DISCLAIMER: Nothing in this post is meant to be offered as investment advice. Do your own research about any investment you make and never invest without fully understanding the risk of loss.
Don’t be lazy
Jumping right out of the box with this first point. Overall, for the last 5 years, I’ve had my investments simply “tread water”. That is a real “no-no” in the investment world. This is mainly because, inflation, will eventually eat your principal away. Your money needs to grow. That point was again driven home in a book I’m currently reading. That book has also inspired me to write this post. Principals by Ray Dalio of Bridgewater invesments is a great resource for those looking to be inspired by the marriage of technology and investing.
Most people achieve their growth by continually adding new money to their investments. However, for a number of reasons, I haven’t been adding much new money to my investment accounts. I did a summary post about how my investment lagged the markets along with many of the reasons. The bottom line is that my balances weren’t moving toward truly achieving my goals. That’s a BIG advertising angle for most investment firms, but when you’re “self-directing” your investments, sometimes it can be elusive.
Be open to learning from others
One of my fellow bloggers, who I admire for her consistency and non-flashy way of explaining concepts to others is Chief Mom Officer, Liz. She recently did a few posts and/or simple tweets on how you can make 2%+ interest rates on a number of accounts. No one’s going to get rich from 2%, but it’s a good starting point. I realized that I was not optimizing my idle cash in a number of my accounts. Those simple “calls to action”, inspired me to stop being lazy and explore options for idle cash. I made some changes that will allow me to make more money on a month to month basis.
Use the tools available to you…or
I’ve used a number of online brokerage platforms, but the 2 I use the most are TD Ameritrade and Fidelity. Between the two, I could never seem to get all the information I needed. At least not in the right format, at the right time. That can be very frustrating. For example, the percentages of up and down movement that they show, as a percentage of your invested total, can be confusing. However, this information can provide a good benchmark with how you’re doing, compared to the overall market movement. There a number of tools available to create lists. Most allow you to show specific columns which can then be exported for use in spreadsheets programs like Excel or Google sheets.
Invent your own
What I’ve been doing is combining some of the information from several sources and tracking investments as a “percentage invested” then couple this with a 52 week high/low report. This allows me to see what the changes might be, if the numbers move to either of those extremes. It’s crude, it’s simple, it’s not brain surgery, but it works for me. It works as a guide to reduce (or increase) my positions, based on a number of those factors.
Some might call it “smoothing”. When the markets dipped back in December (and I developed these tools after that drop) my accounts went down by a certain dollar amount. While that is a paper loss, my goal is to lower the potential, total dollar decline of my paper losses. There are a number of ways this can be achieved. One is by purchasing stocks with lower “beta” indicators. Regardless, I want to take on less risk, but not be fully removed from the market. In addition, I want to monitor, what the total loss would be, that I avoided, or the gain I missed. The first column circled below is the total percentage invested (excluding my cash and bond positions). The second column shows the total dollar amount drop, if my those stocks moved to their 52 week low. I can tweak my positions by looking at the potential dollar amount swing. It’s really just a different way of visualizing volatility.
After getting rid of position, I track how the stock has moved after I sold it. This is done by creating a “Watch list” within Fidelity and then monitoring the totals, from the point I sold. The list allows me to sort by a number of benchmarks. These include analyst rank and high/low ranges. Since I’ve been doing this, I’ve actually missed out on about $2,000 of gains. That’s ok. Even that is an indicator that I need to be more disciplined and NOT sell. It also let’s me see which one’s I shouldn’t have sold, etc. This has helped me identify that I’m selling highly ranked stocks. (probably because they went through a bad patch). I’ve also been holding onto low ranked stocks, in hopes that they will bounce back. All part of my learning process. An expensive learning process, but still valuable.
Why? …because I need that money!
In the perfect world, no one would ever touch their investment account money. I know that. I’m a long student of the markets and their ups and downs. However, the name of this blog is FINANCE AFTER 50! and I’ve known many, many people, who eventually need to tap into that money early. Most have done so at great risk and don’t recover. I know many people who had a nice lump sum around pre-retirement, only to foolishly blow it. I’m trying to grow the balance, remove a set dollar amount and CLOSELY monitor downside risk. The “Wealth effect” is the feeling people get, when the markets are rising. You think you’re richer, and you can simply use that money. Then you get a double whammy, when the markets turn down. I’d like to use some of that capital to purchase a vacation home. I want to ensure 2 things before I do that:
1. Stop treading water and GROW. Even if that means tearing my investment strategy apart and starting over…so be it.
2. Make sure I’m fully aware of downside potential during a downturn.
This is how I’m trying to mitigate my OWN risk. How are you doing it, and how are you gauging if you’re truly becoming a better investor?