Increasing My Investing Superpowers

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?

6 thoughts on “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.

    1. 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

    1. 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.

      1.  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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