Investing - Basic Questions for 2015
 

I know this has been asked / discussed frequently, maybe overly so but............................................... .I'm looking for possibly a different direction this new year. In the past few years I have made a good bit of tax-free $$$$ cash by buying, fixing, restoring classic cars, trucks and motorcycles. A very healthy ROI that, to do any better you would probably have go into the illegal drug trade. BUT...............................here are the 'problems' that come with that especially in the last 6 months.

1) Consistency: Finding the right _______ to flip. It is increasingly difficult to find / buy anything where there is enough margin to make any money at all. I have a lot of resources / people to pull from, but good buys are just too scarce. I don't see much improvement in the upcoming year. Typically these deals are almost always off of most conventional 'radar'.

2) My Time: Since going full time merit employment with the county in June of last year, I do not have the spare day(s) to commit as before. So my actual 'spare' time has become much more valuable. It's just is not real time enough to commit to any additional major projects like partial / major resto's, nor do I want to as I'm a little burnt out physically and mentally.

3) Buyers with MONEY: I know going into a deal what my selling price will be. No different than any other buy/hold/sell investment strategy, as the old saying goes "You've already made money the moment you buy it". Recently, I'm not seeing the buyers with the disposable income as, say, 6-8 months ago. I know part of this is the time of year, but there seems to be trending where if the 'item' is p$1500 or $25K (representing good value and under fair market) it still won't sell.

4) Make my $$ work for me: I thought about this a lot and as I get older I need whatever investment to be accruing value even as I sleep, quickly and with much less physical involvement directly from me.


5) Small $$ Amounts: Where the investment is liquid and requires amounts from $10K and down.



OK everyone ready? 1-2-3 go!!

What kind of return are you targeting and how much risk are you willing to take?

I'll answer truthfully= The most for the least!! But more to the point, my risk has been very slight in the past few years because I know the market so well and I have so much real experience in the auto business, decades actually. I know valuations like it's second nature.

Honestly, I like the idea of actively investing in stocks, bonds, commodities markets but I know jack about those other than commodities are the 'bad boys'. I so know that there are stocks that bare dividend(s) as well as interest. I like the idea of researching and investing online accounts at my fingertips. My real fear with this is that there is too much relevant information about a stock that I (or Joe public) would never see these days. That only real pros with the inside scoop could make any money at all. Further that I would lose money through investments with things I couldn't control.

if you're looking for guaranteed tax free return on your investment
cash value life insurance is the way to go

mass mutual has a very good dividend rate and new York Life is doing better every year

then you can use etf or c share mutual funds for liquidity

you decide how much you always want liquid

Please explain, thanks

in a nutshell,
the IRS allows life insurance to be a tax shelter.
so mutual Insurance companies. those who are not traded on the stock exchange.
with strong enough financial ratings can design a life insurance contract that functions like a bank.

so strong mutual companies like mass or NYLIFE have big cash reserves as much as 400 billion that they use on behalf of their policy holders who own those companies and share in their profits like share holders.
the risk must be guaranteed to show a return.
over time the dividend and cash value grow and is available to the client as a loan or surrender.
using the loan function keeps the growth tax free.
you are essentially loaning from yourself instead of a bank and at the same time getting the most from your money.
it's not liquid right away, so I don't recommend putting all your eggs in this basket
but if you are looking for a permanently guaranteed winner no matter what the stock market does, is the best solution.

I recommend a fee-only investment adviser. (Fee-Only Financial Advisors Home - NAPFA - The National Association of Personal Financial Advisors) It costs $800 in my neck of the woods for the first evaluation of your goals and resources. After that I get a $500 "tune-up" every two or three years (depends on changes in the economy and my goals). He/she will look at what you want to accomplish, where you are in life, what you have to invest, what kinds of investments you are comfortable with, your desire/ability to be active in managing your investments, etc. They are familiar with all forms of investment from real estate, to life insurance, money market accounts (probably not the details of collectibles though). I would not even talk to anyone who does not tell you up front how much they are going to make advising you.

I like real estate, for the same reasons you like cars-

I control the value. It is tangable, whereas stock values are determined to a great extent by the emotions of "the market", where prices can fluctuate greatly on a whim.

Real estate always has intrinsic value. It will never be mis-managed to the point where it becomes worthless like a penny stock, or lose all value through a bankruptcy, as occasionally happens with stocks.

Like cars, in real estate you make money when you buy, not when you sell. I've yet to loose money on a fixer-upper, but I understand the difficulties of the current market- I quit buying fixer-uppers when the housing market got too hot, as there were no bargains to be purchased. Now that the bubble has burst, and the "masses" are fleeing real estate, it's time to find bargains once again. Good money to be made right now in single-family real estate.

Sorry, but I gotta disagree with paulgtr about cash value life insurance. Always a poor choice for an investment. "Tax free" is good, but the rate of return on the money is pathetic. The only people I've heard plug cash value life insurance are insurance salesmen, where the commissions are very high. The only reason for the high commissions are because they produce high profit for the insurance companies. More income for the insurance company, less income for the investor.

Dirt. As in real estate. Right now, the RE market is very soft - inventory levels are low, at least here in North New Jersey. Most people are not buying right now. So this gives you time to find a fixer-upper and prep it for the spring when the market gains more traction.

You already have a talet at fixing this up -- but with filipping cars. Flipping houses require some of the same skills, a little more equity up front, a longer time to 'repair,' but a whole lot greater return on the other side.

Do some research, find a desireable location, then find a house in that area that requires a little attention, and have at it. Pay attention to details when fixing the home, don't cut corners, find what is popular now in homes (granite? open floor plan? master suite on first floor?) and work those into your repairs.

My $0.42,
-Z

I wouldn't,
I work in the field and don't charge a fee.
those who charge a fee don't have access to training or products I don't have.
they just charge you for the same advice I can give for free.

You are also paying for life insurance that you may or may not need or want. While a cash value policy is a part of my portfolio, it was chosen very carefully as an adjunct to the whole investment plan. It is not the place to start a porfolio. I recommend you read this:

The Truth About Life Insurance - daveramsey.com

You work for free??

comparing what the commission is to the value of the policy is always in the policy owners advantage and unlike real estate is much more accessible to the owner in using the intrinsic value at their discretion.

I will not charge you an hourly rate.
if you take my advice and then go to Charles Schwab I don't make a dime, yes it happens, I only get paid if you do business from what ever carrier you decide to use.

^^
This. With your talent you should not lock your money up someplace where you can't get it immediately if the opportunity/desire to put your skills to work making some big money. You might be better off with a lower return investment that keeps you liquid enough to take advantage of your skills if you get the chance.

It depends on your tolerance of risk. If you buy now the stock market is high and cannot stay at this level forever. It is very disconcerting to buy high and watch your investments go down in value. Likely they will go up again.

I do like mutual funds as the $$$ is professionally managed. The prof. stock pickers are able to choose stocks which they think will do well in the long run. Buying ETFs is a low cost way of buying investments. The commission is cheaper than buying mutual funds.

A little knowledge is a dangerous thing particularly with investments.

If you go to a financial planner then they may try to influence you into buying mutual funds because they get paid via commissions. A fee based financial planner is compensated with an hourly fee. This may suit you as he /she will give you direction as to how you are doing financially and what level of preparation you have for retirement. I actually have a fin. planner who I invest with with the $$$ going into mutual funds. I get separate statements from both so I know the $$$ are actually invested in the mutual fund co. and not going into the financial planner's pocket.

If you don't want risk then guaranteed returns can be had from bank deposits but returns are puny.

Be very careful of going with somebody unless they have a good name and references. In terms of mutual funds I spread $$$ around to more than one organization. I like Fidelity, Vanguard, Templeton to name a few. Don't put all your eggs in one basket.

$$$ cost averaging is a good way to go. Buying a specific amount each month averages out the peaks and valleys of the market.

Feel free to pm me if you need any more advice. I took the Can. Securities Course back in the 1960's. It has served me well on the understanding of the various investment vehicles etc.
Cheers,

Guy

Real estate appeals to me for all those same reasons. I've had several conversations with my wife concerning this specifically. I know quite a bit about construction, know a few guys who are building industry contractors / sub-contractors. SFH's out side my immediate area are affordable 'fixer's. My logic is that there are homes cheap enough to buy / 'flip'.

There you go.

right, but you'll pay the same fees on top of paying an advisor

Just one guy's opinion. I've played with the numbers, and in every case I've looked at, cash value life insurance was a poor choice.

YMMV.

Thanks all for the good advice / opinions so far...........

IF you need life insurance AND you want a guaranteed investment with a low return it can be OK. Life insurance has its place, but it gets oversold because the "investment advisors" who push it have a vested interest in seeing you buy it.

I guess it depends on how much return you expect and how fast. There is also quite a difference between buying something to flip (after much work...either by you or someone you pay) and a pure investment play. If one has time, investing in an mutual fund or 401K that is indexed to the S&P 500 or similar has proved over time to achieve almost 10% per year. If you do not need to be too liquid, rental real estate usually performs very well if you do not invest too much of your own money and count the tax savings. Your return should computed be based on your down payment rather than the cost of the house.

1. original post mentions tax free

2. if you look at the first year yes, return isn't great. properly over funded life insurance works very well. so maybe you didn't get the right advice. over funding also makes my commission smaller, so you'll be making more money and I'll get less if that makes you happy.

3. why wouldn't you want to as an entrepeneur have a bank to loan your business money? and pay yourself back? yeah, that's a terrible idea that my clients use to great effect...

4. already addressed the ROI. liquidity is managed by proper diversification

Just to let you know that I have no financial interest in what I say or recommend.
Return on investment in stock market/mutuals/etfs are ball park 8.5%. Investing in real estate typically 5.5%. Long term commitment is the way to go. If you are likely to need $$$ at short notice then you need something more liquid. Diversification is key.
Life insurance get straight term. If you get whole life ins. then there is a savings component but rate of return is small.
Proceed with caution!
Guy

it you go to some one who charges hourly, that does not stop fees from being charged when you invest your money. mutual funds are never free.
so you're paying some one, and then you're paying them again.

BTW, I agree with RL, but the investment is much higher then buying a 50-60k car so the risk is greater.

How's are homes moving up in your neck of the woods? In socal (certain parts, but LA is still on fire), the market has not slow up much. This time of the year is typically a bit soft for a couple of months but buyers are still buying.

A load fund will charge a fee no matter who sells it - or if you are advised to just buy it directly. If you buy it directly the fee you are saving is the one from the salesman. If it's a no-load fund then you don't pay anyone. If you have a salesman/advisor who makes money if he sells you on one product, whether it's mutual funds or life insurance, but no money on another, which one is likely to be oversold? Sure it's nice to trust a guy to be unbiased, but is it realistic? I think not. There is a clear conflict of interest.

"If the public knew that my general agent gets 120 percent or that I get 85 percent of the first-year premium, that would be an eye-opener," admits one life agent, who spoke on condition of anonymity.

Read more: Insurance Agent Salary - How Much Does A Life Insurance Agent Make?

If investing in income-producing rental property, this can be a close number. If flipping fixer-uppers, the numbers can be quite lucrative.

As long as:

-You buy the right homes
-You buy at the right prices
-You get the work done quickly
-You list at prices that result in a quick sale.

I've done both- Long-term rentals, and quick flips. Which way to go?

Quick flips offer quick cash, but keep you very busy
Long-term rentals offer a passive income that allow a very flexible schedule.

The way it has worked for me is after the long-term rentals are up and running smoothly, I can do a flip on the side. Best of both.

Inventory is very low here (Northern NJ) in the $500k - $850k segment, as well as in other segments. Many of the homes for sale have been on the market for 6+ months, and they are not in desirable locations, and/or they need a lot of updates.

It is like going to an apple orchard that has been picked clean, save for a few apples that are hard to reach, have fallen to the ground, or are just plain rotten.

I sold my home last year (2014) - listed at the end of March, accepted an offer in Auguest, and closed in September. Haven't found anything that meets our requirements and needs. In my area, the RE market picks up in the spring, so until then, Mrs. Z and I are waiting it out in a little 1 bedroom apartment, with all our furniture and possessions stuffed into a storage unit...

Back on topic, regarding investing -- if you are in RE long term, the investment can be better than the stock market. If you are in RE short term - it is riskier, but can still pay off well, if you are wise in what you are doing. In my case, I lived in my home for over 20 years, and the value increased by 100%. Not a bad ROI...

-Z-man.

When it comes to advisers, they have to get paid by someone. Also, not all of them have a fiduciary responsibility to do what is in your best interest. So if they get commissions from xyz, and they can convince you to invest in xyz, then that to me is not in my best interest. I want an adviser who has a responsibility to do what is in me and my money's best interest. I suspect that would mean that I'm going to have to pay them.

I am not saying that all non-fee advisers are crooked or going to steer me in a direction that is bad for me just to line their pockets, but I have little to no recourse if they do and finding the right one would probably be difficult.

I'd stick with an adviser that I have to pay.

I like indexed funds, not active funds where some expert thinks he knows how to beat the market. Even if the "market" made 10% and the active investor made 11.5 or 12% over time, that extra return would probably be completely consumed by the fees paid to that expert to beat the market. I'd rather diversify into multiple indexed funds or ETFs. IE, domestic large cap growth, dom large cap value, dom small cap growth and dom small cap value. Then do the same thing large and small growth and value for international.

The fees on good index funds will probably run .05-.2% while the fees on the active funds will probably run 1-3.5%. Yeah, that's a BIG difference, especially over time and large sums.

I'm sorta old school and like to spread things out to mitigate risk long term. I like Real Estate, Vanguard index funds, muni-bonds (tax free), and I use life insurance but it represents maybe 5% of my investments. Over time this has worked pretty well with RE being high risk, high return and VG being low risk lower return. I do buy and sell stocks with side money but realize that game is pretty rigged so you need to know who is doing what to who. I don't like being out of the loop so index funds work better for me as an investment tool.

With investing, there is a tell that indicates someone is ripe for fleecing. It's the one who believes you can get high returns with low/no risk. They always get cleaned out first by buying pie in the sky.

Me too.

I agree. I'm comfortable with a no-load index fund with an expense ratio of less than 1%, though before I turned 60 I did have some more aggressive managed funds that did well for me.

Considering your conservative mindset and goals (much like me), I think the fixer upper house would be a great option. If you are able to invest your own sweat equity (just like the cars) there is real money to be made. You make your money when you buy, so a thorough understanding of your local housing market, neighborhoods, and specific houses is everything. It's something that I will definitely pursue after I get some other things squared away financially.

I've never followed this line of thinking. If after all fees and charges a managed fund consistently beats the index fund why would I want to put my money in the index? Look up these two managed funds (PYSCX and PVSCX) and compare them to a low cost Vanguard S & P index ETF (VOOV) over the past 5 years. Why wouldn't I pick the managed fund? Sometimes the best costs more. What do I care as long as I end up with more in my pocket?

A good realtor is key in this too. Make sure you find a realtor that understands investment properties, and is willing to wait it out with you to find the right one!.

Risk is the unanswered question. Those funds have a relatively short history through a very unusual economic period. Sometimes chasing returns can be a trap. Over a 5yr period, Nasdaq outperformed PVSCX.

Chasing Performance is the biggest don

Dollar cost averaging into index funds is really really boring stuff that no commissioned advisor will recommend. If a long term growth strategy with very low cost and low risk is something you think makes sense to include in your portfolio then Vanguard looks very interesting. Different strokes for different folks.
https://investor.vanguard.com/mutual-funds/index-funds?WT.srch=1

Past performance doesn't necessarily predict future results.

For me, 5 years does not demonstrate long term, consistent results. Five years is a blip. I think about long term as being 20, 30 or 40 years. Lots of funds can beat the market in short periods here and there. If those funds are beating the market long term, then, yeah, they may be worth the premium. But, if they beat the market like a red-headed stepchild for 5 years, and then drop down to a normal level for a few years, and then drop below the market for a few years, you aren't making money unless you sold them before they dropped, and you're still paying the expert his high fees.

I have a hard time paying the experts high fees when pretty much everything that I've read indicates that over the long term, active investing doesn't beat the market, especially when you factor in the costs.

How the mutual fund graveyard can hurt investors - CBS News

And willing to present your lowball offers.:D