 2017

Russell, this blog is filled with real estate tips on management and taxes. Use the "search" bar across the top of the page to find what you are looking for. I'll continue adding information to the reservoir as time allows.

Once upon a time I owned 176 rental buildings. Burnout ensued so I sold. After you have enough money, more money is not enough of an incentive. It has to be fun at some level and investment properties stopped being fun for me.

My take on rental real estate? As I write I think it is a sellers market and for most U.S. markets I would not be buying. In time that will change. At that time I may pick up a few properties around the country. If it sounds like fun.

Ron Cameron

Wednesday 24th of May 2017

Why did you get out of the American Funds? Every US Equity fund that existed back then would have beaten the index (after all possible expenses) you switched to. While I agree most actively managed funds are sub-par their funds are some of the best out there, despite whatever expenses you can affiliate with them. I think MFS tries hard to "do the right thing" with their funds but typically underperform.

This is my first post (aside from "About") that I've read from you. I think I'll like it. Now I need to read more. On we go!

Matt S

Sunday 19th of March 2017

How do you feel about investing in ETFs vs index funds? I'm assuming there is a good reason you have all your core holdings where you do? I am a young professional looking for any insights from a seasoned FIRE veteran as I start my journey.

Keith Schroeder

Sunday 19th of March 2017

Matt, Vanguard (and others) has some good index ETFs, too. The biggest issue with an ETF is the trading fee if you are buying small amounts constantly. My excuse for owning index mutual funds is habit. I have been doing it for a very long time and you know what they say about old dogs a new tricks.