Category Archives: Investments

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

Another Financially Tight Start of The New Year

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Turns out that I tried to save so much money last year that I’m down to my last $3,000 at the start of this new year!

Overspender

Always Broke

Oh sure, I have money saved, but it’s in my regular brokerage account, my Roth IRA, and my 401k Plan.  Turns out that I bumped up my contribution to my 401k so high that even though I have an extra $15,000 a year from paying off my house previously, that money got absorbed in investments.  While this is great, it also means that my liquidity is restricted somewhat.  So much so that I’m going to have to pay my yearly car insurance with money from cash sitting in my regular brokerage account.

Or course I don’t regret my financial tightness, but does make for some worrying about bouncing checks.  I think this coming year, instead of putting all my tax money in investments, I’ll instead try to build up my cash balance in my checking account to $15,000 (vs the regular $10,000 amount).  This should make for a less stressful Christmas time.

Just in case you are curious as to what I did, I’ve listed the financial decisions below:

  • Increased my 401k contribution (and I will probably increase it again this year too).
  • Contributed 10% of my salary into my employer’s ESSP.  (I made a cool 15% in my Employee Stock Purchase Plan, no regrets here).
  • Purchased a decent amount of dividend stocks  (I will continue this path in 2012, but not as much).
  • Increased my contribution amount to my HSA (I’m not sure if I will increase it next year, I’m happy with the balance as is).
  • Paid off my credit cards so that I didn’t carry a balance.  (This always hurts around the holidays).
  • Stuck with my car instead of buying a newer one.  (I wanted to, but I couldn’t bring myself to sell any of my stocks, or take out a loan for new used car).

So for my family, it’s an other year of living Tax Refund to Tax Refund once again.  Hopefully this year I’ll be able to have a large enough buffer that I won’t notice it!

Here is to a big 2012 year!

MR

Fun With Investing – Take the Money Pros Index Fund Challenge

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Sometimes investing can be boring…, so how about spicing it up by a friendly competition against the Money Pros Index Fund Challenge members?

Money Pros Index Fund Challenge

Money Pros Index Fund Challenge

Here’s how it works:

  1. PICK 3 STOCKS you think will perform the best in 2012
  2. SIGN-UP on the Money Pros Index Fund Challenge registration form – before the first trading day of 2012!
  3. FOLLOW your progress, and see if you can make the leaderboard

This will be the 1st year of the challenge so it should be both a fun and interesting experience!!!

Some unique features of the challenge are that the stocks prices are updated at least daily.  So you can check to see how your picks are performing.  The picks performance should be accurate as of that day’s prices (give or take 20 minutes).

Since this is the first year of the challenge the look and feel may change throughout the year for the better.

 

Why Participate?

  • Bragging rights!  Most, if not all of the members dabble in stocks and other investments.  Would it be cool to outrank the members in the index?
  • Potential exposure to interesting new stocks.  Most of the picks should be interesting to say the least.
  • It’s a great way to track the performance of your three favorite stocks throughout the year.  Since once the picks are in, they are frozen.
  • Be a Charter member of the program.  While we’re still working out all of the final details, we may have a hall of fame record of who placed first for the year.
  • Cool place to visit!  It’ll be dynamic, so make sure you sign up!

We hope you join and enjoy the challenge, I’m sure we will.

MR