10 from Buffett

Michael Brush over at MSNBC has a nice short article containing 10 investing basics from Warren Buffett. Similar to Bogle's tips, they are eminently simple, logical, and achievable for any investor (save #8 to some degree. Buffett's "big, concentrated" position and yours are going to be very different. Although the concept still applies.)

Trust in American business, buy cheap, and hold forever - that's why this is a great time to invest in the entire stock market through index funds.

Six Lessons for Investors

John Bogle has a great opinion piece in today's WSJ about six lessons for investors.

Fairly simple, straightforward, and logical - what good investing is all about.

7 Index Fund Myths

A great post over at The Dough Roller about index funds and some common myths. Some stuff I didn't know - worth taking a look if you are a beginning investor or even if you think you know everything there is to know about index funds.

Even the simplicity of index fund investing, which appeals to be as a novice investor, is more complicated than I thought.

Financial Independence Progress (FIP) Graph

Here's the second installment of my new favorite way to evaluate my financial situation - the Financial Independence Progress Graph. This is a simple but elegant graph that actually provides quite a bit of information, but directly and indirectly. The blue line tracks my income month-to-month, the red line tracks my monthly living expenses (all spending minus savings and investments), and the green line tracks my investment income. The key is to try to maximize blue, minimize red, and increase green until it crosses or surpasses red - this is the point at which financial independence (FI) is achieved.



As you can see things are at least trending in the right direction after a horrid June, expense-wise. I picked up a little bit of extra income in referral bonuses and brought spending back down, although not nearly as low as I'd like. Although it's barely noticeable here, that green line is beginning to rise as well coming off a tiny gain in my IRA.

The real key to increasing the green is to maximize my monthly savings and investments. The key to doing that is to maximize the area between the blue and red lines. It's a simple formula: income - expenses = cash flow. That cash has to be used as investment capital in order to have any hope of accelerating my journey toward FI. As you can see from the graph I had a couple great months in this regard, which helped me get my assets to where they are now, and a few so-so and bad months that have brought my efforts to a crawl. I need to work much harder than I have been on this.

It's a long road to be sure, and a tough one, but by starting early and focusing now it will make it easier as the power of compounding works for me.

This Whole Stock Market Thing Is a Wild Ride!

I've only been invested in the market since Tuesday and I'm already experiencing the ups and downs of being an investor, albeit on a micro scale. The first couple days saw the market bounce back from previous lows and I saw my balance magically increase by about $32. Not a bad deal, I thought. Then yesterday the S&P had a big drop and my balance actually dropped below my principal. I'm obsessively checking the market fluctuations even though I keep telling myself not to. Hopefully the novelty will wear off soon.

I'm actually happy about this and I sincerely hope the market continues to decline over the next few months. A bear market is a great thing for a young investor, and since I plan on putting a lot of my money in over the next few months I want to get as much as I can for my dollar.

So, here's to plummeting prices!

Who Profits from Big Oil?

Tired of rising gas prices? If you have a 401k plan, IRA, or invest in broad market stock funds, chances are that you, like millions of American investors, are reaping the benefits of gigantic oil company profits.

I Am an Investor

As of this morning I am the proud owner of 92.034 shares of Fidelity's Four-in-one Index (FFNOX) purchased at $27.18 per share. I finally reached the $2,500 minimum necessary for a retirement account to buy into this fund, which I decided upon after some lengthy research. I wanted to go after an index fund that tracked the S&P but unfortunately the one I really want, the Spartan 500 Index Fund (FSMKX), has a minimum buy-in of $10,000 (with a gorgeous 0.10% expense ratio!).

So I put my $2,501.72 into FFNOX for now, and I plan on this being my sole IRA investment vehicle until I can sell out and buy into FSMKX. The cool thing about FFNOX is that it is comprised of four funds: FSMKX, the Spartan Extended Market Index Fund (FSEMX - with at least 80% of assets in the Dow Jones Wilshire 4500 Completion Index), the Spartan International Index Fund (FSIIX - tracks the performance of foreign stock market indices), and the U.S. Bond Index Fund (FBIDX - tracks a mix of U.S. bonds).

FFNOX has a nice expense ratio of 0.23%, which works for me for now. It's also got me diversified within a single fund, with 70.30% of the fund in U.S. equities, 15.40% in international equities, and 14.30% in investment grade bonds. While I don't think these asset allocations are exactly right for me at this point (too heavy on bonds, which should be minimal considering my age and investment horizon) they are fairly diverse within this fund, and should help temper the volatility of the fund over time - right?

The main thing is that now is the first time I can actually say: I am an investor! An impecunious one, for sure, but an investor nonetheless. I own a piece of American (and international) business! This is very exciting for me.

Now...the boring part. Keep investing every month for the next 30 years, don't touch my investments aside from tweaking asset allocations and watch my retirement nest egg grow (hopefully).

iPhone Owner or Millionaire?

Which would you rather be?

A great post from J.D. over at Get Rich Slowly about this comic. Here's the math behind the point of the strip. It's amusing, but also illuminating.

Of course this isn't just about the iPhone per se but about a certain mentality. Personally I'm going to skip the iPhone. How about you?

Learn to Love the Bear!

A great article by Jason Zweig in this weekend's Wall Street Journal. It's titled, "Stop Worrying, and Learn to Love the Bear." Zweig's main point is that bear markets provide the best investment opportunity for the prudent investor, and that wise investing, like losing weight, is simple, but not easy. It's boring and relies on consistent investment and discipline over decades - simply invest every month in low-cost index funds that track the market and a century of stock market data is on your side in terms of expected returns over the long term. Stay the course and ignore the market fluctuations - if anything, down markets represent the time when you should be putting more money into the market - stocks are on sale!

Reading this in addition to countless other articles and opinions reflecting this philosophy (one which men such as Bogle and Buffett espouse, especially for the average investor) just confirms what I've been feeling - I am actually excited to be beginning my investing career when stocks are at bargain basement prices. I will gladly watch the S&P continue to drop over the next few months!

Investing: Simple But Not Easy

A nice piece by Larry Swedroe via AllFinancialMatters. Swedroe talks about the necessity of bear markets - when market prices are falling significantly. It's interesting from my personal standpoint - I am a complete newbie when it comes to investing. I've been reading up on a lot over the last three months, but I have yet to actually commit to anything. I have $500 in my IRA; I plan on getting that at or close to $2000 by month's end, at which point I will finally decide upon an investment vehicle for that money.

But there are several key points in Swedroe's article. It talks about trying to time the market (and why it's a loser's game). Wise investing is about establishing a plan and being patient and disciplined. I'm working on the plan, I'm infinitely patient, and I'm getting better with the discipline. Also Swedroe points out that a bear market is actually a good time for new investors - stocks on the cheap! So despite the plummeting interest rates, this could be offset by an opportunity to let me start my portfolio with good value for my investment.

Rates Continue to Fall

My ING savings is now at 3.10% and my checking is at 2.00% APY. When I joined in December the rate was 4.1%. How quickly things change! Just when I start saving the tide turns against us reasonable-minded savers...oh well.

Time to weather the storm and invest in dirt cheap stocks...

A Buffett Buffet

Via Get Rich Slowly, Dang over at Underground Value transcribed a recent address of Warren Buffett to biz school students. Great stuff in there. It's fairly lengthy, but packed with witty lines and some sound advice.

The Quotable Buffett

A great guest post over at fivecentnickel.com containing some great quotes from Warren Buffett. Check it out.

Words from Warren

Hat tip to The Dough Roller.

Snowflaking

My Dollar Plan has a nice post up about applying the snowflaking strategy for debt reduction to investing. Snowflaking is a corollary of snowballing. With debt snowballing, instead of paying off the debt with the highest interest rate first (which is the mathematically and financially correct way to do it), one attacks the debt with the smallest balance first. Pay the minimum on the other debts and put everything extra toward the smallest balance. Once that is paid off, apply whatever monthly payment one would have made toward that to the next smallest balance. Instead of following the most financially sound path, this method appeals to psychology, allowing the debtor to quickly win victories, keeping morale up and staying on track until the entirety of the debt is paid.

This method has gotten many positive reviews across the financial Blogosphere, and I think that if it does help people stay on task until they pay off all their debt then it is worth the extra they will pay in interest over the course of repayment.

Using snowflaking for investing is a great idea, I think. Any little bit here and there over the course of a month - stick that in your savings, or use it to help max out your IRA contribution for the year - will add up into an investment snowball, eventually creating a veritable avalanche of wealth for you as you sit by the pool sipping on fruity drinks in your golden years.

Active or Passive Investment?

Although I am just getting my feet wet in the ocean of saving and investing, I have been spending and plan to continue to devote much of my spare time to learning about all aspects of finance. I am currently laying the groundwork for future endeavors, but one issue that I've seen crop up a few times in my reading is active vs. passive investment management. I came across this excellent article in San Francisco magazine, by way of the invaluable Get Rich Slowly, describing the value of the index fund over traditional stock picking and managed mutual funds.

As I understand it (an admittedly rudimentary understanding), active stock management is when one invests in individual stocks and monitors the market daily, anticipating the optimal times to buy and sell stock for maximum returns. This active management also manifests itself in the form of mutual fund managers who observe the market on behalf of their clients - taking significant fees to do so. Everyone from stock brokers to financial advisors to investment house managers profits extraordinarily from this system.

However, the relatively recent (as of the early '70s) rise of the index fund is a direct assault on the classic system of stock investing. Index funds basically take a stock index like the Dow Jones or Standard and Poor's (S&P) 500 and buy stocks in the proportions in which they exist in that index, assuming that, for the most part, a given stock price is an accurate reflection of the value of a company. The fund follows the ebb and flow of the entire market, and rather than trying to select individual stocks to beat this natural expansion and contraction, it relies upon historical precedence that the stock market generally rises in value over time. This method is very passive - so much so that it can be managed by computer for a tiny fee, rather than a team of exorbitantly-paid financial services people. And with very rare exceptions, mutual funds do not outperform index funds. Considering the fees and expenses involved with some of these high-performing mutual funds, index funds seem like a wise investment indeed.

Read the entire article, it's fascinating.

Also, a great post at The Simple Dollar explaining how index funds work.