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dswinters (92.78)

No where to hid.......

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January 18, 2011 – Comments (2)

The Dow is inching closer to 12,000 and there seems to be some hope in the United States. In the short term, it seems that things have stabilized for the time being. However, the longer term has some major issues that will have to be fixed. If entitlements like healthcare and social security are not fixed, the country will be broke. These entitlements will need to be cut for baby boomers and boomers should be open to these. They have lived through the greatest time to be born in the greatest country.....ever. It is time to do what is right for their children and grandchildren. Work a few more years and get a hold of their spending. We will all have to live in a 'new normal' and it isn't the end of the world.

 When it comes to investing, I have been asking myself, where do you put your free cash flow. Short term and long term are both difficult to manage. Looking back at the past 10 years, my investments are positive, but only because of dividends reinvesting back into my funds. So going forward, here is my plan. In my ROTH IRA, I want solid dividends. I am going to use VWINX (a balanced fund with a low expense ratio that is overweight bonds), DODIX (Most Med Term, High Grade Corp Bonds) and probably will add VWELX (VWINX-sister fund that goes overweight on High quality stocks). All these funds managed 2008 very well and pay a nice stable dividend and have outperformed their categories.

 In my SEP IRA, I am going with DODIX. The reason is that I cannot contribute every year and want my money to grow from dividends (4% a year) and basically set it and forget it. 

 I am crazy about free cash flow on individual level. As a person, my goal is to always have free cash flow by living below my means and have several sources of somewhat stable income. My goal here is make the toughest part of my life to put my cash to work. I am not Warren Buffett and I typically shun risk and would consider myself bearish. I really don't believe in shorting and or buying gold on a very basic rule. There is really no reward for predicting the end of the world. You basically get a few moments of satisfaction and then you realize that you are in the same place as almost everyone else in the long term.

 One of the best places I have been hiding is pumping up a Northwestern Mutual Cash Value Life Insurance policy. I have been getting paid over 6% a year in dividends. The costs up front are very high. However, if you have a 30 year timeline, I would argue that there is really no better investment. The policy gives you the flexibility to grow your money by at least 4.5% (usually 6-7%), but also have 90% of your cash avalible to you to borrow from yourself with a real interest rate that is 8% minus the dividend payout (this year 8-6.15= 1.85%). Imagine paying down your car or mortgage or a foreclosed property for a 1.85% (non balloon loan, like a mortgage).

 I am bullish on the next 30 years. I think the United States and World will continue to grow (at a slower historical rate) and that innovation will continue to drive. I still firmly believe the best things to do with your money is invest in yourself through education (Community College and 4 year colleges that are priced right. Do not like online colleges or for-profit college. Their education is similar, but public perception still highly discounts their degrees) and the other thing is to pay down all your debt. It is a sure thing on your rate of return and will give you leverage in almost any life-situation you may be in.

 

Thanks for Reading. 

2 Comments – Post Your Own

#1) On January 18, 2011 at 1:10 PM, chk999 (99.97) wrote:

These entitlements will need to be cut for baby boomers and boomers should be open to these. They have lived through the greatest time to be born in the greatest country.....ever. It is time to do what is right for their children and grandchildren. Work a few more years and get a hold of their spending. We will all have to live in a 'new normal' and it isn't the end of the world.

Chances the boomers will be willing to do this is zero. The budget will be balanced on the backs of the Gen-Xers. 

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#2) On January 19, 2011 at 1:50 PM, dswinters (92.78) wrote:

I am afraid you are correct. I am typically a skeptic, but I want to believe and truly believe that our country can still do great things. I hope this generation can try and look past their own lives and look to their children and grandchildren. The government really must make chances....fast.

Thanks for reading.

Derek 

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