Stocks or funds?

Stocks or Funds? I strongly prefer one over the other when it comes to investing my money

Stocks or funds? In this post I’ll talk about my self-professed finance-nerdiness, and why I prefer branch specific index funds over stocks.

I have to admit, I am a huge finance junkie. The same way some people go in and check facebook or instagram multiple (I really don’t want to give an estimate here for embarrassing reasons) times a day, I go in and check the stock market. I am perfectly content with peeking in without buying, the satisfaction comes from feeling up to date and “checking in”. As it is not hurting anyone, I have not tried to regulate this and thus let myself engulf freely in this little guilty pleasure.

A few posts ago, I talked about my investment strategy and mentioned both index funds and stocks as different investment options. As the above self-professed stock-market junkie I am, you would think that I am all about the stocks, options, warrants and all sorts of speedy hedgefund-y ways there are to up your capital out there.

In reality, this is not true. I am very much a vanilla-investor. I observe, and look, and wait, and maaaybe I’ll put in a little bit, just to check how it feels. And then some more. But I seldom buy stocks (relatively seldom, of course it happens).  I have a very realistic expectation of what I know and don’t know, and when it comes to stocks I just know too little about most underlying companies to make a potential investment more than a gamble. In addition, since the price of the stock is not really about the price of the company (just look at H&M nowdays) but what the market thinks of the price, I know even less.

Why I prefer index funds

What I do know, however, is the general status of the world. Almost as much as I like checking in on SP500 et alia I am constantly hooked in on the world news. And because of this, I prefer branch specific index funds. A fund, essentially a bundle of stocks with a common denominator like geographic area, industry (or a combination of them) is by this definition spreading the individual risk of each company out over many similar ones. I don’t have to know much about each individual company, but I do need to know about the collective status of their respective industry, for example.

love reading up on current events, and have been tracking world news since I was a kid (again, clearly one of the very cool ones growing up) so this suits me perfectly. There is a certain satisfaction in seeing the market in a specific industry unravel before you after a few indicative events. That is my medium. It also works really well because it is easy to hedge myself even more and step one macro level further out and go from very branch-specific to more global funds, and in this way  spread the risk even more, if I want to.

For now, I stick to my active obsessive stalking of the financial markets, and my branch specific index funds, and we will see how this works out for now. 

What is your take on this?

 

Freddie

Financial Independence: My investment strategy in 4 easy steps

See my investment strategy to reach financial independence with 4 easy steps

My Strategy to financial independence

If you read my last post you know how much I was able to save from my last salary. The next implied question then naturally becomes; what do I do with that money in order for it to grow me some financial independence? This post will talk about what i do with the money that I invest into the Leprechaun , i.e. my investment strategy to Financial Independence.

Four easy steps —

Number 1)

Get an income stream, and preferably more than one. You can never save money if you don’t get any money, so this is the most crucial step, even if the actual salary is not that important. I get my salary each month.

Number 2)

I have a set saving goal each month, lets call it X . This sum I need to invest. The biggest mistake you can make is leaving that money passively deprecating itself due to inflation and potential taxes. Long term investments can be put into high-risk funds and stocks without it being that much historical risk associated to it. The market has historically always gone up, even if it regularly will take a stroll downwards into a recession. Note here that I talk about the whole market and not individual stocks and funds. Stocks tank all the time, which is why it will generally be a higher risk for you to invest your money in  one individual stock, than in a larger index.

I invest 80% of X in different index funds. Of these 80%, around 40% are branch-specific, quite risky and narrow indexes while the remaining 60% are large global index funds.

I am looking to leave my riskier branch-specific investments where they are but from now on start putting the whole 80%-chunk into global index funds. Mainly because I am still convinced he recessions is near and not sure which market it will hit first. The remaining 20% I place in stocks of different kinds, mostly larger companies with a good track record of raising their dividends shares each year. I will probably continue to buys socks for a few more months but then slowly shift this chunk over more and more to the global index funds as well. I will explain this more in step 3.

Number 3)

Have a set percentage to play with. This is where my 20% that I buy stocks for each month comes into play. I really like investing in stocks, and reweighing, shifting and shorting my way around the markets. This is not a very good thing if you are looking for a solid investment plan. This is why I have capped my allowance of my savings I can play with to 20%. I will decrease this percentage in the next few months. This as I don’t have enough time to become the next Gordon Gekko and index funds has historically almost always beat individual strategies in the long term anyway.

Number 4)

When the time has come for me to have enough capital for the Leprechaun to become immortal (i.e. enough for me to live off its returns indefinitely) I will sell off the funds and buy high-dividend stocks for these so that I am set up for a monthly income.

Thanks for all the positive feedback from my last post as well!

Cheers!

How we kept our expenses under control with 1 simple rule

Background:

Mr Viking and I bought an apartment a few months ago (I’ll get into the economics of how it is much more financially sensible to buy rather than rent n Sweden in another post), and apart from the money we are saving not having to pay rent, it has been an incredible demotivating experience from a savings-point of view. We both have fixed numbers we are expecting to put away after all expenses and invest each month (remember, the monthly salary in Sweden? :)) as part of The Leprechaun that will never die.

The problem:

However, ever since we bought this apartment, there has been a number of emergency expenses each months that has left us dumbfounded at the end , wondering what happened.

For example, we didn’t have a carpet for the hallway for the longest time, because we were trying to stay within budget and prioritize. It has started snowing here now, which means that every time someone clamps through our door, there will be a little puddle of water on our white, 100-year old-wooden floor *gasp*  and will soon leave permanent damage = decreasing the value of the apartment *thousand-folded-gasp*. Nonetheless, our sense of priorities shifts very quickly which means that we are not anticipating these costs.

Three months ago we bought bought a couch (did not have anywhere to sit in the living room before) and two bedside tables (I had a pile of books on the floor before that Mr Viking, -J,  kept tripping on). Which meant that we once again went over our budget, and it irritated me. By now we have been living here for so long that our expenses should have fluctuated back to status quo.

one rule that kept our expenses in check:

We came up with one rule that has changed all of this. Now, we meet budget every month and we are forced to anticipate costs and expenses that may come up. It is really very simple, but it has changed everything for us. The rule is:  We can only make one big purchase each month (No fixed upper or lower limit on what we mean with ‘big’, which helps us equate everything that is a real ‘purchase’ with ‘big expense’.

We have this rule set until the end of the year where we put a hard stop on even the one big expense per month and will probably move over to one each quarter. This month it is leaning towards a kitchen table, which we still don’t have. But, because we have this rule, we are now contemplating this purchase carefully before rushing away (weighing it against getting wardrobe doors for example, another thing we are still lacking, that will thus have to way)