investing Archives - The Frugal Prof

You’re Invited

January 2, 2024 by Frugal Prof

Do you know what was the Best Performing Stock of 2023?

An artificial Intelligence Stock? … No

A high tech company? … No

A Crypto Company? … Nope

The Best Performing stock of 2023 was a value stock.

In a left for dead sector. Retail.

They sells T-shirts, Jeans, and Khakis at the Mall!

AT THE MALL!!

Abercrombie and Fitch gained 285% this year

Why do I bring this up?

Because I’m writing a new Investing Newsletter and You’re Invited.

I scan 8,000 stocks for the true Stock Gems. Stocks that have tremendous upside.

Eight weeks ago, I recommended another retailer that was incredibly undervalued, Gap Stores.

The shares are up over 88% since then.

Stock Gems offers Premium Content but for the next 6 months, much of the content will be FREE.

So sign up Here.

Thank You

Wishing you a year of health and success.

My Last Car Loan Payment- Life after debt

July 31, 2017 by Frugal Prof

Financial Freedom

Exciting news: no more monthly car payments!

That’s right my car loan has been paid off. And its time to start enjoying life after debt.

It’s time to slay the dragon: my last monthly car payment is here!

Next month I will have no monthly car payment. No bill. Nada. I am Debt free. That sounds good. I feel so much lighter.

For most Consumers, a Monthly Car Payment is a huge expense. At about $750 a month, transportation ranks just after housing as the largest expense for the average American household, according to the Bureau of Labor Statistics.

For married couples with children, it makes up 17.3% of their monthly expenditures, while housing comprises 31.8% The average car payment is a serious impediment to creating wealth.

In financial terms, there is a double loss involved in an auto loan:

We borrow money on a car loan (and pay interest) on an asset that is guaranteed to lose value. Auto loans are quick sand for the middle class.

Now that my car payments are gone, It’s time for me to crank up my savings. It will feel great to have my money working for me instead of going towards a car loan. One small step towards financial freedom.

Once I cut out some of the fluff from my budget, the math just began to work in my favor. I began to feel like I was making serious progress in paying down debt, instead of fighting gravity.

But, it was a lot of work.

I canceled my storage locker,
changed my gym membership,
I negotiated discounts with the companies I wanted to keep.

In addition, I used Ebates and got cash back and used discount codes on my online shopping. Finally, I got 15% off at Amazon through their Subscribe and Save Program.

I feel good and now its time to focus on investing. Now, comes the part where I keep and invest more of my income. Save much more, keep investing, and cut up some credit cards.

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Debit Cards vs Credit Cards:

I now have two debit cards and I like using them. There is a psychological game we play when using credit cards. It’s like we get to delay the bill for a month. It doesn’t feel like we’re spending money. Yes, they have done psychological studies on this. I’m going to see if I spend less with my debit cards over the next few months. When I use them, I know the money will be gone immediately. So, I think I should spend less.

Battling Wants vs. Needs:

I’m still battling the wants vs needs issue. I bought some dumb stuff last year. And I’m really accustomed to buying whatever I want, whenever I want.

Here’s an example: – I’m trying to get back in shape and I’ve been preparing more healthy meals. So, I’ve been buying cooking equipment that I want. I rationalize that I need these items like measuring spoons, flour, bowls, pans, a rice cooker, etc… But, sometimes I buy things I need and they sit on the counter! I have to admit that I still have not used the rice cooker. UGH.

I’m thinking of rewarding myself with a very inexpensive drone (less than $40) to celebrate my last car payment. What do you think?

Feel free to share your thoughts and comments on your debt free journey.

Join 1,879 Financially savvy people who receive my posts, tips, and information via e-mail.

Good reasons to hate April 15th tax day

April 12, 2017 by Frugal Prof

Financial Freedom

4 Good Reasons to hate April 15th Tax Day

Today is April 11th. And I’m frustrated that my taxes are still not done. And of course, April 15th is tax day.

I still have not been able to file my state taxes or my federal taxes. The accountant who handles my tax preparation is still finishing them. Luckily, I will pay my taxes online.

Good Reasons to Hate April 15th

1. Tax day is stressful and frustrating. For many people you have little control over when they will be done and that is so frustrating.

My personal accountant has to wait for my business accountant and the business tax return before he can finish my taxes. The later my business accountant, the later my personal taxes.

2. It’s hard to get the best from your accountant.

What is also frustrating about tax time is that you never get the best from your accountant. The accountant is so busy just completing the tax returns that he or she has little time for advice, strategy, or suggestions other than the minimal, “you should put money in an IRA.” “You should open a SEP IRA or convert a ROTH IRA.”

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I have post-it’s all over my return with questions on tax strategy, tax deductions, and ways to pay less taxes. And this is the worst possible time for my accountant to review any of this. Yes, every year I think I should call him a couple months after tax time and pick his brain, but I get busy and it rarely happens.

3. Writing big checks:

Confession time: I haven’t been paying quarterly business taxes. Instead, I pay the quarterly payments on April 15th. Its not a smart strategy. (In my defense I have been much better about flossing!). But seriously, tax time is much worse when you end up writing bigger checks. And next year I will finally do this. I always make retirement contributions and the HSA contributions. But, I have hated writing those quarterly checks. That stops now. Next year, I will only have to write a few small checks. That’s the plan.

4. The other frustrating reality of tax time is that you’re absolutely, positively not making as much money as you think you are. This is why budgeting is so helpful! April 15th is the big wake up call when everyone realizes after filing their taxes, that the government is taking 28% or more of Everything you make. You’re not making $50,000. You’re only making $36,000 after the government takes its share. It’s really depressing. Which is why you Need to get every legitimate tax deduction you possibly can. Roth IRA, 401K contributions, HSA, etc…

Tax time is frustrating. But it’s part of life.

What’s good about tax time:

The truth is that maxing out a Roth retirement fund over a lifetime will make you wealthy. The math is unequivocal on this. So, if you’re smart enough to be doing that, you’re way ahead of the game to be financially independent. And that’s really good news.

Investing: The risk to the current stock market no one talks about

March 2, 2017 by Frugal Prof

I’m sure you agree that the current stock market has been on quite a winning streak now. The stock market has gained nearly 25% under President Trump.

The Dow Jones Average just crossed the 26K milestone. And while that may seem like good news, it is smart to evaluate the risks to the current stock market.

Here are some contrarian views on the stock market and major indexes.

In my view, the risk to the stock market is not a crash, but a more nuanced scenario for stock investors.

For most stock investors, the risks to the stock market are rarely discussed. Here is my view of the risk to investors from the current stock market in the coming years.

Current stock market: So here we are ~ Dow 26K.

Let’s review how we got here:
The financial experts predicted a stock market crash if Brexit passed.
It did and investors shrugged it off.
Then the stock market strategists warned us that if Donald Trump was elected, the stock market would crash.
The market has since rallied 12-15% to new highs in every index. Even cyber currencies like bitcoin, cryptocurrencies, and etherium are at new highs. And here we are at very rich valuations compared to historical stock prices.

Most mutual fund managers were underinvested heading into the election.

Since Trump’s improbable win, professional investors have been playing catch up– trying to get invested in a stock market that has not fallen by more than 1% on any day for a month- something that hasn’t happened in 54 years. This applies to the S and P 500 as well as the Dow Jones Average, the major stock market indexes. Stock market Volatility has been crushed.

Retail is Bullish: Individual Investors

Individual Investors are pouring money into this market. Discount firms TD Ameritrade (AMTD) and E-Trade (ETFC) are seeing a huge appetite for stocks by retail investors.

Inflows to mutual funds and ETF’s hit $32B through last Wednesday, the largest inflows since 2002.

ETF’s focused on Bitcoin shares have received $258M in a matter of days. All retail brokerages are seeing new account openings fueled by millennials and those who fear missing out.

For seasoned investors, this is reminiscent of boom days gone by. We don’t know how these new investors will react when volatility returns to the market. But, retail excitement is almost always a sign that the easy money has been made. And in my opinion, passive investing may exacerbate a downturn.

Davos Is Bullish:

“There are 2,000 people [here in Davos], and I don’t think I’ve met one person who’s been negative,” -Billionaire Jeff Greene (NASDAQ:CNBC)

Stock Valuations are very stretched.

Depending on the figure, we are at nearly 26X earnings on the S&P 500. Levels last seen in 1929, 1999, and 2008.

This means the current stock market via the S&P 500 index is expensive. However, due to the intervention by the Federal Reserve in the bond market, the stock market is viewed as the only alternative for most investors. This is a very unnatural situation. As a value stock investor, I can tell you there are hardly any undervalued stocks on the New York Stock Exchange. Very few stocks are undervalued. Investors may ask, “Is the stock market going to crash?”

The risk is not a stock market crash. The real risk is that 7-10 years from now, we are still at or below 2400 on the S&P 500 or 21,000 on the Dow Jones Average.

Why? The Federal Reserve, the Central Bank which essentially controls interest rates, has used emergency level interest rates going on 7 years. This was used to stimulate the economy due to the financial crisis. The federal reserve has a $4B balance sheet.

Interest rates have been at historic lows. This has boosted stocks and real estate artificially.

Pulling future gains to the present. If we have taken future returns, then future returns should be lower going forward.

The fed has been artificially supporting the market. We don’t know what will happen when they unwind their balance sheet and rates return to normal levels.

Artificial support.

My stock market analogy:

When I ran this morning, I cheated a little bit. After I ran, I was walking on the treadmill, but was holding on to the side rails. It’s cheating. My arms were supporting my body. That’s what the fed actions and the stock buybacks have created. It’s artificial support.

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Are companies doing well? Yes and No. They’re shrinking their shares outstanding by buying back stock. Where does the money come from? Mostly from issuing bonds aided by low interest rates.

Stock Buybacks used to be done exclusively by companies that felt their shares were undervalued. Today, almost every major buyback is being done at all time highs.

Think about that. “Were buying back our stock because it’s undervalued … at All Time Highs!”

I’m not impressed.

There is a big difference between running 5 miles and walking 5 miles holding the side rails of a treadmill. This market has been sustained for far too long with artificial support. I’m cautious and skeptical.

My intention is not to scare investors. However, smart investors need to consider that the risks to the stock market do not just include some stock market crash like we experienced in 1987 or 2008.

The more significant fear for investors is something more devastating: a return to normal returns and potentially, much lower rates of return for stock market investors. The Federal Reserve has been helping investors for nearly a decade. When they remove the artificial stimulus, rates of return may fall and create a disappointing climate for stock market investors for many years.

Taking control of my money

February 24, 2017 by Frugal Prof

It’s starting to happen. As the credit card bills roll in I realize that the steps I’ve taken over the last 6 weeks are paying off. My credit card bills are down $700 from my average bill. It feels amazing. I don’t wait to open the credit card bills like I used to do. I’m keeping track of my spending. And it’s going down. I’m using the debit card more often.

I’m questioning each charge- do I really need that? Can it wait? Is it really worth $40 to me? Pretty much, when I buy something now, if I don’t love it, it goes back to Amazon. Yes, I use Amazon for many of my purchases. Now, I’m also looking at their deals- especially lightening deals. I want the best deal now. Before, I would buy anything that was at a discount. Not anymore.

I feel in control and not on the defensive. And it feels really good. Dave Ramsey always says, “the psychology is more important than the math.” Winning with money. Still lots of work ahead of me, but I am on the path and I am in control.

I estimate I will be done with my car payments in 9 months. So excited for that. I’m analyzing that if I can cut back here and there, if maybe it can be sooner like 5 or 6 months. And then that money will go into saving and investing.

It’s starting to happen 👍