2015 New Year's Resolution Breakdown

2015 was not a great year for my personal finance goals.  Here’s a quick rundown of my 2015 financial resolutions and how I plan to meet them in 2016.

1.       Max out my IRA.

a.      Accomplished.  It’s the first thing I do every year so I have money to invest with.

b.      2016:  This is always my first goal, so I’ll definitely accomplish this.

2.      Save $X in my savings account.

a.      Accomplished.  This is the second thing I do every year now that I have a house, to cover large maintenance expenses.

b.      2016:  This will come second after my IRA, and I have no doubt I’ll accomplish this.  I plan to buy a car in cash this year too, so this near-term goal will be a primary objective.

3.      Save at least $X every paycheck.

a.      Not accomplished.  We had some large expenses this year, and we basically took 3 vacations.  We went back home for two weeks, Vegas in December for two weddings, and my in-laws came to my house for the holidays.  I came close though; just needed one more paycheck in the year.

b.      2016:  I’ve already implemented some routine deductions in expenses throughout the year.  This should help balance some of the larger expenses like car and housing maintenance.  I’m also going to try and publish blog posts more frequently and build some side income.

4.      Increase 2015 passive income (dividend/interest/mutual fund distributions) by 50%.

a.      Not accomplished.  I waited too long in my investing career to focus on passive income from investments—which explains the goal of trying to reach a 50% increase.  There were several factors contributing to me not reaching my goal in 2015.  The first was a reduction in end-of-year mutual fund distributions.  There weren’t a lot of short- and long-term gains with the market dropping this year.  Additionally, some of my dividend stocks gained quickly and I sold the profit.  For example, WWE offered a 5% dividend when I bought it a low of $9, but then it skyrocketed to $18—doubling my money, and I sold it.

b.      2016:  I’m going to put more money into mutual funds during large market drops.  I will also put more money into large dividend payers whose industry isn’t doing well like oil companies and Real Estate Investment Trusts (REITs).  I have a solid chunk of money in bonds, so I’ll need to keep a close eye on the bond market and make sure that I don’t take a huge capital loss by keeping my money in those bond mutual funds just to get a passive income.

5.      Net assets of $X on 31 Dec.

a.      Not accomplished.  I rarely reach my net asset goal, mainly because the percentage increase is always higher than the market average.  I’ve also never measured my progress monthly or quarterly.  I guess I just hoped I would land on the arbitrary amount at the end of year.  The main reason for not meeting my goals this year was the massive loss I took trying to get quick money.  I invested in some speculative, risky, short-term investments and underestimated how quickly I could lose money. 

b.      2016:  I’ll need to split the goal into monthly and quarterly goals and work harder if I’m not meeting those goals.  I won’t make those same risky investments I tried in 2015 either.

I have a feeling that 2016 will be a great year for those prepared and ready to take advantage of it.  What are your 2016 New Year’s goals?

4 Steps to Make Money when the Stock Market Crashes

The DOW Jones has fallen to around 16,000 after hitting a high of 18,300 on May 2015; a 13% drop. Depending on what you’re invested in, you may have seen a large drop in your TSP, 401(k), or your taxable brokerage account. If you’re under 55, you should see this as an opportunity. If you’re over 55 and you’ve seen a 13% or more drop in your portfolio, then you’re not correctly investing your money in the first place. For those under 55, stock market drops can be a good thing to take advantage of. Here’s how:

• Put more money in as the stock market drops. Most people have their retirement savings on autopilot. TSP and 401(k) contributions are automatically taken out of our paychecks. Some people also have IRAs and a taxable account as well. As the stock market is dropping, you should increase the money you’re putting in your TSP or 401(k). For military members, you can go to MyPay and change the amount anytime you want. For civilians, you’ll have to use your online retirement system or go through HR. Remember, you can only put $17,500 a year in a retirement account.

o    As the stock market drops, you’re able to buy more at the lower prices. Think about it like a sale on stocks or a military discount. You can buy your favorite stock at a 10% discount when the market falls.

• Find high-paying dividend stocks. In Jim Cramer’s book, “Getting Back to Even,” he calls stocks that pay high dividends because their stock price fell, accidental high-yielders. When World Wrestling Entertainment’s (WWE) stock dropped, its dividend rose to 4% and I bought it. There are many dividend-paying stocks whose dividends rise because of the overall stock market dropping.

o    This mainly applies to people choosing their own stocks or mutual funds. You can use any stock screen to find these. I like Yahoo! Finance and Fidelity’s stock screeners. I search for stocks that have fallen with a 3% or higher dividend yield.

• Avoid selling stocks. Over the long term, people who sell stocks automatically after a certain % drop tend to lose money. If you’re buying individual stocks, then you should only buy and sell based on a company’s fundamentals and not stock movement. 99% of the DIY investors Buy High and Sell Low because they are too emotional. When Tesla (TSLA) hit $290, a friend got excited and recommended it to people because he wanted to be a part of the stock’s rising price. Unfortunately, the stock lost steam and, at one-point, fell back down to $180; yet my friend was no longer promoting the stock at the discounted price.

o    If you know you’re emotional then avoid buying and selling individual stocks and mutual funds. You’ll lose money over the long run.

• Don’t time the market. People often wait on the sidelines for the perfect moment in the market drop. They’re so scared of investing at the wrong time that they miss an opportunity all together. This is the major reason why after nearly two decades of DIY investing that I’m not a billionaire; because I’ve incorrectly timed the market. I’ve bought on the way down (low) and sold on the way up (high). Don’t worry about trying to find the perfect time to buy. If your portfolio is less than $1M, then minor changes in your returns/losses will be less than missing out on opportunities all together.

Buying low and selling high seems like such an easy system but when the stock market declines or increases rapidly, people often do the opposite. This psychological response is why gambling is so profitable for the “bank” and so disastrous for gamblers.

Rising Interest Rates and Military Retirement Impacts

Last week, Russia raised its key interest rate 17% to 10.5%. (Bloomberg, 2014) While I personally believe raising the interest rates would be good for America’s economy and long-term economic success, I do recognize the rise would impact our military; specifically, our military retirement plans. Rising interest rates will make our military retirement less valuable.

Our military retirement is fixed; which means the variables do not go up and down. Our retirement is based on what rank we retired as and how many years we served. Our retirement doesn’t change based off of America’s interest rates; only the annual inflation adjustment.

We can see the impact to our retirement plan using my “Military Retirement Value” calculation blog post. A Major at 20 years (I use this because it applies to me) will receive $3,715 a month in retirement.  By comparing it to the yield on a 30-year bond (3%), the retirement is worth $1.5M. If interest rates rise to 4% then the retirement would be worth $1.1M; 5% is $892K. The reason why is because civilians can invest their retirement and gain from higher interest rates, while a fixed military retirement suffers because of rising interest rates.

I personally believe the economy will see inflation and America will be too slow to raise the interest rates to slow it down. The costs of normal consumer goods and borrowing money will rise. Groceries will be more expensive and your credit card interest rates will rise while your retirement will stay the same and you’ll have to wait for the lagging annual inflation adjustment.

What can you do to reduce the impact?

The first thing to do is eliminate all adjustable-rate credit sources. These will increase when the interest rates rise while your income will probably not.

Next, take advantage of the rising interest rates. When then interest rates increase you can find safer investments then stocks to get the same yields. Most people won’t have the flexibility to take advantage unless you’ve been a long-time reader of this blog.

If you’ve been a long-time reader, leave me a comment.

Source: http://www.bloomberg.com/news/2014-12-15/russia-increases-key-interest-rate-to-17-to-stem-ruble-decline.html

Stocks to Consider (November 2014)

I’ve made most of my returns through sound value-investing principles. Buying stocks at cheap prices because of temporary weakness, either in the company or the sector, has provided me the best returns. I’ve lost the most money by using other investing principles and ended up buying at the high point and then having to sell at a loss. In my opinion, a good value strategy in this rising market may be Solar Energy stocks.

The two companies on my watch list are First Solar (FSLR) which is the industry giant and SunPower (SPWR) Corporation which has a huge presence in the deserts of California. FSLR once hit close to $180 in Feb/Mar of 2011. As of 13 Nov, its 52-week high is at $75 and is currently trading at $48. SPWR once hit $130 in 2008 and its 52-week high is at $42 and its currently trading at $27. SPWR has been on a tremendous run since the end of 2012, being as low as $4 in November 2012, as it gains more momentum in the industry.

The Solar Energy industry was the darling of the stock market when Al Gore’s “Inconvenient Truth” swept through the world; putting alternative energy options in the spot light. Ever since then, politics have shied away from the Climate Change debate, focusing more on the struggling economy.

The alternative energy is politically dependent. As the Republicans take over the House and Senate, I imagine the industry will suffer and stock prices will go lower, providing ample opportunities for value investors. In 2011, the solar-cell company, Solyndra, filed bankruptcy after receiving a huge grant from the American Recovery and Reinvestment Act. The company was a major donor to President Obama’s presidential campaign. Once the company filed for bankruptcy, the administration dodged all implications of corruption costing the taxpayers $385 million, once/if the projected $142.8 million is recouped. The executives all received “golden parachutes.” Instead of the administration taking the hit, the solar energy industry took the blame and climate change discussions were halted.

These temporary political weaknesses may give us an attractive buying opportunity this year and into 2015. I think the industry will continue to expand with or without political support. Once the support has returned, the stocks should skyrocket. It’s also satisfying to invest in industries you feel good about. As always, be careful taking stock advice from any blogger.

DISCLOSURE: As of this writing, I’m not currently invested in FSLR or SPWR but will most likely buy soon.

Big Thrift Savings Plan (TSP) Returns

In my previous blog post titled, Active TSP participation, I recommended taking advantage of the recent market dip by changing your portfolio allocation or by doing an Interfund Transfer (IFT). In less than two weeks, you could have earned over .5% in most of the funds besides the “G” and “F Funds”. Considering that the national average for the ANNUAL return of savings accounts is less than .5% (http://www.bankrate.com/checking.aspx), then you could have made more in two weeks than all year in a typical savings account while keeping your money in your TSP accounts.

Date	L Income	L 2020	L 2030	L 2040	L 2050	G Fund	F Fund	C Fund	S Fund	I Fund
14-Oct-14	17.11	21.98	23.55	24.84	14.00	14.55	16.71	24.66	32.31	23.94
22-Oct-14	17.24	22.38	24.11	25.53	14.44	14.56	16.68	25.63	34.15	24.35
Gain/(Loss)	0.74%	1.79%	2.32%	2.72%	3.04%	0.06%	-0.20%	3.78%	5.38%	1.67%

*Data as of 23 Oct 14

You don’t have to be passive when it comes to major market swings and the Thrift Savings Plan (TSP). I understand most people want to invest and forget when they participate in the TSP. “Dollar cost averaging” or investing at regular intervals can earn you average results compared to the market; but by taking a passive approach to investing, you can achieve above average results.

Why I'm Not a Billionaire Yet...

To date, I’ve been unsuccessful at “beating the market” and becoming a self-made millionaire/billionaire through investing. In some years, I’ve beaten the market and professional investors; however, over 12 years of investing myself, I’ve managed to barely get a decent return compared to inflation. If I had put all my money into an Exchange Traded Funded (ETF) and have done no research or any active managing, I would have a significant higher rate of return. Here are some lessons and some recommendations I’ve learned which I’m hoping could help other self-managing investors.

·         Investing takes time. To be successful at investing, you must do a significant amount of research, all the time. You have to read books, stay current on events and research all types of market patterns, ranging from coffee prices, labor disputes, droughts in Russia to major political changes. The more you know about an investment’s “circle of influence” the better you’ll be at making a decision on when to buy. Personally, I do not spend the appropriate amount of time it takes to be extremely successful. Those who are successful make it a priority in their lives.

o   Recommendation: I recommend going to SeekingAlpha.com, Fool.com and Morningstar.com and Marketwatch.com to keep you updated.

·         Investing takes patience. One of the causes of losses in my portfolio has been a lack of patience. I jump into investments without sufficient data because I was impatient and was hoping to “get rich quick.” Or conversely, I’ve sold out of stocks because I was impatient with the slow rate of return. You have to be able to shut down your emotions while making investment choices. My obsession with becoming a millionaire has stopped me from being able to shut down my emotions. I recently joined some young people doing quick options and penny stocks and my emotions got the best of me and I jumped in without controlling my emotions. I’ve lost quite a bit of money doing the same thing with other investments.

o   Recommendation: Don’t jump into any investment unless you are fully prepared. Know where your entry and exit points are. Know how much you expect to profit from each investment.

·         Investing takes persistence. Gone are the days when individual investors can invest and forget. If you are going to manage your own investments then you must be active. This doesn’t mean day trading but it does mean spending a lot of time each day evaluating your investment objectives. I don’t have persistence and if I do, it’s inconsistent. If I pick some good investments, I start to become complacent. If I lose too much money, I’ll become disheartened and turn away from investing. My lack of persistence has left me on the sidelines during bull market runs and left me holding on while all my stocks dropped during bear markets.

o   Recommendation: I recommend checking your news sources daily and then focus on your strategy’s results on the weekends. Utilize trackers to measure your performance and compare to the market or similar investments. You may have earned a profit but was it less than a passively-managed strategy? This persistent evaluation will keep you on track with your goals and help make minor corrections at the correct time.

·         The power of dividends. For almost a decade, I had ignored the power of dividends. I spent most of my time trying to find the next Apple (AAPL). Many investors who focus primarily on dividends may never see their portfolio totals skyrocket in a couple of days or months, but over time they will consistently match or exceed the market because the dividends are reinvested during bear markets and then the stock rebounds giving you more capital gains and more dividend income. Many “boring” companies also increase their dividends throughout the years. So your $1,000 investment earning a 4% dividend 10 years ago but would now be getting an 8% dividend because the company kept increasing its dividend yield.

o   Recommendation: When using stock filters always consider dividend yield and dividend growth. If you are investing in mutual funds, consider high-yield or income based funds.

 If you are looking at becoming a self-made millionaire/billionaire in the stock market, then I hope this has helped you. But even for those just starting out, I hope this information has helped.