2011: My Financial Strategy For The Year Ahead
In 2010, I made significant progress in my financial life and took some large steps towards where I want to be. I established some foundational type stuff with my finances. I made some purchases of some items I needed to get out of the way (long-term asset purchases, not consumer-type purchases). I got my DRIP investing up and running and off to a great start, and I got my feet wet with some precious metals investing. All things I needed to take care of.
In 2011, my strategy is all about accumulating capital. Capital is essentially a fancy word for money or cash. I want to accumulate capital so that I can take advantage of opportunities I see coming in the next few years.
This ties in big time with my overall economic views. With a continuous distressed economy, there will be opportunities for people with money. That is the key. You need some money. If you have money when others are struggling to get it, you can buy distressed assets at very cheap levels. This might be stocks, real estate, a car, you name it.
There are two keys to investing in this manner. One, we’ve already covered it – you need capital. Two, you need to be patient. These opportunities might not come in 2011. In fact, I kind of hope they don’t because I’d rather have a few years of accumulating capital than a single year.
Now, what does this look like. Do you halt all other forms of savings and investing in order to pool cash? Probably not, but you could if you wanted. For me, I don’t have a 401(k), but I’d probably keep that going if I did (assuming there is a company match). I will keep my DRIP investing going – it is only a few hundred bucks a month at this point, so it’s not huge money.
I do have a Roth IRA and I will decide at the end of the year whether to allocate $5,000 of the money I save towards that ($5k is the annual max contribution). Since I already have $5,000 to put into the Roth immediately upon the start of the year, 2011 is taken care of – I usually save $5,000 over the course of the year, then put it into the Roth after the start of the year and thus, knock out that year’s max contribution immediately.
So, 2011 is all about pooling cash. How to accomplish this. Well, I’ll try and get a tight grip of my expenses – I’m not the ultra frugal type, I like to eat out occasionally, and go to Starbucks – but I plan to live wisely and spend wisely. Next, I hope to continue to increase my online income. This $1,500 – $2,000 each month goes a long way towards these types of goals.
As I’ll be outlining in a post here in a few days, I’m going to challenge everyone to save either $10,000 or $20,000 in cash this year. I’m going for $20k. We will outline the challenge and some specific tips in a post here in a couple days.
As we continue to look toward 2011 and what it will bring, we will also have the follow posts:
- Personal Finance Risks – what risks will arise in 2011 and prevent us from hitting goals like the one discussed here?
- Sources of possible volatility in 2011
- What I expect in the political arena in 2011
- Finally, the $10k/$20k challenge for 2011
Look for these posts in the coming days. Happy New Year!
Great post!! If possible, can you please also talk more about silver? I really think that is going to be a huge growth area for 2011.
Great goals! Having cash reserves is always a good thing to be able to pounce on new opportunities. I am also curious about your motivations to include precious metals in your strategy. I have heard conflicting recommendations from PF books about whether or not to include that type of asset. Any light you can shed on the submit would be great!
Any ideas as to what to where to put this cash as you're saving it? I currently have mine stashed in an online savings account, of which the best I can generally find is around 1.25% interest. I'd love to hear everyone else's thoughts and suggestions…
Same here Dean. I'm assuming you also have a Capital One savings account. They have a 1.25% yield, and if you hold over 10K in an account you get a 10% quarterly bonus on your interest. This is the best rate I can find besides SmartyPig, which offers a 1.75% but with some flaws (mainly you can't keep over 50K in your account).
If you feel comfortable buying individual stocks, there are some great dividend paying securities in the telecom, utility, health care and energy sectors that let you yield 4%+
Most "experts" don't recommend precious metals. Most "experts" also don't ever see a crisis coming. Most "experts" aren't experts at all but instead just preach the same mainstream advice on investing.
Also, wall street and financial advisers will never recommend precious metals because they usually don't earn fees from it. They want you in stocks, bonds, etc where they can get their cut.
So make sure you consider the source.
I believe that precious metals are indeed a necessary portion of your portfolio. 5% is easily justified and some will go crazy and say something like 30%. I'd be very comfortable with 10% but you have to realize metals are very volatile.
Metals are more of an insurance policy than an investment so dont view it like a dividend paying stock. It's not the same. Metals insure you against uncertainty and inflation risk. I'd say there is a a great deal of both these days.
Have fun
Honestly, I dont stress out over the interest rate. 1% to 1.1% to 1.2% isn't going to make you rich and I just put the money in as a holding pattern. If you think about it you're basically losing money on that cash anyways due to inflation. My goal is to keep the cash handy in order to allocate it in the future towards a higher rate of return. The interest rate on that money in the meantime is sort of pointless.
Yes, Capital One right now. I'm also looking into American Express since I already have a card through them and really like their service. They have a 1.3% rate right now as well. Agreed on the dividend-yielding stocks, although I think I will separate purchases of those via DRIP/retirement funds, etc and keep my savings separate for now. The purpose of the savings account for me is to protect the principal, although I suppose you could try to do that with stop losses in an online trading account or something.
Kevin, I also agree that the % return isn't really the purpose. I have a substantial amount ready to deploy. But it's very difficult to gauge the inflation vs. deflation vs. stagflation debate. If inflation truly is coming, then we ought to be loading up with cheap debt on mortgages/real estate right now while rates are low (while of course, keeping enough in cash reserves to not over-leverage). Otherwise, the more we hold onto it, the less it will be worth! But I really get the feeling that we'll see inflation in commodities but not in housing. No jobs = no turnaround in housing anytime soon.
Dean, yes if you knew for certain, you'd borrow as much money as possible, but you have to factor in risk. You need to make moves that factor in risk. Is inflation a risk, yes, therefore it's important to hedge against it. But losing your income is also a risk, so borrowing a bunch of money doesn't seem to make sense either.
Pursue capital, hedge against risk. Pool cash, hedge that cash with some physical silver maybe and your retirement funds in stocks or something.
I think that a wise place to invest some of that money is in some food that has a long shelf life. 6 months to a years worth…for your entire family. During Argentina's economic collapse it was quite common to see entire well dressed families standing around a dumpster eating food out of the trash-bags. Gold might be nice to have but you can't eat it. I pray that it never gets that bad here.
I love these places for enjoying vacations
ha, I am going to try out my thought, your post bring me some good ideas, it's really amazing, thanks
What avenues are you pursuing to get online income?
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