Preparing for your retirement is about long term investment.
The only empirically reliable way to generate wealth is Investing the same dollar amount each month or quarter all of your working life (dollar cost averaging).
Primarily invest in low-cost index funds that track only the S&P500 and bonds. Other funds, stocks, bonds, etc is gambling unless you have a lot of knowledge others don't.
This will take virtually no effort whatsoever on your part (an hour or so a year, maybe less) and will reliably bring you wealth. While those who buy individual stocks will be hard pressed to even equal your returns after spending a great many hours trying to do so.
That is all you need to know.
However.
If you want to walk (or run) down the path of bad decisions, there is more to know.
Keep in mind you shouldn't implement any of these strategies if you haven't already met your employer's contribution, ideally maxed your contributions to a 401k or 403b, Met all of your living expenses and have no need of the invested money for 2 to 20 years and have thoughtfully considered putting this money into an IRA of some type.
I also offer these thoughts in the assumption that your underlying strategy is dollar cost averaging, and that you are familiar with the work The Intelligent Investor, by Benjamin Graham (ISBN-13: 978-0060555665).
I am describing the particulars of a three-part strategy: 1) Dollar cost averaging, 2) Long-term investing, 3) Dip and Flip
My general thoughts are that 10 to 30% of your non-cash assets should be bond like and 50 to 70% should be stock like assets. Of your total assets I believe your available cash should be between 10 to 80% on average. This is because while everyone else is panicked selling you must maintain the ability to purchase those assets at a steep discount yourself. Generally I'm 20 to 50% cash, and generally after a year the non-cash assets I've acquired are up 30% or more when they're ready to be sold.
The stock market is like a poker table: if you can't figure out who the idiots are, you're likely one of them. Almost no one has any business doing anything other than dollar cost averaging. Today's nearly fully open access to the markets has made an unprecedented number of terrible decisions available for anyone to make or capitalize on. "Day trading" along with the advent of knowing Day traders "that guy I know" has increased the amount of transactions to a very accessible point and created a lot of opportunity for the educated to use against the unwise. There's nearly always someone looking to get out when you want to get in and we expect they will be there again when you want out.
Simple in principle, somewhat challenging in practice.
Long-term investments(held for 5 to 30yrs)
Never sell your long-term investments unless there is a fundamental change in the business that makes it counterfeit:
The sort of stocks that you acquire over a long period of time as they reinvent themselves and/or grow. Cocca-Cola, Google/Alphabet, MO, INBEV, V and finally Smartly-acquired-and-managed-real-estate. After 30 years it's unlikely the asset you invested in is similar to the asset you are invested in at that moment. It's probably time to sell with rational dispassion. The 30-year treasury, and arguably gold, are good asset classes to hold with the intention of holding long-term and selling when necessary or useful at some point in between.
- Kodak not embracing the digital camera.
- Borders group refusing to operate a money making venture by providing a useful service, product, or commodity.
- The death of Steve Jobs (apple stock still hasn't tanked as of this writing, but it will).
- Long-term Capital not adjusting it's strategy to acknowledge the obligations of leverage/indebtedness in the face of a declining market.
The sort of stocks that you acquire over a long period of time as they reinvent themselves and/or grow. Cocca-Cola, Google/Alphabet, MO, INBEV, V and finally Smartly-acquired-and-managed-real-estate. After 30 years it's unlikely the asset you invested in is similar to the asset you are invested in at that moment. It's probably time to sell with rational dispassion. The 30-year treasury, and arguably gold, are good asset classes to hold with the intention of holding long-term and selling when necessary or useful at some point in between.
Intermediate-term investments (held for 2 to 10 years)
I submit that between 5 and 10 years it's difficult to say if your investment is long term or not. However, after you've had a short term investment more than 2 years it is no longer a short-term investment. At this point it must be re-evaluated as a position worth holding knowing that by continuing to hold the stock you prevent yourself the opportunity of purchasing other equities when they inevitably hold a fire sale. Generally those occur every 7 years, as regularly as dice.
I find that Dividend stocks frequently make it into this category for me and virtually define the category - Stable, steady, reliable earners, with solid financials and good business plans. For me Disney, Imperial Tobacco group, Mainstreet Capital, Cocca-Cola, and INBEV would be representative of the dividend paying stocks I hold and might include Google, Facebook, and possibly Twitter for the non-dividend equities
I find that Dividend stocks frequently make it into this category for me and virtually define the category - Stable, steady, reliable earners, with solid financials and good business plans. For me Disney, Imperial Tobacco group, Mainstreet Capital, Cocca-Cola, and INBEV would be representative of the dividend paying stocks I hold and might include Google, Facebook, and possibly Twitter for the non-dividend equities
Short term investment (held less than 1 to 2 years)
Over time, these are the minority of my investments - but that's a fairly vacuous statement since I re-evaluate my holdings at a minimum of every 3 months. Visa is one of the few that survived being seen as a short-term investment and becoming an Intermediate-term investment, but I held it for several years at which point it was with a group of other intermediate investments and a few short terms.
Near term trade (held less than 90 days)
Roll the dice.
Accumulation
Now that I've described the nature of assets worth holding and how to thinking of them I will describe the principle way I acquire them apart from dollar cost averaging.
I evaluate the worth of a company, put a price on that worth, and place an order at that price knowing that I might not get it. But if I don't get the stock at the evaluated price I usually find that completely acceptable. A great company at a fair price or a good company at a great price are the end goal, but the words "fair" & "great" price are quite ambiguous. And frankly there's a lot of guesswork, but it's recent prices, volatility, and twelve-month trailing average on graphs and annual price to free cash flow, debts & liability, and income charts inform that best guess. Experiance is your guide, and your ineptitude will eventually cost you. (Dollar cost averaging is probably the way to go.)
I accumulate a lot of things, short-term, intermediate-term, and long-term investments. It's not always clear to me what something will be to me when I get it. I picked up Google thinking I would hold it for 5 to 10 years, but now I think I'll hold it for 30.
Figuring out what's worth researching becomes the hardest part so here are some factors to consider:
- Buy good companies when people are selling them in a panic or are duressed.
- Sell when everyone believes prices can go nowhere but up, particularly when the financials don't make sense. It's never "the new economy" it's just a bunch of people aren't expecting to become poor. Sell to them when they think you're a fool, consider buying it back when they have proven they are.
- Buy when no one else is buying.
- Always know what would make you sell
- Always know why you bought it
- Never forget the business is changing
- Good leadership that is heavily invested in the company (board, CEO, etc)
- It's difficult and financially challenging for other businesses to do what this company is doing. Impossible is great when there is good reason to get into the business (Google) and terrible when it's Zinc.
Returning to the mean. (Dip and Flip)
All these investments are assisted by trades. I don't always focus on good and great companies at good prices, I'll take a fair company too at a fantastic price. But here is where it gets tricky.
I listen to business news several hours a day in addition to reading about it. I'm interested in the thing itself, but I also need as much knowledge as possible to make good judgments about non-automatic purchases and sales.
Netflix dropped and popped and is my go to example for this. Netflix was a market darling that announced unpopular changes causing the stock to tank, then announced those changes would never happen and no changes were made. This is when we should have bought as much as we could for $65 from them (up to 20% of our portfolio). Eventually everyone settled in, and it was ok to dump piles of money back into it so anytime after about $350 would've been a great time to sell it back to the Johnny come lately's. Today's equivalent price of $700/share (note on July 15, 2015 there was a 7:1 split) would also be fine. The key with these pickups is to sell them back once their share price goes back to normal. Try not to be too tempted to hang onto them because you're already up 20 to 3000%. Once everyone agrees it was a good pick up, and especially when people suggest you hold onto it is the time you should seriously consider selling. But once it surpasses it's normal price or the price it should be at is a fine time to sell. (Unless the business suddenly changes, like Netflix itself creating award winning content?) If you're having trouble (and believe me it's hard to sell something that was once 5% of your portfolio and is now over 30% of it) give yourself a time deadline of 6 to 18 months. If my pick up makes the news, I always sell. "Netflix back in the news with a meteoric rise from it's lows in November 2 years ago." Sell it.
I listen to business news several hours a day in addition to reading about it. I'm interested in the thing itself, but I also need as much knowledge as possible to make good judgments about non-automatic purchases and sales.
Netflix dropped and popped and is my go to example for this. Netflix was a market darling that announced unpopular changes causing the stock to tank, then announced those changes would never happen and no changes were made. This is when we should have bought as much as we could for $65 from them (up to 20% of our portfolio). Eventually everyone settled in, and it was ok to dump piles of money back into it so anytime after about $350 would've been a great time to sell it back to the Johnny come lately's. Today's equivalent price of $700/share (note on July 15, 2015 there was a 7:1 split) would also be fine. The key with these pickups is to sell them back once their share price goes back to normal. Try not to be too tempted to hang onto them because you're already up 20 to 3000%. Once everyone agrees it was a good pick up, and especially when people suggest you hold onto it is the time you should seriously consider selling. But once it surpasses it's normal price or the price it should be at is a fine time to sell. (Unless the business suddenly changes, like Netflix itself creating award winning content?) If you're having trouble (and believe me it's hard to sell something that was once 5% of your portfolio and is now over 30% of it) give yourself a time deadline of 6 to 18 months. If my pick up makes the news, I always sell. "Netflix back in the news with a meteoric rise from it's lows in November 2 years ago." Sell it.
Walmart was indicted by the federal government for alleged violations of the corrupt practices act by way of doing business in Mexico. The stock dropped 25% in one day, I picked it up, knowing that those cases take 10 years or so to get through the courts even if they happen to be penalized. Then I sold half of those shares back when the stock was up 20% from the low a few weeks later.
I should have picked up Fannie Mae when shares were pennies knowing the government would bail them out, but didn't because I still firmly believe the government should've let them fail. You even could have missed the boat by buying at $0.65 to today's $4.75, a 700% increase. So a $300 bet happened to turn into $2000. $1000 would have turned into $7000 but I wouldn't have put in more than that. But you would've done better if you would've sold when they were back on CNBC at $8 (a 1230% increase, 300 become 3700, 1000 becomes 12,000).
Instead I bought Bank of America at $6 and sold it for 18. I also bought and held USB for several years, finishing 250% up plus the value of the dividends.
I've picked up Amazon like this too and having trouble selling it. Up 92% But surely this is a great company worth holding onto. Right?
Instead I bought Bank of America at $6 and sold it for 18. I also bought and held USB for several years, finishing 250% up plus the value of the dividends.
I've picked up Amazon like this too and having trouble selling it. Up 92% But surely this is a great company worth holding onto. Right?
Doing this is reasonably safe if you pick smartly and sell after returning to the mean. How soon after is a quandary, but it sure beats the return on actually safe investments like bonds even if you are 50% cash for 50 years and are only venturing 5% on any individual idea. 1% or less on the crazier ones. But the backbone is always dollar cost averaging into indexes, and I admit that I now also automatically buy indexes on 1% drops - though I have little evidence for that strategy. The key number may be closer to 5% drops.
But to do all this you need a lot of cash on hand, which is why I was able to buy a house in the 10th largest city in America for half the price of its current valuation. And also why I kinda want to sell it.
I should sell it right?
But to do all this you need a lot of cash on hand, which is why I was able to buy a house in the 10th largest city in America for half the price of its current valuation. And also why I kinda want to sell it.
I should sell it right?
Shouldn't I sell it?
Maybe I'll wait. . . Although it has been in the news. . .