Investing 102
 

In light of the millionaires thread, I figured I'd start one asking how I can make my money work better for me. That way I can click on the higher buttons one day in response to the poll :)

Seriously though. I'm at a point in my life where all I currently do is work. I live in SW Kansas. There's nothing to freaking do here, and since I'm here for only the short term, I can't get myself set up with a house, shop, or even my car which is back in GA and currently for sale. I have no family or any obligations. Yeah, it feels good. Anyway, my savings account is doing nothing but growing right now at a whopping 0.80%. I want more out of it since it's there and not doing anything presently. I already have a 401k, Roth IRA, HSA, invest in my company's ESPP, and the aforementioned savings. It's an online money market account. I could go higher on my 401k but I'm already at 15% of my income. I'm looking for opinions and information on ways I can put just my savings to better use. I don't know anything about investing beyond the simple stuff and my retirement accounts. I'm not looking to get into anything risky. Hell, I don't know if there's anything else I should do aside from be patient.

So what do people with knowledge in these areas recommend? Any direction I can be pointed in for good info to educate myself beyond the basics? At least I think I've got the basics covered at this point.

Thanks

Two sayings I heard for the first time a long time ago that I've seen in action are: "Don't work for your money, put your money to work for you" and "buy low, sell high". Now, that may be oversimplifying it a bit I know but I have seen many people who don't seem to make enough in their jobs and need more money go out and find more work to do so they're working all the time. I don't think you can ever work hard or fast enough (at least at a job) and make as much money as you can doing the right things with whatever amount of money you have.

I've seen this personally in real estate. When things were going crazy I had enough sense to realize that it couldn't continue and sold at just the right time for an over 100% profit in 4 years. This can apply to stocks, cars, art, etc. It's usually a lot easier to figure out when things are cheap too because when they're booming we are psychologically wired to figure that it'll just continue, that it can't go back down. Some of the greatest financial minds didn't even consider that stocks in late 1999 and early 2000 would ever go back down. I remember talking to my father about this at that time and suggesting to him I was considering getting out but he told me a manager of a very successful mutual fund he knew told him "oh no, this is solid, it will continue". Well, I didn't sell but I learned a lesson which I applied to the next bubble, real estate, which I was a part of.

One last thing I don't ever forget comes from Warren Buffett who says he's fearful when others are greedy and greedy when others are fearful. Oh and one more (can't recall the source): If you want to achieve something find someone who's done it and do what they did. I like these little quotes if you can't tell.:)

Hope to hear from more people wiser and more experienced than I. Good topic!

I'm just about to get into real estate and it seems like if you are smart there are a decent amount of opportunities out there to earn far more than 0.80%.

The thing is I think everyone is different and can tolerate different risk levels. I remodeled my current house (essentially a duplex) and repair it so that is not a concern in terms of having a rental property. I'm not going to over extend and take on much overall risk, so even in a worst case scenario I don't get jammed up.

It's probably not for everyone though but I can say there are relatively safe ways to earn more than 0.80%.

My OCD probably started when I was 12 years old drooling over cars in Super Chevy magazine. I soon came up with a plan, got my first job when I was 13, bought a junked 71 Nova that year and rebuilt the entire car in our barn over the next 3 years. I paid cash for the car, bought parts after I saved enough money and did nearly all the work myself (except when my dad heard me cussing and throwing tools, he would calmly come in, help me fix whatever I was stuck on and tell me to ask him for help if I get stuck again, then he would leave). I had it ready on my 16th birthday and man was I proud of that car...but I digress.

Sounds like you are heading in the right direction. I do all of my own investing, watch CNBC, read financial magazines/books, joined motley fool years ago and have some close friends that I discuss the market/stocks with. I hate debt. I maintain a net worth spreadsheet that also includes my annual financial targets/goals and a 10 year forecast. I still update it weekly(except when I am on vacation). Yes, I have OCD, especially when it comes to family, money and cars. We also try to stretch our money as far as possible by searching for deals on quality items and are not shy about using coupons/discount codes whenever possible.

Nowdays, whenever I hire a new grad, I give them the following advice...max your 401k and ESPP contributions, save a portion of any bonus received and target some of that bonus money for fun, establish a budget that looks out at least a year and build an emergency savings account with ~6mths of expenses. Find a good doctor and pay him a visit each year, being healthy has a very positive impact on net worth.

If you haven't opened a brokerage account, you should look into Schwab. They have a lot tools (online and people) to get you started without any sales pressure. They also offer free seminars to customers (investing 101, intro to options, adv option strategies, etc) that are pretty good. Since Christmas is around the corner, here are a few books that you might find interesting: Warren Buffet's biography, The Millionaire Next Door and The Richest Man In Babylon. So many ways to spend it, so few to make it. I'm sure others will pipe in, but that is my 2 cents.

Real Estate and stocks.....there all going to go up if you can hold out to see it happen. Find a good broker and have a sit down with them.....Ask around and see who some of your friends are using. Mr. Weld will chime in on this, Listen.

I think if you have a good sense of the psychology of people you can be quite successful. Remember when the first huge brick cell phones appeared? Lots of folks were thinking "who needs a phone with them wherever they go?" Well, who doesn't have a cell phone now? When everyone started getting them Qualcomm stock was up over 2000% in one year, 1998 or 99 I think. There's an opportunity like that out there right now, you just have to find it. There are these cycles where almost everyone in society has to have something and bubbles happen. It happened with computers and cell phones and houses. What's it going to happen with next? Tablets? Those goofy new running shoes? Alternative energy? Cloud computing? Just looking around you at society everyday can tell you a lot about what to invest in if you really look and think outside the box. Of course, there were those that bet on Betamax, HD-DVD and so on so you can lose too.

Erik--should i sell my PAGER business??........lol...........jim.....^^^^very true

Okay -- only because Tracy said I had to chime in -- I will do as I'm told. :D


So -- this answer is one that I say to you -- well.... it all "depends". So without writing a book -- let's take a real BASIC look at savings.

A person needs to think of savings as various BUCKETS of money.

A bucket of money needs to be for "emergencies" -- and this bucket - just like the other buckets we'll get to - needs to be 'adjusted' to meet the needs of the owner. I don't need an emergency bucket. I have plenty of money. Most need some kind of "quick and easy to get to money" -- that needs to be taken care of first. Whether it's $500 or $5000... is up to you. This really needs to be funded by the people that can afford it the least - i.e., the guy with maxed out credit cards!

Another bucket is the retirement bucket.... you seem to be working on that. BTW -- Don't be afraid to put more into this bucket. You do not need to be limited to the 15% you're doing at work. The only thing you're doing to fund more than your limits is that you're putting in AFTER TAX money. Dude - when you retire - and you're all set for life - you won't give a damn what you're living on - the point is that you will have it! So max your workplace and then see if you qualify for a ROTH IRA... which is after tax savings that comes OUT tax free...

THEN -- you really asked about INVESTMENTS.... again - this depends - real estate is ILLIQUID... so unless you have a bunch of dough and are just looking to diversify - fugedaboudit. If you want some liquidity -- with GROWTH in your capital - and get paid to "wait" - get yourself a Schwab account - or some other discount broker - and buy yourself some big cap dividend paying stocks. The rule of investing is to never put more than 5% of your TOTAL INVESTABLE MONEY (all of your investable money not just what's in this particular account!) into ONE investment. That way - if you lost it all (all of one investment) you're not hurt. Pigs get fat - hogs get slaughtered. Ask the builders that loaded up on dirt before the real estate crash - because they ain't makin' any more of it they'd tell ya! Dumbasses...

I'd buy STOCKS for dividend AND growth... so look at a CHART of any company you're interested in... see that over the LONG RUN (like 10 years) the chart is lower on the left and rises as it goes to the right! Forget about the dips in 07/08 - every stock you look at will have that. But lets look at Kinder Morgan Partners - NYSE symbol KMP - there is a nice chart... AND it pays 5.86% (based on todays price) which is $1.16 per share per quarter. So if you bought 50 shares - every 3 months you'd get a dividend of $58 (you're getting paid to wait - you're waiting for the share price to appreciate!). Yeah I own it.

I'd also look at AT&T (symbol T) - pays about 6% dividend. Is "steady" price wise. Great place to park money and be relatively sure it's going to still be there - good market or bad. Again - you get paid to wait. Yeah I own it.

So that's what I'd be doing. Diversify - don't buy TWO oil stocks -- buy ONE - Then get a consumer food stock -- Coke (KO) or Pepsi (PEP) or McDonalds (MCD). Funny -- people laugh when I tell 'em to buy McDonalds -- the stock is UP 125% in the last 5 years! AND you get a .61 a share per quarter dividend! So here's the deal -- it's what I ALWAYS look for.... if they don't pay a dividend - I'm not a buyer - and if the dividend is "low" (like MCD's is) then I want the growth to be there.... I'll take STEADY (AT&T) but then I want a higher dividend. Does that make sense?

Then --- DO NOT GET CAUGHT UP IN TRADING - DO NOT PANIC - DO NOT LISTEN TO THE GROCERY STORE CLERK TELLING YOU ABOUT THEIR LATEST BIG MARKET HIT.... RUN AWAY from those people! DO NOT BUY GOLD... IF THEY MAKE A TV SHOW ABOUT SOMETHING (House flipping?) RUN FOR THE HILLS... DO NOT INVEST IN IT. YOU'RE ALREADY TOO LATE!

There is no get rich quick scheme. Steady Eddy whens the race. LONG TERM is not 15 minutes. Buy good quality big names that you know and understand - with good charts and good dividends. Then sit back and laugh at the losers when they're broke and you're not.


Oh -- and make sure you check the little box when you buy "REINVEST THE DIVIDEND". That way every time they pay you - they buy more of their stock automatically for you - more shares - more dividends - which buy more shares which pay more dividends...

If you buy a stock and it's value DOUBLES (just an example) then sell the "gain" and buy something else. Nobody ever went broke taking a profit. It helps you to diversify - and keeps each investment in that 5% bracket.

There's a lot more to it -- and more details etc - but them's the basics. Stay thirsty my friend!

:cheers:

Thanks Greg. :hail:

Welcome!

People THINK investing is so "difficult" -- and it's really not.

I use the "Jeff Lynch" school of investing. His deal was -- buy stocks in things you understand - or in a store you shop at - etc. Because if you go to that store all the time - YOU can tell if things are going right with the company -- and you can also tell when it's NOT.

So lets just say you're a guy that's in Home Depot all the time - and Lowe's -- and you can never get what you want at Lowe's and every time you're in Home Depot - the place is crawling with customers and you LOVE the experience... then I'd buy Home Depot - IF it met my other criteria (chart looks good and it pays a dividend and or has growth and dividend).

It really isn't rocket science - but people use excuses NOT to invest. It's sad because it's really so damn easy. There's some RULES you need to learn along the way - basics - I don't GAMBLE - I'm not a "trader" - I'm an INVESTOR. I don't buy the latest high flyer everyone else is. And there's money left on the cutting room floor because I don't - but I sleep at night - and my money grows just fine.

Let's take a look at that..... Let's look at two stocks... NETFLIX and MCDONALDS.

I don't eat at McDonalds unless I'm trailer trucking by myself... but their chart is stellar - and the dividend is STEADY. I sleep well at night AND it's grown 125% (so more than a double) in 5 years. FANTASTIC.

I don't own Netflix - but it's been the darling high flyer... and it grew a bazillion percent in 3 or so years.... great! No dividend - no long term chart - but it's a flyer. So --- had I put in 100 grand - it might have gone up to 500 grand... but at what point would I have pulled the trigger and sold? When I doubled - or would I have gotten greedy with that kind of "quick money" and held for the next double? In the meantime - it crashed and burned.

So as an INVESTOR I'll take McDonalds over Netflix.... because it's harder to KEEP your money once you have some - than it is to make it. That won't make sense to most - but if you have some "real money" - then it makes a lot of sense. It's real easy to LOSE money. I hate losing money!

Some great advice here!

WSSix - you've made the first step which 9 out of 10 of us dont, and that is ASK! A lot of people dont think they're smart enough, and it would be easy to get half way through Gregs post and feel a wee bit lost, but as car guys we can rattle off what make, model, year, engine code and trim level of that car on the horizon is, and what mods are required to screw x amount of horsepower/shave x seconds off a lap time......it's simply because we've applied ourselves and invested time to educate ourselves in our hobby.

With that level of dedication in investment we'd all be ticking that top box. Reading "Rich Dad Poor Dad" R. Kiyosaki (I know it's outdated and the concepts over-used now, but it's still got to be the best 1st investment book IMO) was a light bulb moment in my life. It's funny how I've more or less forced friends/family to read it and for some, it had the same effect. Okay others did'nt take the message on board....but dont be one of those people, this is 1% brains and 99% mind set.

I'm no where near cracking a million, but I'm certainly on the right track and have totally changed my spending/savings/investment habits and am continually investing in my education to expand my ability to invest. Next time you pick up Super Chevy, put it down and pick up "Investor" or whatever it is you have in your part of the world and get started. Time is your friend, I'm in my 20's and doing it tomorrow is not an option.

Lastly, someone mentioned health earlier. It is your greatest asset. Preserve it. I've had a minor set-back in this area lately and it's never been more true for me, however having made a few savvy investment decisions beforehand I'm well placed to recover nicely.

My 2c... go buy a book now :)

Thanks Greg. That does make a lot of sense. My levels are 15% in my 401k, 10%(which is max) in my companies ESPP (I'm with Halliburton), and I max out my Roth IRA every year. I figure I better keep that one up because I may hit the 150K limit eventually. Until then, I max $5k on that at the beginning of each year before I spend a penny on fun stuff for the bikes or the car. I feel like I'm doing well with the retirement portion of my money management. For my savings, I'm definitely looking to do better long term investments than my simple money market account. I'm in this for the long run. I'm too busy with other things to be aggressive and try to play the stock market game.

All great advice!! The above is key IMO, if you can master "seeing" where something is in it's value cycle, your financial decisions become much "easier".
Example: When "interest free" home loan ads started playing on TV, I looked at my wife and said this game is over.

Greg has a lot of great advice, especially about diversity. Don't put all your eggs in one basket. Also, if you prefer to not look at individual stocks, you can do just as well with a good mix of GOOD mutual funds. Here is as good a list as I've found and what I chose from:

http://money.cnn.com/magazines/money...nds/index.html

If you just picked a mix of these funds and did no more research and bought them through a Schwab, eTrade, etc. and rebalanced every year at tax time you'd be doing pretty well.

A couple of things here.... So I have a bit of mia culpa to my original post.

He is looking at "regular" savings... so really a liquid place to put some money that he may need to use. To me -- that is different than "investing" or "playing in the stock market". I went back to re-read his question - and kinda went OOPS...

OKAY -- so even I keep cash (inside my Schwab account) that earns NOTHING... it just makes me feel good and I'm okay with that. BECAUSE the bulk of my dough is making me money. So to the OP'r - you're doing really really well with your RETIREMENT accounts! Kudos to you!

With your ordinary savings -- just figure out what makes you happy to have some emergency cash available. Hold that right where it is. Then take my advice and invest the excess in some - even one - dividend paying big name big cap stock. BTW -- that is NOT "playing" in the stock market. That is BRILLIANT investing.

Here's why I DO NOT LIKE mutual funds - You're paying them a fee to manage your money. When you break down a mutual fund... you'll find many are overlap invested. If you only have $2500 to invest -- then put that in McDonals - or Coke - or Kinder Morgan Partners - or Chevron.... your returns OVER TIME will be far better. It doesn't take any effort or brains to manage this. Next time you have $2500 - buy another good stock etc. In 10 years (saving just $2500 per year) you'll have your own "mutual fund" with NO fees. If you now have $100K in mutual funds - you're paying about 1 1/2% in fees... and over time that is compounded and affects your returns. Take you're $100K and buy 20 ($5K each) big name dividend payers - and pay NO FEES and you have the same exact investment. On $100K you should be able to "make" $5K a year in dividends invested conservatively - but you should also have CAPITAL GROWTH - so in 7 or 8 years - you should have $200K and be collecting $10K in dividends and so on. Remember that at retirement - you don't just suddenly withdraw all your money! You should live another 25 or 30 years... and that money should still be having capital appreciation! And the dividends should be GROWING in PERCENTAGE PAID. Example - McDonalds paid .38 a quarter in 2008.... they now pay .61 per quarter.... so the dividend is beating inflation and your retirement INCOME is growing without you having to do a dang thing!

NOW --- ABOUT "TIME" --- If you are 21 years old - and you save $2000 each year for 10 years and then you stop and do nothing from then 'til you retire -- you will have near 1 million dollars.

Money doubles about every 7 years -- so here's an example for time. First number is @ AGE

@ 21 $2000 - @ 28 $4000 - @ 35 $8000 -@ 42 $16,000 - @ 49 $32,000 - @ 56 $68,000 - @ 63 $136,000

That is 42 years -- so 21 plus 42 - is 63 (retirement age)... NOTE the last "double". That is HUGE!


IF you start this saving at 31 and save $2000 dollars until you retire - you'll have about HALF of that. So example:

@31 - $2000 @38 - $4000 @45 - $8,000 @52 - $16,000 @59 - $32,000

So you start to see how far behind you are with "LATE" savings/Investing?


Can you tell I like this stuff??:rofl: :woot:

Well this is one subject I know nothing about but really interested. I would like to purchase some long term stocks and not interested in trading. What should be my first step?
Maybe Greg can have a crash course on investing and how to use some tools

First step is to "SAVE" some money. Nobody can just save a hundred grand... but if you start saving $200 a month - that is $2400 per year! And if you read my example above -- you'll see that can grow into a hundred grand OVER TIME.

I tell my kids -- if somebody gives you $100 bucks for a gift. Blow half - and save half. BTW -- "Saving" is not saving to spend.... that is a different bucket.

If you need to save to spend (buy something) make that a different account. Save $100 a month - 50 to buy something - and 50 for REAL savings so you'll have money when you need it most. If you get a raise - or a bonus - SAVE IT.

The key to all of this -- is once you actually accumulate some savings -- you'll be amazed at the mind set CHANGE you'll see. You just won't want to piss it away - it takes some work and sacrifice to save - and all of a sudden you have 10 or 20 grand - blowing it on that new truck just doesn't seem to be as good of an idea. It becomes very satisfying to have "some money".

I knew Greg would have something to say...Good advice for you younger guys to start saving early, Cut back on the weekend parting..LOL. Fifty bucks a week will be alot in 30yrs.

Tracy --

I think that is the biggest "mind set" that has to change for people to become better money managers.... The thought is -- I can't save "enough" or I don't have $500 to save. Yep - you're right - and you'll never have $500 if you don't start by saving $50! Save $50 a month and in less than a year you'll have $500!

I'm using really low numbers so people just need to slug in their own. A guy making $80 grand a year - should be able to save $500 a month. Dude! That's 6 grand a year! That 6 grand in 42 years is $336K!!

$336K at 6% dividend (what AT&T pays currently) is 20K per year in dividends -- and if you figure that is a return on the 6K you originally invested... I'd say that's a pretty damn good return! Save 6k ONCE @ 21 years old - and you get back 20K every year for the rest of your life when you hit 63 years old! Not bad!

Wanna really make a difference in your KIDS lives??

When they're born - put a grand away - add a grand every year til they're 63 years old...

Net result at retirement compounded at 9% (so you need 6% reinvested dividend AND capital growth of 3% a year - this is super super conservative and not even realistic! It should be far more over time!)

If you were a long term investor, the worst twenty years delivered a return of 7% a year. This occurred over the twenty years ending in February 2009. The best twenty years delivered an average return of 18% a year, which occurred over the twenty years ending in March 2000.

$2,976,771.57


Tax free MUNI BOND return on that balance PER YEAR at what I earn currently (5%) -- that's $150,000 in income per year NET NET TAX FREE off your silly little $1,000 per year from birth.

WAY better than college!

The one point I will make about mutual funds is there are many on the list I posted with acceptable management fees, in the 0.02-0.6% range that perform well and get you instant diversification to an extent. In fact, all the funds on that list have to meet certain strict criteria including management fees. A professional stock picker with vast resources has to only outperform you doing it alone by the management fee he charges for you to be money ahead. Personally I wouldn't feel comfortable putting my first few thousand bucks in one stock, no matter how big or established it is but there are many ways to do this right. It's more important I think that you're doing it than it is how you're doing it but it's also important to make wise educated choices that suit your comfort level.

Greg makes a very good point about time. The general rule (not sure it's my rule) is to be more into stocks the younger you are as you have time to recover from a downturn. As you age you slowly get more conservative by transitioning to bonds. A withdrawl rate of 4% of your retirement account balance per year is a common number to ensure you don't outlive your money. You can use this handy calculator to figure how to achieve your retirement goals:

http://cgi.money.cnn.com/tools/retir...entplanner.jsp

I think Greg's best point is about how you FEEL when you begin to build up a savings. :thumbsup: Once you begin to see a growing balance in there you develop a respect for the money and work harder to make it grow.

Good points Erik...

Especially the one that you make about it doesn't matter so much how you're doing it - but that you ARE doing it.

Mutual Funds have their place - and most people feel more comfortable letting the pro pick. Nothing wrong whatsoever about this form of investing. But I will point out that PICKING THE RIGHT Mutual Fund is every bit as hard - and as important as picking the right individual stock. Most people just don't understand = nor can name their mutual fund = which means they can not follow (at all) a mutual fund. They tend to buy and hold and not go back and see what's up -- UNTIL they notice they're down 30% from the prior year. Then they SELL -- and then they buy the next mutual fund that had the best performance from the last period. THAT my friends is the fastest way to lose your ass... I see it happen CONSTANTLY.... people wake up and they get their statement and they're down - they panic and sell (at the bottom) and they then "re-invest" at the top. 99% can't even tell you why they bought what they did - nor tell you the top 3 holdings in the fund.

I like the "pride of ownership" of saying -- Yeah -- I own "such and such"... and it's easy to name the 5 or 6 you own - and it's easy to understand and or to hold through a down period because you actually know what they are and why you bought them.

When the market SUCKS --- I remind myself by looking at the stocks on a long term (10 years or 5 years) chart - and I see that - over time that line is low on the left and higher towards the right. Then I "skip the dips"... and I am reassured that I'm on the right course - OVER TIME.

There's all kinds of ways to get there -- you MUST just choose something that you can live with and JUST DO IT! That way there's no right or wrong way.

I think I need to go to the WELD SCHOOL OF INVESTING! I wish I understood my investments a little better. All good info that I will look over again once I have my portfolio in front of me.

Thanks Greg. You're correct, this is my savings and I feel I have enough to play with as well as keep on hand should an emergency arise. That's why I called it investing 102. I felt like I had my retirement stuff set up correctly and in their appropriate accounts and wanted to venture into the next thing which I consider less conservative or more risky. Yet, I don't know squat about that stuff so I figured I better ask. This is money I will eventually spend on a house or car stuff I believe so I don't want anything risky. I just want better than 0.80% lol. Besides, who knows how long it'll be before I can actually spend it on a car or house. By that time, I may just leave it well enough alone and start the car fund over again.

For what it's worth, my Roth IRA is through Vanguard and it's their Star account which is a very low management fee mutual fund. I'd have to look it up as to how it's diversified through stocks, foreign and domestic, and bonds. I couldn't begin to tell you what particular companies or bonds the money is in though. Its doing just fine for me though considering it's a long term deal.

Also, I'm 31 and started the Roth at 26 but didn't necessarily max it out at 5k every year.

I'm glad to see others getting some information and knowledge out of these posts as well. That was my intent and I'm glad it's working out that way.

This thread is a better read than most. Better than most stock watch sites. Easy to understand advice from a person who lives it not someone trying to sell it. Thanks Mr Weld....more please LOL

+ 1 :)

Hey Greg, have you ever thought of writing a book lol? So far I've focused on property which I really enjoy and I'm comfortable with. I can tell it's not the route you'd take but I am looking to put a small amount of funds (say 20K) into stocks but dont feel confident enough to go ahead yet.

I'm hands on so would be managing things myself...what literature would you suggest I delve into to boost my confidence/knowlegde? Maybe like a "stock market for dummies" type book or similar, heck any knowledge source for a newby would be a start.

Thanks for your contribution to the thread :hail:

Are you saying you don't believe in the concept of a guaranteed, low-interest fund even for people who don't need an emergency fund? I'm assuming this applies to a person who can meet their current obligations WITHOUT employment or having to pull from their other investment buckets.

All you have to do is read what I've already written -- that is INVESTING FOR DUMMIES 102 right there!

Can't make it much simpler...

Open an account - with a discount brokerage.... put some money in it.

Buy some big name big cap stocks that pay you a dividend.

Get more money - add to your account -- and repeat the above.

Whether you have a little money, or a boat load, the principles still apply... buy good names - diversify - don't get greedy - keep your investments to 5 ish percent so no single investment can hurt you in the event it goes down and or is a loss (think ENRON -- Too big too fail - BS!)

I have a Schwab account - it has a boat load of dough in it - but I still only own 21 stocks in the account. I don't need a lot of stocks - I just need good ones. I take a bit more risk because I can afford to. SO while I have McDonalds - I also own JNK - HYG - and NLY. That is an entirely different level of investing and not suitable for most on here if you're asking these basic questions. I live off my dividends and bond income. I raise my dividend income "average" by taking some positions that are riskier - therefore they pay higher dividends. SO my COKE (KO) is offset with some Annaly Capital Management (NLY).

My biggest gainers so far this year ---

Phillip Morse -- cigarettes! = Symbol PM - pays approx 4.7%

Altria -- more smoke... symbol is MO - pays approx 6.4%

Kinder Morgan Partners - oil and gas pipelines -- symbol KMP - pays 6.2%

McDonalds - junk food - symbol MCD - pays 3.3%

Con Edison - power - symbol ED - pays 4.8%

I offset the 3% stuff with the high risk as mentioned above - Annaly pays like 14%... I can afford to play that game I'm not trying to build capital or increase my retirement account... so don't you guys go there.

Just go to YAHOO finance -- or Google finance -- and put in those symbols -- then go to a chart and look at 5 year or 10 year or whatever they'll let you choose for time -- and look at the chart for each one. You'll see all manor of ups and downs in the squiggly line -- but the basic course over time is UP... so if you can train yourself to IGNORE the "noise" = hold steady - don't freak out - collect those dividends -- add to your account when its down the most and buy MORE stock when it's DOWN... YOU WILL BE REWARDED in time.

Well Neil -- the biggest statement in here is that everything in investing "needs to be adjusted to suit the needs of the individual investor". So a guy that has no bills - has plenty of income - has plenty of cash -- is an entirely different scenario than someone that IS NOT in that enviable position.

Personally I ALWAYS have a buttload of cash on hand. Cash is king. It allows me to buy something on a moments notice and NOT have to sell something in order to raise the cash. A real life for instance.... happened in the last week... my brother in law wants to buy a 4,000 square foot building - it's brand new - bank owned - cost 600K to build in 2010 - bank is asking 450K - I told Jay to offer 300K all cash close in a week... their counter was 335K --- BAM - Done deal. I'll carry that paper for 6%. What I DID NOT have to do was fret over what to sell in a down market - so I did NOT have to take a loss on something in order to take advantage of this "deal". I'm in a completely different "place". But it's still the same thing with different zeros... Maybe a little cash stash comes in handy to buy tires that are on sale and you need.... or whatever. The statement "you can never have too much cash" --- is only true for a guy that only has $500.... because cash doesn't make any money at current rates. But having "some" is always better than not. It just has to suit your comfort level. The rest should be making you money.

Think of money as employees -- every dollar is ONE employee.... they need to be WORKING to make you some money. Some of them are slackers - some need to be re-trained (sold to buy something else) and some are truly in a league by themselves (keepers). BUT YOU NEVER GIVE 'EM A DAY OFF IF YOU DON'T HAVE TO!:woot:

You just need to keep working.... You ain't retiring 'til you're finished with "da bubble". :unibrow: :D

very good read Greg, thanks......:thumbsup:

Okay - So I was re-reading my latest posts -- to make sure the verbage was generally correct...

I want to add some info - because this whole discussion also involves RETIREMENT --- some of you are young bucks with TIME on your side. Some of us - sadly - are far older and or already retired. Personally I'm 58 "already".... so I have an equal amount of investment in TAX FREE MUNI BONDS. That is a separate account - and is professionally managed. I don't understand the bond market - I don't want to learn it - it's BORING - but takes some skills to understand all the nuances. I have a LADDERED bond portfolio - it's laddered out 5 years. There is NO GROWTH in the capital (if you're not trading them - which I'm not). There is RELATIVE SAFETY in a bond portfolio - if a bond is held til "term" you get your investment back 100% - and in the meantime you collect an INTEREST PAYMENT (usually every 6 months on bonds). So this portfolio is - to me - SUPER SAFE - and just throws off income that is tax free. For the tax free part - I get LESS income than I could get if I bought stocks or something else... but that is where the pro comes in - he'll do the math and let's say you could make 7% TAXABLE -- then 4% TAX FREE is the same "net". WHAT BONDS DO NOT DO is they don't grow the capital. AND they can lose big time if interest rates are against you. THAT is why I'm only out 5 years and I'm LADDERED. Each year 20 % of the portfolio comes due so we re-invest that cash in the next one year out. EXAMPLE

1,000,000 invested in bonds due 2012
1,000,000 invested in bonds due 2013
do this out til 2015

The bonds due in 2012 will be re-invested in bonds due in 2016
The bonds due in 2013 will be re-invested in bonds due in 2017

and so on.

I just checked -- there are 81 individual bonds in my account and 13 "preferred" stocks (preferreds pay a higher interest rate but are really just like stocks and are taxed - not tax free).

Bonds are what you vote on -- say -- They want to build a new school and there is a SCHOOL BOND on the ballot - authorizing your county to issue "X" amount of bonds at "X" rate - Due "X" time (maturity)... you voted YES -- so the county sells the bonds - I buy some... and they pay me interest and give me back my principal when they "mature".

What happens to the "FACE VALUE" of a bond if interest goes UP? The face value of your bond goes DOWN. SO a bond that pays 5% and you have 100K in it - and now interest rates are 6%.... and I want to SELL my bond. I'd have to discount the price til the buyer gets a return of 6% on that same bond - even though the "issuer" is only paying 5%. But that 5% coupon was on the original 100K -- if the guy only pays 90K for it - it's like he's getting 6%.

I don't buy and sell bonds -- some do. I actually have a nice gain on almost every single one of them in my account - but THAT is not why I bought them - I bought them for the income they produce and I'm happy with that. SO I'll sit on them and do as I said above.

OLDER people need some bonds in their accounts -- they're safe (unless they're issued by Greece or Italy! LOL)... and usually will "counter" the stock market. So on big down days in the stock market - my bond account will be UP. And vice versa. Not dollar for dollar - but it HELPS balance out your total investment. I've never owned bonds until last year. Never felt I needed them. I was apartments - and stocks. But now - I've actually come to see that they "fit" what we're doing NOW.

I don't think anyone needs bonds until they're really quite well set. Stocks will get you where you need to be over the long run. Even if you're 64 you're not going to cash out "what got you there" (stocks) and suddenly go into all bonds. People with big incomes need bonds - remember that tax free status - that really helps bring down a high earners "income tax" liability -- but now we're getting into that whole 1% vs 99% thing and it's just a lot more complicated than that. If there wasn't a bond market - you wouldn't have new schools or fire stations - or stadiums - or streets.... but we digress. :cheers:


And I said I wasn't going to write a book!! :willy: :lol:

I sure hope this helps some folks understand what is "scary" to them. Because it shouldn't be. The problem is - people are reluctant to discuss finances and they shouldn't be. Everybody is different - some guys like SBC and some guys like Mopars = it's all good - and just like cars - finances need to be tailored to suit each persons requirements and what they're comfortable doing.

I have a buddy that has been in bonds for 30 years -- in my opinion -- he's lost his ass and could be so much more wealthy had he invested even half in stocks... but it's what he's comfortable with - so I don't try to make him see the light. The MAIN POINT is that he's doing SOMETHING - and anything is better than nothing.

Now is a good time to get in theres a lot of undervalued stuff out there.

If you have cash then buy real estate while its cheap and rent it out. I try to find major fixers and remodel them myself then rent them. These are usually foreclosed homes or REOs.

Example:

2 bdr/2 bath condo with flood damage. Worth 130-140K
Purchase price $80K
Escrow fees $1500
Remodel cost $12K

End Result $93,500

Rents for $1550
HOA/Prop Tax/Ins -368
Net Result Cash flow $1182

Thats a 16-17% Return on Investment. The problem is you need to search MLS everyday and make offers as soon as they get listed. This only works with cash deals. If you are getting mortgage loans to do this then you probably will not be positive since you have to pay interest up front.

You can definitely do it with a mortgage, and I'm no expert, just getting started in this area myself but look at the same example property, but financing it and you can see how you can put your money to work.

If instead of paying cash outright for an 80k property (then 12k in repairs), you can buy four places @ 20% each (64k total), and then do say 10k or less in repairs each, and you would end up making very similar monthly cashflow (1295$), but you would build equity four times faster, aka putting your money to work for you. That is assuming 45% expenses and 8% vacancies.

Buying one outright is much lower risk, but buying four with a mortgage is not as risky as it may sound depending on an individuals circumstances. If a single house is unrented, you lose all of the cash flow, where if you have 4, you need two houses unrented at the same time to break even (the cash flow from one, covers the mortgage on an empty one).

I'm not in a position personally to get 4 places, so I'm looking at a triplex to get the same benefit of reducing my risk. The numbers from one example are like so:

List price: 144k
Down: 36k (my lender prefers 25%), 40k out of pocket total to purchase
Rent: 1800 (600x3)
Gross (minus 8% vacancy): 21,528$
- Expenses (50%): 11,808$
Net operating Income: 9,720$
- Mortgage (P&I): 6,470$
= Cash Flow before taxes: 3,250$

This results in a 9% return on the money I invest which is actually lower than what most people would desire for investment property.

I have a friend that lives in a 12 million dollar house -- he started (years ago) buying and fixing up single family rentals - while he and his wife owned and operated a restaurant. They worked their asses off late nights and burning the candle at both ends... After awhile they worked into duplexes and fourplexs...
Now they own HUNDREDS of apartment units - most in a the LLC style - where "investors" buy shares and get semi-annual interest payments - the investors all together own 49% and Ray owns 51% plus gets management fees etc.


The problem for "most" buying this type of property -- they don't have the skills or time to do the work themselves. That really complicates things -- or adds to the cost basis if you have to pay a pro - but LONG TERM - this is a great way to build wealth and cash flow. Pound that profit back into the next project - or pay off a couple early (20 years instead of 30) and you've got instant retirement savings and income. :cheers:

Wow..lots of good reading here!

I'm curious as to what the best way to save for college is. My wife and I have a little one on the way and want to start right away saving for their college fund. I'm wondering if a 529 plan is better or should I just buy big company stable stocks?

A 529 plan is definitely the way to go. Look at Utah's, it was one of the best when I was researching them a while back. Neveda's was also pretty good if I recall. You don't have to live in the state to invest in their plan either. If you do happen to live in a state with a good plan and invest in it, you get a state income tax deduction on your contributions but this is not a good enough reason to invest in your home state if another state has a better plan. A nice benefit to these plans is once they are set up, anyone like other family members can make conributions to the plan directly. Most of them also have automatic plans where the money gradually makes it's way into bond funds as the child gets closer to college age, or you can manage your choices yourself within the plan. Check out this link, and the entire website:

http://www.savingforcollege.com/intr...-529-plans.php

A measure I like to use for rental property when borrowing money to pay for it is it's CAP rate . (see here:http://en.wikipedia.org/wiki/Capitalization_rate). Basically, if you can borrow the money at a lower interest rate than the cap you are earning interest on the borrowed money. This in itself doesn't automatically make it a good investment though, it's just a starting point.

Example:
Property CAP rate 8%
Mortgage Interest Rate 6%

This 2% spread is what you are effectively earning on the borrowed money. The CAP rate is based on the current market value of the property though, not necessarily what you pay for it. Therefore, if the property goes up in value but the rents don't increase the CAP rate goes down which could mean less potential buyers if you want to sell. The flipside to that is if you are able to raise the rents and the market value doesn't increase the CAP rate goes up! Also, the higher the CAP rate, the more risky GENERALLY the property is. Upscale fancy Class A properties usually have a lower CAP rate but a more stable tenant base as well as "pride of ownership" and often times less risk than a Class C or D property which might have a higher CAP rate and cash flow every month but probably isn't something you want to show off to your Lat-G buddies :D

I live in CA and have 2 little ones (2 and 5). I set up 529s out of Utah when they were born (Utah has one of the lowest fee structures and there are no tax benefits using a CA 529). There are some limitations and/or penalties with 529s if the funds are not used and/or withdrawn (like if you overfunded the acct, kid decides not to go to college, life throws you a major curveball and you end up needing those funds due to illness, etc). You can roll any unused funds over to another family, but frankly, I am setting this bucket up for my kids' education. I am currently targeting a balance of ~$100k for each when they are 18. However, $25k per year may not be enough to cover an education when they are ready. So, I am supplementing the 529s with CA muni bond ladders. Personally, I would rather be underfunded in the 529 and have the flexibility of the bond ladder if needed. Just my 2 cents.