When Lauren and Steven Keys landed their first full-time jobs, they found themselves with leftover money at the end of each month despite earning relatively low salaries.
“We were naturally frugal,” Steven told Business Insider. His starting salary as a high school physics teacher was $38,000, while Lauren was earning $36,000 doing marketing, he said. “We saved a bunch of money and then we were like, what are you supposed to do when you have extra money?”
The couple walked into a local bank and asked to speak with an investment advisor.
"They somehow sold us into an actively managed bond fund with a 3.75% load fee and a 0.7% annual expense rate — for 21- and 22-year-old recent college graduates, which made absolutely zero sense," recalled Steven, but they didn't know any better.
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About six months later, after doing their own research, they discovered low-cost index fund investing, a relatively low-risk and hands-off strategy that aims to match the returns of a specific market index.
"We proceeded to move basically all of our money into those, and we've really never looked back," he said. Putting their money to work in stock market index funds helped them reach their current net worth of just above $1 million — but it’s not their only investment. Their portfolio also consists of real-estate holdings, bond market index funds, and alternative assets.
BI verified their net worth by looking at investment account screenshots and property appraisal documents.
The Keys, who quit full-time work in their late 20s after saving the majority of their incomes, offered a glimpse into their investment portfolio.
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Stock market index funds
Index funds are “the most important components of our portfolio,” the couple wrote in a 2022 blog post that broke down their portfolio.
About 50% of their portfolio was in stock index funds, specifically the Vanguard Total Stock Market Index Fund (VTI) and the Vanguard Total International Stock Index Fund (VXUS).
Nearly two years later, as of February 2024, “not a lot has changed except the total amount invested is now higher,” noted Steven of their asset allocation.
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Rental real estate
The Keys’ investment property in Gainesville, Florida, which used to be their primary home, represents the second biggest chunk of their portfolio and is a cash-flowing asset.
They purchased it in 2016 with cash and lived there until 2020 when they bought their current home.
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Bond market index funds
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“While stocks and rental real estate can generate high returns, they’re also volatile,” they write. “To smooth out the ride, we hold bonds.”
Specifically, they hold the Vanguard Total Bond Market Index Fund (BND).
Alternative investments
A small part of their portfolio is invested in higher-risk assets, which they don’t share specifics on, but these could be anything from crypto and gold to artwork and other collectibles.
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“Historically, this has been one of the lower-performing pieces of our portfolio. But, it can be kind of fun in small doses,” they wrote.
Choosing not to max out employer-sponsored retirement accounts
The couple has money spread out in various investment accounts, including retirement-specific accounts, a health savings account (HSA), and a taxable brokerage account (the largest of their accounts).
They also had access to employer-sponsored retirement accounts when they were working full-time. These accounts, such as 401(k)s and 403(b)s offer tax advantages and other perks such as an employer match, but the Keys chose not to max them out.
“We only contributed just enough to get the match,” said Steven, which is essentially free money from your employer. “We didn't actually max those out because you can max out with quite a bit of money, and we wanted to have a little more flexibility with the money.”
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Employees who participate in 401(k), 403(b), and most 457 plans can contribute up to $23,000 in 2024.
“The tax burden isn't that crazy if you're investing in things like equities in a taxable brokerage account — you get to take advantage of capital gains tax rates instead of income tax rates,” noted Steven. “It's not that bad so we went a little harder on the taxable brokerage account than some people in the early retirement community choose to do.”
Another reason for stashing most of their money in a taxable brokerage account, where it would be more accessible than if it was tied up in a retirement account, was knowing that they eventually wanted to buy their home in cash.
“We knew we didn't want to have a mortgage whenever we decided to buy a house and be in a place of significant debt,” said Lauren. “And so having enough money in a taxable brokerage account to pull from for a full payment was part of the equation for us, too.”
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They did max out their IRAs and HSAs some years, which have much lower contribution limits ($7,000 for IRAs and $4,150 for HSAs in 2024).
“Early on, when we weren't saving as much, we chose to max out Roth IRAs instead of traditional IRAs, in part because you can withdraw 100% of your contributions to a Roth IRA any time tax-free and penalty-free, as long as you don't withdraw the gains,” explained Steven. “We now have a very large accumulated amount of contributions in Roth IRAs. We're nowhere near needing to tap them, but we could if we wanted to.”
An HSA allows you to contribute pre-tax dollars for health costs, but it can also be used as an investment tool and to supplement your retirement accounts.
While the Keys can use their HSA funds for their medical costs right now, they opt not to. They're in a financial position where they can afford to pay out-of-pocket with their cash flow, meaning their HSA money can continue to grow.
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“We save all the receipts from all our health-related expenses, which you're allowed to save for an indefinite period of time,” said Steven. That way, they can reimburse themselves from their HSA at any time. “We haven't needed the money so we haven't done it, but that's available.”
