The Guns of August

After writing a post on what I wasn’t, I thought it might be useful to write a post about who I am and what I am attempting to accomplish with my investments. I thought about two titles for this article, The Guns of August, a marvelously well written history of the opening days of World War I, or “How’s That Working Out for You?” Dr. Phil’s go to question. I chose the former title. Although my portfolio survived the assaults of an August that featured the first ever downgrade of the United States of America from its coveted AAA status and the wildest rollercoaster gyrations ever seen in a single month, I fear this is only the beginning of a long and unpleasant period for individual investors.

First and foremost I want to retire, in comfort and dignity if possible. More than that, I want to provide for any probable contingency my wife might face after my death. Yes, I know I might outlive her, but the odds are she will live for about seven years as a widow. When I started a systematic investment program about ten years ago, I decided I needed to increase my net worth to a point where I had enough to supplement Social Security and my small pension, giving me a reasonably safe chance of sustaining my lifestyle for the duration of my declining years. I have relentlessly focused on the bottom line. Every month I total my net worth excluding the value of my home. If it is not headed in a upward direction, even for perfectly good and understandable reasons like buying a new car, I increase my efforts at saving and systematically investing my money.

Further, I decided not losing money was more important than making money. For this reason, I split my money, roughly 50% in stocks and 50% in cash, bonds, gold, silver, a CD, and most recently a foreign currency fund. I don’t pay a lot of attention to how well I am doing in comparison to the market when my stocks are going up, but I pay a lot of attention to how well I am doing in comparison to the overall market when my stocks are going down. Needless to say most of my holdings would be considered defensive in nature.

I am a big believer in diversification. I currently own shares in 16 individual stocks, 8 mutual funds, two exchange traded funds, three money market funds (each of these has a different purpose), and one CD. Without checking the numbers, roughly 15% of my total investments are in foreign shares. I expect this number to increase slowly over time as America’s share of the world’s wealth continues to decline.

I believe in companies that sell things I understand, things that people have to buy or are going to buy anyway. Oil, telephone service, soft drinks, alcoholic beverages, medicine, soap, toilet paper, regulated utilities, pipelines, and forest land are all well represented in my portfolio. I don’t feel like I understand technology stocks, so I avoid them missing out on opportunities like Google and Apple.

Almost all my shares pay a dividend, often a very good dividend. Any company that wants to keep all its profits for its management is not a company that interests me. I have always thought it only fair that the company share its profits with me, the shareholder. As my net worth has increased and as I move closer to retirement, dividends are becoming more and more important to me. What I really need in retirement is income. If my investments allow me to live off the interest and dividends they generate, then I will not need to start withdrawing principal in order to maintain my lifestyle. It appears, barring a catastrophe, I will be able to live comfortably off Social Security, pension, and a 4% draw, but I will be eating into my principal.

“How’s that working out for you?” Well, my net worth, excluding the value of my home, has increased roughly 5 fold in ten years. Since this past decade is commonly called the “lost decade” for good reasons, I consider myself very fortunate, indeed blessed.

Find yourself! Find an investment strategy that works for you, a proven discipline that produces results and apply your intelligence and your energy to your goals. If you persist the odds are good that step by step, here a little and there a little, you will find what you seek. Don’t look for shortcuts, get rich quick schemes, or things that are too good to be true. Just keep working, saving, and investing.

Proverbs 10

[2] Treasures of wickedness profit nothing: but righteousness delivereth from death.
[3] The LORD will not suffer the soul of the righteous to famish: but he casteth away the substance of the wicked.
[4] He becometh poor that dealeth with a slack hand: but the hand of the diligent maketh rich.
[5] He that gathereth in summer is a wise son: but he that sleepeth in harvest is a son that causeth shame.
[15] The rich man's wealth is his strong city: the destruction of the poor is their poverty.
[16] The labour of the righteous tendeth to life: the fruit of the wicked to sin.
[21] The lips of the righteous feed many: but fools die for want of wisdom.
[22] The blessing of the LORD, it maketh rich, and he addeth no sorrow with it.