Increasing My Investing Superpowers

July 5, 2012 — 6 Comments

Photo Credit: 401K 2012

Lately I have been questioning my investing strategy. Up until now I have been following Dave Ramsey’s advice by investing in mutual funds. This has worked well, but I am wondering if there is a smarter way.

A key idea in investing is that the investor should always understand what they are investing in. So the question to myself is: do I understand mutual funds? I understand the mechanics of a mutual fund, but do I understand what the fund is investing in? I’m not confident that I do.

If I had cash in hand and wanted to invest in a company, I would want to know as much about it as possible. I would talk with the owner and learn the ins and outs of the business. I cannot do this with a mutual find. First, there is only a limited amount of information on the company and I cannot talk to the people running it. Second, even if I had access to all the company’s internal information, there are so many companies in the fund I could never be able to keep up with all of them. Third, if I was investing in only one company I am not confident that I would know what to look for. Fourth, there are a lot of steps between my investment in a company, through a mutual fund, and me which adds complication. Fifth, I do not know what is going on in the minds of the investing managers.

Because of this, I have started thinking about stuff I understand or can understand with a little education. Real estate comes to mind. Yes, I know that there are a lot of negatives recently with real estate, but if I move in that direction I would learn as much as possible and avoid going “all in” for the investment. Plus, real estate is something tangible which  I can describe how it works on the back of a napkin.

At this point I am not ready to take action on these questions but maybe in the future.

Have you ever questioned your investing strategy?

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6 responses to Increasing My Investing Superpowers

  1. I have an interest in dabbling in real estate as well. Great way to build a residual income. Robert Kiyosaki (Rich Dad, Poor Dad) has amazing books that teach how to wisely invest in real estate.

    • Besides that, my uncle has been dealing in real estate for a while and is doing pretty well for himself. He does recommend commercial rentals over residential since there is less hassle. 

  2. I think real estate CAN be a good investment, but is an illiquid asset that has been very tough to sell these last few years and historically has underperformed the S&P 500. There have been studies showing it wiser to rent, but I have a personal struggle wrapping my head around that. I have a rental property and have lately been thinking that might turn into the future of SS for our youth. Will post a blog of this concept on my site in coming days: http://www.thinkinvesting.com

    • I am comfortable with it being ill-liquid and I would focus on some sort of rental set up without concern for selling for the long term. Do you have a feel for the total return for a rental property (i.e. increase in value, rental income, etc) compared to the S and P? What is SS? Drop a link to that post in this comment stream once it is written so others can keep up with it.

      •  Rental demand is much higher right now and has been over the last few years due to the difficulty of getting a home loan. So, the numbers might be higher than I would expect as an average (this is residential). For a 200k home, it could probably fetch rent of 1750 – 2000/mo. This would be a 4bd 3ba home with a mortgage of roughly 1500/mo.
        Values of homes will probably grow slowly over the next 3-5 years (IMO), but historically the avg home grows 5-6%/ annually.
        SS is my abbv of Social Security. Here is a link to my post:
        http://www.thinkinvesting.com/the-future-social-security/

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