Author Archives: Money Reasons

About Money Reasons

A offbeat personal finance blogger that comes from the tech world.

Financially Shifting My Investment Strategy To One That Slides

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I’ve been very busy lately, too busy!

Actually, I’ve been so busy that I don’t have the time to focus on the investments and investing in general.  This is not the first time this has happened to me, and hopefully it won’t be the last.  It’s okay though and I’m going to explain why and how I setup my investment to maintain a stable state with I my financial brain slides until I’m ready to re-engage.

So since I don’t have the time to dedicate to investments like I have in previous years, I have to change my strategy from a semi-active trading strategy to a more passive, “let someone else” manage it, or a more conservative investment portfolio.

For me, the easiest way to shift my investing strategy to a sliding state is to research and pick a balanced mutual fund or maybe an index fund or ETF, of some sort.  I won’t necessarily get the highest return this way, but the time that I would normally spend on such activities no longer exists presently.  So that means I don’t have the time to be in rocket stocks (like Baidu, ticker BIDU) as I have in the past.  So I’ve taken my money out, and put them in slower moving investments like dividend stocks and mutual funds.

In the past, I would keep about 10% of my investment portfolio in aggressive “rocket” stocks, but over the past few months, I’ve cashed them in and now I’m at the point where I need to put that money back to work, but in a safe fashion.  So I’m looking at stable dividend stocks, balanced and index mutual funds, and possible some ETFs…

Now you might think that ignoring my investments is dangerous and not a good strategy, but if you shift your investing strategy to be a value oriented one (much like Warren Buffett’s approach), this shouldn’t be a problem.  In fact, value oriented investing, picks investments for the long-term, not for quick momentum gains.

Does this mean that I have given up on active investing?  No, not in the slightest!  For me choosing my own investments is a lifelong passion that I will do until I retire.

Your First Investment Should Be Fun And Exciting!

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You’ll read a lot in the personal finance community about the perfect ordering of how you should invest your money in investments.

Such investing strategies typically goes like the following:

  1. If your employer has a 401(k), invest in that first.
  2. Next, put you money in either a Roth or Traditional IRA.
  3. Finally, open a regular brokerage account and put any money left over in it.

The strategy above is a sound strategy, no disputing that, but it also makes investing kind of boring and a bit like a self retirement tax, especially for those very young and still in college. It’s hard to build passion for an activity when you know that its main purpose is for when you are very old and less active.  To me, this seems boring and lackluster.

 

My Young Investment Strategy:

In the past, I have followed a different path when it came to my investing strategy, and it looked like the following:

  1. Buy stocks in a regular brokerage.
  2. Buy stocks in a Roth IRAs.
  3. Participate in a 401(k) when available.

That’s right, my investing strategy was basically opposite the common wisdom of today!  Back when I first started working, the companies I worked at didn’t have a 401(k), so that made it easy to move 401(k)s to position number three, and while a Roth IRAs were interesting, for a teenager it seemed to distant of a goal (although my viewpoint of Roth IRAs has dramatically improved since then).

Another advantage of the above teenage/college age investing strategy sequence is that it made investing fun.  It was fascinating watching stocks that I owned appreciate in value!  I still remember the first stock that I owned that doubled (EBAY) and how excited I was when it did so!  I had an uncle that would buy a few shares of dividend stocks for me as a child, and receiving “free money” from the dividend stocks was exciting for a kid.

Okay, it wasn’t free money, but back when I was a young child, dividends checks that would come by mail seemed like free money!

Rich Kid

Every quarter I was very happy to take all of the checks to the bank and have them deposited.  Even though the dividend amounts wouldn’t be considered a lot of money to adults, to a kid it was!  I actually felt like a big deal going to the bank with my parents to make my deposits.  This strategy (that I really grew into, thanks to my uncle) helped make me a more financial focus individual today.

 

How Does My Investing Strategy Look Today?

Today, my investment strategy looks much more closely to the typical model:

  1. 401(k)
  2. Regular brokerage account
  3. Roth IRA.

Yes, a Roth IRA is still my third choice, although I’ve been thinking hard and long about moving that up to position number two.  A Roth IRA has too many benefits for it to stay at my third option.  In fact, the structure of a Roth IRA is so flexible that I use it as both a dividend tax shield and a stealth emergency fund.

So while I agree with the common knowledge of the best way to invest your money, I, myself do not follow it to 100%.  I especially think that young people should dabble a small percentage of their money in a stock to two, but to teeth on the process.  Investing in stocks is complicated, but if done with a small amounts (perhaps a thousand dollars), it can be a great learning tool and a lot of fun both at the same time.

Bests,

MR

The Good, Being Wealthy Can Do

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We’ve all seen the classic representation of the wealthy constantly monitoring their wealth and always trying to make a buck.  In such depictions of the wealthy, one could believe that the rich are actually a very small-minded, unintelligent group.  But I think that real history proves otherwise, and today I’m going to discuss my top financial hero “Benjamin Franklin“:

Benjamin Franklin

Benjamin Franklin was a hard-working entrepreneur that gave us many quotes that we use and admire today:

  • A Penny Saved is a Penny Earned
  • Tell me and I forget, teach me and I may remember, involve me and I learn.
  • Early to bed and early to rise makes a man healthy, wealthy, and wise.
  • An investment in knowledge pays the best interest.
  • You may delay, but time will not.
  • Well done is better than well said.
  • By failing to prepare, you are preparing to fail.
  • I didn’t fail the test, I just found 100 ways to do it wrong.
  • Hide not your talents, they for use were made, What’s a sundial in the shade?
  • Many people die at twenty-five and aren’t buried until they are seventy-five.
  • Instead of cursing the darkness, light a candle.
  • When you are finished changing, you’re finished.
  • If everyone is thinking alike, then no one is thinking.

While Ben’s quotes are awesome, they are just words, fortunately he was a man who lived by his words!

At the age of 42, Mr. Franklin retire from his working life.  He retired one of the richest men in the United States during that time period.  So what do you think he did with the rest of his remaining 42 years of life (noting that he died when he was 84)?

Do you think he sat in a corner throwing his money up in the air exclaiming “I’m rich, woo hoo” over and over again?

Having Money

No, instead he become a great inventor and then later an incredible politician!  In fact, many believe that without Ben’s influence in helping to recruit France into the war with England, the United States wouldn’t have become a separate country back then!  Who knows, with such a timeline change evils (such as slavery) still might exist in the United States today (think no?  it exists still in other parts of the world…, it’s just not an industry like it formerly was).

Here is the thing that many of us forgets (especially big media?, or do they…) Benjamin Franklin wasn’t working a 9 to 5 job everyday, he was wealthy.  In fact, Ben was one of the richest men in America at the time.

Instead of choosing to go sit at a beach sipping a Margarita, he continued being what he has always been… and that is an overachiever and a friend to society!  Oh he still enjoyed life to its fullest, but part of this enjoyment was inventing things and helping others.  Being rich and not having to work anymore enabled him to do these incredible things after the age of 42.

In the past, I’ve mentioned what I would do if I were rich, and I always have an element of giving back to the community and helping others.  In fact, when I posted the article of comments on “How Money Can Increase Happiness“, practically everybody mentioned helping others in some fashion. Based on the results, I would conclude that most rich people like to help others and society in general.

If you were wealthy, wouldn’t you try to help others and society, while still enjoying life at the same time?

Cheers,

MR

 

A Small Startup Business Should Pay No Taxes For Two Years!

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I’ve been think about this for a while, and I think that startup businesses shouldn’t have to pay taxes for at least two years after starting a new business.

If you read the statistics on small business startups, you’ll read that at least 80% of small businesses fail during the first five years!  Well, no duh!  Having to pay taxes right of out gate is like trying to run a sprinting race while carrying some fat bloated guy on your back.

If you haven’t already tried your hand at starting a business before, read about the grief that a small business owner in California has to go through to start one via the article at Untemplater: Taxes Suck And Make Me Want To Shut Down My Small Business.

Sidney (the main blogger at Untemplater) is a very sweet individual, and make me smile most of the time I read her articles.  So it was a rare pleasure reading a rant on a tax topic that I feel similarly about.

That said, after reading her article, I now realize that from a tax perspective I don’t want to every incorporate in California!  Here is a snippet of her article that I want to discuss about why I wouldn’t want to do business in CA:

Even if you don’t have your own business, did you know that if you get a California tax refund, you have to report that refund amount as income the following tax year so they can make you pay taxes on that?! WTF. I do not appreciate that.

Wha-Huh?  Sidney writes that CA folks have to pay taxes on their tax refunds???  What kind of bizarre logic is that?  Apparently logic is not a strong point of the CA government, which is quite ironic since many of the largest tech companies are housed in CA.  Quite the paradox, eh.

Actually, these days, computing is so incredible cheap and powerful, taxes should be incredibly easy, versus the mess it is today.

So I think that it’s totally reasonable to have an incubation period for small business to promote growth, where they can operate tax-free for their first two years of existence.  And then instead of paying the full rate all at once, the tax collect on small business startups should be eased into the full tax rates.  So the taxes collected should just slowly be stepped up to what the normal rates are during the first 5 years.  Then, only after five years of existence (with certain income exceptions), would those start-ups have to pay the normal business tax rates.

Now of course income exceptions would exist!  If the small business makes over 1 million in profit its first year out of the gate, well…  it’s going to have to pay taxes in year two at the normal rates, effectively bypassing the incubation period for years two thru five…  The reason being would be that if you are profitable enough to generate at least 1 million, then you can afford the professional help with the taxes and other professional services to get your taxes done…

Now for the twist…

If over 80% of small businesses fail during the first 5 years, aren’t some of those business owners going to go get food stamps and other government help to live?  After all, so are taking a risk and putting it all in, so it only makes sense that after the fail they’ll need temporary help, no?  So I have to wonder if the taxes they collect during those first two years are going directly back into the failed companies owners through the system?

And if those small business startup that needed large capital borrowing requirements fail, doesn’t that lessen the amount the banks have to pay because of the huge loss from a small business loan that failed?  I’m thinking that the current model of taxing to death small startups means less of a tax stream for the government?  You’d think that the government would people trying to start a business a break in the beginning infant stages…

Just my two cents to add to Sidney’s fire!

Cheers,

MR