Last 5yrs have been the "luckiest" ever but need advice now

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Ritual
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Last 5yrs have been the "luckiest" ever but need advice now

Postby Ritual » Thu Oct 06, 2011 10:32 pm

Hello,
I'm 33yrs old and
At first I thought I was just an average guy and maybe I am, but after the last 5 years and watching and listening to the horror stories of most. Lost Job/House/Savings etc
I'm probably above average maybe HA!

Intro to my investing life
Back in '06 I was just crazy enough to spend my life savings $20,000 at the time on bars and rounds of silver. My price was $8 an ounce. Trust me when I say it took more then one trip with the dolly to move all of this metal :-o
I did this out of fear mostly. I was scared the world was gonna end and I'd be bartering silver dimes for loaves of bread. :shock: I know it was pretty paranoid but looking back on it now I feel like the smartest idiot ever. This has given me the most incredible sum I've ever had. I know its probly low for most but the amount has really blown my mind. (Yes I've sold alot, more on this in a sec)


My 2nd win

Last year I put some money down on my first home. I kept thinking to myself everyone always says their house is an "investment" but that really didnt seem true considering what happend to most people in the last few years. So I decided I WOULD make my house and investment dangit all!
So what I did was purchase a 4plex and I live in one of the units. I got a really smoking deal. WELL I SEARCHED FOR A YEAR to find it but now the PITI Power/Water/Sewer/Trash/Maint/HOA/Management are almost completly covered I pay approx $300 a month on "rent" now down from $900 in my old apt, and the tenents pay off the rest. Its probably the best home "investment" I could have made at least I think probably is. its 4,000 sq ft 3k of which brings me $
This took me a long time to figure out. I started hatching the plan around '09 sometime as I recall. For the last year its been pretty amazing I wish I'd of thought of it earlier TBH this was a masterstroke. (Sorry if my head got too big there)

Now that I've got a home "investment" and I still have a "few" silver rounds. I've been able to save ALOT more money, hell the extra $600 a month alone this past year has been EPIC WIN . I know this might seem stupid but I've never bought stock before I have over $100,000 just chilling because I really dont know what to do with it. I cant lose it ever. This just has to grow, I swear this is more cash than I could have ever conceived of having and I dont want it to go down. I have a feeling that I'm quite good at figuring out solutions to investing in interesting ways. but Stocks have me fearful. I've tried to read books on stocks but watching the world and with things like Greece and the fiat dollar and euro etc. I find myself fondling my last silver like Scrooge McDuck.

Probably the best advice I've read so far has been from Warren Buffett "Invest in things you understand" I feel the last 5 years I've done that intuitivly and profited quite well but I want to expand and put my toe in the water of stocks but again. Europe and such. The next bit that stuck with me was "When everyone is fearful be greedy, when everone is greedy be fearful." That right there has blown my mind. I feel like I'm some how channeling that sentiment.

So how to get into a new arena of investment? I have a pretty good grasp of it. I've studied it for about 6 months now. I understand what to do but I'm hesitant.....
I see this as the path to really breaking into a new level of $ that I have yet to fathom and I'm trying to create the paradigm in my mind so that I can rise to this level.
I can currently envision myself with 200-500k but I'm having difficulty imagining more than this. (This probably sounds stupid) But I realize its a large shift. Hell just 20k->100k has been. o.O
I can see that amount in my minds eye, and I can almost see beyond that to 1-2 mil

How to proceed, your thoughts?

Thanks,

Ritual.

kombat
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Re: Last 5yrs have been the "luckiest" ever but need advice

Postby kombat » Fri Oct 07, 2011 5:20 am

Hi Ritual, and welcome.

Firstly, right off the top, my advice to you would be "sell the silver IMMEDIATELY." It's had a great run. You're right - you got lucky. Now do the smart thing and lock in those gains. Precious metals are an entirely speculative investment. They pay no interest or dividends. Their value relies entirely on market sentiment. There are no fundamentals to support its value, at any price. You say you're terrified of losing money, and PM's are among the riskiest assets you can invest in. So sell it all YESTERDAY.

Beyond that, I have 3 points to make.

Number one, in order to provide meaningful advice, we need to know more about your financial situation and goals. What do you do for a living? Is your job secure? What assets/debts do you have? What do you have for retirement savings? Company-matching 401(k)? IRA or Roth IRA? Do you have an emergency fund? What goals do you have? Do you want to retire early? Do you expect to provide financial support to any parents in the future? Do you want to travel? Do you collect antique cars? The more details you can provide, the better advice we can give you.

Secondly, I'd give you the generic advice, which is probably the best approach in your case, given how little we know about your specifics. I tend to recommend Dave Ramsey's "Baby Steps." Step one is gather up $1,000 as a starter emergency fund. It sounds like you're already well past that. Step two is pay off all non-mortgage debt (student loans, credit cards, vehicles, lines of credit, etc.). I'm guessing you've also already achieved this one. Step 3 is build up that emergency fund until it is enough to cover 3-6 months of expenses. Again, based on your silver windfall, you probably already meet this. Keep this cash completely liquid, in a bank account somewhere. Don't try to get fancy with it and invest it in anything except maybe some CD's or something. The next step is to be saving 15% of your income for retirement. This is where I'd take whatever money you have left after the first 3 steps and use it to fill up any room you have in your 401(k) and IRA.

As for what, specifically, to invest it in, well you'll need to learn a little bit about asset allocations. In general, you should have some invested in the market (probably around 60-70% for someone of your age), and the rest in fixed income like bonds, CDs, high-interest savings accounts, treasury bills, and whatever else. Don't invest in real estate because you already have a ton invested in your home and rentals.

So what do you invest that 60-70% "equity" money into? Again, the general advice is a mix of low-fee passively-managed index mutual funds. I'd split it up 25% domestic small-cap, 25% domestic large-cap, 25% foreign market, and 25% emerging markets. That's a pretty standard allocation. However, there's one thing you said that may require adjusting this traditional approach.

Ritual wrote:I have over $100,000 just chilling because I really dont know what to do with it. I cant lose it ever.


This is the third thing. You say you absolutely cannot lose any money. That says "low risk" to me. Unfortunately, it also says "inexperienced." Let me explain.

The only way to guarantee not losing any money at all is to stick it in an FDIC-insured savings account. You're guaranteed to get the interest the bank pays, and if the bank ever folds, then the government steps in and makes you whole (up to a $100,000 limit, although I think this was raised to $200,000 during the crisis in '08). The problem is that the bank pays piddly interest (less than 1%). That interest is typically less than inflation, so while your money is growing in an absolute sense ($101 > $100), it's actually shrinking in a real sense, as inflation erodes its value.

The only way to earn a higher return is to take more risk. That's an absolute, fundamental law in economics. If it were any other way, then the world would be flipped upside down as a torrent of cash flowed into low-risk, high-return investments, and equity markets were starved for cash because they offered less return and higher risk than a bank account. Why would anyone ever invest in companies in that scenario? The economy would completely collapse. In order to attract investment capital, equity markets must offer higher returns than risk-free vehicles like bank accounts, CDs, and treasury bills. But there are no guarantees, so there is more risk involved. It's rule #1 in economics, and there's no getting around it. If anyone ever tells you they can give you a "risk-free" return of anything higher than what a CD or treasury bill is currently paying, they're a filthy lying scammer.

You mention the advice to "invest in what you understand," and that's good advice. You admit that you currently have a soft understanding, which limits your investment options. So you can either stick to what you know and give up the possibility of better returns, or you can expand your understanding (and thus, your investment options). There are plenty of great books to introduce you to how markets work. Here are some I'd recommend, in the order I think you should read them:

  • Your Money or Your Life (Robin and Domingues)
  • The Little Book of Common Sense Investing (Jack Bogle)
  • The Richest Man in Babylon (George Samuel Clason)
  • The Total Money Makeover (Dave Ramsey)
  • Still The Only Investment Guide You'll Ever Need (Andrew Tobias)
  • The Millionaire Next Door (Stanley and Danko)
  • Four Pillars of Investing (William Bernstein)
  • Where are the Customers' Yachts? (Fred Schwed)

If you're a numbers nerd, you could add "A Random Walk Down Wall Street" to the list, but it's a pretty long and dry read.

Whatever you do, don't read "Rich Dad, Poor Dad." It's utter garbage and terrible advice. It's a bunch of fluff with little to no substance, and what little substance is there is extremely high-risk, tunnel vision real-estate nonsense that might have seemed like a good idea in 2006, but is utterly laughable in today's market.

If you read all of those books, you'll be so far ahead of where you are right now you won't even recognize yourself. You won't need any of our advice, and you'll realize you don't need an opportunistic, conflict-of-interest "Financial Advisor" to "help" you.

Hope this helps, feel free to answer my questions at the beginning of this post, but most importantly, get to the library and start reading! :)

Ritual
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Re: Last 5yrs have been the "luckiest" ever but need advice

Postby Ritual » Fri Oct 07, 2011 8:18 am

My Job is secure in fact I cant be "fired" well, I suppose I could but can you get fired from your family? HA!
I dunno about selling ALL the silver though. Where I'm from people are very suspicious of the government. We are not all backwoods mountain men (ok maybe I was for a while) but...........yea nm about that hehe :P
I've tried to not be too crazy I have a few weapons but I know people with 100s of Rifles & handguns and they are basically waiting for the Apocalypse. So this is probably too ingrained. I'll always have some silver along with Food preparations. I could live for the next year easy with the rations I've got.
I know you think I'm insane right about now probably.
But I have been moving to more of an investment mind.
I've not told anyone what I'm doing either they would laugh probably.
So here I am on the web trying to find people who are smart.

There is no 401k plan for me (This made me laugh, I'll ask pa) he'll laugh though.
I've never had a credit card.
I dont have any debt. Well Mortgage but that is 90% covered by tenants.
My car is paid for

Its very difficult not listening to the people around me, I know I'm smarter then they are but you gotta understand the Deep woods Baptist rhetoric apocalypse survival stuff is really ingrained in my community. But since moving to the city *cough* ok its not really big by any stretch I've become less paranoid.

As for what I want to do in the future? Move to a tropical island with hot women dancing around me feeding me peeled grapes?
Never looking at a tractor again?
Yea that'd be great.

kombat
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Re: Last 5yrs have been the "luckiest" ever but need advice

Postby kombat » Tue Oct 11, 2011 5:49 am

Ritual wrote:I dunno about selling ALL the silver though.


*Shrug* You asked for advice, I told you what I'd do with the silver, as unambiguously as I could. The rule is "buy low, sell high." You lucked into the buying low, now you've got to do the hard part and "sell high." Being able to do the counter-intuitive thing and follow-through is what separates the rich from the "everybody elses." So go ahead and hang on to your silver and ride it all the way back down. It's already lost 25% in the past few weeks, but I'm sure it's just getting ready to go on another totally unfounded bull ride upward.

If you ignore everything else I'm telling you and never read a single page of any of the books I recommended, at least sell that silver NOW. I'm telling you, lock in those gains and dump that risk.

Ritual wrote:I know you think I'm insane right about now probably.


I think you're inconsistent. On the one hand, you sound extremely conservative and risk-averse. Yet for some reason, you're very attached to this silver, which is an unbelievably volatile and risky asset right now. I'm trying to make you understand how risky it is. You titled this very thread about how lucky you are. But if you have a lucky streak in Vegas and quadruple your money, then bet it all on one hand of blackjack and lose, what does that make you? The smart players take their winnings to the cashiers cage and cash out while they're ahead.

DoingHomework
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Re: Last 5yrs have been the "luckiest" ever but need advice

Postby DoingHomework » Tue Oct 11, 2011 9:55 am

kombat wrote:You titled this very thread about how lucky you are. But if you have a lucky streak in Vegas and quadruple your money, then bet it all on one hand of blackjack and lose, what does that make you? The smart players take their winnings to the cashiers cage and cash out while they're ahead.


And remember, "luck" is not an investment strategy.

I'd sell the silver too. When people think they have been lucky it means they did something without expecting the outcome. You bought silver because you didn't know what you were doing and it paid off for you by pure chance.

My wife and I are pretty well off because we bought tech stocks in the early 90s because we were not so smart and didn't understand the risks we were taking. They grew spectacularly and we did a lot of reading and learning (including several of the books recommended to you). That education made us smarter and made us realize that our wealth was largely due to dumb luck.

Armed with a little bit of smarts, we sold almost all our stocks in January of 2000, right before the bubble burst. We bought GNMA funds because we expected the stock market to coast for a few years and thought interest rates would be declining for various reasons. Guess what, the market is lower than is was then yet we have considerably more money. GNMAs performed very well and paid us huge dividends every month (mostly tax free).

Our money grew initially from luck. Now it is growing from strategy.

Sell the silver unless you can come up with a solid reason that it will continue to go up in the next 5-10 years.

DoingHomework
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Re: Last 5yrs have been the "luckiest" ever but need advice

Postby DoingHomework » Tue Oct 11, 2011 10:21 am

Ritual wrote:Its very difficult not listening to the people around me, I know I'm smarter then they are but you gotta understand the Deep woods Baptist rhetoric apocalypse survival stuff is really ingrained in my community. But since moving to the city *cough* ok its not really big by any stretch I've become less paranoid.


It's education that breaks that cycle of ignorance. You seem to be seeking out that education by posting here. You don't need to go to college and get a PhD in economics to escape the culture of ignorance you are stuck in. Read a few books and learn to THINK for yourself. The world operates predictably but with a little chaos thrown in. If someone makes a claim, question it:

The government is out to get them...why??? What would the motives possibly be?

Inflation is going to skyrocket? Ok, prices rise when demand outpaces supply. Do you see demand accelerating? Are the people you know buying more, spending more? Do they all have great jobs that they are demanding raises or they'll leave? Those are the things that lead to inflation.

Is the world coming to an end because some imaginary deity to going to take all his chosen people next week? What evidence do you have besides some 2000 year old book? And if it happens, what the heck will those people need the ammo and food store for?

What factors drive silver prices? What are the underlying trends in those factors?

It seems like there is hope for you. Read a little and think for yourself. Question authority. Demand evidence. And never believe anything unless you truly understand the root cause and the mechanism behind the behavior you observe.

racy
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Re: Last 5yrs have been the "luckiest" ever but need advice

Postby racy » Mon Nov 21, 2011 5:07 am

Check the 10 year chart for silver.
http://www.monex.com/prods/silver_chart.html

Then Google "reversion to the mean".

BetaRoc
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Re: Last 5yrs have been the "luckiest" ever but need advice

Postby BetaRoc » Sat Mar 15, 2014 6:33 pm

To update a thread to see if the advice was valid...

Silver is about $10 lower now than it was Oct 2011 when the advice to sell was given.

It hasn't bottomed out by any means and could potentially shoot back up, but they could have sold back then, took the profit and bought the same qty back now.


So to sum up: Good advice. :rock:

Lukeout007
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Re: Last 5yrs have been the "luckiest" ever but need advice

Postby Lukeout007 » Fri Apr 03, 2015 12:32 pm

Have you thought about using that extra money to buy another property? I don't know where you are located or if that's feasible in your area (certainly not in mine...) but if it is then maybe hang on to it and search for awhile until you find another really good deal on a property? Then rent it out...

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Re: Last 5yrs have been the "luckiest" ever but need advice

Postby getagrip » Wed Nov 18, 2015 12:33 pm

Just thought I'd add my two cents. First off, IMHO you are doing pretty good and better than most. Everyone has their idea of what they are comfortable with, and if a big pile of silver helps give you comfort, then sure, hang onto it regardless of "value". Is it the best financial move? As pointed out, probably not and you have to take that into consideration. However, buying a corvette because you like cool cars may not be the best financial move either, but it's your money and your life and your goals so you get to decide what to do with it, while taking and weighing kindly offered advice provided here and elsewhere into consideration.

As to starting with stock investing I'll give you a bit of a story. When I was growing up the only advise my parents had on money was basically "save it" and "save it for a rainy day". Stocks were voodoo for the rich folks, so I hadn't a clue about them. I had a friend who's parents invested in the market. While in college we pooled our money, did some research, and invested in two stocks to the tune of about $7000 in today's dollars. Well, no sooner had we invested than the stocks values dropped, and kept generally dropping as I read the paper every day. I wanted to pull my money out before I "lost" more. My friend talked me down, we went back over the numbers, and I felt better seeing and reviewing the actual volatility and noting the values were still better than their worst of a few years ago. In the end we sold one stock after a year for 20% gain and the other we had to hold for three years before it got out of it's slump and sold for an annualized 12% gain.

I learned three things:

1. You don't lose, or gain, actual money, *until you sell*, what you lose or gain is potential value if you sold *today* and those values change for good or bad over time. It's like your house, yeah the realtor or assessor can say it's worth $200K, but that doesn't mean you'll get $200K when you sell it. You could have a problem in the area and the best offer you get is $150K, or you could have a boom in your area and you get to sell at $250.
2. I also learned about time horizons. We weren't investing for a month or two, but for a year or two. If I had confidence that the stock was in a solid company, then even if it was down now, chances were it would be up later, and you try to avoid selling when the value is down. So don't use money you'll need in a year in the market expecting it to cover you because it might take three years, or it might take five to sell at a profit (My personal thought is money needed within the next 5 years shouldn't be in the market at all and depending on circumstances that could stretch to 10 years).
3. I learned panic is a bad mode to make decisions in, and that it was worse in that I self created my own panic by checking on volatility every day and reacting, either with joy because it's up, or depression because it's down. But it will do that every day regardless of if it's a good or bad stock or generally rising or falling. Set it and only check if there is a major change to the company, economy, or according to your strategy.

So, how does this relate to you. First, there have always been those prophesizing with full sincerity the end of the world is nigh since the days of Jesus, hasn't happened yet, not likely to happen anytime soon. Consider that even if the unthinkable happened and things get so bad that the economy goes south and you have to rely upon your guns and hoarded food supplies, then the paper dollar is worthless, the world economy is worthless, and likely so is the silver because we will be back to a barter society and no one will be likely to be able to afford to trade with you for silver until a solid government of some kind is formed again to put a "value" to what a silver bit is worth. So, that said, you can invest with the knowledge that paper money is as vulnerable to big catastrophe as investments in businesses, which is all investing in stocks is. Now if you just can't imagine ever watching the value of your money go down by 20-30% even temporarily, then you simply cannot invest in stocks because it will happen, not might happen, will happen, likely in the next few years and then again some years after that.

So what?

I've seen my stock values drop through multiple small and big bear markets. I watched my 401k "value" tank in 2000. Did I sweat a bit, sure, who wouldn't, it was a big deal. But the market came back and so did my "values". I watched it tank again in 2008. Guess what, this time I upped how much money I was putting in because do you buy things on sale or not? Did I do it perfectly? No, I should have borrowed money and thrown it into the market and then I would have been in an even better position. I've a friend who pulled hundreds of thousands out of the market in 2007. He's been waiting for the "right" time to put it back in. Meanwhile the money I left in has gone way past the value it had prior to the recession, and he's losing his value to inflation as he sits on cash waiting for some imaginary re-entry point. Right now, my value is about $10K below where it was, but is that reason to "sell"? No, I still have a decade before I need it and I am fairly confident that the value will be more in five years or so than it will be now, even with a bear market in there somewhere pretty much guaranteed to happen.

So, provided you are willing to let the money go and make more money for you, at a risk, I would recommend reading a bit (the previous list was pretty good but you don't have to stop at that) and investing a bit. You don't have to do it all at once, because again, the "best" financial move isn't necessarily what is going to let you sleep at night. So maybe keep $30K in the bank for now and put $20K into CDs, $30K into a broad market index fund, $10K into a broad market bond fund, $5K into an international fund, and $5K into a small capital stock fund. Maybe you only want to dip your toe in and start with $10K into a broad index market and add a little every month, say $100 a month as you save $500 a month. Maybe you'll decide you'd rather buy more property as a landlord. As you read, as you actually do, you will gain confidence and decide how much you want to invest and in what. Any way, best of luck.

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Re: Last 5yrs have been the "luckiest" ever but need advice

Postby kymberlyredmond » Tue Dec 01, 2015 4:40 pm

This is an incredibly interesting thread. I think that a lot of people are bargaining that the cost of silver will skyrocket when/if Western governments collapse. Sounds like a long shot to me - and if they did collapse it is very unlikely that you would have the time or the inclination to lug around a pallet of silver. The argument I prefer when it comes to keeping the silver - is that it is dwindling resource and its scarcity will bolster prices in the future. It could very well go up even further in the coming 10 years. Will be interesting to see what you do with it in the end.


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