THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
"Ignorance is the curse of God; knowledge is the wing wherewith we fly to heaven"--William Shakespeare
"If you don't know where you are going, you'll end up someplace else."---Yogi Berra
"Aim at nothing, and you will hit it every time."--Zig Ziglar
In recent weeks, some of my readers have asked how to "get started"; or in some cases "how to reboot" their investment approach. I do not profess any expertise in this area (see above disclaimer), but I can relate how I "rebooted" after many years of fits and starts.
For me the first step was education. The first two books I read were "Getting Back to Even" by Jim Cramer of Mad Money fame and "How to Make Money in Stocks" by William O'Neill, the founder of Investor Business Daily (IBD). Later, I read "The Intelligent Investor" by the late Benjamin Graham, WarrenBuffett's guru. These help familiarize one with terms and provide some basic rules. For example, although I am not a slavish devotee of O'Neill's quasi-technical approach, he did emphasize the 8% rule (do not take more than an 8% loss on any position) which has served me well. I also read the educational offerings at http://www.quantumonline.com/incomeinvestments.cfm a storehouse of information on all types of investments beyond common stocks such as preferred stock, oil trusts, business development companies, master limited partnerships, real estate investment trusts, exchange traded debt, closed end funds, etc. Get to know what these are.
Step two was creating a daily reading list. I am obsessive and excessive. My motto is "Moderation in all things is itself immoderate." So, I chose to be immoderate in financial reading. I read the Wall Street Journal, IBD and the Financial Times daily. The first two are the easier reads, but the last one is superior once you get your "sea legs." I also peruse free publications on the internet such as <http://www.seekingalpha.com . I take notes on a steno pad--just recording facts helps one retain them. However, if you do nothing else, watch Cramer's show Mad Money every day on CNBC. Honestly, once you get past his schtick, you will be kept as current on the market as you need be..
Step three, I set a goal. As my early readers know, my goal is to achieve a 7% return on my investments in a zero inflation environment. I chose this goal because the income from that yield will support Barb and me in our lifestyle should I decide to retire at age 62 (NB to subscibers who are also my partners---DO NOT reassign my corner office just yet. I will not retire at 62. I just want to be able to flip you off on my terms and at my time---which will not be age 62.) We set this goal by doing a deep dive into our assets and our expenses. Younger readers have a much longer horizon---and many more expenses. But that does not mean you cannot start calculating. There are many programs on-line that can help. I use one provided by PennMutual. https://www.pennmutual.com/pmlwebsite/pages/PML_Public/Main_Content/calcs/wealthaccumulation/index_1006.h
Run some calculations. For example, say you are 35, have $100,000 in a 401k and anticipate contributing $10,000 per year for the next 30 years. At 7% you can expect to have $1,900,000 at age 66 which at 7% will pay you $133,000 per year without invading principal. At 9%, one can expect $3,000,000 at age 66 paying $270,000 per annum without invading principal. At 4%, one can expect $950,000 paying only $38,000 per year. I chose these returns advisedly. 7% can be achieved in today's environment with a diverse portfolio of preferred stock, master limited partnerships, exchange traded debt and only a minimal amount of daily attention. Obviously, the risk in averaging a 9% return is considerably more and the time spent in oversight is significant. A 4% return is what one would have achieved over the past 10 years if one had invested in the average blended or large cap mutual fund and simply let it sit. The lesson is obvious. An enhanced return can be achieved by being an active stewart of your portfolio.
Lastly, I opened a Scottrade account and just "did it". Buying a security can be intimidating (and selling one even more so). Accordingly, some may want the comfort of working with a broker/money manager. But alone or with assistance, understand that you and you alone are responsible for your own financial security. It does not and should not take a village to achieve financial independence. Start slowly. It took me from May, 2010 to January, 2011 to fully deploy the money Barb allowed me to invest. Sell some securities for profit, just to get that good feeling. Cut your losses at your tolerance level--say 8%. Keep track of how you are doing each day. Try to enjoy it.
On a personal note, I had another good week despite the downturn on Friday. I did buy some Annaly Capital, and I repurchased some Apple. I have seen no negative stories on Apple's supply chain in recent weeks (see previous posts), and once Apple blew through its resistance level of $350 I bought some. Apple's chart had formed what looked to be a "cup and handle", and I decided not to wait for confirmation of its rally. Those that have read Mr. O'Neill's book know of what I speak----others should not remain ignorant of its content. Just sayin'.
"Ignorance is the curse of God; knowledge is the wing wherewith we fly to heaven"--William Shakespeare
"If you don't know where you are going, you'll end up someplace else."---Yogi Berra
"Aim at nothing, and you will hit it every time."--Zig Ziglar
In recent weeks, some of my readers have asked how to "get started"; or in some cases "how to reboot" their investment approach. I do not profess any expertise in this area (see above disclaimer), but I can relate how I "rebooted" after many years of fits and starts.
For me the first step was education. The first two books I read were "Getting Back to Even" by Jim Cramer of Mad Money fame and "How to Make Money in Stocks" by William O'Neill, the founder of Investor Business Daily (IBD). Later, I read "The Intelligent Investor" by the late Benjamin Graham, WarrenBuffett's guru. These help familiarize one with terms and provide some basic rules. For example, although I am not a slavish devotee of O'Neill's quasi-technical approach, he did emphasize the 8% rule (do not take more than an 8% loss on any position) which has served me well. I also read the educational offerings at http://www.quantumonline.com/incomeinvestments.cfm a storehouse of information on all types of investments beyond common stocks such as preferred stock, oil trusts, business development companies, master limited partnerships, real estate investment trusts, exchange traded debt, closed end funds, etc. Get to know what these are.
Step two was creating a daily reading list. I am obsessive and excessive. My motto is "Moderation in all things is itself immoderate." So, I chose to be immoderate in financial reading. I read the Wall Street Journal, IBD and the Financial Times daily. The first two are the easier reads, but the last one is superior once you get your "sea legs." I also peruse free publications on the internet such as <http://www.seekingalpha.com . I take notes on a steno pad--just recording facts helps one retain them. However, if you do nothing else, watch Cramer's show Mad Money every day on CNBC. Honestly, once you get past his schtick, you will be kept as current on the market as you need be..
Step three, I set a goal. As my early readers know, my goal is to achieve a 7% return on my investments in a zero inflation environment. I chose this goal because the income from that yield will support Barb and me in our lifestyle should I decide to retire at age 62 (NB to subscibers who are also my partners---DO NOT reassign my corner office just yet. I will not retire at 62. I just want to be able to flip you off on my terms and at my time---which will not be age 62.) We set this goal by doing a deep dive into our assets and our expenses. Younger readers have a much longer horizon---and many more expenses. But that does not mean you cannot start calculating. There are many programs on-line that can help. I use one provided by PennMutual. https://www.pennmutual.com/pmlwebsite/pages/PML_Public/Main_Content/calcs/wealthaccumulation/index_1006.h
Run some calculations. For example, say you are 35, have $100,000 in a 401k and anticipate contributing $10,000 per year for the next 30 years. At 7% you can expect to have $1,900,000 at age 66 which at 7% will pay you $133,000 per year without invading principal. At 9%, one can expect $3,000,000 at age 66 paying $270,000 per annum without invading principal. At 4%, one can expect $950,000 paying only $38,000 per year. I chose these returns advisedly. 7% can be achieved in today's environment with a diverse portfolio of preferred stock, master limited partnerships, exchange traded debt and only a minimal amount of daily attention. Obviously, the risk in averaging a 9% return is considerably more and the time spent in oversight is significant. A 4% return is what one would have achieved over the past 10 years if one had invested in the average blended or large cap mutual fund and simply let it sit. The lesson is obvious. An enhanced return can be achieved by being an active stewart of your portfolio.
Lastly, I opened a Scottrade account and just "did it". Buying a security can be intimidating (and selling one even more so). Accordingly, some may want the comfort of working with a broker/money manager. But alone or with assistance, understand that you and you alone are responsible for your own financial security. It does not and should not take a village to achieve financial independence. Start slowly. It took me from May, 2010 to January, 2011 to fully deploy the money Barb allowed me to invest. Sell some securities for profit, just to get that good feeling. Cut your losses at your tolerance level--say 8%. Keep track of how you are doing each day. Try to enjoy it.
On a personal note, I had another good week despite the downturn on Friday. I did buy some Annaly Capital, and I repurchased some Apple. I have seen no negative stories on Apple's supply chain in recent weeks (see previous posts), and once Apple blew through its resistance level of $350 I bought some. Apple's chart had formed what looked to be a "cup and handle", and I decided not to wait for confirmation of its rally. Those that have read Mr. O'Neill's book know of what I speak----others should not remain ignorant of its content. Just sayin'.
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