Success Factors for Cricket Similar to Investing

What can we learn about our finances from the game of Cricket? Actually, a lot. There are seven factors that influence how successful a Cricket player will be and these same seven factors apply to investing and your finances as well.

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Extreme Investing

I am still young and can take big risks when investing. Or at least I like to think so. But hey, I’m also still of the opinion that I haven’t hit middle age.

The point is that from an investing standpoint, most people who are younger than forty should be focusing their portfolio on growth and that means taking measured risks.

Risk is something that I have always loved. I’ve always been interested in snowboarding, skateboarding, biking, and all types of extreme sports.

I like taking big risks and have done so in the past

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Allocation Shift

I wanted to give a quick update on some things I discussed in the post where I discussed my net worth goal. If you remember, I didn’t reveal the dollar amount of my net worth goal but rather created an index to measure the change in my net worth. This will allow me to share my goal and progress without having to reveal the details of the actual dollar amounts.

I also discussed in that post my net worth allocation. I don’t always see other net worth posts reveal this so hopefully that will be an interesting thing to read about as well. Looking forward to the feedback on that.

I wanted to talk about the allocation in today’s post.

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Net Worth Goal Revealed: Increase 10X In 10 Years

It is impossible not to notice that within the personal finance blogging community there is a practice of reporting Net Worth periodically. I find these posts incredibly interesting. It’s like tagging along with a professional athlete, seeing their daily eating schedule and workout routine, and then following their reports of performance improvements.

It’s also like getting the benefits of a mentor who shares their current progress and the reasoning behind their choices. What’s better is that you can get the benefit of multiple mentors at different Net Worth levels. Some people are out there tracking a few thousand dollars each month while others are showing increases in the tens of thousands! It’s really exciting to see how things progress over time for various people and their various strategies.  Continue reading “Net Worth Goal Revealed: Increase 10X In 10 Years”

Investing in Preferred Stock

I just read a really interesting article about preferred shares.  These are very unique vehicles to invest in a company and earn a great return. However, they aren’t exactly stocks and they aren’t exactly bonds. So what are they?

Preferred stock is basically a stock that pays a dividend which gets paid before the dividends on the common stock.  So it is called “preferred” because preference is given to paying the dividend before payments are made to common stockholders. Preferred sounds so much more sophisticated as well! You don’t want to just be a common investor – be preferred.

It is kind of like when you have a mortgage on your house and then you take a second mortgage. When this happens the bank that loaned you the money first has priority and is preferred. If you were to go bankrupt and your assets were liquidated to pay your debts, the preferred debt holder is paid first.  In this example it is the loan with the first bank that will be paid off first. If any proceeds are left then the second mortgage would be paid.  This is similar to how preferred stocks work when compared to common stocks. The dividend will first be paid to preferred stockholders and will then be paid to the common stockholders.

Keep in mind that those who own bonds will be paid first before preferred stockholders and common stockholders.  The lower risk is the primary reason that bond returns are lower than preferred stock returns.

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How to Start Investing in Stocks

One of the biggest reasons people don’t achieve financial success is that they fail to get started! We all know that we should be saving and investing but by the time we get our first job we usually don’t know where to start. Not knowing how to start investing in the stock market can lead to feeling overwhelmed. I have talked to many who say that they feel intimidated by the stock market and so they just don’t invest in it. Instead, they dutifully start a savings account or begin investing in Certificates of Deposit (CDs) at their bank.

But that is usually not the best approach.

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Why Only a Million?

Years ago I read a very helpful article about financial goals and the author said that focusing arbitrarily on saving one million dollars was ridiculous. What? Isn’t that the goal of everyone who is saving and investing? Most of the financial literature we read is geared towards saving a million!

But why?

The author’s point was to actually think about what things make you happy and how much money you would need to buy or maintain those things.  You then add it all up and that is your financial goal. This may only add up to $700,000 or even less if all your debt is paid off.

But I actually want to take a different approach.

Why Only One Million?

If one million is good why not shoot for more? The longer you invest and the more disciplined you are the more likely you are to reach much more than one million dollars.

And to me that makes a lot of sense. The one million dollar goal is more suited to getting you out of a job that you don’t like. That seems to be the big fad right now. But there is a better way!

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How Would the “Future You” Want You to Invest Now?

If someone were to ask you in 2046 how you should have invested your money in 2016 what would you say? I think this is a really helpful question.

I’ve been thinking about this a lot lately and it has really been a helpful thought experiment. Asking yourself this questions leads to other questions which help focus your goals.

For instance, how old will you be in 2046 and what will your lifestyle goals be at that time? What kinds of things will be truly important to you then? Being able to help your children and grandchildren? Being financially independent? Giving to a non-profit that is special to you? Creating an endowment or a scholarship in honor of someone you respect? Or how about creating a trust for your grandchildren to fund their education or for them to purchase a house?

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Is the Stock Market Ready For Liftoff?

Is the Dow Jones Industrial Average ready for a large move upward? I believe it is. Look at the below graph:

The Dow has vastly underperformed historic norms.
The Dow has vastly underperformed historic norms.

The upward sloped line is an exponential trendline based on 11% average return which is not too outlandish for the Dow Jones.  However, the sad blue flat line on the bottom represents the actual return.

Yes this is simplistic – but I believe a reversion to the mean is coming soon with a large and sustained move upward.  We’ll have to make up some ground to get back to where we “should” be on the Dow.