No Snakeoil Here
A few people have requested that I discuss investing so that’s what I’ll do here, starting with more specific long term goals.
Goal #7: 5 Year Financial Goal. In five years the vast majority of my income comes from a combination of rental properties, forex, and stocks/options investments.
Here’s a breakdown of each:
1. Real Estate
Real estate is the cornerstone to the majority of riches in this country. Property value here in Rochester is expected to grow 5% a year, but that doesn’t matter much to me. Why? Because cash flow is king. Rental property is where the money is. When you receive a check every month for doing very little work you know you have it made. You could even hire people to do any required work for you! I can go on and on about how great real estate is due to leverage, cash flow, appreciation, tax depreciation, etc but there are plenty of resources out there for that. I’ll post some reviews of my favorite real estate books soon.
I’ve been researching real estate investing for years now and my book smarts on the topic are top notch. I even bought a rental property a few years ago. The problem is that I never finished the necessary work on the house to rent it so it has been sitting vacant. My goal is to have it rentable a month before the end of the spring college semester, thus giving me time to get some students in there before they leave for summer.
2. Forex
I’ve been researching the forex (foreign exchange) market since September now and I think my learning has plateaued. The only thing I haven’t researched enough is the impact of fundamentals since they have a much smaller overall impact than on the stock market. I decided when I started learning about forex that I wanted a 100% technical system. Right now the two I like the most are the Super Woodie’s CCI indicator and a MA crossover strategy. Both require significant attention to the markets that I haven’t been able to give to properly test the systems. I need to develop some alarms that will alert me to trade signals. I feel that forex is a great place to make (or lose) money quickly due to high volatility and high leverage. My live account is now funded with $200 so hopefully I’ll have time this week to start doing some active trading with real money.
3. Stocks/Options
The stock market is an obvious place to turn for investing. My problem with it is the misconception that earning 10-20% per year is excellent. It’s horrible! Why would I want to earn only 10% a year on something as risky as stocks when I can buy real estate that will earn me the same amount in cash flow alone? In my opinion correctly analyzing individual stocks and then using the proper instruments can net you far far far better returns then that. To give you an idea what I mean, Google (GOOG) options held for less than one day this week (Thursday to Friday) could have earned you a return of 130%, Yahoo (YHOO) 100%, and Apple (AAPL), IBM, and others earning 50%+. That’s more in one day than most mutual funds earn in 6 years!
The problem is that mutual funds are not allowed to use the tools that are offered to individual investors, such as margin, short sales, and leveraged options yet their performance is what everyone looks at as a benchmark. My strategy isn’t set in stone yet but I am currently researching news, stock splits, CANSLIM, and other trading methods. Options will play a large part in whatever system I decide to use.
This week provided a great example to why you should have your money in different markets. The Fed implied that they will stop raising interest rates for the time being. This caused opposite results in the forex and stock markets. The dollar dropped in value about 365 pips vs the Euro in less than 2 days. With 100:1 leverage that means an investment in the Euro would have returned 365% (or a margin call on long dollar positions)! The stock market loved the news and grew this week producing some excellent results. Real estate investors are also happy since stopping rate increases means better mortgage rates.
