Investor Junkie
My Business and Financial Freedom Journey

Leave Investing To The Professionals

This interesting guest post is by Mr. Credit Card. While I (Investor Junkie) may not completely agree with his position, it’s a more common notion to let investment professionals perform the stock picking for you via actively managed funds.

I used to work in the financial industry and I can tell you that I know how difficult investing is. However, many folks are passionate about investing and most spend lots of time doing research and analysis. But in my opinion, unless you are a professional and paid to actually manage money, you are better off spending your time with other pursuits. In this post, I am going to list down the reasons why it is so difficult to actually to succeed as an amateur investor.

Why I Sold Stocks In My Taxable Account Today

I sold stock from my taxable account today.  I obviously don’t have to tell you about yesterday’s roller coaster ride in the market. I’ve had the feeling the market has gone too high too fast before this, and believe the market is not cheap right now.  I sold stocks today because of these reasons:

• I’ve had considerable gains in the stocks I owned (20%+ in one year)
• Believe the market is overbought with a somewhat high P/E ratio (approx 20)
• The stocks I sold have dividends and since they are in a taxable account will be subject to much higher tax rate next year
• The primary reason was to fully fund our Roth IRA accounts for the year

We are already 5% in cash with our retirement accounts.  I’ve made adjustments to our retirement accounts in the past few months, but I have not (nor will) make adjustments to them other than for some re-balancing.  I believe asset allocation is much more important than selling based upon emotional factors.

I’m taking the money from today’s sale and fully funding our Roth IRA accounts for 2010.   I’ve not mentioned this before, but our 2010 investment strategy is:

• Max out my wife’s 403(b) account (I don’t have a 401k or IRA setup within my company)
• Max out both our Roth IRA accounts
• Contribute $10,000 to our children’s NY State 529 accounts (since contributions up to $10k are tax deductible to the state)
• Invest $5-10,000 in US I Savings Bonds (I’m not sure the exact amount because I’m not crazy about the existing rate)
• All remaining funds invest within our taxable accounts

I eventually want to invest our taxable savings into real estate or another business.  I haven’t found anything suitable so far.  My thought is then take some of that taxable money off the table, and move into tax differed savings.

Ginnie Mae Investing

CD and money market accounts currently offer dismal returns.  What is an investor to do get higher returns, yet not drastically increase risk?  As I mentioned in my 4% Rule to Investing, Ginnie Maes are a good possible alternative.  Who is Ginnie and does she have anything to do with Fannie and Freddie?  Ginnie Mae, otherwise known as the Government National Mortgage Association, is a U.S. government-owned corporation within the Department of Housing and Urban Development (HUD).  Ginnie Mae provides guarantees on mortgage-backed securities (MBS) backed by federally insured or guaranteed loans, mainly loans issued by the Federal Housing Administration, Department of Veterans Affairs, Rural Housing Service, and Office of Public and Indian Housing. Ginnie Mae securities are the only MBS that are guaranteed by the United States government.  Ginnie Mae, which extracts fees for guaranteeing mortgage investors are repaid, is a smaller and more conservative player in the mortgage market than Fannie Mae and Freddie Mac were.

Morningstar Review

I’ve been a Morningstar premium member for about 6 years.  They are a great resource to help assist you in your investment decisions.  Originally they only reviewed mutual funds, but a few years ago added stocks to their reviews.  Personally I look at services like Morningstar as a way to help speed up my research.  You should always do your own investment research, and not take what anyone says as gospel.

Review of “The Investor’s Manifesto” by William Bernstein

Investor's Manifesto by William Bernstein

First let me say I am a big fan of his previous books “The Intelligent Asset Allocator” and “The Four Pillars of Investing”.  So don’t take anything I say as disliking his work.  On the contrary, I feel all three books are a MUST read primer for a good financial education!  Maybe one day I’ll go re-review the other two books.  William Bernstein, who is a neurosurgeon by trade, took the nebulous field of investing, and puts it into understandable terms.  He has a Money Magazine column and a web site (which unfortunately is updated sporadically).

Should I Buy Gold?

I had a friend of mine the other day ask me, “Is buying gold a good idea?”  He then quickly proceeded to ask, “Should I add gold to my portfolio?”  You might be wondering the same thing.  I believe gold and other commodities should be part of any well diversified portfolio.  If you have been reading any investment news lately, gold recently has hit an all time high, though recently slightly pulled back.  I believe it’s wise to own gold, and should be part of your long term investing.  I own gold coins, but also have gold based mutual funds and ETFs in our retirement accounts.  I’m not a “gold bug”.  Unlike Glenn Beck, I’m not believer that the world is going to hell in a hand basket, and you need the three Gs (guns, gold and god).  It’s more related to macro economic trends – these trends started early 2000′s, continue today, and appear it will to continue for the distant future.  With global monetary polices, it’s not a matter if we’ll have debasing of our currencies, it’s a matter of when and how much.

The 4% Rule to Investing

As you probably already know, returns on fixed rate investments are pretty bleak.  The Federal Reserve, since last year, has effectively set rates to zero.  This made traditionally safe investments (CDs, government bonds, and money market accounts, etc.) limited with their returns.  At the time of this writing, the only previously mentioned investments you can find higher than 4% is a 30-year treasury, and I’m not sure that’s a wise bet.

Does Net Worth Matter?

Photo Source: Phoney Nickle@Flickr

I see all of these financial blogs focusing on their net worth progress.  My question is, do I care?  Not do I care about what is their net worth, but do I care about monitoring my net worth?  It’s kinda neat being a voyeur, watching people discuss their net worth to the world, and maybe that’s the fascination.  It’s what the general public and media focus on. I think they are focusing on the wrong goal.