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.

Start Small and Test Thoroughly

This morning I attended a training meeting from one of our vendors where they talked about a number of their product offerings. They highlighted the various tools available and when you would use one versus another. As I listened to the different options, I realized that a small proof-of-concept implementation is really the best way to gain experience with the various tools.

There are a number of recent examples where engineers didn't understand the technology decisions they made and failed miserably. The big one that comes to my mind is the original healthcare.gov website. On the first day it immediately crashed because of all the traffic. Comedians and late-night-talk-show hosts used it as joke material for a long time claiming they should have hired porn-site developers who know how to create high-traffic websites. Another service that had issues when it started is Disney+. Fortunately they had a much easier time scaling up to meet customer demand.

Starting small and testing thoroughly is not reserved for building computer systems. It is a principle I use in my own investing. Lately I have been looking at buying dividend stocks that pay periodic cash simply for owning it. While most companies pay quarterly dividends, there are some that pay monthly. That sounds pretty good doesn't it? Well you do have to be careful. I found one stock that is paying the equivalent of 25% annually. Instead of dumping a lot of money into it, I bought a few shares and watched it carefully. Yes, I received my monthly dividend but the price of the stock dropped more than the dividend paid. It dropped so much, the company did a reverse 5 to 1 split. That means instead of owning 10 shares of the stock, I now only own 2. Furthermore, the stock continues to fall. This is why I am glad I didn't dump thousands of dollars into it.

I have had some success with other dividend stocks and that is because I have started small. If I see one performing well, I reinvest in that same stock when I receive the periodic dividend. I am using now to learn what strategies work and not listen to over-hyped ones that don't. My hope is that I'll have it figured out when it comes time to retire and my income is based on my investments.

An Update on my Online Investments

The past few weeks have been unkind to the stock market in general. I have slowly watched my unrealized profits shrink and shrink. A week or so ago, the number actually went negative. That means putting the money in a low-interest savings account would have made more financial sense. Fortunately I know that my investments are solid and it is just a matter of time before that number goes positive again. The trick is not needing any of that money immediately to pay bills. That is why they recommend not investing any money you will need in the next two years.

I generally check my stock balances daily and so I cannot say the drop was unexpected. I watched the numbers fall over time and the optimist in me hoped the market would recover. I still believe that and so I won't be liquidating my investments quite yet. Had I been a bit more pessimistic, I could have put in stop-loss orders and I would be way ahead of where I am now. The only trick is to knowing when the market hits complete rock bottom and when to jump back in.

It should come as no surprise that the stock market is in the toilet. We are still fighting various strains of COVID-19. There is a war between Russia and Ukraine that should never been allowed to happen. This created drastic increases in gas prices. Then the government also handed out tons of money and is now wondering what caused such drastic inflation numbers. Fortunately some of these issues will eventually be resolved and the stock market will begin a steady upward rise. It always does, even after the great depression. The trick is to not panic. Sometimes that is easier said than done.

Ideas for Investing $2000

Recently I opened a Webull trading account and started playing around in the stock market. It has been less than 3 weeks and I have increased my investment by 30%. Part of that is because the overall market is up and part of it is because I guessed and purchased an undervalued stock that is going through the roof right now. The exercise has got me thinking about other investments one could make and that is the inspiration behind today's post.

I chose the amount of $2000 because it is a sum of money that a lot of people can easily raise, especially with a potential new round of stimulus checks. It is also a number that lends itself to smaller investments and not enough for a larger investment such as a home.

I also want to think outside the box. When most people think of investments, they picture the stock market and I want to go beyond that. Yes, it is one option but what other options exist. I doubt I will create an exhaustive list but it should give you some ideas of what will work for you. You may even come up with some better ideas on your own.

The Stock Market - Yes you could do as I have done and invest in the stock market. The problem is that there are thousands of stocks to choose from. What do you invest in? Many investment advisors suggest companies whose brands you use. This is why a lot of people invest in Apple (APPL) and have done quite well over the past years. I saw the run on toilet paper since COVID-19 began and invested in a toilet paper company. Unfortunately that stock has lost value for me. It is only down $2.50 and so I am not too concerned, but it does highlight the fact that you can lose money in the stock market. Let's look at some other ideas that many will find more appealing.

Invest in Yourself - A long time ago I used to work for Oracle Corporation. I had a fair number of shares of stock in them (ORCL) and sold that stock to pay for my college education as I received the stock while I was in high school. I don't regret that choice at all. You could do the same thing with the suggested $2000 and invest it in your own personal learning. It won't come close to paying for a college degree but it may allow you to take the continuing education course that gets you that better paying job. Perhaps there is a skill that you want to learn simply to improve your own quality of life. While it may not reward you monetarily, it will pay you back in other ways.

This brings up investing in your self image. You have to be careful with this one as some people tend to go overboard but it is something to consider. If you work in an office where people dress up, it makes sense to invest in nice clothes. Perhaps your teeth are a bit crooked and you are very self conscious about it. Just be sure that the investment you are making will truly pay you back in some form. Don't use it as an excuse to buy something you don't really need.

I think you are the first area you should look at before other investment opportunities. If you are satisfied with who you are and what you have become, then you can look at other investments.

Invest in Tools - Before you can build a house, you better own a hammer. Not everyone wants to go into construction and there are other tools you may need for your interests. If you want to become a YouTube star, you might need a camera or a computer. You might even be able to get started with a good smartphone. $2000 is a start to help you get going. Just be forewarned that YouTube sensations don't happen overnight and it may be a year or more before you see any repayment of that investment. This is where my 30% in 3 weeks starts to look good.

There are plenty of other examples of purchasing tools that will help you earn money. Right now there are several car manufacturers that are offering 0% loans on new cars. $2000 would be a great down payment that could get you a rental car that you can make available on Turo. I skied with a guy who has a small fleet of Hondas and renting them on Turo is his full-time job. Perhaps you don't like the idea of letting someone drive your car and you dream of becoming a Lyft or Uber driver. A new car would definitely help out especially since both companies have minimum standards for the quality of cars they allow you to drive.

I'm sure there are plenty of other examples of tools purchases but I don't want to go on too long and will leave other ideas up to you.

Hopefully this has given you some new ideas on what to do with your investment money. Just remember that an investment takes time to mature. Stocks may be down or your YouTube channel may not have the 1000 subscribers to allow you to monetize your content. Hold tight, keep at it, and don't panic. Remember that investment money should not be needed for a year or two. If it is needed before then, don't invest it.