Dec 28, 2013

Taking Investment Ownership

Order of operation for short and long term savings should go something like this:
  1. Cushion the unexpected by saving six months worth of expenses for emergencies
  2. If family, life insurance
  3. 401K, contribute at least enough to score the full company match if your employer offers it
  4. Roth IRA, max limit is $5,500 per year, withdrawals are taxless
  5. Buy a house
  6. Stocks, bonds, mutual funds or gold
  7. If kids, then start a 529 college savings plan
Notice that retirement funding for self and spouse should come ahead of building a pot for your brat's education.  Also better to start on the 401K and Roth BEFORE buying a home.  The longer we wait saving for our hoary headed days, the more compound interest we forgo.  

I recommend letting the pros manage your 401K and Roth.  Principal is a solid retirement and investment company.

Let's talk about #6 above.  Over the past four years, I've transitioned to managing my own stocks via eTrade.  Generally, I buy $1,000 of stock from one company at a time.  After several years of throwing $1K at various companies, the portfolio starts to spread out and diversify.  I've got a range of corporations in there like the rusty but trusty General Electric and Ford to new tech, riskier bets like Tesla, Netflix and China Mobile.  

There is risk with going at stocks alone without the aid of a financial pro.  There is also expense in hiring a money manager to help and potentially paying tens of thousands of dollars in fees over the decades.  I'm willing to swallow the risk of self directed investing in the name of higher returns and lower fees.

I don't do bonds.  The payout is limp and doesn't even keep pace with inflation.  I'm 37, as I age and get closer to retirement, the stability of bonds will begin to look more attractive.

Enough talk, the numbers tell the story.  Below are the top 15 stocks in my portfolio.  The gain percent column over on the right, Netflix is at 418% and not slowing down.  Bought at $70 per share in 2010 and currently trading at $367:

The interesting part here is Netflix initially rose to a 300% gain.  Then quickly lost everything when the company raised subscription prices.  My stock was in the hole.  Then it slowly recovered after they introduced House of Cards and rose to 400%.  It could well crash again.  This is why I hold for the long haul, not selling anything until near retirement.  

Here are the bottom feeders, that -81% Chinese Kingold Jewelry fail may never recover:
Overall average of all my stock is 40%.

The day trader thing (buying and selling stocks daily) isn't for me.  Too time consuming and scary.  Note that holding stock for less than 12 months means capital gain is taxed at a higher rate, often 25% vs 15% (depends on your ordinary income tax rate).

Perhaps some people think only the wealthy or finance experts trade stocks.  I'm neither.  Take time to do the necessary homework to make informed buying decisions, then go for it.  Hold for the long haul, swallow hard on those down market days, and definitely don't allow emotion or fear prompt a premature sell. 

I don't have a large amount of money in the stock pot yet, but will continue adding consistently and eventually it should snowball.  Only regret is allowing uncertainty to hold me back...wish I'd started on individual stocks 10 years ago and at higher amounts.  

Taking ownership of your investments means your fee is only $10 per trade.  So whether I buy $500 of shares or $10,000, eTrade subtracts a flat $10 total, and no additional future fees.  That's a great deal!  

If you don't want to go at it alone, a no load mutual fund is a good way to invest with lower expenses.  Just realize that no load doesn't necessarily mean free, here's more on load vs. no load funds.  If you're okay with paying fees and want a well managed account, Vanguard Index Funds look tasty.

Once you get the hang of investing and become more comfortable with the daily ups-and-downs of the market, it's a lot of fun to research and buy shares.  Reconfiguring your purchase habits and invoking the slow bake method is a good way to come up with the money to buy stock.  Here's a recent example of my shift in thinking:

I want to purchase a $1,000 MacBook Air.  Rather than buying the laptop, I'll instead plant the $1K into shares of Apple stock and watch it sprout to $1,500.  As the stock rises in value, my desire to own the Mac shrinks.  If I'm still pining for the Apple, I'll wait until the shares double to $2K, sell the stock, then the computer is free.  Patience and putting a wet towel on instant gratification yields significant long term gains.
If readers are interested in opening a stock account but unsure how to get going, let me know in the comments.  If there's enough interest, I'll write a blow-by-blow post.  Pigtails wants to buy stock, I can take print screens of the process and share how we do it.



  1. Thank you for sharing! I would love a step by step post on how to set up an account, starting buying etc. We are not rich by any means, but I know we need to take more control of our financial future/retirement. Thank you!

  2. Anonymous12/28/2013

    I appreciate your e-mail and more info would be good. Thanks!

    1. Thank you for the sandwich.

  3. Thank you. I have always been interested in stocks but afraid that all of my money would go to fees. A step by step would be great.

  4. More info please! I would love to learn more about stocks and having my children purchase stocks at an early age.

    1. Often possible to double your stock investment every 8 years or so. If your kids purchase $1K of stock at age 10, it will compound to $4,000 by the time they're 25. Start with $2K and it will turn into $8K. The way I explain it to daughter is she can spend $20 today or invest it, wait and have $80 in a few years.

  5. A step-by-step on how to open an account and start investing would be awesome!


Thanks for the note, check back for my response!