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Old 07-07-2013, 02:31 PM
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It's taken about four years of careful planning but earlier this year I became 100% debt free. No mortgage, no car loans, no nothing! And while I was paying off my debts I was also able to continue contributing to my 401k (mostly because my company matches at 6% of my salary) and saved a nice little bundle to my personal accounts. My plan is to quit my job later this year and pursue other interests and entrepreneurial opportunities, using my personal non-retirement savings to live off of for a few years.

Currently all my personal and retirement savings are in cash and bonds. I moved everything out of stocks after the recent run-up in the market. After I quit I plan to roll my 401k over into a self-directed IRA. This will give me a lot more choices in what I invest in compared to what my company offers. In fact I've never had so many choices of what to do with such a large amount of money (well large to me anyway). I should have around $100k to move into my new IRA later this year, my question to the board is: What should I invest this money in?

I like the idea of diversifying of course, but at what ratio for each asset? Some mix of PM's, stocks, bonds, currencies, or Peer-to-Peer lending. Some kind of real estate would be great as well but that would probably require more money than I've got on-hand. I think the market is due for a correction, and there's a lot of talk of a bubble in bonds as well. Will gold and silver continue to trend down? Are there other options I'm not aware of?

I'd be grateful for any feedback or ideas out there, thanks!
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Old 07-07-2013, 03:43 PM
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Here's the SBFF Approved® Cliff Notes version


Quote:
at what ratio for each asset?
Depends

Quote:
Peer-to-Peer lending
I place that towards the risky end of the the risk/return spectrum
Go for it, though!!


Quote:
"I would not place all my poultry products in one Styrofoam container"
--Trent The Guru
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Old 07-07-2013, 04:18 PM
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It depends. How old are you? When do you expect to retire? How risk aversive are you? How much do you think you will need at retirement vs. what you have in equity/cash/investments? Do you have a significant other with his/her own retirement portfolio/savings? How is your overall health? What does your income stream potential look like --- are you in a key occupation that is impervious to recession/depression? What standard of living are you shooting for when you retire --- live a monastic lifestyle off the grid with your own well/septic/garden/animals vs. McMansion replete with big screen/movie theatre and a posse of Benz and Lexus with travel plans to Mars?

If you can answer all of that, I can tell you with certainty that I have NO IDEA! We are in unchartered waters here with national debt rising, government spending out of control, the fed printing what we can’t borrow from China, political incompetence that is off the charts, etc. The markets no longer reflect reality and what comes up will certainly come down. I have most of my money in CDs and money markets getting nearly zero interest and I am in no big hurry to move it. Whatever you do, be careful and conservatives and remember this. Little pigs get fed, big ones get slaughtered!
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Old 07-07-2013, 07:13 PM
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Congradulations on being debt free! Welcome to the elite club...

1. What business/interests are you planning to do?
2. What is your back up plan if you can't produce much income?
3. Have you considered the possible "Bond Bubble" I hear people talking about?


I'm living off savings from selling a business and it's very frustrating to spend savings on living expenses.


To answer your question on investing, I think multiple oil producers are poised to go up due to inevitable middle east conflicts and the constant NEED for oil. I think it's actually a safe bet with little risk, but diversify. You don't want to buy BP only if they have another oil spill or something unpredictable.
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Old 07-07-2013, 11:59 PM
LadyFenix LadyFenix is offline
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Your "what should I invest in" is a simple question.........but there is no simple "one size fits all" answer to it, because each person's situation is different.

Many variables determine what kind of investor you are. The answer would depend on what type of personality you have, what your goals are, whether you want income or growth, your own personal risk comfort level, whether you are a passive or an active "hands on" investor, what your time frame is, what your life situation is (single, married, a parent, etc.)

When you know the answers to the above questions, you can build an investment plan. Every investor needs to develop their personal investment philosophy AND a well thought out investment plan to follow, based on THEIR life situation and personality. Unfortunately, this is usually the part that 9 out of 10 investors skip over.

That 90% buys homes and cars based on their emotions. They also bring that consumer/spending mindset to everything else.......whether it is clothes, groceries, electronics, other forms of entertainment, etc. And they believe investing can be done with their emotions, too. Guess what?? That is a guaranteed approach to failure. You have to purchase investments with your head.......not your heart.

Their biggest mistake is to track and buy the hottest performing mutual fund(s) or stock(s).......only to see them become the lowest performing in succeeding years. Then they become embittered and tell everyone that "the stock market is just a big casino and Wall Street rips off the little guy". Not once do they ever stop to think that they are really their own worst enemy. By the time that "hot buy" info surfaces in the media, investing magazines and TV financial shows and internet investment blogs, all the easy money has already been made. What is left is crumbs from the table.

So......if you really don't know what you are doing and don't have a clearly defined idea of what you want to achieve......but think you can get great results by depending on someone else to tell you what to do........that is the biggest investing risk you can take.

This is why you need to do a lot of reading, and learning about investing, and personal soul searching before you ever plunk down the first dollar on any type of investment.

Investing is personal. Very personal. It's a reflection of YOU. As such, your own investment plan can't be copied exactly from anyone else. Building your investment portfolio is a lot like building a house. You have to start with a blueprint of what you want to construct. Then you need to build with quality materials. And you need patience. Even the best investment plan won't work if you are not willing to give it TIME to work.

You have taken a couple of very important first steps. You are debt free, and you have accumulated a handsome amount of 100K in savings. That is more than a lot of people are able to discipline themselves to accomplish.

Now, make haste slowly. Take the time to read and learn a lot about the different forms of investments that are available to you. (Just for the record......gold, silver, guns and ammo) are NOT investments. That's just more consumer stuff to buy.)

Write this down and remember it: A key element of stock market investing success is learning to STOP mindlessly buying products that companies manufacture and START buying parts (stock) of those companies, instead (assuming that they are well-managed and are generating profits instead of accumulating loads of debt).

Nobody ever got rich by spending all their extra cash on consumer products that will eventually end up decorating county landfills OR being sold at 10% of their original purchase price at a yard sale. Many have, however, accumulated serious wealth by consistently working an investment plan and investing set amounts (at least 10% of your income) every month.
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Old 08-06-2013, 06:37 AM
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Congrats on being debt free!

As others have posted a lot depends on your risk profile. Risk is not actually loss of $ risk is really variance. Over a long enough period you will make money in the stock market, but you may have large swings in value.

Every company at its simplest is like a lemonade stand. When you are buying stock you are buying ownership in that lemonade stand. When you buy bonds you are lending money to that lemonade stand. If the lemonade stand goes bankrupt, owners get nothing, but bond holders are usually first in line (after employees) for the remaining assets.

My preference is to own the lemonade stand. The entire key to understanding investing in stocks is to understand how much to pay for the lemonade stand. You can search for "discounted cash flow valuation" to get into the formal methods around it. The entire field of investing is about trying to figure out how much that lemonade stand is worth. In the simplest terms you can look at it like this:
If the lemonade stand was guaranteed to make $1000/year for 10 years how much would you pay for it? $10? definitely, $100,000? definitely not. So where is the cutover? Would you pay 10,000? why would you pay 10,000 now, just to get back that same money in 10 years? So definitely not.

would you pay $1000? definitely yes. $1000 now to make $10000 over 10 years is clearly worth it. would you pay $9000 now to make a guaranteed $1000 over 10 years? Now we are getting close.. your answer now might be - "it depends".

When looking at an individual stock you want to understand how much money that company will make over the next 10 years and compare that to the cost of buying it today. In the most basic terms that is the price/earnings ratio. However, real companies arent as simple as the lemonade stand because:
1) companies are growing
2) companies arent guaranteed to make a certain amount of money.
3) there may be other sources of guaranteed funds that I could invest in instead.

Still your goal is still the same, figure out how much cash the business will make over the next 10 years and compare that to the asking price. A BUSINESS IS ONLY TRULY WORTH THE CASH IT WILL ULTIMATELY PAY TO OWNERS. Many fast growing businesses dont pay any earnings to owners because it is more valuable to reinvest the money. But all companies are only worth anything because eventually all companies will pay money to the owners (in the form of dividends). If a company could somehow make a contract which said it would never pay earnings to owners, then it would be worthless to investors (in fact that contract basically describes a non-profit).

Bonds are a little safer than stocks because they are first to get paid if the company goes out of business, and they are the first people that a company pays when it is in business (bonds are loans to businesses or even governments). But they still are dependent on the survival of the company. In a bankruptcy usually everyone loses, even the bond holders.

Analyzing companies is hard, there is always something you dont know or dont understand or may not realize about a company. To mitigate this, a strategy is to not invest in one single company, but in a portfolio of companies so that if one company is doing badly, it can be made up by other companies doing better. This is what mutual funds do. However, historically speaking (for a variety of reasons) mutual funds on average dont outperform the market itself. If you arent willing to spend the time to analyze companies then my recommendation is to just put your money into an S&P 500 index fund. This is like investing in the US's best companies. The US can go down the toilet, but these companies are all multinational giants. If anyone survives a meltdown it will be them. Stocks are not formally inflation hedged, but they effectively are. As prices go up, revenues go up and companies will make more profit so their stocks will go up.

Im not a big fan of bonds because while in the short term they are counter cyclical to stocks, in the long term stocks way outperform bonds and dont have a greater risk of losing your money (because ultimately of companies go out of business everyone is going to lose). Also bonds get absolutely killed by inflation.
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Old 08-06-2013, 06:44 AM
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Also there are other types of investments such as commodities (including gold), real estate and small businesses. One huge advantage that stocks have is liquidity. It is very easy to sell stocks instantly with very little in the way of transaction fees (although you are losing money to the spread).

For example over the last 10 years Ive invested heavily in real estate. This has gotten me into trouble during the recessions. When I needed cash, real estate took too long to become liquid. On the plus side it prevented me from liquidating my assets and I had to come up with more creative solutions.

Gold is ridiculous, the spread on gold is enormous when you try to sell physical gold.
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Old 08-06-2013, 09:41 AM
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Depending on your age, I would just go with a target retirement fund from one of the large brokers. It will have a fund balance that has been historically correct for your age and will be managed accordingly.

Don't try to guess hot stocks or sectors as the investment firms themselves are not that good at this approach either. Take what the market gives you and be happy over the long term. If these are funds you don't plan on touching for 10 years, you will be fine. If you might need them in a couple years, go more conservative.
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Old 08-06-2013, 10:42 AM
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I really like Lendingclub.com. I have made around 7% after charge offs from non payers and early repayments. The only down side I see is that your money is tied up for 3 or 5 years. You have to do research, make a set of criteria's to fund a loan and stick to them. Like a 20% max debt to income ratio, no delinquencies or derogatory, a certain revolving credit line utilization %, and revolving credit balance.

It stings when you get someone who defaults, especially when on paper you think they are solid, but knowing it WILL happen takes a bit of the bite out of it.

Good Luck!
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Old 08-06-2013, 03:41 PM
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This is pretty much my standard answer for investment questions, because it is what I'd do if I ever had a windfall. But some of the suggestions require quite an investment. So here are a couple of substitutions:

Buy a farm: You won't get a farm for 20% of your investment money. But you might be able to buy into one for a reasonable amount, with it becoming your primary source for food in times of need. This is only good if the farm and farm family is likely to be able to continue in the PAW. Hopefully, the invested money can be used to help set the place up as a BOL and secured so the farm will be able to continue producing crops, meat, and dairy.

The same is true for the Quadraplexes. Another pretty significant investment. But rather than buying the large corner lots and building the Quads yourself, you might just buy a few vacant corner lots in small towns that are fairly stable, have a need for decent housing, and have a good city council. You can either hold the lots for future resale (a bit risky, and you are paying taxes on the property, even if undeveloped, or you could arrange for a developer to build the Quads on his dime, with you holding the property and getting a piece of the action from the income stream the development company is getting.

The rest of it should be doable. This will still hold your 35% land, 33% conventional investments, 32% PMs, each diversified in addition to the diversified aspect of the three parts.

Just my opinion.


This is something I came up with a long time ago and was never able to follow through on. Just consider what might apply to you and forget the rest.

What I'd do if I could start over. This is investment/retirement money only, not total income use. It pre-supposes extensive preps and back up funds in place all the time. At least a year of preps, a year of equivalent salary for normal things if income stops, and a large emergency cash fund for the unexpected expenses such as car repairs or medical bills.

The plan is approximately 1/3 each income producing property (35%), more or less regular financial investments, diversified as to type (33%), and precious metals (32%) to spread the risks, not matter what happens. I don’t think it is possible to accurately predict what will work in the future, so I prefer to cover as many bases as possible.

If there isn't a reasonable amount for an item, shift the amount 50/50 to the other assets and PM assets, and then transfer to the item when enough is accumulated.

The Warrant trading account has to be managed, as do the separate parts of the self-managed Permanent Portfolio Fund.

The rest can pretty much just be watched and changes made when the overall percentages get out of whack.

I'm not an investment person. This is just what I'd do with a significant amount of money I wanted to diversify so as not to lose too much in any one account. Seek professional advice before you make any investments.

For someone starting out, I would build solid credit, maintain a very minimum amount of debt in order to build that credit, and otherwise pay as you go, living a reasonable lifestyle without overdoing the fun, but having some, and always buy quality for a good price rather than just cheap. Keep long range goals in mind even when considering short term decisions.

Just my opinion.



20% - Income producing working farm/ranch primarily as a hedge for bad times so you’ll have food, plus income. Buy in and perhaps even some sweat equity when possible, but not to run and operate oneself.
15% - Quadraplexes on corner lots in small towns with live in manager as income producing property (usually not subject to apartment rules and restrictions in most places that can have rent controls put into place)

5% - Permanent Portfolio Fund (PRPFX)

2% - US Treasury Bonds (28+ years)(self-managed PPF)(equalized each year)
2% - US Treasury Money Market Fund (self-managed PPF)(equalized each year)
2% - Gold coins (self-managed PPF)(equalized each year)
2% - Growth Funds (self-managed PPF)(equalized each year)

5% - Blue chip mutual funds – keep rolling the dividends back into the same funds (PRFDX) (FBGRX)(FBCVX)
5% - Warrant trading accounts – Never buy more warrants than the money would buy of the stock.

2% - Deferred annuity #1 Paid into until retirement for monthly income (Hartford, John Hancock, Met Life, Mutual of Omaha, and Prudential)
3% - Deferred annuity #2 Paid into until retirement for big ticket items (Hartford, John Hancock, Met Life, Mutual of Omaha, and Prudential)

2% - A trust fund to capitalize a few projects I have in mind.

1% - Swiss bank account – Dollars
1% - Swiss bank account - Swiss francs
1% - Swiss bank account – Gold

5% - 1 ounce Gold Eagle (in hand)
5% - 1/2 ounce Gold Eagle (in hand)
5% - 1/4 ounce Gold Eagle (in hand)
5% - 1/10 ounce Gold Eagle (in hand)

2.5% - Pre-1965 silver dimes (in hand)
2.5% - Pre-1965 silver quarters (in hand)
2.5% - Pre-1965 silver halves (in hand)

4.5% - One-ounce Silver Eagle rounds (in hand)
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Old 08-06-2013, 03:42 PM
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This is pretty much my standard answer for investment questions, because it is what I'd do if I ever had a windfall. But some of the suggestions require quite an investment. So here are a couple of substitutions:

Buy a farm: You won't get a farm for 20% of your investment money. But you might be able to buy into one for a reasonable amount, with it becoming your primary source for food in times of need. This is only good if the farm and farm family is likely to be able to continue in the PAW. Hopefully, the invested money can be used to help set the place up as a BOL and secured so the farm will be able to continue producing crops, meat, and dairy.

The same is true for the Quadraplexes. Another pretty significant investment. But rather than buying the large corner lots and building the Quads yourself, you might just buy a few vacant corner lots in small towns that are fairly stable, have a need for decent housing, and have a good city council. You can either hold the lots for future resale and roll over into another, (a bit risky, and you are paying taxes on the property, even if undeveloped), or you could arrange for a developer to build the Quads on his dime, with you holding the property and getting a piece of the action from the income stream the development company is getting.

The rest of it should be doable. This will still hold your 35% land, 33% conventional investments, 32% PMs, each diversified in addition to the diversified aspect of the three parts.

Just my opinion.


This is something I came up with a long time ago and was never able to follow through on. Just consider what might apply to you and forget the rest.

What I'd do if I could start over. This is investment/retirement money only, not total income use. It pre-supposes extensive preps and back up funds in place all the time. At least a year of preps, a year of equivalent salary for normal things if income stops, and a large emergency cash fund for the unexpected expenses such as car repairs or medical bills.

The plan is approximately 1/3 each income producing property (35%), more or less regular financial investments, diversified as to type (33%), and precious metals (32%) to spread the risks, not matter what happens. I don’t think it is possible to accurately predict what will work in the future, so I prefer to cover as many bases as possible.

If there isn't a reasonable amount for an item, shift the amount 50/50 to the other assets and PM assets, and then transfer to the item when enough is accumulated.

The Warrant trading account has to be managed, as do the separate parts of the self-managed Permanent Portfolio Fund.

The rest can pretty much just be watched and changes made when the overall percentages get out of whack.

I'm not an investment person. This is just what I'd do with a significant amount of money I wanted to diversify so as not to lose too much in any one account. Seek professional advice before you make any investments.

For someone starting out, I would build solid credit, maintain a very minimum amount of debt in order to build that credit, and otherwise pay as you go, living a reasonable lifestyle without overdoing the fun, but having some, and always buy quality for a good price rather than just cheap. Keep long range goals in mind even when considering short term decisions.

Just my opinion.



20% - Income producing working farm/ranch primarily as a hedge for bad times so you’ll have food, plus income. Buy in and perhaps even some sweat equity when possible, but not to run and operate oneself.
15% - Quadraplexes on corner lots in small towns with live in manager as income producing property (usually not subject to apartment rules and restrictions in most places that can have rent controls put into place)

5% - Permanent Portfolio Fund (PRPFX)

2% - US Treasury Bonds (28+ years)(self-managed PPF)(equalized each year)
2% - US Treasury Money Market Fund (self-managed PPF)(equalized each year)
2% - Gold coins (self-managed PPF)(equalized each year)
2% - Growth Funds (self-managed PPF)(equalized each year)

5% - Blue chip mutual funds – keep rolling the dividends back into the same funds (PRFDX) (FBGRX)(FBCVX)
5% - Warrant trading accounts – Never buy more warrants than the money would buy of the stock.

2% - Deferred annuity #1 Paid into until retirement for monthly income (Hartford, John Hancock, Met Life, Mutual of Omaha, and Prudential)
3% - Deferred annuity #2 Paid into until retirement for big ticket items (Hartford, John Hancock, Met Life, Mutual of Omaha, and Prudential)

2% - A trust fund to capitalize a few projects I have in mind.

1% - Swiss bank account – Dollars
1% - Swiss bank account - Swiss francs
1% - Swiss bank account – Gold

5% - 1 ounce Gold Eagle (in hand)
5% - 1/2 ounce Gold Eagle (in hand)
5% - 1/4 ounce Gold Eagle (in hand)
5% - 1/10 ounce Gold Eagle (in hand)

2.5% - Pre-1965 silver dimes (in hand)
2.5% - Pre-1965 silver quarters (in hand)
2.5% - Pre-1965 silver halves (in hand)

4.5% - One-ounce Silver Eagle rounds (in hand)
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Old 08-06-2013, 04:04 PM
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Jerry D, thanks for posting. Interesting percentages of assets and very precise.
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Old 08-07-2013, 02:14 PM
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Put your money into TIPS until you have a better solution.

https://www.treasurydirect.gov/indiv...ips_glance.htm
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Old 08-08-2013, 02:23 PM
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Quote:
Originally Posted by rriley View Post
Put your money into TIPS until you have a better solution.

https://www.treasurydirect.gov/indiv...ips_glance.htm
This is good advice.


I have a high risk tolerance and a long time horizon so personally I like stocks. Somehow for emotional reasons I have managed to be virtually 100% real estate. I kept finding cool properties to buy, and I did. Overall I would have done better buying stocks. One problem with stocks is that they are too liquid. I would keep selling them to fund my company. With real estate it was enforced discipline, real estate isnt liquid enough to be used to help with operating funds.

The longer your time horizon the more variance you can tolerate. All tier one investments will go up in the long term, but they will have variance. All the diversification into international stuff and bonds is really to keep you from feeling bad when stocks drop. If your time horizon is long enough, index funds will always bounce back because they represent ownership in the worlds top companies. Some of those companies will fail over time, but overall they will outperform just about any other investment.

My economic forecasters were saying mild recession next year, now they are saying possibly no recession. They are currently saying big recession in 2019 - but it is extremely difficult to predict that far out. However I get a report every month so will be updated as we get closer.

Read everything from warren buffett.
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