Patient and Disciplined Saving

IRS Tax Withholding Estimator

Taxes are an inevitable part of life for most of us. It is also something that you do not want to mess with as the government is very unforgiving where unpaid taxes are concerned.

It is important to understand your tax burden as your investment portfolio grows. While retirement funds in IRAs and 401ks are tax free or advantaged and the government has policies that encourage much/most of your money go there first, you should still have a regular investment portfolio which you will need to pay attention to taxes. I simply refer to my version of this account as my taxable portfolio.

Here you will pay taxes at the end of the year on any dividends or capital gains. Early on this won’t be a great deal or a burden but over time as it grows you will need to pay attention to its growth. Most brokers and online trading platforms are not going to automatically withhold a percentage of gains for taxes. So, you will have to estimate what you are going to owe so that you are not unpleasantly shocked when your taxes are due.

To that end, the IRS has on its website a really good Tax Withholding Estimator that you can use. It includes a section where you estimate your investment income which then goes into the calculation of how much you should be withholding over the course of the year. I use it and live it a lot.

Give it a try yourself and stay on the right side of the taxman!

As always, if you are looking for a gift for the young reader in your life, you can find some great children’s books on Amazon. Just go to these links The Desert Fairies of Oylara, The Rainforest Fairies of Oylara, and The Artic Fairies of Oylara and order them.

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

Never Try to Time the Market

Yesterday, 13 February, was a good example of why small investors should never try to time the market. You simply are not on the same footing of the big money players on Wall Street that can have big impacts on the market.

Yesterday, the S&P 500 dropped approximately 100 points at its low of the day because the latest inflation report came in at 3.1% versus the expected reading of 3.0%. That sent the market tumbling which on the surface seems strange.

However, what really happened is that the 0.1% difference, minor itself, signals that the FED is most likely to keep interest rates steady for the next several months rather than cutting rates. That adjustment to the Wall Street expectation is what caused the sell-off yesterday. There is no way as a small investor that you can predict that.

So, what yesterday was for a small investor was a buying opportunity. Big movements offer the chance to buy or sell stocks so as to take advantage of buying low and selling high.

Stay patient and disciplined with your plan and don’t try to time the market.

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

A New Way to Think of a Purchase

I just watched a video on Youtube from the Erin Talks Money channel that I wanted to highlight. She brought up an alternative way that new investors should think about purchases.

Overall, it is about focusing on the potential tradeoff between a purchase made today versus what that money, if invested instead, could turn into in the future. She told a story about how listening to Warren Buffet make this point was a eureka moment for her.

What Warren Buffet said was that every dollar that we can invest today can turn into $100 in the future. For example, if you purchase $10 worth of goods or services right now you are likely giving up $1000 dollars down the road. That is a profound way of putting needs versus wants into perspective.

I do appreciate that there is no guarantee that every $1 will turn into $100, but the math is very solid that it will definitely grow. And, the longer you can let compound interest work for you the more that it will grow. That is really powerful.

So, get started today and know that every little bit that you can put into an investment portfolio will absolutely make a difference! It very well could grow to a $100/$1 ratio. Again, the math works. You just have to get stated and be patient and disciplined.

Don’t wait!

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

Earnings per Share (EPS) as a Tool

When you are new to investing or trying to do a quick evaluation of a stock that you are not really familiar with looking at the companies Earnings per Share (EPS) is good to review. Bluntly, it will tell you right away if the company is making money or not.

Investopedia defines EPS as the company’s profit divided by the outstanding shares of its common stock. The higher the number the more profitable the company is considered to be. If the number is negative then the company is losing money.

Like all things though, that is a simplification and may be worth reviewing more. I normally look at the trend of EPS over several years. I want to see the number getting bigger over time. If the number is positive, but getting smaller, then it is trending less profitable. Also, a trend over time many help understand a single bad year or a new company that is growing. The EPS may be negative but if the trend is moving toward profitability that can signal a good opportunity to get in on a growing company.

Therefore, do a little homework and look for EPS trends over time to help you understand a companies profitability. In general stick with companies that have a positive EPS but it doesn’t take long to look a little deeper and evaluate the EPS trend that will often tell you more of the picture. Then you can make a better decision as to whether you want to invest or not.

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

Simple and Quick Mutual Fund Evaluator

There are thousands of available mutual funds for investors. It can be overwhelming trying to find the best ones for us. Here are my tips that I’ve learned over the years to keep it simple.

First, the number of available funds will be cut down significantly if you have a job due to what is available in your 401k fund. There is where most of us come into contact with mutual funds. You will only have so many choices. From those choices look at the returns but only look at the longer year records like the 5 and 10 year returns. Do not focus on the 1 year returns! Anyone can get lucky. What you want to see is a longer track record of success therefore look at the 5, 10, and even lifetime returns.

Next, look at the expense ratio and choose the fund with the highest returns and the lowest expense ratio. Look for funds that have less than 1% expense ratio.

That’s pretty much it.

What I predict you will find is that you will land on growth stock funds as the category with the highest returns. Within this group the highest returns and the lowest expense ratio will probably be an index fund like Vanguard’s S&P 500 fund. That is a great fund that basically has you place a bet on the U.S. economy. That is a great bet going forward.

Warren Buffet famously used the Vanguard S&P 500 to win a bet against a hedge fund manager over who would have the higher returns after 10 years. It wasn’t even close.

So, get to investing. Don’t let the number of funds available freeze you into inactivity. Keep it simple by looking to maximize your returns while keeping your fees low.

That will lead you to where you want to be over the long-term!

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

Don’t Give Away a Chunk of Your Tax Refund!

Tax paperwork in the U.S. appears complex on the surface. However, it is actually pretty straightforward if you don’t have complex financial arrangements. Most people who have a job working for someone else and receive just 1-2 W2s can do their own taxes. Don’t give a big portion of your refund away letting someone else do 5 minutes of work.

I learned how to do my own taxes in college and actually looked forward to it each year. Now it is even easier as TurboTax or other companies allow you to do it for free on their websites.

Even with a normal investment portfolio taxes remain straightforward. It is just not that difficult.

Additionally, you will learn things and become more comfortable dealing with taxes.

You will absolutely gain more from doing your own taxes than sitting on a sideline and letting someone else do them for you.

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

Fight for a Good Credit Score

Having a good credit score is something worth fighting for. And, while there are different scoring companies which means you can have more than one credit score, you know at a base level if your score is good or bad.

The easiest way to tell is if you pay your bills on time and pay off your credit card(s) each month. If you are doing that consistently each and every month your will have a good credit score. I do that every month and so I never worry or stress about credit or my credit score.

If you are not at this point, it is completely worth the time and effort first to avoid letting things get out of control. Then, if you are currently carrying balances, to put a significant effort into getting those balances to zero.

What are the benefits of good credit? Here are a few:

Get better rates on car insurance
Qualify for lower credit card interest
Get approved for higher credit limits
Have more housing options
Get utility services more easily
Get a cell phone without prepaying or making a security deposit
Look better to potential employers

All of these things are very good things. Again, these are things that are worth the effort it takes to keep credit under control and make it work for you.

But you have to be patient and disciplined to put off things that can be put off and do the work to stay within your means.

You can absolutely do this!

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

Price to Earnings Ratio as a Tool

When you are new to stock investing it is very difficult to keep from being overwhelmed with data. There are so many different ratios and measures presented to you, which is good, but can also be very confusing.

The bottom line is that all of it can be very useful and important depending on how far you want to individually evaluate a stock. On the other hand it can make you feel out of your depth and frustrated.

I personally try to keep things as simple as I can. I initially stick to a couple of key factors which help me narrow the available pool of stocks.

One of those factors that is most important to me is a stocks Price to Earnings Ratio or P/E ratio. A P/E ratio is simply calculated by dividing the current stock price by the earnings per share (EPS), i.e. stock is $30 dollars and EPS is $1.50 then the P/E is $30/$1.50 = 20.

To keep this as simple as I can for myself and for you the first thing I’m looking for with the P/E ratio is that the company does indeed have a P/E ratio. That means that they are making money as a company. If a company is losing money making the EPS negative then there will not be a P/E ratio because you can’t divide by a negative number. That weeds out many companies for me especially if I don’t know much about them because they aren’t making money and therefore too risky for me.

There are instances where exceptions can be made, especially if you know a lot about the company. Maybe they are in a high growth phase, a turnaround, or a specific market condition caused a downturn. Certainly do your homework, but as a general rule you want companies that are making money and so have a positive P/E ratio.

Once that criteria is met, there is one more significant thing that I’m looking for with the P/E ratio. That component is how large a number is the P/E. A really large number can indicate that a stock is overvalued and vis versa. To help determine if a number is large or not you need a benchmark. That benchmark is the median P/E ratio for the S&P 500 which was approximately 15 in 2023. Therefore, be very wary and dig deeper the farther away from 15 a companies P/E ratio is.

I learned a lesson early about how silly it can be when you are investing in a company with a really high P/E ratio. I got caught up in the dot.com bubble and invested in Cisco Systems (CSCO) when its P/E ratio was in the upper 70’s. Simply put, it is an unsustainable rate of growth to justify that level of P/E and sure enough it crashed back to earth and has never again approached that level.

So, be very wary if you see P/E ratios greater than 30 and especially if you see numbers in the 100’s. At that point, you have to accept that you missed the whatever initial thing made the price go up so high. Now you have to be patient, and if you really like the company, wait. That company’s P/E ratio will start regressing back to the mean. It will not stay at those lofty levels. There will be a much better entry point later.

Just stay patient and disciplined.

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

Market at Record High! Time to Sell?

The DOW and S&P 500 are at record high levels right now. If we are attempting to always “Buy low and Sell high”, right now is a definitive moment when we should consider locking in gains on certain investments.

Which investments should we consider selling? Look at those investments that have run up rapidly, or are also at record highs simply along with the market, or don’t seem to have much more runway based on their current circumstance. Those investments are likely to go down as the market rotates lower so are good candidates to lock in gains.

Now, in fairness, as small retail investors we should look at our investments over a very long time horizon. I personally am not looking to sell anything right now. However, I am reviewing all my investments to determine if a move needs to be made.

Too often though people get excited when they see the market pushing higher and think that it is never going to end. They don’t even consider selling, if appropriate. But, markets go both up and down, and all too often, when the market turns, people panic and sell during the downturn.

So, what I have found as a more useful saying to remember is “Sell on up days and Buy on down days”. And, if the market is hitting a record, you need to think about making moves.

On another note, if you are looking for a gift for the young reader in your life, you can find some great children’s books on Amazon. Just go to these links The Desert Fairies of Oylara, The Rainforest Fairies of Oylara, and The Artic Fairies of Oylara and order them.

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!

Pay Attention to Your Investments

As a small investor you should always be focused on the long-term. You should work on developing your patience and discipline so that you are not panicking at every bit of bad news that comes out and therefore making emotional decisions that are probably going to hurt you more than help you.

Rather, trust that you made an investment for the right reasons and are in it for an appropriate amount of time. I use that phrase rather than a generic long-term because not everyone has the same definition for long-term in regard to every one of their investments. Not every single investment needs to be held until cashed out in retirement. There certainly may be other reasons to sell well before then.

Yet, as a small investor our time horizon needs to be substantial, otherwise you are a trader and that is definitely not my area of expertise.

That said, just because the time horizon we are looking at is significant doesn’t mean that after the investment is made that we should then ignore it. No! You should still look at it on at least a weekly basis. I personally will look at my portfolio at least every other day.

I make very few changes annually to my portfolio. However, I look at it a lot not because I want to see the daily ups and downs, but rather I want to stay attuned to any changes of information that could affect that investment.

Examples include accounting issues (HUGE Red Flag), changes in market conditions, changes in corporate strategy, and changes in company products among other things. I’ve had all of these issues to consider. A pharma company had a major drug recall, a tech company had a major new product fail, an aircraft company had a new aircraft that crashed because of their design. Those are all reasons to reconsider that investment, but you have to be paying attention.

You also have to be aware of how the company is reacting to new market conditions. A famous example is how the introduction of the automobile crushed the buggy whip/carriage/saddle industry. Those were large companies that seemed solid right until they weren’t.

Therefore, you need to pay attention to your investments! Don’t let yourself be caught off guard thinking that you never need to do anything until retirement.

Finally, check out some pretty cool music on YouTube if you have a few minutes: Introduction , Mosh, Smoke, Watch Out , and First Day Out. Enjoy!