A Review of Investments

I know I've extolled the virtues of investments and if you do not have any consumer (think credit card) debt, you should seriously consider investing any of your excess money. I jumped back into the stock market in 2021 and have a number of years to look back upon to see how well I did. I also know that past performance is no guarantee of future returns. However it can serve as a rough estimate.

This past week I have reviewed my investments and have come up with a pretty good metric to determine how well it is doing. I encourage you to periodically do this as well. Investing can be logic based but there is also a lot of emotion and so it is good to have a consistent metric to help leverage logic over emotion.

Rather than talk about specific stocks, I want to focus on investment genres. I will provide some examples but leave it up to you to try this with your own investments. My ultimate metric is how long it takes me to double my money. Using a well-balanced portfolio, financial experts will tell you that you should be able to double your money in 10 years with no additional investment. Let's see how well my investments stack up.

Dividend Stocks

I've mentioned before that I like the passive income offered by dividend stocks. My investment portfolio consists of two different dividend stock genres: high dividend stocks and strong company dividend stocks. In the first I have a Real-Estate Investment Trust (REIT) stock. It is required to pay 90% of profits in monthly dividends. Every month I am paid a few dollars that I can reinvest. I am currently seeing about 13% annually that gets compounded monthly. It is not bad but the value of the stock always seems to remain around the same price. Looking at my own portfolio, this stock takes between 6 to 7 years to double my money. That is a good starting point.

My second dividend stock group is with two companies that pay quarterly dividends but are large corporations with solid financials. They don't pay as much as my REIT but the value of the stock has gone up over time. I have seen one company go from $35/share to $40/share over the course of 2 years. Factoring in the quarterly dividend payouts, it only takes this category about 6 years to double my money. As I am investing for the long term, this seems to be a slightly better investment strategy than REITs.

Whole Life Insurance

At the age of 23 I recognized I needed to provide for my family in the event I died. I picked up a whole-life-insurance policy that had a cash value I could borrow against. On occasion I did and then repaid the loan to myself to build back up the cash value. The premiums for the life insurance part of the investment started small and so it turned into a great value should I prematurely pass away. Now that I am older, very little that I pay into the policy is reinvested. Most of it is now going to really expensive life insurance that I no longer need, thanks to my other investments. Reviewing this is what helped me come up with the double-your-money-time metric.

I've had my life insurance for over 30 years and when I calculate how much I have put into it and the cash value now, I have barely doubled my money. Yes I know it is not fair as I am constantly putting more money into the investment and yesterday's payment should not be expected to be as far along as the one I made 30 years ago. However, 30 years is a really long time and so I am looking at options as to what to do with the policy.

Buy and Hold Stocks

This is what most people think of when they think of buying individual issue stocks. You buy a stock and hold onto it until you need the money. If you pick a solid company with sound financial practices, you should see the stock price climb over the years. Back in 2021 I wanted to invest in Berkshire Hathaway and so I bought a few shares of BRK-B, the less expensive of the company's stock. I wouldn't say the company has done exceptionally well compared to other investments I could have made but it hasn't lost money either. It has taken only 4 years for me to double my money. This seems like the clear winner and where I should put all my money, right?

Unfortunately you have to go back to my original statement that, "Past performance is no indication of future returns." It is also best to have a diversified portfolio and there are a number of investment options I have not even covered. While some of them are guaranteed to stretch my double-your-money-time metric to the 10-year average, they do help preserve my net worth even when the stock market falls like it did on Monday.

What's My Plan Now?

So how will this latest exercise change my investments? Well first I think I need to dump a number of my emotional stocks. You know, those favorite companies that you want to do well but aren't. I'm definitely going to invest that money in BRK-B. I'll probably keep my dividend stocks as they are not doing too badly and it is fun to reinvest those dividends when they show up. The big question is where to park all the money from my whole-life insurance. I'm still trying to decide.