Investments Archives - Page 2 of 2

An Inside Look At My Stock Portfolio

Battling back to zero debt

In May 2013, I declared war on debt. I wanted to eliminate it. I started Frugaling to catalogue the journey back to zero debt and make a side income. It worked. More than a year later, my monthly budget contains a surplus, the checking account actually has extra funds, and my student loans are nearly gone.

Done with loan payments — for now — I’ve had tremendous urges to buy new clothes and travel. I look in my closet and see the same stale outfits. Nothing excites me about wearing the same shirt today that’s been there for about four years. The clothes work, but I’m tired of the sameness. For lack of a better word, my closet is boring. As for travel, I desperately want to venture out into the world without a prescription or plan. I want to get out of the country for a while, but cannot, as work must take precedence because of my precarious budget. Both wants must take a back seat to current needs.

Invest, invest, and then invest some more

Instead of consuming and spending my newfound money — at the expense of my financial future — I’m investing and saving the money. The same rules I used to pay off my debt are working to save even more. When I had student loans, I made regular payments to lenders, which nearly emptied my bank accounts. It forced me to say “no” more often when I simply couldn’t afford to spend money. Now, I’m socking away massive amounts of funds in retirement accounts — protected by tax-deferred growth, offered investment credits during tax season, and prevented from withdrawing funds until retirement age. The squeeze of investing more than might be comfortable is pushing me to save rather than spend. While financially dangerous in some ways, I’m preventing myself from spending — the ultimate psychological prevention.

I want my money to work for me. I’m choosing to invest, rather than consume. Each investment feels like a purchase in my future and that company. Using basic principles from the “Oracle of Omaha,” Warren Buffett, I’ve invested in companies I know and love. Secondarily, I’m selecting index funds that benefit from overall market momentum and general growth.

Today, I want to share what investment decisions I’ve made and why. I do not offer this as advice, but share it to explain how I’m handling my new influx of cash. I have a lot of learning to do, and many of these positions are quite small. My only hope is that it encourages you to save as much as you can, too!

Here’s my stock portfolio

Most investment managers suggest investing in mutual funds and/or ETFs to become broadly diversified. They note that the market averages about 7-8% gains over time. Just investing in a broad group of stocks should provide that return. As a young man, with many years of investing potential, I decided to mix it up between individual stocks and index funds. The stocks I’ve chosen are from companies I know quite well and care about. I’d love to know what you think and what you’re investing in, as well!

Individual Stocks:

1. Apple (AAPL)
Shares: 7 | Cost basis: 614 | Market value: 636

Apple was one of the first stocks I ever purchased. I was in high school, and thought the company had the coolest products. The iPod had just come out. The stock was around $40-50 per share (pre-split; Apple recently split 7:1, which means 7 times more shares are on the market now and the price was 7 times current prices). Unfortunately, with little money to my name or experience investing, I sold around $90 per share. I missed hundreds of dollars in share growth, but that’s okay. Now that I have money again, I still love Apple. The products are second to none, I follow the company religiously, and have a passion for their design. I’m a believer in this company, and believe the 2% dividend yield makes it easy to wait.

2. AT&T (T)
Shares: 14 | Cost basis: 503 | Market value: 493

I’ve held AT&T for what seems to be nearly half a decade. This cost basis comes from my most recent investment in the company. While the share price has stagnated in recent years, the dividend yield, which is over 5%, makes me a patient man. AT&T is one of the leading telecommunications providers, and it seems like a safe business with a bright future. The company recently made a bid to buyout DirecTV, but they’ll have to go through a slew of governmental hearings before they’re allowed to swallow the cable company. If they are allowed to buy it, this will make AT&T a leader in cable delivery.

3. Google (GOOGL)
Shares: 2 | Cost basis: 1082 | Market value: 1170

This is hands down my favorite stock/company. I’ve recommended people invest in Google for years (without ever owning a position and missing hundreds in gains). Google is simple: they make money off of people clicking on and buying ad space. As more of the world gets access to Internet services and high-speed connections, more and more money will enter Google’s pockets. This constant revenue source is a powerful force for research and investment. Google actively uses this cash infusion to buy technology companies, startups, and start their own dream products. They founded Gmail, which is my one and only email provider. Their calendar service syncs to all my devices. And, they’re growing at a spectacular rate. I love Google!

4. Royal Bank of Canada (RY)
Shares: 7 | Cost basis: 489 | Market value: 493

I don’t have a strong affinity towards the banking sector. During the Great Recession of 2007-08, it became clear that banks were responsible for massive losses due to risky investment decisions. That led me to be cautious with any investments in the financial sector. The Royal Bank of Canada is different, though. By in large, Canadian banks missed much of the credit default swap crisis and made safe decisions with their consumer loans. Their smart, modest banks avoided getting swept up in the quick money and walked away from the crisis largely unscathed. My investment in the Royal Bank of Canada came from Michael Lewis’ new book, Flash Boys. In the book, Lewis explains that the Royal Bank is a largely ethical bank with tremendous leadership. With a solid, safe dividend and a great track record, I’m happy to be an investor.

Index Funds (ETFs):

The following are three index funds that are commission-free and low-royalty at Vanguard. I wont explain each of these, as the titles explain their contents. I highly recommend Vanguard and have found that their ETFs are some of the best on the market. For more information about selecting a broker for commission-free ETFs, check this out.

Vanguard High Dividend Yield (VYM)
Shares: 5 | Cost basis: 331 | Market value: 331

Vanguard Long-Term Bond Fund (BLV)
Shares: 2 | Cost basis: 177 | Market value: 179

Vanguard Value (VTV)
Shares: 1 | Cost basis: 81 | Market value: 81

Prepare For Your Biggest Tax Deduction

By Frugaling 1 Comment

2014 Tax deductions preparation — My chicken scratch as I calculate and prepare my taxes for 2014

I owe how much?!

I used to love filing taxes. There was a generous reward and refund each year. As my income sources changed, so did the tax benefits. Nowadays, with the “business” of Frugaling and various self-employment taxes that result, the tax refunds have ended.

Last year’s tax filing led to a nearly $1,000 payment to federal government. That was the first time I ever owed money. I was a significant budgetary hit.

This year is shaping up to be another rough payment. I believe our tax system is flawed, but I want to do my part — my fair share. But there are various ways to ease that burden. I’m already beginning to prepare and save.

Accounting for 2014 taxation

Self-employment taxes

Based on everything from 2013’s taxes, there will be a steep tax for my business income. My business income — from Frugaling.org — is considered self-employment, and is taxed as such. Essentially, it is paid tax free (medicare, medicaid, and social security taxes are not withheld initially) by companies and then I must report the income to the federal government. This year, I’ve estimated my total earnings to better save for the payment.

Tax deductions and credits

Along with business income preparation, I’m looking at current education expenses with a critical eye. Despite being a graduate student with an assistantship (aka, “job”), there are various student fees that aren’t covered.

With tuition and fee inflation/increases, this total will soon reach nearly $5,000 per year for my doctoral education. Thankfully, the federal government subtracts this value from my income — considered a tax deduction for the adjusted gross income (AGI).

Investment contributions

The last piece is where I’m spending increasing time: retirement accounts. I’ll be able to significantly reduce my tax burden this way.

Before this year, I had a near-dormant IRA that was underfunded forever. Unfortunately, I didn’t understand the traditional IRA contribution benefits. I deposited $1,000 into a Roth IRA, which doesn’t benefit from the contribution.

The best thing I could’ve done would be to open a traditional IRA — seek a contribution deduction and retirement savings contributions credit. Now I know! Since then, I’ve deposited about $1,000 into a traditional IRA, which will will net me $1,000 in deductions to income, and an estimated $100 in contribution credits. That will seriously reduce my tax burden and get me saving faster.

Preparation pays off in the end

I spent the last 6 hours calculating how to reduce my tax liability (legally — come on people!). Based on my initial calculations, I’ll save about $2,000 on my final tax payment by contributing more to my traditional IRA, realizing all business deductions and expenses, and saving everything I can. That’s about $333 of savings per hour! Not too shabby.

It’s difficult to save money from the tax man. Preparation and prevention doesn’t necessarily feel as important as making more money, but without taking serious action, you won’t be saving much. There’s no sense working like a dog and not being able to take advantage of the tax code.

The 5-Minute Guide To Thomas Piketty’s Capital In The Twenty-First Century

By Frugaling 2 Comments

Capital in the twenty-first century Thomas Piketty — *The cover of Thomas Piketty’s Capital in the Twenty-First Century*

Everyone is talking about Capital in the Twenty-First Century, but few people have read it. In fact, I was watching Real Time with Bill Maher the other day, and the entire panel was debating the virtues of the book — then they admitted no one had read it.

Meanwhile, The Guardian wrote, “This is a huge book, more than 700 pages long, dense with footnotes, graphs and mathematical formulae. At first sight it is unashamedly an academic tome and seems both daunting and incomprehensible [emphasis added].” Well, I just spent an inordinate amount of time reading his masterpiece, and have quickly placed every lesson in the following article. I’ve tried to link to further explanations, should you care to spend the time.

Here’s everything you need to know about Capital in the Twenty-First Century in 5 minutes or less.

Income equality is increasing.
We are approaching another Gilded Age.
Net worth is not trickling down.
A global wealth tax is proposed.
Marginal tax rates used to be much higher.
Income inequality undermines meritocratic values.
Marx couldn’t properly account for technological progress.
Industrialization and economic shift is inherently advantageous to a select few.
War and taxation created a by-product of economic equality in the 40s/50s.
Theoretical and mathematical interpretations fail to account for individual actors and historical data.
Inequality is not necessarily bad, but the reasons for it could be.
Top managers can control their own paychecks.
Profit is necessary to attract capital; at least, as the economy currently stands.
Per capita income averages hide disparities (median versus mode).
There are errors and gaps in tax revenue due to tax havens.
Foreign direct investment hasn’t led to a convergence in economies.
Economic growth is unsustainable, as compounded growth will kill the planet (think climate change and food shortages for a growing population).
Social mobility is at the heart of moderating income inequality.
Inherited wealth is monopolizing income distribution.
Those with capital and assets can increase wealth faster than beginning entrepreneurs.

Now go out there, act like you read it, and sound smart!

An Inside Look At My Stock Portfolio

Battling back to zero debt

Invest, invest, and then invest some more