Tag Archives: investing

Investing – To Hold or Follow the Crowd?

The last few months had been a huge roller coaster ride when it comes to investing in stock markets. The increase in Covid-19 infection rate together with the economic conditions have such profound effect on the stock market that making a profit is a hit or miss.

Investing in stock market has its own inherent risk. One one hand you can earn some great money if you made the right choice. On another hand you can easily lose everything if you made the wrong choice.

If you follow my earlier posts, my investment strategy is a mix. I have a diversified portfolio to reduce the risk of losing all my investment. Besides investing in well known stable companies, I also invest in bonds and stocks. I only invest less than 30% of my assets in volatile stocks.

Here is what I noticed on my portfolio for the last 2 months. The stable companies such as Microsoft or Apple continue to do well. Stocks that pay dividends are also stable and had very little volatility. In fact I did not lose any values on these stocks, bonds and ETFs.

On the other hand, the stocks that go up and down the most are those that do not fall into any of the categories I noted above. Stocks such as meme stocks or those that do not pay dividends. Some of the stocks that I own are Pinterests, Snapchat and pharmaceutical companies. These stocks continue to lose value as more investors continue to buy and sell at higher volume. In total, my portfolio for this portion of the stocks did not do as well as I hope.

Luckily I diversified my portfolio that the risk for it to lose is minimal. In fact, I learned that by holding onto the stable stocks, I continue to make capital gain on them. Unfortunately, some of the value was negated by the volatile stocks.

Here is what I learned since I started investing actively. Sometimes it is safer and more profitable if you just invest in stable stocks and hold them forever. The value of these stocks continue to increase while stocks that are being bought and sold tend to lose value at a higher rate.

If you are interested in investing stock market, I highly recommend that you do some research on the stock market and the companies that you plan to invest in. Do diversify your portfolio to minimize the risks and finally if you want to “follow the crowd” do put only a small percentage of your portfolio on risky stocks.


Do These 5 Things with Your Money Now!

Would you buy this?

We are a spend culture where we tend to buy things we don’t need to satisfy our “wants” but we rarely think if they meet our “needs”. Obviously the money and our available disposable income is finite. Once you spend it, there is no buyer’s remorse. Some things you can return but often than not they come with a cost.

Today I’m not going to talk about what we can spend because that defeats the purpose of my blog, which is to plan for retirement. My goal as a financially responsible person is to be able to save enough so I can retire comfortably. That is easier to say than actually doing it. The best advise I can give is to start small and hopefully you will get a snowball effect whereby the money you save will continue to grow exponentially.

You are reading this probably you are very interested in investing your money or how to plan for retirement. Trust me it is never too early when it comes to these two subjects. I wished someone told me earlier or I could have been a millionaire (on paper) today.

Retirement Plan Contribution

Without a doubt, investing in retirement plan such as 401K plan or IRAs is the most important thing that any of us should do. The retirement plan will be your only source of income when you retire. If you still believe that Social Security benefits will be available by the time we retire, you will be in for a big surprise. The last time I read that Social Security Administration will be bankrupt by 2030 – that means all the contribution that we gave to SSA from our paychecks will disappear.

The retirement plans are what I consider out-of-sight/out-of-mind. Contributing to these funds is so seamless that you would hardly notice that it was taken out of your paycheck. The real benefit is the retirement plans are tied to stock market and historically it has been going up since the stock market was tracked. Naturally the amount you invested in the retirement plans will only go up. To give you a perspective, the average price Dow Jones index increased by a whopping 13,484% since 1930.

Investing in Stock Market

With the interest so low I’m not going to recommend saving your money in a high yield savings account. In the last several years, my combined savings in PMMA and CD of nearly $70 thousand only earned less than $200 annually. The money I invested in stock markets for the last 3 years in Robinhood has grown in value by almost 45%.

Investing in stock market has its risk but if history tells us anything, the risk can be mitigated if we understand it well. Additionally, my portfolio is telling me that the benefits outweigh the risk. So don’t wait. The earlier you invest the likelihood the value will increase is high. Before jumping head first, do read some of my posts earlier on how to mitigate the risks and what new investor should do.

Save in College Savings Plan

This is extremely helpful for anyone who have children. The college savings plan, also known as 529 account allows investor to invest in certain fixed funds and allow it to grow in value. When you need to pay for higher education, you can withdraw it without penalty tax free, as long as it is used to pay for education purpose.

The great thing about the 529 account is you can set it as recurring investment every month, again another out-of-sight/out-of-mind investment vehicle. My son started going to Rutgers University and I can tell you what a life saving the 529 account is. I believe the fund for my son account grown at least by 40% since I started investing 10 years ago.

Pay Off Credit Card Debt

Paying off debt is always the first advise any financial planner will tell you and it is no brainer. Debt, particularly credit cards, has interest rates that are usually high. This kind of debt eat in your disposable income by making the loan more expensive. For illustration purpose, the expensive handbag you purchase may have cost $4,000. By not paying the credit card in full, the cost of the handbag could become $6,000 depending on when you pay the debt off.

The biggest downside of not paying off credit card debt is the lost of income. Instead of paying off the interest on the credit cards, you could have used the money and invest in Apple stocks. Imagine the amount of money you could have made by investing in Apple stock 20 years ago. I did a quick calculation and its stock went up by about 3,900%.

Shop Smartly

This goes to back to my opening remarks, the “want” and the “need”. We all need a car for transportation purpose. However, do we need a car for convenient purpose or for self-image purpose? For example, a small SUV cost about $30,000 in today’s market while a Tesla Model X costs up to $90,000. The difference in $60,000 could be invested in stock market and let it group. There are just too many consumers who all into the “image” trap and never thought of their own personal finance. Most did not consider the additional cost of insurance and maintenance when it comes to expensive cars like the Tesla.

Understandably that purchasing something we don’t need gives us a sudden satisfaction. However, the feeling will go away very quickly and we are stuck with a huge debt that will need to be repaid.

Personal Budget vs Reality

Budget Finance Cash Fund Saving Accounting Concept

All of us heard about financial responsibility starts with a budget. We need to look at our take home pay and plan ahead for any expenses. While it is a good idea because it allows us to plan how much we can save. However, in reality how may of us can actually stick to the budget?

Having working full time for almost 30 years, I can tell you that I could never stick to my budget because it never works. There are always the unexpected expenses that threw the budget out the window. Expenses such as the car needs repair, the washing machine needs replacement or buying presents for birthday parties tend to appear unexpectedly. Having a budget is definitely a plus but it should be treated it as a guide more than a bible.

I was a financial analyst helping with the budgeting for a large accounting firm (heard of Arthur Andersen?) 15 years ago. Having spent 2 years in planning and budgeting for the Assurance practice in New York, I came to the conclusion that budgeting is a waste of time. Not only the team I worked for constantly reforecast the financials every month because we missed the budget, the actuals that were recorded in the financial statements never came close to the approved budget. Personal finance is very similar. The actuals at the end of every month is usually off from what what we intend to spend. There are several reasons why budgeting never works.

Time Consuming

To prepare a proper budget we need to gather all the expenses from prior years and plan what we want to spend based on prior history. Once you have the budget, we need to start tracking actuals spending to minute details in order to have an accurate picture of true expenses. The question is how many of us actually have the time to log everything in? There are apps or online tools that could help with the budgeting. Unfortunately, all of them require a considerable amount of time to maintain.

Always Wrong

As noted earlier, the unexpected expenses tend to appear and invalidate the budget. Because of this we need to spend more time to reforecast our budget so we do not miss our monthly goals. As we progress throughout the year, we soon realize that the numbers are off again and we need to re-budget again. It becomes a never ending cycle.

Not Bound to Anything

The biggest problem with budgeting is that it is not bound to anything or no one is measuring the budget but ourselves. Having a budget is great but what happens when we exceed our budget every month? Who is going to penalize us for going over the budget? No one. At the end of every month no one will be held accountable. Hence, the value in budgeting diminishes quickly.

So that begs the next question. How do we become financially responsible and plan for our future? The best answers I can give are use your best guess and plan only several months ahead. Additionally, always consider saving for the future a priority and everything else secondary.

Investing and Saving

This is a priority and something that we must to do first. We need to put as much as possible (or to the best of our ability) in investment vehicle such as 401(k) and IRAs. If you participate in your employer’s 401(k) plan, the money is automatically withdrawn from your paycheck and you never see it. If you have extra disposable income, consider invest it in Roth IRA or traditional IRA. Finally, putting those money in stocks that pay dividends will also allow you to generate passive income.

Fixed Expenses

Every month we are required to pay for fixed expenses. Some of these expenses include mortgage or rent, utilities and education expenses. You should be able to figure out these expenses relatively easy. Personally, I only put my mortgage expense as the only expense in this category because the amount is always the same every month. Utilities such as gas, water and telephone tend to vary by month – so I place them under other expenses.

Food Expenses

The second type of expense that takes a large chunk of my monthly expense is food. Prior to the pandemic I had to have a separate category called “eating out”. Nowadays, I just have grocery. The amount I pay every month is different so instead of using a set amount, I use an estimated total. Notice that I do not set a number because this category is “fungible” and it does go up or down because it depends on what type of food my family wants to eat at any given day.

Gifts and Unexpected Expenses

Holidays such as Christmas and birthdays also have a big impact on my annual expenses. I usually try to limit how much I am willing to spend on gifts. Other unexpected expenses that can’t be planned ahead are things (such as cars or appliances) that need to be fixed or increase in utility bills due to the weather.


Finally, I put taxes as the last item because they should not be in our mind as they are paid automatically from our paycheck. If you file your W4 with your employer correctly, you should not have to worry about paying taxes when you file your annual income tax. However, do prepare for any eventualities particularly if you have capital gain from sale of your stocks. Other taxes that could appear unexpectedly are increase in property taxes or if you are required to pay certain taxes when you withdrew money from your 401(k).

I believe budgeting is a great tool if you have time to do it correctly. However, you should use it as a guide and allow some breathing room when it comes to actual expenses. The most important thing that you should always remember to do is grow your money by saving as much as possible in certain investments vehicles. Don’t aim to buy that shiny new cars which is usually a large expense; aim to expand your portfolio as it will pay you in the long run.

Should You Take Risk?

A Wall Street sign is pictured outside the New York Stock Exchange in the Manhattan borough of New York City, New York, U.S., October 2, 2020. REUTERS/Carlo Allegri – RC2HAJ9BI6XP

The US economy, including the world’s are at a free fall because of the pandemic. Prior to the Covid-19, the US economy started to recover until we had an inept President. One of the results of all these is the interest rate, which is perhaps the lowest we have ever seen and will remain so for a long time. What this means is that it is cheaper to borrow money. On the downside, if you have money saved in any savings accounts, you are unlikely to get any interests from the banks.

What the pandemic has taught us is that we need to keep at least 3 months in a savings account for rainy days. However, the pandemic continues to go strong in every parts of the world. Some experts believe the old belief that having 3 months of cash to cover the cost of living is no longer enough. Now we need at least 6 to 9 months saved.

The question is where do we save the money. Saving the money under the carpet is a bad idea for obvious reason. Saving the money in the bank is the best choice. However, with the interest so low even the highest yield saving account could hardly pay any interest at all. How do we continue to generate passive income, in this case interest, that will help us to have a peace of mind in case we ever need that kind of money at times of need?

I was reading the December 2020 Kiplinger issue and one of the article suggests that we should adjust our investment portfolio and put more in stocks. If you read my earlier posts we need to be aware of the risk tolerance that we are willing to take. We should be more conservative by spreading our risk between bonds, ETFs and stocks. However, with the interests so low bonds hardly pay any dividends. Should we take more risks by divesting bonds and put more in stocks?

If you follow the stock market today (as of January 2021) it is doing the opposite from what the economy is telling us. There are more and more Americans filing for unemployment and there are more and more companies shutting down because of the Covid-19. Why is the market still going up? The stock prices for many stocks are perhaps at their highest we seen in the past decade.

Investing more in stocks become more intriguing because for the past year they continue to shoot up at an unprecedented pace. After Apple stocks split, it’s price continue to go up at a steady pace. Elon Musk because the richest man in the world as Tesla stocks went up by 100% after it splits its stocks. Now experts are saying we are at the cusp of market bubble.

The Kiplinger magazine is one of the magazines that I read every month and I’m surprised that it would suggest its readers to invest more in stocks at the time like this. Is there any truth or rationale for taking such a drastic step? As I ponder this question, I totally agree given what we know of the stock market today. As an example, I helped my wife to invest in stocks using Robinhood. Since October 2019, her portfolio increased by 63%, which is crazy.

Regardless, I will continue to take careful step when it comes to investing. While I have enough cash to cover my living expenses for the next 8 month, I continue to take a conservative approach and leave my portfolio unchanged. My portfolio is made up of 40% bonds and ETFs, 30% on reputable stocks that pay dividends and the remaining 30% of “play” money where I use it to flip. My strategy has been successful in that I am able to increase my portfolio by about 70% since I started investing in 2017.

Let me know if you will subscribe to the thought that investing in stocks better today? Or are you willing to take the risks in hopes that the stock market will continue to go up?

How to Minimize Risks for New Investors

Photo by Pixabay on Pexels.com

Investing is exciting but at the same time very risky. If you do it right you are able to get good return. Alternatively if you takes too much risk you could lose a lot more than you can afford. Risk management is a subject that everyone should know but more often than not this is not a well known subject among the mass.

In the old days stock investment was reserved for the rich and well versed professionals. That was before the popularity of computers where trading stocks require the expertise of stockbrokers. When someone needs to buy a stock they have to call their personal stockbroker to place an order. During this time the stockbroker may provide advise on the transactions. Hence, trading stocks was a risk managed by stockbrokers.

The advancement in technology changed all that; today anyone with a smartphone can place trade by simply pressing a few buttons on a tiny screen. Stock trading become accessible that the regular “Joe” can jump in the bandwagon. Therein lies the problem – most of them are not familiar with stock trading and may have taken in more risks than what they can afford.

I am not a professional in this area but having work in the financial industry for over 20 years I’ve spent enough of my time in reviewing, recognizing and understanding what are risks and how to mitigate them as much as possible. Notice that I said mitigate as much as possible? Well not all risk can be fully mitigated. All we could do is to minimize them up to a level that are acceptable. In other words, what is our risk tolerance.

New investors should consider the following points before investing to minimize risk. There are plenty of news and articles around highlighting how investing guarantee a return that never been seen before in years. Or how investing in “hot” stocks has produced many millionaires. Unfortunately every investors should know this and it is not norm. New investors should never let greed takes over common sense.

Investing Only What You Could Lose

This is a no brainer. You should only invest only assets that you could afford to lose. Never borrow money or use credit card to pay for the investment. This is extremely important because if the market takes a negative turn and becomes a bear market, the value of your holdings can drop at a faster rate. If you only invested only a portion of your “extra” money you are not sacrificing your livelihood. However, if you borrowed money from a lending institution to pay for the investment you are liable to repay the loan regardless on how bad the stock market is performing. If the stock market drops any further you could lose all your investment including your livelihood.

Do Not Put Everything in One Basket

We all heard about the “hot” stock. What do we do when we hear something that is too good to be true. We would invest all on that one stock. If that hot stock continues to go up then the return will be positive. However, all stock has its limit price and sooner or later it will hit the ceiling and start dropping. When that happens, investors of the stock will start panic and begin to dump the stock. In an instant you could see your asset begin to lose value very quick.

Many experts in stock trading advise diversify the portfolio. What that means is instead of just buying stocks, one should invest in bonds or other less risky investments such as mutual bonds. If one of the stocks begin free falling, the likelihood of all investment vehicles to fall at the same time is extremely unlikely. Hence, the risk of losing all the value of your investment is minimized.

Don’t Follow the Trend

If it is too good to be true, then it isn’t. Experts have tried to study the stock market for years and no one can come up with clear explanation why stock market fluctuates so much. History suggests that when the economy is bad it doesn’t mean that the stock market will do bad. In fact trends suggest the opposite. One recent example is when the COVID-19 pandemic hit the entire world various experts warned that the stock market will collapse. Instead the opposite occurred.

Sometimes there are news on how well one company’s stock is doing and there are a plenty of investors. This will create a buy frenzy and the stock of that company will go up. However, when news come out pointing the fact that the stock price is unsustainable, the stock price will instantly drop. One good example is stock price for Nikola. When news came out that Nikola may strike a deal with GM to produce electric trucks, the stock price for Nikola spiked. Recent news reported that Nikola founder committed fraud in its filing brought the stock price to a screeching halt.

Invest in Reputable Companies that Pay Dividend

One of the best ways to minimize risk is by investing in reputable companies that pay dividends. Reputable means the company has been around for years and continue to be relevant in today’s market. Some of the companies that come to mind are IBM, Apple, Microsoft or even John Deere. These companies continue to pay dividends regardless of the state of the economy.

On the other hand, you may not want to invest in companies that have been around for years but failed to adjust to the changing world. Some of these companies failed to adjust their businesses strategically and ultimately cost the demise of their business. Examples include Kodak, which failed to capitalize on the digital photography and Sears/Kmart that failed to adjust to the online presence.

Separate a Portion of Holdings as Play Money

All the points I raised above ultimately resulted in what I called “Play Money”. Stock investing is akin to gambling but legally. That’s why I separate my holdings in “safe” investment and “play” investment. Safe investment refers to less risky investment such as bonds and ETFs. Other safe investments include stocks that are more reliable and unlikely to fluctuate as much.

Play investments are those that are likely to fluctuate and rarely pay dividends. These are usually stocks that I use to flip. However, to be able to flip successfully you will still need to do some research to find out if you are going to make money or lose money. As an example, in the past 6 months I was able to double the holdings on Fastly by buying and selling the stock 3 separate times. Two other stocks that I was able to flip successfully were Snapchat and Pinterest. By separating my holdings I was able to minimize my risk knowing that at least 60% of my asset is safe.

Investing in stock market is exciting and at the same time nerve wrecking. There is no science that explain how the market performs. And there is no rhyme or reason why some company stocks are doing well while others are on the verge of collapse. The only we can do is minimize our exposure to the fluctuations as much as possible. Hopefully what I illustrate above provide an investment strategy that you can follow without worrying about losing it all.

Getting Funds for Investment (part 3)

It’s great that our financial market system is set-up to allow everyone the opportunity to build wealth. All the investment vehicles were tried and tested; some were more successful while some failed. We all know the financial market, particularly the stock market is made for the wealthy so getting the funds to invest is not a problem. But what about the 99% of us?

No More Coffee
No More Coffee!

We all received all kinds of advise on what to do with our money. Buy a house, invest in stocks, or maybe even invest in baseball cards. All of these require the funds (or disposable income) in order for them to become reality. Disposable income is defined as income remaining after deduction of taxes and other mandatory charges, available to be spent or saved as one wishes.

The question is how does anyone come up with the extra money when there are multitude of expense items that require our attention. I have the same challenges every month for the last 20 years. On top of the mortgage payment, there are utilities bills, groceries expenses and unexpected expenses. Over the years I learned of a few tricks that have helped me to come up with enough liquid asset that allow me to put some of them in investments. I hope this blog will help anyone who just started to earn wages to think about their future and how to come up with enough liquid asset to invest.

There are myriad of articles already exist out there showing strategies how to save money. I may repeat some of them here but mostly I will focus on how to prioritize the savings so much so that you don’t even know you are saving money. There will be some efforts and sacrifices made but they are for the benefits of your future. Thus, I would highly recommend that would consider some of methods in this blog.

Automatic Investment in 401k Retirement Fund

Most medium size and large companies offer 401k to their retirements. Some would offer the plan while others would match your contribution. If your companies offer matching contribution, you will want to max out the contribution and get the “free” money. The money you save in the retirement plan will continue to grow as long as the market continues to grow. The money you save in the plan will never go into deficit if you plan to withdraw it when you retire.

What happens if you have emergency need of cash? You can borrow against the retirement plan and repay it within certain period. If you fail to pay back the loan, you will need to pay a penalty and a hefty tax bill. Hence, any money you save in the retirement plan is considered “untouchable”. The good news is it will continue to grow and you never have to worry about it.

Annual Bonus and Tax Refund

At the end of every calendar year most companies will award bonus to their employees. Certain companies such as investment banks could award bonuses in the hundreds of thousands while some small companies would only give a few hundred dollars. While these are free monies, they are never actually “free” because they are usually taxed at a higher bracket.

Americans who start to earn wages are required by law to pay income tax to the federal and state governments. If you plan your tax correctly and input W4 appropriately, you should be able to get tax refund. Most Americans think the tax refund is a big payout and it is free. Instead of saving the refund, they will go on a spending spree. Tax that is being refunded to you is not free but your very own money. It is merely an over payment of taxes the previous year and the governments are just paying you back.

Instead of spending the bonus or tax refund, put them in a high-yield savings account, save them in emergency fund or invest them in either Roth IRA or traditional IRA. Better yet, if you have extra liquid assets available buy reputable equity stocks that pay dividends. These stocks will continue to generate passive income.

Automatic Deposit

Once you started working, most companies would encourage their employees to set-up a bank account because the wages would be automatically direct deposit to the bank. There are hardly any companies would pay wages in cash to cut administrative cost. Banks today are quite sophisticated in helping customers managing their money. On top of deposits, withdrawals and paying bills, most banks has a feature called “automatic transfer”. Everyone should use this feature to set up a periodic automatic transfer the wages you earn to a separate account. For example, after budgeting all my expenses, I was able to transfer $150 every pay period from my checking to my money market account. Instead of performing this task manually, I set up an automatic task that will transfer the funds twice a month. This method becomes so ingrained in my monthly budget that I hardly see the money but I know it is there should I ever need it.

A Penny Save is a Penny Earned

This is an old saying that is still true today. However, for this example, I’m not referring to saving your hard earned money in a savings account, which hardly pays any interest. I am referring to the actual pennies and changes you receive after a purchase. When we go our purchase anything with cash, it is extremely likely we will have changes in many denominations. And I can assure you that these coins will never be used again because they are real inconvenience and heavy to carry around. Save these coins in a container at home. Believe it or not in no time the coins will add up. Before the pandemic hit, my coins could easily amount to over $100 in 3 months. Once a year bring the coins to the bank and transfer it to an investment account.

Shop Smartly

Ever wonder why the brick and mortar stores are closing as fast as dead flies? Because more and more people are now shopping online. The benefit of purchasing online is it allows us as consumers to shop smartly. Apps today, such as Amazon or the Honey, enable us to look for deals before making any purchase. In turn, they allow us to save.

My family makes a lot of purchases online. If we find something that we like in the stores, we usually do not purchase the items right away. We would search Amazon to look for ratings and the price. The ratings will let us know if the items are reliable or if the price is right. This method allows us to cut our spending drastically. Another benefit is by not buying the item immediately allows to reconsider if the item is needed. It makes us question the need and want of the item thus further saving more money.

Eating Out

Eating out is one of the biggest expenses of any household. We are paying a price for the convenience of not cooking. My family used to eat out at least 4 nights a week. We gradually reduce it to 2 nights a week. The Coronavirus pandemic totally eliminate any chances of us eating out and I see our monthly expenses reduced by a third. Because of this I’ve been able to move the money that we did not use to the stocks.

I am going to use eating at a sushi restaurant as an example of price comparison. A roll of California roll at a restaurant costs between $5 to $8. On a sushi night, I would spend less than $15 in ingredients and make about 20 rolls of sushi. If I buy 20 rolls of sushi at a restaurant will probably cost me about $150 (taxes and tips included). That’s a $135 in savings!

No Gourmet Coffee

Prior to the pandemic hit I would see literally 20 to 30 people waiting for their coffee at Starbucks coffee. The prices for a beverage range from $3 to $8. There is a perception that Starbucks coffee are better then regular coffee and people are willing to pay premium for a cup of coffee. However, what people don’t realize that the coffee that they are getting is a big chunk of their monthly expenses. For example, using an average of $4 a cup of coffee you will have to pay about $120 a month to satisfy your cravings. Starbucks now offer k-cup coffee that you can make at home and they usually cost less than $1. That’s a $90 a month in saving that you can use to invest in.

I could go on forever to find funds to invest. At the end it is up to each one of us to take the initiatives to start saving and less spending. I am interested to hear from you of any other tips that work for you and help savings for the future.

Investment Priority (Part 2)

Grow Your Money

“Investment” is an umbrella term of giving your hard earned money to someone else in hope of multiplying the value after a set period of time. Investment includes many options. The question is what should you invest in?

As a disclaimer, I’m not an expert in financial markets and I’m not a Certified Financial Planner (CFP). The message that I’m conveying today is based on what I learned over the years and based on some of the research that I’ve done. Investing comes with risks and there is no guarantee that a positive return can be gained from investment.

The first investment vehicle that I was exposed to was 401k retirement plan from Arthur Andersen. As I started to pay for my taxes, I learned about Individual Retirement Account (IRA). Over time I was exposed to stocks and bonds. There were others such as Foreign Exchange, Options etc. The amount of investment vehicles that are available are mind boggling. How do we expect regular people like us to understand what they are and what they do.

The purpose of this blog is not to cover all investment vehicles but to highlight the minimum types of investments that everyone should invest in. Additionally, my goal is to clear up some of the confusions that many young people have when they were first exposed to investing their money. In the sea of investing options, which boat should you take that will bring you to your dream sunset? The bigger question is which boat will not sink because you put too much weight on it and which one will stay afloat.

I still remember the first day of working at Arthur Andersen. I was given the employee handbook along with employee benefits. One thing stood out was 401k retirement plan that Arthur Andersen was offering. The company was providing matching contribution up to 6% and the contribution was vested immediately. Two terms stood out, “matching contribution” and “vested immediately”. I had no clue what they meant but they peaked my interest. Upon further research, I realized that I can save for my retirement without lifting a finger and I was getting free money from the company. Additionally, the amount that I invested in the plan was immediately put into the market and start growing.

I thought that by investing 401k retirement plan that I would have enough to retire when I reach 65. Unbeknownst to me that 401k will only generate a very small portion the retirement income; I will need supplement income to enable me to retire comfortably. We live in the greatest age of financial markets where there were many before us thought of this question. In the past century many economists came up with all scenarios and many experts in this field came up with all kinds of solutions. The end results are new investment options were created. The government recognized this and several acts were enacted to assist retirees when they retire.

I began to dig a little deeper to find out what are other investment vehicles that will fulfill my retirement needs. I realized that investing is not only based on the types of investments but should also be based on age and risk tolerance. For example, if you are in your 30’s your risk tolerance will be higher then people who are in their 50’s. You would be willing to invest in stocks which carry higher risk of volatility than in bonds. Higher risk such as stocks usually generate higher return than bonds.

There is no magic numbers when it comes to what are the best combinations when it comes to investing. There are so many books and articles written on this subject. Some investors would prefer to invest heavily in stocks while some would prefer bonds. While some would invest everything in 401k only. And there are others who would risk everything in high return/high risk investment.

I started to deal with this question only when the economy collapsed during the housing bubble of 2008. I saw my 401k retirement plan dropped half of its value. I saw the stocks options that I received from my company at that time, Citigroup, dropped from $54 to $1. That was the worst time of my life and I realized that I may have to continue to work even when I retire.

To minimize the risks of losing money and to ensure stable return, I found out that I need to mix my investing strategies. I’m not 100% there yet because I continue to prioritize my personal finance. However, I do suggest that you prioritize your investment as follows:

  1. Invest in tax deferred qualified 401k retirement plan – Most companies today no longer offer pension plans because they are costly to companies to invest and maintain. However, most large companies offer 401k retirement plan. If you are working for a company that offer 401k retirement plan and also offer matching contribution, you should invest at the minimum to obtain the contribution from the company. They are considered “fringe benefits” because they are considered below the line expense item in the company’s balance sheet. This benefit is hidden from employee compensation package. If the employees don’t use it the company will just take it away. If possible, budget permitting, try to invest the maximum allowed by the IRS.
  2. Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement.  You will need to open an account and buy “shares” of the Roth IRA. The difference between Roth IRA and traditional IRA is you have to pay taxes when it is invested. You don’t have to pay taxes when it is time for retirement. Roth IRA and IRA are no offered by the companies that you work for. This type of investment can only be purchased through banks and investment companies. There are certain conditions that must be met for anyone to qualify under IRS rule.
  3. Traditional IRA is the next best thing. It is very similar to Roth IRA but the only difference is you will have to pay taxes when retirement comes and you have to sell it. The amount of tax depends on the amount of value of the IRA and the tax bracket when it is your retirement age. It could go both ways. There is a likely chance that the tax could be in your favor or you will be stuck with a high tax bill. Traditional IRA is available for everyone but not Roth IRA.
  4. The Exchange-Traded Funds (ETF) is also considered index funds, is basically a collection of a list of company stocks. It is also very similar to Mutual Funds but there are some fundamental differences. ETFs can be traded in the open market and most if not all ETFs pay quarterly dividend, which is a passive income. The major difference between ETFs and equity stock is the risk is lesser. The likelihood of ETF’s value drop to $0 is minimal while individual stocks could be easily wiped out depend on market condition.
  5. Company stocks which is also called equities is a lot riskier than bonds. The return generated from stocks are usually higher than bonds but they come with inherent risk of volatility. The movement of stocks depend on market conditions. However, history of stocks have been showing a lot more ups and downs. There are stocks that pay dividends on a quarterly basis while there are some stocks don’t. This is where I find investing in stocks appealing. I consider investing in stock to legalized gambling. You have to pick the right hands to win or you could lose all.
  6. My preference to stocks over bonds is because of their higher return. I would consider bonds to be a longer term investment. If you are still young, you may want to invest a small percentage in bond to ensure that you have a diversified portfolio. The bond will continue to grow and hopefully by the time you retire there is a large sum of money waiting for you. As you close to retirement, you would move a larger percentage into bonds to minimize the volatility of stock market.

There are other investment vehicles that I would not be discussing here as this will require a lot more than a blog. The recommendation that I proposed above should be considered closely by all because it is a start for a better future. The market condition today is ripe for the taking and history suggests that it will continue to go up. So don’t wait and start investing. You may ask where to come up with the money to start investing. Subscribe to my blog because this will be my next subject: how to save enough to begin investing?

Learn to Avoid the Biggest Mistake of My Life – Start Investing (Part 1)

There are certain things in life that you know you should have done but didn’t. When you realized that you made the mistake (or in this case not correcting it) it was too late because the time had passed and the ship had sailed.

Before you jumped into any conclusion, I’m not referring to something that I did and I regretted my decision. In this case I am referring to something that I didn’t do and now I regret it. I’m alluding to investing early for retirement and I’m hoping that anyone who reads this post and heed my advice and start investing.

I realized I made this mistake about 5 years ago when I noticed that I hardly earn any interest from all the money I saved in my savings. In fact, I have a large sum saved in the Preferred Money Market Account, which is supposed to pay higher interest than the regular savings. If I recall of the $50 K that I have in the account I earned less than $150 in interest. That got me thinking if I made the fatal mistake by putting everything in savings.

After I started working full-time I always put the money that I don’t use in savings. This is something that we learned at a very early age that we save all our money in bank using savings account. For the next 20 years working I continue to put all my money in the same account and it felt good seeing the balance keep adding up.

And was I wrong… I realized soon enough that I have been giving my money to the bank for use (that’s what bank does – it takes the money that lend it out or reinvest it) and I was not getting my fair share. Granted that this is not the only bank’s fault but also the economy itself. Banks will only pay the interest rate based on what the Federal Reserve Bank dictate. In turn the banks will use the government’s rate and unilaterally pay a much lower interest rate to the customers. I’m not an expert in this field so I won’t attempt to explain any further.

For the last several years I’ve been doing some reading and researching during my free time (like almost never). I read several articles on how many young people in their mid-30s become millionaires. In each articles they mention only one thing, “investing”.

For the purpose of this post, investing refers to buying stocks or bonds in the financial markets. I’m not referring to investing for retirement such as 401K or IRA because it is a very different subject. Investing comes with certain risks because the market can be volatile. You could invest $10 thousand today and you could lost all of them tomorrow.

I am currently reading a book titled “Quit Like a Millionaire” by Kristy Shen and Bryce Leung. The book talks about how to become a millionaire by investing smartly and find loopholes in the system. They are able to make their first million and quit their job. Using the income they earn from their investment they are able to travel the world 365 days a year.

Obviously I do not see myself quitting my job and just focus on investment. There is an inherent risk in this idea. Additionally, I have a family that I need to take care so quitting my job is out of the question. My short-term goal is to be able to earn passive income by investing in stock market. Ultimately I want to be able to retire comfortably without worrying if I am every able to pay my electricity bill.

As a declaration, I am not a financial planner nor a stockbroker. I am not in the position to give any investment advise. It is better to leave this to the professionals. In this post and subsequent post, I want to highlight several things I learned that I believe will be beneficial to anyone who wants a better financial outcome other than what Social Security can provide us.

Invest Early

Investing in stock market 5 or 10 years ago was reserved for the rich only. Anyone who wanted to invest in the stock market would need to have a large sum of money saved and would willing to pay a high commission to stockbrokers. The incentives to invest our hard earned money were not there.

Today is very different. New ideas and technology are popping up everywhere. That give rise to business model that allow regular people to invest in stock mark for free. The app that I use is Robinhood. Buy and sell stocks are easy and commission free. Hence, there is no reason not to invest. Obviously, before buying any stocks please do your homework and ensure you are not investing in risky stock.

Each stock have metrics and numbers to assist buyers in make the necessary determination. For someone who is new in stocks, I would highly recommend that you invest in reputable companies such as Microsoft, Apple or Disney. Keep in mind that while some companies are reputable, they may not do well in the market. For example, Macy, JC Penney and GE are some of the companies that you should stay way from. Keeping abreast of current news will help.

Next post I will touch on what to invest and what it means by diversification. Subscribe to my blog so you don’t miss any of my post. If you are interested in this subject I highly recommend that you Google it or do a deeper research.