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 Post subject: Last 5yrs have been the "luckiest" ever but need advice now
PostPosted: Thu Oct 06, 2011 10:32 pm 

Joined: Thu Oct 06, 2011 9:28 pm
Posts: 2
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.


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 Post subject: Re: Last 5yrs have been the "luckiest" ever but need advice
PostPosted: Fri Oct 07, 2011 5:20 am 

Joined: Tue Mar 11, 2008 12:19 pm
Posts: 1778
Location: Ottawa, Canada
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! :)


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 Post subject: Re: Last 5yrs have been the "luckiest" ever but need advice
PostPosted: Fri Oct 07, 2011 8:18 am 

Joined: Thu Oct 06, 2011 9:28 pm
Posts: 2
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.


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 Post subject: Re: Last 5yrs have been the "luckiest" ever but need advice
PostPosted: Tue Oct 11, 2011 5:49 am 

Joined: Tue Mar 11, 2008 12:19 pm
Posts: 1778
Location: Ottawa, Canada
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.


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 Post subject: Re: Last 5yrs have been the "luckiest" ever but need advice
PostPosted: Tue Oct 11, 2011 9:55 am 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5398
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.


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 Post subject: Re: Last 5yrs have been the "luckiest" ever but need advice
PostPosted: Tue Oct 11, 2011 10:21 am 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5398
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.


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 Post subject: Re: Last 5yrs have been the "luckiest" ever but need advice
PostPosted: Mon Nov 21, 2011 5:07 am 

Joined: Thu Oct 30, 2008 3:10 am
Posts: 9
Location: Nebraska
Check the 10 year chart for silver.
http://www.monex.com/prods/silver_chart.html

Then Google "reversion to the mean".


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 Post subject: Re: Last 5yrs have been the "luckiest" ever but need advice
PostPosted: Sat Mar 15, 2014 6:33 pm 

Joined: Wed Mar 12, 2014 8:09 am
Posts: 6
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:


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