I believe it better to discuss one of my Year End resolutions (new year’s resolution) in May then in December or January 2012/2013! I have had almost a half a year to work with it by now and the added hindsight really makes a difference!
I started investing in financial markets 3 times in my life so far, this is what I consider the third time around. Each time I have done this in hindsight I had good experiences, even in the light of the first one which I really didn’t have my head around at all.
The first time was when I wanted to marry a certain woman. Her parents insisted we had life insurance which ended up being life, health (medical) and automatic mutual fund investments. We met with an agent who made recommendations and I just went with whatever he said without doing much research at all. After 10 years I wanted to review the life insurance and some other aspects which led to me looking into the study of what mutual funds I had purchased and their performance and so forth. At this point I had major questions and the agent simply could not answer them. It was not that he wouldn’t, it was just his realm of experience and what was available to him as an exclusive rep were that limited. I discovered the returns on the funds were ok at best and that I could have done a lot better had I studied for a while prior to making that run! I ending up liquidating most of these in the course of starting and operating a business which ended up being sold an providing a windfall.
Around that time I received a small windfall from a sale of a business so had some finances to work with, I only wish I had stayed that course as it was looking very good! This is the second time around which I will get into a bit below:
The second time around I started with a different guy. A financial adviser who had worked for a large hedge fund so had varied market experience under his belt. We defined some objectives and position sizes and executed some trades, those trades did very well but due to other circumstances I was forced to sell 95% of them not according to plan! At the same time I started to privately study investing and ran into an interesting book called The Meister Plan which basically gave a portfolio of World Dominating Dividend Growers (WDDG) and said do dollar cost averaging with a set amount every month and only put more in, never less, and don’t stop and at some point the group of stocks will take care of you. I started this course in conjunction with a few Mutual Funds I liked through some of my other research. All of this went extremely well until the culmination of the event which forced me to sell the 95% prematurely reached its head and wiped out the rest of my investments!
So I took a breather for a few years and led, basically, a hand to mouth existence. At some point in time and around a year after I liquidated my last retirement fund account to loan to a friend and their business I decided to take my previously found knowledge and experience, couple it with current events and news, and begin the climb from scratch again. I began with saving 10-20% of all incoming cash until I had established an Emergency Fund (6-12 months cash expenditures budget). Then I began researching which approaches I wanted to take for the rest of the excess cash that I could scrape up. It was at this time I read some articles on Mr Bogle and some of his writings and wanted to understand how Vanguard operated, good decision! In my opinion Vanguard is a class act brokerage in addition to being a great platform for Vanguarding (as opposed to just investing)! I purchased Vanguard funds (not ETFs) for around 2 years before I even thought to buy stocks in a Vanguard “Brokerage” account. My other brokerage activities at this point were limited to a few purchases in Etrade and some auto investments in Sharebuilder, both a decent experience though all other brokerages do not come close to the caring personal approach received from Vanguard, bar none. The declaration and attitude of Vanguard that it is owned by the clients trickles into every conversation they hold, I have never encountered a bad attitude or negative experience, it has now been just over 7 years since I opened my first Vanguard account. And I need to stop here and say:
Anyone who does not want to study markets, stocks, investment strategies and the like but wants to try to take control of their finances should open a Vanguard account and use the Target Retirement funds (begin with $1000 and put $100 or more per month in). The strategy is already built in and they don’t need to think about it. This, according to Mr Bogle, is most people and I would tend to agree after many discussions (and non-discussions) on the subject with friends and relatives, etc…
Vanguard keeps costs low through a very competitive Expense Ratio. This is accomplished, mostly, by the way Vanguard as a company was structured from the beginning. To understand the Effects of Expenses on a Portfolio follow this link for a spreadsheet.
I also have another post in which I reference a modified version which includes Indexing, International, Bond, Growth/Value and even has a Real Estate element. You can click here to learn more about that.
So I was cruising along Vanguarding and in some large dividend stocks and around 3 months before the end of 2012 I ran into a retiree who recommended an advisory publication. I shrugged it off remembering my experiences which some others like morningstar and the motley fool (which is ok some of the time). But then at some point I had some spare time and decided to purchase a no risk subscription (3 mo seemed good to me for a test) and got hooked! The publishing is superb and the portfolio made a lot of sense so I decided to track it and ended up with 3 more of their portfolios which I am currently trying to keep pace with (plenty of ideas / limited cash to exercise with).
Summary of activities (I believe everyone should follow):
Set aside 10-20% cash inflows
Establish an Emergency Fund (6-12 months liveable budget) with the first cash set aside in #1
Figure out how to invest the rest, if you don’t want to think about it just open a Vanguard account and use the Target Retirement.
The first financial investments should be in a retirement account up to the yearly limit (max it out if you can) because these have a penalty if you want to use before retirement and because they have tax advantages.
After maxing out your retirement account you can still put funds in a Vanguard Target Retirement fund or buy individual stocks or whatever strategy you want, depending on your desire to study and so forth.
At this point I can see my investments are growing. I am actively tracking 5 portfolios each with a different style and emphasis. One deals with funds, another with funds and stocks. One with sectors and trends another with world dominating dividend growers, etc and so forth. I like all the approaches and see how each one has its place for a savvy investor. I need to take a break and come back to this post later (or perhaps post a v2).
Disclosure: I currently own or have owned all stocks of ticker symbols mentioned. I am usually planing to buy more as soon as I can afford it and/or within the next 72 hours. I do not expect any statements I make to significantly alter the stock price and if it did it would not affect my decision to buy or sell any stocks or funds listed.