Category Archives: Investing

My Ideal Job

A lot of people have jobs that they don’t like.  They work at jobs they don’t like for many reasons.   Food needs to be bought, the electric bill needs to get paid and we need a roof over our heads.  I myself am not a fan of my current job.  I have a little over 4 years in, and will probably do many more.  There are days when I think my job sucks, that I wish I could quit.  I have to remind myself that it could be worse, that no matter how much I think I hate my job, there are worse jobs that I’ve done and that this job is just a stepping stone to something better.  

I don’t hate everything about my job.  For the most part, I work with a good group of people.  My pay is decent and the benefits are good.  The thing that I hate most about my job is that it doesn’t challenge me intellectually.  It never will.  I really think my job makes me stupider (see, that’s not even a word).  This is one reason why I read a lot, to learn and experience new things.  It is also one reason why I am so fascinated with the stock market.  It is constantly changing and I learn something new everyday. 

My ideal job is to become a successful stock trader.  I will do this eventually, but not until the timing is right.  I have set some rules for myself, here they are in no particular order.

  • Be 100% debt-free
  • Have a minimum of 1 year EF
  • Must have consistent profits for 2-3 years prior
  • Trading account minimum of $50k (preferably more though)

After looking at these rules I set for myself, it will probably be quite some time before I quit my job and try trading full-time.  I am fine with that because I think this is the safest way to do it.  I know how stressful the market can be, I trade everyday.  If I were to try this right now I would be stressed out of my mind.  I made the debt-free and 1 year EF rules that way I wouldn’t be worried if I was going to make the bills for the month.  Trading because you need the money only stresses you out and makes you worry about making the wrong decision.  This is not the way to trade.  I can’t be scared to lose money, it has happened before and will again.  It is just part of the game, the key is to make more than I lose. 

I look forward to the day when I can leave my job and go full-time in the market.  I know I will be happier.  I will get to spend more time with the wife, and at some point maybe a child or two.  My main priority will always be to provide for my family.  If stock trading doesn’t work out and I have to work a job I don’t like so be it.  I am ok with that as long as my family is provided for and they are happy. 

What is your ideal job?

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Practice?

I have written about different types of stock strategies, and how to choose your broker.  This post will focus on trading the market or as Allen Iverson would say, “we’re not talking about the game, we’re talking about practice.”

You have chosen your broker and your account is now funded.  Are you now ready to start trading?  I don’t think so.  While I am definitely no expert when it comes to trading, I do have some experience and a little bit of knowledge about trading.  From my experience, my first suggestion to someone who wants to start trading is to NOT trade.  Would you jump into an airplane and try to take off without ever learning how to fly?  I think not.  The stock market is a lot like the Honey Badger.  It doesn’t care about you.  It will eat you up, take your money and spit you out.  If you don’t know what you are doing you will lose money.  Even if you know what you are doing it doesn’t guarantee you anything.  For this and many other reasons, I suggest new traders to practice trading.  Otherwise known as paper-trading. 

There are many different ways to paper-trade.  The first and oldest way, is to practice trading on paper.  Take the stock you want to buy and write down the price you “buy” it at.  Imagining you own shares of the stock at that price and see if it goes up.  The easiest way to paper-trade is to sign up for a free account at Wall Street Survivor or How the Market Works.  I haven’t used these very often, due to TDameritrade having their own practice software, but either way practice is practice.  A lot of the practice accounts delay quotes by 15 minutes, so it’s not realistic for practicing day trading. 

One big problem that you have to deal with when paper-trading is you have to act like the money is real.  This is a hard thing to do.  It’s easy to throw money at a stock if you know you can’t lose money.  It’s a completely different feeling when you are using real money that can lead to real losses.  One of my rules when I trade, is that I only put an amount in that I am willing to lose.  Why do I do this?  Because there is a possibility that I could lose every cent that I put in.  This has actually happened in some of my options trades.  You can do all the research you want, which is a thing I like to stress, but that still won’t change the fact that congress could pass a bill that effects a company’s profitability.  You can never know  if something bad could happen, like if a company will declare bankruptcy (although research should for the most part keep you away from these ones). 

You have to think of your paper-trading account like its real money.  That means you need to include commissions and any fees that you might have.  Follow the pattern day-trading rules (3 day-trades in 5 day rolling period), and act like its money you can lose.  Do this for a while (3-6 months) to get a good idea of what your skills are.  Analyze each trade and see what you are doing right and what you are doing wrong.  Don’t worry if you make a lot of mistakes, it’s going to happen. Just try to fix them and focus on becoming consistent.  One of my problems, especially when I first started out, was being too impatient.  I would see a loss and become scared of losing more, so I would sell.  Give yourself time for the trade to work.  I was trying to time the market perfectly.  No matter what anyone tells you, you cannot consistently time the market perfectly.  Set some rules and follow them. 

You can practice forever if you want, but at some point you are going to have to use real money.  No amount of practice will make you perfect in the market, but it can help you limit your losses. 

Are you one to jump into something head first?  Or do you like to learn first, jump later?


aROTHaclypse Now, or Later

Today the PF blogosphere will start a movement to educate people on the awesomeness that is the Roth IRA.  This movement, led by Jeff Rose over at Good Financial Cents, the peeps that run RothIRA.com, IRA Market and 140+ other bloggers like myself want you to know how sweet a Roth IRA can be.  The following article is one of the reasons why I think you should open a Roth IRA. 

I like to read about all types of investment accounts, from college savings plans (I don’t even have kids yet), to IRA’s, 401k’s and individual accounts.  When I was researching where to open a Roth IRA I came across an article explaining some benefits of IRA’s, both Traditional and Roth’s.  One of the side benefits of Roth IRA’s is that You Can Use Roth IRA Contributions to Buy Your First Home!!!!   There are some strict conditions to this, but it can be a good way to save for retirement and a home at the same time. 

I’m not saying this would be a good idea for everybody.  This doesn’t make as much sense  to me if a person in their 40’s and 50’s were to do this.  Withdrawing such a large amount this late in the game could reduce your earnings potential to a point where it wouldn’t make it financially beneficial for you to do so.  I suppose it depends also on how much you have in your account and how much time you have left until retirement.  Being later in the game it could make a dent in your retirement plans.  I do however think that if a person was in their 20’s or early 30’s and they decide to do this it could be an awesome way to kill two birds with one stone. 

I will try to explain it in a simple way.  The first requirement is that you have to be a “First-time Homebuyer.”  Does that mean that because you have owned a home in the past that you are disqualified for this?  Nope.  To be qualified as a “First-time Homebuyer” you couldn’t have owned a house during the past two years.   A second requirement is that you must use the money to buy or build a home within 120 days of the withdrawal. 

You can do this with both a Traditional IRA (tax deferred and pre-tax contributions) and a Roth IRA (tax-free and after-tax contributions).  There are more limits going the Traditional route than going with the Roth.  The biggest limit is that you can only withdraw $10k penalty free over your lifetime from a Traditional IRA to build or purchase a home.  This can be done by your spouse also.  The other problem that runs with the Traditional is that the withdrawal will be taxed, because your contributions are pre-tax dollars.  To me that pretty much knocks that option off the table.  Lets take a look at the Roth IRA option. 

With a Roth IRA you can withdraw your contributions at any point in time (penalty and tax-free) if you need them.  The key word here is Contributions, not the money you hopefully made from your investments.  As of today a person under the age of 50 can contribute a maximum of $5k into a Roth IRA each year.  Say you maxed out your contributions each year for 10 years, you would have contributed $50k into your Roth.  You are able to pull that money (your contributions) out for any reason because it was all after tax money.  You can also withdraw up to $10k more (which would be drawing from your earnings, assuming you had earnings) but this also has stipulations to it.  One being that the account had to have been open for 5 years or more from the date of your first contribution.  If you meet this requirement the $10k would be tax and penalty free.   If the account has been open for less than 5 years, you can still withdraw the extra $10k without the early 10% distribution tax, but the $10k would be taxed at your current tax rate.  The extra $10k is a lifetime limit per person and once you have used that limit up its done.  For an account that has been open for 10 years (maxed-out contributions) you would be able to withdraw a total of $60k ($50k in contributions and $10k of earnings) tax and penalty free.  Your spouse could also do this with his/her Roth IRA, so if both of you have been maxing out your Roth IRA contributions there is potential to have $120k towards building or purchasing your first home. 

If after 10 years you decide that owning a home is not what you want to do, then you have an awesome start to a retirement account.  If you decide you want to use a Roth IRA as a home purchase account and withdraw money later on for that reason, you still have whatever you earned in those 10 years in your Roth IRA, with plenty of time to make up for the money you are withdrawing for a home purchase. 

I don’t know about you, but I hate seeing how much of my mortgage payment goes towards interest and not the principle.  The point of this for those that decide to use Roth contributions towards purchasing a home, is that you could potentially save a boatload of money on interest by sacrificing some of your early earnings potential in your retirement account.  If you do this by age 30, you still have 30 years left to make up for it.   You should take account of what the interest rates are at and what your returns are in your Roth.  It might not make financial sense to do this when interest rates are so low.  Unless you really hate debt like I do.  I purchased my home before I got into investing, not saying that we wouldn’t have bought our home if we would have known about this option, but it would have given us something to think about.   Either way, contributing to a Roth is a win-win for you.

What do you think, could this be a good tool to use for the younger generation to save for a home? 

P.S. I am not at all a tax or real estate professional.  This is just my observations and understanding from what I’ve researched.  You should always consult with a tax professional and your investment manager prior to making decisions like this.  Information in this article was found here specifically pages 51 and 62.  Always research and read the fine print before making your decision. 


Things I don’t Understand

There are many things in this world that I do not understand.  Like the computer I am using.  I have no idea how its made, no clue as to why certain circuits connected to each other make something happen.  I don’t really care all that much though, as long as I know how to use it, and it does its job.  There are some things though, that as much as I try to understand them, it just doesn’t make any sense to me.

Consumer Credit, and why its a Good Thing:  Investopedia defines consumer credit as a debt (credit card, line of credit, and other loans) that a person incurs for the purpose of purchasing a good or service.  It includes vehicle, student and other recreation loans but excludes real estate and margin for investment accounts.   So basically people taking on debt to purchase stuff they want and need. 

Consumer Credit is one of the major economic factors in the stock market.  It is reported by the fed once a month.  They have a prior number, expected number (which is the average of analysts) and the actual number.  The stock market loves when this number is higher than both the prior and expected numbers because it means the that population is increasing borrowing, which means that they are purchasing goods and services and potentially increasing companies earnings. 

I get that increased spending is a major factor in helping the economy recover, that makes sense to me.  What I don’t understand is why going into debt to do so is a good thing.  Why is it that the government, companies and investors think that by individuals going deeper in debt is the greatest thing in the world.   They see that consumers are taking on debt, which means consumers are more confident that they can pay back the money borrowed.

Here is my thinking of what the government thinks of consumer credit. Person A takes out a loan from the bank B, to buy a good or service from company C.  Person A goes into debt by purchasing goods/service from company C and is taxed on that good/service so the gov makes money from taxes paid by person A.  Person A takes out a loan with interest from bank B, which increases bank B’s earnings.  Bank B pays taxes on those earnings, and the gov makes money.  The goods/services purchased from company C are also taxed, and the gov also makes money on this.  Everybody makes money, except for the consumer, but they do receive the end product. 

I am currently one that these people seem to love.  We took on debt to purchase our camper, our house, and in the past our vehicles.  I sometimes think that we should have saved more and took on less debt.  I don’t regret buying these things, just that we didn’t pay cash for them.  Obviously many people take on debt to purchase their homes, saving enough cash to pay for one outright would take a while. 

So why is increased consumer credit considered a good thing?  Why can’t the government come up with a different economic indicator?   They could still use an indicator that tracks how much consumers are spending, just not from incurring debt.  Look at how much debt our country has.  It’s going to be harder than heck to pay back.  Shouldn’t we consider what is happening to Greece and change our spending habits?  How much does the economy really grow if people are going into debt to spend?


Stock Strategies

In my last post about investing, I wrote about how I chose my stock broker.  This post is going to be about determining what kind of trader/investor you want to be.  There are many different strategies/philosophies in stock trading.  Some may decide to focus on one strategy while others use an assortment of them.  Here are some of the basic strategies.

Long Term Investing:  This is the strategy that the majority of people who trade focus on.    This kind of trader is focused more on the fundamental aspects of the company.  It’s simple really, you pick a stock/mutual fund and invest in it for the long run.  Over time you add to the position, which is called dollar cost averaging (or DCA for short).  If you pick a fundamentally sound company this strategy works a lot of the time.  This kind of trader does not focus on intraday swings or short-term price fluctuations.  They are in it for the long hall, focusing more on dividends and stability.  Mutual funds are normally considered a long-term position. 

Swing Trading (aka trend trading):   Swing traders focus on companies that have solid trends to them, be it cyclical trends or just trends on the chart.  They hold stocks for short time frames, typically under a month.  Focusing on chart patterns, trends and not really on the fundamental aspects of companies. 

Day-trading:  This strategy is one of the hardest to master, and also takes a lot of  money.  This kind of trading is not for the faint of heart though, as money is real easy to lose.  Daytraders focus on intraday swings in stocks.  They do not focus at all on fundamentals, and purely base their trades off of technical analysis or news that provides momentum to a stock.  Buying and selling the same day.  There are regulations the government has put in place to limit daytraders.  One of them is the pattern daytrading rule.  Anyone can buy and sell in the same day, but you are limited to 3 daytrades within a 5 day rolling period (Round trip is buying and selling the same day).  This rule is phased out if your account (cash+value of assets) is above $25,o00.  Why did they pick this amount? I have no idea. 

What kind of trader am I?   If I had to classify myself as any of those 3, it would probably be the swing trader.  Most of my trades I hold for under a month, its pretty rare that I have held a position longer than that.  I do a little of everything though.  I focus on both the fundamental and technicals of companies.   Daytrading can be really fun, and also be really frustrating.  Right now I don’t consider myself a long-term investor, mainly because I don’t have the funds that I feel confident enough in going long.  That doesn’t really make much sense considering that long-term investors don’t worry about that, they DCA into positions.  I just really like to see shorter term swings, and that is mainly what I try to play.  One of my strategies that has worked well for me in the past is swing trading into long positions.  Buying stock and when I am ready to sell I just sell to get back my initial investment.  This is also called “riding free shares”.  The shares are free because they didn’t cost me anything, it was the profit left in. 

What kind of trader to you see yourself as?  Do you focus more on fundamentals or technical analysis? 

***I have no professional knowledge or training on stocks. Just what I have learned through other stock traders and my own research. All of these posts are from MY experience. You should always consult with a certified financial professional.***


Investing: What Broker do I Choose?

There are many factors that one should consider when they choose a broker.  Depending on what type of account (Retirement, Individual Account) you want to have, and what your strategy will be, will factor into you choosing your broker. 

I didn’t have a choice when it came to my main retirement account, my employment chose the broker for me.  Although I wish I could change it, it isn’t possible unless I leave and roll it over into a IRA.  So while I didn’t get the option of choosing my 401 broker, I did have the option of where I wanted my Roth IRA and Individual account to be.  

I started trading stocks back in Jan 2010.  Being a newb and not knowing what I was doing, I just googled “brokerage accounts” and found a site that reviewed about 10 different brokers.  I thought they were basically all the same and went with one of the cheaper commission ones.  What I didn’t know when I opened that account was that the stock quotes were delayed by 15 minutes.  The charts were horrible.  Even opening up a trade ticket was frustrating.  I think I traded a total of two stocks before I started looking for a new broker. 

You know the definition of “Insanity”?  Doing the same thing over and over again while expecting different results.  The new broker I chose was also on the cheaper side for commissions, along with crappy charts and a bad news service.  About the only thing that was better was that the quotes weren’t delayed. Although you had to manually click to update them.    I had this account for about 8 months before I grew unhappy with it. 

I asked a couple of stock trading buddies of mine about choosing a broker.  The main consensus was that “cheaper is not always better” or “you get what you pay for”.  So after doing some more research, I heeded their advice and opened up an account with TDameritrade.  Commissions were about double compared with my previous broker, but the trading tools they offered were awesome.  I have the option of four different trading platforms, (with real-time streaming quotes), free Level II quotes, and a pretty extensive educational section (although I like to use other learning sites).  The news service is lacking compared with a previous paid platform that I had used, but I was expecting this.  I’ve been using this broker for over a year now and so far there hasn’t been any hidden fees.  I plan to stay with them.  I also have my Roth IRA here but haven’t funded it yet.  I do plan eventually to try out Interactive Brokers, but they have a pretty high minimum deposit to start an account so it will be awhile.  It is also a good broker from what my buddies tell me. 

TD isn’t the only good broker out there, it is just the best out of the 3 that I have tried so far.  Their customer service has been pretty helpful every time I’ve called them, always quick to answer a question that I have.   I’ve also heard good things about Etrade and Scottrade but haven’t tried them yet. 

The point of this post is to stress research.  Just like a company that you want to invest in, you should research how and who you will use to invest.  Take account of what each broker offers, read reviews on each, and call their customer service to see what they have to offer.  Sometimes they will offer some pretty sweet deals.  TD might be the preferred broker for how I trade, but it might not be for someone else.  It really depends on what you want to do, be it day trading, swing trading or all out long-term investments.  Just make sure to do your research (its repetitive I know, but you’ll see me stress that a lot).

What kinds of things did you look into when choosing your broker?  Did you just pick one because of the funny baby commercials?

P.S.  This is not a sponsored post for TD, although that would be sweet.