My Investment Strategy

I am by and large a buy-and-hold investor. I invest for the looooooong haul after years of trying to beat the market with penny stocks, quick flip stock tips, even investing in those spam-like faxes you always see lying around the company fax machine. I was convinced that watching 30 minutes of CNBC every morning before going off to work was going to make me rich. These guys were loud, authoritative and they would spit out numbers faster than an adding machine, they had to know what they were talking about. Well, about $4,000 of hard earned money (for someone making only about $25K/year and with tuition to pay), on top of a pretty heavy losses in my Yahoo pretend portfolio, I finally learned my lesson. You would think that being a finance major at one of New York City's finest investment schools would have saved me...not so much.

I gave up on investing altogether until a few years ago. As I mentioned in my earlier post, I have my Roth IRA currently housed with T Rowe Price. I do believe that fees do make a difference over the long haul so I wanted to go with Vanguard, I just could not afford the initial $3,000 investment or even the $1,000 investment needed to get into their Star Fund. I wanted to get in as soon as possible and T Rowe Price offers an option that allows users to invest as little as $50/month with the "Systematic Purchase Program" to open a Roth IRA. This seemed perfect for me. For all those Procrastinators out there who say they don't have the money to start and IRA, and you know who you are, it only takes $50 a month to start one with one of the top mutual fund companies around. It may not sound like much but its at least a start, and the sooner you start saving for retirement, the better. Again I am not a licensed professional and none of this should be taken as legal financial advice. I am working on putting up a disclaimer on the front page, until then I ask that you bear with these in the posts. Fidelity offers something similar with their SimpleStart IRA product. Fidelity funds are a bit more expensive than either Vanguard or T Rowe, and in my opinion they are not the best in terms of target-date retirement funds. If you can mix and match their funds(this would be the best option no matter what company you choose, I just don't have the capital to go this route just yet) to suit your retirement needs, they may be the company for you. T Rowe is not too far behind Vanguard in terms of fees so the decision was not too hard. I had to take advantage of all of the benefits that an IRA offers. If need be, I can always roll the IRA over to Vanguard when I have enough capital built up. The one plus to staying with T Rowe would be that their target-dated funds remain aggressive later in their life cycle (and mine) so I will still benefit from stock market gains as I near retirement, more so than I would with Vanguard. Again, due to the slightly higher fees, this may be negligible. I will continue crunching the numbers and let you in on my final decision. My IRA is strictly for retirement purposes, I do not plan on using this money for a house or for any kind of emergency, that is what my emergency fund is for. My Retirement 2045 Fund has a market value of about $1000 as of yesterday. I also have a 401K through my employer for retirement purposes.

My 401K is invested almost exclusively in index funds. They are not the best, it is managed by CitiStreet, but there is a company match which gives me an instant 50% return in itself. The 401K is funded as follows:

90% Stocks (Domestic, International, and Emerging Markets)
5% Bonds
5% Money Market

The reason I say almost exclusively in index funds is because there is no index offered by the plan that gives me any exposure in international markets, so I chose to go with American Funds New Perspective fund. This gives me the international exposure I was looking for, while still holding only a .47 expense ratio. The company matches 1/2 of the first 6% contributed by the employee, so I put in exactly 6% to maximize the company match and the rest goes into the IRA. The market value of my 401K is just over $4,500. Again, I have no plans on dipping into this fund for any purchases or hardships. You never know what the future holds but I will do my best to stick to this through preparation and careful planning. I also have a company funded pension plan which I will be fully vested in starting in 2010, I will wait until I am fully vested to include this in any net worth calculations.

My other investments consist of my ING Direct account, my Vanguard 529 and my holdings with Sharebuilder. The 529 plan is for the baby's college years and has a market value of about $230 as of yesterday. The breakdown is as follows:

Aggressive Age-Based Option: Aggressive Growth Portfolio
Inflation-Protected Securities Portfolio
Income Portfolio
Interest Accumulation Portfolio

ING (its a savings account so it's not really an investment, but it makes me feel good to say it is) is used for my emergency fund, used car fund and my daughter's savings account. With ING, there is at least a 2 day waiting period(it takes about this long for the money to be transferred from ING to your linked checking account) to access your money if you decide to withdraw, just another safeguard to prevent any impulse purchases. I know other banks are offering higher yields, but I have had this account for over 7 years now and they have been good to me. My Sharebuilder account is used only for long term stock purchases. Before anyone states that I should be fully funding my IRA before investing outside of this, I only use unexpected money* to invest with Sharebuilder. Share price is not something I look at as I buy no matter what the price, somewhat of a spin on dollar-cost averaging. I also have the Sharebuilder Visa they offer which deposits $25 into your account which every 2,500 points. You get 1 point for every dollar you spend, so my pay my utilities and cable bill with this card, takes about 6 months to build up enough points to get the money which is fine by me. I pretty much invest for free. This portfolio consists of 12 blue-chip, dividend paying stocks that have increased/maintained dividends for the last 5 years. Hopefully this can provide a generous level of passive income once I am older.

The holdings include Pepsi, General Electric, Bank of America, Johnson & Johnson, and Budweiser. The entire portfolio has a market value of about $500. Through dividend reinvesting I hope to build substantial positions with these companies. These companies are well established and are not going anywhere anytime soon and i don't plan on selling. I have given up trying to beat the market, I use it to help fund my retirement.

I ride out the highs and lows of the market now, that big drop in the market a few days ago was just opportunity knocking in my eyes. Don't try to beat/time the market, it's hard enough for the pros to try their hand at it. Single Ma has a nice post comparing the stock market to a relationship here. If you are going to try to pick individual stocks and time purchases and so on, make sure you do your research review all of the keys numbers for the companies you choose. This may be possible, but it is very rare. This is a big change for me and I have my wife, my research and the blogs I have listed under my Favorite links to thank for helping change my perspective. I have also read several books which I will be listing and reviewing later on. If I can give any adivice it would be to write your financial goals down on paper, then choose the best route to get there. For me, being able to spend time with my family is most important while at the same time securing a worry free retirement. This may be different for you, just make sure you stick to your goals after you they are written. If they do change thats fine, but dont let it be a sudden reaction to something that happened or something you heard. Sit and review your original strategy and revise from there.

I am working on a complete asset allocation chart so I can better show how my money is spread out, and also working on showing my net worth. I am new to blogging and I promise this will get better and more professional looking with time. Anyone who has any suggestions and criticisms please feel free to share. These may not seem like big numbers, but comin from where I did, this is a pretty good start. I hope you'll enjoy reading about our journey as much as I enjoy writing about it so far.

*On a side note, once our car is purchased all extra money will go towards the house down payment. The only after-tax investments that will remain in the budget will be the emergency fund, IRA, and 529. No sharebuilder, baby savings(only ING, her 529 will continue to recieve funding) will be cut out, and of course all debt will be paid off by that point. Look out America, here we come


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