2015 is officially behind us. Many of us will take this time to reflect upon the year past, contemplate the experiences we lived, set new goals for ourselves, and embrace the future with positivity and optimism. The new year is always the perfect opportunity to hit the reset switch, to reinvent oneself, and to start walking down the road to happiness and self-fulfillment.
Today I would like to share with you all some of the most important lessons I’ve learned in 2015, and how they might shape the way I approach 2016.
Lessons Learned About Investing
Stick to well-established, blue-chip companies that have stood the test of time.
After making some mistakes in my first year of investing by buying stock in risky companies that just weren’t really worth putting money into (I’m looking at you TGH and BBEP), I’ve realized that there really is no reason to go looking much further than the classics; the PepsiCos and Johnson-and-Johnsons of the world; the tried and true dividend aristocrats. There are more than enough companies in that group, spanning various sectors and offering a wide gamut of yields and dividend growth, to build a rock solid portfolio that allows one to both sleep well at night and deepen their pockets over time. Moving forward, the majority of my capital will be parked in such companies.
Dividend growth is more important than high yields.
I don’t mean this in an absolute sense (only a Sith deals in absolutes); obviously, a good balance of yield and dividend growth is optimal. That being said, newbie dividend investors often fall prey to the fallacy of chasing high yields, usually at the detriment of growth of said yield. They start out with limited capital and, eager to start raking in dividends, they go for the extra meaty yields, which are often symptoms of financial trouble. I’ve been guilty of this myself this year, and my penchant for big payouts eventually backfired with some painful dividend cuts (TGH, BBEP, and KMI come to mind). Since I have such a long time horizon, I will be focusing more on strong dividend growth moving forward. A 7% yield is attractive, yes, but likely risky; I’d rather take a healthy, albeit less sexy yield of 2.5% that comes with paired with double digit growth and, most importantly, peace of mind.
Diversification across sectors is crucial to mitigate risk.
This sounds obvious, as the importance of diversification is pretty much investing 101. However, much like with the “don’t chase high yields” mantra, knowing and actually doing are two different things. Even though I “know” that diversification across sectors is important, my portfolio has managed to become quite heavy in the energy and REIT sectors, the former of which I especially don’t want too much exposure to. I will definitely be more mindful of my portfolio’s weights in 2016.
Dividends are the best thing ever.
Don’t take my word for it. I mean, even good ol’ J.D. Rockefeller agrees: “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”
Lessons Learned About Forex Swing Trading
It’s possible to make money as a speculator.
For a long time I refused to even consider the idea of trading. Like a lot of people, I believed that trading is nothing more than gambling and a sure path to financial ruin. This is herd mentality at its finest. Trading, done correctly, is definitely not gambling. In the case of the latter, the odds are always against the player and in favor of the house. With trading (again, approached correctly), you are making informed decisions based on high-probability signals that maximize your odds of making a profit in the long run. I’ve done pretty well for myself so far, and I have no intentions of dropping trading from my arsenal of tools in my quest to financial freedom anytime soon.
Trading is psychological more than anything else.
Now that I have been trading for a while, I realize just how true this statement is. Seriously, there is nothing complicated about trading. You pick a mathematically-sound strategy (which you can find hundreds of freely on the internet), and then apply it. That’s it! Sounds simple, right? The problem doesn’t lie in the difficulty of the act of trading itself; it lies in the difficulty in keeping our human emotions in check. You place a trade, and then start second-guessing yourself. As soon as you see the trade move against you, you panic. You start altering your strategy and making poor decisions that negatively affect your odds. Heck, maybe after a string of losing trades (which is bound to happen to every trader at some point), you ditch your strategy entirely and move on to a new one. You don’t stick to it for the long haul and never give it the chance to demonstrate its edge over a large number of trades. By constantly hopping from one strategy to the next and altering your decisions as soon as you make them, you set yourself up for failure. Luckily, I’ve done a pretty good job thus far of managing my emotions, which I attribute in large part to my staying away from the computer most of the time. As a swing trader, I only place a few trades every week, and I only look at the charts a couple of times a day. If I see a trading setup that meets all the entry criteria of my strategy, I open a position, then close my trading platform and walk away for 4-8 hours before I check it again. In doing so, I shield my brittle emotions from the intra-day noise that makes prices yo-yo up and down, and that many a trader’s judgement falls victim to. My approach to trading has worked well thus far, and I plan on continuing this way moving forward.
Forex trading is fun.
This is of course a personal thing and not a universal truth, but I have learned that I truly enjoy trading. Actually, I don’t just enjoy it, I love it! And it’s not just trading that I love, but Forex trading specifically. I’ve looked into, and considered trading other investment vehicles such as stocks, options, futures, etc., but none of them appeal to me like currency trading does. Long live Forex! <3
Lessons Learned About Home Ownership
Home ownership is more expensive than you think.
I remember when I first wrote about my new home, some readers warned me that a house requires maintenance and that unforeseen expenses can arise. This is definitely true. Over the past 6 months, I’ve had to purchase certain things that I never needed back when I rented (e.g. lawnmower, power tools, shovel, etc.), and, over time, these little expenses do add up. As another example, I decided to have the plumbing/piping in my new abode redone shortly after I moved in, which cost me a few thousand dollars. Again, this is the kind of unplanned-for expense that can mess up your budget if you aren’t prepared for it as a new homeowner.
Home ownership isn’t as expensive as you think.
I know this sounds completely antithetical to my previous point, but what I mean here is that, while yes, unexpected expenses and maintenance are certainly things to be prepared for as a home owner, it isn’t as bad as many people make it out to be. When I first began house hunting I had some family members and friends who greatly exaggerated the cost of home ownership; they claimed that all my bills would go up significantly and basically made it sound like I would have to deal with an expensive catastrophe every month of the year. Well, it’s been 6 months now and so far my house is still standing. As for my bills, they have actually remained pretty much identical to what they were when I was renting, which I don’t find surprising since I purchased a house of roughly the same size as my old apartment. My mortgage (including home insurance and annual property taxes) is also very close to what I was paying for in rent (give or take $50), so my budget has been largely unaffected in that regard. Overall, my experience as a home owner hasn’t been nearly as nightmarish as some people painted it to be.
Home ownership vs. renting isn’t about the cost.
There is obviously a financial factor that comes into deciding whether renting or owning makes more sense for your situation, but, at the end of the day, it really comes down to whether ownership is something that you want. For some people, ownership is too much of a hassle, or just plainly and simply something they are not emotionally attached to. For others like myself, home ownership is something they’ve dreamed about since they could remember, and they find fulfillment and happiness in owning their dwelling. There is no right or wrong; it’s just a matter of preference. Home ownership makes me happier than I ever was as a renter, and I have no regrets about my decision.
Lessons Learned About Personal Finance
Budgeting is necessary in order to have a healthy relationship with money.
Signing up with Mint and keeping track of every single financial transaction I make has completely changed my life. I am now intimately aware of how and where I spend my money, and I never feel like I am swimming in a sea of uncertainty when it comes to my finances. I’m better able to save and invest, and I never stress about making payments or having enough in the bank to pay the bills.
You can always improve your savings rate.
We often don’t realize just how much room there is to cut unnecessary expenses and improve our savings, which is why budgeting is so important. Once you know exactly where and what you spend your money on, you can start identifying areas of opportunity. For some people it might be switching to cheaper phone or cable services. For others, it might be going out less on the weekends and not spending as much on booze and partying. For myself, it is definitely spending less on food. I rarely eat out which is a good thing, but I still spend close to $400/month on groceries, which is a lot for a single person. I’m into fitness and bodybuilding so I do have certain dietary needs, but I could still cut out some frozen foods and treats and do more cooking and easily shave $100 from my bill every month in the process. Definitely something to work on in 2016.
Taxes are fun.
I’m sure I’m in the minority here, but as much as people complain about how annoying and boring taxes can be, I actually enjoy filing mine. Maybe it’s because I’m a math person? Nah, I’m probably just weird.
Our education system does a poor job of properly preparing college students and young adults for personal finance management.
After I graduated from college and started adulting in 2014, I quickly realized that I didn’t know or understand shit about money. I couldn’t create a budget if my life depended on it, I didn’t know how to file taxes, I thought a 401(k) was some sort of long-distance running event, and I had no clue how the stock market worked. It was pathetic. Thankfully I’m no longer in that situation; I have taught myself a lot over the past year, and even though I still have much to learn, I’m doing pretty well for myself. Unfortunately, many people do not have the same drive or interest to teach themselves personal finance, and as a result they remain financially illiterate throughout most of their lives, usually until it is too late.
Lessons Learned About Life
Life is so transient. Don’t take it for granted.
Things can change in the blink of an eye. This year, my uncle passed away after suffering from a stroke, my grandmother’s mental health completely deteriorated as a result of dementia and Alzheimer’s, and my aunt lost everything she had after her apartment burned to the ground. These tragedies have reminded me to be grateful to be alive and to not take my loved ones for granted.
Everyone deserves a second chance.
None of us are perfect. We all make mistakes. But we all have the capacity to learn from them and genuinely change for the better. We all deserve the chance to prove that we can be better versions of ourselves.
You are responsible for everything that happens to you.
Instead of complaining about what or who is preventing you from doing this or that, simply accept responsibility for everything and anything that happens to you in life. This builds character and humility, and shifts your mindset to one of activity instead of passivity.
Exercise is therapy.
I have practiced martial arts since I was 8 years old, and I’ve been into bodybuilding and powerlifting for 5 years now. Fitness has always been a part of my life, and it always will be. When I don’t go to the gym or I’m not active for more than a day or two, I feel like a piece of shit. I don’t say this in a condescending way; I literally feel like crap. Working out not only makes me feel confident about my body image, it makes me feel good physically, mentally, and emotionally. Exercising makes me lose myself in a whirlwind of endorphins, and it is an incredibly cathartic experience. I love it.
Cats are the best pets ever.
I adopted an adorable 8-month-old Siamese/Tabby mix from a shelter last February on a whim, and it was one of the best decisions I have ever made. I can’t imagine my life without my little Maxwell; he makes my heart happy beyond measure. He has also confirmed that when it comes to cats vs. dogs, those of the feline persuasion make for the better pet (inb4 shitstorm).
2015 has been an incredibly transformative year for me. I have gained so much maturity, knowledge, and life experience, and for the first time I feel like I have truly transitioned from adolescence to adulthood. I am so thankful to have discovered the personal finance/dividend-investing community, and it has been an absolute pleasure interacting with you all on the blog. Your continued readership is sincerely appreciated.
Here’s to many continued years of writing here on Zero to Zeros.
Cheers and happy new year!