From negative to positive

My net worth has officially went from negative to positive.  I still have 11K in student loans to pay off, but they still have 3 months of grace period left on them, so I plan on leaving them be for the meantime.  I’ve actually lost some money on my investments.  But that’s alright, as I kinda expected to lose in the beginning as I learn how to invest.  My main source of income is still my biweekly paycheck, though I am looking to sell some things I don’t use anymore to get more money to pay down my debt.

NetWorth 10/13/16

breakdown 10/13/16

Why Software

software

marginal cost approaches zero

In order to achieve the 99K challenge,  I need to find some way to augment my income (I physically won’t make it in a year if I just rely on my salary).  One way to do so would be to start a side-business, and software as a side-business is extremely attractive.  Why is software one of the best side-businesses?  Well, in order to figure out we need only to look at a regular businesses that sell physical products.

Let’s say you own a donut shop.  In order to make a profit with your business, you need to buy ingredients to produce donuts (1).  Then, you have to bake the donuts (2).  After making the donuts, you would have to sell the donuts in a shop, or ship your product to your customers (3).  Boom, you now have to deal with 3 costs you must incur each time you want to make a profit selling donuts.  With software, the story is a bit different.

You program or hire a developer to create your software– costing you time / money (1).  Now that your software has been produced, you can sell it any number of times depending on how many people want to purchase it.  You have a one-time fixed cost and can continue to profit off the software without buying materials, manufacturing a new good, or incurring shipping costs (since it cost nearly nothing to send data).

Thus, software based businesses have really high margins, meaning that a large percentage of their revenue is profit.  For example, if a piece of software costs $100, the company that produced it could keep upwards of $80 of that sale as pure profit because there are so few cost associated with producing an additional unit of software.

The last reason I’m considering software is because I believe I can produce it, and it’s not as hard as it may seem because there are tons of forums and guides online (although it is not easy by any means).

 

Apple IOS development

I have some experience creating software, but I have never created software with the intent of monetizing it.  As a result, I’ve decided to invest some time in learning how to code in swift, apples developer language.

The main issue I had with swift is that the editor the language uses, xcode, only runs on apple based devices.  This means that we windows users cannot directly run xcode.  We have to take an alternative route by installing a virtual machine onto our PC that has a MAC operating system on it.  Fortunately, a guide for doing so is available on techviewer.com.  Unfortunately, the guide doesn’t address how to deal with your computer bursting with errors and warnings, so make sure you have google available before attempting to defy the laws of nature and run a mac on your windows.

After the virtual machine is installed, your mac operating system will need to perform updates before you can install xcode.  This took me about an hour to complete.  After all was said and done, I was ready to finally get started coding in swift!  There was just one problem: I had absolutely no idea how to do anything in swift.

Apple has a terribly outdated guide that anyone can use to learn the basics of swift.  It’s pretty difficult to work through since apple updated swift to version 3, and a lot of the steps outlined in the guide have version errors.  However, after googling like a madman and much trail through error, I worked through it and created a mini-app that lets you rate pictures about nature.  Here’s what it looks like:

list

Picture 1: The list

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Picture 2: The Zoom

img_0343

Picture 3: The Nuke

 

 

 

 

 

 

 

 

 

 

 

The app simply stores pictures you’ve taken along with a picture title and rating value (in the form of golden apples).  If you click on any image in the list, (Picture 1), the app will take you to a zoomed in version, (Picture 2).  Here, you can change the rating (apples), the title, or even the picture.  Should you find yourself dissatisfied with your creation, you can always press “Restart the world” and nuke the screen (Picture 3).  If for some reason you want to start learning swift yourself, here’s a link to a zip file containing all of the chapters completed (courtesy of Ian Wilson).  Should you find yourself stuck on the tutorial, just download one of these chapters and compare your code.

 

The Team

Ultimately, however, I don’t think its wise to try and create a project solo.  Completing projects often involve non-linear tasks coupled with critical thinking.  As a result, it’s really easy to get stuck on one part of a project. Getting stuck is dangerous because it brings progress down to a halt.  Whenever a team is working together on a project, there is a team to support each other person whenever an individual gets stuck.  As a result, teams are able to solve problems and get “unstuck” much faster than an individual.

In my case, I knew the difficulties of soloing projects first hand from trying to create an automatic axon tracing program.  Thus, I went on to find a team.  I had two requirements for my teammates:

Reliability: I want teammates that would follow through on their promises.  For example, if a teammate promised me they could meet at 1PM on a saturday, they would make every effort to be present and keep that promise.  Basically, this means that my ideal teammates words are worth their weight in gold.

Competence:  I want teammates that can learn from their mistakes and research what they don’t know how to do to the point that they can meaningfully contribute to the project.

Ultimately, I chose my teammates not based on talent but on what I needed in order to work efficiently.  And, since none of us seem to have any inherent talent when it comes to software, we can create the results of talent through our teamwork.

Practice

In order to sharpen our skills and get use to working together as a team, we decided to plan a practice app.  The app’s name is BoxRoom, (BR), and this is what the tentative logo looks like:

Box Room!

BR is an app available for IOS that enables users to design custom box shaped rooms.  The app allows you to design a rectangular room of variable size as well as create objects to represent furniture in your room.  The app also saves your rooms so that you can export and share the rooms you have created.  Essentially, the app is a sandbox for room creation.

BR is a good app to start off with because it requires us to master 3 basic principles that will be useful for later projects.

  1.  We have to learn how take gesture inputs from a mobile device and output actions based on what the user is doing on the screen
  2.  We must learn how to save and load data inside of the IOS environment
  3.  We need to learn how to integrate a graphical user-interface with hard back-end code.

All three of these principles are absolutely essential for just about any software endeavor.  Hopefully, BR gives my team and I the opportunity to work well together and master these principles.

 

I’m Probably Naive

Embarking upon the software path may very well be many times more difficult than I perceive.  I haven’t thoroughly explored software enough to predict whether or not I can go from an idea to a finished product.  But in this case, I take my ignorance as a strength, for not knowing lets me easily and foolheartedly take my first step.

 

Week 0 Update                                                                             Week 4 Update

Net Worth Update

image

Liabilities Value Assets/Cash Value
Student Loan A -0.37 Investments 4,666.24
Student Loan B -5500 Cash 9,744.06
Student Loan C -5500
Total -11000.37 Total 14,410.30
NetWorth: 3,409.93

Slowly and steadily, it seems like my net-worth is going up.  I’m trying to increase my cash to 11K so that I can kill the loans in one shot.  I’m also looking into some stocks to purchase, but I’m waiting until they drop to a near 52 week low.  (I’m looking at PGX, OAKS, ORC, and AGNC right now.)

 

My Investment Strategy

My investment philosophy has 3 main goals:

  • Minimize loss of future earnings even at the cost of accepting short-term risk
  • Optimize asset allocation depending on the investment vehicle
  • Diversify my risk portfolio such that the total risk of my portfolio is much less than the sum of its individual parts

Essentially, I want to protect my future earnings, minimize taxes paid on my earnings, and not worry about my investments.

I’m scared of missing out on an opportunity

Generally, when it comes to investing, people are scared of losing what they already have.  I’m no different.  Who would want to lose all of their money?  However, there is something that I’m more scared of – losing my earnings tomorrow.  Perhaps I’m too greedy- not only do I not want to lose my money today, but I also don’t want to lose my earnings tomorrow.  Unfortunately, this creates a paradox where I can’t reasonably expect to keep my money safe and get a huge return.

Because my primary goal is to not lose earnings in the future, going for safe, non-volatile investments now is actually incredibly risky since it jeopardizes the future I want to achieve.  On the other hand, going for high-earning, volatile investments now is actually the safer, less risky play for me because it leaves open the possibility of retaining high earnings tomorrow.  Should I choose to go the safe route and invest mostly in CD’s I can only hope to earn 2% per year, effectively forfeiting the higher rates that I desire, whereas if I go the more dangerous route, I can hope to earn well above 2%- (at the risk of losing my principle).  Effectively, since I’m mostly concerned with earnings tomorrow, choosing the safe route is tantamount to quitting while investing aggressively is giving my dreams a shot.

Maximize the benefits of retirement accounts

In my case, there are 3 vehicles I can use to run away from taxes and grow my wealth: IRA, 401K, and HSA.  All three of these accounts are tax-advantaged, which means that you don’t pay taxes on however much your account grows.  Since I want to grow my net-worth, its in my interest to dump as much money as possible into these accounts because it reduces the amount of taxes I pay and increases the rate my money grows.  Lets start talking with HSA, or health savings account.

HSA

A health savings account is a place where you put your money to use for medical expenses.  For a more in depth explanation checkout the madfientist’s post on The Ultimate Retirement Account.  Unfortunately, the custodians, (or companies that you can open an HSA with) all charge ridiculous fees.  I also live in California, which means that I will still have to pay state taxes on earnings in this account.  The most tolerable custodian that I was able to find is Saturna, so you gotta pick your poison.

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A successful growth stock

Because Saturna charges me to reinvest dividends, (and because I live in California), the only way to avoid paying fees and paying the government is to invest in a growth stock that doesn’t pay a dividend.  Growth stock’s have a high propensity to grow and appreciate in value.  For example, Facebook is a growth stock.  Facebook pays no dividends, and increases its earnings quarter after quarter.  As you can see, Facebook’s stock price keeps going up as the company grows.  They fuel this growth by reinvesting their earnings into the company rather than paying it out to the shareholders.

That’s essentially the reason to buy a growth stock.  It can appreciate in value, and when it does, you can sell it for a profit.  However, this is extremely risky and tantamount to gambling as no growth stocks have guaranteed growth.  What makes buying growth stocks especially risky is that there is no (or little) repayment on your principal investment in the form a dividends.

However, I’d say that we all need a little speculation in our lives, so I’m planning on investing ~$1300 into some growth stock.  I’m currently eyeing ATW, but I have not made any firm decision yet.

IRA + 401K

IRA’s and 401K’s are accounts where you invest your money to save for retirement.  If you’d like to know more, check out thesimpledollar’s post explaining what these accounts are in more detail.

My investment strategy here differs greatly from my HSA.  Instead of searching for investments that will appreciate in value, I’m looking for investments that will pay huge, frequent dividends.  Because I want to maximize the tax-free growth of these accounts, I’m looking for stocks that pay out large frequent dividends – with limited growth potential.  Investing in this style would normally increase my tax liability.  However, since I’m following this strategy inside of a tax-favored investment vehicle, the tax liability on earnings don’t exist.

monthly

Dividend paying value

Essentially, the rule I have set for myself is that I will not buy any stock/security that pays less than a 5% annual dividend.  For example, if I bought a stock that cost $100, that stock must pay me a dividend of at least $5 every year.

If you look on the to picture at the left, you should see a bunch of squares with the letter “D” on them.  Towards the right of the picture, the frequency of the “D” increases.  This means that the company pays a dividend very frequently, (monthly to be precise).  Holding everything else constant, it’s much better to hold a stock with a higher dividend frequency.

The asset classes I’ve found that easily produce this criteria are REIT’s (real estate investment trusts) and preferred shares.  This is because both of these asset classes are required to pay out cash to their investors, which leads to nice juicy dividends.

The Taxable Brokerage

The taxable brokerage is usually the last place you would want to invest your money.  Its just a regular investment account, and you pay taxes on what you earn.  In this account, I plan on buying exchange-traded funds comprised of growth companies and mature companies that constantly increase the dividend that they pay.  The reason I’m going to choose to buy an ETF (exchange-traded-fund) over just picking a few companies is that my risk is greatly reduced through the diversification the ETF provides.  The ETF essentially takes lessens risk by lots of risks with many companies.  Unfortunately, the market is overvalued at this time, so I do not plan on starting any major position until prices fall.

Take on multiple risks to lessen overall risk

Ultimately, I want to do something similar to ETF’s, I want to take multiple risks to lessen my overall risk portfolio.  For example, take peer to peer lending.  In peer to peer lending, you send a lending company your money, and then they divide your money into little bite sized pieces to finance personal loans.  You are essentially loaning many different people small amounts of money.  Most of these people will pay you back, some won’t, but overall you will make money, because taking many risks (by loaning money to many people) lessened your overall risk of losing your money had you financed a defaulted loan completely.

You win some, you lose some

When it comes to investing, there’s simply no way for me to get rid of discomfort associated with loss.  I will lose money.  That is a fact and future that I cannot avoid.  My losses will feel much worse than my gains will feel good – and that’s something that I have to remind myself each time I take a loss.  As a human, I’m predictably irrational, and will probably make the same mistakes over and over again (although I hope they lessen in severity).  In the end, all I can really hope to do is win a little more than I lose, for taking on a little pain today is well worth avoiding a miserable hell tomorrow.

Week 2 Update                                                                                           Week 6 Update

Net-Worth Update

Week 6 NW

Liabilities Value Assets/Cash Value
Student Loan A -0.37 Investments 5,650.33
Student Loan B -5500 Cash 11,738.00
Student Loan C -5500
Total -11000.37 Total 17,388.33
NetWorth: 6,387.96

Something to note is that I finally have enough cash to pay off my student loans in 1 shot.  I’m currently debating as to whether or not to actually kill all of the loans at once, considering that its only a measly 3.375% interest rate after the government tax deduction.  Anyways, this is a topic for another post, lets get on to real estate.

The Duplex- a half liability, half asset hybrid

A duplex is an interesting piece of housing, its essentially an apartment building that has 2 units.  Duplex’s are pretty versatile as far as residential property goes because they can serve as a primary residence , an investment property, or both.  A primary residence is a home you buy for yourself to live in whereas an investment property is one that you buy to rent out and hopefully make money on.  A duplex allows you the option to wear the masks of both a common homeowner (living in a unit) and an investor (renting out a unit).  I’m currently looking into a “plex” for my first real estate purchase.

The liability half

img_0365People often misunderstand the definition between a liability and an asset.  The definition I like to use is as follows: at the end of every month, an asset puts money into your bank account.  At the end of the month, a liability takes money out of your bank account.  In this case, the liability side of a duplex includes the monthly mortgage, repairs, and insurance payments.  In this sense, the duplex is a liability because at the end of every month, it has costs that drain my bank account.  However, the duplex also has the ability to generate money.

The asset half

When I rent out half of my duplex, a tenant will pay me rent every month, thus putting money into my bank account.  It’s pretty self-explanatory.

Execution Plan

Before I go and set out to purchase a duplex, or any real estate property, I need to make a plan.  I need to educate myself about the risks involved with the transaction.  I need to make sure that I get a good deal so as to not ruin my future with a mortgage payment that I can’t afford.  I need to learn how to be a landlord.  Anyways here’s the plan.

Education

It is often very dangerous to start a new endeavor with ignorance.  That is why education is going to be my main risk management tool as I attempt to go through real estate.  Ideally, if I know what I am getting into, I can avoid falling into a trap that ends up endangering my future.

Earlier this month, I read a book called Investing in Duplexes, Triplexes, and Quads, which details why investing in small multi-family homes is a safe way to slowly build wealth.  When buying a “plex” you can live in the building which allows you to apply for residential financing.  Basically, you get to benefit from low interest rates available to people who want to purchase a home to live  in.  If you wanted to buy the property as an investment, financing the property would cost you much higher interest rates.  In addition, it’s easier to get approved for “plex” because banks will take into account rental income when you qualify for a loan.

At any rate, I want to thoroughly understand exactly what I am getting into before I get into a large amount of debt.

Get approved for a loan

The next step is going to get approved for a loan.  I already went to Chase to see what I would get and ended up getting pre-approved for a $350K purchase @ 3.6525% interest provided that I can come up with a 20% down-payment.  Although this isn’t a bad deal by any means, I was looking into paying less money down.  I plan on reapplying for a loan sometime in 2017 to see if I can get better terms.

Save for a down payment

In order to purchase a house, I have to have some liquid capital to use as a down payment.  Since I want to purchase something in the 300-400K range, I’ll need to save about 30-40K for a 10% down payment.  I’m planning on taking out 2 loans, the first will cover 80% of the total amount required.  I will get this loan through traditional financing by going to a bank.  The second loan I take will be a “piggy back” loan, which will be a loan on top of the first one to cover another 10% of the total amount.  I will then use my down payment to purchase the last 10%.

Find a real estate agent

After I have money to make a deal happen, I’ll probably need a real estate agent.  I don’t exactly understand why I need one of these, but every single website I have visited researching this topic recommended going with an agent.  At any rate, I’m hoping to get a “buyer broker” that splits commission with me so that I can save a little on closing cost.

Search for a deal

The hardest part of this plan is to actually find a good deal.  Since I’m looking to purchase in California, it will be extremely hard to find a property that I can rent out to make profit each month.  This is because the  California market is extremely hot and many investors come in to buy properties with all cash because they know that the properties will go up in value a few years from now.  However, this just means that I have to get creative about how I look for my deals.  I’ll probably have to network and look for a special circumstance that lets me purchase a property off market.  My best bet will be to wait for the next housing market correction, which isn’t likely to take place anytime soon.

Make an offer

Once I find a deal, I’ll have to negotiate a price on it.  If I make an offer that gets accepted, I can move on to the next step, due diligence.

Due diligence

After agreeing to purchase a home, I have to make sure that I’m buying exactly what I want.  This means going through and hiring an inspector to look through the duplex to make sure that there are no structural issues, pests, or any other nasty deal breakers.

Close!

If I find that the duplex is still a good buy after my due diligence, I’ll have to close on the deal and sign a bunch of papers to legally transfer the property to my name and start making payments every month to cover my financing obligations.

Find a tenant

Now that I own a duplex, I’ll need to find a person to occupy the other half.  I’ll have to be careful to make sure that I don’t pick a bad tenant, as evictions can be extremely costly and painful.

Maintain my property

The last part of the plan is to simply live in the property while using the monthly rent income from the tenant to offset the monthly mortgage, insurance, and repair fees.  Essentially, every month I live, I’ll get money from a tenant and gain equity in the duplex.  I’ll be getting a little richer each month.

In conclusion

This entire plan is still in its “fantasy” stage, and I don’t know if I’ll be able to act out each and every step.  However, the financial benefits of doing so are great, and I’ll definitely want to consider doing so if possible.  Perhaps I’ll pursue this goal at the end of my 99K challenge, as I should have ample cash to purchase a home.

 

Week 4 Update                                                                                           Week 8 Update

Net-Worth Update:

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Liabilities Value Assets/Cash Value
Student Loan A -0.37 Investments 10,866.05
Student Loan B -5500 Cash 7,946.52
Student Loan C -5500
Total -11000.37 Total 18,812.57
NetWorth: 7,812.20

Now until the end of 2016

Currently I’m just planning on holding my current stock market positions as well as paying down 11K worth of my student loans in a big lump sum.  I am going to finally start my “opportunity” fund by purchasing a $5,000 savings bond from the government.  I’ll probably talk more about these two things in detail in a later post.  Right now, I just talk about the big picture of what I plan to do.

If everything goes as planned

By the end of 2016, I’ll not only be out of debt, but I’ll also have a healthy opportunity fund of 5,000 saved up.  An opportunity fund is my version of an “emergency” fund.  I just call it an opportunity fund because I whenever I have an emergency, the fund will give me the opportunity to not get screwed financially by going into credit card debt.  It’s also there to help me make the most of any future opportunity that comes by.  Lets say the market crashes again like it did in 2008, the opportunity fund is there to purchase stocks while they are dirt cheap.  Essentially, the $5,000 savings is going to be my secret weapon to either mitigate unfortunate occurrences or magnify fortunate events.

2017 and onward

After the new year comes to pass, the first thing I’m going to do is fully contribute $5,500 to my Roth IRA.  I already have one at Schwab, but I want to do something different this time around.

Lending Club

Come January, I’m going to make an account with LendingClub and start peer to peer lending.  Basically, what this means is that I will loan people money, and then they will (hopefully) pay me back plus interest.  All of the loans will be administered automatically through LendingClub, while I sit back and watch my account grow (assuming people don’t default on my loans).

Crowdfunding Real Estate

I may start looking into crowdfunding real estate.  Unfortunately, most of the websites up require you to be an “accredited investor” to invest. Essentially the websites are telling you to go away unless you have a net-worth of 1 million dollars, or make over 200K a year.  The main reason I wanted to look into crowdfunding real estate over REITs was because you may get some tax advantages, (as you own a small part of a real property through crowdfunding).

Otherwise

Other than that, I’ll be on the lookout for creative investment options.  If I can’t find anything worthwhile, I’ll probably go back and add to my stock portfolio diversifying across a bunch of sectors.

Week 6 Update                                                                                           Week 10 Update

Net-Worth

image-1

Liabilities Value Assets/Cash Value
Student Loan A -0.37 Investments 11,668.70
Student Loan B -5500 Cash 9,046.11
Student Loan C -5500
Total -11000.37 Total 20,714.81
NetWorth: 9,714.44

Student Loans

Upon graduating college, I had $14,500 worth of student loans to pay off.  I’ve already paid off one $3.5K loan leaving me with around $11K left to pay.  Although being in debt is typically bad, student loan debt is sometimes considered “good debt” because of the relatively low interest rates and tax deductions that come along with paying interest.

For example, if, at the end of the year I paid $2,000 in interest on my student loans, I could take a deduction on my tax return for $2,000.  This would result in me saving money on taxes.  If I was in the 25% tax bracket, I would end up saving about $500.

A close up on the loans

  • Loan B: $5500 loan @ 4.660% interest.
  • Loan C: $5500 loan @ 4.290% interest.

However the interest rates shown above are deceptive.  After taking into account the tax savings that I would incur from paying the student loans slowly over time, the effective interest rate is actually closer to 2.95%.  Let me show you why:

To make things more simple, I’m going to combine my two loans into one loan.  Since Loan B and Loan C have the same principal, I can just take the average of both the interest rates to have find the effective interest rate.  Thus, I effectively have

  • Loan D: $11000 loan @ 4.475% interest.

My top tax bracket federal is 25%, and my California State tax bracket is 9.3%.  Thus, my combined top tax bracket is 35.3%  What this means is that for every additional dollar I earn, I pay 35.3 cents to the government.  This means that every dollar I deduct from my taxable income saves me 35.3 cents.  Applying this logic to the student loan interest means that I’m saving 35.3% of whatever interest I pay on my loans (since the interest is tax deductible). Thus:

  • My effective interest rate = 4.475 * (1-0.353) = 2.895325

I’m only paying 2.9%* interest on my student loans!

*This scenario only applies fully if the total interest you are paying on your loans is less than $2500 for the given year.

One shot kill

Unlike most people, I have the opportunity to kill my loans with 1 single payment.

shootstudentloans

 

Cons

  • I’m not efficiently allocating my capital.  I could earn more money by investing rather than paying off my loans.
  • I’m losing out on an excellent credit building opportunity.
  • Paying off the loans now will make it so that I have to spend more time saving money for a property/house.
  • I would end up paying the government significantly more in taxes

Pros

  • I’ll be 100% out of debt and have zero liabilities
  • Increased cash flow due to no monthly loan payments

The reason behind my choice

Looking at this situation rationally, the Cons outweigh the Pros on my decision to kill my student loans.  Physically speaking, I lose much more by paying them off all at once than by slowly paying them off as time goes on.  However, I plan on making the irrational choice, and choosing to slay my debt despite the financial inefficiencies associated with doing so.

My reason?  It’s quite petty – I don’t want to play the student loan game.  I don’t want to deal with a monthly responsibility to pay off debt.  So, I’m going to ruthlessly kill them in 1 shot and destroy my liability.

I may very well regret this decision going forward with my 99K challenge.  But, I’ll take it as a handicap (albeit however small), as after all, I never did ask for an easy life.

 

Week 8 Update                                                                  Week 12 Update

Net – Worth Update:

Liabilities Value Assets/Cash Value
Student Loan A 0 Investments 11,807.13
Student Loan B 0 Cash 4,973.24
Student Loan C 0
Total 0 Total 16,780.37
NetWorth: 16,780.37

A fortunate 4K?

A really, really long time ago, my parents put away money for my brother and I to go to college.  Fast forward to present day – my parents have long since forgotten about this money.  As a result, I inherited an education savings account (ESA) that contains $4K.  Unfortunately, I’ve graduated from college and “student loans” don’t count as a “qualified education expense”.  As a result, I got 4K that I couldn’t use.

Luckily for me, my parents agreed to rebate me $4K in exchange for rolling over my ESA to my brothers ESA.  This extra 4K is really going to speed up my next investment plans.

2016 is almost done

Since 2016 is just about finished, there’s an opportunity to invest tax free coming up.  Starting Jan. 1, 2017, all of us can contribute to our Roth IRA’s.  For this round, I’m planning on putting 5.5K into a Roth.  I have not yet decided what I want to invest in, but I am currently looking into P2P lending.

What’s peer 2 peer lending?

In a nutshell, p2p lending allows me to become a bank and lend money to other people at high interest rates.  Later on, those people will (hopefully) pay back my original loan along with lots of interest.  There’s a lot of risk involved since the loans that  I make will not be backed by anything.  As a result, the people I make loans to can simply decide to not pay me back (at the cost of ruining their credit scores) and I would not be able to do anything about it.  However, to make huge gains, you’ve got to take some risks, and I think I can turn p2p lending into a wise, calculated risk.

My Strategy (should I invest with p2p lending)

My strategy is to go ham and invest in untrustworthy, high-risk, high interest rate borrowers.  Doing so will allow me to earn a great return in the short run at the cost of several defaults in the long run.  In order to counter this, I plan on re-investing all of the proceeds from the high interest rate borrowers into trustworthy, low interest rate borrowers.  As a result, I’ll take on significant risk in the beginning, but as time goes on, my risk profile will decrease as my portfolio moves towards trustworthy borrowers.

Overall

I don’t actually know if my strategy will work, and whether or not I will make or lose money.  It’s honestly something I just want to try and experiment with.  Anyways, I’ve actually got some results to report with my investing experience.  Next time, I plan on breaking down my portfolio and explain the lessons I’ve learned losing money.

 

Week 10 Update                                                                  Week 14 Update

Net – Worth Update

Liabilities Value Assets/Cash Value
Student Loan A 0 Investments 12,073.27
Student Loan B 0 Cash 7,216.63
Student Loan C 0
Total 0 Total 19,289.90
NetWorth: 19,289.90

My Portfolio

Today, I want to talk about all the things that I have invested in, and what I learned from doing so.  With that note, let’s first talk about the four main accounts that my portfolio currently consists of.

  1. My checking account
  2. My brokerage account
  3. My US treasury account
  4. My LendingClub account

Combined, these 4 accounts hold every single penny I own.  Furthermore, it gets even more complex because I have sub-accounts inside of my main accounts.  Without further adieu, let’s get started talking about my portfolio.

The Chase Checking

My chase checking is pretty much the middle man of my investment scheme.  I use it to collect money I earn from working.  Unfortunately, I’m actually earning 0% interest on it.  However, I am glad that the account doesn’t come with any fees, as I always have a balance over $1500.

The Schwab Brokerage

Typically if you want to trade stocks and other securities, you need an institution to hold them for you.  For me, that’s schwab.  The thing I really liked about schwab was that once I put in my information for a taxable brokerage, I was able to open IRA’s with schwab using a few clicks (since they already had my information).

Taxable Brokerage

In my taxable brokerage account, I hold two different positions.

NNA, Navious Maritime Acquisition Corp.

Navious is an oil shipping company.  Basically, they have a bunch of boats that they fill up with oil and transport around the country.  Let’s take a look at how the stock has performed since I purchased it.

I purchased 883 shares of NNA at a price of $1.31 each

As you can see from the graph above I’ve made quite a bit of profit off of NNA.  My initial investment of $1104.85 has grown to $1433.85 (not counting dividends).  Essentially, I’ve earned a return of about 30% over the course of two months on this stock.

Why I decided to purchase NNA

I purchased NNA because it looked stupidly undervalued.  Let me explain why I thought it was undervalued.

It’s dividend yield was 15%

For the past 5 years, NNA has consistently paid a dividend of $0.05 per share.  At a price of $1.31, one share of NNA would earn $0.20 per year.  This means that every year, I earn 15.26% (0.2, the dividend per year / 1.31, the price per share) on my initial investment.

5 years of 5 cent dividends

15% dividend yield is very uncommon, and most stocks cannot sustainably pay a 15% yield.  However, after looking at NNA’s dividend history and financial cash flow, I was convinced that it wasn’t overpaying dividends.

NNA had very low valuation ratios

NNA Ratios, as of 12/30/2016

At the time of my purchase, NNA had a Price to Earnings ratio (also known as a P/E ratio) of about 2.  What this means is that for every $2 worth of NNA shares, NNA (as a company) earned $1 dollar.  Right now the ratio is at around 4.  Typically, the lower a P/E ratio, the “cheaper” a stock is.

In addition, NNA had a very low Price to Tangible book ratio (also known as a P/B ratio).  To better explain what this means, lets imagine that NNA decided to close down and sell every single tangible asset it had (boats, equipment, investments), pay off all of its debts, and then split that remaining money among its shareholders.  The P/B ratio would be the price that the share is trading at divided by the amount that NNA paid you per share (after selling everything).  If the P/B ratio is less than 1, you would get more money than what you paid for when NNA splits its money among the shareholders.  If the ratio was higher than 1, you would get less money than what you paid for.  Just watch out for negative P/B ratios (those are really bad)!

However, it wasn’t all great.  NNA had a lot of debt!

I was a bit apprehensive about purchasing NNA because of the debt it owed on its ships.  Giant oil carrying ships are not cheap!  They can cost millions of dollars.  As a result, NNA financed their ships with debt.

The reason I was scared about investing in a company with a lot of debt is because the company has to pay off its debt before it pays me.  As a result, if there was a sudden downturn in profit, I would easily lose my dividend, as all of the debt has to be paid off first.

Lesson learned

However, despite the massive debt, I still decided to purchase NNA because it had decent financials and was extremely undervalued.  However, I also don’t know that if winning with NNA was due to beginner’s luck or a successful analysis.  I plan on picking other stocks in the future to see if I actually know what I’m doing.

MLPA, Global X MLP ETF

MLPA isn’t a company like NNA, its an ETF.  Basically, its a fund composed of many other companies compressed into a single stock.  MLPA focuses on the energy industry, (which means that it buys stocks related to energy).

I purchased 2 shares of MLPA for $11.51 each

Why I bought MLPA

Unlike NNA, I didn’t actually do any significant analysis into MLPA.  The only reason I bought it was because I had money sitting in my brokerage after getting a dividend from NNA.  I chose MLPA because it paid a decent dividend (~7%) and did not cost any commission to purchase.  (Typically when you purchase stocks, you pay a commission to the broker that initiates the transaction for you.  Some funds waive that broker fee, like MLPA).

Thus, whenever I have spare cash lying around, I’ll probably dump it into a share or two of MLPA.

The Roth IRA

I hold quite a few investments in my Roth IRA.  The main stock I hold in this account is NLY, Annaly Capital Management, which is a real estate investment trust (REIT).

NLY, Annaly Capital Management

As a REIT, NLY deals with real estate.  All REIT’s must pay out 90% of their profits as a dividend.  As a result they usually have high dividends.  Unfortunately for me, I purchased NLY right before interest rates started to rise.

I purchased 342 shares of NLY at a price of $10.97 each

As you can see from the graph above, I’ve lost nearly 10% of my investment in NLY (which will actually be closer to 5% after I get some dividends).  One of the reasons NLY has fallen in price is because interest rates are rising.  Business’s involving real estate are very capital intensive (meaning that they require a lot of money because real estate is really expensive).  When interest rates rise, it cost more money to borrow capital.  As a result, REITs (like NLY) have more trouble borrowing the money they need to expand their business.

Why I purchased NLY

The main reason I decided to by NLY was because of it’s super high 10% dividend, and my Uncle suggested the stock to me.  In addition, I really wanted to invest in something real-estate related, (mostly because of all the hype surrounding real estate).  I really should have done more research on this stock before purchasing it, instead of simply being blinded by its huge dividend.

Lesson Learned

Always thoroughly research a stock before purchasing it, as failing to do so is tantamount to gambling.  Also, don’t simply chase stocks that pay large dividends, as they may not necessarily be sustainable.  And lastly, pay attention to interest rates as they affect REITs negatively!

Other Misc. Shares

I also have 1 share of MPLA and 5 shares of PGX in this account.  I mainly bought these out of a whim, kind of just to try out buying stocks.  I’ll explain more about PGX below.

The Regular IRA

In addition to a Roth IRA, I also opened a regular IRA over at schwab.  The reason I did this was to lower my taxable income to the point where I qualified for the saver’s tax credit, (which basically saves me $200 on taxes).  I only have one large position in this account, which is PGX.  Like MLPA, PGX is an exchange traded fund (ETF).  However the difference is that PGX focuses on preferred stock instead of the energy industry.

PGX, Powershares Preferred Portfolio

I purchased 59 shares of PGX for $14.90 each and then later purchased 63 shares for $14.13 each.

After losing money on NLY, I decided to wise-up and dollar cost average!  Instead of purchasing all of my shares of PGX at once, I decided to spread out my purchase so that if the price dropped, I wouldn’t get screwed as much.

Why I bought PGX

There were two main factors that led me to purchase PGX, high dividend income and safety.

Right now, PGX has a dividend yield of about 6%, which is fairly high.  In addition, that dividend income came from preferred stock, which is significantly safer than regular common stock.  To understand why preferred stock is safer, let’s look at how cash flows in a company.

Basically, after paying off debts, the company is forced to pay preferred share holders.  By placing yourself higher on the cash-flow chain, you make it much more certain that you will end up getting paid.  That’s why preferred stock is usually safer as an investment compared to common stock.

Lesson Learned

Once again, interest rates have a negative correlation with the price of preferred stock.  If the interest rates rise, the price of the preferred stock drops.  So, it’s pretty wise to watch interest rates and adjust your investments accordingly!

The US Treasury

I didn’t want to put all of my money at risk, so I also bought an I-Bond.  The balance on the I-bond is only updated every 6 months, so I have “not lost nor gained” any money on my I-bond yet.  Regardless, I do have a nice $5,000 sitting protected inside of this bond.

Lending Club

I recently invested $5,500 dollars into a Lending Club Roth IRA.  I have not had sufficient time to actually invest all of the money into loans (as a matter of fact, my transaction has not yet cleared and my money is still pending transfer), but I plan on investing in high-risk notes earning 13%+ interest rates.  I’ll probably post an update on how this turns out later on.  But for now, I’m just trying to invest the money in my lending club account.

Summary

Here’s the summary of my investments in a neat, nice table:

One thing to note is that the interest on the I-bond is only added every six months.  However, its technically worth $5023 right now.

Finishing thoughts

Overall, I’d say that I got screwed over by fear of rising interest rates early on, and was able to recoup my losses thanks to a lucky investment with NNA.  I’ve learned so much about finance and investing over the past 6 months,  and am proud to say that I’ve successfully killed my student loans and build up nearly $20K worth of wealth!  Unfortunately, I’ve only got 10 months left to go on my 99K challenge, and I’ve got roughly 80K left to procure.  Regardless, I feel that I’m well on my way, and I’m feeling strong about my current position.  If you’ve got any questions about anything I’ve written here, feel free to comment below or email me (Akash@Akashsky.com)!

Week 12 Update                                                                  Week 16 Update

Net Worth Update:

Liabilities Value Assets/Cash Value
Student Loan A 0 Investments 17,588.71
Student Loan B 0 Cash 3,896.23
Student Loan C 0
Total 0 Total 21,484.94
NetWorth: 21,484.94

Lending money to strangers?!

Yeah, that’s essentially what I’m going to be doing at lending club.  My $5,500 check just cleared (after about 10 days) and I’m all set and ready to invest.  To be honest, the process to set up a Roth IRA at lending club was a bit of a headache.  The online part was fine, but there was no way to do an ACH transfer from my bank account to them, so I had to mail in a check.  As a result, it took me 10 days after my check was sent to actually get my money into my account.  However, I did at least get my money into my Roth IRA!

5.5 grand, what a baller

So, now that I’ve got my money in lending club, its time to invest!

Investing @ Lending Club

Here’s what the lending club HMI (web-interface) looks like, for manual investing:

Manual investing is where I hand pick the loans I want to invest in.  If you want to get higher returns, I’d recommend going with manual investing.  Anyways, the interface is basically a list of all their loans along with some filters at the side.  They’ve got a lot of filters, but the ones that I am planning on using are as follows:

Loan Grades:

Lending club offers 6 different grades of notes, A-G.  Loan rated A are of the highest credit quality, and loans rated G are of the lowest quality.  Because I want high risk, high return, I am going to completely ignore loans rated A and B, and only focus on loans rated C, D, E and G.  In addition, I’m not going to consider any loan that offers less than 13% interest.  I want to earn 10% per year with lending club, so I’ll need to shoot high, (after all, the my actual return will be less than the numbers on the screen due to the people defaulting).

Minimum years of employment:

In order to pay off debt, you need to have income!  That’s why I only want to lend to strangers who have jobs.  Typically, I see anyone who has had employment for 2 years or less as having more risk.  The main reason I have this belief is because nearly every single bank asks you for 2 years worth of tax returns when you apply for a mortgage.  It may not be exactly logical, but I do think that having a longer employment history makes you a “safer bet”.  Thus, I’m going to filter out anyone who has 2 years or less employment experience.

Delinquencies

The last filter I’m going to use is number of delinquencies.  A delinquency is essentially a late payment on some sort of debt.  I don’t want to lend money to anyone who makes late payments because I want to receive my monthly payments on time!

0 Inquiries in the past 6 months

An inquiry is a “hard pull” on your credit score.  Basically, a borrower gives an institution permission to check their credit score and do a hard pull.  I don’t want to lend to people who let other people check their credit score frequently, as this means that they are looking to obtain some sort of financing or debt.  I want my borrowers to pay off my loans, not other peoples loans.  In relationship terms, I don’t want my borrowers to cheat on me with other lenders, kind of how you wouldn’t want your significant other to cheat on you with someone else.

And that’s it!

Those are the 4 filters I plan on using are it.  In this case, I think simplicity is the best option, mostly because the more filters I put, the less people I can invest in.  I want to get fully invested quickly so I can get my returns.

However, I do need a baseline to compare

I cannot compare the effectiveness of my filters without a control group.  So, in order to do that, I got a little plan.

Spliting my investment

I plan on splitting my lending club investment into two different portfolio’s each containing $2750 worth of notes.  The first portfolio will have notes selected only from my filters.  The second portfolio will have notes of the same grade as the first, but without any of my filters.  Thus, after a year or so, I’ll be able to tell if my filters are any good.

My Asset Allocation + Reinvestment Plans

As you can see, I’ve focused mostly on the grades C-G in order to get higher returns on my investment.  My current plan involves reinvesting all of my proceeds into F & G notes in order to balance out my overall portfolio between the 5 grades.  This is really risky (considering that F+G notes have a 12-13% default rate), but I don’t actually need this money for anything else right now and I feel comfortable accepting that risk in order to achieve 10+% returns.

To Conclude

At any rate, I have just started to mess around with LendingClub, and as a result do not actually have any data to share.  Hopefully, in a few months, I’ll have enough data to create a nice post and comment about the performance of my notes, and as to whether or not LendingClub is a worthwhile experience.  So as to better the future for that post, I have but one wish to my LendingClub borrowers: please pay me back, (or not, after all, you can steal my money by simply defaulting + ruining your credit scores).

Week 14 Update                                                                  Week 18 Update

99K Challenge Update

Asset/Liability Value
Investments 17,555.98
Cash 5,209.20
Debt 0
NetWorth: 22,765.18

 

I’ve got 5K cash – what to invest in?

I want to invest in something, but, I’ve exhausted all of my tax-advantaged options.  I’ve already committed $11K to my Roth IRA and have invested in stocks and peer 2 peer lending.  Unfortunately, I won’t be able to invest in my company 401K until this July, (my 1 year anniversary), so my only option is to invest in a taxable account.

Now, here’s my problem

I hate paying taxes more than the average person, but I also want to earn a decent return on my money.  Here’s an option that may be able to do both:

Leveraged Municipal Bond ETFs

Imagine an investor that has a lot of money.  He decides to use that money to purchase a bunch of different municipal bonds, which basically means that he lends his money to a city for public works like roads or bridges.  However, the municipal bonds don’t pay a lot of interest.  So, the investor decides to borrow money from someone else and use that money to purchase more municipal bonds.  Basically, that’s what a leveraged municipal bond fund is.

The benefit of a municipal bond is that you pay ZERO taxes on it if the issuer of the bond is in the same state that you live in.  For me, if I purchase a california bond, I’ll pay no income tax on its earnings.  The downside is that the earnings are actually pretty small.  That’s why I’ve decided to look into some leveraged funds to see if I can earn a better return.  The fund that I’m currently eyeing is NAC:

The main issue with leveraged funds is that they are extremely expensive!  This fund is charging me 1.42% a year!  Looking at this funds distribution yield, its after-tax value to me is its distribution rate minus its expense ratio, or (5.67 – 1.42) 4.25%.  Now, that’s actually a respectable yield given that I won’t be paying a single penny of tax on this since this fund is composed of solely California municipal bonds!  Unfortunately, that’s not enough for me.  I need more than a measly 4% return.  In addition, its a bad idea to purchase bonds in a rising interest rate environment.  That’s why I decided to look into crowdfunding real estate.

Crowd-Funding Real Estate – Invest with as little as $5K

Crowd-funding is something that interests me a lot.  Basically, whenever you scale something up, you gain efficiency.  What crowd-funding does is pool together a lot of people’s money in order to gain efficiency.  Since real-estate is typically very expensive, the average American can’t actually afford to invest in a property of their own.  However, the average American CAN pool their money with other Americans to invest in real estate.  Unfortunately, most of these websites require that you be an accredited investor (1 million net-worth or earn $200K a year).  However, most of the websites don’t actually check to verify that you are an accredited investor, they simply take your word for it.

Essentially, the thing that’s really interesting to me about this niche is that I can invest into many different real estate deals with my money.  For example, should I invest $5K with realtyshares, I can potentially join in 5 deals with $1K each.

Most of the deals seem to offer around 10% annual interest.  However, that’s probably closer to 9% since realtyshares will probably have a fee of around 1% (although I don’t know for sure since I have not done my research).  In addition, the interest gained from these investments will be taxed at full blast, which means that I’ll lose 35.3% of any profits I earn on this investment to the government.  Combine all of those factors along with the fact that investing in realty shares entails significantly more risk compared to a municipal bond fund, it becomes tough to see if the risk-adjusted return from realty shares is better than the municipal bond fund.

Ultimately,

I’d rather invest in something rather than nothing at this point considering that I have a healthy opportunity fund of $5K cash in an I-bond.  (I’m also planning on putting another 5K this April, to have a  total opportunity fund of ~$10K).  The return on my cash is going to be negative given inflation is larger than the current interest rates that the banks pay.  All in all, I’m actually leaning towards crowd-funding real estate, but am hesitant to proceed further without knowing what I’ll actually end up with after taxes, fees, and any potential losses.  At least with the bond I’ll know that I’ll be receiving a fixed payment each month!

Week 16 Update                                                                 Week 20 Update

Net Worth Update:

 

Asset/Liability Value
LendingClub 5,501.04
Schwab 12,284.81
I-bonds 5000
Cash 3184.38
Debt 0
NetWorth: 25,970.23

An ingenious plan spurred with greed

I love Korean BBQ.  Its perhaps my favorite style of meat to consume.  What I don’t like about Korean BBQ is the price – it cost at least $25 for any good quality Korean BBQ place in California.  So, then I thought to myself, what if I could obtain Korean BBQ without paying for it?  Then, I got thinking of how I could accomplish that.  I realized that I needed to obtain an asset that would pay me enough money each month to purchase Korean BBQ.  With that, I got researching and landed at preferred stock.  Not just any preferred stock, but super high risk, high yield preferred stock.

Why Preferred Stock as your vehicle to obtain infinite KBBQ?

Preferred stocks are nice for a few reasons:

  • They usually pay nice dividends
  • Most are taxed at favorable rates
  • They have priority over common shares (meaning they are safer)

Unfortunately, the safe preferred stocks are usually purchased by a bunch of investors looking for safe yield, meaning they often sell for inflated prices.  Also, like purchasing single stocks, purchasing single preferred stocks is really risky because they do have a chance to default and lose a lot of value.

A preferred stock that nearly went to zero because of an impending default! However, it has since gotten back on its feet and currently makes dividend payments each month.

Fighting risk with more risk

Ultimately, in order to chase yield, I also needed to add risk.  Unfortunately, adding risk means that the chance of me getting screwed goes way up.  In order to counteract this, I decided to take even more risks.  Instead of investing in one high yield, high risk preferred stock, I decided to invest in many.  By taking on more separate risks, I can lower my overall risk.

The most efficient way to do so was to invest in an exchange traded fund that holds a lot of preferred stock.  However, as I was looking through ETFs, I couldn’t find any yielding 10+% (which is my desired pre-tax yield).  As a result, I decided to ball it up and create my own mini-ETF.

Negotiating my problems away

The difficulty with creating a mini-ETF is that you have to purchase a bunch of different shares.  Purchasing a bunch of different shares is pretty costly since you have to pay commissions on each trade.  This was a huge obstacle preventing me from enjoying free Korean BBQ every month.  So, I decided to ask someone at my brokerage to see if I could do anything about it.  After talking with a customer representative, I negotiated 10 additional free trades provided that I would deposit an extra $5K into my Schwab brokerage account.  (This was a win for me since I was planning on investing $5K regardless, and it saved me the trouble of signing up for a new brokerage).

The Junk that I Decided to buy

I just searched for the highest yielding preferred shares on the market.  I also did a bit of background research to make sure that the company behind the preferred shares was legit and wasn’t going to crumble any time soon.  Basically, my criteria was that the stock had to yield at least 10% pre-tax.  If you’d like to see the list of stocks I bought, here’s a link to my research spreadsheet.

After doing my research, I split my $5000 into ten different groups of $500.  I then proceeded to purchase $500 worth of the 10 preferred shares on my spreadsheet using the 10 commission free trades I negotiated with a Schwab representative.

My expected return

If all goes well, and none of my preferred shares default, I’ll get an ~8% post tax return (which is pretty dam good).  This will result in about $36 a month (post-tax). $36 is more than enough to buy some nice quality Korean BBQ.  Heck, I can even pay for a good portion of my friends meal!  However, life never turns out to be ideal, and I’m sure that I’ll lose something.  I’m actually expecting to make somewhere between 5-8% depending on defaults.  Regardless of how this turns out, I have pride in the fact that I refused to accept the status quo (lame safe ETFs) and chose to build a portfolio with the potential to realize my dreams – my dreams of free Korean BBQ.

Week 18 Update                                                                 Week 22 Update

Net-Worth Update

 

Asset/Liability Value
LendingClub (Roth) 5,522.90
Taxable Brokerage 6,592.56
Roth IRA 4,077.60
T-IRA 1,829.56
I-bonds 5000
Cash 3,560.81
Motif Investing 2501
NetWorth: 29,084.43

Motif?

A motif is a theme, a subject, some form of commonality.  Some people over at motifinvesting.com figured out how to efficiently let people invest in themes and subjects.  They branded this as a Motif.

A basket of stocks

Motifinvesting.com lets you pick a bunch of stocks and put them together in a basket they call a motif.  The value that they provide to you is the low commission involved in trading that motif – a mere $9.95.  For just $9.95, you can trade a basket of up to 30 stocks.  At most discount brokerages, conducting the same transaction would cost upwards of $150.

Fractional Shares

The second thing that Motifinvesting lets you do is purchase fractional shares.  For example, if a share cost $15, but you only have $10 to invest, you could buy two thirds of a share.  Motifinvesting lets you do this with every single stock that you put in your motif.  Effectively, you get the opportunity to deploy near 100% of your capital.

The downside

Unfortunately, motifinvesting isn’t all that great.  You can’t reinvest dividends (for free).  This means that you don’t want to hold stocks that pay dividends (long term at least).  Its a great place for stocks like Facebook and Google which don’t pay any dividends and reinvest all of their earnings back into the company.  However, its also good for income stocks if you don’t plan on reinvesting the dividends.  You can just have motifinvesting automatically transfer the dividends you earn each month to your checking account.

The Promotion

The main reason I decided to invest in motifinvesting is because of a promotion they are running, which involves a $90 effective bonus for investing $2K with them.  In a nutshell, here are the terms:

  1. You must create and fund an account with $2000.  You have 10 days to do so after opening the account.
  2. You must conduct 5 motif trades, (effectively losing $50 in commissions)
  3. After 45 days, motifinvesting will credit your account with $150

Now, you must be thinking, hey, this isn’t a $90 bonus, its a $100 bonus! After all, $150 – $50 is $100.  Unfortunately, you need to take into account that you will one day sell your motif, and doing so will cost you an additional $10.  As a result, the promotion is ultimately worth $90.

Finding out what to invest in

Opening and funding the account is pretty easy, the hard part is figuring out what to invest in.  Initially, I had an idea to purchase a bunch of preferred stocks and create my own pseudo ETF, but motifinvesting doesn’t allow you to purchase preferred shares.  There seem to be quite a few limitations as to what actual stocks they offer.  However, they seem to offer just about everything that trades on the NYSE.

What I’ll Invest In

I’m currently planning on investing in leveraged California bond funds.  Typically, this would be a bad idea since we are in a rising interest rate environment (when interest rates rise, bonds go down).  However, I don’t actually think interest rates are going to rise very fast, and I think that people are going to be overtly scared of an interest rate hike.  I plan on taking advantage of this excess fear to purchase the leveraged bond funds while they are discounted.  This’ll probably happen the next time the Fed threatens to raise interest rates.

Why Leveraged Municipal Bond Funds?

To be honest, I’m kinda tired of saving a bunch of money to invest – I want to start spending money.  However, I want to start doing this gradually, so I’m going to only spend whatever dividends I get from my investments.  Since municipal bond funds pay dividends each money, I’ll have a nice bit of change to spend on whatever I want each month.  By combining this with my preferred stock ETF, I’ll be earning about ~$46 each month.  That’s more than enough money to screw around with.

However, leveraged bond funds are pretty risky (anything with the word leverage implies risk).  However, with this risk comes a ~5% tax free yield, which is pretty mouthwatering if you think about.

Akash’s Motif

My motif will contain the following stocks:

  • NAC
  • PZC

These two stocks could suffer some massive losses if Fed isn’t actually bluffing about raising interest rates rapidly.  Regardless, I expect my income each month to remain approximately the same.

Next time, on Dragon Ball Z…

I’m planning to have my net-worth go up quite a bit next update.  I’ll be receiving my tax-return of about $3,000 in addition to a few dividends and my regular paycheck.  All in all, I’ll be sitting on about $10K worth of pure cash.  I’m not exactly sure what I want to do with my excess liquidity, but I do have a few ideas I’d like to share next update.

Week 20 Update                                                                 Week 24 Update

Net Worth Update:

 

Asset/Liability Value
LendingClub (Roth) 5,522.90
Taxable Brokerage 6,668.46
Roth IRA 4,041.00
T-IRA 1,820.00
I-bonds 5000
Cash 15,069.48
Motif Investing 2031
NetWorth: 40,152.84

My time with Enterprise Automation is over

March 10, 2017, I was officially let go from my Jr. engineering position with enterprise automation.  To be frank, I do feel depressed, however, I also know that this depression is only going to last a few days, (as that’s about as long as I usually feel sad).  Unfortunately, this is going to significantly hamper my 99K challenge, as my job was my main source of income.  I do, however, plan on claiming unemployment to get some income coming in.

Unemployment in CA

After looking at some charts, I’m expecting to receive about $450 in unemployment benefits each week.  This is going to last for a maximum of 6 months.  Before then, I hope to have found a new position.  In the mean time, I think I’m going to start looking for some target companies to research as well as begin taking care of myself better (by exercising and eating properly).  In addition, I’m going to take some of the extra time I’ll have to start taking online Japanese classes, (as I do want to one day watch anime without needing subtitles).

Side-Hustles

While my job search is going on, I have two side hustles I could potentially do.

  • Start driving for Uber / Lyft and pocket some driver sign up bonuses (actually scratch this, since this would end up lowering my unemployment benefits)
  • Purchase a used vehicle and start renting it out on TURO (I have the cash available to do so, and since I no longer have a job, I don’t think there is much point in saving it for a down-payment since I won’t be able to get financing from a bank).

One last thing to note

The main reason my networth took a large upswing this time around is due to the following

  • a tax refund
  • employee severance package
  • refund of safety deposit from the room I was renting

Every dollar I add to my net-worth from here on out is going to be a struggle, much like the last half of a run.  Regardless, I’m not giving up on the 99K challenge.  It may take me a bit longer to reach it, but mark my words, I will obtain 99K.

Week 22 Update                                                                 Week 26 Update

Net Worth Update

 

Asset/Liability Value
LendingClub (Roth) 5,605.00
Taxable Brokerage 6,600.44
Roth IRA 4,113.44
T-IRA 1,830.81
I-bonds 5000
Cash 15,019.48
Motif Investing 2077.63
NetWorth: 40,246.80

Round 2 Of I-bonds

Back in November of 2016, I purchased a I-bond with face value of $5000.  Back then, the interest rate was 2.76%, which seemed like a good deal at the time because I-bonds do not carry risk.  Since then, the federal reserve has risen rates by 0.5%.  I’m not sure if this is going to make the rates paid on I-bonds go up, but I expect the next I-bond rate to be around 3%.  When the new rates come in, I plan on purchasing another I-bond for $5000.  If you can get past the 1 year lock period, it’s an incredibly efficient means to store cash.

Job Search

I began search for a new job.  Currently, I’m focusing on any entry level position related to chemical engineering in the Los Angeles area.  Right now, I think it would be best if I could live at my parents home and commute to work.  If this doesn’t result in a significant amount of leads (i.e. interviews, etc.) I’m going to expand my search to include all of the no income tax states including the following:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming

The main reason I’m willing to stay in California (where taxes are high) is that living at home provides much more benefit than what California takes away through its taxes.  Next update, I hope to have applied to at least 5 entry level positions in the LA area.  Basically not paying for housing is worth paying more in taxes.

Unemployment Update

I’m currently not sure if I am approved for unemployment benefits.  I had a phone interview with an unemployment officer, and he told me that it would be about a week until I received mail as to whether or not I was approved.  I’m planning on following up ASAP to quickly get this sorted out.

Week 24 Update                                                                 Week 28 Update

Net worth Update

 

Asset/Liability Value
LendingClub (Roth) 5,634.55
RealtyShares 2,000.00
Taxable Brokerage 16,660.82
Roth IRA 6,147.39
I-bonds 5,022.00
Cash 3,878.63
Motif Investing 2,083.48
AHP Fund 240
NetWorth: 41666.87

 

Net worth changes

I’ve done a lot of investing over the past 2 weeks.  However, I’ve also deleted my traditional IRA and rolled it over to my Roth.  I’ll talk about the new investments in a bit, but first, lets get into some employment updates.

Still unemployed

Well, I’ve been applying to companies, but I have not yet gotten any offers (or interviews).  Ideally, I’m looking to be working by mid June (around when my unemployment benefits will run out).  Right now, I’m applying for chemical engineering jobs in Texas and Los Angeles.  If things remain bleak, I plan on expanding my search to include the other no income tax states.

Unemployment Benefits

However, on the plus side, I was finally approved for unemployment benefits.  I’ve received $900 so far, and except to collect a total of $7000 over the course of the next 3 months.  Hopefully, I can line up a job offer before then!

New Investment(s)

There’s an old saying that time in the market beats timing the market.  Basically, this means that as long as you can stay in the market for a long period of time, it doesn’t matter if you buy at the top of a large bubble.  However, this mostly applies to funds, as single stocks can go to zero.  At any rate, I’m now looking to purchase some stocks that pay consistent, increasing dividends.  Essentially, I’m looking to purchase blue-chip stocks.

Target Stock: TGT

Recently, target’s stock price fell from ~$80 to ~$55 due to weak sales / earnings per share.  At this point its trading at a pretty low P/E ratio of ~12, which I think is undervaluing target.  Typically, purchasing a single stock is a fools game, as it opens you up to significant amounts of risk.  However, Target has a strong history of increasing dividends and a solid brand, so I think that it will rebound.  If not, I’ll accept full responsibility for my folly and take whatever losses I get on my investment.  After all, only fools buy single stocks.  I plan on investing $2,000 into Target.  If Target drops even further, I’m going to purchase $2,000 more.

AT&T Stock: T

I decided to purchase some shares of AT&T because its paying a fairly high dividend right now of ~4.5%.  AT&T like target, has a strong history of increasing dividends.  So, I decided to purchase $2,000 of this stock.  I don’t know if AT&T is over or undervalued at the moment, but it looks like and steady for now.

The Financial Vehicle

Because I’ve already maxed out my retirement accounts for this year, these purchases are going into a taxable brokerage account.  I’m also not going to reinvest dividends because I’d like to get some monthly cash flow out of this investment (regardless of how small it will be).  However, I expect this cash flow to increase with time as T & TGT increase their dividends.  I’m slowly but surely ramping up my passive income.

Realty Shares

I’ve also stepped out and invested $2,000 with realty shares on a house flip.  If all goes well, I’m expecting to earn a 9% return on this deal.  After taxes and stuff I’m expecting the return to be somewhere between 5 and 6%.  Depending on how this investment turns out, I’m planning on investing more capital with realty shares.  One thing to note is that it is much safer than investing in lending club, as my investment is backed by real estate rather than faith that my creditor will pay me back.

AHP Notes

In addition to the above, I’m also going to invest $240 into mortgages.  Basically, I’m going to buy a small piece of a fund that purchases non-performing mortgage loans and attempts to do one of the following:

  • Get the homeowner to start paying their mortgage again
  • Foreclose on the home and sell it

It’s pretty dam speculative and risky, so I’m just going in with a small $240 to see how it turns out.  If they deliver on their promises, I’ll receive a 12% return, which will come out to about $2 per month.  I’m pretty interested to see how this turns out.

The Side-Hustle

Since I’m unemployed and have a lot of time on my hands, I decided to team up with an old friend of mine to dominate a stock photography niche.  We still have to work out the logistics, but the idea is that we are going to make ~30 stock photos and sell them through foap.com.  Every time someone buys a photo ($10 is the price), foap will $5, and my friend and I will split $5.  Obviously we don’t expect to get rich off this, but it would be nice to have a free burger every month!

In Conclusion

I did quite a bit of investing this update.  Later on , I’ll probably go over everything in more depth.  But for now, lets see if I made the right choices and whether I lose or make money.

Week 26 Update                                                                 Week 30 Update

Net Worth Update

Asset/Liability Value
LendingClub (Roth) 5,572.34
RealtyShares 4,000.00
Taxable Brokerage 14,852.76
Roth IRA 6,334.45
I-bonds 10,022.00
Cash 1,874.00
AHP Fund 240.00
NetWorth: 42895.55

 

My unemployment funds are running out

For some reason, I was only entitled to about 4 months of unemployment instead of the usual 6.  I’ve sent a message to the unemployment office about this, but they have yet to get back to me.  I’m hoping that I’ll be able to extend the unemployment benefits by ~ 2 months if needed.  However, I do sincerely hope to be fully employed by july.

Crickets, and ultimately rejection

So far, I’ve applied to around 20 companies online, and have not received any word back.  This makes me believe that I am doing something wrong, so I decided to start focusing on networking more so than applying to jobs.  So far, I’ve connected with about 6 engineers that are in the process engineering space, which is the field of engineering that I’d like to get into.

In order to combat this, I’m going to start setting up some daily goals that I need to hit.  My first goal is going to be to either reach out a new person to form a connection, or strengthen an existing connection daily.  My second goal is going to make 1 quality application per day (thoroughly research company, tailor resume hard, tailor cover letter hard, reach out to hiring managers at company, email + mail them my application, follow-up with a phone call).  Hopefully, over the course of a few weeks, these two goals can get me an interview lined up.

New Investments – Target Stock & The Second Inflation Bond

Last post, I talked about how I purchased $2K worth of TGT.  Well, I decided to go ahead and purchase $2K more.  I decided that I have too much liquidity at the moment and I want to get my funds invested.  After purchasing another $2K shares of TGT, I’ll still have ample funds leftover to purchase an I-bond this coming may.  After I purchase the I-bond, I estimate that my cash reserves will drop to around $1000.  That’s pretty good as it means that most of my capital will be deployed and earning money!  However, its also bad in the sense that I won’t have the cash to invest in any awesome opportunities that come about.

Week 28 Update                                                                 Week 32 Update

 

Net Worth Update

Asset/Liability Value
LendingClub (Roth) 5,620.34
RealtyShares 4,000.00
Taxable Brokerage 15,049.00
Roth IRA 6,156.00
I-bonds 10,022.00
Cash 2,735.76
AHP Fund 240.00
NetWorth: 43823.1

 

Job Update

I’ve started a new approach involving a 4 step process.

  1. Fill out an online application
  2. Send an email with my cover letter and resume to a recruiter / manager at the company
  3. Send physical mail with my cover letter and resume to a recruiter / manager at the company
  4. Follow up with a phone call

As a result I’ve nailed one phone interview I’ve scheduled for  this coming Wednesday.  It really pays to follow up!

I’ve also started networking more and have some conversations lined up for this weekend.  I guess the point of a job search is to get into as many conversations as possible, because interviews follow!

Interesting new investment idea

I’ve started to persuse the idea of investing in tax liens.  This is how it works in a nutshell:

  • Cities need money to run and get their money from property taxes
  • When property owners do not pay their taxes the city doesn’t have enough money, so they issue a lien
  • Investors can buy the liens in order to get the city the cash it needs to operate
  • Property owners will then pay the investor the lien value + interest or lose their property

The whole process can take up to 2 years, during which your investment is incredibly illiquid.  However, if you purchase a lien on a good property, chances are the owner will rather pay a lien rather than lose their property.  Essentially, you trade liquidity for high returns and safety.

 

Week 30 Update                                                                 Week 34 Update

 

Net Worth Update

Asset/Liability Value
LendingClub (Roth) 5,600.00
RealtyShares 4,000.00
Taxable Brokerage 14,793.00
Roth IRA 6,351.00
I-bonds 10,022.00
Cash 3,648.76
AHP Fund 240.00
NetWorth: 44654.76

 

Job Update

I think that my interview for Regeneron went decently and I may get a follow up interview request from the hiring manager.  Regardless, I’m continuing to look out for new opportunities and apply as much as possible.

 

Perhaps I should create a course?

I also thought that maybe I should create a course on how to invest in the stock market.  It would be a basic intro course that could help people get started investing.  Other than that I don’t really have too much to update.  I do plan on writing some more content and have a few more guest posts lined for the coming weeks.

Week 32 Update                                                                 Week 36 Update

 

Net Worth Update

Asset/Liability Value
LendingClub (Roth) 5,690.00
RealtyShares 4,000.00
Taxable Brokerage 14,690.00
Roth IRA 6,475.00
I-bonds 10,022.00
Cash 4,572.24
AHP Fund 240.00
NetWorth: 45689.24

One thing to note is that my lendingclub investment is has suddenly turned out of a rut.  I had a few people default, bringing my returns down to 4%.  However, most defaulters have started paying again bringing my rate of return to 11%!.

Other than that, my stocks have mostly fallen in value, and I’ve started to receive some income from realtyshares & other fixed income investments.  It’s enough to purchase a few meals every month, but nothing more.

Employment Update

So far, I’ve completed 3 interviews.  1 of which went extremely well.  However, just because a few interviews have gone well doesn’t mean I can relax and stop my hustle.  I need to keep searching and applying for jobs until I have an offer that I’m willing to accept!

Current Website Stats

I’ve decided to share my website stats in addition because It’s something that I want to improve as well – and I’ve found that being accountable for something really helps.  Right now, I’m averaging about 20 sessions per day, (a session occurs when someone visits your website).  I want to increase this to about 50 sessions per day.

How I’m going to increase my traffic

Going from 20 to 50 sessions per day is roughly a 150% increase.  It’s not going to be easy, but I do have some ideas on how to accomplish this.

Guest posts & Back-links

Whenever I guest post on another persons websites, I’ll get a link back to my website.  Even if the guest post does not drive any traffic to me, my overall page ranking improves due to the back-link.  Back-links (links to your website from other websites) are absolutely crucial in getting my pages to rank on google such that I can develop some organic traffic.

Quora

Quora is a platform that allows users to ask and answer questions.  By leaving some links to my website in detailed answers I write, I can drive traffic back to my website.  Here’s link to one of the awesome answers I wrote.

That answer resulted in over 40 people clicking through to visit my website over the course of about a week.  By simply writing viral answers on Quora, I can greatly increase my traffic.

Social Media

I’m going to start sharing my content on social media more.  I recently started participating in blog shares, where fellow bloggers share each others articles.  This leads to a wider viewer “net” which allows more people to click through and visit your website.  I’m currently using a scheduling tool called buffer to make keep on top of my social media sharing.

Week 34 Update                                                                 Week 38 Update