Tuesday, October 30, 2007

Short Term CD's or Money Market Accounts?

My niece from Wisconsin called me last night to ask about investing. Seems she's getting a lump sum insurance payout and she doesn't really know what to do with it, but she didn't want to blow the money. We discussed several different investment options including stocks and mutual funds, but she seemed more interested in something simple that would give her some income and protect her from loss of capital. We got in to a discussion of laddering certificates of deposit as compared to investing in a money market account. Both options are relatively safe investments, although the returns are pretty lackluster. I told her that I've never invested in certificates of deposit because I don't want to tie up the money. But I certainly see the appeal and the good sense of purchase a 6 month CD, one per month for six months and then having them mature each month thereafter. I personally have always preferred money market accounts. The interest rate is comparable to CD's and the liquidity allows for easy transfers in and out of the account. My money market account at my brokerage provides a convenient way for me to transfer cash to and from my investment account. It also allows me to earn money on the cash from stock sales until I've decide where to re-invest the capital. She decided to invest her money in CD's since she has very little knowledge of stocks and mutual funds and she may have need of the cash in the near future. For now though, I think I'll stick with the money market accounts.

Monday, October 29, 2007

Getting Started Investing in Stocks

My first investments in the stock market were in the form of mutual funds. Back in 1993, when I first returned to Missouri, I made very little money, so I only had $35 a month to get started. That didn't stop me though. I opened a savings account and let the money build up until I had enough to buy in to my first mutual fund. Within a few years I was able to build my account and eventually owned 7 different funds. I didn't do to bad, but it seemed to me that with the fees charged to my account and the fact that the mutual funds didn't really increase much in price, I could probably do better with individual stocks. To test my theory, I purchased a few shares of Mobil Oil. A few months later they announced their merger with Exxon and my shares of stock zoomed from $65 to around $120. I had almost doubled my money in less than a year! That convinced me. I sold all my mutual funds and started investing in stocks.

I have always followed the pay yourself first rule, at least to a point. I have never quite been able to put aside 20% of my gross income, like so many money experts seem to recommend. However, I've always decided on an amount my budget would allow and pay myself before I pay any of my bills. I can't say I've never touched the capital. It is very seldom that do, but "time and unforeseen occurance befall" us all. For the most part though, I've left the money alone to accumulate.

Along the way I've had some really good years and some pretty lean ones. This year has been a pretty rocky road for stocks, but I've still done pretty well. I think the biggest change I've made to my portfolio this year was to convert all my stock investments to dividend paying stocks. I had carried a lot of growth stocks, but the thing I noticed with growth stocks is that the "growth" can dissappear very rapidly in a down market. The same was true with dividends re-invested in the stocks that paid them. So I now have my dividends paid into a money market account where they earn interest every month until I decide to where to re-deploy the capital. I'm not suggesting that this is the best way to invest, but it has worked well for me.

I currently own stock in about 20 different companies. My investments are pretty diverse. I own shares in a couple of banks, a few consumer goods companies, some Canadian energy trusts, a couple of utility companies and some Greek shipping companies. Right now I'm concentrating on building my positions and increasing the amount I recieve on dividends each month. This strategy has worked out pretty well, since my budget doesn't allow for much of an increase in my monthly deposits to my account. That will all change before long, since I'll have one of my major bills paid off and I'll be rid of a monthly payment of over $300. I'm planning to keep making this payment, but I will pay this amount to my investment account instead of to the creditor. In the mean time I've been picking up extra work so I can keep increasing my current investment amounts. Everything is working out pretty well so far.

Saturday, October 27, 2007

A Little History About Myself

I was born to a family of 10 children in the early 60's toward the end of the baby boomer generation. My father, although blessed with many talents and a hard working man (when he kept a job) was an alcoholic and a wife beater. By the time I came along my mother had had enough and they were divorced not long after I was born. Being the 60's there were not many opportunities available for a single mother with 10 children, still my mother being the strong willed type managed to keep a roof over our heads and keep us all together. She married my stepfather a few years later and I was blessed with a younger sister who has always been my best friend. Not long after they were married, my stepfather moved us to the bootheel of Missouri, not far from Poplar Bluff, where he worked as a farmhand and a share cropper. Needless to say, we were very poor. I remember a lot of tough times, having to do without a lot because we just could not afford it. After 10 years together, my mother discovered my stepfather was having an affair and decided to take the kids and move back to central Missouri where she was originally from. I suppose she had hopes that he would come to his senses, and perhaps he would have eventually, but he met with a tragic death in his early 30's. I wanted to tell this story, not for the sake of garnering simpathy, but to give the reader an idea of where I came from. I started life with very little in a material sense and in the sense of a financial education. I've always believed that your life, no matter how good or how bad it starts, is really what you make of it. As an adult, I made a lot of poor choices in my early years and for that I have only myself to blame. However, I also realized that there are many ways you can bring about positive changes in your life. I have spent the last several years educating myself about investing. From the start I had intended to learn about investing, make a pile of money and then write a book about how I did it. Not so much to profit from the book, but to help others who were starting the way I did, with nothing. Most investment books and articles I have read and most of the programs I have seen on television seem to be geared towards people who already have at least some money. When I say I started with nothing, I mean I literally had only the shirt on my back to start over again at the age of 33. Even now, I don't have a great job, I don't make a lot of money from my hourly wage or from my investments. It's very unlikely that I will ever inherit any money or come in to any great windfall of cash. However, I do have the knowledge and the experience that I didn't have back then and things are really starting to fall in to place. So instead of waiting to write the book, I decided it would be a good idea to chronicle the story in blog form and readers could follow along for the duration. At this point, I don't have much doubt that I will reach my goals, but telling the story as I go is very appealing to me and I hope will be of interest to others who might want to follow along. I most certainly welcome advice from others along the way and hope that my example might inspire people who, like myself, may not see any way out of the wage slave racket of going to work day after day and spending all their hard earned cash to pay bills and just get by. Opportunities and money abound in this country, that's why so many people want to come here. Sometimes when you're so close to something every day, you don't really notice it. I've finally realized it was time to open my eyes and my mind to all the possibilities and to take action to get from where I am to where I want to be. The future starts NOW!