Category: Lifestyle

Our Shocking Investment Strategy… Individual Stocks

This is the second in a series about how we do things differently.  Check out the companion post, Four Personal Finance Rules We Ignored (And Maybe You Should Too) for more about how we disregarded the advice of a popular mainstream personal finance personality to forge our own path to debt freedom and financial independence.  

I got interested in the stock market at an early age.  Around fifth grade, my parents helped me cash in years of birthday money to buy shares of Merck, Disney and TWA.  Merck was a broker’s suggestion, but the two other purchases were based on my own likes as a young consumer (including a love of travel that continues today!)

When I sold those shares of Merck and Disney shortly before college graduation, thanks to years of market growth and reinvested dividends, I had more than doubled my money.  And while TWA filed for bankruptcy just a few months after I bought the stock, it taught me a valuable lesson about risk:  No company, regardless of its size, reputation, or history, is infallible.  When it comes to investing in individual stocks, while you can make big gains, you also have to be prepared to lose it all.

Like many of my personal finance friends and idols (including Mama Fish Saves, Our Financial Path., Budgets are $exy, and of course, Jack Bogle and his devotees) our holdings include a variety of low-cost index funds.  Index funds replicate a market or segment of the market, such as the S&P 500, Dow Jones Industrial Average, FTSE 100, Nikkei 225, or the MSCI EAFE.  They are passively managed, and because of minimal buying and selling, fees are low, making them a popular investment vehicle.

Where our philosophies start to differ is when it comes to individual stocks, which are also a key part of our portfolio.  Our strategy is simple:  We regularly take $1,000 and buy shares totaling that amount in companies whose goods, services or commodities we see used in our daily lives and we believe will experience continued success.

Ideally, we prefer to buy  income stocks, or stocks that generate dividend payments, which we reinvest into more shares of that stock.  But you’ll see in the interactive visualization created by my smarter half, Ryan Sleeper, we also have a few growth stocks, which represent growing companies that reinvest their earnings back into the company instead of paying shareholder dividends.  The cost we incur is a one-time $7 per trade, and we buy and hold, so fees are still comparatively low.

Here’s how we’ve done since starting this strategy in 2013:

(Clicking on the image will take you to an interactive version of the visualization)

     

A few standouts include:

Transocean, Ltd (RIG) – One of our first stock buys, this was a broker pick.  While luckily it didn’t turn us off of individual stocks completely, it did teach us to go with our gut and buy what we know, and not what an adviser recommends.

3M, Johnson & Johnson, Microsoft, and Disney – These are all brands that every American has and uses on a daily basis.  Think you’re a uber-cool SINK or DINK and Disney isn’t reflective of you?  Think again.  Disney owns Marvel, The History Channel, Lifetime, A&E, ESPN and the American Broadcasting Company, better known as ABC.

Ulta and Amazon – We bought Amazon around the time they released Fire TV, knowing that an increasing number of Americans are cutting the cord and choosing streaming television and movies, as well as foregoing the traditional bricks and mortar shopping experience for one involving Prime (and for me, a glass of pinot).  I’ve also been a fan of Ulta for a few years.  I appreciate that they cater to a range of demographics by carrying drug-store brand beauty products as well as luxury labels.  I saw their growing presence in our city as a sign that others must like them too!

Tableau – My husband makes his living using this software to interpret data for corporate and non-profit clients, teaching others how to use it, and evangelizing its functionalities.  It took some convincing, but my husband believes so strongly in this product, that I relented.  And so far, he’s been right.

For us, including individual stocks as a part of our larger portfolio keeps us thinking, learning and engaged in our investments.   And it’s another way we keep personal finance, personal.

The author of this post is not an expert on buying and selling stocks or any other investment vehicle.  These and all investments come with a level of financial risk, which are the sole responsibility of the investor.  This post and commentary contained within is not professional advice or an endorsement or recommendation of any individual stock, company,  investment or strategy.

How Our Home Is Helping Us Achieve Financial Success

One of the biggest factors in our ability to live below our means is the choices we’ve made when it comes to housing.  Here’s how living little has helped us pay off our student loans and other debt, save for retirement, build an emergency fund, and become self-employed, plus ways you can transform your home from a money pit into a financial asset.

When Ryan and I first met, he had just moved back to Kansas City from San Francisco.  Instead of renting an apartment in one of the new luxury complexes that scatter the suburbs, he leased a one-bedroom unit a mile from his work, built circa 1970.  While it might not have looked like much from the outside, this place was plush.  For a fraction of the price our trendy peers were paying, his apartment was outfitted with all of the appliances and fixtures you would need, plus it had a working fireplace.  We still talk about how much we miss that fireplace!  Saving big bucks on his rent meant that he could buy me this, without going into debt:

Once his lease ended, Ryan moved into the house I bought before we met.  After the stock market crashed in 2008 and the housing bubble burst in many parts of the U.S., the government offered significant credits for first time home-buyers.  I took advantage of the 2009 legislation that entitled new buyers a tax credit totaling 10% of the purchase price of the home or a maximum credit of $8,000.

I’d only been out of school and at my job for two years at that point, and while it was a stretch, I saw opportunity.  I was approved for a staggering $225,000 at 5.25% on a 30-year loan, which I remember people at the time telling me that rate was a steal!  After setting my spending cap well below the amount Wells Fargo told me I could afford, I started house-hunting, targeting a popular suburb in an excellent school district that had charm, character, and most importantly, great resale value.

At a little over 900 square feet of living space, my 1.5 story Cape Cod with three bedrooms and one bath, an unfinished basement and a single-car garage was more than enough space for just me.  In fact, before Ryan moved in, the upstairs bedroom was completely empty.  Even though he left his old futon and hand-me-down mattress in the dumpster at his old apartment complex, we were still a little apprehensive about merging our stuff and the prospect of sharing a single, tiny bathroom.

Turns out, sharing a bathroom was no. big. deal.  In reality, some of our best conversations happen in the morning, while one of us is in the shower and the other one at the vanity.  And while it may be small by today’s standards, when it was new, our post-war tract house built in 1951 likely housed a growing family with children, all of whom shared that single bathroom.

Going from paying for two homes to one, helped us free up money in our budget for other goals.  Since moving in together, we’ve had raises and job changes, refinanced into a 15 year mortgage at a much lower rate, rid ourselves of private mortgage insurance (PMI) and, after paying off our student loans in 2016, are now sending extra money to principal every month.

Living little also means lower utilities.  Even in an area where the climate has us constantly running either the furnace or central air, we pay less than $100 a month for natural gas and electricity, combined.  When you add up our utilities, insurance, mortgage and taxes, we’re spending about 15% of our take home pay on housing expenses.

Here are ways you can cut costs and save money on living expenses:

  • Don’t rent or buy more than you can afford. There’s nothing wrong with a big, stately new home or a loft with urban charm, if that’s your financial priority.  But you can’t have it all.  Build your budget around what matters most to you.  If that’s your home, you’ll need to find cuts in other areas to keep your budget balanced and healthy.
  • Find a roommate. Move back in with mom and dad.  Rent a room, either on Airbnb or by connecting with your local college or medical school to see if they have students in need of short term housing during their practicums, rotations or summer semesters.
  • Regularly look for ways to pay less. Compare renter’s or homeowner’s insurance rates regularly.  We switched and saved an extra $500 by changing companies and paying in full for the year.  If you have the Internet or cable, do the same thing.  Call and see if they’d be willing to lower your cost to keep you as a customer.  Trim your utility costs with a programmable thermostat, by dressing for the season instead of running the furnace or AC, insulating windows, outlets and attics, and by unplugging electronics while not in use.
  • Watch for hidden costs. Our homeowner’s association fees are a whopping $15 a year.  Sure, a community pool, fully-equipped gym, lawn and landscaping services, and other amenities may seem attractive, but you’re paying an inflated price for them.  Consider an apartment complex or a neighborhood without these up-charges.
  • Check on interest rates. Refinancing comes at a cost, both monetary and time, but it could be worth it.  When we refinanced, it not only lowered our interest rate, but the updated appraisal showed that the home had increased in value by nearly 15% in five years.  This increased value meant we were that much closer to having paid down the 20% required to get rid of PMI.
  • Consider location. While we live in a relatively low cost of living city, housing costs decrease the further you live from a major metropolitan area.  While I’m geographically tied to my job, I often think about the benefits of moving back to my hometown, where you can buy a house the same price as a new SUV.  With the rise of telecommuting, if you can find a job that pays big city wages, small town living can offer a financial edge over your downtown-dwelling or suburban HOA paying peers.

While timing has helped us, we’ve also been strategic in the choices we’ve made to rent, buy and now, stay in our current home.  Where you live is one of the biggest financial commitments you will make.  Avoid becoming house-rich and cash-poor by making smart moves.  Literally.

Building a Basic Wardrobe That Isn’t Basic

It’s autumn in the Midwest.  With falling leaves and dropping temperatures come scarves, sweaters and boots.  This weekend, I took the opportunity to pull out of storage my cold-weather staples and flip my summer wardrobe to fall.  Since I keep a capsule wardrobe my seasonal shift was as simple as putting away a few pairs of shorts and switching out tees for long-sleeved layers.

My creation of a capsule wardrobe was motivated in equal parts by my desire to save money and my love of sleep and the extra time this style affords me in the morning.  When literally everything in my closet coordinates, there’s no wasting time wondering if things go together.  Some of the world’s most successful people, from President Barack Obama to Facebook founder, Mark Zuckerberg, have adopted a capsule wardrobe in an effort to make one less decision every day.

Here are my tips for building a basic wardrobe that isn’t basic:

  • Know what works for your body and what to wear that has you feeling your very best, whether that be powerful, put-together or pretty. I like skirts and dresses on others, but they just don’t work for me.  So as much as I love a pencil skirt in the store, I stick to pants.  And personally, ballet flats leave me feeling blah.  So along with my morning coffee (French press, please) I need at least a little heel to put a perk in my step.
  • Mix and match pieces that easily coordinate with each other. I work in a professional setting, so black and tan trousers are my go-to staples.  I like Nordstrom’s Halogen brand.  When a little more formality is needed, I can throw on a blazer.
  • For tops, I stick with neutral solid colors that can pair with either pant. The Tippi from J. Crew is a light-weight three-quarter length sleeve sweater that can be worn all year long.  This all-season piece is available online year-round and different colors are released – and go on sale – throughout the year.
  • Like pants, I keep it simple with two pairs of shoes for work – in tan and black patent. Do make sure all your shoes have the same heel height and will work with all the pants in your closet.  And don’t forget to invest in tailoring for a polished look.  Some stores even offer the service for free with purchase or for store card holders.  I’m a fan of Cole Haan 40mm wedges.  This 1.5” heel gives a little bit of height, but pants tailored to this length could still work with those old flats still lingering in your closet.
  • Buy high-quality pieces that will last years and take care of your investment. I look for pants I can wash and iron at home.  During summer months, I wear my sweaters twice between dry-cleaning and in the winter I add an extra day with Dryel.  And don’t throw away a pair of pumps because of a scuffed heal.  Adding an insole will keep the inside in good shape (and smell!) and a cobbler can keep your old shoes looking new.
  • Mix up your uniform with accessories. Skip the trendy choker and go for classic jewelry that will never go out of style.  Scarves are great for the colder months and you can rock statement necklaces throughout the year.
  • For special occasions, either keep an multi-purpose little black dress at the back or your closet or try Rent the Runway instead of buying something new for every event.
  • Don’t ever pay full price! Sign up for email notifications.  Use the Wish List feature on your favorite store app to save items you love and then check back frequently for sales.  And always use a shopping-portal – my current faves are MrRebates.com and Ebates, which even offers cash back in a few select brick and mortar stores.
  • Keeping your closet and drawers organized and clean will help fight the urge to shop. Avoid that paralyzing feeling of not knowing what to wear by having all your options visible and easily accessible.  Your days are stressful enough, make this first decision one that sets you up for success!

Adopting a capsule wardrobe can help you be intentional about how you spend both your time and money.  Use the changing seasons as a chance to make your life better by living more with less.