Charting a Course for the Rest of 2019
With all the recent volatility in the stock market, concerns about a possible recession, lower interest rates, etc. you are probably wondering "Where should I put my money now?" If you have built your Financial Fortress, you don't need to worry too much about you overall net worth because it is safely and securely invested, but you may need to make some minor adjustments in your investment portfolio. I recently completed such a review and "tune up" and wanted to share some of my thoughts.
Better Yields. If you have excess cash, you may want to move some of that into a better yielding investment such as solid dividend paying stocks (see my recent post on this here). Some good names I have been tracking lately include Alliance Bernstein (AB) with an 8.29% yield, AbbVie (ABBV) with a 6.55% yield, ATT (T) with a 5.97% yield and ExxonMobil (XOM) with a 4.85% yield. These are all solid companies, with a long track record of paying and increasing dividends, but as always make sure you do your own research. Unlike investing in Treasury Bills, you do take some risk that the value of the stocks could decline in a market correction, but if you are willing to hold long term and the companies continue to operate consistent with their long term track record, there should be little reason for concern. True story: I know someone who bought 1,000 shares of Apple (AAPL) in 1996 for $4/share. Forgetting the enormous capital gain and just focusing on the dividend, those shares (after split adjustments) pay out a dividend of $3.08 per share or about $12,500 annually, so every year they are getting 3x their original investment back in the form of a dividend. Not bad.
Bitcoin. Bitcoin, which has rallied significantly this year, might be another option for excess cash. Although extremely volatile, I believe that Bitcoin has long term value as a more liquid alternative to gold or silver as not only an investment and store of value, but also a currency. While there are many other cryptocurrencies available and it may make sense to have some exposure to the more popular ones such as Litecoin or Etherium, I think a core holding of Bitcoin is the safest. As I have written previously, I don't recommend mortgaging the house to buy Bitcoin. Instead, I recommend no more than a small percentage of your total portfolio should be invested in it (5% maximum). I continue to invest $100 per month in Bitcoin but have been considering putting in a bit more. While I'm very bullish on Bitcoin, I do still like to have a core holding of physical gold and silver coins which are stored in a bank safe deposit box for safekeeping with no plans to sell that.
Real Estate / Royalties. Other ideas for getting a better yield include real estate investments (there are plenty of options available - see this post for some ideas) and investing in music royalties. I wrote about music royalty investing originally quite some time ago and have had over a year of actual experience with that investment. Over the last four quarters, the investment has yielded 6.9%, which is well above my loan interest rate 5.3% (I took out a small loan to make this investment and take advantage of the spread). With a continuing low interest rate environment, there will continue to be an opportunity to borrow funds at low rates for good investment opportunities, but as always you need to manage your risk when using leverage in your investing.
Retirement Accounts. If you have money in a 401(k) or IRA, keep it simple and safe. I recently moved my 401(k) funds into a "lifestrategy" fund with a risk profile that is appropriate to my general risk-averse nature. It's comprised of a number of bond and stock ETF's, is very low cost and has a 5 Star Morningstar rating. With a relatively high allocation to bonds, it shouldn't move too much in a major market downturn, which will help me sleep better at night. In my IRA, I just invest in QQQ (NASDAQ 100 tracking ETF) and SPY (S and P 500 tracking ETF), with the strategy of just holding and reinvesting dividends for the long haul. Since it's much smaller than my 401(k), I won't worry too much about fluctuations in these balances through market cycles. I try to max out my 401(k) contribution and by IRA contribution annually. I do a "back door" Roth IRA where I contribute to a nondeductible Traditional IRA and then immediately roll the cash balance over into the Roth so there is little to no tax impact.
Speculation. As I wrote about extensively in my series on Robin Hood, investing in stock options is extremely risky, but can also be very rewarding in any market environment. Although I wasn't too successful in my initial attempt, I learned a lot in the process and think there's a place in your investing program for at least some of this type of activity. Of course, managing risk is critical and if you are successful, you'll be paying plenty of taxes, so it definitely makes sense to set aside some of the profits for them. It also makes sense to go for small wins and not swing for the fences (like buying calls on Beyond Meat (BYND) before earnings)! What a disaster!
I hope you find this post useful as you chart your investing course and Build a Financial Fortress this year.
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