From a comment:
A post on financial preps would be interesting. 401(k) vs IRS vs Mutual Funds vs Whole Life Ins vs Individual Stocks vs REITs vs etc. etc. Go it alone vs use a broker, etc.
This isn’t a financial blog, and my education on finance is very limited, but someone asked me what my investment strategy is. It’s stupid simple, it’s probably wrong or inefficient, but…. this:
I buy mutual funds that have been around for at least 15-20 years (preferably longer) and have a history of average annual returns of at least 12% or greater.
Thats it.
Depending on who you read, the market averages 10-12% a year. If you just want to get that without doing any homework, go buy index funds…it’s a fire-and-forget turnkey way to get into the market. I’ve a few of them too. I’d like to beat the average because I want as much return as possible, so I buy funds that have a (long) history of beating that 12%. I don’t buy bonds, I don’t (usually) buy single stocks (except just for the fun of owning some Ruger or CocaCola), and I don’t dabble in ETF’s or REIT’s. I’m doing well on the mutual funds, they spit out some occasional dividends, there’s usually a nice LT Cap Gains distribution, and I’m in this for the long haul. I buy and hold.
How’s it worked out? Right now I’m holding nine different mutual funds. The best one has returned 72.97% on what I’ve put in so far, the worst has done 2.46%. Across all nine funds, I’ve gotten a 39.73% return. For comparison, there isn’t a savings account, CD, or money market that will return more than 1.5%. Assuming 4% for inflation, just leaving your money in the bank, in money markets, in CDs, or pretty much anything else is a losing proposition as inflation eats away your buying power.
“But Zero, what if the stock market crashes?”
Then I buy more. Because then everything is on sale. If you dumped everything back in March because you panicked, you would have missed out on the tremendous gains that followed. Ride it out. When the market crashed in 2008, if you had just ignored that and let it sit there you would have several times over your money. Ride it out.
And if the market crashes to zero never to recover? Thats where the silver, gold, and disposable handguns come in. I don’t put all my financial eggs in one basket.
No doubt someone with a lot more education than I will say “But you should….” and they might be right. And I may investigate that avenue. But for my limited understanding of the market, and my limited resources, and my rather high risk aversion, I think I’ve found a system that works for me. And, as you may have noticed, this is pretty much the Dave Ramsey school of investment: growth, growth and income, aggressive growth, and international mutual funds equally split.So far, it’s worked for me.
Whole life vs. Term? Get term.
Roth v. 401(k)? I like Roth. I like the notion of getting the taxes out of the way upfront and letting the growth be tax free.
Broker vs solo? I go solo but a broker would probably be smarter.
Learn how to use a TVM calculator. Just that one skill, and using it when you start thinking about money (saving, investing, borrowing, etc) will probably do more for you than a dozen self-help books on finance. How fast can I pay off my house if I add another $100 to each payment? TVM calculator. If the market is returning 10% on average, how much do I need to invest per month to have a million bucks in twenty years? TVM calculator. I wanna buy this $15000 truck and I need to borrow $5000 at 4%. What would my payment be to pay it off in a year? In nine months? In six months? TVM calculator. Its five minutes to learn and it’ll be among the most valuable five minutes you’ll ever spend.
The question said ‘financial preps’. Here’s what I do: money in investments, money in cash, money in metals and guns. Pay off the house. Carry no debt. Live within your means. Budget wisely and purposefully (actually do a budget!). Always put money in the bank before you do anything else with income. Have an emergency fund of at least six months of living expenses. Use the 4S rubric on purchases or other financial activity. Have multiple sources of income (a rental, a side business, a pension, etc). That’s how I try to live my life. I’m not 100% where I want to be financially (yet) but I’m leagues ahead of many people. 2020 has been a dumpster fire for many people financially, for me it’s been barely a hiccup. Not because I’m bulletproof financially, but I’m a lot more resilient than at least half the population and I’m working towards bulletproof every day.
So..there you go. You ask, I answered. Thats what I’m doing for me, and for me it’s working. YMMV.
Thank you for sharing that!
I recently started a EuroPacific Capital account (if you are familiar with Peter Schiff). He invests primarily in foreign stocks due to his bearish outlook on the U.S.
All good advice – I might add one caveat, given the Fed’s QE – infinity: Things will likely hold value more than paper. Yes, one should diversify out of the USA as well. But, bear in mind that the sovereign debt crisis is not limited to us. There is a generalized currency debasement going on around the globe. Except that it’s theft, it’s the logical thing to do. The Pols know that the debts chalked up are pretty much beyond their ability to pay. This has changed the balance of things somewhat. Since things are marginally more attractive than paper – the old “should I be in equities vs bonds” has moved in equity’s favor. Also, SPDRs like GLD can be an effective hedge, but bear in mind that one still doesn’t really own the underlying asset – one owns a promise. However, with the current premiums being demanded for physical gold/silver/palladium etc., sometimes a promise is all we can afford. Still cheaper than buying puts into the equity markets…
Way too complicated a subject to do this topic justice here. Suffice it to say – all of the old “rules” have changed – uncharted waters ahead.
It’s hard to know where to put your money. It’s obvious some form of inflation is just around the corner, since the government’s only solution is money printing.
Indeed – that is the $64 thousand question. The answer probably lies in what CZ has been saying all along – diversify. It’s easy to just say “buy a bunch of gold.” But, the prices on commodities can and are manipulated by those who have a lot more liquidity than us. I like some “stuff” as a hedge – beans, bullets, and maybe even some easily transported and converted assets – like precious metals. The last crisis around saw all the really rich folks buying arable land. I know a lot of folk that are doing the same thing now with tracts of timber that can be harvested and sold – and/or used. Remember though, many who bought the farmland last time got hammered when RE prices tanked. Stay nimble – and don’t accept anything as gospel – except the gospel. 🙂
Can you show any funds getting 12-15% over 15 years?
Hell of a record. Stock market appreciates 5-7 percent on average. We’ve been in a 12 year bull market, its easy to win in a bull market.
Anyone putting money into an index fund over the next 3 years is losing money in the short term.
Just go to your online brokerage and they usually will have some sort of ‘finder’ listing all the funds, then sort by highest average yield and then check to make sure its a fund thats been around a while.
“Anyone putting money into an index fund over the next 3 years is losing money in the short term.” The market is not for folks who want short-term. I buy with an eye on holding a looooooong time.
Yup. I followed that advice from our head of finance when I started my career.
Half would go into high yield/long term.
I did really well over the years until I retired the first time back in 11.
Now, because of the box I checked when I retired, I get a nice monthly payment until I die. (Or the economy takes a monster dump.)
A good overview of a simple, sound, strategy. I used it until I had enough that I brought in a manager.
As far as high yield mutual funds, I have one point to add – when looking at one with long term god returns, check how long the current management has been there; if there has been a recent change in management, there will be a change in returns – don’t assume they’ll stay the same.
There are a few high yield CDs and bank accounts out there, but as far as I know they aren’t open to the general public. For example, I have a 4.5% CD, but there are religious requirements to get it.
I put my money is high yield investments and leave it there. I’m considering another rental (I used to have one and sold it) but it probably won’t fit well with my current situation.
Once appoint a time you could make decent money with CDs and annuities but alas those days are gone. I dabbled a little in the crypto market, Bitcoin and Ethereum, and made some very decent returns but I didn’t understand how they work and got nervous about it so I got out
Thanks for your input.
I was listening to a radio guy and he actually opened a new way of thinking for me…
His premise is that you don’t want “savings” for retirement, as they can be destroyed in a number of ways (inflation, etc) what you want is “income” streams.
I didn’t grow up with an understanding of inflation as destroying the currency and a constant erosion of savings. I came to that fairly recently.
The idea that you are really looking for money coming to you that you can spend rather than holding money from the past and spending that, was an eye opener. I still see the value of savings, and having liquid reserves, but I’m now looking for income streams, particularly ones protected from the effects of inflation.
Rental properties in general looked pretty good, until the rent holidays and anti-landlord movements recently. Of course, never in a rent controlled area, and probably not traditional residential rentals either. Commercial property, short term vacation rentals, storage units, etc look much more attractive than housing. I have a friend in a beach city, who did VERY well buying an apartment building and then converting it all to short term vacation rentals.
Like most preps, anything is better than nothing, and simply saving money for later is the starting point. You can use that accumulated money in other ways though, than just slowly (or quickly) withdrawing it.
nick
nick touched on an important point that i would like to echo:
it isnt so much about net worth (tho thats a good measuring stick on how youre doing) but its about Cash Flow. especially true if you are looking at retirement investing.
there are many different ways to build up your financial situation. please study any direction that you are considering investing in Thoroughly and understand the ups and downs of each. we all have different tolerances to risk and different spending needs as well.
for long term, you cant beat a Roth. if i am wrong, PLEASE tell me how it can be done.
1 other point. early in my investing years, i figured out that if i liked a index/mutual fund i didnt have to buy it to reap its benefits (i avoid the pump and dump funds like the plague. i am a buy and hold guy also). their holdings are public information so i would just buy the stocks that they held in similar percentages. i always beat that fund because i started at least a percent or 2 ahead of them. i dont do funds or fund mimicking anymore fwiw.
This is the 4th quarter. You cannot assume the game will continue…..and continue……and continue in a linear motion.
Step back fifty or a hundred or two hundred or five hundred years. What worked and what didn’t.
Compound interest only works when there is someone on the opposite side of the trade.
If we are in the 4th quarter, why are you play 8th quarter ball?
Probably because after a hundred years we still have a market. But, if it eases your soul a bit, re-read the part where I say that I’m not putting all my eggs in one basket and also put it into cash and tangibles.
As for your Broker vs Do It Yourself…
I worked in Financial Services for one of the big mutual fund companies. Dealt with brokers from just about every company out there, 99.9% of them are salesmen first and foremost. What they know about anything is from the training sessions they get from their company and that focuses on the stuff that makes the most money for the brokerage.
The various license exams are all about the relevant laws, they don’t require any actual knowledge of portfolio theory or anything else.
I found myself explaining very basic stuff to brokers who had decades of experience and ridiculous amounts of money under management. They could sure sell…
There are a few good ones out there…but not many.
I’m not saying most of them are bad people or unethical (although some are) just that if you have read 2 or 3 books on investing you probably know more than they do.
On that note Andrew Tobias is a great financial writer, gives solid advice in a very rational format for the layperson. I’ve given dozens of copies of his book “The Only Investment Guide You’ll Ever Need” as graduation presents.
Thanks for a great post!
I’m investing in stocks: beef, chicken and vegetable. I’m going to be a bouillonaire!
Oh..dear…god….
Survival takes many angles to succeed, under covered by many BLOGS is financial survival. In my humble opinion you might consider the following, which is not as exciting as building a new gun yet MORE important initially. YMMV.
1.STAY out of Debt as much as Possible.
a. Pay of House mortgage ASAP.
b. Pay off ALL CC Debt, Do not pay interest $$$ if POSSIBLE, PAY off ANY loans or do without, so you don’t pay $ of extra interest.
c. Save for that rainy day, we all know how important that is.
2. Invest in Stock Market, INVEST for the Long term, Mutual funds are an easy choice. OUR country has issues but its not completely failing anytime soon.
a. MAX contribute to 401K, IRA or Roth IRA, ALL with benefits, each version does not fit everyone’s situation or the best for all users, rules apply but easily navigated to your benefit. Example, 1 well known Mutual fund, started 1967, its AVERAGE yearly return is 12.94%. That’s 50 plus yrs of outstanding returns., YEAR to date 28%, recovering even with the MARCH downturn.
b. BUY immediate and long term Beans, Bullets and Band-Aids but with caution, i.e., do you need another ounce of silver OR the next hot knife OR would that money be better spent on paying off mortgage. THINK: When debt free how many “things” you can buy.
c. Try gardening, reloading etc., can bring many rewards.
3. To hard core survivalist my ideas might seem sacrilegious, but how long have you heard the sky is falling BUT the world keeps churning on yr after year. Be prepared for the mundane parts of life.
4. All lives Matter.
5. Be smart, Follow the rules and follow Police commands, 99% of the time you don’t get shot. I’m not a professional investor, banker or Police Officer, but i know what i know.
6. America First