Accumulate More Wealth With An Investing Game Plan

Investing Game PlanA 15% stock market drop in a week should have shaken everybody into developing a financial game plan. Doing nothing is considered one game plan. But doing nothing because you couldn’t be bothered to think about how scenarios might play out is really lazy. It’s better to be lucky, than good. However, what if you’re neither?

Since writing the post, Stock Market Meltdown Implications For Everyone, many of you have asked for specific advice on how to deploy your capital into the markets. Given everybody’s financial situation is different, I’m just going to suggest a five step framework, and use myself as an example. 

I’ve lost a ton of money in the markets before, having invested during the Asian financial crisis of 1997, the dotcom bubble of 2000, and the economic collapse of 2008-2009. What has helped me get through difficult investing periods is simply coming up with an investing game plan to account for different scenarios. The fear of investing gets minimized, and rational action takes over.

Stock Market Meltdown Implications For Everyone

Stock Market Meltdown1, 2, 3 panic! The US markets is experiencing one of its nastiest three-day falls in years with the Dow Jones Industrial Average dropping ~15% as global growth fears take hold. It doesn’t help matters that the Fed seems pretty adamant on raising the Fed Funds rate by the start of 2016 either.

It’s a good thing that most of us are super savers, have a diversified net worth, actively rebalance our portfolios, and haven’t confused brains for a bull market!

We’ve also been preparing for downturns all year with posts such as: “Are We In Another Financial Bubble,” and “Creating A More Defensive Portfolio With Bonds,” so I suspect most of us are doing just fine. But what about other people who might feel like jumping out the window because they went on margin? Or how about that starry-eyed person who thought the grass was greener at a startup?

In this post, I’d like to go through the implications for various types of people if there is a sustained market correction. It’s nice to say that all of this is really just noise since we’re investing for the long run. But over the next one-to-three years, a lot of things could change if the pummeling continues.

Besides, it’s always good to have plans for various scenarios, whether they come true or not. Let’s imagine a current scenario of a 20% correction in the stock market. 

Spray And Pray: The Cheapest Way To Invest In Real Estate

Spray And Pray InvestingIn early 2014 I got blown out of the water by an all cash buyer for one sweet property in the Sunset District. The asking price was $1.2 million, the median home price in San Francisco, and I offered $1.38 million. Given the agent representing me was the son of the listing agent (!), he gave me the inside scoop that $1.38 million wouldn’t cut it because the pole position offer was at $1.8 million! Although part of me thought he was just talking bullshit, I raised my offer to $1.5 million, hoping that the first place offer would drop out.

At the time, I thought to myself, what kind of crazy idiot would offer 50% over asking on a block where the next highest priced home was $1.4 million max? It turns out that his $1.8 million offer went through. Not only that, he proceeded to gut the house and spend another $250,000+ remodeling!

For a month I was feeling a little melancholy because I envisioned myself spending the next 5-10 years of my life in the home. You start thinking about what type of art you’ll put up on the walls, and which room is for whom. The house was in great condition as is. Buying property can get pretty emotional.

Still getting over my loss, I stumbled across another sweet property in Golden Gate Heights, a nicer neighborhood with more expansive ocean views. The asking price was $1.35 million for this 3 bedroom, 3 bathroom, 2,300 sqft house. It had two great decks, but the views were partially blocked by a massive pine tree out back.

The property was swarming with perspective buyers when I visited. Figuring I had no chance in hell to win, I didn’t even bother putting in an offer this time. I guessed it would easily go for at least $1.7 million if the other house went for $1.8 million. And I hadn’t sold enough books to have $1.7 million lying around.

The house went into contract in two weeks, and after a month of waiting, I found out the selling price was only $1.48 million! Holy crap! It went for $220,000 under what I thought it would sell for. Now I was even more dejected.

Investment Philosophies From Jack Bogle, Founder Of The Vanguard Group

Vanguard Group LogoJack Bogle is one of America’s iconic investors and I’m a fan. He is well known for founding and growing the second largest mutual fund company in the world, The Vanguard Group with over $3 trillion in assets under management.

You may be surprised to know that Bogle was actually fired from his first employer due to approving an “extremely unwise” merger that went south. Looking back, Bogle cites it as his biggest mistake. But sometimes mistakes lead to great opportunities:

When I was 38, I became head of Wellington Management, and I did an extremely unwise merger. I got wrapped up in the excitement of the go-go era, and the go-go era ended. As a result of that stupid decision, I got fired. The great thing about that mistake, which was shameful and inexcusable and a reflection of immaturity and confidence beyond what the facts justified, was that I learned a lot. And if I had not been fired then, there would not have been a Vanguard.” – Jack Bogle

What Happens When A P2P Borrower Stops Paying?

What Happens When A Prosper P2P Borrower Stops PayingI’ve been an investor with Prosper, a peer-to-peer (P2P) lending company since 2012. I usually check my account once a quarter to view my performance and to re-invest cash that has come in from borrower payments. Per my latest passive income update, the annualized return of all of the notes in my portfolio is 7.41%. Better than a swift kick in the nuts!

With rates expected to rise by perhaps as much as 2% over the next several years, I suspect the returns on P2P lending will also commensurately increase. As a result, I plan to allocate more of my free cash flow into Prosper in $10,000 increments. 

Passive Income Update For Financial Freedom 2016

Financial Samurai Passive Income Update 2015 - 2016 - Leaf On River by Kathy Kettner Creative CommonsIn early 2012, I made it a goal to try and achieve $200,000 a year in passive income by 2H 2015. The idea was to somehow make a large enough sum of money to comfortably provide for a family of three or four in Honolulu or San Francisco. With $200,000 a year, I wouldn’t have to go back to work ever again. Instead, I’d rest easy working on building Financial Samurai into a lifestyle business.

Creating a lifestyle business has always been a dream of mine because it helps mix entrepreneurial passion with the ultimate end goal: living a better life. Killing myself for the next 10 years to try to make something huge in order to live a nice life sounds a little backwards. Why not live a nice life now?

Growing passive to semi-passive income from ~$78,000 in 2012 to $200,000 is a daunting task, especially given our low interest rate environment. But when we write out our goals, I firmly believe we’ll figure out ways to eventually get there. Let’s see if I made it or not!

Why I Left Wall Street To Start A Fintech Company

Mike Furlong, Sliced Investing Co-founderThe following is a guest post by Sliced Investing co-founder, Mike Furlong. Sliced Investing is backed by Y Combinator, Khosla Ventures, TriplePoint Venture Growth, Data Collective, and Carnegie Mellon. I spent this past Spring consulting for them as I found their business objective of providing greater access to hedge funds and alternative investments through crowdsourcing highly intriguing. 

My first job was a rather humbling one. I worked at a country club where I caddied for super rich bankers and traders. They were living the good life most people just dream about. They had tons of money to own fancy cars, top of the line clubs, luxury watches, designer clothes, and me to wait on them.

Meanwhile I was making minimum wage, lugging their 50-pound bags on my back, and trying to keep a constant smile on my face while sweating like crazy in the summer humidity and blinding sun. I tried to be as accommodating as possible and give them suggestions on which clubs to use, but most of the time they did whatever they wanted to without listening to me.

Why Debt Welchers Are Admired

Greek Crisis, Santorini Church

Santorini, Greece

By voting “NO,” the Greek people have rejected austerity measures by the EU in order to receive bailout money to pay off their debts. It’s as if Greece gave a big middle finger to the EU!

It’s great that at least the people were able to vote on their future. You can see the jubilation in their eyes after the results were announced. However, the immediate consequence of the vote is an enormous amount of economic pain as foreign investors pull out, the stock market crashes, banks stop lending, retirement savings get trashed, and unemployment soars even higher. Ah, the sacrifices we make to stay free!

Unfortunately, all of us investors who have nothing to do with Greece will suffer as well. If you haven’t reviewed your asset allocation this year, I highly encourage you to do so today. The US stock market could easily correct by 10% as capital flees riskier asset classes.

The Greek people are not completely to blame for their economic woes. They simply operated in the confines of an inept government that promised too much. Voting for a politician who promises to give you a tax cut or allows you to retire by 50 with a lifetime pension makes logical sense. Who wouldn’t vote for such benefits?

Despite the upcoming difficulties for the Greek, we can look on the bright side. With close to a 200% national debt to GDP ratio, the Greek have been able to live way beyond their means for a very long time. And if you can get a debt haircut when it’s finally time to pay up, then all the better! Surely Portugal, Italy, and Spain are thinking of ways to gain more favorable debt terms with the EU as well. 

Creating A More Defensive Investment Portfolio With Bonds

Defensive Portfolio With BondsWith Greece and Puerto Rico on the brink of bankruptcy, stock market volatility has returned. Even US Treasury bonds have sold off with the 10-year yield moving from 1.7% to 2.4% due to a strengthening labor market and signs of inflationary pressure on the horizon. Usually US bonds rally and yields decline during times of uncertainty.

Due to such headwinds, it’s getting incredibly difficult to make healthy returns in the stock market. We’re going through an adjustment period as we always do when the Fed plans to raise interest rates. Yet, should they raise soon given the unrest abroad? The US Dollar has already strengthened to 1.10 USD:Euro from 1.4 USD:Euro in 2014.

If I were Fed Chair Janet Yellen, I’d wait to raise interest rates until 2016 at the earliest. Europe will hopefully get their act together by then! This post will review my Motif Investing portfolio and discuss what I plan to do next. Feel free to chime in.

Why Invest In Certificates of Deposit (CD) When Rates Are So Low

Porsche 911 Carrera 2013

CDs let me rest easy. Roughly 10% of my net worth is in CDs and other stable instruments currently yielding a blended rate of around 3.5% in 2H 2015. Even with rates so low, if I invest $250,000 at 2.3% I still earn $479 a month, which is a very nice chunk of guaranteed change for someone who no longer works for a living.

There are times when the 10-year yield might be yielding less than a similar duration CD. Look to invest in CDs to take advantage of such a spread. For example, the 10-year bond yield might yield 2.1%, while you can find 7-year CDs yielding 2.3%.