How to Find Information for Picking Stocks


Stock selection is definitely more of an art than a science.  When screening stocks – going through the thousands of potential companies and deciding which to buy – I typically use price history, earnings growth, dividend growth, return on equity and return on sales, and a general description of the company to make selections.  These are the factors that are most important to me in my buy-and-hold style.  This is because I’m looking for stocks I can hold for ten or twenty years and see them double every five or six years.

I first of all look for companies that are growing and have a lot of room to grow.  One of the easiest ways to find stocks that are growing is to just look at the multi-year price history and find those that are increasing in a linear manner for five to ten years or more.    I also want companies that are obviously well-managed, which is shown by regular earnings and dividend growth and a good return on equity.  Finally, I look at the company description because I want to select stocks in different industries.  More specifically, I try to find the best stock in each industry and buy stocks in several different industries.

All right – so now you know how to screen stocks, but where can you find information such as earnings?  The internet is obviously a wealth of information, but more and more of it is becoming a paid service.  Still, there is a lot of information out there for free.  Sites such as Yahoo give basic current stats, although I don’t know of any site that gives several quarters of earnings, P/E ratios, etc… any more.  You really need to be able to look back for several years to see how the company has grown and how it is priced currently relative to where it normally trades.

A great publication for the long-term investor is the Value Line Investment Survey (www.valueline.com).  I tend to use the print version, although there is an online version that I’m sure is also useful.  I like Value Line because it gives full-page descriptions on each stock including a price graph, stats going back several years, and  a review of the company.  It also screens stock, assigning a value for Timeliness, Safety, and Technical.  Here, buying stocks with a 1 of 2 for Timeliness and at least a 3 for safety would be recommended in general.  Value Line costs quite a bit (about $800 per year), but it is worth the price because one will make far more in investments than the subscription price for a moderate-sized portfolio.  For someone starting out, most libraries also have Value Line subscriptions.  Given that you’ll only need to research new stocks every few months at most, this would be a good way to go initially.

Value Line

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Select®: Dividend Income & Growth April 2017: Discover dividend-yielding stocks selected by Value Line analysts.

For getting investment ideas – which stocks at which to take a closer look, publications such as The Wall Street Journal, Barrons, Forbes, and Money can be useful.  You need to be careful though in that many stocks will jump in price just because they are recommended in one of these publications.  The price will normally fall back within a couple of weeks after the jump, so perhaps a good strategy would be to wait a couple of weeks after the issue comes out before buying in.  The publications also periodically have articles on ways to invest, although I’d avoid taking anything you read by itself on faith.  It is better to read a lot, and then make your own decisions.

Another possibility is simply going to the websites for the companies and looking for annual reports and data they provide.  This, however, doesn’t give you the ability to screen several stocks, looking for the ones that stand out.  If you get a tip from a magazine, however, you can go to the company website and find annual reports to get more information.

Want all the details on using Investing to grow financially Independent?  Try The SmallIvy Book of Investing.  

 

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

How to and Why You Should Invest in Stocks


Certainly the first step to becoming financially fit is to start to budget.  Once you plan where your money goes each month, rather than just seeing how things turn out, you’ll find that you actually feel more wealthy because you’re using your money more efficiently.  Budgeting also helps to keep you out of debt since you need to balance your income and your spending.

Once you’ve gotten your spending under control, the next step in becoming financially secure is to grow your non-work income stream.  Having sources of income beyond your job helps shield you from the bad effects of layoffs, increases your income, allowing you to enhance your lifestyle, and provides freedom in your life because you will have money for necessities when looking for the next job or if you decide to change careers.

Hey – if you like The Small Investor, help keep it going.  Buy a copy of the SmallIvy Book of Investing: Book1: Investing to Grow Wealthy or just click on one of the product links below, then browse and buy something you need from Amazon’s huge collection.  The Small Investor will make a small commission each time you buy a product through one of our links.

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Stock investing is one of the easiest and best ways to gain additional income.  With stock investing, you’re buying a stake in different companies.  You become a part owner, and with ownership, share in the profits of the company.  You make money either through dividends that the companies pay or by selling shares of the companies once they have grown and become more valuable.

Personally, I have been investing in common stocks since I was twelve, starting with a few shares in a local utility company.  When I went away to college, my parents transferred shares of stock to me (which also reduced the taxes due on the shares) rather than sending me money for tuition and rent.  I was actually able to make it all the way through undergraduate school without the portfolio value declining since I was able to make up any money I was spending with capital gains and dividends from the portfolio.  I did need to sell off a good portion of the portfolio when I went to grad school in California since things cost more, but I still had some money in the portfolio to help get me started once I graduated.

When I started investing, I invested mostly in individual stocks.  There were very few mutual funds around, and really no index funds.  Today investing is really easy since there are a wide variety of mutual funds, including low-cost index funds and Exchange Traded Funds (ETFs).  You really can’t go wrong if you regularly buy a set of broad-market index funds and hold onto them for long periods of time (like 10 years or more).

Want all the details on using Investing to grow financially Independent?  Try The SmallIvy Book of Investing.  

The simple act of investing was once more complicated.  You needed to find a broker, set up an account, and learn how to place an order.  You could pay someone to manage your money for you, but more often than not, they would end up selling you expensive products that benefited them more than you.

Today it is really simple.  You can just go to Vanguard or Schwab (or some other mutual fund companies, I’m sure), set up an account online in less than 30 minutes, and then choose from among their low-cost index funds.  To start, just buy some shares of a large-cap index fund such as an S&P 500 fund or one with “large cap index” in the name.  You’ll want to minimizes fees (less than 0.25% of funds invested).  Once you have a few thousand dollars in a large cap fund, add a small cap fund such as a Russell 2000 fund.  From there you cold add a bond fund, an international stock fund, and perhaps something like a REIT fund.

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You’ll want to invest regularly since that will both ensure you get a good price and allow you to build up wealth and income over time.  You can do this by either putting an investing line in you budget each month and sending in money, or by setting up automatic drafts from your checking account.  Many mutual fund companies offer perks like low initial investments or no fees if you use autodraft.

So, what is stopping you?  If you have $3,000 or more in cash available, you could be an investor in just a few days.  While I can’t say what you portfolio will be worth at the end of a year, I can almost guarantee you’ll make more than you could make in a bank account if you buy regularly for a period of ten years or more.  Give it a try – it really isn’t hard and really not that scary once you’ve gotten started.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Any Interest in a Class on Investing?


With the release of the first book on finance and investing, SmallIvy Book of Investing: Book1: Investing to Grow Wealthy, and the upcoming new book, Cash Flow Your Way to Wealth, one thought I’ve had is to start teaching a weekend class/seminar on investing and money management.  While it is great to pick up a book and read about investing and finance, or to read a blog post a few times each week, there is just something about going to a seminar where you really sit down and focus on a topic that really gets you ramped up the learning curve fast.

I’ve also found that there are a lot of bad books on investing if you go to the local bookstore (if you can find one anymore) or go browse through the finance books at Amazon.  You’ll find one book that talks about buying mutual funds, another that talks about flipping real estate, and another that talks about day-trading your way to wealth and happiness in just four hours a day.  Someone could easily get confused with all of the different strategies offered, some that are valid and others that aren’t.

My question to my readers is, therefore, would you have interest in a seminar that teaches you how to invest or other personal finance/money management topics?  I’m thinking of a full-day seminar on a given investing/finance topic.  This would give time to really focus in on a given area, allow you to ask questions, and include a copy of at least one of my books and a set of notes/hand-outs to refresh your memory at home.

Hey – if you like The Small Investor, help keep it going.  Buy a copy of the SmallIvy Book of Investing: Book1: Investing to Grow Wealthy or just click on one of the product links below, then browse and buy something you need from Amazon’s huge collection.  The Small Investor will make a small commission each time you buy a product through one of our links.

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Classes could be on topics such as:

How to select mutual funds

Choosing funds and investing in your 401k

How to select individual stocks and manage a stock portfolio

How to manage a portfolio and generate investment income in retirement

How to manage your cash flow to build wealth (what to do after you’re out-of-debt)

Smart ways to manage your money (so that you can have your cake and eat it too)

Want all the details on using Investing to grow financially Independent?  Try The SmallIvy Book of Investing.  

The other question is the best format for the class.  Given that I’m located in the South East United States, classes could be held in or near cities such as Atlanta, Huntsville, Nashville, Louisville or Ashville.  I could also offer an online class, maybe spread out over a few days/evenings, with lectures/discussions using Go To Meeting or some similar website.

So, here’s where I need your help.  Would you be interested in a class such as this?  If so, what would be the best format (in person or remote)?  If in person, would one of the places listed work for you?  Finally, what would you think would be a reasonable cost for an 8-hour seminar such as this, complete with notes and books (and maybe lunch)?

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Women Aren’t Investing? Come On, Ladies!


This month’s Money magazine features a cover with five women dressed in black, looking aggressive and ready for business battle, with the title “The Investing Gap.”  The article then goes into The Debt Gap, The Pay Gap, and The Investing Gap between women and men.  I must confess that I get confused when articles talk about women’s money and men’s money, women’s investing and men’s investing, or women’s retirement savings and men’s retirement savings.  When we were married, my wife and I became one, which means that there is no mine and hers.  Her salary is my salary.  My debt is her debt.  Her home is my home.  My retirement accounts are her retirement accounts.  Her investments are my investments.

The person earning  the bigger salary (or the only salary) is only able to do so because the other person is there to make sure the kids are safe, are getting what they need in terms of education, healthcare, and social activities, and being taught important lessons on how to be successful and contribute to society.  One person takes the majority of the load of doing or hiring home and auto repairs, running errands, and doing other things needed to maintain a household so that the other person can be a better employee and earn a higher salary.  (We share the cleaning and yardcare tasks.)

This means that everything earned, saved, and borrowed belongs to both, not 50-50, but 100% for both people jointly.   This makes a lot more sense to us than both trying to do everything and thereby being lousy workers and lousy parents while our home and cars fall apart from neglect.  It is more effective for each to focus in on certain areas, knowing that the other person will focus in on other areas.  I don’t ask her for rent each month from her earnings and I don’t expect her to tell me, “Sorry, this is my IRA.” when the time comes for retirement.  We’re married, not roommates with kids.

So I don’t know if the article was looking at married women and men as separate entities (which is ludicrous), or looking at young single men and women, or perhaps divorc’ees and windows/widowers when drawing their conclusions.  Regardless, one item that was particularly troubling for me, because I spend so much time writing articles such as this one to teach people how to invest and handle their finances, was the Investing Gap mentioned.  The article stated that women are more likely to have savings in cash because they are less confident to invest (although they tend to be better investors than men when they actually do invest).  To that, I say, “Come on, ladies.  Get educated and get over it.”

Hey – if you like The Small Investor, help keep it going.  Buy a copy of the SmallIvy Book of Investing: Book1: Investing to Grow Wealthy or just click on one of the product links below, then browse and buy something you need from Amazon’s huge collection.  The Small Investor will make a small commission each time you buy a product through one of our links.

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If you think that cash is safe, think again.  Every second that your money sits in some bank CD or, heaven forbid, a savings account, you are losing money.  Inflation is taking at least 1%-2% per year, meaning that you will lose one-quarter to half of your money over a working lifetime.  I can’t tell you what the return will be from an investment account, but I can almost guarantee it will be positive over a working lifetime (civilization collapse or take-over by a communist regime excluded).  I can guarantee that you’ll have less purchasing power in a bank account in 40 years than you had when you put the money in there.

Now I know that there are a lot of women out there who are fearless, confident investors that will be retiring with seven-figure portfolios.  But if you are worried about investing because you don’t know enough about it (whether you’re a woman or a man), I’m taking away that excuse right here, right now.  Here is everything you need to know about investing to be successful and get a better return than 90% of the people out there, mutual fund managers included.  It really doesn’t take more than about 300 words.

1.  You need an account with one of the major mutual fund companies.  I would recommend either Vanguard or Schwab since they have a great selection of low-cost funds.  (Low-costs are the key, which is why you invest in index funds.)   You can set these up online in about 15 minutes.  To purchase funds, you can do this online through their website (for free) or call them (usually for a small fee).

2.  For retirement investing, start with your work 401k up to the company match provided (this is free money), then go to an individual IRA at Vanguard or Schwab, then finish with your company 401k.  You’ll want to be putting between 10 and 15% of your salary away into retirement, not counting any company match.  If you have no 401k option, maximize your IRA contributions ($5500 per year right now), then save the rest in a standard mutual fund investing account.

Want all the details on using Investing to grow financially Independent?  Try The SmallIvy Book of Investing.  

3.  Start funding the accounts and make contributions regularly, ideally with automatic drafts.   If you sign-up to have an amount automatically transferred each month from your checking account, mutual fund companies will often lower the minimum investments they require to start an account and waive other fees.  Autodraft will also make sure you actually put money away, rather than just intending to do so.  Whether you choose to autodraft or just send in a check or e-check each month, you will want to invest regularly to get better prices on your purchases, rather than saving up and dumping money in all-at-once.  This is called dollar cost averaging.

4.  Diversify your investments into low-cost index funds in different segments of the market.  Sometimes large stocks do well, other times small stocks do well.  In general, they will all be rising over long periods of time.  Diversification makes sure that you’ll always have some money in the segment of the market that is doing well at any given time.    Buy index funds since they will have the lowest fees.  To get proper diversification, buy a 1)Large-Cap or S&P 500 index fund, 2) Small-Cap index fund, 3) International stock fund, 4) REIT fund (real-estate fund) and, if you’re over 50, 5) a total market bond fund.  Just go to the website for your mutual fund company and look for funds with these names.  Then, check the fund objective in the prospectus and verify that their goal is to try to match an index, rather than having a manager pick stocks.  Fund costs should be 0.50% of assets or lower (0.05% is possible).   Do this in both your retirement accounts and personal investment accounts.

Invest your age minus 10% in the bond fund (if you’re over 50), put 20% into of the remaining funds into the REIT fund, then split the money evenly among the other funds.  This means that your target percentages, if you’re under age 50, are 20% REIT, 27% Small Cap, 27% Large Cap, and 26% International.  If you’re over age 50 this means you should put your age minus 10% in bonds (for example, 40% when you’re 50 years-old), then divide the rest of the money the same way as before.  A 50-year-old would therefore have target percentages of 40% in bonds, 12% in a REIT fund, and 16% each in a  Small-Cap fund, a Large-Cap fund, and an International fund.

When you first start with personal accounts, you may only have enough money to buy into one fund.  If this is the case, pick the Small Cap fund to start, then start building up the other funds as you gain enough cash.

5.  Rebalance your funds once per year.  You should not make changes often, but it is useful to sell shares in funds that perform well and buy those that perform poorly over any given period of time to maintain your target percentages.  In your 401k and IRAs, you can just use the tools provided by the fund companies to reset your accounts each year.

6.  Avoid selling or exchanging funds in your personal accounts.  You’ll need to pay taxes on profits made in your personal accounts if you sell them, even if you immediately invest in another fund.  You’ll therefore want to limit your selling in these accounts, so rebalancing by selling shares in one fund and moving them into another fund is not tax-efficient.  Instead, direct new cash to underfunded accounts.  For example, if you are supposed to have 20% of your portfolio invested in the REIT and you’re only 15%, start directing all of your new contributions to the REIT fund until it catches up.  Another option is to shift some funds in your retirement account to make up for imbalances in your taxable account.

Within your retirement account, you can just shift money around as desired since there are no taxes until you withdraw the money, at which time it will just be treated as income.  If you do need to sell shares in a fund to raise cash for something, try to sell positions in which you have a losing position to offset those in which you have a gain.  This will probably not be possible if you’ve had the account for a long period of time since every fund will have gains.

7.  Don’t forget your investment gains outside of your retirement accounts when tax time comes.  You’ll need to pay taxes on capital gains, interest, and dividends for investments outside of your retirement accounts.  (Those inside retirement accounts are tax-free if you have Roth accounts or taxed as regular income when you withdraw the money, provided this is done after you reach retirement age.)  Your mutual fund company will send a 1099 form each year listing the dividends and interest you have had.  You should keep track of your cost basis (when you bought new shares and for how much) since you may need to figure out capital gains yourself.

8.  Start reading The Small Investor regularly to become smarter about investing.  I’ve only covered the “what” to do with this article.  Keep reading if you want to know the “why.”  These are also just the basics, so you can fine-tune things to get even better returns with a little more knowledge.  This is the 90% solution at this point.

So there you go ladies (and men).  You now have no excuse for not getting into the markets and killing it.  I don’t want to hear about any investing gap in five years.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Is Stock Market Investing Gambling?


 

Every so often I’ll be with someone who will talk about investing in the stock market and how it is just really gambling.  I usually nod along and smile, not really wanting to get into a big debate.  I guess that you can use the stock market to gamble, but stock market investing is not gambling.

When you gamble, the odds are not in your favor.  When you plant some seeds in your garden with the intention of watering them and taking care of the plants as they grow, it really isn’t a gamble whether or not you will have fresh vegetables later in the summer.  When you buy a home, it really isn’t a gamble whether or not you’ll have some equity built up and the home will have appreciated at least at the rate of inflation in 30 years.  Bad things can happen.  There are some extreme occurrences, but most of the time, things will work out in your favor, at least to some degree.

Now you could turn these things into gambles.  You could just throw some seeds down and do nothing else, seeing if they will grow or if the birds will eat them before they sprout or if the rains will come at the right times.  You could buy a house for a year, then sell and buy another one the next year, continuing this for twenty years, and see what you end up with at the end.  In both these cases, the odds are not in your favor.  This is not because of the seeds or the houses, but because of your actions.  You weren’t doing what was needed to put the odds in your favor.

Hey – if you like The Small Investor, help keep it going.  Buy a copy of the SmallIvy Book of Investing: Book1: Investing to Grow Wealthy or just click on one of the product links below, then browse and buy something you need from Amazon’s huge collection.  The Small Investor will make a small commission each time you buy a product through one of our links.

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Investing in the stock market also isn’t a gamble, if you actually invest.  You could just pick a stock or two and then plan to sell them at the end of the week or the month.  Chances that they would be up are about equal to chances that they would be down.  If you really invest, however, you put the odds in your favor.  There is a chance that things won’t go well – a very slim chance – but most of the time things will work out and you’ll end up with a decent return when compared to other things like bank CDs and even real estate.

So how do you invest, as opposed to gamble, when investing in the stock market?  Well, there are a few things that you do to put the odds in your favor:

1.  Plan on staying invested for a long time.  I can’t say whether the market will do well over the next year.  But I can say that the markets will increase over the next twenty or thirty years.

2. Stay the course.  You never know when the big market upturns will be, but if you buy and stay invested, you know that you’ll have your money in the right place when those big moves up do occur.  Most investors lag the returns of the markets because they get scared and sell out at just the wrong time, then they get overexcited and buy just at the wrong time.  Accept that you cannot predict short-term movements of the markets and stay the course.

Want all the details on using Investing to grow financially Independent?  Try The SmallIvy Book of Investing.  

 

3.  Buy index mutual funds.  Diversification – owning a lot of different investments – ensures that you’ll be invested in whatever is doing well at any given moment.  Index mutual funds allow you to spread your money across dozens or hundreds of companies and do so with very low costs.

4.  If you buy individual stocks, pick companies that look good long-term and plan to hold onto them.  It is nearly impossible to predict which companies will do well over the next year for the same reason that it is impossible to predict how the markets will do.  It is possible, however, to pick companies that will do better than the markets over long periods of time since some companies are clearly stand-outs from the pack.   If you want to try to buy individual stocks to increase your returns, give them time to grow rather than selling them right when they start to perform or when they drop a bit in price.  Buy the business and be more concerned with how the company is doing than how the price of their stock is doing.  Plus, put the bulk of your investments into mutual funds, just in case you aren’t a great stock picker.

5.  Add to your positions regularly.  It is very unlikely that you’ll buy in at just the right time, but if you buy in regularly over a long period of time, you’ll get a good cost basis.  It is just the way that the math works since you end up buying more shares at lower prices than you will at higher prices.  Set up your accounts to regularly send in a monthly investment to your mutual funds and then just forget about it.  Your investments will take care of themselves.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Start to Invest in Three Easy Steps


Last school year, my son started an illicit chip business.  No, he wasn’t selling pirated computer chips he’d imported illegally from Asia and snuck in without paying tariffs.  He was selling potato and corn chips out of his jacket at school between classes.  As is always the case when you have an over-oppressive government regulating the goods that can be sold, a black market forms.  In this case, Michelle Obama’s plan to make high school juniors eat like a bunch of 40-something women created an opening for an enterprising young person to create a business selling full-fat junk food and sugar.  My son was just the guy.

It was a great experience for him to learn how to run a business.  He would go to Wal-mart and buy the jumbo variety packs of chips.  He later started buying chocolate bars as well and keeping them in his pocket along with a small ice block to keep them cool.  In general, he would double the Wal-mart price, so if he got the chips for $0.50, he would sell them for $2.  Chocolate bars went for $1.50 each. By the end of the school year, he was going to Wal-Mart a couple of times per week to stock up.

Hey – if you like The Small Investor, help keep it going.  Buy a copy of the SmallIvy Book of Investing: Book1: Investing to Grow Wealthy or just click on one of the product links below, then browse and buy something you need from Amazon’s huge collection.  The Small Investor will make a small commission each time you buy a product through one of our links.

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In addition to trying to get a little extra spending money, he wanted to gather some money to start investing.  When I started investing back in the 80’s, I put $250 from my bank account into 15 shares of Tucson Electric Power at $15 per share.  I therefore paid about $225 for the shares and $25 for brokerage commissions.  That 10% fee, due to the small amount I was investing, was fine for a one-time investment to get some stock but was pretty steep to do on a regular basis.

When my son had finished off the year and was ready to invest (he didn’t continue the business this year), we looked first at Vanguard to find an index fund.  Unfortunately, all of the funds there had at least a $3,000 minimum, which was way out of his league.  We then went to Schwab and I was amazed at what we found.  They actually have several index funds that you can buy with just $1 to start!  (While this may seem like an ad for Schwab, believe me, I am receiving no remuneration from them. )  We set up an account (which took maybe 15 minutes online), sent in a check, and then made the purchase online.

We put $391 into their small-cap index fund.  Before the pull-back last week, it had risen to about $450.  I think he is about $20 up now, after the correction we’ve seen.

 

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I was really amazed at how easy it was to start investing, compared to how difficult it was before.  There is no big minimum. (I think a standard brokerage account has a $1,000 minimum, or $0 minimum if you elect for regular payments into your account from your bank account.  For my son, I think because it is a custodial account, there was no minimum.)

So, if you were thinking about starting an investing account or an IRA, why not do it tonight.  You could have the account setup in 20 minutes and then start investing in a few days (after getting money into the account).  Here are the three easy steps:

  1.  Go to the Charles Schwab website (www.schwab.com) and set-up an account.   You’ll need to give info like social security number, address, phone number, and beneficiary information.
  2. Fund the account with whatever you can.  If you have $1,000 saved up, send it in and start things going.  You can send in a check or send in money electronically.  There are probably other ways to send money – I’m sure they can help you if needed.  If you don’t have at least $1,000, set up regular payments from your bank account for whatever you can afford, whether it’s $500 or $50 per month.  Really, you should set up automatic drafts regardless since regular investing is the key to building up a portfolio.
  3. Choose an index fund to invest your money in.  I would recommend any of these funds to start, and then slowly building up a portfolio including all of these funds in roughly equal amounts:

Large Cap:  Schwab Total Stock Market Index Fund (SWTSX) or Schwab® S&P 500 Index Fund (SWPPX)

Small Cap:  Schwab Small-Cap Index Fund® (SWSSX)

Mid Cap:  Schwab® U.S. Mid-Cap Index Fund (SWMCX)

International:  Schwab International Index Fund (SWISX)

If you don’t like market fluctuations, or if you will need to start accessing the money from your account within about 15 years, you should also mix some bonds into your investment mix.  These will smooth things out a bit, although over long periods of time they will reduce your returns.  To add bonds, just buy:

Bond:  Schwab® U.S. Aggregate Bond Index Fund (SWAGX)

A good rule-of-thumb is to put your age minus 10% into bonds.  If you are fifty, put 40% into bonds, for example.

If you start an account and begin to invest, be sure to let me know.  I’d love to hear about your progress.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

The New Book, Cash Flow Your Way to Wealth, is Closer than It’s Ever Been


I remember when I was involved in testing in one of our facilities (my day job is “rocket science,” or more specifically, aerospace engineering), one of the most irritating things that one of our test engineers would say was, “We’re closer than we’ve ever been.”  He would say this when you asked questions like “How much longer do you think it will be before we’re ready to test?”  The answer was absolutely correct, but totally useless.

I remember specifically one day when I was supposed to meet my wife for lunch.  I didn’t have any way to contact her (didn’t have cell phones in that day).  We were testing in a facility that would blow really hot air over things like materials you would put at the front of a space capsule to allow it to survive coming back into the atmosphere.  This facility used compressed air at such high pressures it would look like a liquid if you could see it because the molecules were squeezed so close together.  Once the test started it would only run for a few minutes, so I knew that we could be done in just a minute or two if the test started, but as is usually the case when doing these kinds of tests, there was one delay after another as we were checking things and finding issues.

As I watched the time tick away, I got to the point where I would need to leave to meet my wife on time, then the time passed where I would be a little late, and then it started to get to the point where I was going to be more than a little late.  I didn’t absolutely need to stay for the test – I could find out afterward what had happened and look at the data then, but it was really neat to see this facility run and I didn’t want to miss it if I didn’t need to.  If I knew it was going to be a half-hour before we tested, I might have just gone for lunch, but thinking that it could happen at any minute, thanks in part to the test engineer saying we were “closer than we’ve ever been,” I stuck around and waited.

Finally, the test went off and I went to meet my wife.  By this point I was a half-hour late and had some explaining to do.  Luckily, she understood, but I still hated to keep her waiting.

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I feel like the same thing is going on with the new book, “Cash Flow Your Way to Wealth.  I keep thinking that the book is almost done, but then I get a proof copy and sit down to read through it for errors and issues, and find that there are still things I want to improve and move around a bit.  As a result, we’re always “closer than we’ve ever been.”

The other day I got a new proof copy (this is the third one) and started reading through it.  I think that it is finally to the point where there are just typos and grammatical errors to correct, which means that it should be out in about a month.  I’ve only made it through the first couple of chapters, however, so it may take a bit longer than I think.

I really like this book because it gives you something you really don’t find in other finance books – a specific strategy for managing your money to live a financially secure life.  If a high school senior picked up this book before he got into debt and made all of the other bad decisions many of us make, he could save himself a lot of pain and not need to use the Dave Ramsey debt snowball to climb out.  That is the beauty of it – we all start out clean and debt free when we first become adults.  It is at that point that we try to live beyond our means and we get into trouble.

Hopefully, there are a few folks out there who have been following my posts on writing this book who are eager to get their hands on a copy.  If you shoot me an email (VTSIoriginal@yahoo.com) I’d be happy to let you know when the book is ready so that you can buy a copy and not miss out.  I also have a special offer for those who buy a copy of the book and send me proof (like a picture of the book in your hands or a screen capture of the e-book):  I will give you a copy of a spreadsheet program I created to manage my own cash flow.  This means that you can use all of the work I went through in putting the spreadsheet together to make developing your cash flow plan that much easier.

So, we’re closer than we’ve ever been.  Please keep checking back to The Small Investor or subscribe to make sure you don’t miss the big release.  May financial security find you all.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Is this a Correction? Yes.


Now that the markets have retreated a bit, as they always do eventually, we’ve started to see the commentators blather on with their endless speculations on where the markets will go from here.  One particular subject of discussion is about whether this is a correction or not.  Just the other day I heard one reporter say that it is important if the Dow Jones reaches a certain level because if it did, we would “be in a correction!”

To understand what a bear market and a correction are, you need to understand Dow Theory a little.  Previously I wrote about a pet peeve of mine – reporters and market commentators trying to distinguish between corrections and bear markets based on percentage changes – in a blog post from a few years ago.  You can find that post here if you want to be smarter than your friends.  The bottom line is that a correction and a bear market are both market events when stock prices decline, with a correction being one move down, followed by a resumption of the upward trajectory, and a bear market consisting of at least two legs down.  A trader didn’t feel like teaching Dow Theory to a bunch of journalists, so he just said that a correction is when the market indices go down by at least 10%, where a bear market is when it goes down at least 20%.  Journalists are lazy and didn’t bother to learn more, so the definition has stuck and become gospel.

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Where they used to worry about going into a bear market, the commentators are now all concerned if we even hit a correction level, as if that would matter.  Now it seems all important if we go down 10% because then we would be in correction territory.  It is as if everything is just fine and rosy if we go down 9.9%, but if we hit 10%, the end of the world as we know it will occur.  Who knows what would happen if we went down 20% and went into bear market territory?  Maybe we’d all be homeless and sleeping in our cars.

Well, I’ve got scary news for you:  We are in a correction.  It doesn’t matter if the markets go down 5%, 10%, or 90% before they recover.  In any of these cases we’ve seen a correction.  And now that the markets have recovered a bit from their lows, if they proceed down a second time before they start reaching new highs again, we will be in a bear market.  And should any of this matter to you?  Not in the least.

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The markets are falling for two good reasons.  The first is that they went up huge last year, with many indices 20 or 30% plus higher than they were before the Presidential election.  Anytime that the stock market goes up like that, people get a little silly about what they are wiling to pay for stocks.  Eventually they look at their portfolio and decide maybe they paid a bit much, then try to quietly sell and get out of their positions.  If enough people do this, it causes prices to decline, which gets people worried, so they sell as well.  Before you know it, you’re seeing a correction.  This is normal after a big move upwards.

The second reason is that the economy is starting to do really well for the first time since 2008.  The Federal Reserve has been keeping interest rates at near zero for about ten years now.  This means that they can’t lower rates much at all should they want to spur the economy.  They therefore want to raise rates a bit to give themselves a little breathing room, but have not been able to do so for a long time because the economy has been so sluggish.  Now that they are seeing the economy start to grow rapidly, with GDP going over 3% for the first time that anyone born since the millennium can remember, they are taking the opportunity to let off on the gas a little.

They also worry that all of this great news about jobs being created, companies giving out bonuses and raises, and people going to full-time work and spending again, will  cause inflation.  They therefore want to raise rates to tamp that threat down as well.  Because higher interest rates affect the ability of businesses to borrow, raising rates causes the stock market to decline.  It is also bad news for current holders of bonds since they see their bonds decline, but it is good news for new buyers of bonds since they’ll be able to get a better rate.  It also helps those with savings accounts and money market funds.

What should you do?  Nothing that you are not doing already.  If you are building up a position and investing regularly, you should  continue.  If you are getting ready to retire soon, you should have already taken some money out of the markets (enough to meet immediate needs for the next few years) just in case a decline such as this occurs.

If anything, you should try to find more money to invest if you are not planning to retire for at least ten years since at this point, stocks are on sale.  You may not get the best price possible (they could decline more if we’re in a bear market), but you’ll get a better price than you did a week ago.  And prices will be higher than they are now in ten or twenty years regardless of whether this is a correction or a bear market.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

My Investing Journey, or, When I Stopped Fooling Around and Got Serious


Probably fifteen years ago, I found a book that really changed the way I invest and really made a difference.  It was Do You Want To Make Money Or Would You Rather Fool Around ? by JD Spooner.  About that time was when I shifted from what I had done through my youth to what I now call the Serious Investing strategy.  It has made a huge difference in my investment returns.I started investing when I was twelve-years old.  My father was a big investor and I used to watch him keep track of his stocks using the stock tables from The Wall Street Journal.  He would diligently write the closing prices down each day, then make a chart of his stocks on graph paper.  This was around 1982, when there really were no spreadsheets, let alone the internet.  After talking about investing with him a bit, I decided that I wanted to take the $250 from my bank account and invest in stocks.

I bought 15 shares of Tucson Utilities for $15 per share.  We got the stock certificate in the mail a couple of weeks later, which featured a picture of some goddess shooting lightning bolts from her fingers.  I held the shares through high school and college.  I actually went to undergraduate school in Tucson, so I became a customer of my company, which felt pretty neat.  Along the way the stock went to about $80 per share and then collapsed when a scandal broke out at the company.  The share price dropped to $4 per share, and then $2.  I continued holding for several years.  Eventually the company started paying dividends again.  The share price recovered with time until the company was bought out.  Overall I made a good profit on the position.

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Rather than having me call home every few weeks asking for money for college expenses, my parents used the gift exemption each year when I was in high school to put money in a brokerage account for me.  Actually, my father transferred shares of stock that he had into the account, which allowed the profits from the eventual stock sales to be taxed at my lower rate, rather than at his high rate.  This was probably good and bad, in that it gave me a good start and financial security, but it also gave the opportunity for me to really mess things up since I was a young man with a fair amount of money available to throw at a whim.

For the most part I managed it well, not blowing the money on stuff as some late-teens, early twenty-somethings often would.  I was actually able to make the account grow while I was in undergraduate college while using the account for rent, food, books, and other expenses.  I had a state lottery scholarship that allowed me to go to college tuition-free, plus worked a job in a lab at school that paid about $400 per month.  Grad school was more expensive, living in the San Francisco Bay area with higher rents and costs, so even though I was also able to go to grad school tuition-free and had a research assistant job that paid $1500 per month, the account started wasting away a bit and was fairly small by the time I graduated and got a regular job.

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While I was fairly good with money management, I wasn’t that great at investing because I had lessons to learn.  A big lesson was that people have no business buying options for speculating.  During my sophomore year I was buying options on both some individual stocks and the S&P 500 and S&P 100 futures.  I had planned to try option speculating with a certain amount of money, and actually ended up losing about twice that amount before all was said and done.  Funny how easy it is to start throwing good money after bad, as the expression goes.

Besides doing really foolish things like trading options, a lesson I’d learned before I finished undergraduate school, I also wasn’t investing effectively because I was trading too much and not letting profits grow like I should have.  My mind was filled with the idea that you need to “cut your losses short” and “protect your profits.”  As a result I was selling stocks when I made a profit of $1000 and also selling them when I had a small loss (or sometimes a big loss, since stocks sometimes fall a lot before you can do anything).  Taxes each year were a pain as well since I typically had 15-20 trades I needed to detail on my tax returns.  Another issue I had was that I wasn’t buying in sufficient quantities to make much of a profit when I did get a winner since I had 100 shares each of maybe 20-30 stocks.

About then was when I found JD Spooner and his book, Do You Want To Make Money Or Would You Rather Fool Around ?   From Spooner I learned that, if you are going to try to trade individual stocks, it is better to concentrate your investments in a few holdings than it is to buy a few shares of this and a few shares of that.  If you are spreading your money out, you might as well buy mutual funds, which are cheaper and do a good job of diversifying your investments.   Actually, you should use mutual funds for your core investments and then have a few individual stocks to try to increase your returns.

I then went from making a small amount off of my winners, maybe $2,500 off of a huge winner that went up 200% and that I didn’t sell just because I made $1,000, to making real, life-changing profits.  I now buy large positions for my individual stock investing (my 401K and a good portion of my IRA is in index mutual funds, in case I don’t do that well with stock picking) and let those investments grow for several years.  The only reason I sell is if the company has changed or the position has become so large that a loss would be devastating.  (I typically cut a position in half if it grows to about 5% of my net-worth or more.)

This has made all the difference and I have actually been able to beat the markets over time since I started using this technique.  There are some years when I lag the market, since I’m invested in a few companies and they don’t do well every year, but over a period of time I have done very well.  This is not to say that I have not had some significant losses, since concentrating also makes your losses big when you choose poorly, but by letting my positions get big, but not big enough to be devastating, I can tolerate the risk.

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Become a Lazy Investor


You don’t want to be a lazy worker since you’ll never see your income rise and you’ll be the first person laid off if you aren’t fired outright.  You don’t want to be a lazy spouse since it will hurt your marriage.  You don’t even want to be lazy when it comes to managing your money since you’ll waste all sorts of money buying stuff you won’t remember in a week.  One place where it is good to be lazy, however, is in investing.

Lazy investors don’t do anything very often.  They think about calling in an order to sell a stock that has gone way up in price, but then it is a week or two before they get around to it, so they only trade a couple of times per year.  They don’t feel like pouring through stock tables, so they pick a couple of mutual funds that cover the markets and just stick to them.  They use payroll deduction since they’re too lazy to send in a check each month.  They maybe check their account balance once a year, so they may actually miss a whole market crash and recovery (what great recession?).

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Why does it pay to be lazy when it comes to investing?  It is because active traders do things that cause them to be bad investors.  They see the markets going up, so they put more money in just before it peaks and crashes.  They get scared in market crashes and sell just as stocks are hitting the bottom and starting to rally.  They go through their 401k account and shift out of the funds that have done poorly and into those that have done the best, buying those funds when they are high in price and selling the ones that are low in price right before they start to rally.  The next year they do exactly the same thing, trading back to the funds they owned before.  They watch CNBC and buy or sell stocks because some analysts tells them to, buying or selling with everyone else who saw that program and therefore getting a really bad price.


In the end they spend a lot in fees and make a lot of money for their brokers, and maybe get banned from trading by their mutual fund company, but they lag the returns of the markets.  They also create a lot of paperwork when they do their taxes since they need to account for each trade. So they do more work but get less done.

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Be lazy and you’ll make all the right moves.  You’ll just own everything, instead of trying to choose, so you’ll always have your money in the stocks that are doing well at any given time.  You’ll rarely sell, so you won’t sell in a panic.  You won’t generate costs and tax paperwork by doing a lot of trades.  You won’t be stressed at night about what the stock market did that day because you’ll not even look at the markets.  Being lazy is great for an investor.

If you want to become a lazy investor and make more money, here’s a few tips:

1. Be lazy when selecting investments.  Instead of spending hours researching stocks, buy mutual funds.  And instead of spending hours pouring over mutual fund evaluations and reports, just buy the basics – an S&P500 fund, a Small Cap Fund, a Total Bond Market Fund, and a Total World International Index Fund.  Don’t have the money to buy all of these at once?  Just buy the Small Cap fund now, then add the others when you think of it later, maybe in a year or two.

2. Be lazy in your fund allocations.  Instead of trying to figure out which funds to buy based on what the talking heads are saying is going to be hot next year, just invest 25% in each fund.  Whenever you have money to invest, find the fund that is the lowest percentage of your portfolio and buy that one.

3. Be lazy when selling.  With mutual funds, unless you need the money within five years, don’t sell at all.  Just let your money ride.  If the market goes down, don’t sell.  If the market goes up, don’t sell.  Just lock it and leave it.  If you own any individual stocks, don’t sell them unless one becomes worth more than $50,000 or ten percent of your account, whichever is bigger.  If that happens, sell half, but not too quickly.  Otherwise, give time for the company to grow.

4.  Be lazy when sending in money.  Put your investments on auto-pay so that you don’t need to remember to send in money.  Just have it magically leave your checking account once or twice a month and go into your mutual funds.

5.  Be lazy when reading your statements.  Maybe open a statement once a year when you have nothing better to do, and then to mainly check and see if you’re getting hit with any fees.  So long as things are chugging along, don’t make any changes.

So there you have it.  Be active when it comes to exercise.  Be active when it comes to budgeting.  Be active at work and active with your kids.  But be lazy about investing, and you’ll do better than 90% of the other investors out there.

 

Have a burning investing question you’d like answered?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.