My Investing Strategy

I've tried a few different investing strategies mostly with little success.  However, over the past couple years I have settled on a strategy that makes sense to me and I believe in.  I have been sticking to it and am starting to reap the rewards through capital gains and dividend income.

My main investing strategy is now what is known as dividend growth investing.  I have been reading all about the strategy on a few different blogs out there that detail the strategy and why it is a good way to invest.  The idea is that you invest in industry leading, solid, blue chip companies with a history of increasing their dividend payments year after year at a rate higher than inflation.  Companies that would be considered dividend growth stocks include Coca Cola, McDonalds, Wal-Mart, Aflac, Walgreen's, Johnson & Johnson and many many others.

When I am looking for dividend growth companies to invest in I to a complete analysis of the companies I am considering.  The main things I want to see are increasing sales, profits and earnings per share.  This is along with the increasing dividend payments to shareholders.  I look for companies that have proven that they know what they are doing.  These companies are good at making money for their owners.

Currently I try to make a purchase of a new dividend growth stock or more shares in one I already own each month.  Unfortunately I haven't been able to do this the past couple months due to some medical bills that have popped up.  However, once we get our emergency savings back up to the levels I like to keep them, I will start back with the dividend stock investing.  I'm looking forward to when this can occur and hoping it will be within the next couple months.

Been Awhile

It's been awhile since I've blogged about my personal finance situation.  Things have been going well over the past few years.  We've received raises and a couple promotions and generally are better off than we were a couple years ago.  There's been some saving and some buying.  Some traveling thrown in there as well.  But all in all our net worth has fortunately continued to rise.  Although I haven't been around to give frequent updates here, you can see from the Net Worth IQ in the sidebar that we have been doing well growing our wealth.  So I plan on updating this site a little more often.  Mostly will be updates on how things are going but also some opinions of different personal finance issues.  Today I'd like to update on how we've been growing our net worth over the past couple years.

Investing

We've been making an effort every single month to put away money in some sort of investment.  My wife and I both have retirement accounts through work in which we contribute to every single paycheck.  This is automatic.  This has probably been the greatest contributor to our net worth increase over the years.

We also invest money as we can in taxable accounts.  I have latched onto a new strategy for investing and have started building a nice portfolio of dividend growth stocks.  I invest in companies I know and understand who pay out increasing dividends year after year.  Along with the stocks we try to put some money away into fixed income mutual funds.  These funds invest in bonds that may be less risky than the stocks.

Paying Down Debt

We continue to pay down our house and other debts such as student loans.  My wife was in a car accident where we ended up buying a new car after and we took out a loan to help with this.  After a short period of time I was also able to pay this loan off.  We also put a sun room on our house.  We financed this and each month make a payment towards this loan.  So overall I think our actual debt level has increased because of the sun room purchase.  But each month we scratch away at this total and eventually we will bring this down to zero.

Saving

It's important to save every month.  We keep an emergency fund as well as saving for short term expenses that I know will occur such as medical bills, insurance bills, vet bills and other random bills.  This money is kept in money market accounts.  While we aren't really earning much interest on this cash, I believe it is important to continually save in case we need it in the future.

Summary

So over the past couple years our net worth has naturally been increasing.  This will happen as long as you focus on increasing assets and decreasing debts.  The biggest gains have come from investing in retirement and taxable accounts.  We will try to continue this progress going forward.

Goal Progress Bars Updated

Just updated our 2009 Goal Progress Bars to take into account progress made for January. Looks like we had a fairly good month in the way of reaching our net worth goal. If the rest of the year is as good as January then we should be able to surpass this goal. As for our investment account goal, we only obtained 3% towards this goal. However, I am not concerned because we know the majority of progress towards this goal will happen in the later months of 2009. Thus I feel pretty good about our progress so far towards these two goals.

January 2009 Net Worth Update

I updated our net worth calculations today for January. I screwed up and saved over December so I had to go back and try to guess what the December numbers were. I know the November numbers and January numbers are correct. So our net worth increased by about 7%. This could be slightly off since I screwed up the December numbers but it's close. Overall we increased our net worth by about $3,000.

Assets increased slightly with contributions to our retirement accounts and the opening of our mutual fund investment account. Total assets went up about $900.

The big jump came from decreasing debts. We paid off a little over $1,000 on my car loan leaving us owing just over $4,000 more. Other debts also went down with payments to our Lowe's card and to our furniture bill. These other debts are at 0% interest so we are in no hurry to pay these off. Total Liabilities decreased about $2,163.

Good month overall. For February we will continue trying to pay off my car. Should look about the same as January.

Should We Invest or Pay Down Mortgage

At the beginning of the year my wife and I worked out a plan for our finances for 2009. We worked up a budget and made decisions about paying down debt, saving and investing. Most of the decisions were fairly easy such as deciding to aggressively pay down my car loan so that we are car loan free shortly into 2009. We also made decisions about how much to save for certain areas of future spending such as gifts, travel, car insurance, car repairs and home repairs. But one decision was not so easy for us to make. We had a dilemma to decide on.

Once we were done paying off my car we had to decide what to do with our extra cash flow each month. At this point our only debt left would be student loans at a really low interest rate and our mortgage. We also have a sizable emergency fund saved up in a money market account and cds. So our decision was between aggressively paying down our mortgage or beginning to invest more aggressively in mutual funds.

The risk with paying down our mortgage is that this money that we could have been investing will not be available to us in the future if we ever needed it. However, by aggressively paying down our mortgage we would be able to cut off about 18 years off our mortgage and save tens of thousands of dollars in interest.

The risk with investing all our extra cash flow is that money could be loss. With the drops in the market over the past year who is to say it can't keep dropping. Sure history is on our side and the market should rebound at some point. However we don't know when this rebound may occur therefore there is a risk for losing our investments. But it is highly unlikely that we will end up losing all of our money this way. The reward for investing could be a better return then we would recieve by paying down our mortgage. Also, this money will be available if ever needed in the future.

We made the decision to invest. We are willing to risk a loss for the possibility of a greater gain. We also want the added security that having this money in an investment account will give us. In our individual situation this is the best decision. There is the possibility that my wife will not be able to work in the future due to health reasons. If this were to occur we will feel more comfortable knowing we have this extra money saved up in case it is needed.

This decision would be different for every individual person. You must look at your own circumstances before making your decision. I am a believer in paying down debt. However with our own circumstances and the risk of losing an income in the future, it feels safest to me to invest this money. I believe that in personal finance there should be an emphasis on personal. Every individual must look at thier own situation before making decisions regarding thier own finances.

$7,500 Tax Credit for First Time Homebuyers

I've been reading a few articles about this $7,500 tax credit for purchasers of a home after April 8, 2008. This is good news for my wife and I as we recently purchased our first home back in April so we will qualify to take this credit. The way I understand it is basically an interest free loan from the government that will be paid back over the course of the next 15 years.

Why has the government provided this tax credit? It is part of the stimulus bill that they hope to help stimulate the economy with. Policy makers are hoping that by realizing they will be getting this credit, Americans will be motivated to go out and buy their first home. I doubt this will work. Partly because right now I don't think Americans have the money to go out and by their first home. My wife and I bought a home but not because of this credit. We were at a time in our life where we were ready to buy. Had we not been to the point of being ready to buy, we would not have went out and bought just because of this credit being offered.

However, this year I can claim this $7,500 tax credit because we did buy a house and starting in 2010 I will add $500 a year to my next 15 years worth of taxes owed. My wife and I are definitely going to take this credit. Not quite sure what we will do with it yet though. I have thought about putting it directly towards our mortgage saving us quite a bit in interest expense over the next 30 years. The other option and probably the chosen path will be to invest the money in our mutual fund investment account. This will hopefully give us a higher return for our money and will provide some sort of cushion if we ever have a drastic emergency that drains our emergency fund.

Recently, I've been reading about a new change to this tax credit that is up for vote by congress. The change would make it so that we do not have to pay back this tax credit. Therefore it won't be like an interest free loan but rather like free money for us. I hope this passes.

For more information on the tax credit refer to the IRS site.

Out to Eat Again!

Yesterday I posted about my growing waistline. Well today I didn't help matters by continuing some of the same actions that have contributed to the extra weight gain. Going out to eat at fast food restaurants during lunch. So now I am going to make a dedicated pact with myself. I will no longer eat out at fast food restaurants during the work week except for one day a week. This along with some excercise will help decrease my waistline and increase my savings. For god's sake man have some control over yourself!

No Savings? Let's Go On Vacation!

So there is a woman I work with who is so excited about her upcoming vacation. She is going on a cruise somewhere in the Bahamas so I didn't think much of it except that sounds fun. But today she was talking about how the heater in her car quit working and they don't have the money to fix it because all of the money they have saved up is to be used for thier vacation.

This blows my mind! You have no money saved up but yet you are going on a vacation? I guess at least they aren't putting the vacation on credit cards. But seriously people. If you don't have an emergency fund saved up and can't afford to get a minor repair to your car when needed then I think you need to rethink going on an expensive vacation. This is why America is in the mess we are in.

Bank Account Not Only Thing Getting Fatter!

It's been a little over two and a half years since I graduated college. I've been in my current corporate sit at a desk working on a computer 40 plus hours a week job since just after graduation. The effect has not only been a boost to my savings account and net worth but also a boost to my weight!

In college I used to live about a half mile off campus. Therefore I was walking back and forth between campus and my house three or four times a day. I wouldn't hang around on campus since I lived so close. I was also a runner on the track team.

Now, I don't get that same kind of excercise. I leave for work around 7:30 in the morning and get home around 6 that night. At that time I rarely feel like going out for a run anymore. But behold I think I've gained about 15 pounds since college and I can definately tell in my mid section!

So, it's time to get motivated. I'm motivated to spend the time on my personal finances and help my net worth grow. I need to be motivated enough to spend the time on my personal health. Keep the waistline trim and the heart pumping.