Financial, Investing

Building a Portfolio With a Few Coins*

Through all the turbulence of repaying debts, having the house need major repairs, and being a single parent, I was still able to siphon off small amounts of money for investments.

This is, obviously, another sign of the privilege in my life — privilege associated with underlying financial stability, financial support from my family, and my own relatively high (compared to cost of living) income.  Most people who are single parents and struggling with debt will not have the resources to also build a stock portfolio, and shouldn’t really be thinking about it.  All of these will start with a small emergency fund, paying off debts using a snowball method, building a larger emergency fund, and building wealth from there.

Really, though, financial stability starts with life decisions.  You can’t determine who your parents are and what neighborhood you are born in.  You can’t decide how crazy or stable your early life is going to be.  All you can do is work with what you’ve got, wherever you are.  There are a lot of resources out there if you want to learn — the very first thing, though, is deciding that you want to, and then taking baby steps. That’s what this blog is about, even if the baby steps that I could take are not the first ones you can take.  (Resources for starting out:   Take a look at Dave Ramsey’s work, for example.  Don’t take his advice on investing in mutual funds, as he points to ridiculously high-cost ones.  The rest of his methods are pretty sound.  Mr. Money Mustache is another good resource, as is Elizabeth Warren’s book All Your Worth.  And, of course, there is The Motley Fool itself.  The Credit Cards and Consumer Debt Board are a good starting point.)

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A few pictures of the house from 2006.  Wow, no wonder the house feels cluttered now.  It is!

So, with that caveat, let’s talk about a couple of my investment decisions from back when I was still really focused on debt payment.  For the investing, I used small sums of money that I thought I could afford to shift into a “never going to touch it again” status.  This is alternatively known as a “it could go up in smoke and I’d be okay” status, and it’s important to recognize the risk that goes along with this.  As you’ll see, I consciously chose companies that were very unlikely to disappear.  I wasn’t looking for quick gains but rather a portfolio I could leave to Liana as a benefit to her.

Following my internal plan to purchase stocks slowly, I completed a $1,000 initial investment in Wrigley.  The purchases, made over the course of seven months, gave me 19.642 shares of stock (2 of them Class B stock from a stock dividend) purchased at an average price of $49.09.  (I wasn’t even sure I’d done the math right on this, but no one corrected me, so let’s assume I did.)

But… the price on the day I was writing was $46.06 per share, a drop of nearly 27% since I began purchasing it.  (This is why it should be money you can afford to never see again!)

I ran through the company fundamentals again, and I still really liked them In fact, I liked them more, because the price made more sense than when I started buying it.  It was still well below [watch out, this is jargon specific to BuildMWell’s method, which held that stocks should increase in an approximately log-linear fashion, and that purchases should be considered only when stocks wandered 2 standard deviations away from that mean line; Wrigley was at that point] the -2RMS lines on both the 16 and 20 year charts.  (There weren’t longer-term charts available at the time, though by then Wrigley was a century-old company.)

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Even the fridge had less stuff on it in 2006!

I was about to receive a bonus (ah, the days of private sector bonuses; this is an area where the public sector really can’t compare), and thinking about buying a bit more of the stock with that.  I was also thinking about funding my emergency fund, having the construction work done on the basement from the epic flood, and funding Liana’s college fund. So little time, so little money! But that’s a different rant.  (Here again, is where my own relatively high income showed through.  I had the opportunity to think about all those options.  Which leads to a conclusion — if you want wealth, the FIRST thing to do is increase your income, and the SECOND thing to do is to decrease your expenses.)

In any case, having achieved my initial goal of a $1,000 purchase of WWY, I decided to try for a second stock — 3M (MMM).  I’d liked MMM since it made news for a major drop in price because sales of a television that used a flat screen they made had not done as well as expected leading up to the World Cup.  I thought that was a ridiculous reason for such a large company to have a drop in price, which meant 3M looked like the loss leader at the grocery store to me.  At first I thought I didn’t have any free cash to invest in it, but I noticed that I had built up some cash in my Fidelity account from dividends on stocks I already owned.  (Another sign of privilege — I owned sources of passive income that I didn’t have to use to survive, though the larger dividends were one of the reasons that I had survived so well through my hard times.)  In any case, I decided to make a small purchase and see if I could reinvest the dividends through them.

I had hoped to buy the shares for less than $73, but missed the window for that price. But after lots of research, I became the proud owner of 5 whole shares of MMM at $74.60 each. (Plus the $10.95 commission, of course.  It’s less now; automation has reduced friction and therefore costs in many areas.)  My plan was to focus my little bits of extra cash over the next few months to make another purchase and get to $1,000 worth of 3M as well.  Once I did that, I figured I would be to dithering over my next investment move.

At the same time as all of this thinking that resulted in a purchase total of $383.95, I also spent time looking at other stocks I already owned.  I had owned them since Mom bought them for me while I was in high school, and conventional wisdom would have said that I should remove them from my portfolio and make my money work harder for me.  I didn’t.  One of them was IdaCorp, the other NiSource.  I eventually sold the NiSource, and still own IdaCorp.  If I were smarter, I could tell you which of those was the better decision, but I can’t even remember when I sold the NiSource.  I’m actually surprised I did sell it; I the buy-and-hold-forever type of person.

One thing worth thinking about, and that I appreciated both then and now, is the incredible importance of allowing things to compound.  If a stock pays you a 2% dividend yield and you reinvest it instead of spending it, you will have vastly more growth in 20 or 30 years.

It’s also worth paying attention to how things build over time. There is a thing called “the argument of the growing heap” worth knowing about. Does one coin make someone rich? You might immediately say no. So add one. Rich yet? How about one more, and one more after that? At some point, “no” becomes “not yet” and then “maybe” and then “probably” and then “yes.” One coin at a time. Sort of like the clutter in my house, come to think of it.

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Those bookcases are now completely full.  That’s partly because the bookcases that were in the sunroom were demolished when we remodeled, but still.  Yikes.  Time to shed a few things again!

*I’m tired of the WID2 thing in every title. I think it’s clear by now that that’s what I’m doing. Just pretend it’s still there if you liked it.

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