Earned income is the hardest income to protect from financial predators and we need to do all we can to reduce our tax burden. One of the best ways to do this is to use your taxable investing account as tax efficiently as possible. This article will enable you to do just that.
Shares of stocks or index ETF should be bought or acquired in quantities of 10’s, 100’s and 1000’s of share. There are multiple ways to do this. You could limit the price of each stock or index ETF to $100 and just keep buying and dollar cost averaging until you have 10 shares. You could also microinvest and buy fractional shares. If for example you want to buy Amazon that costs $3K a share, you could buy 0.1 share or 10% of the share price a month until you have ten shares. If you were to continue to dollar cost average in this manner it would take approximately 10 years to accumulate 10 shares or you could buy an index fund and purchase thousands of fractional shares of stocks a year.
I wrote about the Investors owners contract in my last post, but this is my version of a passive investor contract that is meant for passive investors that invest in index mutual funds and index exchange traded funds.
The funny thing is, I could have titled this post “the best is yet to come”, the reason being is that we are in a bubble and I have no idea when or where the top is. But what I do know is that there will be a market crash of epic proportions on the horizon. Likely within the next 2-3 years or so. So what are we to do?
I was reading the White Coat investor’s blog the other day and he had written something that was very profound and it was a good gauge to test what level of investor you are. Here is the quote below
“I have often said that beginning investors have trouble following their plan at market lows, intermediate investors have trouble following their plan at market highs, and experienced investors follow their plan all the time. But that doesn’t mean that those experienced investors like the way it feels to be at market lows or at market highs.”
I recently read Robert Kiyosaki’s book titled Rich Dad’s guide to becoming rich and he stated in that book that in order to become rich and wealthy we need to be a good gambler and a good banker. What he means is that you have to be a good saver and also be able to take calculated risks. In order to have money to invest you have to live below your means and save the surplus. Then you have to identify your risk tolerance and pick an asset in which to invest in after of course having an emergency fund. You also have to be in position where you can afford to lose money so that it won’t set you back financially. You have to be in a position to take risks. That’s the whole idea behind being a good banker and setting up an emergency fund. It takes balance.
Sometimes it’s hard to do what’s important and what matters as it pertains to investing. It’s not the return on your investments that ultimately matter, but its if you’re able to stay the course in order to get that long term compounding interest that will double and even quadruple your investments every 10 years or so. You see, when it pertains to investing, the proverbial chicken does actually come before the egg; and if you’re after that golden egg then staying the course is how to get your hands on that golden egg laying chicken.
I recently wrote about having a reasonable investing plan and how important it is to have one, but It’s even more important to have an investment plan during times of market volatility than in bull markets. If not you may be investing speculatively and be unaware of it. Benjamin Graham once said The greatest danger investors face is acquiring speculative habits without realizing they have done so. This can happen so easily to many of us. The reasoning is simple. Because you see every battle is won before it’s fought and if you fail to plan then you will essentially plan to fail.