Lately I’ve become interested in stock investing, particularly in dividend-paying stocks. In the past I had always avoided investing directly in stocks, assuming I didn’t have the skill to do so effectively. However, I may be changing my mind.
Up until now I’ve put most of my money in various mutual funds, mostly with T. Rowe Price (a company I recommend, by the way). I’ve been happy with this strategy. I’ve seen good returns, and I recommend mutual funds (especially index funds) for most people. Having said that, I’ve come to suspect that I might be able to do better, or just about as well, on my own, and do so while saving money on investment fees. Even a relatively low expense ratio like 0.5 or 0.7% can eat into your savings over time. The way I see it, it doesn’t take that much skill to reason that Coca-Cola or Proctor & Gamble are going to do pretty good business, so why should I pay someone else to manage that for me?
I don’t plan to take my money out of mutual funds entirely, and I plan to continue contributing to my current accounts. They provide a level of diversification that I just couldn’t match on my own. However, I plan to start setting aside some extra cash (like some of the extra money I’m saving since starting this simplicity journey) to invest directly in large, reliable companies that pay a decent dividend. I opened an account with TradeKing last week and hope to make my first stock purchase this week. One day it would be nice to get a good chunk of my income from dividends.
I don’t plan to trade often (that would defeat the purpose of saving money on fees). I also plan to invest $2000 hard minimum per trade, which would give me about 0.25% expense ratio considering TradeKing’s $4.95 per trade fee. That expense ratio is less even that my Price index funds and comparable to Vanguard’s index expense ratios. Eventually I hope to put in more per trade, but right now I’ll hold the $2000 as my minimum. I will be holding these stocks long term, only selling if there’s a very good reason to do so.
My wife and I are fairly diversified. We each put lots of money in 401K/403b plans, IRAs, taxable mutual funds (bonds, stocks, real estate and international), and regular savings accounts for emergencies. Investing in individual company stocks is just another avenue for our savings, as I see it.
Another great advantage to investing directly in stocks as opposed to mutual funds is how interesting I’ve found the whole process. It’s giving me a new skill for my tool case. I’ve learned a lot about companies by scanning annual reports, SEC filings and analyst reports. It feels like I’m really taking part in the company’s operations. The whole deal feels more real, more personal. I’ve actually found the research to be a ton of fun! I’m also keeping my eyes open for the next big massive growth company. I’m going to be very careful and discriminating here, but I may buy a few shares of something if it looks really promising. Looking for the next big thing can be fun, but also dangerous, so I’ll keep less than 10% of my stock money in high growth prospects. Most will stay with big, reliable companies that pay nice dividends. The way I figure it, learning to invest in stocks directly can’t be a bad skill to develop. What do you think?
So, what’s the reason for the focus on money, saving and investing? Well, for me, it’s an important component of this simplicity thing. How can I find time to focus on what’s truly important, home-school my (future) children, travel for six months at a time, volunteer for homeless shelters in far-away cities, fight for environmental causes, etc. when I’m chained to a job five days a week just to pay the bills? I want desperately to be free of wage slavery. I crave more than my two weeks of vacation per year. So, my strategy is to focus on penny-pinching, saving and investing with the ultimate goal of more freedom.
I’m not doing it to hoard money or be stingy/greedy. At least I hope that’s not why I’m doing it. One must always be careful to examine oneself well, so that we discover the true motives for our actions. To be honest I’ve never really valued money for its own sake, nor do I believe I’m extremely attached to “things.” I do believe I’m more attached to “things/stuff” than I should be (who isn’t?), but compared to most, I don’t believe it’s a major problem for me. I do like some of my things, but there’s almost nothing that I wouldn’t be willing to live without to serve a higher purpose. So, I really believe I’m doing my best to use my financial resources wisely in the pursuit of higher goals, even though the strategy will admittedly benefit personal/selfish desires as well.
While I’m in this savings phase, I intend to continue giving a significant portion to charity and good causes. I’ve never rigidly held to “tithing” like many Christians, but I do try to be generous and support good causes regularly and as they pop up. To be honest, I don’t know how big a percentage of my income I give away. It may in fact be 10%, but I doubt it. Either way, it would be to my shame if there were those in my life in desperate need who I ignored in my attempts to save money for an early retirement. How much to give away is something I wrestle with often. I think the most important thing is to live simply, with few unnecessary possessions, and give generously of our time and money as best we can, finding and living the calling God designed us for. I don’t feel called to my work. I do it purely for the income it provides, so at least for now, I’m confident that working toward freeing myself from the need of it is a good and pure course. That freedom would allow me to develop my talents, find my true calling and then devote my time wholeheartedly to a higher cause. And I could do so without the need for others to provide me with financial support. Once I reached the point at which I no longer had to worry about making more money, I could devote all extra income toward good causes.
Anyway, that’s my thinking for now. We’ll see how this stock thing plays out. I know I wandered a bit from the topic, but, hey, these are all things I considered when choosing to go down the path of individual stock investing.
I’m at a dangerous point in my journey. I’ve set some achievable simplicity goals for myself (cut back spending and intelligently invest savings with a goal of early retirement, massively declutter the house, rise earlier in the mornings for exercise and prayer/reading, cut out TV watching, etc.). I’ve gathered the low-hanging fruit, and now find myself in the grind, that period when you’ve got to reaffirm your commitment and follow through.
The reason it’s dangerous, is that this is the point when most people quit. I’ve found myself slacking lately. I cleaned out several years worth of old paperwork, but I’ve failed to motivate myself to catalog the remainder. Over the last three weeks or so, I’ve rarely met my goal of rising early. I’ve watched too much TV. I’ve been tracking my spending fairly well, but now that I’ve got enough data to start analyzing spending patterns, I have trouble motivating myself to work through the numbers. I started cleaning out the garage, but I bogged down when I was left with a pile of things that I couldn’t make up my mind to keep or trash.
There’s no simple answer to this. No easy button. No eight simple steps you can take, and everything falls into place automatically. You either follow through on your commitment, or you don’t. It’s like that famous quote about smoking. “You don’t try to quit smoking. You either quit or you keep smoking.” Am I really serious about this whole thing, or is it just a passing phase?
I can answer that. It’s definitely not a passing phase for me. Living a simpler and more focused life is a priority for me. It’s just that sometimes it seems so far away, and the energy lags. It often seems like none of my family or friends is supportive, or even tolerant. The only way to get through these low times is to renew the commitment and follow through. Any self-help plan you read that promises an easy path with no tough times is either flat-out wrong or failing to adequately address reality.
I’m not stopping. I intend to forge ahead despite my lagging motivation. There are some things I’ve found that help. Going back to read the more inspirational writings that kicked the whole thing off can help (Walden, Your Money or Your Life, The Journey of Desire, etc.). Taking a solo backpacking trip has helped me before. I’m convinced that solitude is an important component of living a full and nonconventional life. Leaving aside the jobs that are currently depressing (like cleaning the garage) to focus on something new (like cleaning out/organizing the plastic bowls under the sink) can help renew your energy for a time. You can go back later and finish up those other jobs. The important thing, I think, is to be doing something. The moment you stop moving at all is when you’re in real danger of sinking back into your comfortable old life.
I hope I’m pulling out of the rut. Recognizing that a problem is developing is a big step toward correcting it.
I’m guessing most of us “adults” believe we left peer pressure behind in high school. My experience says otherwise. I look at how I live and what I’ve spent money on, and it becomes obvious that most of it is the result of caving to peer pressure, of trying to “fit in”, or just doing the default because “it’s what everyone else does.”
Maybe you think you’re immune to peer pressure. Heck, maybe you are! If so, way to go! I’m absolutely certain that being completely free of peer pressure is a big component of becoming a truly exceptional person. But, if you’re like most people, you’re a prisoner to peer pressure. I mean, just stop and think for a minute about what’s truly important to you.
Is it truly important for you to know what happens to the crew on Lost or to be among the first to know how the Red Sox did tonight or to have the best and most prestigious car, TV, camera, landscaping, riding lawnmower, blender, panini-maker, smart phone (very important!), brand-name clothing, five-blade razor, bass boat, jet ski, carrot-fiber fly rod and AKC-certified puppy? This is doubtful. I mean, really, do you want this on your tombstone: “Bob pretty much accomplished nothing of lasting importance during his life, but he sure had a nice iphone and no one knew more baseball stats.”?
We spend time, money and energy on those things simply because everyone else does or because people will think we’re cool. It’s what’s expected of us. One of the worst things is to be labeled “different” or, heaven forbid, “cheap.”
Of course, by “different” I don’t mean the modern version in which everyone becomes a rebel or a revolutionary or dyes their hair black, wears black clothing and puts on black make-up so they can all be “different” together. I don’t mean the cool “different” like that. What I mean is doing something which will possibly result in even the freaks calling you a cheap weirdo hippie. We avoid this situation at all costs. The reason: peer pressure. We desperately want to fit in (even if it’s a fringe group), and we didn’t leave that mindset behind in high school.
If you think this doesn’t apply to you (and I really hope it doesn’t), then just ask yourself what you’d be willing to “sacrifice” to accomplish your really big goals. Let’s say that, like me, you want to retire as early as possible. To accomplish that, you could do several things: live in a boat/RV/commune, ride a bicycle to work, buy clothes from Goodwill, rarely eat out, don’t own a television/cell phone/fancy cake mixer, etc. Now, if you’re like most people, you have an immediate negative reaction to most of those options. But why? Would any of them really be that bad? I mean, if early retirement is really important, shouldn’t these minor sacrifices be worth it? Do you really value television or eating out more than being free from wage slavery? I bet if you look deeply, you’ll see that it’s because you’re concerned with what others (family, friends, strangers) will think. It’s not that you’d truly mind the sacrifices. It’s that you’re worried people will think you’re weird.
So, what do we do about it?
Well, I think the first step is to become aware of it. Self-awareness is a big component of this whole simplicity/living deliberately thing, and this is exactly why. As long as you go through life like a zombie, never considering why you do what you do, then you’ll continue making the same mistakes over and over. So, start thinking about why you do things. Why do you have a $100/month TV package? Why do you drive a $30,000 car when a $500 beater would serve just as well? Why do you need 4WD when the only time you go offroad is when you accidently slip off the side of the driveway? Why do you need a tractor-sized riding lawnmower for your 0.15 acre yard? Why, exactly, do you need a panini-maker? What the heck is a panini anyway, and how is it different from the grilled cheese sandwiches Mom used to make in a skillet?
Are any of these things really important to you, and are they possibly even barriers to your achieving goals that are really important?
Just start examining yourself. Try to figure out why it is that you want certain things. Do you really, truly need them? Are you getting it because your uber-cool friend Bob got one, and you’re tired of him parading it in front of your face and making you feel like a loser?
Once you begin to understand why you’re doing things, you’ll suddenly find yourself empowered to choose something else. If that new truck doesn’t align with your goal of financial independence, then you can choose not to have it. If watching 3 hours of TV per night doesn’t align with your goal of becoming a writer, it suddenly becomes easy to cancel the satellite TV subscription and start writing. It becomes easy to ignore the chiding of peers whose goals don’t align with yours and who may not even have any well-defined goals to begin with.
I don’t want to come off as preachy here. This is something I’ve struggled with and still do. In the last few years I began examining why I did some of the things I did, and much of it was due to peer pressure and, now we come to the dark heart of the matter, JEALOUSY. If some friends visited an exotic destination on vacation, I wanted to go. If a friend bought a nice house or sweet new phone or snazzy truck, I wanted one. Who wouldn’t?! It looked awesome! They were living the life! Not me with my pitiful old pickup truck, last year’s phone and camping trip to a local park.
What I found is that those things didn’t make me happier. I was just as happy with my old stuff as I was with the new stuff, sometimes moreso, especially when you consider I would have had more money if I’d kept the old stuff. Money which could have been donated to greater causes or saved and invested toward my eventual freedom from wage slavery.
What I’m trying to learn to do (and what you should try to do as well if you care at all about deliberately living a meaningful life) is pause and measure every request on my time, energy and money against those goals that are truly meaningful. Meeting someone else’s standard of “normal” is emphatically NOT important to me, so why should I be making so many decisions based on that?
“…doing without is often thought of as a sacrifice, especially when strongly attached to material comforts. It’s quickly realized (after about a month) that happiness does not stem from being surrounded by possessions, but that being surrounded by them is the result of an addictive habit. Thus, it can be tremendously liberating not to ‘need’ something to be happy.”
-Jacob Lund Fisker, Early Retirement Extreme: A Philosophical and Practical Guide to Financial Independence
I finished reading Jacob Lund Fisker’s book over the weekend, and I can honestly say it’s one of the best books on a personal finance philosophy I’ve ever read, right up there with Your Money or Your Life. In fact, Jacob’s thinking on the topic is so in-line with my own and so well-thought-out that I see little need to write much on the topic myself (not that that will keep me from babbling on about personal finance on occasion). Read Jacob’s book, and you’ll see how I feel about personal finance and modern consumerism/materialism. Jacob’s website is also a great resource. I’ve now read through the entire archives. He’s not posting much fresh material on the topic of early retirement, feeling that he’s exhausted the topic, but the archives are still great. Also, he will sometimes post highly entertaining rants or tidbits of fresh ideas.
I’ve found the above quote very true in my own life. Sometimes you feel that you just can’t make it without certain things or luxuries. But what I’ve found is that you can often do quite well with what many would consider bare necessities. My backpack fly fishing trips have taught me this. Also, restricting your access to certain luxuries like expensive food or a hot shower, for example, can increase your enjoyment of those things on the rare occasion when you do indulge. Here’s a suggestion. If you’ve never gone backpacking, in the next year go on at least one extended backpacking trip of four or five days. A trip like that can teach you a lot about what you actually need and how tough you can be. Then you can put those lessons to use in your personal finances.
In the George Clooney movie Up in the Air, a groom having pre-wedding jitters asks Clooney’s character, “What’s the point?” He wants to know more than what’s the point of getting married. He’s really asking what’s the point of life. Why do we get up every day and keep struggling against what often seems to be overwhelming sadness and futility. Clooney provides an insightful but, I believe, ultimately hollow answer along the lines of cherishing the best feel-good moments of our lives, which often involve those we love most. I won’t give away any more in case you haven’t seen the film.
That question is important. What’s the point? Christianity answers the biggest question for me. I won’t go into the details (at least not yet) of why I believe this or why other belief systems don’t provide adquate answers. For a much better explanation of my own beliefs, please see William Lane Craig’s Reasonable Faith.
Leaving aside the Big Question for now, the question also trickles down to any major endeavor in our lives from choosing a career, buying a home, traveling the world, beginning a diet and exercise regime or starting on a journey toward simplicity. It seems like lots of people these days have goals just for the sake of having goals. I was one of them until recently.
I was on the same path as seemingly everyone else: college, career, marriage, home, cars, hobbies, entertainment and forty or fifty years of pointless work to pay for it all. That is such an empty life, and I can’t believe so many of us do it willingly. It’s an accelerating treadmill until we finally get to retire and then die a few months later because we’ve ignored our health and lost hope during our pursuit of the American Dream.
We should ask ourselves what is the point of the default lives most of us choose. Thanks to many wonderful influences, I finally swallowed the red pill and asked myself what was the point of all the major life choices I had made. I couldn’t come up with a very good answer for much of it. “It’s just what people do.” That’s about the best I could come up with. So, a major reason for my first tentative steps toward simplicity was to clear away distractions so I could see a truer path.
I know some things I want: more time for family, more time to devote to making some sort of difference in the world, more time to devote to God, more time and energy to devote to figuring out my individual place in the story, time to figure out how to use my talents to help others, time to spend outdoors, time to travel. I’ve identified some barriers keeping me from these things: my job, debts, spending habits, too high a cost of living, too busy schedule outside work, poor exercise habits leading to low energy, etc. So now the idea is to steadily take down those barriers. I still may not have an entirely clear answer to “what’s the point?”, but maybe the answer is to keep asking it, to be a seeker.
Why are you seeking simplicity? Make sure you know why you’re doing it. Make sure it’s not just one more empty goal that you’re pursuing without a good reason. Never stop asking questions. Never stop seeking.