Thursday, July 16, 2015

What is your "Best Investment"?


I recently replied to a tweet from @InvestingAutism who asked "What is the best investment you've ever made? Why?

Based on the numbers, investing in my 401k (with the company match) was indeed my best investment.

But, this is only half of the story.

The good points:
  • While I didn't really know what I was doing, I invested early in my career. I had time and compounding on my side.
  • The company matched my contributions, which was essentially free money.
  • I started small, but with my improved earnings and saving rate, I maxed out my contributions.
  • I continued to invest even during early 2000s and the Great Recession. This was in part that the investment is 'out of sight, out of mind'. I just continued working and every two weeks when I was paid, my 401k grew larger. Of course, my heart almost stopped when I logged in and reviewed my portfolio and saw an almost 50% drop.
  • You can set it and forget it. Live your life - which I did - and have fun.

The bad points:
  • With my lack of knowledge, I had no idea of the hidden fees. I am sure I made a few of the 'advisors' happy.
  • Also, the 'advisors' wanted to sell their own products. Luckily, I turned them down.
  • With stiff withdrawal penalties, I have essentially locked down my investments until late in life.( I've recently found out that you can start early withdrawals thanks to some bright bloggers).
  • My investment choices were initially limited. Luckily, over time, I changed companies, and I rollover'd to an IRA, and the choices improved. I moved to market wide index funds with less fees.
  • Eventually, the tax code will get to you. I need a strategy to move my tax deferred assets as painlessly as possible.

Back then, the fees to invest in individual stocks were quite high. The internet was still something new. It was difficult to do things with dial up modems.

Moreover, my 'advisors' liked to complicate things - I think mainly to convince you to buy their products. They're the experts and it's way above you!

So, maybe it was dumb luck that I invested at all.

Fast forward to 2014: Why did I start DGI investing?

While my 401k and IRAs have served me well, I have always been interested in being able to generate income to live off.

Moreover, I didn't want my son to be clueless like me. My parents were very successful (businesses, rentals) but they stayed away from the stock market. I wanted to learn more, read more to pass on my knowledge to him so that he can make the right investment decisions.

Sure, I could invest in some rentals (actually, I have my hand in this also, but that's another story. )

So, I started reading. Books. Blogs.

I started to understand my investments. I started to understand the businesses. More importantly and luckily, I stumbled on one if my investments in my 401k which provided a dividend. I noticed that while I didn't invest in it on a regular basis, it was growing. Over of period of just 5 years, the investment for that ‘fund’ almost doubled. It was also giving a steady stream of income.

I started to see the importance of time and the power of compounding. The importance of growth. The importance of income.

I started DGI investing last August. Now, I don't know if DGI will be my best investment. Only time will tell...

But, it helped me to take control. I don't need advisors to build a portfolio for me. I can do it myself.

Also, I see that the DGI portfolio is growing. I can see the early effects of compounding.

Wait a minute. This is about the 401k...

I still remember the day the filled up the paper form with the different mutual funds and percentages.

In many ways, I was lucky because:
  • I started early so I had time on my side.
  • With regular investments,I was not timing the market. (I was spending Time in the market)
  • I realized the power of compounding and reinvestment over time
  • While I didn't have a clear strategy I kept on investing even when the market is down.
  • I saved a lot - which allowed me to max my contributions, 401k, ROTH, Traditional IRA.

Now, I could have improved things by:
  • Reading more earlier. Some investing schemes are complicated. However, it doesn't need to be. Basically, don't be so clueless.
  • Coming up with a strategy and sticking with it. I think I was lucky since it could hVe gone the other way.
  • Reducing my fees (and taxes) as much as possible. This is the key downer for managed mutual funds.
  • Investing for income (which can be reinvested since I don't need it now). This is key to remove the shackles of work.

So, I think the whole story is investing early, and letting time and the power of compounding do its stuff. Also, to invest regularly to take Mr. Market out of the picture. And of course, to reduce fees and taxes as much as possible. I am currently leaning towards DGI for income, but we’ll see..

Hopefully, I can teach this to my son so that one day, he can make the right investment decisions. Of course, this doesn't mean I stop learning. E.g I need to figure out how to move my tax deferred stuff over.

So, what is your best investment, and why?



  1. Thank you for posting our Twitter exchange and expanding it here. What you've written is very similar to the experience that I have had in my own short investing life. I just finished up my tenth year as a teacher, so instead of a 401(k), our tax deferred plans are 403(b)'s.

    One of the first things that I did when I got my teaching job was to buy a new car. Well, a new to me car that was two years old when I bought it, with 28k miles. That wasn't a great investment decision, but at least I was wise enough to let the power of depreciation to its magic, and I didn't pay top dollar. What I probably should have done was to start pouring money into the 403(b), which I did not do, although I started putting in a small amount.

    Fast forward to this year, and I've learned a lot about investing through some trial and error, and through a lot of reading. I am still driving the same car, which turned out to be a pretty good investment after all. It's so easy to get caught up buying the things you want, rather than the things you need, and every now and again I watch the parade of BMWs and Audis drive around my town in NJ, and think, well maybe I should get a new car. Now I can't afford a BMW, but something else perhaps? Then, I snap back to reality and remember how much I am saving by putting oil in my Dodge on schedule and keeping focused. That Dodge has been a pretty good investment for me.

    Another great investment was in my education. After getting my job, I immediately started taking graduate classes to move up our salary guide. Now I have a Masters in Special Education, which I put to use having switched over to Special Ed a few years ago, and has been very valuable to me personally as the father of a child who was recently diagnosed with autism. While I still enjoy teaching, I know that there is going to come a point where I will want to make a move up the old career ladder into administration or to branch out in another way, and the additional degree will come in handy when I am a candidate for a future job.

    Finally came he realization that the 403(b) was both restrictive and laden with unnecessary fees. I had stopped contributing to it to free up some money to buy a house - which I do not consider a great investment right now. I moved the money into a transfer IRA and opened a Roth IRA which I am making contributions to following the DGI model. I've also opened a taxable account in my name, which is earmarked for the future needs of my son. I've just starting writing about it at Eventually, when NJ rolls out its version of the newly legislated ABLE accounts, I will move that money into an ABLE account for my son. This fund will one day be replete with Sleep Well at Night dividend stocks that will provide for him and his future. The investment in knowledge and understanding of the DGI model that we have both made is, I agree with you, our best investment rather than a particular stock. I have no special analytical skill, no economics degree from Princeton, or insider knowledge. What I have is time on my side, motivation to sock away as much as I can afford to right now while still being able to enjoy a night out here or there (although vacation has been out of the question lately!), and a disciplined approach to investing which will get my "snowball" moving in the right direction.

    Thanks again for the twitter exchange with a stranger. It's late at night as I'm typing, so I hope my response to you made sense! While there isn't any one single stock that I can point to that was a great idea and made me rich, investing in myself personally and financially has been my best investment, and as I am just getting started, more or less, I am eager to see where the road will take me. Thanks again, and good luck!


  2. Brian, thanks for your comments. Your response really resonated with me. Actually, your question is really interesting. The best investment is really the cumulative effect of time and knowledge, ability to save and actually doing something about it. It also depends on your goals. While I didn't know it back then, my goal was capital appreciation. I was really lucky to have picked an investment that met my goal. Now, my goal is growing income to replace my work income. I think a diverse bunch of DGI stock and/or some rentals may work in this case. In any case, it all goes back to the fundamentals discussed earlier.
    I agree our paths are similar. I've talked with a few bloggers with similar paths, and it is very refreshing to know that I am not the only crazy one out there. Sometimes, it is hard to go against the grain eg your BMW example. Sometimes, I think people want to impose their American Dream but then I am free to define my version of the Dream.
    Your response completely makes sense. I think with your knowledge and commitment, you will do well regardless of the investment choices you make.
    Again, thanks for your original Twitter question and your follow up thoughts.