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My boring investment style.

January 25th, 2011 at 08:14 pm

Back in my early 20's when I made the goal to retire early I realized I had to figure out how. I had to make my small amount of money work for me. My dad made his money in real estate, but he was able to do all the hands on work needed to keep the properties up and he liked dealing with people. I didn't have those abilities, nor wanted to learn them, so I knew I needed a different way. I read a ton of books and financial magazines on investing and came up with my personal investment style. I was not a financial guru, buying and selling individual stocks. I was a patient best pratices investor.

My first investment was stocks from the company I worked for. Employees could buy them at 15% off using up to 15% of your salary. I started small about 5% and then after a year I sold them. I made a profit. That was good so I reinvested and did it every year after that I worked for that company, maxing out what I could invest. Company stocks are the only individual stocks I ever bought and sold.

So here are the basic rules I used for my investment style.

1. Invest NOW! At the same time I was buying the company stocks I deliberately decided not to invest in the company 401K even though they matched 100% up to 6% of your salary. The reasons were because it locked up your money until you were 59 1/2, (which was an eternity for a 23 year old), and it took 5 years to become fully vested. You vested at a rate of 20%/year. I did not think I would work at that company for 5 years. 3 years later I finally woke up and realized that it didn't matter it I only worked there a year. I got 20% of the company money in a year, I got all of my money, plus interest, dividends etc and if I had started 3 years ago when I could have I would be 60% invested by now. So I started investing.

That's one of the things I've learned is Invest Now. There is never a perfect time to invest. The market may be going up, it may be going down, it doesn't matter if you are investing for the long term. Invest it now and in 10 years you will make money. Even if it's only in interest/dividends/capital gains.

2. Reinvest. The second thing I always did until I retired was reinvest all my dividends, interest and capital gains. Now that I'm retired I don't reinvest the money from my after tax accounts, since it doesn't make sense to pay taxes on that, reinvest, then turn around and take money from those accounts and pay more taxes on it as income. Money in my pre-tax accounts is still reinvested. I also made sure while I was working to pick tax-advantaged accounts to put after tax investments in, so the dividends and capital gains taxes weren't too high each year.

3. Diversify. I almost always invested in index funds. Generally I invested 50% in large cap funds, 25% in small cap funds, 20% in foreign funds and 5% in health care and 5% in REITs. The health care fund was the only one that wasn't an index fund.

4. Cost control. I couldn't control the costs of the funds invested in my 401K plans, but for plans I picked, I picked ones with low costs. Another reason for choosing index funds. I also picked funds with tax advantages to lower the cost of taxes. I fully invested in 401Ks and Roth IRAs as much as possible to take advantage of tax deductions and company matches.

5. Don't panic. I invested through at least 7 recessions or major downturns. I didn't panic and withdraw or quit monthly investing. I knew that stocks would rise again and I would regain the losses and so far I always have. Sometimes it takes 3 years, but usually I'm buying during (dollar-cost averaging) those 3 years so the average cost of shares remains good and I make money over the long term. When I started investing the DOW was somewhere around 400.

6. Automatic investment. I invested thru company plans as much as possible where they automatically took the money out of my paycheck and I never saw it. I also increased my investments every time I got a raise. I was already living on that income and managing so before I could get used to living on more income I would increase my investments and never notice the difference. Once I maxed out the company options it was harder to save and invest that money in funds each month. I usually reserved the funds each month in my tracking spreadsheet and once I got to a $1000 or so I would write a check and send it off.

The biggest thing was I started investing early and had 25 years for my investments to grow using compound interest.

That's basically it, all the boring things the investment books tell you to do. Buy high, sell low, invest for the long term, dollar-cost averaging, tax advantage funds, low investment costs, automatic investing. Boring, but it worked.

In the last 10 years I've met a lot of people who do day-trading and they always tell you about the huge amounts of money they made on a deal. But you never see any signs of that money long term, to me it's like gambling. I know 2 who used to tell me how much they made and both had to refinance their houses because they ended up losing so much. Refinancing when you are 50/60 is a bad deal.

I finished reading the library book Longeye by Sharon Lee and Steve Miller. Sci/Fi - pretty good.

6 Responses to “My boring investment style.”

  1. Apprentice Bliss Hunter Says:

    Thanks for the great post ! Very helpful to me. :-)

  2. creditcardfree Says:

    Excellent post!!

  3. Single Guy Says:

    Dow at 400. I looked online, and the last time the DJIA was below 500 was 1959. Have you been investing that long?

  4. retire@50 Says:

    Single Guy - my mistake, not sure where I got that 400 number. I guess it was closer to 800 when I started investing. Thanks.

  5. Savings Queen Says:

    Loved your simple, tried and true investing ideas. Thanks for the advice!

  6. Jerry Says:

    I like the advice, and it certainly seems to lead to success for you! Especially the part about not panicking... it seems that so many people want insurance that their investments will ONLY increase in value, 100 percent of the time, and that just is not realistic. Congrats on your efforts and for sharing the insights with others!
    Jerry

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