Tag Archives: Investments

Maximizing Your Lifestyle Responsibly

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The following article was originally post as a guest post at Cashflow Sherpas, to view it in it’s original form, click here.  The following article is an updated and slightly improved version of the article, but updated enough to make both stories significantly different!

During my college years, I had a fun time, but even so, I think I could have had more fun while at the same time optimizing my finances.

While I was very frugal and did have some investments, I did so by living a fairly frugal existence in college.  Often times, my college roommates would find clever activities for us to do because nobody had money make then.  While I participated in some of the cheaper activities, I missed out on the ones that others would charge to their credit cards.  Today I look back and I believe I could have had a better mix of frugality and spending.

Now don’t get me wrong, I’m not saying it’s okay to use credit cards and build up debt!  But if I had to do it over again, I definitely would have used some of the money from my investments.

In fact, if I had to do it all over again, I would have invested money that I made from working since I was sixteen into investment.  I would also invest all the money I got over the years from birthdays and Christmas, into investments that would yield dividends.

Next, I would have created a spreadsheet that tracks all my finances including the dividend stream from my dividend stocks.

The beauty of having such an income stream would be that I could have maximized the money to use to have more memorable experiences back then.  Many of these are age specific experiences that once you miss them, you really can’t go back!  So I would urge others to do such a thing, especially if you are too frugal like I was!

I was so frugal, that there was a point in my life where I wouldn’t even go on a date because I felt like I couldn’t afford it.  Luckily, I was still able to find a few girlfriends that I was able to go out with while staying on a frugal route!

The above is only part of the process though.  It’s the bean counting part that while crucial, in just part of the puzzle.  The other part is spending intelligently, and keeping your eyes open for opportunities to make money.  In fact, I think being aware is the most critical piece of the maximization puzzle.

While I don’t see any obvious, risk free opportunities that would have made me rich in college, there were definitely opportunities that may have made it happened if I tried!  If you don’t explore and try such things, you’ll never know.  You don’t have to start the next Microsoft, it could be a small money making venture, experiment!

While I have missed some life experiences, for my kids I’ve already creating an investment portfolio that will contain a portion that will have stocks invested in dividends, They will be able to use that money from the dividends for their potentially fun college fun expenses in the future.  That way they will get to experiences more than I did while going the college thing!

In the end, it’s about developing a financial balance that would maximize your life.

Bests,

MR

Financial Planning Isn’t Really A One Size Fits All Model

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There isn’t a “One Size Fits All” model for financial planning.

 

Credit Cards

I love credit cards, no wait, I love reward credit cards!  But this is my one exception where I deviate from the norm with respect to my friends and their spending habits.

I have a few friends that have gone bankrupt (in 1 case a few times) and so I will never say “I love credit cards” to them.  I don’t want them to think that it’s okay to spend so easily.  We have to know our limitations and weaknesses.

However, for me, credit cards are a wonderful discount on my purchases.  Sometimes, I use the reward points to splurge and buy a nice gift that I would have had to spend money on.

Mortgage Pre-Payment

I took a path that I know isn’t considered the best for most, but it was the best for me.  You see, I pre-paid and them totally paid off my mortgage early.  I know that from a mathematical perspective it makes more sense to put that extra money in investments.  But I couldn’t stand the debt hanging over my head, and I doubt I would have consistently put the extra money into investments, thus defeating the plan.

I very proud of my accomplishment with my house, and if I had to do it all over, I’m pretty sure I would have done it exactly the same.  I especially like that fact that the money that I don’t have to pay anymore is like getting a 2nd job in many ways, especially with respect to cash flow!

While mathematically it makes sense to put the extra money into investments, missing in the formula is the human element.  The equation is mathematical but the human element takes away some of the straight math properties and adds emotion and impulse buying elements.  Shoot, I consider myself good with money, and even I sometimes have problems controlling my spending, especially when it some to my kids!

Investments

I tend to invest in stocks, but most of my money is in the mutual funds that are included within my 401(k) plan at work. 

In my stock dividend “Lunch Experiment“, I run a high beta investment portfolio.  This isn’t advisable and I’m only running such a portfolio because the money was money that I would have spent.  I don’t advise anyone to follow such a risky portfolio, but it’s still fun to play with!

Conclusion

So what I’m really trying to convey is that there isn’t a single generic “one size fits all” type of model to follow when it comes to financial planning or advice.  Perhaps start with one of the three financial advisors and then customize it after you find one that mostly fits your goals.  Personally, I’ve always liked David Bach with just a slight hint of Robert Kiyosaki.

-MR

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Long-Term Value-Investors Can Always Benefit from a Trader Mentality

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Long-Term Value-Investors Can Always Benefit from a Trader Mentality

Today’s guest post is by Michael Trinkle.

Long-term value-investors may be quite content to eke out small returns in the short-term because they know from experience that the compounding of small returns can lead to significant gains over longer periods of time. However, this past year, as well as the past decade, has been a long-term sideways “ranging” market where traditional long-term returns of 10% are anything but the norm.

No one is suggesting that all investors discard time-honored investment principles in favor of a trader’s mentality, but a sideways ranging market has generally been the province of traders that enter and exit the market at will, always searching for short-term profit opportunities. However, there are a number of technical skills that could benefit fundamentalists, if they only chose to investigate another investment discipline where active trading predominates.

One sad fact in our society is that very little investment training is provided in our hallowed halls of academia. Except for a small minority, the majority of us learn from reading books or attending special seminars on the topic, a real hit-and-miss approach. For this reason, we rarely get a fully-rounded comprehensive understanding of the art of investing, its many alternative forms, or the many tools designed after of years of study to assist an investor in the process.

It certainly does not require a lot of money, but a modicum of time is required that will pay dividends to any investor that is willing to make that investment. Commodities, futures and foreign currencies are the markets where active trading proliferates. Risks are high, and specialized training is a necessity, along with experience and emotional control, to be successful in these areas. One does not need to trade in the forex market to learn from it. Brokers will provide you with a free forex demo account and “virtual” cash to learn the basics and hone your skills. The key points to follow when actively trading are as follows:

  • Always have a plan for entering and exiting a position before it is opened;
  • Always place stop-loss orders below your entry point to mitigate risk;
  • Always cut your losers off, and let your winners run with trailing stop-loss orders to lock in your gains;
  • Use technical indicators to optimize entry and exit points.

These rules are very similar to longer-term investing techniques, with the exception of the last bulleted item. Many long-term investors have never learned the basics of technical analysis or have heard the process demeaned by critics. Technical indicators were never intended to be perfect. They can give false signals, but their consistency may provide an “edge” when an “edge” is all that is needed to execute and profit from a winning strategy.

The following chart provides an example to illustrate these points. In 2010, a value-investor would have heard much about precious metals being a “safe haven” when the debt problems surfaced in Europe and created a crisis felt the world over.

 

Forex Chart

Market Chart

If the long-term investor had invested in Silver in late August, the rapid upward trend may have caused him to gulp hard. The RSI, a popular momentum/leading indicator, in combination with the MACD crossover, would have signaled an overbought condition. The insertion of a trailing stop-loss order would have locked in his gain.

Timing in sideways markets is critical, and learning how to read technical signals can optimize timing considerations and lock in ”paper” gains. Time spent learning the nuances of technical indicators can provide valuable benefits in ranging as well as trending markets. Always remember that “paper gains” are not real until realized and cannot be compared with a real trading experience in any way. And of course, historical and past performance is not in any way a guarantee of the future events and results.

Thanks Michael, for an insightful article!

Readers, What say you?  Do you agree with Michael’s approach?

I do see value in what Michael is saying about sideways markets (I which I had played it more this year)…

-MR


Another Big Stock Market Dip, What Did I Do?

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Yesterday, the DOW stock market measure dipped 187 points, so what did I do?

I did nothing!

The market responded to something going on over in the Chinese government as they try to control inflation in China.  I’ve seen similar announcement like this before, the market drops like a bowling ball dropped in a toilet, then during the following week,  it recovers its losses.  In some way it’s like a broken record…

What I should have done was buy more quality stock or other investments while the market was low, but I froze.  I actually have money sitting. waiting for such a dip, but it’s hard to take that leap of faith, and I hesitated.

The market also took new about Walmart sales dropping slightly for same store sales.  But like last year and the year before that, it’ll be the day after Thanksgiving and the amount of shoppers out in the market on that day, that will determine if holiday sales are boom or bust.

I’ll admit, part of the reasons I hesitated was because I didn’t have any particular stocks that I wanted to buy.  The reason I didn’t have any stock that I was looking at, was not because of any stocks per se, but instead because I hadn’t really been following the market as closely as I usually do.

If I had done my homework, and had a stock lined up…  I might have jumped in.  Even with a stock lined up though, it’s still a hard decision when the forces that be are knocking the market down like a UFC fighter (like the old version of Chuck Liddell) throwing a knockout punch.

Most of us follow our hearts and stay put in such market downturns, or even worse sell shares…

Was anyone brave enough to jump in yesterday?

-MR