Investing, trading or speculation?

Since you are reading this, I assume you have some interest in investing. I hope you have your savings cushion and you are now wondering about next steps. Before we start I want to make sure you understand some very important distinctions. Investing is something you do for the long term; five, ten even twenty years or more. Trading is something you do short term, usually keeping a stock or option for a couple weeks or even a couple of hours. Speculation, which has been in the news a lot lately, is different. Whereas investment and trading are usually based on facts and data, speculation is largely based on hope and guesses. I don’t speculate - no Reddit trades or meme stocks for me. I like to work with something that gives me a statistical edge, some real known facts. It moves the odds in my favor. This approach has worked very well for me. I may not make a killing on a sexy stock, but I do enjoy steady returns.

I invest for our retirement and, as I am in my 60s, I have an emphasis on income producing stocks. If you are younger, you can afford to forgo a focus on income and look for stocks that might appreciate a good deal over the years. You should consider your investment time horizon before you start buying any stocks.

If you only have small amount to invest, say less than $5,000, I would suggest you look first at an index fund. Index funds are baskets of stocks, you buy the fund and get a diversified mix of stocks. If you have more than that, you may be ready to start building a portfolio of stocks. I will talk tomorrow about how to get started.

I would be happy to answer any questions you may have about investing. You can use the ‘contact us’ button above to ask them. I will answer questions as they come.

Start at the beginning…

To be able to manage your money, you have to have some. This is why you save. Growing up I lived in a home where my parents both had good jobs but money always a source of stress. My parents did not save. They vaguely planned on their respective pensions to support them in retirement, whenever that was going to be. My Dad made more money than my mother but never seemed to have any. Mom, the better money manager, squirreled away what little extra money she had in a secret account she kept from my father, but that was always being depleted by the ‘wants’ of four kids. My parents constantly bickered over money. I believe that is why I became a compulsive saver. As allowances were sporadic, I relied on sneaking into my Dad’s closet and emptying his pockets of spare change. My parents were shocked when they found I had accumulated hundreds of dollars this way by the time I reached my teens. I learned that pennies do add up. When I began working, babysitting and a part-time job at a local business, I made a point of saving 80% of what I earned. When the opportunity came up for an overseas scholarship, I was able to take advantage of it because their objection, “We can’t afford to send you” was moot. At 17, I had the money to support myself for a year.

Saving is a habit. It should begin when you are young but it can be learned at any age. If you are old enough, set up a separate account for your savings to rest in so it requires extra effort to get to it. Be aware, I make a distinction between savings and investments. The latter is how you make your money grow (which I will discuss in detail as this blog evolves), Savings is simply money you keep aside so you do not have to disturb your investments in case of an emergency. Mentally, you need to think of your savings account as a ‘no go’ zone. It is for emergencies only. There is a lot of literature as to how much you should have in this account but I think 3 to 6 months of living expenses should cover you.

Make getting your savings account fully funded a priority. If you live paycheck to paycheck try and give up all discretionary purchases and fund this account. Limit eating out, entertainment, clothing purchases etc. to get this account going. Once you have 3 months saved, reward yourself but keep going. Remember too, as your living expenses rise, remember to top up your savings accordingly. Having a savings account will be a major stress reducer in life.

Tip: Consider using an on-line bank for your savings account. In general they pay a higher interest rates. While interest rates are laughable at this point in time (I earned 8% on mine when I was a kid), they will eventually rise. When they do, interest will help your savings grow.

.

Coming Soon…

Have you ever been cheated? Then realized it was your own fault? By simply letting our family’s hard earned retirement savings run on autopilot. It was a devastating loss and, in retrospect, empowering for me. I learned that financial advisors can’t be held responsible for losses, especially if they are not a fiduciary (more on that later). I also learned that their firms will be remorseful but not make you whole. As a result, I decided Enough. I was going to learn how to manage our money myself. Fifteen years later, I have learned a lot about personal finance and particularly about investing. So much so, that I successfully trade options for a living and wrote a book to help friends and family learn about how to do it themselves. This blog is here to help you learn a bit about finance as well. I am going to share my observations about the stock market, some of my daily trades and other financial tips I have learned along the way. I am not a professional financial advisor and am not endorsing any particular stock or trade. I am simply here for those starting out in the world of personal finance who would like a sounding board or somewhere to ask ‘dumb’ questions. I can’t guarantee I will answer everyone’s queries or concerns but I will share, daily, the insights I have gleaned over the past fifteen years. Because at the end of the day, money matters.