Category Archives: Investing

Networth Up and Down and Up and Down

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The majority of my networth today is tied up in the stock market. It is difficult to understand how much risk one should really take to reach their goals of wealth. It appears that the only way the 99% has a chance of achieving wealth and financial freedom, one must take great risk. Risk that leads to many days looking at your networth going down instead of in the positive direction.

A few months ago, my networth was $183,000, according to my Personal Capital accounts. Today, it’s $159,282, a 13% loss from the highs this year. Granted, I’ve also spent money this year and I started the year with $150,000, so I’m still “up.” But that includes all of the money I’ve put into my investment accounts so far this year as well.

Obsessing over becoming the next Warren Buffet isn’t healthy. But I also don’t believe that mutual fund advisors are better apt to succeed in the markets with my money versus investing in my own diversified strategy. The problem is that despite owning a lot of different stocks and ETFs, I’m not sure how diversified I am.

My idea for my Sharebuilder account, especially my taxable account, was that it would be my play money account vs my IRA and 401k programs, where I’d invest in time-based mutual funds. But now with over $100k in my Sharebuilder account, it doesn’t look like play money anymore.

They say don’t sell when a stock is down, but I don’t believe that either. If a stock has lost 50% it’s time to sell (it’s time to sell before that happens if you see it dropping) and put that money into something more stable. For instance, today my $4000 CBOU investment was down to under $2000. I sold 1/2 of that, giving myself $1000 in liquidity, and invested in AAPL, VZ, and KO (my first investment in Coke.) I’m concerned about investing in dividend stocks in my taxable accounts, but it seems these are the only stocks that have a shot at earning a decent interest income in the future.

I do need a better way to track my spending on investments (both in terms of principal investment and transaction fees) to understand my true gain or loss per year. None of the sites (Mint, PersonalCapital, Yodlee, etc) seem to offer this. Any ideas on how to do this more effectively? I’m sure all the information is stored in my many different accounts, but no one is surfacing to me. Sharebuilder is bad because they only show you how great you’re doing based on the account increases, removing any losses that you have sold off. So I’m “up” 33% this year, but that’s no where near true.

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Mission Impossible? $250k in the bank by 30

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As I stare at my PersonalCapital.com Net Worth of just $166,978 in May 2012, I can’t help but feel like my goal of $250k networth by the age of 30 (or, 17.5 months away) is impossible.

That’s $83,022 left to save, or approximately $4.9k per month for the next 17 months. Since I only make about $5k after taxes, that, indeed, is an impossible feat. At best, with bonuses, I make $110k per year pre-tax, which comes out to an average of $6k per month. Still, spending just $1.1k a month for the next 17 months and obtaining all of my bonuses is unlikely, and yes, pretty impossible too.

My only hope is that my investments perform extremely well, and not extremely lousy ($163,747 of my total networth is currently in stock-heavy investment accounts.) I’m concerned my stocks will see losses instead of gains in the coming year, which will completely ruin my hope to be anywhere near $250k by November 2013.

5% interest, 18 months = $176,180
5% interest + $10k per year, 18 months = $192,125
5% interest + $20k per year, 18 months = $208,070
8% interest, 18 months = $183,784
8% interest + $10k per year, 18 months = $200,304
8% interest + $20k per year, 18 months = $216,824
10% interest, 18 months = $188,913
10% interest + $10k per year, 18 months = $205,819
10% interest + $20k per year, 18 months = $222,724

According to Personal Capital, my investments are currently 15% up in the last 6 months. That may not last. I’d like to see my account go up 30% this year, as then suddenly my dreams of $250k by 30 start looking a bit more possible. If they could make 30% for 1.5 years going forward, even without adding a cent, I’ll be at $242,710 by November 2013. With $10k per year of savings, that would bring me to $263.6k by 30, and would be a huge success.

I’ll be tracking my progress as always, to report on how close or far from the mark my investments are putting me.

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Taxes Due, Headed to a CPA

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Every year so far I’ve managed my taxes via TurboTax. I’m not sure if my taxes were done right, but they were simple enough where I was pretty confident in my ability to answer questions on a software used by tens of thousands of people.

This year, however, I’ve decided last minute to have a CPA do my taxes. There are a few items I’m nervous about and want to make sure to get right. That said, I’m also extremely nervous about selecting a CPA — because they could easily be wrong too. Most CPAs that are good are booked solid until after the 15th right now, which leaves me a little concerned over the CPA I found that seemed to have a few (or maybe more) available appointments. However, in my neck of the woods where everyone is rich, I’ve found the minimums to do one’s taxes are $1500 or $850 (two real quotes I got), so the one person who quoted me $220 an hour with assistants costing $90 an hour, minimum 2 hours, seemed reasonable. Still a lot more expensive than TurboTax — which I’ll probably fill out anyway just to keep my records electronic (I wonder if I can save it without submitting) — and I doubt it will “save” me any money in the actual tax return, but at least I’ll feel like it’s done right.

I’m concerned about 5 particular items:

  • 83b filing. You have to file that along with your taxes the year you make the election, and there’s no way on TurboTax to attach documents. I could fill out the paper form myself, but that would be putting a lot of confidence in my math abilities that i don’t have. I am also starting to be paranoid about the IRS never receiving my original “within 30 days” election (even though I sent it within 30 days) and want to make sure I get this right, just in case anything should happen later which would result in my being majorly screwed. I sent it certified mail with a return receipt but given I never mail anything anymore, I apparently did that incorrectly and never got the receipt, so I’m extremely concerned.
  • Stock losses. I took a sizable amount of losses this year on a few big losses that were not going anywhere, so I could reinvest the funds left in them into more profitable companies such as Apple, as well as diversify internationally. I “lost” (not paper loss) more than $3000 this year (probably more like $6000), and I want to make sure this is filled out correctly and that any additional losses over the $3k are noted to be carried over to next year.
  • IRA conversion. Last year I opened a traditional IRA with post-tax money because I thought I would end up making too much to qualify for a Roth IRA. I think that may be true. Regardless, if you make more than something like $6k you cannot use pre-tax money for an IRA. Which is stupid because if you don’t have a 401k then you have no way to set aside pre-tax money (unless you’re a real sole proprietor, in which case you can set up a solo 401k.) In any case, I want to make sure the IRS understands that this was post-tax money, so when I later do a Roth Conversion (ideally on a year I stay home to be a mother and have very low income taxes) I’ll be able to only pay tax on the interest on the account with a $5k basis.
  • $20k of freelance income I forgot about — is there anything I can do to reduce the amount of taxes I have to pay on this? Probably not, but worth asking.
  • General investment taxes — my taxable account dividends, P2P lending accounts, etc. It would just be nice to hear someone who does this for a living discuss if I’m doing anything wrong here.

Otherwise, my tax returns are simple enough to do via TurboTax. Other than the carried over stock losses, I assume next year they will be even more simple as I’m back in a full time job (hopefully for the remainder of this year) and not earning freelance income because I’m so busy with this FT job.

Have you ever used a CPA for your taxes? Do you feel it was worth it? How much did you end up paying?

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Get Rich Quick…. Quicker… Quickest

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On the eve of Facebook’s impending IPO, and all the buzz about the winners of the mega millions jackpot, the rest of us are left to attempt to build wealth out of our monthly savings. At the Personal Finance Conference a book on wealth generation was handed out to attendees, which stated clearly over and over again that the only way to really build wealth — other than to win the lotto — is to build something that other people want, and do it better than everyone else.

The good news is that I accidentally figured that out on my own. The bad news is that building anything is a huge risk, and has much more potential to fail than succeed. While I dream of getting rich overnight (who doesn’t) I personally feel that if I do not “earn” my wealth I would never feel comfortable spending it, even on reasonable purchases for a frugalista in the upper class.

PersonalCapital.com, my Mint.com replacement, is geared towards people who are actually saving and investing wealth (versus Mint’s focus on debt.) They recently added a really cool feature where you can put in your stock options in a private company and track vesting schedules. They even have a “what if” feature where you can put in the amount of the stock in the future and dream about how much you may have down the line, should your company be a huge success. Granted, I’ve already done this in Google Spreadsheets, but actually seeing the graph makes it feel that much more real. The difference between $3 a share and $5 are share becomes huge once all of the stock is vested.

Even so, I carefully plot my expenses and networth ignoring my company stock, not counting the amount I paid up front to exercise. If the company happens to fail, I’ll consider only the amount I paid to exercise a loss. But I’m not going to get my hopes up about the future too much. It’s definitely thrilling to think that I may have a shot at some sort of wealth at some point in my 30s. My boyfriend and future husband has not saved a dime — so it’s on me to build the life I want for myself and my one-day family. Deep down, I know I will be hugely disappointed if this doesn’t work out, at least somewhat. I don’t need $20M, but I’ve always felt that if I could have $1M by 35 I’d feel comfortable to not have to worry all the time about money, despite still having to work FT with kids, and $5M by 35 I’d be set to live the life I want.

So I guess my goal is $5M. That leaves $1.5M for a house (which is not extravagant in the bay area); $2M to invest and let grow, and $1.5M for life, kids, vacations. It’s quite possible that I’d never live in a $1.5M house, and instead move somewhere more affordable, buy a nice house for $800k, invest more, etc. I’d certainly want to start generously donating to charity, and would make sure to include that in my overall spending plan. $5M is certainly the dream.

It’s no April Fools joke that I have a much better chance of achieving that then ever winning the lottery. After my last startup that had no growth momentum, I went to work for a giant corporation, and decided that I never wanted to work for large corporate America again. Building companies is my passion, and it doesn’t hurt that if you get in early you have a shot at wealth.

The other day I read an article by a big businessman in Europe who said the trouble with today’s generation is that everyone wants to be Mark Zuckerberg and get rich quick. I don’t think that’s a problem, the only problem it creates is that company’s build what they can get out at the minimum versus having the time and funding to create something truly revolutionary. But for individuals, these products and companies can be very successful. Failing fast is probably the best advice I ever received in my life. After all, life is pretty short, whether you live to be 50 or 100. Even if you make it to 100, and you figure you will be working about 50 years between 20 and 70, that’s just 10 jobs if you stay at a company for 10 years. But if you stay at most 2 years, and only stay at the ones that have a solid chance for success longer, you can at least have a greater chance of success, especially in early-stage companies. Just make sure your company has a business plan and measurable objectives. If your business says it doesn’t need to worry about how to make money yet, unless you 100% believe in the idea and can imagine how it would eventually have revenues, get out, or don’t get in at all. When your company has a clear, measurable business model, you can tell very quickly if it’s going to succeed or fail, not just by the numbers, but by how management handles changes if they fail to hit those numbers.

But, really, who knows… it’s a crapshoot. I’ll continue to gaze like a starry-eyed dreamer at my PersonalCapital.com chart, showing how my $5M dream just may one day be a reality. In the meantime, I’m well on track to hit my target goal of $200k networth this year, which is all cash and investments. On that path, I may never have $5M, but I’m confident by the time I retire I can gather a million or two, as long as the world avoids any sort of apocalyptic nuclear holocausts… at which point, even $5M wouldn’t help anyway.

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Wikinvest / SigFig Teaches Me About Investing

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Incredibly enough, I’ve added nearly $150k to my investment accounts across my IRAs, 401ks, and taxable accounts. While I’m still not sure if taking the “select companies” vs index fund route makes a lot of sense, I know I end up putting more money into investments when I feel like I have some control over the fate of my networth, and at the very least, an opportunity to learn more about business and how public markets work.

Of all the finance sites I use, my favorite is Wikinvest (soon to be SigFig, which I received an Alpha invite to this week.) Wikinvest is awesome because, as seen above, it offers a really easy way to track your stocks (and ETFs), including information on P/E, Rev Growth, P/S, etc. These are probably fairly basic things to look at when deciding to purchase a stock. Above, you will see the six stocks I own with the lowest P/Es (and how many shares I own of each).

It’s fun to look at how AAPL, while $493.42 a share, still has a relatively low P/E and its revenue growth was 67.6%! Now, I wish there was more data here regarding what that revenue growth represents (Qtr over Qtr? YoY?) but regardless, this data shows that AAPL stock, despite being pricey per share, may be worth a lot more than some other stocks. I’m still concerned AAPL will lose value (can it sustain such growth) but seeing that it made $3.60 per share vs say, GE’s $1.35 per share makes me feel confident in a long-term AAPL investment. As you can see, I’ve made $15k on AAPL (on paper) with just 79.94 shares.

Let’s sort by my stocks owned by P/E in the other direction. AMZN has the highest P/E — 135! Compared to AAPL, it’s Revenue Growth was only 40.6%. Even Google, which has a P/E of 20.50 (not too bad, but still higher than AAPL) only increased 29.3%. But it also has a P/S of $5.20, which is better than AAPL. This is where my knowledge lacks and I don’t fully understand the factors which make that possible, or our P/S is determined. More research on my end is required.

In a related note, I am annoyed that I have .44 shares of FTR. That happened when VZ split  with them. .44 shares is pointless, to sell them will cost $8 (more than they are worth) and they just clutter up my account. Looking at FTR, however, they seem to have a 79.7% revenue growth, I wonder if I should just purchase $100 worth of FTR shares and see if they can run up enough where I can sell the stock so it doesn’t clutter my portfolio and I don’t lose $8 on it.

In case you’re wondering, in my taxable account, here are the stocks and ETFs which have been performing best so far:

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