investingfromtheright

I am retired and take educated guesses on all things financial.

April 13, 2009

April 14, 2009: Current, Timeless Ideas For The Novice Investor

Occasionally I receive an e-mail from a reader of my blog requesting advice on where to begin an investment program. Many renters whom I have known over the years have requested advice on this matter as well. After my disclaimer that inevitably after I recommend a specific stock it declines in value, and to seek a financial professional for another viewpoint, I will assist.

Over the past few days, I have received several requests on this matter.Here is my broad advice for investors just getting started.

1. If you are married, work as a team to invest your funds. No secrets.

2. Buy a home you can afford in a close, safe location to your job(s) with good private schools nearby. Public schools are not going to get any better over time. If you qualify for an 80/20 mortgage of less than 5.25%, take it for 30 years. If you have children, invest in a 529 program after deciding which state is best for you to enroll (don't overdo the 529, as it appears a college education may be paid in large part by the government in future years).A balanced fund within the 529 is my recommendation.

3. Improve your job skills through continuing education or trade school enhancement. Your income is your largest investment.Save 20% of your gross income, which means living beneath your means. PS - there is nothing wrong with online skills enhancement programs leading to diplomas or certificates with one exception: networking.

4. Have adequate insurance for you and your possessions, including liability.

INVESTMENTS:

For the beginning investor, it is easy to be too smart by half. Read about investing in Forbes, Fortune, the Wall Street Journal, online at www.bloomberg.com, www.seekingalpha.com and a few other sites that will perk your curiosity over time. Remember that a lot of advice in retrospect will appear foolish if read in the rear view mirror a year hence.

Here is my advice for a basic portfolio now that's easy to follow and easy to adjust in today's economic environment.

10% checking account for current expenses/emergencies
15% one year cd (www.bankrate.com for a great selection)or Vanguard Short Term Corporate Bond Fund (BSV)
20% iShares moderately speculative iShares'iBoxx$ Investment Grade Corporate Bond ETF (LQD)
15% government inflation protected securities through Treasury Direct or
iShares' Inflation Protected Treasury Bonds ETF (TIP)
10% iShares' U.S Preferred Stock ETF (PFF)
10% iShares' EAFE BRIC (Brazil,Russia,China and India) ETF (BKF)or iShares' MSCI Emerging Markets ETF (EEM)
10% iShares'Russell 1000 Growth ETF (IWF)
10% iShares' GSCI Commodity-Indexed Trust (GSG)


This is not a diversified portfolio, just a starter. As the novice investor matures in knowledge with increased financial resources, I strongly believe in maintaining two portfolios, a Permanent Portfolio for longer term investments holding monies that are precious to you, and a Speculative Portfolio for individual stocks and other securities funded by monies you can afford to lose.

In addition to securities, I think that rental real estate with income, tax benefits and political encouragement from historically bi-partisan voting patterns should be in every suitable investor's portfolio. Think holistically away from paper investments.

Finally, with increased taxes being a reality for the indefinite future, use tax advantaged investment strategies at all times to pay your fair share to Uncle Sam and not a penny more. If you use a financial advisor instead of a discount brokerage such as Schwab or Scottrade, and they do not present you with a legal tax avoidance strategy, fire them.

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