Reasonable Investment Plan

I just heard another sad story about someone who lost a lot of their nest egg during the Great Recession and can’t retire until they are 70 years old. This individual is now 60 and trying to figure out how to slow down and still maintain a sufficient salary to meet their goals. This situation likely occurred from either panicking in the middle of a market crash and cashing out or investing in risky assets. Stories like these still strike fear into the hearts of many americans as the doom and gloom mantra dominates the mainstream media headlines in this record setting bull market.

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Six Figures of Finance

We have six figure mortgages, car loans, student loans and sometimes credit card debt. The faster we get the these six figure debt instruments under control and Into the five figure range and eventually eliminated the better off our financial lives will be. Credit card debt would be the first and most important debt to get rid of because it is usually the highest interest rate debt. Student and car loan would be next and it depends on which one has the highest interest rate. Mortgages are usually tackled last because the interest rate is usually lower than other debt instruments and the mortgage interest can be deducted from taxes. What we should really be focusing on is reaching six figures in our retirement and brokerage accounts. When we reach six figures in these accounts the compounding magic really starts to take noticeable effect. Especially when coupled with reinvested dividend and steady consistent contributions.

The Market Cycle

 

I recently read Robert Kiyosaki’s, the author of Rich Dad, Poor Dad, recent article about the seven stages of a financial bubble which was first mentioned in Nobel Laureate Hyman Minsky’s 1982 book titled Can It Happen Again. The seven stages of a financial bubble as Robert Kiyosaki stated in his post are

  1. A financial shock Wave
  2. Acceleration
  3. Euphoria
  4. Financial Distress
  5. The Market Reverses, and the Boom Turns into a Bust.
  6. The Panic Begins.
  7. The White Knight Rides in occasionally.

Stage 1, the financial shock wave occurs when a financial disturbance causes a crisis. Examples include a war, substantial interest rate changes or new technology.

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Preservation Of Capital

Preservation of capital is one of the most important rules of investing. Just like the physician’s oath is to do no harm,  preservation of capital is the investors oath. Abstaining from negative returns and avoiding loosing it all on bad investments is the golden rule. This is probably the top reason why so many individuals fear getting into the market and end up sitting on the sidelines. I’m sure we have all heard the horror stories of people losing their shirts in realestate investing and the like. Continue reading “Preservation Of Capital”

How Many Stocks Should You Own?

I recently read a blog post on investment basecamp blog that addressed the question of how many stocks should an individual investor own. We all know and have heard diversification is the best method to minimize risk in the stock market. Some say diversify across all asset classes including commodities and currencies. According to the basecamp article the academics say that 90% of maximum diversity is obtained by owning a portfolio of 12- 18 stocks. Benjamin Graham recommend 5-25 stocks with each company being large, prominent and conservatively financed. John Keynes recommends 3-5 stocks that you know well and in the management of which you thoroughly believe. Warren Buffett says 5 to 10 stocks if you are able to understand business economics and able to find sensibly-priced companies that possess important long-term competitive advantages. If not Buffett is actually a big fan of indexing and Seth Klarman recommends 10 to 20 stocks that you know very well.
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Cryptocurrency For The FIRE Minded Investor

I know cryptocurrency is a very controversial topic to discuss as it pertains to investing. It seems to have been embraced more by the millennial and younger generations and shunned by generation X and older. Some would even dare to say it has no right to be discussed in the same light with financial independence, but as I discussed in my pervious post on investment strategies, I believe that 5 – 10% of your portfolio should be in risky assets of your choosing.

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The Perils of Micro Investing

Micro Investing is a great way to gain exposure to the stock market with as little as $1. Options for micro investing include acorn, stash, stockpile, M1 Finance and many more. You can use these websites and applications to invest in individual stocks or ETF’s. Some charge fees as little as 1- 2$ a month or a percentage of your portfolio and others like M1 Finance currently have no fees, but they do offer other products that they use to make money like loans and high interest rate savings and checking accounts.

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