Investment Strategies

[sameech]

Carrying debt is just dumb with a couple of exceptions.

One being that if you use your AMEX card at a retailer and their computers are breached, you're not going to lose any money. You use your bank-account linked debit card and depending on the breach...your account can be cleaned out. But AMEX is paid off every month so there is no interest being charged. Of course if you break out the Visa and try that, you'll end up paying a lot of interest.

Most people cannot afford to buy a car or a house in cash, so no; and a lot of businesses in my area won't take AMEX because of their terms and the way they operate trying to force retailers to extend terms of sale beyond which they are by holding funds hostage. A high-end furniture store owner told me that he was losing a fortune because AMEX customers would file disputes on the charges for things the warranties wouldn't cover and he would end up losing the items sold and the funds as it was too expensive to send one his trucks 1,000 miles to pick up the merchandise for returns when they decided they didn't like it afterall.

Those are the other exceptions. Cars are manageable in many cases; housing usually isn't.

I have seldom had problems using my AMEX.

And I have never had a problem using my Visa. Regardless, there is an opportunity cost for paying off debt that people fail to consider. If your credit card is charging you less than 7 and you can get 15-20 in the stock market then you are losing money by not carrying the debt and buying the stock. You can sell at any point to pay off the debt down the road if need be as long as your stocks are outperforming your interest + cap gains rate.

 

[SteadyMercury]

Carrying debt is just dumb with a couple of exceptions.

Definitely, I'm not saying all debt is bad there is good debt and bad debt.

Using any credit card (not just AMEX) and paying it off every month is great, you get better consumer protection, rewards, etc. but carrying a balance on a card to where you are actually paying interest is just plain poor financial skills.

 

[SteadyMercury]

If your credit card is charging you less than 7 and you can get 15-20 in the stock market then you are losing money by not carrying the debt and buying the stock.

The debt is a guaranteed 7% you aren't paying. You stock might get 15%, or it might drop 50%, the addition of risk to the equation completely changes the balance to where it isn't apples to apples just comparing percentages.

I'd love to have an investment vehicle that paid me a guaranteed 7% in today's low interest rate environment.

 

[Flopper]

And my MSFT stock has gone up close to 20% since I bought it last year and my JCP is up over 60% in about the same time frame. No stock in my portfolio is down from when I purchased it and they all are outpacing any interest I am paying on debt.

Congrats. You are taking a brief timeframe in one of the strongest bull markets in history to attempt to make a general point about investing vs. debt.

The point is that if you have a good working strategy, then "oh you must be out of debt first" is crap logic for people to stay dependent on their 9-5 paycheck all their lives--people need to find balance. If their debt is well-managed, they need to be concurrently investing as well.

They don't need to have any debt at all, and you're mistaken if you believe holding debt is necessary for people to escape being dependent on a 9-5 paycheck.

Paying off debt is like a guaranteed rate of return, most people would kill to get a guaranteed rate of return at the percentage most people's debt is held at.

Paying interest on a credit card is just poor personal finance skills, don't spend more than you can afford so you pay off your credit cards every month.

Carrying debt is just dumb with a couple of exceptions.

One being that if you use your AMEX card at a retailer and their computers are breached, you're not going to lose any money. You use your bank-account linked debit card and depending on the breach...your account can be cleaned out. But AMEX is paid off every month so there is no interest being charged. Of course if you break out the Visa and try that, you'll end up paying a lot of interest.

I'm not saying anything against AMEX; I've had one of their cards for years but I've had no problem recovering funds when my bank account was breached.

I was out of town on business for several months and when I returned our apartment had been hit. We lost computers, some cash, credit cards, and a check book. The thieves forged several thousand dollars in checks, used the debit card to to clean out the account plus charge about $2,000 to a credit card. I have no idea how they got the pin number for the debit card.

I disputed the charges with the credit card company (Visa) and they credited my account for the loses in about 24 hours. The bank, (Chase), refunded every cent I lost but it took a little more time, about a week. I had to sign a notarized document for every fraudulent check and atm transaction. It took several hours.

Some people assume that unauthorized transaction mean you loose the money. That is not true but some financial institution would like you to be believe it is. By federal law, credit card companies must refund every cent you loose if you report the fraudulent transaction within a few months. If you report the transaction later, you are subject to a penalty. I think it's $25. Banks are regulated by federal and state laws and both address the issue of fraud so there is some variation in policy between states. However, in all states banks must refund all money's lost unless they can prove that you have acted "fraudulently" or had been "grossly negligent" It may take a bit of time to get the refund from the bank but you will get it. I've heard of a case where someone admitted to the bank that there were a number of people who knew his debit pin number. The bank referred the case to their fraud investigation unit and the refund was delayed about a month.

I know this is a bit off topic but I thought it might be of some interest.

 

[sameech]

And my MSFT stock has gone up close to 20% since I bought it last year and my JCP is up over 60% in about the same time frame. No stock in my portfolio is down from when I purchased it and they all are outpacing any interest I am paying on debt.

Congrats. You are taking a brief timeframe in one of the strongest bull markets in history to attempt to make a general point about investing vs. debt.

The point is that if you have a good working strategy, then "oh you must be out of debt first" is crap logic for people to stay dependent on their 9-5 paycheck all their lives--people need to find balance. If their debt is well-managed, they need to be concurrently investing as well.

They don't need to have any debt at all, and you're mistaken if you believe holding debt is necessary for people to escape being dependent on a 9-5 paycheck.

Paying off debt is like a guaranteed rate of return, most people would kill to get a guaranteed rate of return at the percentage most people's debt is held at.

Paying interest on a credit card is just poor personal finance skills, don't spend more than you can afford so you pay off your credit cards every month.

Carrying debt is just dumb with a couple of exceptions.

One being that if you use your AMEX card at a retailer and their computers are breached, you're not going to lose any money. You use your bank-account linked debit card and depending on the breach...your account can be cleaned out. But AMEX is paid off every month so there is no interest being charged. Of course if you break out the Visa and try that, you'll end up paying a lot of interest.

I'm not saying anything against AMEX; I've had one of their cards for years but I've had no problem recovering funds when my bank account was breached.

I was out of town on business for several months and when I returned our apartment had been hit. We lost computers, some cash, credit cards, and a check book. The thieves forged several thousand dollars in checks, used the debit card to to clean out the account plus charge about $2,000 to a credit card. I have no idea how they got the pin number for the debit card.

I disputed the charges with the credit card company (Visa) and they credited my account for the loses in about 24 hours. The bank, (Chase), refunded every cent I lost but it took a little more time, about a week. I had to sign a notarized document for every fraudulent check and atm transaction. It took several hours.

Some people assume that unauthorized transaction mean you loose the money. That is not true but some financial institution would like you to be believe it is. By federal law, credit card companies must refund every cent you loose if you report the fraudulent transaction within a few months. If you report the transaction later, you are subject to a penalty. I think it's $25. Banks are regulated by federal and state laws and both address the issue of fraud so there is some variation in policy between states. However, in all states banks must refund all money's lost unless they can prove that you have acted "fraudulently" or had been "grossly negligent" It may take a bit of time to get the refund from the bank but you will get it. I've heard of a case where someone admitted to the bank that there were a number of people who knew his debit pin number. The bank referred the case to their fraud investigation unit and the refund was delayed about a month.

I know this is a bit off topic but I thought it might be of some interest.

Most debit cards are used like a credit card, so you don't need the PIN on some transactions. I ditched my AMEX within the first year I had it. They were constantly pushing crap on me. I have a Visa and a Mastercard and that is good enough.

 

[Flopper]

And my MSFT stock has gone up close to 20% since I bought it last year and my JCP is up over 60% in about the same time frame. No stock in my portfolio is down from when I purchased it and they all are outpacing any interest I am paying on debt.

Congrats. You are taking a brief timeframe in one of the strongest bull markets in history to attempt to make a general point about investing vs. debt.

The point is that if you have a good working strategy, then "oh you must be out of debt first" is crap logic for people to stay dependent on their 9-5 paycheck all their lives--people need to find balance. If their debt is well-managed, they need to be concurrently investing as well.

They don't need to have any debt at all, and you're mistaken if you believe holding debt is necessary for people to escape being dependent on a 9-5 paycheck.

Paying off debt is like a guaranteed rate of return, most people would kill to get a guaranteed rate of return at the percentage most people's debt is held at.

Paying interest on a credit card is just poor personal finance skills, don't spend more than you can afford so you pay off your credit cards every month.

Carrying debt is just dumb with a couple of exceptions.

One being that if you use your AMEX card at a retailer and their computers are breached, you're not going to lose any money. You use your bank-account linked debit card and depending on the breach...your account can be cleaned out. But AMEX is paid off every month so there is no interest being charged. Of course if you break out the Visa and try that, you'll end up paying a lot of interest.

I'm not saying anything against AMEX; I've had one of their cards for years but I've had no problem recovering funds when my bank account was breached.

I was out of town on business for several months and when I returned our apartment had been hit. We lost computers, some cash, credit cards, and a check book. The thieves forged several thousand dollars in checks, used the debit card to to clean out the account plus charge about $2,000 to a credit card. I have no idea how they got the pin number for the debit card.

I disputed the charges with the credit card company (Visa) and they credited my account for the loses in about 24 hours. The bank, (Chase), refunded every cent I lost but it took a little more time, about a week. I had to sign a notarized document for every fraudulent check and atm transaction. It took several hours.

Some people assume that unauthorized transaction mean you loose the money. That is not true but some financial institution would like you to be believe it is. By federal law, credit card companies must refund every cent you loose if you report the fraudulent transaction within a few months. If you report the transaction later, you are subject to a penalty. I think it's $25. Banks are regulated by federal and state laws and both address the issue of fraud so there is some variation in policy between states. However, in all states banks must refund all money's lost unless they can prove that you have acted "fraudulently" or had been "grossly negligent" It may take a bit of time to get the refund from the bank but you will get it. I've heard of a case where someone admitted to the bank that there were a number of people who knew his debit pin number. The bank referred the case to their fraud investigation unit and the refund was delayed about a month.

I know this is a bit off topic but I thought it might be of some interest.

Most debit cards are used like a credit card, so you don't need the PIN on some transactions. I ditched my AMEX within the first year I had it. They were constantly pushing crap on me. I have a Visa and a Mastercard and that is good enough.

You may use a debit card like it's a credit card, but it's not because you're spending your own money and it's usually debited from your account with a few hours. Credit cards are an instrument for borrowing money. Debit cards are instrument for withdrawal money from your account.

 

[william the wie]

If your credit card is charging you less than 7 and you can get 15-20 in the stock market then you are losing money by not carrying the debt and buying the stock.

The debt is a guaranteed 7% you aren't paying. You stock might get 15%, or it might drop 50%, the addition of risk to the equation completely changes the balance to where it isn't apples to apples just comparing percentages.

I'd love to have an investment vehicle that paid me a guaranteed 7% in today's low interest rate environment.

I agree with the first paragraph but as to the second who is the guarantor? IL, NJ, MA and CA issue guarantees and pay mind blowing interest rates but I wouldn't buy their bonds.

 

[SteadyMercury]

I agree with the first paragraph but as to the second who is the guarantor?.

It is hypothetical based on the absence of debt payment.

If I have $1,000 in debt at a 7% interest rate versus not having $1,000 in debt at a 7% interest rate. At the end of the day the latter scenario guarantees me 7% advantage on that $1,000.

Of course it is entirely possible I carried the debt and used the principal to invest and make 20% to come out ahead by 13%, but then you're talking taking on risk that you don't beat the 7%.

 

[Flopper]

I agree with the first paragraph but as to the second who is the guarantor?.

It is hypothetical based on the absence of debt payment.

If I have $1,000 in debt at a 7% interest rate versus not having $1,000 in debt at a 7% interest rate. At the end of the day the latter scenario guarantees me 7% advantage on that $1,000.

Of course it is entirely possible I carried the debt and used the principal to invest and make 20% to come out ahead by 13%, but then you're talking taking on risk that you don't beat the 7%.

The evaluation of risk versus reward is what makes the difference between an average and exceptional returns. Most people can't do it and that's why most people shouldn't invest with borrowed money. If I want to increase my risk, I can do so by changing the composition of my portfolio and bypassing interest costs.

 

[SteadyMercury]

Agree 100%. My risk is completely managed by asset allocation, control what I can control and sacrifice chicken during full moon for the rest.

 

[william the wie]

Agree 100%. My risk is completely managed by asset allocation, control what I can control and sacrifice chicken during full moon for the rest.

Try using the Fibonacci series instead of animal sacrifice, Still somewhat hinky but it does have at least marginal back tested validity.

 

[SteadyMercury]

Pshh my stock picking parties are way more fun

 

[william the wie]

Are you also an advocate of positive drinking/thinking?

 

[Wake]

On the more health-conscious side of investments, I'm planning to start biking to work in the warm months, to cut down on gas costs while strengthening my ticker and overall health. Every day for the next month or so I've been driving at least 15 minutes there and back for two 2-hour shifts during the morning and evening. My poor car is taking a beating with all the driving, and even though gas prices are falling a bit I don't want to afford a $3,000 engine. Seriously.

In the middle of October it's a bit too dangerous to go biking at 5AM in the morning in SW WI. I reckon it'd take about 30 minutes of bicycling to get to my client's home, but if I leave early-enough I can make it in time. I could really use the extra exercise, and it'd be cheaper than going to the gym. Getting struck by a truck in the frosty morn is going to require some risk management. If I can set it up just right this could be an excellent investment that'll pay dividends for years to come. I'd need a reflective vest, a poncho, and long-underwear for cold mornings and evenings, too.

I'm doing practice runs during the warm afternoon, and will start this routine more seriously once the Spring frost has ended.

On the financial end, I'm looking into buying some REIT preferred stocks that pay 10-13%+ dividends. I figure that sector must be relatively safe. Shying away from investing in fast food corporations like McDonald's or breakfast cereals, too. Maybe it'd be wise to invest in the health care sector, since the population keeps growing and those jobs can't be shipped out-of-country? Hm, maybe medical research and technology would be a good option, too...

 

[Flopper]

On the more health-conscious side of investments, I'm planning to start biking to work in the warm months, to cut down on gas costs while strengthening my ticker and overall health. Every day for the next month or so I've been driving at least 15 minutes there and back for two 2-hour shifts during the morning and evening. My poor car is taking a beating with all the driving, and even though gas prices are falling a bit I don't want to afford a $3,000 engine. Seriously.

In the middle of October it's a bit too dangerous to go biking at 5AM in the morning in SW WI. I reckon it'd take about 30 minutes of bicycling to get to my client's home, but if I leave early-enough I can make it in time. I could really use the extra exercise, and it'd be cheaper than going to the gym. Getting struck by a truck in the frosty morn is going to require some risk management. If I can set it up just right this could be an excellent investment that'll pay dividends for years to come. I'd need a reflective vest, a poncho, and long-underwear for cold mornings and evenings, too.

I'm doing practice runs during the warm afternoon, and will start this routine more seriously once the Spring frost has ended.

On the financial end, I'm looking into buying some REIT preferred stocks that pay 10-13%+ dividends. I figure that sector must be relatively safe. Shying away from investing in fast food corporations like McDonald's or breakfast cereals, too. Maybe it'd be wise to invest in the health care sector, since the population keeps growing and those jobs can't be shipped out-of-country? Hm, maybe medical research and technology would be a good option, too...

Keep in mind that considerable risk go along with a 13% dividend. REITs are all sensitive to interest rate movements, some more than others. REITs are a good way to diversify, however considering our very low interest rate environment and the fact that we are in the 5th year of a bull market, I would dollar cost average or only buy on weakness.

 

[Wake]

I'm ignorant of what dollar cost averaging is...

There's a lot I don't know about the stock market.

 

[percysunshine]

I'm ignorant of what dollar cost averaging is...

There's a lot I don't know about the stock market.

Dollar cost averaging is fairly straight forward. You purchase a fixed dollar amount of a stock on a regular basis. When the stock price is high, you are buying fewer expensive shares, and when the price is low, you are buying more cheaper shares. Your cost per share is lower without having to play market timing games. If an investor thinks they know what the price of a stock is going to be in the future, there are more profitable strategies, but the investor has to be able to predict the price ahead of time.

 

[Wake]

Oh, duh.

So if I wait to buy ADK.PR.A until it goes from $28 to $23, and buy them when they're at a low point (and expecting them to return to the $28 value or more), that would be dollar cost averaging? I've been thinking of using a limit order that'll automatically buy the stock I want should it unexpectedly dip down into a convenient price range.

 

[percysunshine]

Oh, duh.

So if I wait to buy ADK.PR.A until it goes from $28 to $23, and buy them when they're at a low point (and expecting them to return to the $28 value or more), that would be dollar cost averaging? I've been thinking of using a limit order that'll automatically buy the stock I want should it unexpectedly dip down into a convenient price range.

That would be market timing. Dollar cost averaging ignores price and and has a fixed time period. Say you buy $1000 of ADK.PR.A every Friday at noon. Over a year, that will minimize the average cost per share because you will buy fewer shares at $28, and more shares at $23. If you take the position that you know ADK.PR.A will go up from $23 to $28, then obviously you should buy more shares at $23, not a fixed dollar amount of shares.

Limits and stops are good investment discipline. Just remember that the market traders and electronic trade programs can see those orders and can take advantage of them in a thinly traded stock or for big orders.

 

[Flopper]

I'm ignorant of what dollar cost averaging is...

There's a lot I don't know about the stock market.

Percysunshine described it quite well. For most investors, who can't determine when to buy and when to sell, dollar cost averaging is a great tool. You still have to determine what to invest in and how to allocate your money.

I have never been able to time the market and don't think many people can. Most investors are ruled by greed and fear. They tend to buy when the market is being touted by Wall Street gurus and the market is setting records which usually means it's due for a fall. They sell when the market is falling and there're afraid of loosing their investment. In other words, many investors make decisions based on emotions which is the worst possible way to invest. Dollar cost average takes the emotions out of the decisions.