My Current Investing Ideas

Feb 3, 2015 by

money ideasA couple I know recently asked me for investing ideas, and I thought I’d share my reply here.

First though let’s all agree that appropriate investments and investing strategy are individual-specific and time-specific. What’s best for you depends on a lot of factors, including your age, income, amount of savings and how these funds are invested, risk tolerance, and goals. And what’s best for you today probably won’t be what’s best for you five or ten years from now.

To put my reply in context, here’s a profile of the couple who asked for my thoughts:

  • Early 50s in age.
  • His income puts them in the top marginal income tax bracket; she has no earned income that I know of.
  • Significant savings, managed by a professional financial advisor, so probably heavier into stocks than I would consider wise.
  • He’s aiming to retire in ~ 5 years.
  • Risk averse; a big portion of savings are in cash.
  • Live a high-cost lifestyle now, and I suspect they would not want to scale down a lot in retirement and may even want to scale up.

Here’s my reply, which took the form to some degree of ruminating on Ms. Money Counselor and my attitudes about and choices in the current investing environment. When people ask me questions like this one, I tend not to tell them what I think they should do but rather what we’re doing and why. To me this is sort of like showing someone how to fish rather than giving them a caught fish.

We were talking the other day about investments… as I mentioned, I struggle, and have struggled for many years, to identify any traditional investment that looks appealing. About 70% of all of our financial assets is in cash, and that’s more or less been the case for many years. In the interest rate environment that’s prevailed since 2008, cash really sucks, but I’m determined not to shoot myself in the foot by moving into something else purely because my cash earns ~1%. On the plus side, inflation is nearly non-existent too.

Sounds like we have similar goals—principal preservation and income. All the stocks we do own pay fat, and growing, dividends. And the businesses involved should be relatively stable, though of course there’s no guarantee of that.

In the conventional investment arena, I am very partial to Vanguard as a source of mutual funds and ETFs. A couple of investments I’ve wanted to get into for years and still want to are:

I’ve not bought into these yet because if and when interest rates normalize, these funds’ share prices will drop. Of course the “experts” have been predicting for 5 years now that interest rates will be rising ‘next year,’ and they’ve been consistently wrong. In fact, the 30-year US Treasury bond reached a record low yield today. Meanwhile the Dow Utilities stock index is at an all-time high. I wish now that I’d bought each of these 5 years ago, and 5 years from now I may wish I’d bought them today. It’s impossible to know. But when their share prices do start dropping because interest rates are rising, that process will be gradual, not a big drop in a day or a week.

If you want to take a bit more risk, I like these:

These ETFs’ share prices are also vulnerable to a rise in interest rates.

Outside of ‘wall street,’ we are always tempted to buy property here in our community. I won’t bore you with the pro and con arguments, but we haven’t yet been convinced to pull the trigger on anything. Obviously real estate investing is very location-specific, and you have to really understand the forces shaping a local real estate market.

I also very much like the concept of  buying an investment + income property in a spot we like to visit and so use it for a cheap vacation a couple of times a year too, the ‘vacation house for free’ idea that is the focus of a current HGTV show. Our challenge in going that route is that we feel like we’re on vacation here where we live much of the time. There aren’t many places we’d prefer to be, and there are few times of the year we’d like to be even in those places. I don’t want to be anywhere else March-October, but I could see maybe getting a place that’s sunny that we could use a couple of weeks in the winter. If I were to do it, I think Hawaii might be at the top of my list of venues.

Lots of people make good money just ‘landlording’—buy decent but not luxurious rental property and rent to the masses. Unless you want to employ a property manager (which sucks up a good chunk of your profit margin), being a landlord can be a major pain in the ass, so you have to have a tolerance, and talent, for that. This sort of endeavor would require serious analysis to help assure any potential investment will ‘cash flow.’

Mostly I look forward to the day, if it ever comes, when a guy can earn a decent interest rate on a CD or in a short-term bond fund, like the Vanguard Short-Term Bond ETF. Meanwhile, I try not to get frustrated with today’s return on cash and do something stupid. A good part of successful investing is not hitting home runs but avoiding strike outs, I think.

And in case you’re wondering, Money Counselor is not a Vanguard affiliate. 🙂

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