The last few weeks have been very interesting. The S&P has closed at record highs multiple times and cryptos continue to gain ground as gold lost traction.
The question is, if markets are high what should you do?
Well, the mantra goes "buy low, sell high" so the simple answer may be to buy into the product that has lost the most ground and has the most room for recovery, however that may not always be the case.
In marches our new President-Elect, like it or not (not). And with that comes a level of uncertainty as to what will happen with the national, and even global economy. How do you make stratiegic moves if you cannot know what general direction the new policies will drive us? Will regualtions continue to be relaxed and the Wall St. bonanza continue? Will that lead to a economic decline when the bubble pops, or can they keep delaying the inevitable?
The question for individual investors then becomes - in times of uncertainty, what should you do with your capital? Luckily you have a few options on the table.
You could put your money in gold, now that it has fallen over November. You could stack cash, build a CD ladder. You could delve into crypto if you have the time to learn the ins and outs of the ecosystem and feel comfortable. Or you could simply continue putting excess capital into markets.
I suppose one of the safest things to do, if you own a home, is to avoid buying securities, and instead pay down your mortgage with that money until you see how it plays out. However if the market keeps rising then you have missed those gains. Then again, if the market has a correction you will have avoided putting more of your immediate cash flow into it and mitigated some of your short term losses.
Those are exaples of things you could chose to do. Now, I'll tell you what I would do (keep in mind, this 100% does not mean you should do it!) If I owned a home, I would stop allocating my mothly reserves to markets / securities and instead use that excess capital to pay down my mortgage until the new President-Elect gets into office and we see what is going to happen. Then once policies are published and we understand their effects on the market place I would be in a good position to re-evaluate.
But GenY, you don't own a house and neither do I! So what are you actually going to do? Honestly I do not know. I suppose I'll continue making my small contribution to long term gold savings. And of course the mandatory portfolio will be contributed to. However, for the rest of my excess capital every month I am at an impass as to what to do with it. I suppose I will just open a 3 month 0.34% CD at Ally Bank and re evaluate when the CD expires. That goes against my principal of not keeping money in the bank, but where else should it go? Let me know in the comments below!
As part of my consolidation concerns expressed earlier I am attempting to move all of my taxable holdings into a single platform. However, account transfers come with a cost. So instead, I've decided to liquidate my Loyal3 holdings, when profitable, and migrate that money into Robin Hood. I will also be liquidating most of my individual stock holdings in preference of ETF's.
As such, here are some recent trades!
Total profit: $8.61 or +12%
Total profit: $105.67 or +51%
Total profit: $3.34 or +0.91%
No, we probably can't save the world like superman, or end all human suffering.
However, we can take steps to improve our global environment, and the best part is, it will also save you money!
Okay GenY you crazy rebels, you have my attention, how do we go about this?
Here is a list of simple yet powerful things we can do to improve the environment and save money from hardest on top to easiest:
Live close to work so you can walk or bike there. That way you do not have to burn gasoline every day.
Stop eating (or drastically reduce) your beef consumption.
Change all your light bulbs for high efficiency LED's and unplug everything in your home that's not being used.
Recycle anything and everything you can.
The easiest one of all: Stop buying nonsense.
That's about it. If everyone did their best to achieve these goals, our environment would be so much better off.
Check out Leonardo DiCaprio's National Geographic documentary Before the Flood on YouTube for free: https://www.youtube.com/watch?v=90CkXVF-Q8M
I was talking about finance with a friend recently and they were surprised to learn that I keep minimal amounts of cash in the bank, usually less than $100 at any time. They wanted to know why, so I thought this site might be a great place to tell everyone why I don't have cash (on hand or at the bank).
Physical cash - It can be lost or stolen, and is guaranteed to be destroyed by inflation.
Cash in the bank - the more cash I have in the bank more money that bank can lend out (see post below to read about fractional reserve banking), making a profit and creating inflation, all while paying me next to nothing, no thanks.
The next question was, what I would do in the case of an emergency if i don't have any cash? Well, I would put said emergency on my credit card like everything else, then pay it off next pay period (every 2 weeks), like everything else.
Do you have anything but credit? Of course! I have my Goldmoney card, which is simply a debt card that connects to physical gold holdings. So at any time I can sell some of the gold, and have that cash value put on my Goldmoney debit card, then it works 100% exactly like a debit card. I suppose calling it a pre-paid card would be more accurate, except it has unlimited instant refills via your gold holdings.
What if something happens and we lose access to electronic banking? No worries, Goldmoney prints off a physical ledger every day and store it in a secure vault. To steal value out of that account is impossible. They just take out yesterdays paper ledger, and be like "Yep, says here Mr.GenY had 39 grams, give him 39 grams!". So unless someone steals the physical medal (lol good luck, and it's insured anyways) then there is no way someone to lose their savings against their will.
Why do I prefer doing this? Well, I don't like money in the bank for reasons stated above. Also, I feel safer with my long term money being held in physical gold. Let's take this month for example. The market isn't doing so hot, but the value of gold (my savings) has gone up, exactly like savings should. It works with me and helps preserve my labor instead of betraying me.
> Gold is up +20.1% from 1 January 2016 to 1 November 2016.
So, should we have cash? Do we need it? Who knows, but personally I use it as little as possible.
Labor can generally be defined as "productive activity, especially for the sake of economic gain."
This means labor can be physical, mental or a combination of both. So, what do I mean when I about the betrayal of labor? When you labor you are trading effort for income. I like to think of savings as stored labor. A quick example. If you work 10 hours and earn $100, then save $10. You have saved one hour of labor. You can exchange this $10 in lieu of one hours labor at a later date.
But what happens when that $10 no longer represents one hour of labor? Then your labor has been betrayed, because you still labored for an hour to earn that $10, and at one time it was indeed worth an hours labor, but, at no cause of your own, it no longer is. This is inflation, and it is making your earlier labor worth less and less every year.
Lets look at recent inflation rates since 2006 based on CPI:
2015 - 0.73%
2014 - 0.76%
2013 - 1.50%
2012 - 1.74%
2011 - 2.96%
2010 - 1.50%
2009 - 2.72%
2008 - 0.09%
2007 - 4.08%
2006 - 2.54%
Total = 18.62%
This means that if you saved one hour of labor, in our case $10 in January 2006, by December 2015 it would be worth $8.14. Wait a second! You still labored for an hour, and were responsible enough to preserve that labor in the form of savings, so why suddenly is one hour life span worth 18.62% less than it was a few years ago? Inflation.
A lot of elements go into inflation, but I want to talk about the one that irks me the most. Private bank lending. Heres the breakdown. A bank has $100, it is required to keep say 10% reserves, so it can loan $90. And it does. Then another bank receives that loan and now has $90 new dollars! Yay! Now, they can loan out up to 90% of that or $81. So these banks are using debt to create money. The more money in the system, the less your original amount of money is worth, due to floor prices rising with increasing money supply.
Why is it so bad? Because we didn't vote on it, nor do you have a say in this happening. Without your permission or a national vote, private banks are allowed to profit by creating debt and causing more inflation, all the while you get poorer. Think about that, you save your labor, a bank creates money for profit, your prior labor is worth less each year.
Now, this problem of inflation is almost null if banks are paying interest rates on savings accounts commensurate with inflation, so that your labor maintains it's value over time. However, with most banks paying significantly less than inflation, your labor is losing value every year it sits in that account.
Find a vehicle to preserve your labor to ensure every hour of labor you save now, is worth an hour of labor well into the future.
You know thats right.
Or at least you should. If not, then we can do some math to prove it to you :)
Let's imagine you are the typical working person who commutes to work, and perhaps takes a small detour 5 times a week to get that much needed coffee. (With the expansion of Starbucks, Dunkin Donuts and hometown cafe's there is no doubt a ton of people do this.)
Time for some math.
1 Medium (Grande, Middle, Double, whatever its called, the standard medium sized one) $3.85
Supposed deviation of 1/3 mile each day. IRS calculated cost per mile $0.54 or 0.54*0.33= $0.18
Total cost of morning deluxe coffee = $4.03
Per 5 day week = $20.15
Per Year = $1,047.8 a year
Per 10 years = $10,478.00 total.
Lets pretend we invested that $20.15 a week, or $80.6 per month for the same 10 years.
80.6 * 12 months * 10 years at 5% interest after inflation = $13,788.76
A difference of $24,266.76!
Think about those lattes.. You can either be 10.4k behind, or 13.7k ahead. Are they really worth it? In 10 years are those deluxe morning coffee's worth a $24.2k difference?
Take this from the guy who used to get a coffee and pastry every morning for an average cost of $7.60, 7 days a week. I look back now and shutter at how much money I threw away.
What do you actually need?
On the most primal level you need about 3 things, sustenance, shelter, and security. That's it.
Now look around you. I'm pretty sure we have met those goals. So lets talk about the excess and how it's holding you back.
Crazy things people think they need:
A new phone - well.. because it came out
A big vehicle (truck) - well.. I might help a friend move
A new game - well.. the graphics are better
A bigger living space - well... I can entertain guests
What do all of these have in common? They are consumer goods, they are excessive, and they are nonsense. And we can break all of them down easily:
A new phone - why? So you can watch HD movies on it, or so the battery lasts longer, prolonging the time between charges, and the inevitability you might have to take your headphones out and join the world? Instead - Look up! The sky is blue, and there is a planet full of other people, perhaps you could talk to them?
A big vehicle (truck) - Why? No, you don't hunt that often, nor do you help people move that often. A car is a tool, it should accomplish a job. If a vehicles job is to transport you from A to B, get the one that's best at accomplishing that goal. And no, it won't be a truck. Also, your loud exhaust only brings attention to the fact you're ruining the environment. Instead - Get a car that does the job. Need to move yourself from A to B? Get a little car, or no car, or a motorbike. But ditch the truck, you can't afford it anyways.
A new game. Look, I love new games, when I was young I had the most insane pc game collection ever. But then I realized, wait a second! There are so many ways you can change the same thing before we get it. Take driving and shooting games for example, how much different could it possibly be from last years release? Instead - play a game with friends, or keep playing the same ones. If you always need the next game because the last one got boring, perhaps you should move onto something more fulfilling.
A bigger living space! Yea, but why? Your bills go up, and so does your waste. It goes back to the truck, yea once in a blue moon you might actually utilize it, but is that worth it? You don't need it, and chances are you cant afford it (take this from the dude who spent 18 months living in a penthouse on top of a brand new building that overlooks the nicest park in the city). You don't need it. Your guests would be more entertained by engaging conversation and good food.
This list is just a brief example of the things we waste our money on, how its detrimental to our overall health (physical, psychological, environmental, and financial), and a few of the ways to avoid them.
I suppose this article could have gone under the Happiness category, but I wanted everyone to see it right away.
There is a big difference between investing and trading, or as I like to call it - siphoning.
Investing is when you buy shares of a company or etf that you plan on owning for a long duration. This is a mutual relationship. You help raise capital for the company, and when that company makes money, you get a portion of it. But, this loyalty should go both ways. When you invest, it should be for the long haul, this is why I like the DGI investors so much, because they commonly hold shares for a long time. This is important because it increases productivity, and actually helps facilitate a functioning economy.
Now lets move to siphoning. This is where you buy shares of a company and sell them again as soon as you have made a profit, either at the companies or another persons expense. This is often called day trading, high frequency trading, etc. Either way, it's not helpful, you are "making" money, but your not earning it, you are siphoning money away from the economy, while not actually contributing anything meaningful to the world. It's literally being a parasite, you connect to the host (the market) and slowly suck nutrients from it while giving nothing in return. You're not an investor, your a blight on humanity.
Let's examine a recent case of this. Costamare (CMRE) recently cut their dividend from $0.29 to $0.10, which caused a lot of "investors" to sell off their shares. But why? Expecting a $0.29 dividend from a sub-$10 stock is outlandish in the first place. If you bought CMRE solely for its high dividend, then you were not investing, you were seeking to siphon, and it was evident the moment you jumped ship.
Now, some of you may notice I own shares in Costamare and could accuse me of purchasing it at a time when the dividend was still high. However, you would have to remember that when I purchased it, the dividend had been over $0.24 since 2011 and steadily increasing. But the real reason I bought it, is because this is a Greek based shipping company, and after Greece's recent economic problems they are do for some more foreign investment. Then they cut their dividend. Did I jump ship? No, because that is not investing, I'll hold on and hope they can recover.
And there you have the difference between investing in a company, and siphoning from it. Lets all seek to be investors and not parasites.
To start October off I made a few new stock purchases:
11 shares of SPHD - PowerShares S&P 500 High Dividend Low Volatility ETF for $420.31
7 shares of PCY - Powershares Emerging Markets Sovereign Debt for $213.15
3 shares of GUT - Gabelli Utility Trust for $20.04
2 shares of AZN - Astrazeneca for $64.60
1 share of SDY - SPDR S&P 500 Dividend ETF for $82.96
For long term savings:
+6.416 grams of gold for $265.00
4.14 shares of QCILIX - CREF Inflation-Linked Bond R3 for $289.47
2.11 shares of TISPX - CREF S&P 500 Index Fund for $51.22
First half of October total = $1,406.75
This was my first time purchasing shares from dividend ETF's, before this, the only unique items I had were a close end fund (GUT) and the covered calls (GLDI, SLVO), I may try to balance ETF's and individual stocks in the future.
Which should you do?
I think we should begin by defining what it means to 'save money'. I consider saving money, any money you plan to keep for a duration after which it was received. So, if you are paid $100 on October 1st 2016, and keep $15 of that for later use, I would consider it 'saved'.
The question is, how should you utilize that saved money? There are endless sites where the author pushes their own ideas, or arbitrary goal lines, this is not one of them. Instead I think you need to evaluate what is important to you, and where you want to see that money used.
Lets talk about the two types of saving, long term and short term.
Short term savings is cash you have on hand (in checking / savings account, at next to 0% interest it almost doesn't matter anymore). This cash is stockpiled for things like emergencies or planned large expenditures. For example, you could save X amount as a safety blanket. Or, you may wish to save X amount over the next year to pay for a vacation. These are examples of short term savings. You stockpile cash to a predetermined amount, and then exhaust that supply for the intended purpose. Due to it's usually limited duration, saving in cash is an acceptable thing to do.
Long term savings is something you need to think seriously about. Saving long term is less about money, and more about time / value. Your time has value, when you work, you are exchanging that time for a value. When you save long term you want to make sure that the value of your hours worked is preserved well into the future. The idea with long term savings is that you do not touch it for a very long time. Saved money is saved labor. You are saving portions of your labor now, so you don't have to labor later. This means it's important to keep your long term savings in a store of value that will not betray your labor. Everyone will have a different opinion of what is used to preserve this value. Many people simply save cash. Due to inflation, this is a bad choice. You should not put your long term savings into anything with risk, for risk of losing it. Personally, I put my long term savings in gold, because it is a secure vehicle to transport my stored labor into the future. Some bolder people also preserve their labor in cryptocurrencies.
This brings us to investing. Investing is not meant to preserve your labor or value. It is meant to enhance it. However, this possible enhancement comes with risk. Along with risk, these assets can be harder to liquefy should you need them right away. Investing is designed to take a certain value and add to it over time. Investing is a lot like long term savings in the sense that it comes from money you chose not to spend, and instead save. However, this is money you are willing to take a risk with. Unlike long term savings which can not grow organically, your investments can. Especially dividend growth investing. This is where you buy a share of a company for X amount, that share then becomes worth X+Y amount over time, all the while paying you a dividend. These dividends are used to purchase more shares, and the more shares you have the more dividends you receive. Eventually, your dividend growth portfolio can turn into a plant that waters itself and keeps growing on its own effort, something your long term savings can't do.
Are you saving, investing, or doing both?