More of my possibly warped logic

If I am being honest, and why not at this point right, I would admit that I have a hard time standing pat and allowing time to move me forward. By that what I mean is, when it comes to investing I always want to go for the home run stock purchase or sell things that aren’t going up fast enough. I know in my head that slow and steady wins the race, but don’t we all just wish for a big win now and then??

With that in mind, it took me quite a while to get to where I am today in regards to investing. And at the end of the day, it’s the simplest approach I’ve ever taken. Low cost ETF’s representing indexes and specific business segments. That’s it! No big secret, nothing mind blowing to see here. I will still buy an occasional individual stock I like and my IRA is invested in individual stocks, but my investment account is simply ETF’s. I look for low costs and a good rate of return over long time frames, diversify across large and small cap US and Emerging markets. Personally, I am a believer in a few business segments such as the large tech companies, so I invest a small amount in an ETF focused on them to put a heavier weight on that segment in my portfolio. Now I deposit funds monthly and divide them up according to my preferred allocation and then I try to leave it alone, which for me is the hardest part.

Am I concerned that the market is so high and more and more analysts are coming out calling for a correction? Of course, but the way I see it as someone with at least a 15 year horizon to earn an income and invest, the lower prices a correction brings are actually attractive. Timing the market is a fools game, so by investing regularly across all market ups and downs you are dollar cost averaging and setting yourself up for success. For anyone not familiar with the concept of dollar cost averaging, it is in essence making consistent purchases of a security regardless of price movement which leaves you with an overall solid cost basis.

Now I won’t leave you hanging with why my IRA is different. First, I will mention that it is a Roth IRA. Why not traditional? Because my income disqualifies me from a tax deduction on the traditional, which also means I can’t go directly into a Roth IRA. Thus, I had to proceed with a back door Roth, which is basically a loophole allowing high income individuals to still contribute to a Roth IRA if it goes through a Traditional first. I’ll leave it to you and your accountant or advisor to discuss if you are interested, but I am a believer that taxes have no where to go but up and I am still planning for a good income in retirement so I’ll take the comfort of a tax free distribution. As far as why its invested in individual stocks, that’s another interesting story. A good friend introduced me to a natural resource analyst newsletter by Marin Katusa of Katusa Research. I’ve been a subscriber for just under a year, but have had a good experience so far and follow his recommendations. I believe a solid portfolio of individual stocks is probably the preferred method of building wealth. Wait, what? I know, I know, I just got done talking about Index funds. However, if I had the expertise and time to select the best stocks, that’s what I would do. Since I don’t, I think index funds and ETF’s are the next best way to go.

Next time I will be writing a review of a Dave Ramsey book that had a profound effect on my outlook on finances.  Chat soon!


Gen Xer

Author: Gen Xer