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Amateur Asset Allocator – Best of the Best Blogger Series

by on January 14, 2012

Amateur Asset Allocator - Best of The Best Blogger SeriesIn our 34th edition of our Best of the Best Blogger series, we sat down with Kyle Bumpus from Amateur Asset Allocator (AAA).

Currently an Atlanta, GA resident, Kyle is what we refer to as a “moonlight” blogger:  he maintains a well-paying full-time job at a software company and blogs about personal finance in his spare time, the very model that many of the most highly visible and successful personal finance bloggers have built their business and their reputations upon.

Kyle is an incredibly well-read enthusiast and passionate student of personal finance, investing and entrepreneurship.  As a young 20-something entrepreneur barely out of college, he’s managed to accumulate a vast amount of knowledge in a short amount of time and has even managed to leverage his flagship AAA site into several additional income-generating sites with topics that include early retirement and insurance.

Kyle is another “young-turk” in the personal finance category who’s managed to quickly build a solid editorial reputation in the space, covering topic ideas such as how to use variable annuities, how to determine your risk tolerance and how to build defensible passive income streams.

We sat down with Kyle recently to talk about modern portfolio theory, low cost diversification and Warren Buffett.

Tell me a bit about how you got started with Amateur Asset Allocator (AAA). What is the primary motivating factor for running the site?

I became incredibly interested in investing and personal finance about the time I started my first real job out of college. I was going to be making real money and a 401k, I thought, so I might as well figure out how to manage it properly. I started reading everything I could on the topic over the next few years; I must have at least 80 or 90 finance books on my shelf.

Then, sometime in late 2007 I came across a personal finance blog, PFblog.com (sadly, he doesn’t post much anymore). From there, I discovered a dozen or so others, all discussing the kinds of topics I was interested in. I just kinda thought “hey, I can do this.” So I did. It was as simple as that. My primary motivating factor back in those days was just to explore this topic I was so interested in with other people who were just as interested as I was. I felt I could add to the conversation.

What areas of personal finance are you most intrigued by and most passionate about?

Amateur Asset AllocatorI am mostly interested in the investing side of things. I enjoy learning and writing about modern portfolio theory, asset classes, how different investment decisions affect the taxes you owe, etc.

I used to be into fundamental analysis and interpreting financial statements, but not so much anymore. I’ve never been particularly interested in frugal topics like saving money, couponing, or anything like that, which is why I so rarely write about it.

I’m not a very frugal person myself, so I almost feel like it would be hypocritical of me to go around telling people how to save money by making their own soap. Besides, there are already plenty of great frugal blogs out there. Coming from an engineering and software background, the analytical side of investing intrigues me.

You’ve established a unique position in the personal finance space. You’ve tried to take an editorial position that is simple enough for beginners but advanced enough so as “not to bore veterans.” How do you maintain a balance between those 2 distinct audiences?

Kyle BumpusWell, it’s hard.To be honest, I’m not sure I manage it very well a lot of the time. I try to make things more accessible by avoiding industry jargon and technical terminology, but other than that there’s sometimes not a lot you can do. Certain topics of investing, such as modern portfolio theory, are really only going to make sense to you if you already know the basics.

At the same time, there are really only a few different investment approaches out there. Everything else is just a variation on a theme. If you can relate everything back to diversifying your assets and keeping costs low, I think that goes a long way towards making even some of the more advanced topics accessible to beginners because people intuitively understand the need to not put all their eggs in one basket.

The definition of insanity is doing the same thing over and over again and expecting different results. Why do you think people continue to make the same financial mistakes over and over again?

Lot’s of reasons. I’m sure some of it comes down to simply not knowing any better, but that doesn’t really explain things adequately for me. It’s a lot like losing weight: everybody knows in order to lose weight you’ve got to eat less junk food and exercise more, but how many people actually do it?

Money is an emotional thing. People spend money to make themselves feel better. They didn’t coin the term “retail therapy” for nothing. They buy high and sell low out of fear. And they make risky investments out of excitement. As long as people use money and spending as a kind of emotional crutch, they will make mistakes. I’m not sure what the solution is, because doing something we know perfectly well is bad seems to be a very human trait.

Would you describe your investment philosophy as more growth-oriented, value-oriented or income-oriented? Who would you liken your investment style more closely to – Warren Buffett or Jack Bogle?

I am a diehard Boglehead. I mostly invest in index funds, and cheap ones at that. I respect what Warren Buffett does, but I am not Warren Buffett. I could never successfully invest like he does, so I don’t even try. I guess if I had to put a label on it, my style would be “low cost diversification.” Not nearly as interesting as being a value or growth investor, I’m afraid.

I did go through a value investing phase back in the day and I did relatively well, but it was more due to dumb luck than anything else. I still own a few individual stocks I haven’t sold because I don’t want to pay capital gains tax on the profits, but they make up a very small portion of my portfolio these days.

Lastly, what’s your stance on the use of credit cards? Are they useful or are we just kidding ourselves when we use them?

I use them. I don’t really see a problem so long as you can control yourself and stay out of debt. There are some studies out there concluding that people, taken as a group, tend to spend more money when using credit rather than cash. That’s probably true, but it doesn’t mean EVERY person spends more with credit. I think I probably spend less because my credit card statement gives me an easy way to track what I spend my money on. I would never have the discipline to track it if I went cash-only. Besides, the rewards are nice and cards are ultra convenient. It may be worth paying a little more just for the convenience factor.

Our thanks once again goes out to Kyle at Amateur Asset Allocator for carving out some time for us.

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