When I first began investing in college with the money I earned from odd jobs in high school, I had no idea what I was doing. Online investing was a new concept back in 1997 and I couldn’t believe I could randomly press some buttons to buy and sell stocks. I was hooked and would purposefully arrange my college classes around market hours to get in some feverish trades.
What took exhaustive summers of working minimum wage jobs to save what little money I had quickly got wiped out making ill-advised trades. One time I bought a software company named Macromedia which I thought was a bank. Another time I bought a graphics chip maker named TDFX at the absolute top. The good thing about only having $3,000 to my name is that the most I could lose is $3,000.
It’s been 17 years since I first made my first trade online, and I’ve developed a much more thorough and systematic approach to investing. During this time, I’ve literally made and lost hundreds of thousands of dollars in the process. When you lose money, you start cursing the world and your stupidity. Just look at all the folks who bought into the Facebook IPO hype at $38, Apple at $700+, and any Chinese internet stock a couple years ago. Oops!
If only I had some type of platform where I could trade with virtual currency as realistically as possible for a couple more years. Maybe, just maybe I wouldn’t have made as many investment errors as I did since college. Maybe I would have been smart and shorted the home builders in 2007. Maybe I would have hedged out my company stock during the crisis to make sure I don’t receive a double whammy of a lower bonus and a lower share price. Who knows for sure. What I do know is that if you plan on investing your own money,do as much due diligence as possible. You won’t know your true risk tolerance until your positions start going the wrong way.
For those of you who are inexperienced investors, I’m pleased to introduce a startup called Olim Dives. Olim Dives means “future wealth and prosperity” in Old Latin and was started by Ben Hubbard and Roshan Vani. Olim Dives is a social investing site which allows users to trade a virtual $100,000 as close to real life as possible. You can also share ideas, compete for prizes, and learn from fellow users in the process as it’s a social investing site. Where was this stock market game when I was growing up?!
A CONVERSATION WITH OLIM DIVES’ FOUNDER, BEN HUBBARD Read more…
The two week vacation to Hawaii was perfect except for one thing. My financial advisor from Citibank failed to call me the day a particular deal was closing as previously discussed. This investment offered between a 15% to 20% guaranteed return on the Dow Jones over four years if the Dow closes above the initial strike price plus any upside beyond the guarantee and a 10% downside buffer. I wanted to know whether the guaranteed return was 15%, 16%, 17%, 18%, 19%, or 20% to determine how much to invest. I already made up my mind that I would lob anywhere between $20,000 – $30,000 into this note.
Instead of getting a call on the day of closing, I get an e-mail two days after the close saying he got his calendars totally mixed up. Sigh. At least give a believable excuse! You know like, “I went binge drinking the night before and called in sick on Monday.”
Tim’s lack of follow up is costing me around $1,000 in paper gains in just a couple of weeks as the Dow has moved from 14,300 to over 15,000 at the moment. As an early retiree, I’m investing all the disposable income I’ve got because I’m looking for capital appreciation and income to help replace my lack of W2 income. Leaving cash in a money market account yielding 0.1% is a financial crime I refuse to commit.
Lesson learned. For those of you who are interested in an upcoming IPO and plan on going away for vacation, put in your IOI (indication of interest) before you leave and stagger your order size depending on the final price. My financial advisor might still forget to input the order, but at least there will be an e-mail trail indicating my IOI, and the firm can fill the order in arrears.
THE MAIN REASONS TO HAVE A FINANCIAL ADVISOR Read more…
View from Koko Head, Oahu
After rolling over my 401(k) into an IRA, I’d like to focus on potentially the single most beneficial reason why everyone should convert their 401(k) into an IRA after they leave their jobs: Rule 72(t).
Rule 72(t) allows for penalty-free withdrawals of your IRA account before the age of 59.5 provided that the IRA holder take at least five “substantially equal periodic payments” (SEPPs). The amount depends on the IRA owner’s life expectancy calculated with various IRS-approved methods.
Three IRS approved methods to calculate SEPP:
1) Required minimum distribution method: This method takes your current balance and divides it by your single life expectancy or joint life expectancy. Your payment is then recalculated each year with your account balance as of December 31st of the preceding year and your current life expectancy. With this method, your payments will change depending on your account value.
2) Fixed amortization method: This method amortizes your account balance over your single life expectancy, the uniform life expectancy table, or joint life expectancy with your oldest named beneficiary. Such a method is more stable.
3) Fixed annuitization method: This method uses an annuity factor to calculate your SEPP. It’s hard enough calculating life expectancy and portfolio performance, let alone forecast interest rates for annuities so let’s skip this method.
The most common withdrawal calculation method is #1. I’d like to use my example for how using Rule 72(t) can help an early retiree extract more income and lead a more comfortable financial life.
TAXES BAD, MORE INCOME GOOD Read more…
The stock markets surged to new highs on May 3, 2013 in large part because the Labor Department said the economy added 165,000 jobs in April, 15,000 more than consensus expectations. 15,000 is a rounding error in a nation of millions, but we’ll take it if we can see billions more wealth created!
Just think about this situation for a little bit. Is it not a little bit ironic that more jobs creates more stock market wealth, but once you have lots of stock market wealth you no longer have to work? I’m reminded about the parable of the Mexican fisherman who gets ridiculed by an executive with a fancy MBA for why the fisherman doesn’t want more than his catch. The whole point about investing our money is so that our money will one day work so hard for us that we don’t have to.
FORGET ABOUT THE SAME Read more…
The Nikkei 225 (Japan’s major index) is up over 60% since the election of Prime Minister Shinzo Abe on September 26, 2012. Abe has vowed to re-inflate the lagging Japanese economy with a target inflation of 2% through aggressive quantitative easing, setting negative real interest rates, and aggressive fiscal stimulus. So far, investors are in full belief of “Abenomics.”
One of the key results of effective quantitative easing is a depreciation of the Yen. The Yen has depreciated by around 25% vs. the USD and other major currencies. A weaker Yen is exactly what Japanese ministers need to reinvigorate Japan’s enormous export economy.
It’s apparent at least here in the US that Japanese electronics have waned with the rise of South Korean products from Samsung, KIA, and Hyundai. You wouldn’t be caught dead in a Hyundai 15 years ago. Now everything seems alright. Heck, the most popular YouTube sensation is PSY, a Korean pop singer.
Japanese electronics have always been considered of superior quality with premium pricing to boot. Now the difference in quality seems negligible at best, so prices must come down to stay competitive. A depreciating Yen is doing exactly that, while allowing manufacturers to save face by not cutting prices.
But let’s forget about the South Koreans for a while since they aren’t the Asian superpower the United States are worried about. Let’s try and get into the minds of the Chinese.
This past week I decided to convert my 401(k) into a rollover IRA and I’d like to share with you why. As I wrote in a previous article, I took profits in my 401(k) after the S&P 500 reached the 1,551-1,555 range. That’s a 9% gain for the year and inline with my 2013 forecast which now seems conservative with every pundit on the street calling for 1,600+. Where were their calls at the end of last year I don’t know. I guess it’s easy to get bullish after the market has made a strong move!
Given I no longer have earned income, I can no longer contribute to my 401(k). The market is fully valued in my opinion which means I see a greater risk of a pullback during the summer than continued gains. Even though my 401(k) has 40 or so mutual fund choices provided across various sectors, countries, and asset classes it isn’t enough for what I want to do.
THE BENEFITS OF ROLLING OVER TO AN IRA Read more…
We’ve got real estate tycoons and we’ve got stock market tycoons. We’ve even got wealthy bond investors such as PIMCO’s Bill Gross who pulls in over $100 million a year, but let’s forget about bonds for now. Now that everything is heading up, I’d like to have an open discussion on which asset class provides the the most amount of wealth over the long run.
With my net worth split roughly 40/30/30 between real estate, stocks, and CDs, you might assume that I like all three asset classes somewhat equally. The fact of the matter is I would much rather have 60% of my net worth in real estate, 35% in stocks, and 5% in CDs at this present time. Unfortunately, shifting one’s net worth around isn’t as easy as snapping one’s fingers. (See: “Recommended Net Worth Allocation By Age And Work Experience“)
It’s important to realize there are no renter or cash tycoons. The return on rent is always -100% every single month. Meanwhile, the return on cash averages a paltry 0.1% nationwide. You can certainly be a wealthy renter with tons of cash in the bank. But your wealth was accumulated through other means so don’t get confused. Having a money strength grade of F- is no way to go.
In this article I will explain to you why I have a preference for real estate over stocks (equities). Both have proven worthy of building great wealth over time, however real estate is going to provide the most return over the next 10 years in my opinion. I’ll do my best to make the case for both asset classes.
REASONS WHY REAL ESTATE IS BETTER THAN STOCKS Read more…